10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)
þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
	For the fiscal Year Ended December 31, 2005
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from           to

Commission file no. 1-14537

Lodgian, Inc.

(Exact name of registrant as specified in its charter)

Delaware	52-2093696
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
3445 Peachtree Road N.E., Suite 700 Atlanta, GA (Address of principal executive offices)	30326 (Zip Code)

Registrant’s telephone number, including area code:

(404) 364-9400

Securities registered pursuant to Section 12(b) of the Act

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, $.01 par value per share	American Stock Exchange

Securities registered pursuant to Section 12(g) of the Act

Title of Each Class

Class A warrants

Class B warrants

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes o          No þ

      Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes o          No þ

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     þ

      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer  o Accelerated filer  þ Non-accelerated filer  o

      Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes o          No þ

      The aggregate market value of Common Stock, par value $.01 per share, held by non-affiliates of the registrant as of June 30, 2005, was $252,271,879 based on the closing price of $10.27 per share on the American Stock Exchange on such date. For purposes of this computation, all directors, executive officers and 10% shareholders are treated as affiliates of the registrant.

      Indicate by check mark whether the registrant has filed all documents and reports required to be filed by sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes þ          No o

      The registrant had 24,752,203 shares of Common Stock, par value $.01, outstanding as of March 1, 2006.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the proxy statement for the 2006 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission, are incorporated by reference in Part III of this Form 10-K.

LODGIAN, INC.

Form 10-K

For the Year Ended December 31, 2005

TABLE OF CONTENTS

		Page
PART I.
Item 1.	Business		1
Item 1A.	Risk Factors		20
Item 1B.	Unresolved Staff Comments		32
Item 2.	Properties		32
Item 3.	Legal Proceedings		32
Item 4.	Submission of Matters to a Vote of Security Holders		32
PART II.
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		33
Item 6.	Selected Financial Data		35
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation		37
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		70
Item 8.	Financial Statements and Supplementary Data		71
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		71
Item 9A.	Controls and Procedures		71
PART III.
Item 10.	Directors and Executive Officers of the Registrant		77
Item 11.	Executive Compensation		77
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		77
Item 13.	Certain Relationships and Related Transactions		77
Item 14.	Principal Accounting Fees and Services		77
PART IV.
Item 15.	Exhibits, Financial Statement Schedules		77
Signatures			76
EX-14 LODGIAN'S POLICY ON BUSINESS ETHICS
EX-21. LODGIAN'S LIST OF SUBSIDIARIES
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
EX-32 SECTION 906 CERTIFICATION OF THE CEO AND CFO

PART I

Item 1. Business

      When we use the terms Lodgian, “we,” “our,” and “us,” we mean Lodgian, Inc. and its subsidiaries.

Our Company

      We are one of the largest independent owners and operators of full-service hotels in the United States in terms of our number of guest rooms, as reported by Hotel Business in the 2006 Green Book issue published in December 2005. We are considered an independent owner and operator because we do not operate our hotels under our own name. We operate substantially all of our hotels under nationally recognized brands, such as “Crowne Plaza,” “Hilton,” “Holiday Inn,” and “Marriott.” As of March 1, 2006, we operated 75 hotels with an aggregate of 13,468 rooms, located in 28 states and Canada. Of the 75 hotels we operated as of March 1, 2006, 67 hotels, with an aggregate of 12,144 rooms, are part of our continuing operations, while eight hotels, with an aggregate of 1,324 rooms, are held for sale. Five of the eight hotels with an aggregate of 868 rooms were identified for sale in the first two months of 2006. Our current portfolio of 75 hotels, all of which we consolidate in our financial statements, consists of:

•  71 hotels that we wholly own and operate through subsidiaries; and

•  four hotels that we operate in joint ventures in which we have a 50% or greater equity interest and exercise control.

      Our hotels are primarily full-service properties that offer food and beverage services, meeting space and banquet facilities and compete in the midscale and upscale market segments of the lodging industry. We operate all but two of our hotels under franchises obtained from nationally recognized hospitality franchisors. We operate 46 of our hotels under franchises obtained from InterContinental Hotels Group as franchisor of the Crowne Plaza, Holiday Inn, Holiday Inn Select and Holiday Inn Express brands. We operate 16 of our hotels under franchises from Marriott International as franchisor of the Marriott, Courtyard by Marriott, Fairfield Inn by Marriott, Residence Inn by Marriott, and SpringHill Suites by Marriott brands. We operate another 11 hotels under other nationally recognized brands and two hotels are non-branded. We believe that franchising under strong national brands affords us many benefits such as guest loyalty and market share premiums.

      Our management consists of an experienced team of professionals with extensive lodging industry experience led by our president and chief executive officer, Edward J. Rohling, who has been in the lodging industry for over twenty-three years. Our vice president of hotel operations has been in the hospitality industry for over twenty years and our vice president of sales and marketing has twenty years of industry experience.

Our Operations

      Our operations team is responsible for the management of our properties. Our vice president of hotel operations is responsible for the supervision of our general managers, who oversee the day-to-day operations of our hotels. Our corporate office is located in Atlanta, Georgia. The centralized management services provided by our corporate office include sales and marketing, purchasing, finance and accounting, information technology, renovations, human resources, legal services, and quality programs.

      Our corporate finance and accounting team coordinates the financial and accounting functions of our business. These functions include internal audit, insurance, payroll and accounts payable processing, tax and property accounting services. The corporate operations team oversees the budgeting and forecasting for our hotels and also identifies new systems and procedures to employ within our hotels to improve efficiency and profitability. The corporate sales and marketing team coordinates the sales forces for our hotels, designs sales training programs, tracks future business under contract and identifies, employs and monitors marketing programs aimed at specific target markets. The corporate renovations team handles the interior design of all our hotels. Each hotel’s product quality and the refurbishment of existing properties are also managed from

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our corporate headquarters. The legal team coordinates all contract reviews and provides the hotels with legal support as needed.

      Our information technology team maintains our computer systems, which provide real-time tracking of each hotel’s daily occupancy, average daily rate (“ADR”), room, food, beverage and other revenues, revenue per available room (“RevPAR”) and all hotel expenses. By having current information available, we are better able to respond to changes in each market by focusing sales efforts and we are able to make appropriate adjustments to control expenses and maximize profitability as new current information becomes available.

      Creating cost and guest service efficiencies in each hotel is a top priority. With a total of 75 hotels in our portfolio as of March 1, 2006, our purchasing team is able to realize significant cost savings due to economies of scale and is able to secure volume pricing from our vendors that may not be available to smaller hotel companies.

Corporate History

      Lodgian, Inc. was formed as a new parent company in a merger of Servico, Inc. and Impac Hotel Group, LLC in December 1998. Servico was incorporated in Delaware in 1956 and was an owner and operator of hotels under a series of different entities. Impac was a private hotel ownership, management and development company organized in Georgia in 1997 through a reorganization of predecessor entities. After the effective date of the merger, our portfolio consisted of 142 hotels.

      Between December 1998 and the end of 2001, a number of factors, including our heavy debt load, lack of available funds to maintain the quality of our hotels, a weakening U.S. economy, and the severe decline in travel in the aftermath of the terrorist attacks of September 11, 2001, combined to place adverse pressure on our cash flow and liquidity. As a result, on December 20, 2001, Lodgian and substantially all of our subsidiaries that owned hotels filed for voluntary reorganization under Chapter 11 of the Bankruptcy Code. At the time of the Chapter 11 filing, our portfolio consisted of 106 hotels. Following the effective date of our reorganization, we emerged from Chapter 11 with 97 hotels after eight of our hotels were conveyed to a lender in satisfaction of outstanding debt obligations and one hotel was returned to the lessor of a capital lease of the property. Of the 97 hotels, 78 hotels emerged from Chapter 11 on November 25, 2002, 18 hotels emerged from Chapter 11 on May 22, 2003 and one property never filed under Chapter 11. Effective November 22, 2002, the Company adopted fresh start reporting. As a result, all assets and liabilities were restated to reflect their estimated fair values at that time.

      In 2003, we implemented a portfolio improvement strategy to upgrade our hotel assets and reduce debt costs that included the identification of 19 hotels, our only office building and three land parcels as held for sale. In 2003, we sold one hotel and the office building. During 2004, we sold 11 hotels and two land parcels and acquired one hotel in December 2004, the SpringHill Suites by Marriott in Pinehurst, North Carolina. In 2005, we sold eight hotels and identified five additional hotels as held for sale. One hotel previously identified as held for sale was reclassified into continuing operations in the fourth quarter 2005 as management no longer expected the hotel to be sold within one year. This reclassification was required based on generally accepted accounting principles (“GAAP”). One minority-owned hotel, which was accounted for using the equity method of accounting, was transferred to a receiver on November 15, 2005 and, on February 3, 2006, the hotel was deeded to the lender. Two hotels, located in Manhattan and Lawrence, Kansas, were transferred to the bond trustee (“Trustee”) on January 30, 2006 and January 31, 2006, respectively, pursuant to the terms of the settlement agreement entered into in August 2005. Between January 1, 2006 and March 1, 2006, we identified five additional hotels as held for sale. Thus, at March 1, 2006, our continuing operations portfolio consisted of 67 hotels and our discontinued operations portfolio consisted of eight hotels and one land parcel.

      Our business is conducted in one reportable segment, which is the hospitality segment. During 2005, we derived approximately 98% of our revenues from hotels located within the United States and the balance from our one hotel located in Windsor, Canada.

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Franchise Affiliations

      We operate substantially all of our hotels under nationally recognized brands. In addition to benefits in terms of guest loyalty and market share premiums, our hotels benefit from franchisors’ central reservation systems, their global distribution systems and their brand Internet booking sites. Reservations made by means of these franchisor facilities generally accounted for approximately 39% of our total reservations in 2005.

      We enter into franchise agreements, generally for terms of between 5 and 20 years, with hotel franchisors. The franchise agreements typically authorize us to operate the hotel under the franchise name, at a specific location or within a specified area, and require that we operate the hotel in accordance with the standards specified by the franchisor. As part of our franchise agreements, we are generally required to pay a royalty fee, an advertising/marketing fee, a fee for the use of the franchisor’s nationwide reservation system and certain other ancillary charges. Royalty fees range from 2.7% to 6.0% of gross room revenues, advertising/marketing fees range from 0.9% to 4.0%, reservation system fees range from 0% to 2.3%, and club and restaurant fees from 0.2% to 4.9%. In the aggregate, royalty fees, advertising/marketing fees, reservation fees and other ancillary fees for the various brands under which we operate our hotels range from 5.2% to 11.9% of gross room revenues. In 2005, franchise fees for our continuing operations were 9.2% of room revenues.

      Set forth below is a summary of our franchise affiliations as of March 1, 2006, along with the brands associated with each hotel and number of hotels and rooms represented by each franchisor, in continuing operations and discontinued operations:

		Continuing				Discontinued
		Operations				Operations				Total
		No. of		No. of		No. of		No. of		No. of		No. of
		Hotels		Rooms		Hotels		Rooms		Hotels		Rooms
InterContinental Hotels Group PLC (IHG)
	Holiday Inn		27		4,750		3		514		30		5,264
	Holiday Inn Express		3		363		—		—		3		363
	Holiday Inn Select		3		798		—		—		3		798
	Crowne Plaza		9		2,429		1		275		10		2,704
Total IHG			42		8,340		4		789		46		9,129
Marriott International, Inc.
	Marriott		1		238		—		—		1		238
	Courtyard by Marriott		7		760		—		—		7		760
	Fairfield Inn by Marriott		2		233		3		330		5		563
	Residence Inn by Marriott		2		177		—		—		2		177
	SpringHill Suites by Marriott		1		107		—		—		1		107
Total Marriott International			13		1,515		3		330		16		1,845
Hilton Hotels Corporation
	Hilton		3		587		—		—		3		587
	DoubleTree Club		1		190		—		—		1		190
Total Hilton Hotels			4		777		—		—		4		777
Choice Hotels International, Inc.
	Clarion		2		590		—		—		2		590
	Quality Total Choice Hotels		1		102		1		205		2		307
Total Choice Hotels			3		692		1		205		4		897

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			Continuing				Discontinued
			Operations				Operations				Total
			No. of		No. of		No. of		No. of		No. of		No. of
			Hotels		Rooms		Hotels		Rooms		Hotels		Rooms
Carlson Companies
	Radisson			2		403		—		—		2		403
	Park Inn			1		126		—		—		1		126
Total Carlson Companies				3		529		—		—		3		529
Non-franchised hotels				2		291		—		—		2		291
		Total All Hotels		67		12,144		8		1,324		75		13,468

      During 2004, we entered into new franchise agreements for all 15 of our Marriott-branded hotels owned at that time and we agreed to pay a fee aggregating approximately $0.5 million, of which $0.1 million has been paid, and $0.4 million is payable in 2007, subject to offsets.

      During the term of our franchise agreements, the franchisors may require us to upgrade facilities to comply with their current standards. Our current franchise agreements terminate at various times and have differing remaining terms. As franchise agreements expire, we may apply for a franchise renewal. In connection with a renewal, a franchisor may require payment of a renewal fee, increased royalty and other recurring fees and substantial renovation of the facility, or the franchisor may elect at its sole discretion, not to renew the franchise.

      If we do not comply with the terms of a franchise agreement, following a notice and an opportunity to cure, the franchisor has the right to terminate the agreement, which could lead to a default and acceleration under one or more of our loan agreements, which would materially and adversely affect us. In the past, we have been able to cure most cases of non-compliance and most defaults within the cure periods. If we perform an economic analysis of a hotel and determine it is not economically justifiable to comply with a franchisor’s requirements, we will either select an alternative franchisor, or operate the hotel without a franchise affiliation or sell the hotel. Generally, under the terms of our loan agreements, we are not permitted to operate hotels without an approved franchise affiliation. See “Risk Factors — Risks Related to Our Business.”

      As of March 1, 2006, we have been notified that we were not in compliance with some of the terms of eight of our franchise agreements and have received default and termination notices from franchisors with respect to an additional seven hotels summarized as follows:

•  Six hotels are held for sale. Two of these hotels are in default of their respective franchise agreement for failure to complete their Property Improvement Plan (“PIP”). Four additional hotels are in default or in non-compliance of their respective franchise agreements for not maintaining required guest satisfaction scores. Each of these hotels requires a significant capital investment for which we do not anticipate a sufficient return on our investment. We have entered into a forbearance agreement with the franchisor regarding one of these hotels that is in default which will maintain the flag until the earlier of March 31, 2006 or until we sell the hotel. We plan to enter into a voluntary termination agreement with the franchisor regarding two of these hotels which will maintain the flag until the earlier of June 30, 2006 or until we sell the hotels.

•  One hotel was held for sale but was reclassified into continuing operations in the fourth quarter 2005 as management no longer expected to have the hotel sold within one year due to issues related to the transfer of the ground lease to a prospective buyer. This hotel is in default of its franchise agreement for not maintaining required guest satisfaction scores and has a license termination date of February 14, 2006. We may be subject to liquidated damages. We have entered into a letter of intent to sell this hotel to a joint venture in which we will be a minority owner. However, we will no longer continue to operate the hotel.

•  One hotel has received an extension to its default termination date until August 15, 2006. The franchisor has verbally agreed to our planned renovations of two floors of guestrooms and guestroom

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corridors. This work began on January 9, 2006 and will take approximately 90 days to complete. We anticipate the renovations will assist us in improving the quest product scores.

•

Seven hotels are in default or non-compliance of their respective franchise agreement because of substandard guest satisfaction or quality scores. Three of these hotels are trending above the required thresholds, however, they must remain above that threshold for two consecutive years to earn a “clean slate” letter. We anticipate these three hotels will earn their “clean slate” letters in August 2006, August 2007 and February 2008, respectively. Two of these hotels are awaiting follow-up quality inspections by the franchisor to cure the non-compliance issues. Two of these hotels have entered into the non-compliance status due to a new measurement process implemented in January 2006 by the franchisor. One of these hotels in non-compliance recently received an up-branding renovation. The scores used to determine this non-compliance were done before the pre-renovation and we anticipate curing this non-compliance as the new scores begin to cycle in. Our corporate operations team, as well as each property’s general manager and associates, have focused their efforts to cure these failures through enhanced service, increased cleanliness, and product improvements by the required cure date. If we do not achieve scores above required thresholds by the designated date, the hotel would be subject to default of its franchise agreement. Each hotel would receive another opportunity to improve its score before the hotel would be at the risk of having its franchise agreement terminated.

      We believe that we will cure the non-compliance and defaults as to which our franchisors have given us notice before the applicable termination dates, but we cannot provide assurance that we will be able to complete our action plans (which we estimate will cost approximately $5.4 million) to cure the alleged defaults of noncompliance and default prior to the specified termination dates or be granted additional time in which to cure any defaults or noncompliance. If a franchise agreement is terminated, we will either select an alternative franchisor, operate the hotel independently of any franchisor or sell the hotel. However, terminating or changing the franchise affiliation of a hotel could require us to incur significant expenses, including franchise termination payments and capital expenditures, and in certain circumstances could lead to acceleration of parts of our indebtedness. This could adversely affect us.

      In addition, as part of our bankruptcy reorganization proceedings, we entered into stipulations with each of our major franchisors setting forth a timeline for completion of capital expenditures for some of our hotels. However, as of March 1, 2006, we have not completed the required capital expenditure for eight continuing operations hotels in accordance with the stipulations, and we estimate the cost of complying with these stipulations to be $3.3 million. As of March 1, 2006, approximately $2.0 million is deposited in escrow with the Company’s lenders to be applied to these capital expenditure obligations, pursuant to the terms of the respective loan agreements with these lenders. A franchisor could, nonetheless, seek to declare its franchise agreement in default of the stipulations and could seek to terminate the franchise agreement. We have scheduled or have begun renovations on eight of these hotels, aggregating $1.4 million of the $3.3 million.

      In addition, our loan agreements generally prohibit a hotel from operating without a national franchise affiliation, and the loss of such an affiliation could trigger a default under one or more such agreements. The 15 hotels that are in default or non-compliance under their respective franchise agreements are part of the collateral security for an aggregate of $265.3 million of mortgage debt as of March 1, 2006.

Sales and Marketing

      We market our hotels through local and national marketing programs. In all of our hotels, we execute local marketing strategies using our corporate and local sales and marketing resources to drive revenue growth. All of our franchised properties participate in national marketing programs that our brand partners develop and promote. The mandatory participation in these brand marketing programs is supported through our regional revenue teams who ensure each property’s program enrollment. The regional revenue team supports each property by working with the property director of sales to evaluate the results of our local and national marketing strategies. Although we develop annual marketing plans to define our long term objectives, we make periodic modifications to these plans in order to address changes in local market conditions. At most of our properties we maintain a sales organization which is structured based on market demand, customer needs

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and local preferences. Each property’s sales team generally consists of a director of sales who leads a team of experienced sales and catering managers. The number of sales and catering managers varies by property based upon the size and market potential of each hotel. We also develop company-wide sales and marketing strategies which are implemented at the property level through the support of the regional revenue teams. The regional revenue teams also assist in the evaluation of the results of our programs to ensure we are spending our sales and marketing program funds as efficiently and effectively as possible. Our property revenue teams react promptly to local market changes and market trends in order to adjust current and future marketing programs to meet each hotel’s competitive needs. The property revenue team is also responsible for developing and implementing marketing programs targeted at specific customer segments within their respective markets.

      Our core market consists of business travelers who tend to visit a given geographical area several times in a year. We believe that business travelers are attracted to our hotels because of their convenient locations, their proximity to corporate headquarters, manufacturing plants, convention centers or other major commercial facilities, their availability of ample meeting space and our service levels. Our sales force markets to organizations that need a high volume of room nights and that have a significant number of individuals traveling in the markets where we have hotels. Our hotels’ group meeting facilities include flexible space readily adaptable to groups of varying size, up-to-date audio-visual equipment and on-site catering facilities.

      In addition to the business market, our targeted customers include leisure travelers looking for comfortable and convenient lodging at an affordable price.

      Our franchised hotels use the centralized reservation systems of our franchisors, which are among the more advanced reservation systems in the lodging industry. The franchisors’ reservation systems receive reservation requests entered (1) on terminals located at all of their respective properties, (2) at reservation centers utilizing “1-800” phone access, (3) through global distribution systems, and (4) through Internet booking sites including franchisors’ own websites. These reservation systems immediately confirm reservations or indicate accommodations available at alternate hotels in the respective franchisors’ systems. Confirmations are transmitted automatically to the hotel for which the reservations are made. These systems are effective in directing customers to our franchised hotels and accounted for approximately 39% of our revenues in 2005.

Joint Ventures

      As of March 1, 2006, we operate four hotels in joint ventures in which we have a 50% or greater voting equity interest and exercise control. On April 18, 2005, we acquired for $0.7 million our joint venture partner’s 40% interest in the Crowne Plaza hotel located in Macon, Georgia, which is now consolidated as a wholly-owned subsidiary. In each joint venture, we share decision making authority with our joint venture partner and may not have sole discretion with respect to a hotel’s disposition.

      Through a partnership, we owned a 30% interest in the Holiday Inn City Center located in Columbus, OH. The debt on the hotel exceeded the fair value of the hotel. The partnership ceased making regular debt service payments to the lender in August 2005 but made interest payments to the lender as cash flow was available to do so. The lender filed a foreclosure petition on September 7, 2005. On November 15, 2005, the hotel was surrendered to a receiver and on February 3, 2006 the hotel was deeded to the lender. The hotel was accounted for under the equity method of accounting. The receivable to Lodgian from this entity and the investment in this subsidiary were written off in 2005 for a total expense of $0.9 million.

Growth Strategy

      We believe that occupancy and ADR, and consequently RevPAR, in our continuing operations hotels will increase as a result of the continued improvement in lodging industry supply and demand fundamentals, our hotel renovation and repositioning program, and our strong management team. We believe our planned capital expenditures and operational improvements will continue to generate increased revenues and enhance our financial performance. We will continue to monitor the performance of our continuing operations hotels to improve operating results.

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      Based on the recent trends in lodging industry fundamentals, we believe it is an opportune time in the lodging industry cycle to own and manage hotels. We believe our revenue growth and resulting improvements in our results of operations will be derived from the improvements we have made in our product quality and the renewed focus on our service levels.

Competition and Seasonality

      The hotel business is highly competitive. Each of our hotels competes in its market area with numerous other hotel properties operating under various lodging brands. National chains, including in many instances chains from which we obtain franchises, may compete with us in various markets. Our competition is comprised of public companies, privately-held equity fund companies, and small independent owners and operators. Competitive factors in the lodging industry include, among others, room rates, quality of accommodation, service levels, convenience of locations and amenities customarily offered to the traveling public. In addition, the development of travel-related Internet websites has increased price awareness among travelers and price competition among similarly located, comparable hotels.

      Demand for accommodations, and the resulting revenues, varies seasonally. The high season tends to be the summer months for hotels located in colder climates and the winter months for hotels located in warmer climates. Aggregate demand for accommodations in our portfolio is lowest during the winter months. Levels of demand are also dependent upon many factors that are beyond our control, including national and local economic conditions and changes in levels of leisure and business-related travel. Our hotels depend on both business and leisure travelers for revenue.

      We also compete with other hotel owners and operators with respect to the acquisition of hotels and in the obtainment of desirable franchises for upscale and midscale hotels in targeted markets.

The Lodging Industry

      The lodging industry showed signs of recovery in 2004 and 2005 with full-year RevPAR growth of 7.8% and 8.4%, respectively, according to Smith Travel Research as reported in January 2006.

      The U.S. lodging industry enjoyed nine consecutive years of positive RevPAR growth from 1992 through 2000 after the economic recession of 1991. The periods of greatest RevPAR growth over this time period generally occurred when growth in room demand exceeded new room supply growth. Smith Travel Research recently predicted annual U.S. lodging industry RevPAR growth of 8.0% in 2006 with an annual increase in demand of 3.0% outpacing annual net change in supply of 1.2%.

Chain-Scale Segmentation

      Smith Travel Research classifies the lodging industry into six chain scale segments by brand according to their respective national average daily rate or ADR. The six segments are defined as: luxury, upper upscale, upscale, midscale with food and beverage, midscale without food and beverage and economy. We operate hotel brands in the following five chain scale segments:

•  Upper Upscale (Hilton and Marriott);

•  Upscale (Courtyard by Marriott, Crowne Plaza, Radisson, Residence Inn by Marriott, and SpringHill Suites by Marriott);

•  Midscale with Food & Beverage (Clarion, DoubleTree Club, Holiday Inn, Holiday Inn Select, and Quality Inn);

•  Midscale without Food & Beverage (Fairfield Inn by Marriott and Holiday Inn Express); and

•  Economy (Park Inn)

      We believe that our hotels and brands will perform competitively with the U.S. lodging industry as fundamentals improve. The table below illustrates the 2005 actual RevPAR growth of the chain segments represented by our brands as compared to the U.S. lodging industry averages as reported by Smith Travel

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Research. Despite an estimated $4.0 million in room revenue displacement in 2005 for eleven hotels under renovation, Lodgian’s continuing operations hotel RevPAR increased 8.2% as compared to 8.4% for the industry as a whole.

	2005
				Lodgian Continuing
Chain-Scale Segment	Industry			Operations Hotels (A)
Upper Upscale		9.8	%		9.2	%
Upscale		10.1	%		8.6	%
Midscale with Food and Beverage		8.4	%		4.2	%
Midscale without Food & beverage		11.7	%		15.0	%
Economy		7.5	%		n/m
Overall Average		8.4	%		8.2	%

Source: Smith Travel Research

(A) 2005 RevPAR change related to our continuing operations hotels excluding the Pinehurst, West Palm Beach, Melbourne and Columbus hotels.

      Smith Travel Research is forecasting a U.S. average 8.0% RevPAR growth in 2006. These are only industry forecasts and they may not necessarily apply to our portfolio of hotels. We believe this continued upturn in the lodging business cycle will allow us to enhance our growth by focusing on our portfolio improvement strategy.

Properties

      We own and manage our hotels. Accordingly, we retain responsibility for all aspects of the day-to-day management for each of our hotels. We establish and implement standards for hiring, training and supervising staff, creating and maintaining financial controls, complying with laws and regulations related to hotel operations, and providing for the repair and maintenance of the hotels. Because we own and mange our hotels we are able to directly control our labor costs, we can negotiate purchasing arrangements without fees to third parties, and as an owner and operator we are motivated to focus our results on bottom-line profit performance instead of solely on top-line revenue growth. Accordingly, we are focused on maximizing returns for our shareholders.

Portfolio

      Our hotel portfolio, as of March 1, 2006, by franchisor, is set forth below:

					Year of
	No. of				Last Major Renovation or
Franchisor/Hotel Name	Rooms		Location		Construction
InterContinental Hotels Group PLC (IHG) (46 hotels)
Crowne Plaza Albany		384		Albany, NY		2001
Crowne Plaza Cedar Rapids(2)		275		Cedar Rapids, IA		1998
Crowne Plaza Houston		291		Houston, TX		1999
Crowne Plaza Macon		297		Macon, GA		Being Renovated
Crowne Plaza Pittsburgh		193		Pittsburgh, PA		2001
Crowne Plaza West Palm Beach (50% owned)		219		West Palm Beach, FL		2005
Crowne Plaza Worcester		243		Worcester, MA		1996
Crowne Plaza Phoenix Airport		299		Phoenix, AZ		2004
Crowne Plaza Silver Spring		231		Silver Spring, MD		2005

8

						Year of
		No. of				Last Major Renovation or
Franchisor/Hotel Name		Rooms		Location		Construction
Crowne Plaza Melbourne (50% owned)			272		Melbourne, FL	Renovation completed Jan 2006
Holiday Inn Express Dothan			112		Dothan, AL		2002
Holiday Inn Express Palm Desert			129		Palm Desert, CA		2003
Holiday Inn Express Pensacola University Mall			122		Pensacola, FL		2002
Holiday Inn Select DFW Airport			282		Dallas, TX		1997
Holiday Inn Select Strongsville			302		Cleveland, OH		2005
Holiday Inn Select Windsor			214		Windsor, Ontario		2004
Holiday Inn Arden Hills/ St. Paul			156		St. Paul, MN		1995
Holiday Inn BWI Airport			260		Baltimore, MD		2000
Holiday Inn Clarksburg			159		Clarksburg, WV		Being Renovated
Holiday Inn Cromwell Bridge			139		Cromwell Bridge, MD		2000
Holiday Inn East Hartford			130		East Hartford, CT		2000
Holiday Inn Fairmont			106		Fairmont, WV		1997
Holiday Inn Fort Wayne			208		Fort Wayne, IN		1995
Holiday Inn Frederick			158		Frederick, MD		2000
Holiday Inn Frisco			217		Frisco, CO		1997
Holiday Inn Glen Burnie North			127		Glen Burnie, MD		2000
Holiday Inn Greentree			201		Pittsburgh, PA		2000
Holiday Inn Hamburg			130		Buffalo, NY		1998
Holiday Inn Hilton Head			202		Hilton Head, SC		2001
Holiday Inn Inner Harbor			375		Baltimore, MD		Being Renovated
Holiday Inn Jamestown			146		Jamestown, NY		1998
Holiday Inn Jekyll Island			198		Jekyll Island, GA		2000
Holiday Inn Lancaster (East)			189		Lancaster, PA		2000
Holiday Inn Lansing West			244		Lansing, MI		1998
Holiday Inn Marietta(3)			193		Marietta, GA		2003
Holiday Inn McKnight Road(1)			146		Pittsburgh, PA		1995
Holiday Inn Meadowlands			138		Pittsburgh, PA		2005
Holiday Inn Monroeville			187		Monroeville, PA		2005
Holiday Inn Myrtle Beach			133		Myrtle Beach, SC		Being Renovated
Holiday Inn Phoenix West			144		Phoenix, AZ		2003
Holiday Inn Santa Fe			130		Santa Fe, NM		2003
Holiday Inn Sheffield(2)			201		Sheffield, AL	Renovation completed Jan 2006
Holiday Inn University Mall			152		Pensacola, FL		1997
Holiday Inn Valdosta(2)			167		Valdosta, GA		2003
Holiday Inn Winter Haven			228		Winter Haven, FL		2004
Holiday Inn York			100		York, PA		2000
	Total IHG		9,129

9

						Year of
		No. of				Last Major Renovation or
Franchisor/Hotel Name		Rooms		Location		Construction
Marriott International Inc. (16 hotels)
Courtyard by Marriott Abilene			99		Abilene, TX		2004
Courtyard by Marriott Bentonville			90		Bentonville, AR		2004
Courtyard by Marriott Buckhead			181		Atlanta, GA		2004
Courtyard by Marriott Florence			78		Florence, KY		2004
Courtyard by Marriott Lafayette			90		Lafayette, LA		2004
Courtyard by Marriott Paducah			100		Paducah, KY		2004
Courtyard by Marriott Tulsa			122		Tulsa, OK		2004
Fairfield Inn by Marriott Augusta			117		Augusta, GA		2002
Fairfield Inn by Marriott Colchester(2)			117		Colchester, VT		2002
Fairfield Inn by Marriott Jackson(1)			105		Jackson, TN		2002
Fairfield Inn by Marriott Merrimack			116		Merrimack, NH		2004
Fairfield Inn by Marriott Valdosta(2)			108		Valdosta, GA		2004
Marriott Denver Airport			238		Denver, CO		1998
Residence Inn by Marriott Dedham			81		Dedham, MA		2004
Residence Inn by Marriott Little Rock			96		Little Rock, AR		1998
Springhill Suites by Marriott Pinehurst			107		Pinehurst, NC		1999
	Total Marriott		1,845
Hilton Hotels Corporation (4 hotels)
Doubletree Club Philadelphia			190		Philadelphia, PA		2003
Hilton Fort Wayne			244		Fort Wayne, IN		2003
Hilton Columbia			152		Columbia, MD		2003
Hilton Northfield			191		Troy, MI		2003
	Total Hilton		777
Choice Hotels International, Inc. (4 hotels)
Clarion Northwoods Atrium Inn			197		Charleston, SC		1994
Clarion Hotel Louisville			393		Louisville, KY		2000
Quality Hotel Metairie(1)			205		New Orleans, LA		2005
Quality Inn Dothan			102		Dothan, AL		1996
	Total Choice		897
Carlson Companies (3 hotels)
Radisson Phoenix Hotel			159		Phoenix, AZ		2005
Radisson New Orleans Airport Hotel (82% owned)			244		New Orleans, LA		2005
Park Inn Brunswick			126		Brunswick, GA		2005
	Total Carlson		529

10

						Year of
		No. of				Last Major Renovation or
Franchisor/Hotel Name		Rooms		Location		Construction
Non-franchised hotels (2 hotels)
French Quarter Suites Memphis			105		Memphis, TN		1997
University Inn, Bloomington			186		Bloomington, IN		1992
	Total non-franchised hotels		291
	All hotels (75 hotels)		13,468

(1)	These hotels are held for sale and are classified in discontinued operations as of December 31, 2005.
(2)	These hotels were identified as held for sale in the first two months of 2006, and are classified in continuing operations as of December 31, 2005.
(3)	This hotel is currently closed as a result of a fire on January 15, 2006.

      As of December 31, 2005, thirteen of our continuing operations hotels are located on land subject to long-term leases. Two of the hotels that were listed as held for sale in the first two months of 2006, and are located on land subject to long-term leases. Additionally, the two Kansas hotels transferred to the bond Trustee in February 2006 were located on land subject to long-term leases. Generally, these leases are for terms in excess of the depreciable lives of the buildings. We also have the right of first refusal on several leases if a third party offers to purchase the land. We pay fixed rents on some of these leases; on others, we have fixed rent plus additional rents based on a percentage of revenue or cash flow. Some of these leases are also subject to periodic rate increases. The leases generally require us to pay the cost of repairs, insurance and real estate taxes.

Dispositions

      In 2005, we sold eight hotels. We identified an additional five hotels as held for sale in 2005. One hotel that was previously classified in discontinued operations was reclassified into continuing operations in the fourth quarter 2005 as management no longer believed the hotel would be sold within one year. At December 31, 2005, 75 hotels were part of our continuing operations (including one hotel that we do not consolidate) and three hotels and one land parcel were classified in discontinued operations. In the first two months of 2006, we identified five additional hotels as held for sale. On February 1, 2006, two hotels were surrendered to the Trustee and one minority-owned hotel, that we accounted for under the equity method of accounting, was deeded to the lender on February 3, 2006. Accordingly, as of March 1, 2006, our portfolio consisted of 75 hotels, 67 of which are reflected in continuing operations and eight of which are classified as held for sale in discontinued operations.

		Number of
					Land
		Hotels			Parcels
Owned at December 31, 2003			96			3
	Sold in 2004		(11	)		(2	)
	Acquired in 2004		1			—
Owned at December 31, 2004			86			1
	Sold in 2005		(8	)		—
Owned at December 31, 2005			78			1
Surrendered to lender between January 1, 2006 and March 1, 2006			(3	)		—
Owned at March 1, 2006			75			1

11

Hotel data by market segment and region

      The following four tables exclude four of our hotels as noted below:

•  the Holiday Inn City Center Columbus, OH hotel is excluded because it was surrendered to a receiver on November 15, 2005 and deeded to the lender on February 3, 2006:

•  the SpringHill Suites by Marriott hotel in Pinehurst, NC (acquired in December 2004) is excluded because we do not have comparative year information for the years ended December 31, 2004 or December 31, 2003;

•  the Crowne Plaza Melbourne, FL hotel is excluded because it was closed throughout 2005 (and from September through December 2004) for hurricane renovations; and

•  the Crowne Plaza West Palm Beach, FL hotel is excluded because it was closed during most of 2005 (and from September through December 2004) for hurricane renovations.

      The two tables below present data on occupancy, ADR and RevPAR for the hotels in our portfolio, with four hotels excluded as noted above, for the years ended December 31, 2005, December 31, 2004 and December 31, 2003 by market segment as well as the capital expenditures for the year ended December 31, 2005.

Combined Continuing and Discontinued Operations — 74 hotels (excludes the Pinehurst, West Palm Beach, Melbourne and Columbus hotels)

					Year Ended
			2005 Capital		December 31,			December 31,			December 31,
			Expenditures		2005			2004			2003
			($ in thousands)
Upper Upscale
	Number of properties		$	583		4			4			4
	Number of rooms					825			825			825
	Occupancy					69.7	%		67.3	%		60.7	%
	Average daily rate				$	101.39		$	96.09		$	90.98
	RevPAR				$	70.63		$	64.66		$	55.23
		RevPAR change				9.2	%		17.1	%		(9.9	)%
Upscale
	Number of properties			11,230		18			16			16
	Number of rooms					3,322			2,779			2,779
	Occupancy					67.7	%		65.7	%		64.6	%
	Average daily rate				$	90.01		$	85.41		$	83.49
	RevPAR				$	60.96		$	56.15		$	53.97
		RevPAR change				8.6	%		4.0	%		(3.7	)%
Midscale with Food & Beverage
	Number of properties			35,608		41			43			43
	Number of rooms					7,769			8,194			8,194
	Occupancy					59.2	%		60.4	%		60.0	%
	Average daily rate				$	78.99		$	74.01		$	71.82
	RevPAR				$	46.73		$	44.67		$	43.13
		RevPAR change				4.6	%		3.6	%		(2.2	)%

12

					Year Ended
			2005 Capital		December 31,			December 31,			December 31,
			Expenditures		2005			2004			2003
			($ in thousands)
Midscale without Food & Beverage
	Number of properties			1,571		8			8			8
	Number of rooms					926			926			926
	Occupancy					65.7	%		63.2	%		56.0	%
	Average daily rate				$	67.54		$	61.22		$	59.49
	RevPAR				$	44.40		$	38.67		$	33.29
		RevPAR change				14.8	%		16.1	%		(4.5	)%
Economy
	Number of properties			2,107		1			—			—
	Number of rooms					126			—			—
	Occupancy					49.3	%		—			—
	Average daily rate				$	62.98			—			—
	RevPAR				$	31.02			—			—
		RevPAR change				n/m			—			—
Independent Hotels
	Number of properties			108		2			3			3
	Number of rooms					291			535			535
	Occupancy					34.7	%		36.6	%		41.4	%
	Average daily rate				$	67.97		$	63.27		$	61.98
	RevPAR				$	23.58		$	23.17		$	25.64
		RevPAR change				1.8	%		(9.6	)%		(14.3	)%
All Hotels
	Number of properties			51,207		74			74			74
	Number of rooms					13,259			13,259			13,259
	Occupancy					61.8	%		61.2	%		60.0	%
	Average daily rate				$	82.49		$	76.91		$	74.59
	RevPAR				$	50.97		$	47.04		$	44.76
		RevPAR change				8.4	%		5.1	%		(3.7	)%

Continuing Operations — 71 hotels (excludes the Pinehurst, West Palm Beach, Melbourne and Columbus hotels, and three hotels held for sale as of December 31, 2005).

					Year Ended
			2005 Capital		December 31,			December 31,			December 31,
			Expenditures		2005			2004			2003
			($ in thousands)
Upper Upscale
	Number of properties		$	583		4			4			4
	Number of rooms					825			825			825
	Occupancy					69.7	%		67.3	%		60.7	%
	Average daily rate				$	101.39		$	96.09		$	90.98
	RevPAR				$	70.63		$	64.66		$	55.23
		RevPAR change				9.2	%		17.1	%		(9.9	)%

13

					Year Ended
			2005 Capital		December 31,			December 31,			December 31,
			Expenditures		2005			2004			2003
			($ in thousands)
Upscale
	Number of properties			11,230		18			16			16
	Number of rooms					3,322			2,779			2,779
	Occupancy					67.7	%		65.7	%		64.6	%
	Average daily rate				$	90.01		$	85.41		$	83.49
	RevPAR				$	60.96		$	56.15		$	53.97
		RevPAR change				8.6	%		4.0	%		(3.7	)%
Midscale with Food & Beverage
	Number of properties			33,546		39			41			41
	Number of rooms					7,418			7,843			7,843
	Occupancy					59.3	%		60.5	%		60.3	%
	Average daily rate				$	79.30		$	74.67		$	72.37
	RevPAR				$	47.05		$	45.16		$	43.63
		RevPAR change				4.2	%		3.5	%		(2.0	)%
Midscale without Food & Beverage
	Number of properties			1,423		7			7			7
	Number of rooms					821			821			821
	Occupancy					66.6	%		63.7	%		55.4	%
	Average daily rate				$	68.73		$	62.49		$	60.38
	RevPAR				$	45.77		$	39.79		$	33.43
		RevPAR change				15.0	%		19.0	%		(6.8	)%
Economy
	Number of properties			2,107		1			—			—
	Number of rooms					126			—			—
	Occupancy					49.3	%		—			—
	Average daily rate				$	62.98			—			—
	RevPAR				$	31.02			—			—
		RevPAR change				n/m			—			—
Independent Hotels
	Number of properties			108		2			3			3
	Number of rooms					291			535			535
	Occupancy					34.7	%		36.6	%		41.4	%
	Average daily rate				$	67.97		$	63.27		$	61.98
	RevPAR				$	23.58		$	23.17		$	25.64
		RevPAR change				1.8	%		(9.6	)%		(14.3	)%
All Hotels
	Number of properties			48,997		71			71			71
	Number of rooms					12,803			12,803			12,803
	Occupancy					62.0	%		61.3	%		60.2	%
	Average daily rate				$	82.95		$	77.59		$	75.17
	RevPAR				$	51.41		$	47.54		$	45.22
		RevPAR change				8.2	%		5.1	%		(3.7	)%

14

      The Categories in the tables above are based on the Smith Travel Research Chain Scales and are defined as:

•  Upper Upscale: Hilton and Marriott;

•  Upscale: Courtyard by Marriott, Crowne Plaza, Radisson, Residence Inn by Marriott and SpringHill Suites by Marriott;

•  Midscale with Food & Beverage: Clarion, Doubletree Club, Holiday Inn, Holiday Inn Select, and Quality Inn;

•  Midscale without Food & Beverage: Fairfield Inn by Marriott and Holiday Inn Express; and

•  Economy: Park Inn

      The two tables below present data on occupancy, ADR and RevPAR for the hotels in our portfolio, with four hotels excluded as previously noted, for the years ended December 31, 2005, December 31, 2004 and December 31, 2003 by geographic region and the capital expenditures for the year ended December 31, 2005.

Combined Continuing and Discontinued Operations — 74 hotels (excludes the Pinehurst, West Palm Beach, Melbourne and Columbus hotels)

					Year Ended
			2005 Capital		December 31,			December 31,			December 31,
			Expenditures		2005			2004			2003
			($ in thousands)
Northeast Region
	Number of properties		$	25,455		27			27			27
	Number of rooms					4,914			4,914			4,914
	Occupancy					64.0	%		65.9	%		65.2	%
	Average daily rate				$	89.92		$	84.73		$	82.27
	RevPAR				$	57.53		$	55.85		$	53.60
		RevPAR change				3.0	%		4.2	%		(2.2	)%
Southeast Region
	Number of properties			19,789		25			25			25
	Number of rooms					4,156			4,156			4,156
	Occupancy					59.0	%		56.9	%		55.7	%
	Average daily rate				$	75.43		$	67.48		$	65.31
	RevPAR				$	44.53		$	38.39		$	36.38
		RevPAR change				16.0	%		5.5	%		(4.1	)%
Midwest Region
	Number of properties			2,153		15			15			15
	Number of rooms					2,873			2,873			2,873
	Occupancy					59.5	%		58.7	%		56.2	%
	Average daily rate				$	76.86		$	72.54		$	71.05
	RevPAR				$	45.73		$	42.59		$	39.92
		RevPAR change				7.4	%		6.7	%		(6.0	)%

15

					Year Ended
			2005 Capital		December 31,			December 31,			December 31,
			Expenditures		2005			2004			2003
			($ in thousands)
West Region
	Number of properties			3,810		7			7			7
	Number of rooms					1,316			1,316			1,316
	Occupancy					67.4	%		62.2	%		62.8	%
	Average daily rate				$	86.69		$	82.17		$	77.69
	RevPAR				$	58.45		$	51.12		$	48.79
		RevPAR change				14.3	%		4.8	%		(4.6	)%
All Hotels
	Number of properties			51,207		74			74			74
	Number of rooms					13,259			13,259			13,259
	Occupancy					61.8	%		61.2	%		60.0	%
	Average daily rate				$	82.49		$	76.91		$	74.59
	RevPAR				$	50.97		$	47.04		$	44.76
		RevPAR change				8.4	%		5.1	%		(3.7	)%

Continuing Operations — 71 hotels (excludes the Pinehurst, West Palm Beach, Melbourne and Columbus hotels, and three hotels held for sale as of December 31, 2005).

					Year Ended
			2005 Capital		December 31,			December 31,			December 31,
			Expenditures		2005			2004			2003
			($ in thousands)
Northeast Region
	Number of properties		$	25,421		26			26			26
	Number of rooms					4,768			4,768			4,768
	Occupancy					64.3	%		66.3	%		65.5	%
	Average daily rate				$	90.28		$	84.99		$	82.57
	RevPAR				$	58.10		$	56.36		$	54.10
		RevPAR change				3.1	%		4.2	%		(2.0	)%
Southeast Region
	Number of properties			17,613		23			23			23
	Number of rooms					3,846			3,846			3,846
	Occupancy					59.1	%		56.6	%		55.6	%
	Average daily rate				$	76.23		$	69.04		$	66.49
	RevPAR				$	45.03		$	39.08		$	36.95
		RevPAR change				15.2	%		5.8	%		(4.4	)%
Midwest Region
	Number of properties			2,153		15			15			15
	Number of rooms					2,873			2,873			2,873
	Occupancy					59.5	%		58.7	%		56.2	%
	Average daily rate				$	76.86		$	72.54		$	71.05
	RevPAR				$	45.73		$	42.59		$	39.92
		RevPAR change				7.4	%		6.7	%		(6.0	)%

16

					Year Ended
			2005 Capital		December 31,			December 31,			December 31,
			Expenditures		2005			2004			2003
			($ in thousands)
West Region
	Number of properties			3,810		7			7			7
	Number of rooms					1,316			1,316			1,316
	Occupancy					67.4	%		62.2	%		62.8	%
	Average daily rate				$	86.69		$	82.17		$	77.69
	RevPAR				$	58.45		$	51.12		$	48.79
		RevPAR change				14.3	%		4.8	%		(4.6	)%
All Hotels
	Number of properties			48,997		71			71			71
	Number of rooms					12,803			12,803			12,803
	Occupancy					62.0	%		61.3	%		60.2	%
	Average daily rate				$	82.95		$	77.59		$	75.17
	RevPAR				$	51.41		$	47.54		$	45.22
		RevPAR change				8.2	%		5.1	%		(3.7	)%

      The regions in the table above are defined as:

•  Northeast: Canada, Connecticut, Massachusetts, Maryland, New Hampshire, New York, Ohio, Pennsylvania, Vermont, West Virginia;

•  Southeast: Alabama, Florida, Georgia, Kentucky, Louisiana, South Carolina, Tennessee;

•  Midwest: Arkansas, Iowa, Indiana, Kansas, Michigan, Minnesota, Oklahoma, Texas; and

•  West: Arizona, California, Colorado, New Mexico.

Hotel Encumbrances

      Of the 77 hotels that we consolidate as of December 31, 2005, 72 hotels were pledged as collateral to secure long-term debt. The following table summarizes the book values of these 77 hotel assets along with the related long-term debt (including current portion) which they collateralize, as of December 31, 2005. “Book value” means the value at which the asset is reflected in our Consolidated Financial Statements. Financial statement book values are presented in accordance with GAAP, but do not necessarily represent fair market values.

			December 31, 2005
	Number		Property and		Long-term
	of Hotels		Equipment, Net (1)		Obligations (1)
			($ in thousands)
Refinancing Debt
Merrill Lynch Mortgage Lending, Inc. — Floating		19	$	93,977	$	67,546
Merrill Lynch Mortgage Lending, Inc. — Fixed		34		333,825		252,377
Merrill Lynch Mortgage Lending, Inc. — Total		53		427,802		319,923

17

				December 31, 2005
	Number			Property and			Long-term
	of Hotels			Equipment, Net (1)			Obligations (1)
				($ in thousands)
Other Financings
Computer Share Trust Company of Canada		1			16,260			7,838
Column Financial, Inc.		7			51,603			10,337
Lehman Brothers Holdings, Inc.		5			58,161			22,398
JP Morgan Chase Bank		2			6,019			10,064
Wachovia		2			13,525			13,173
IXIS Real Estate Capital, Inc.		1			15,378			19,000
Column Financial, Inc.		1			11,357			8,146
Total — other financing		19			172,303			90,956
		72			600,105			410,879
Long-term liabilities — other
Tax notes issued pursuant to our Joint Plan of Reorganization		—			—			2,220
Other		—			—			1,151
		—			—			3,371
Property and equipment — other		5			20,554			—
		77			620,659			414,250
Held for sale		(3	)		(13,797	)		(1,287	)
Total December 31, 2005(2)		74		$	606,862		$	412,963

(1)	Debt obligations and property and equipment of one hotel in which we have a non-controlling equity interest that we do not consolidate are excluded from the table.
(2)	Debt obligations at December 31, 2005 include the current portion.

Insurance

      We maintain the following types of insurance:

•  general liability;

•  property damage including business interruption;

•  flood;

•  directors’ and officers’ liability;

•  liquor liability;

•  workers’ compensation;

•  fiduciary liability;

•  business automobile;

•  environmental; and

•  employment practices liability insurance.

      We are self-insured up to certain amounts with respect to our insurance coverages. We establish liabilities for these self-insured obligations annually, based on actuarial valuations and our history of claims. If these

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claims exceed our estimates, our future financial condition and results of operations would be adversely affected. As of December 31, 2005, we had accrued $12.4 million for these expenses.

      There are other types of losses for which we cannot obtain insurance at all or at a reasonable cost, including losses caused by acts of war. If an uninsured loss or a loss that exceeds our insurance limits were to occur, we could lose both the revenues generated from the affected property and the capital that we have invested. We also could be liable for any outstanding mortgage indebtedness or other obligations related to the hotel. Any such loss could materially and adversely affect our financial condition and results of operations.

      We believe that we have adequate reserves and sufficient insurance coverage for our business.

Regulation

      Our hotels are subject to certain federal, state and local regulations which require us to obtain and maintain various licenses and permits. These licenses and permits must be periodically renewed and may be revoked or suspended for cause at any time.

      Occupancy licenses are obtained prior to the opening of a hotel and may require renewal if there has been a major renovation. The loss of the occupancy license for any of the larger hotels in our portfolio could have a material adverse effect on our financial condition and results of operations. Liquor licenses are required for hotels to be able to serve alcoholic beverages and are generally renewable annually. We believe that the loss of a liquor license for an individual hotel would not have a material effect on our financial condition and results of operations. We are not aware of any reason why we should not be in a position to maintain our licenses.

      We are subject to certain federal and state labor laws and regulations such as minimum wage requirements, regulations relating to working conditions, laws restricting the employment of illegal aliens, and the Americans with Disabilities Act (“ADA”). As a provider of restaurant services, we are subject to certain federal, state and local health laws and regulations. We believe that we comply in all material respects with these laws and regulations. We are also subject in certain states to dramshop statutes, which may give an injured person the right to recover damages from us if we wrongfully serve alcoholic beverages to an intoxicated person who causes an injury. We believe that our insurance coverage relating to contingent losses in these areas is adequate.

      Our hotels are also subject to environmental regulations under federal, state and local laws. These environmental regulations have not had a material adverse effect on our operations. However, such regulations potentially impose liability on property owners for cleanup costs for hazardous waste contamination. If material hazardous waste contamination problems exist on any of our properties, we would be exposed to liability for the costs associated with the cleanup of those sites.

Employees

      At December 31, 2005, we had 3,604 full-time and 1,673 part-time employees. We had 107 full-time employees engaged in administrative and executive activities and the balance of our employees manage, operate and maintain our properties. At December 31, 2005, 429 of our full and part-time employees located at six hotels were covered by collective bargaining agreements. These agreements expire between 2006 and 2008. We consider relations with our employees to be good.

Legal Proceedings

      From time to time, as we conduct our business, legal actions and claims are brought against us. The outcome of these matters is uncertain. However, we believe that all currently pending matters will be resolved without a material adverse effect on our results of operations or financial condition. Claims relating to the period before we filed for Chapter 11 protection are limited to the amounts approved by the Bankruptcy Court for settlement of such claims and were payable out of the disputed claims reserves provided for by the Bankruptcy Court. On July 26, 2004, all remaining shares of mandatorily redeemable 12.25% cumulative Preferred Stock (“Preferred Stock”) were redeemed and a liability of $2.2 million replaced the Preferred Stock shares that were previously held in the disputed claims reserve for the Joint Plan of Reorganization.

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Accordingly, when this liability was established it reduced additional paid-in capital and did not flow through our consolidated statement of operations. On June 30, 2005, we completed the final distribution for our bankruptcy claims and released the remaining unused accrual balance of $1.3 million with a corresponding adjustment to Additional Paid-in Capital in our consolidated statement of stockholder’s equity.

SEC Filings and Financial Information

      This Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and our Proxy Statement on Schedule 14A, and amendments to those reports are available free of charge on our website (www.Lodgian.com) as soon as practicable after they are submitted to the Securities and Exchange Commission (“SEC”).

      You may read and copy any materials the Company files with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information about us.

      Financial information about our revenues and expenses for the last three fiscal years and assets and liabilities for the last two years may be found in the Consolidated Financial Statements, beginning on page F-1.

Item 1A.      Risk Factors

      We make forward looking statements in this report and other reports we file with the SEC. In addition, management may make oral forward-looking statements in discussions with analysts, the media, investors and others. These statements include statements relating to our plans, strategies, objectives, expectations, intentions and adequacy of resources, and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words “believes,” “anticipates,” “expects,” “intends,” “plans,” “estimates,” “projects,” and similar expressions are intended to identify forward-looking statements. These forward-looking statements reflect our current views with respect to future events and the impact of these events on our business, financial condition, results of operations and prospects. Our business is exposed to many risks, difficulties and uncertainties, including the following:

•  The effects of regional, national and international economic conditions;

•  Competitive conditions in the lodging industry and increases in room supply;

•  The effects of actual and threatened terrorist attacks and international conflicts in Iraq, the Middle East and elsewhere, and their impact on domestic and international travel;

•  The effectiveness of changes in management, and our ability to retain qualified individuals to serve in senior management positions;

•  Requirements of franchise agreements, including the right of franchisors to immediately terminate their respective agreements if we breach certain provisions;

•  Our ability to complete planned hotel and land parcel dispositions;

•  Seasonality of the hotel business;

•  The effects of unpredictable weather events such as hurricanes;

•  The financial condition of the airline industry and its impact on air travel;

•  The effect that Internet reservation channels may have on the rates that we are able to charge for hotel rooms;

•  Increases in the cost of debt and our continued compliance with the terms of our loan agreements;

•  The effect of the majority of our assets being encumbered on our borrowings and future growth;

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•  Our ability to meet the continuing listing requirements of the Securities and Exchange Commission and the American Stock Exchange;

•  The effect of self-insured claims in excess of our reserves, or our ability to obtain adequate property and liability insurance to protect against losses, or to obtain insurance at reasonable rates;

•  Potential litigation and/or governmental inquiries and investigations;

•  Laws and regulations applicable to our business, including federal, state or local hotel, resort, restaurant or land use regulations, employment, labor or disability laws and regulations;

•  A downturn in the economy due to high energy costs, natural gas and gasoline prices; and

•  The risks identified below under “Risks Related to Our Business” and “Risks Relating to Our Common Stock”.

      Any of these risks and uncertainties could cause actual results to differ materially from historical results or those anticipated. Although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be attained and caution you not to place undue reliance on such statements. We undertake no obligation to publicly update or revise any forward-looking statements to reflect current or future events or circumstances or their impact on our business, financial condition, results of operations and prospects.

      The following represents risks and uncertainties which could either individually or together cause actual results to differ materially from those described in the forward-looking statements. If any of the following risks actually occur, our business, financial condition, results of operations, cash flow, liquidity and prospects could be adversely affected. In that case, the market price of our common stock could decline and you may lose all or part of your investment in our common stock.

Risks Related to Our Business

We may not be able to meet the requirements imposed by our franchisors in our franchise agreements and therefore could lose the right to operate one or more hotels under a national brand.

      We operate substantially all of our hotels pursuant to franchise agreements for nationally recognized hotel brands. The franchise agreements generally contain specific standards for, and restrictions and limitations on, the operation and maintenance of a hotel in order to maintain uniformity within the franchisor system. The standards are also subject to change over time. Compliance with any new and existing standards could cause us to incur significant expenses and investment in capital expenditures.

      If we do not comply with standards or terms of any of our franchise agreements, those franchise agreements may be terminated after we have been given notice and an opportunity to cure the non-compliance or default. As of March 1, 2006, we have been notified that we were not in compliance with some of the terms of eight of our franchise agreements and have received default and termination notices from franchisors with respect to an additional seven hotels. We cannot assure you that we will be able to complete our action plans (which we estimate will cost approximately $5.4 million) to cure the alleged defaults of noncompliance and default prior to the specified termination dates or be granted additional time in which to cure any defaults or noncompliance.

      In addition, as part of our bankruptcy reorganization proceedings, we entered into stipulations with each of our major franchisors setting forth a timeline for completion of capital expenditures for some of our hotels. However, as of March 1, 2006, we have not completed the required capital expenditures for eight continuing operations hotels in accordance with the stipulations and we estimate that the cost of completing these required capital expenditures is $3.3 million. As of March 1, 2006, approximately $2.0 million is deposited in escrow with the Company’s lenders to be applied to the capital expenditure obligations, pursuant to the terms of the respective loan agreements signed with these lenders. Nonetheless, a franchisor could therefore seek to declare its franchise agreement in default and could seek to terminate the franchise agreement.

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      If a franchise agreement is terminated, we will either select an alternative franchisor or operate the hotel independently of any franchisor. However, terminating or changing the franchise affiliation of a hotel could require us to incur significant expenses, including franchise termination payments and capital expenditures associated with the change of a brand. Moreover, the loss of a franchise agreement could have a material adverse effect upon the operations or the underlying value of the hotel covered by the franchise because of the loss of associated guest loyalty, name recognition, marketing support and centralized reservation systems provided by the franchisor. Loss of a franchise agreement may result in a default under, and acceleration of, the related mortgage debt. In particular, we would be in default under the Refinancing Debt if we experience either:

•  multiple franchise agreement defaults and the continuance thereof beyond all notice and grace periods for hotels whose allocated loan amounts total 10% or more of the outstanding principal amount of such Refinancing Debt;

•  with regard to the Merrill Lynch Mortgage floating rate refinancing debt (“Floating Rate Debt”), either the termination of franchise agreements for more than two properties or the termination of franchise agreements for hotels whose allocated loan amounts represent more than 5% of the outstanding principal amount of the floating rate debt, and such hotels continue to operate for more than five consecutive days without being subject to replacement franchise agreements;

•  with regard to the Merrill Lynch Mortgage fixed rate refinancing debt (“Fixed Rate Debt”), either the termination of franchise agreements for more than one property or the termination of franchise agreements for hotels whose allocated loan amounts represent more than 5% of the outstanding principal amount of the fixed rate loan, and such hotels continue to operate for more than five consecutive days without being subject to replacement franchise agreements; or

•  a franchise termination for any hotel currently subject to a franchise agreement that remains without a franchise agreement for more than six months.

      A single franchise agreement termination could materially and adversely affect our revenues, cash flow and liquidity.

      In addition, our loan agreements generally prohibit a hotel from operating without a national franchise affiliation, and the loss of such an affiliation could trigger a default under one or more such agreements. The 15 hotels that are either in default or non-compliance under their respective franchise agreements are part of the collateral security for an aggregate of $265.3 million of mortgage debt at March 1, 2006.

      In connection with our equity offering in June 2004, we entered into new franchise agreements for all 15 of our Marriott-branded hotels at that time and agreed to pay a fee aggregating approximately $0.5 million, of which $0.1 million has been paid, and $0.4 million is payable in 2007, subject to offsets.

      Our current franchise agreements, generally of 5 to 20 years duration, terminate at various times and have differing remaining terms. As a condition to renewal of the franchise agreements, franchisors frequently contemplate a renewal application process, which may require substantial capital improvements to be made to the hotel and increases in franchise fees. A significant increase in unexpected capital expenditures and franchise fees would adversely affect us.

Hotels require a high level of capital expenditures, maintenance and repairs, and if we are not able to meet these requirements of our hotels appropriately, our business and operating results will suffer.

      In order to maintain our hotels in good condition and attractive appearance, it is necessary to replace furnishings, fixtures and equipment periodically, generally every five to seven years, and to maintain and repair public areas and exteriors on an ongoing basis. If we do not make needed capital improvements, we could lose our share of the market to our competitors and our hotel occupancy and room rates could fall. Furthermore, the process of renovating a hotel can be disruptive to operations, and a failure to properly plan and execute renovations and schedule them during seasonally slower sales months can result in renovation displacement, an industry term for a temporary loss of revenue caused by the renovation. We also risk termination of

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franchise agreements at the affected properties due to non-compliance with the terms of the franchise agreements.

Most of our hotels are pledged as collateral for mortgage loans, and we have a significant amount of debt that could limit our operational flexibility or otherwise adversely affect our financial condition.

      As of December 31, 2005, we had $414.3 million of total long-term debt outstanding including both continuing and discontinued operations, $394.4 million of which is associated with our continuing operations, net of the current portion of long-term debt. We are subject to the risks normally associated with significant amounts of debt, such as:

•  We may not be able to repay or refinance our maturing indebtedness on favorable terms or at all. If we are unable to refinance or extend the maturity of our maturing indebtedness, we may not otherwise be able to repay such indebtedness. Debt defaults could lead us to sell one or more of our hotels on unfavorable terms or, in the case of secured debt, to convey the mortgaged hotel(s) to the lender, causing a loss of any anticipated income and cash flow from, and our invested capital in, such hotel(s);

•  72 of our consolidated hotels are pledged as collateral for existing mortgage loans as of December 31, 2005, which represented 96.7% of the book value of our hotel property and equipment, net, as of December 31, 2005, and, as a result, we have limited flexibility to sell our hotels to satisfy cash needs;

•  Increased vulnerability to downturns in our business, the lodging industry and the general economy;

•  Our ability to obtain other financing to fund future working capital, capital expenditures and other general corporate requirements may be limited;

•  Our cash flow from operations may be insufficient to make required debt service payments, and we may be required to dedicate a substantial portion of our cash flow from operations to debt service payments, reducing the availability of our cash flow to fund working capital, capital expenditures, and other needs and placing us at a competitive disadvantage with other companies that have greater resources and/or less debt; and

•  Our flexibility in planning for, or reacting to, changes in our business and industry may be restricted, placing us at a competitive disadvantage to our competitors that may have greater financial strength than we have.

The terms of our debt instruments place many restrictions on us, which reduce operational flexibility and create default risks.

      Our outstanding debt instruments subject us to financial covenants, including leverage and coverage ratios. Our compliance with these covenants depends substantially upon the financial results of our hotels. In particular, our debt agreements with Merrill Lynch Mortgage require minimum debt yield and minimum debt service coverage ratios. The floating rate debt (“Floating Rate Debt”) provides that when either (i) the debt yield for the hotels securing the respective loans for the trailing 12-month period is below 9% during the first year, 10% during the next 18 months, and 11%, 12% and 13% during each of the next three extension periods, or (ii) to the extent extended, the debt service coverage ratio is less that 1.3x in the second extension period or 1.35x in the third extension period, excess cash flows produced by the mortgaged hotels securing the applicable loan (after payment of operating expenses, management fees, required reserves, service fees, principal and interest) must be deposited in a restricted cash account. For the fixed rate debt (“Fixed Rate Debt”), when the debt yield ratio for the hotels for the trailing 12-month period is below 9% during the first year, 10% during the next year and 11%, 12% and 13% during each of the next three years, excess cash flows produced by the mortgaged hotels securing the applicable loan (after payment of operating expenses, management fees, required reserves, service fees, principal and interest) must be deposited in a restricted cash account. These funds can be used for the prepayment of the applicable loan in an amount required to satisfy the applicable test, capital expenditures reasonably approved by the lender with respect to the hotels securing the applicable loan, and scheduled principal and interest payments due on the Floating Rate Debt of up to $0.9 million or any Fixed Rate Loan of up to $525,000, as applicable. Funds will no longer be deposited into

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the restricted cash account when the debt yield ratio and, if applicable, the debt service coverage ratio are sustained above the minimum requirements for three consecutive months and there are no defaults.

      Additionally, as of December 31, 2005, we were not in compliance with the debt service coverage ratio requirement of the loan from Column Financial secured by one of our hotels in Phoenix, Arizona. The primary reason the debt service coverage ratio is below the required threshold is that the property underwent an extensive renovation in 2004 in order to convert the property from a Holiday Inn Select to a Crowne Plaza hotel. The renovation caused substantial revenue displacement which, in turn, negatively affected the financial performance of this hotel. Under the terms of the Column Financial loan agreement, until the required DSCR is met, the lender is permitted to require the borrower to deposit all revenues from the mortgaged property into an account controlled by the lender. Accordingly, in December 2004, we were notified by the lender that we were in default of the debt service coverage ratio and would have to establish a restricted cash account whereby all cash generated by the property be deposited into an account from which all payments of interest, principal, operating expenses and impounds (insurance, property taxes and ground rent) would be disbursed. The lender may apply excess proceeds after payment of expenses to additional principal payments. At December 31, 2005, $0.7 million was being retained in the restricted cash account. This property was refinanced on March 1, 2006 and, accordingly, the non-compliance issue with this loan has been resolved. (See Note 17. Subsequent Events).

      As of December 31, 2005, through our wholly-owned subsidiaries, we owed approximately $10.1 million under industrial revenue bonds secured by Holiday Inns in Lawrence, Kansas and Manhattan, Kansas. For the year ended December 31, 2004, the cash flows of the two hotels were insufficient to meet the minimum debt service coverage ratio requirements. Accordingly, on March 2, 2005, we notified the Trustee of the industrial revenue bonds which finance the Holiday Inns in Lawrence, Kansas and Manhattan, Kansas that we would not continue to make debt service payments. The failure to make debt service payments is a default under the bond indenture and also a default under the ground leases for these properties. On August 31, 2005, we reached a settlement agreement with the bond Trustee, under which we agreed to either sell the hotels to a third party or convey our rights and interests in the hotels to the Trustee and pay to the Trustee for the benefit of the bondholders the sum of $0.5 million in exchange for a full release. We paid $0.5 million in September 2005 and surrendered the hotels in February 2006. We no longer own or operate those hotels.

      The restrictive covenants in our debt documents may reduce our flexibility in conducting our operations and may limit our ability to engage in activities that may be in our long-term best interest. Our failure to comply with our debt documents, including these restrictive covenants, may result in additional interest being due and would constitute an event of default, and in some cases with notice or the lapse of time, if not cured or waived, could result in the acceleration of the defaulted debt and the sale or foreclosure of the affected hotels. As noted above, under certain circumstances the termination of a hotel franchise agreement could also result in the same effects. A foreclosure would result in a loss of any anticipated income and cash flow from, and our invested capital in, the affected hotel. No assurance can be given that we will be able to repay, through financings or otherwise, any accelerated indebtedness or that we will not lose all or a portion of our invested capital in any hotels that we sell in such circumstances.

Rising interest rates could have an adverse effect on our cash flow and interest expense.

      A significant portion of our capital needs are fulfilled by borrowings and some of the indebtedness is subject to variable interest rates, of which we had $86.5 million of variable rate debt at December 31, 2005. In the future, we may incur additional indebtedness bearing interest at a variable rate, or we may be required to refinance our existing fixed-rate indebtedness at higher interest rates. Accordingly, increases in interest rates will increase our interest expense and adversely affect our cash flow, reducing the amounts available to make payments on our indebtedness, fund our operations and our capital expenditure program, make acquisitions or pursue other business opportunities. We have reduced the risk of rising interest rates by entering into interest rate cap agreements for all our variable interest rate debt.

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To service our indebtedness, we require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control and a cash shortfall could adversely affect our ability to fund our operations, planned capital expenditures and other needs.

      Our ability to make payments on and to refinance our indebtedness and to fund our operations, planned capital expenditures and other needs will depend on our ability to generate cash in the future. Various factors could adversely affect our ability to meet operating cash requirements, many of which are subject to the operating risks inherent in the lodging industry and, therefore, are beyond our control. These risks include the following:

•  Dependence on business and leisure travelers, who have been and continue to be affected by threats of terrorism, or other outbreaks of hostilities, and new laws to counter terrorism which result to some degree in a reduction of foreign travelers visiting the U.S.;

•  Cyclical overbuilding in the lodging industry;

•  Varying levels of demand for rooms and related services;

•  Competition from other hotels, motels and recreational properties, some of which may be owned or operated by companies having greater marketing and financial resources than we have;

•  Effects of economic and market conditions;

•  Decreases in air travel;

•  Fluctuations in operating costs;

•  Changes in governmental laws and regulations that influence or determine wages or required remedial expenditures;

•  Natural disasters, including, but not limited to hurricanes;

•  Changes in interest rates and changes in the availability, cost and terms of credit; and

•  The perception of the lodging industry and lodging companies in the debt and equity markets.

The value of our hotels and our ability to repay or refinance our debt are dependent upon the successful operation and cash flows of the hotels.

      The value of our hotels is heavily dependent on their cash flows. If cash flow declines, the hotel values may also decline and the ability to repay or refinance our debt could also be adversely affected. Factors affecting the performance of our hotels include, but are not limited to, construction of competing hotels in the markets served by our hotels, loss of franchise affiliations, the need for renovations, the effectiveness of renovations or repositioning in attracting customers, changes in travel patterns and adverse economic conditions.

      We may not be able to fund our future capital needs, including necessary working capital, funds for capital expenditures or acquisition financing from operating cash flow. Consequently, we may have to rely on third-party sources to fund our capital needs. We may not be able to obtain the financing on favorable terms or at all, which could materially and adversely affect our operating results, cash flow and liquidity. Any additional debt would increase our leverage, which would reduce our operational flexibility and increase our risk exposure. Our access to third-party sources of capital depends, in part, on:

•  general market conditions;

•  the market’s perception of our growth potential;

•  our current debt levels and property encumbrances;

•  our current and expected future earnings;

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•  our cash flow and cash needs; and

•  the market price per share of our common stock.

If we are not able to implement our growth strategy, we may not be able to improve our financial performance.

      Our growth strategy is focused on improving the operations of our continuing operations hotels with improved product quality as a result of our renovation program, improved services levels, and additional investment in our hotels, including repositionings and renovations, that will earn a sufficient return on the capital invested. Additionally, we periodically evaluate our portfolio of hotels to identify underperforming hotels that should be sold. We cannot assure you that the execution of our growth strategy will produce improved financial performance at the affected hotels. We compete for growth opportunities with national and regional hospitality companies, many of which have greater name recognition, marketing support and financial resources than we do. An inability to implement our growth strategy successfully would limit our ability to grow our revenue, net income and cash flow.

Our current joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on joint venture partners’ financial condition and performance, and any disputes that may arise between us and our joint venture partners.

      We currently have an ownership interest in four of our hotels through joint ventures. We generally will not be in a position to exercise sole decision-making authority regarding the hotels owned through such joint ventures. Investments in joint ventures may, under certain circumstances, involve risks not present when a third party is not involved, including the possibility that joint venture partners might become bankrupt or fail to fund their share of required capital contributions. Joint venture partners may have business interests, strategies or goals that are inconsistent with our business interests, strategies or goals and may be, and in cases where we have a minority interest will be, in a position to take actions contrary to our policies, strategies or objectives. Joint venture investments also entail a risk of impasse on decisions, such as acquisitions or sales, because neither we nor our joint venture partner would have full control over the joint venture. Any disputes that may arise between us and our joint venture partners may result in litigation or arbitration that could increase our expenses and could prevent our officers and/or directors from focusing their time and effort exclusively on our business strategies. Consequently, actions by or disputes with our joint venture partners might result in subjecting hotels owned by the joint venture to additional risks. In addition, we may in certain circumstances be liable for the actions of our third-party joint venture partners.

We have a history of significant losses and we may not be able to successfully improve our performance to achieve profitability.

      We incurred cumulative net losses of $348.7 million from January 1, 1999 through December 31, 2005 and had an accumulated deficit of $69.6 million as of December 31, 2005. Our ability to improve our performance to achieve profitability is dependent upon a recovery in the general economy, combined with an improvement in the lodging industry specifically, and the successful implementation of our business strategy. Our failure to improve our performance could have a material adverse effect on our business, results of operations, financial condition, cash flow, liquidity and prospects. The economic downturn which commenced in early 2001 and the terrorist attacks of September 11, 2001 and the subsequent threat of terrorism resulted in a sharp decline in demand for hotels and affected our results in 2002 and 2003. The lodging industry experienced some recovery beginning in the second half of 2003 which has continued through 2005. These favorable trends need to continue into 2006 for us to generate positive cash flows essential to our growth and to the implementation of our business strategy. Although Smith Travel Research recently forecasted RevPAR growth for the U.S. lodging industry in 2006 due to rising occupancy and rates and an improving economy, this forecast does not necessarily apply specifically to our portfolio of hotels. Additionally, rising interest rates and energy costs, the troubled airline industry and continued threats to national security or air travel safety could adversely affect the industry, resulting in our inability to meet profit expectations.

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Acts and threats of terrorism, the ongoing war against terrorism, military conflicts and other factors have had and may continue to have a negative effect on the lodging industry and our results of operations.

      The terrorist attacks of September 11, 2001 and the continued threat of terrorism, including changing threat levels announced by the U.S. Department of Homeland Security, have had a negative impact on the lodging industry and on our hotel operations. These events have caused a significant decrease in occupancy and ADR in our hotels due to disruptions in business and leisure travel patterns and concerns about travel safety. In particular, major metropolitan areas and airport hotels have been adversely affected by concerns about air travel safety and a significant overall decrease in the amount of air travel. We believe that uncertainty associated with subsequent terrorist threats and incidents, military conflicts and the possibility of hostilities with other countries may continue to hamper business and leisure travel patterns and our hotel operations for the foreseeable future, and if these matters worsen, the effects could become materially more adverse.

We may be unable to sell real estate, including our assets held for sale, in a timely manner or at expected prices.

      As of March 1, 2006, we have eight hotels and one land parcel listed as assets available for sale; however, real estate assets generally cannot be sold quickly. No assurance can be given that we will be able to sell any of these hotels or the land parcel on favorable terms or at all. Furthermore, even if we are able to sell these hotels, we may not be able to realize any cash proceeds from the sales after paying off the related debt, or the sale may not be timely to provide cash needed to fund our working capital, capital expenditures and debt service requirements. If we lose the franchise of any of these properties for sale, the value of the hotel could decline, perhaps substantially. The inability to sell these properties could severely hamper our strategy to own upscale and profitable hotels under popular brands, which could have adverse effects on our profitability.

Our expenses may remain constant or increase even if revenues decline.

      Certain expenses associated with owning and operating a hotel are relatively fixed and do not proportionately reduce with a drop in revenues. Consequently, during periods when revenues drop, we would be compelled to continue to incur certain expenses which are fixed in nature. Moreover, we could be adversely affected by:

•  Rising interest rates;

•  Tightening of funding available to the lodging industry on favorable terms, or at all;

•  Rising energy costs, gasoline or heating fuel supply shortages;

•  Rising insurance premiums;

•  Rising property tax expenses;

•  Increase in labor and related costs; and

•  Changes in, and as a result, increases in the cost of compliance with new government regulations, including those governing environmental, usage, zoning and tax matters.

We may make acquisitions or investments that are not successful and that adversely affect our ongoing operations.

      We may acquire or make investments in hotel companies or groups of hotels that we believe complement our business. We lack experience in making corporate acquisitions. As a result, our ability to identify prospects, conduct acquisitions and properly manage the integration of acquisitions is unproven. If we fail to properly evaluate and execute acquisitions or investments, it may have a material adverse effect on our results

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of operations. In making or attempting to make acquisitions or investments, we face a number of risks, including:

•  Significant errors or miscalculations in identifying suitable acquisition or investment candidates, performing appropriate due diligence, identifying potential liabilities and negotiating favorable terms;

•  Reducing our working capital and hindering our ability to expand or maintain our business, including making capital expenditures and funding operations;

•  The potential distraction of our management, diversion of our resources and disruption of our business;

•  Overpaying by competing for acquisition opportunities with resourceful and cash-rich competitors;

•  Inaccurate forecasting of the financial impact of an acquisition or investment; and

•  Failure to effectively integrate acquired companies or investments into our company and the resultant inability to achieve expected synergies.

Losses may exceed our insurance coverage or estimated reserves, which could impair our results of operations, financial condition and liquidity.

      We are self-insured up to certain amounts with respect to our insurance coverages. Many of our loan agreements require that we maintain our insurance coverages with carriers with at least a “AA-” rating from Standard & Poors. Various types of catastrophic losses, including those related to environmental, health and safety matters may not be insurable or may not be economically insurable. In the event of a substantial loss, our insurance coverage may not cover the full current market value or replacement cost of our lost investment or building code upgrades associated with such an occurance. Inflation, changes in building codes and ordinances, environmental considerations and other factors might cause insurance proceeds to be insufficient to fully replace or renovate a hotel after it has been damaged or destroyed.

      We cannot assure you that:

•  the insurance coverages that we have obtained will fully protect us against insurable losses (i.e., losses may exceed coverage limits);

•  we will not incur losses from risks that are not insurable or that are not economically insurable; or

•  current coverages with AA- rated or better carriers will continue to be available at reasonable rates.

      Should a material uninsured loss or a loss in excess of insured limits occur with respect to any particular property, we could lose our capital invested in the property, as well as the anticipated income and cash flow from the property. Any such loss would have an adverse effect on our results of operations, financial condition and liquidity. In addition, if we are unable to maintain insurance that meets our debt and franchise agreement requirements, and if we are unable to amend or waive those requirements, it could result in an acceleration of that debt and impair our ability to maintain franchise affiliations.

Competition in the lodging industry could have a material adverse effect on our business and results of operations.

      The lodging industry is highly competitive. No single competitor or small number of competitors dominates the industry. We generally operate in areas that contain numerous other competitors, some of which may have substantially greater resources than we have. Competitive factors in the lodging industry include, among others, oversupply in a particular market, franchise affiliation, reasonableness of room rates, quality of accommodations, service levels, convenience of locations and amenities customarily offered to the traveling public. There can be no assurance that demographic, geographic or other changes in markets will not adversely affect the future demand for our hotels, or that the competing and new hotels will not pose a greater threat to our business. Any of these adverse factors could materially and adversely affect us.

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Adverse conditions in major metropolitan markets in which we do substantial business could negatively affect our results of operations.

      Adverse economic conditions in markets, such as Pittsburgh, Baltimore/ Washington, D.C., and Phoenix, in which we have multiple hotels, could significantly and negatively affect our revenue and results of operations. Our 14 hotels in these areas provided approximately 26.1% of our 2005 continuing operations revenue and approximately 21.5% of our 2005 continuing operations total available rooms. As a result of this geographic concentration of our hotels, we are particularly exposed to the risks of downturns in these markets, which could have a major adverse affect on our profitability.

The lodging business is seasonal.

      Demand for accommodations varies seasonally. The high season tends to be the summer months for hotels located in colder climates and the winter months for hotels located in warmer climates. Aggregate demand for accommodations at the hotels in our portfolio is lowest during the winter months. We generate substantial cash flow in the summer months compared to the slower winter months. If adverse factors affect our ability to generate cash in the summer months, the impact on our profitability is much greater than if similar factors occur during the winter months.

We are exposed to potential risks of brand concentration.

      As of March 1, 2006, we operate approximately 83% of our hotels under the InterContinental Hotels Group and Marriott flags, and therefore, are subject to potential risks associated with the concentration of our hotels under limited brand names. If either of these brands suffers a major decline in popularity with the traveling public, it could adversely affect our revenue and profitability.

We have experienced significant changes in our senior management team.

      There have been a number of changes in our senior management team during the last two years and since our emergence from bankruptcy. Our new chief executive officer was hired in July 2005, our chief operating officer resigned in September 2005 and our chief financial officer resigned in December 2005. On March 1, 2006, we hired James MacLennan as our new chief financial officer. If our management team is unable to develop successful business strategies, achieve our business objectives or maintain effective relationships with employees, suppliers, creditors and customers, our ability to grow our business and successfully meet operational challenges could be impaired.

Our success is dependent on recruiting and retaining high caliber key personnel.

      Our ability to maintain or enhance our competitive position will depend to a significant extent on the efforts and ability of our executive and senior management, particularly our chief executive officer. Our future success and our ability to manage future growth will depend in large part upon the efforts of our management team and on our ability to attract and retain other highly qualified personnel. Competition for personnel is intense, and we may not be successful in attracting and retaining our personnel. Our inability to retain our current management team and attract and retain other highly qualified personnel could hinder our business.

The increasing use of third-party travel websites by consumers may adversely affect our profitability.

      Some of our hotel rooms are booked through third-party travel websites such as Travelocity.com, Expedia.com, Priceline.com and Hotels.com. If these Internet bookings increase, these intermediaries may be in a position to demand higher commissions, reduced room rates or induce other significant contract concessions from us. Moreover, some of these Internet travel intermediaries are attempting to offer hotel rooms as a commodity, by increasing the importance of price and general indicators of quality (such as “three-star downtown hotel”) at the expense of brand identification. Although we expect to continue to derive most of our business through the traditional channels, if the revenue generated through Internet intermediaries increases significantly, room revenues may flatten or decrease and our profitability may be adversely affected.

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We may be unable to utilize all of our net operating loss carryforwards.

      As of December 31, 2005, we had approximately $306 million of net operating loss carryforwards available for federal income tax purposes, which includes an estimated $8.7 million of 2005 tax losses. Approximately $8 million of losses expired unused at December 31, 2005. To the extent that we do not have sufficient future taxable income to be offset by these net operating loss carryforwards, any unused losses will expire between 2006 and 2024. Our ability to use these net operating loss carryforwards to offset future income is also subject to annual limitations. An audit or review by the Internal Revenue Service could result in a reduction in the net operating loss carryforwards available to us.

Many aspects of our operations are subject to government regulations, and changes in these regulations may adversely affect our results of operations and financial condition.

      A number of states and local governments regulate the licensing of hotels and restaurants, including occupancy and liquor license grants, by requiring registration, disclosure statements and compliance with specific standards of conduct. Operators of hotels are also subject to the Americans with Disabilities Act, and various employment laws, which regulate minimum wage requirements, overtime, working conditions and work permit requirements. Compliance with, or changes in, these laws could increase our operating costs and reduce profitability.

Costs of compliance with environmental laws and regulations could adversely affect operating results.

      Under various federal, state, local and foreign environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for non-compliance with applicable environmental and health and safety requirements and for the costs of investigation, monitoring, removal or remediation of hazardous or toxic substances. These laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of hazardous or toxic substances.

      The presence of these hazardous or toxic substances on a property could also result in personal injury or property damage or similar claims by private parties. In addition, the presence of contamination, or the failure to report, investigate or properly remediate contaminated property, may adversely affect the operation of the property or the owner’s ability to sell or rent the property or to borrow funds using the property as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of those substances at the disposal or treatment facility, whether or not that facility is or ever was owned or operated by that person.

      The operation and removal of underground storage tanks is also regulated by federal, state and local laws. In connection with the ownership and operation of our hotels, we could be held liable for the costs of remedial action for regulated substances and storage tanks and related claims.

      Some of our hotels contain asbestos-containing building materials (“ACBMs”). Environmental laws require that ACBMs be properly managed and maintained, and may impose fines and penalties on building owners or operators for failure to comply with these requirements. Third parties may be permitted by law to seek recovery from owners or operators for personal injury associated with exposure to contaminants, including, but not limited to, ACBMs. Operation and maintenance programs have been developed for those hotels which are known to contain ACBMs.

      Many, but not all, of our hotels have undergone Phase I environmental site assessments, which generally provide a nonintrusive physical inspection and database search, but not soil or groundwater analyses, by a qualified independent environmental consultant. The purpose of a Phase I assessment is to identify potential sources of contamination for which the hotel owner or others may be responsible. None of the Phase I environment site assessments revealed any past or present environmental liability that we believe would have a material adverse effect on us. Nevertheless, it is possible that these assessments did not reveal all environmental liabilities or compliance concerns or that material environmental liabilities or compliance concerns exist of which we are currently unaware.

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      Some of our hotels may contain microbial matter such as mold, mildew and viruses, whose presence could adversely affect our results of operations. Phase I assessments performed on certain of our hotels in connection with our refinancing completed at the time of our Chapter 11 bankruptcy emergence identified mold in four of our hotels. We have completed all necessary remediation for these properties. In addition, if any hotel in our portfolio is not properly connected to a water or sewer system, or if the integrity of such systems are breached, microbial matter or other contamination can develop. If this were to occur, we could incur significant remedial costs and we may also be subject to private damage claims and awards.

      Any liability resulting from noncompliance or other claims relating to environmental matters could have a material adverse effect on us and our insurability for such matters in the future and on our results of operations, financial condition, liquidity and prospects.

A downturn in the economy due to high energy costs and gasoline prices could negatively impact our financial performance, our customer guest satisfaction scores and customer service levels.

      We use significant amounts of electricity, gasoline, natural gas and other forms of energy to operate our hotels. A shortage in supply or a period of sustained high energy costs could negatively affect our results of operations. Additionally, a shortage of supply could impact our ability to operate our hotels and could adversely impact our guests’ experience at our hotels, and ultimately, our guest satisfaction scores and potentially our franchisor affiliations.

Risks Related to Our Common Stock

Our common stock could be de-listed from the American Stock Exchange if its listing standards are not maintained.

      The rules of the American Stock Exchange allow the exchange to de-list securities if it determines that a company’s securities fail to meet its guidelines in respect of corporate net worth, public float, number of shareholders, aggregate market value of shares or price per share. We cannot assure purchasers of our common stock that we will continue to meet the American Stock Exchange listing requirements. If our common stock is delisted from the American Stock Exchange, it would likely trade on the OTC Bulletin Board, which is a quotation service for securities which are not listed or traded on a national securities exchange. The OTC Bulletin Board is viewed by most investors as less desirable and a less liquid marketplace. Thus, delisting from the American Stock Exchange could make trading our shares more difficult or expensive for investors, leading to declines in share price. It would also make it more difficult for us to raise additional capital. In addition, we would incur additional costs to sell equity under state blue sky laws if our common stock is not traded on a national securities exchange.

Our stock price may be volatile.

      The market price of our common stock could decline and fluctuate significantly in response to various factors, including:

•  Actual or anticipated variations in our results of operations;

•  Announcements of new services or products or significant price reductions by us or our competitors;

•  Market performance by our competitors;

•  Future issuances of our common stock, or securities convertible into or exchangeable or exercisable for our common stock, by us directly, or the perception that such issuances are likely to occur;

•  Sales of our common stock by stockholders or the perception that such sales may occur in the future;

•  The size of our market capitalization;

•  Loss of our franchises;

•  Default on our indebtedness and/or foreclosure of our properties;

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•  Changes in financial estimates by securities analysts; and

•  Domestic and international economic, legal and regulatory factors unrelated to our performance.

We may never pay dividends on our common stock, in which event our stockholders’ only return on their investment, if any, will occur on the sale of our common stock.

      We have not yet paid any dividends on our common stock, and we do not intend to do so in the foreseeable future. As a result, a stockholders’ only return on their investment, if any, will occur on the sale of our common stock.

Our charter documents, employment contracts and Delaware law may impede attempts to replace or remove our management or inhibit a takeover, which could adversely affect the value of our common stock.

      Our certificate of incorporation and bylaws, as well as Delaware corporate law, contain provisions that could delay or prevent changes in our management or a change of control that you might consider favorable and may prevent you from receiving a takeover premium for your shares. These provisions include, for example:

•  Authorizing the issuance of preferred stock, the terms of which may be determined at the sole discretion of the board of directors;

•  Establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at meetings; and

•  Requiring all stockholder action to be taken at a duly called meeting, not by written consent.

      In addition, we have entered into, and could enter into in the future, employment contracts with certain of our employees that contain change of control provisions.

Item 1B. Unresolved Staff Comments

      We have no unresolved staff comments.

Item 2. Properties

      The information required to be presented in this section is presented in “Item 1. Business.”

Item 3. Legal Proceedings

      The information required to be presented in this section is presented in “Item 1. Business.”

Item 4. Submission of Matters to a Vote of Security Holders

      No matters were submitted to a vote of security holders during the fourth quarter of 2005.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Historical Data

      On April 27, 2004, our Board of Directors authorized a reverse stock split of our Company’s common stock in a ratio of one-for-three (1:3) with resulting fractional shares paid in cash. The reverse split affected all our issued and outstanding common shares, warrants, stock options, and restricted stock. The record date for the reverse split was April 29, 2004 and our new common stock began trading under the split adjustment on April 30, 2004. All stock information has been retroactively restated to reflect the 1:3 reverse stock split.

      Our common stock is traded on the American Stock Exchange under the symbol “LGN.” Prior to November 21, 2001, our common stock traded on the New York Stock Exchange under the symbol “LOD.” Subsequent to November 21, 2001, our common stock traded on the Over-the-Counter Bulletin Board under the trading symbol “LODN.OB.” Subsequent to November 25, 2002, the common stock traded on the Over-the-Counter Bulletin Board under the symbol “LDGIV.OB” until January 28, 2003, when it began trading on the American Stock Exchange under the symbol “LGN.” The following table sets forth the high and low closing prices of our common stock on a quarterly basis for the past two years:

	2004
	High		Low
First Quarter	$	23.94	$	15.60
Second Quarter		18.60		10.50
Third Quarter		10.55		9.60
Fourth Quarter		12.35		9.70

	2005
	High		Low
First Quarter	$	12.03	$	10.25
Second Quarter		11.06		8.39
Third Quarter		10.60		10.02
Fourth Quarter		10.75		9.81

	2006
	High		Low
First Quarter (up to March 1, 2006)	$	13.35	$	10.69

      At March 1, 2006, we had approximately 2,886 holders of record of our common stock.

      Our Preferred Stock also began trading on the American Stock Exchange on January 28, 2003 under the symbol “LGN.pr”. All outstanding shares of the Preferred Stock were either exchanged for common stock or redeemed for cash in 2004 and are no longer traded on any stock exchange.

      We have not declared or paid any dividends on our common stock, and our board of directors does not anticipate declaring or paying any cash dividends in the foreseeable future. We anticipate that all of our earnings, if any, and other cash resources will be retained to fund our business and build cash reserves and will be available for other strategic opportunities that may develop. Future dividend policy will be subject to the discretion of our board of directors, and will be contingent upon our results of operations, financial position, cash flow, liquidity, capital expenditure plan and requirements, general business conditions, restrictions imposed by financing arrangements, if any, legal and regulatory restrictions on the payment of dividends and other factors that our board of directors deems relevant.

      The Preferred Stock issued on November 25, 2002 (the date on which the first of the plans of reorganization became effective) accrued dividends at the rate of 12.25% per annum. As required by the Preferred Stock agreement, we paid the dividend due on November 21, 2003 by issuing additional shares of

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Preferred Stock, except for fractional shares, which we paid in cash. Immediately following the effective date of our equity offering on June 25, 2004, we exchanged 3,941,115 shares of our common stock for 1,483,558 shares of Preferred Stock (“the Preferred Share Exchange”) held by (1) certain affiliates of, and investment accounts managed by, Oaktree Capital Management (“Oaktree”), LLC, (2) BRE/ HY Funding LLC (“BRE/ HY”), and (3) Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”), based on a common stock price of $10.50 per share. In the Preferred Share Exchange, Oaktree, BRE/ HY and Merrill Lynch received 2,262,661, 1,049,034 and 629,420 shares of our common stock, respectively. As part of the Preferred Share Exchange, we recorded a $1.6 million loss on preferred stock redemption for the 4% prepayment premium on the shares of Preferred Stock that were exchanged for common stock. Also, from the proceeds of the public equity offering, on July 26, 2004, we redeemed all 4,048,183 remaining shares of our Preferred Stock for approximately $114.0 million. The 79,278 shares of Preferred Stock that were part of the disputed claims reserve were replaced with a liability of approximately $2.2 million on our consolidated balance sheet. Approximately $4.5 million was paid for the 4% prepayment premium on the Preferred Stock when all remaining outstanding shares were redeemed on July 26, 2004. On June 30, 2005, we completed the final distribution of our bankruptcy claims and released the remaining unused accrual balance of $1.3 million with a corresponding adjustment to Additional Paid-in Capital in our Consolidated Statement of Stockholders’ Equity.

      On July 15, 2004, July 15, 2005 and September 8, 2005, a total of 66,666 restricted stock units previously issued to our CEO, Thomas Parrington, vested in three installments of 22,222 shares. Mr. Parrington, pursuant to the restricted unit award agreement between the Company and him, elected to have the Company withhold 21,633 shares to satisfy the employment tax withholding requirements associated with the vested shares. Accordingly, 21,633 shares were withheld and deemed repurchased by the Company and are shown as treasury stock on our balance sheet.

Equity Compensation Plan Information

      The tables below summarize certain information with respect to our equity compensation plan as of December 31, 2005:

					Number of
	Number of				Securities Remaining
	Securities to be		Weighted-average		Available for Future
	Issued Upon		Exercise Price of		Issuance Under
	Exercise		Outstanding		Equity Compensation
	of Outstanding		Options,		Plans (Excluding
	Options, Warrants		Warrants and		Securities Reflected
	and Rights		Rights		in Column (a))
	(a)		(b)		(c)
Equity compensation plans approved by security holders		593,894	$	10.41		2,545,252
Equity compensation plans not approved by security holders		—		—		—

      On November 25, 2002, the Company adopted a stock incentive plan (“Stock Incentive Plan”) which replaced the stock option plan previously in place. The Stock Incentive Plan, prior to the completion of the secondary stock offering on June 25, 2004, authorized the Company to award its directors, officers, or other key employees or consultants as determined by a committee appointed by the board of Directors, options and other equity incentives to acquire up to 353,333 shares of common stock. With the completion of the secondary stock offering on June 25, 2004, the total number of shares available for issuance under our stock incentive plan increased to 3,301,058 shares. In addition to the issuance of options to acquire 593,894 shares (out of which options for 40,497 shares were exercised), we have issued 121,415 restricted stock shares (net of 21,633 treasury shares) under the plan.

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      Awards made during 2005 pursuant to the Stock Incentive Plan are summarized below:

					Available for
	Issued Under				Issuance Under
	the Stock				the Stock
	Incentive Plan			Type	Incentive Plan
Available under the plan, less previously issued						2,713,314
Issued — January 31, 2005		25,000		stock options		2,688,314
Issued — February 28, 2005		7,500		stock options		2,680,814
Issued — April 18, 2005		2,500		stock options		2,678,314
Issued — May 9, 2005		392,500		stock options		2,285,814
Issued — July 15, 2005		75,000		restricted stock		2,210,814
Issued — September 8, 2005		2,500		stock options		2,208,314
Issued — September 26, 2005		5,000		stock options		2,203,314
Issued — December 29, 2005		5,000		stock options		2,198,314
Options forfeited in 2005		(332,516	)			2,530,830
Shares withheld from awards to satisfy tax withholding obligations		(14,422	)			2,545,252
		168,062

Item 6. Selected Financial Data

Selected Consolidated Financial Data

      We present, in the table below, selected financial data derived from our historical financial statements for the five years ended December 31, 2005. On November 22, 2002, in connection with our emergence from Chapter 11 and in accordance with generally accepted accounting principles, we restated our assets and liabilities to reflect their estimated fair values at that date, referred to as fresh start reporting. As a result, our financial statements for the period subsequent to November 22, 2002 are those of a new reporting entity, and are not comparable with the financial statements for the period prior to November 22, 2002. For this reason, we use the term “Successor” when we refer to periods subsequent to November 22, 2002 and the term “Predecessor” when we refer to the periods prior to November 22, 2002.

      In addition, in accordance with generally accepted accounting principles, our results of operations distinguish between the results of operations of those properties which we plan to retain in our portfolio for the foreseeable future, referred to as continuing operations, and the results of operations of those properties which have been sold or have been identified for sale, referred to as discontinued operations.

      You should read the financial data below in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8. Financial Statements and Supplementary Data” included in this Form 10-K.

      The income statement financial data for the years ended December 31, 2005, December 31, 2004, and December 31, 2003, and selected balance sheet data for the years ended December 31, 2005 and December 31, 2004, were extracted from the audited financial statements included in this Form 10-K, which commences on page F-1.

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		($ in thousands, except per share data)
		Successor											Predecessor
										November 23,			January 1, to
										to December 31,			November 22,
		2005		2004			2003			2002			2002			2001
Income statement data:
Revenues — continuing operations		$	319,264	$	312,425		$	301,398		$	24,273		$	288,802		$	338,235
Revenues — discontinued operations			20,963		47,883			71,153			7,475			89,220			109,321
Revenues — continuing and discontinued operations			340,227		360,308			372,551			31,748			378,022			447,556
Income (loss) — continuing operations			10,449		(31,537	)		(21,765	)		(6,704	)		(84,321	)		(87,782	)
Income (loss) — discontinued operations			1,852		(297	)		(9,912	)		(2,644	)		96,709			(54,982	)
Net income (loss)			12,301		(31,834	)		(31,677	)		(9,348	)		12,388			(142,764	)
Net (loss) income attributable to common stock			12,301		(31,834	)		(39,271	)		(10,858	)		12,388			(142,764	)
(Loss) income from continuing operations attributable to common stock before discontinued operations			10,449		(31,537	)		(29,359	)		(8,214	)		(84,321	)		(87,782	)
Basic earnings (loss) per common share:
	Income (loss) — continuing operations		0.42		(2.28	)		(9.33	)		2.88			(2.96	)		(3.10	)
	Income (loss) — discontinued operations, net of taxes		0.08		(0.02	)		(4.25	)		(1.13	)		3.39			(1.94	)
	Net income (loss)		0.50		(2.30	)		(13.58	)		(4.01	)		0.43			(5.04	)
	Net income (loss) attributable to common stock		0.50		(2.30	)		(16.83	)		(4.65	)		0.43			(5.04	)
	Income (loss) from continuing operations attributable to common stock before discontinued operations		0.42		(2.28	)		(12.58	)		(3.52	)		(2.96	)		(3.10	)
Diluted earnings (loss) per common share:
	Income (loss) — continuing operations		0.42		(2.28	)		(9.33	)		(2.88	)		(2.96	)		(3.10	)
	Income (loss) — discontinued operations, net of taxes		0.08		(0.02	)		(4.25	)		(1.13	)		3.39			(1.94	)
	Net income (loss)		0.50		(2.30	)		(13.58	)		(4.01	)		0.43			(5.04	)
	Net income (loss) attributable to common stock		0.50		(2.30	)		(16.83	)		(4.65	)		0.43			(5.04	)
	Income (loss) from continuing operations attributable to common stock before discontinued operations		0.42		(2.28	)		(12.58	)		(3.52	)		(2.96	)		(3.10	)

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	($ in thousands, except per share data)
	Successor								Predecessor
							November 23,		January 1, to
							to December 31,		November 22,
	2005		2004		2003		2002		2002			2001
Basic weighted average shares(1)		24,576		13,817		2,333		2,333		28,480			28,350
Diluted weighted average shares(1)		24,630		13,817		2,333		2,333		28,480			28,350
Balance sheet data (at period end):
Total assets	$	726,685	$	723,648	$	709,460	$	762,263	$	967,489		$	975,765
Assets held for sale		14,866		30,559		68,617		44		129			160
Long-term debt		394,432		393,143		551,292		389,752		7,215			7,652
Liabilities related to assets held for sale		4,610		30,572		57,998		44		129			160
Liabilities subject to compromise		—		—		—		93,816		926,387			925,894
Mandatorily redeemable 12.25% cumulative Series A preferred stock(2)		—		—		—		126,510		—			—
Total liabilities		466,424		495,385		666,534		553,680		991,040			982,446
Total liabilities and preferred stock		466,424		495,385		666,534		680,190		991,040			982,446
Total stockholders’ equity (deficit)		249,044		226,634		40,606		78,457		(28,841	)		(6,681	)

(1)

The number of shares in the Successor period ended December 31, 2002, represents the new shares issued on the effective date of the plan of reorganization in November 25, 2002. The 28,479,837 old shares were cancelled and 2,333,333 million new shares (on a post reverse stock split basis) were issued, including the shares held in the disputed claims reserve.

(2)

The Preferred Stock was issued on November 25, 2002. At December 31, 2002, the Preferred Stock was classified between long-term debt and equity on the Consolidated Balance Sheet, called the mezzanine section. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 150 which was effective on July 1, 2003, we reclassified the Preferred Stock to long-term debt. The Preferred Stock outstanding at December 31, 2003 was $142.2 million, compared to $126.5 million at December 31, 2002. In addition, dividends for the applicable periods from July 1, 2003 to June 30, 2004 were reported in interest expense. In accordance with SFAS No. 150, we continued to show the dividends for the periods from January 1, 2003 to June 30, 2003 and from November 23, 2002 to December 31, 2002 as deductions from retained earnings. On June 25, 2004, we exchanged 3,941,115 shares of our common stock for 1,483,558 shares of our outstanding Preferred Stock, and, on July 26, 2004, we used a portion of the proceeds of our public offering of common stock to redeem the remaining 4,048,183 shares of outstanding Preferred Stock.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

      You should read the discussion below in conjunction with the consolidated financial statements and accompanying notes. Also, the discussion which follows contains forward-looking statements which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed above under the caption “Risk Factors.”

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Executive Summary

      We are one of the largest independent owners and operators of full-service hotels in the United States in terms of our number of guest rooms, as reported by Hotel Business in the 2006 Green Book issue published in December 2005. We are considered an independent owner and operator because we do not operate our hotels under our own name. We operate substantially all of our hotels under nationally recognized brands, such as “Crowne Plaza,” “Holiday Inn,” “Marriott” and “Hilton.” As of March 1, 2006, we operated 75 hotels with an aggregate of 13,468 rooms, located in 28 states and Canada. Of the 75 hotels we operated as of March 1, 2006, 67 hotels, with an aggregate of 12,144 rooms, are part of our continuing operations, while eight hotels, with an aggregate of 1,324 rooms, are held for sale. Five of the eight hotels, with an aggregate of 868 rooms, were classified as held for sale in the first two months of January 2006 and are, therefore, included in continuing operations at December 31, 2005. Our portfolio of hotels, all of which we consolidate in our financial statements, consists of:

•  71 hotels that we wholly own and operate through subsidiaries; and

•  four hotels that we operate in joint ventures in which we have a 50% or greater equity interest and exercise control.

      In 2003, we developed a strategy of owning and operating a portfolio of profitable, well-maintained and appealing hotels at superior locations in strong markets. We have implemented this strategy by:

•  renovating and repositioning certain of our existing hotels to improve performance;

•  divesting hotels that do not fit this strategy or that are unlikely to do so without significant effort or expense; and

•  acquiring one hotel that better fits this strategy.

      In accordance with this strategy, and our efforts to reduce debt and interest costs, in 2003 we identified 19 hotels, our only office building and three land parcels for sale. In 2003, we sold one hotel and the office building. In 2004, we sold 11 hotels and two land parcels. In 2005, we sold 8 hotels. In 2005, we also identified an additional five hotels as held for sale. In the first two months of 2006, we identified an additional five hotels as held for sale. Since the start of our portfolio improvement strategy in November 2003, we have listed 29 hotels, one office building and three land parcels for sale and we have sold 20 hotels, two land parcels and the office building. The total aggregate sales price of these sales was $95.1 million and, of the $91.2 million in aggregate net proceeds, we used $71.7 million to pay down debt and the balance for general corporate purposes including capital expenditures. One hotel previously included in discontinued operations was reclassified into continuing operations in the fourth quarter 2005 as management no longer expected the hotel to be sold within one year. Additionally, on February 1, 2006, our two Kansas properties were surrendered to the Trustee pursuant to the settlement agreement signed in August 2005. On February 3, 2006, our minority-owned hotel in Columbus, OH, accounted for under the equity method of accounting, was deeded to the lender. As detailed below, after the surrender of these three hotels in the first two months of 2006 and the identification of five additional hotels as held for sale in the first two months of 2006, as of March 1, 2006, our portfolio consisted of 75 hotels, with 67 hotels in continuing operations and eight hotels and one land parcel in discontinued operations.

	Continuing			Discontinued
	Operations			Operations		Total
Hotel count in portfolio as of December 31, 2005		75			3		78
Hotels identified for sale in first quarter 2006		(5	)		5		0
Two Kansas hotels surrendered to Trustee		(2	)		—		(2	)
Columbus hotel deeded to lender		(1	)		—		(1	)
Hotel count in portfolio as of March 1, 2006		67			8		75

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Operating Summary

      Below is a summary of our results of operations, presented in more detail in “Results of Operations-Continuing Operations”:

•  Revenues increased in 2005 due to improved performance in occupancy and ADR, mostly driven by increases in room rate. Revenues for 2005 were negatively affected by the rooms that were displaced by our renovation program, the impact of two hotels that were closed for the balance of 2005 for hurricane repairs (with the exception of the Crowne Plaza West Palm Beach that reopened on December 29, 2005), and the closure of one hotel in the fourth quarter 2005 for repairs related to a water main break;

•  Direct operating expenses increased due to increased revenues and the corresponding increase in variable expenses such as franchise fees which increase with revenues. Other hotel operating costs increased due to data conversion and training costs for property management system upgrades mandated by our franchisors, higher bad debts related to airline Chapter 11 filings, higher advertising and promotion costs related to our newly renovated properties including our two hurricane damaged properties that reopened in December 2005 and January 2006, and significantly higher utility rates;

•  Corporate and other expenses were higher in 2005 due to severance costs, expenses related to the hiring of the Company’s president and chief executive officer, the write-off of a receivable from and the investment in the 30% minority-owned Holiday Inn City Center Columbus, OH hotel, and legal and settlement fees surrounding the two Kansas hotels that were surrendered to the bond Trustee;

•  During 2005, we reached a settlement with our insurance carriers on the property damage related to the 2004 hurricane season and, as a result, recognized a net casualty gain on five hotels offset by additional hurricane expenses at our Radisson New Orleans Airport Hotel and other continuing operations hotels. We also recognized business interruption proceeds for the two Florida hotels that were closed for hurricane repairs;

•  Interest expense decreased in 2005 as compared to 2004 because we incurred significant charges related to the refinancing executed in connection with our secondary stock offering completed on June 25, 2004; and

•  During 2005, we analyzed our assets held for use for conditions of impairment and, where appropriate, recorded impairment charges where the carrying values exceeded their estimated fair values. Our analysis included such factors as cash flow, negative demographic or economic factors in each market and increased guest room supply in each market.

Discontinued Operations

      At December 31, 2005, three hotels and one land parcel were held for sale. At December 31, 2004, seven hotels and one parcel of land were held for sale.

      The combined condensed statement of operations for discontinued operations as of December 31, 2005 includes the results of operations for the three hotels and one land parcel held for sale and the eight hotels that were sold in 2005. The combined condensed statement of operations for discontinued operations as of December 31, 2004 includes the results of operations for the seven hotels and one land parcel held for sale, the 11 hotels that were sold in 2004 and the eight hotels sold in 2005.

      The assets and liabilities related to these held for sale assets are separately disclosed in our consolidated balance sheet.

      Where the carrying values of the assets held for sale exceeded their estimated fair values, net of selling costs, we reduced the carrying values and recorded impairment charges. Fair values were determined using market prices and where the estimated selling prices, net of selling costs, exceeded the carrying values, no adjustments were recorded. We classify an asset as held for sale when management approves and commits to a formal plan to actively market a property for sale. While we believe the completion of these dispositions is

39

probable, the sale of these assets is subject to market conditions and we cannot provide assurance that we will finalize the sale of all or any of these assets on favorable terms or at all.

      Between November 1, 2003 and March 1, 2006, we sold 20 hotels, our only office building and two land parcels for aggregate net proceeds of $91.2 million, of which we used $71.7 million to pay down debt and the balance for general corporate purposes including capital expenditures. For the eight assets sold in 2005, the total revenues for the year ended December 31, 2005 were $12.9 million, the direct operating expenses were $6.9 million, and the other hotel operating expenses were $5.6 million.

      The results of operations of the other 74 hotels that we consolidate in our consolidated financial statements are reported in continuing operations as of December 31, 2005.

Critical Accounting Policies and Estimates

      Our financial statements are prepared in accordance with generally accepted accounting principles (“GAAP”). As we prepare our financial statements, we make estimates and assumptions which affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from our estimates. A summary of our significant accounting policies is included in Note 1 of the notes to our consolidated financial statements. We consider the following to be our critical accounting policies and estimates:

      Consolidation policy — All of our hotels are owned by operating subsidiaries. We consolidate the assets, liabilities and results of operations of those hotels where we own at least 50% of the voting equity interest and we exercise control. All of the subsidiaries are wholly-owned except for five joint ventures, one of which is not consolidated but is accounted for under the equity method of accounting.

      When we consolidate hotels in which we own less than 100% of the voting equity interest, we include the assets and liabilities of these hotels in our consolidated balance sheet. The third party interests in the net assets of these hotels are reported as minority interest on our consolidated balance sheet. In addition, our consolidated statement of operations reflects the full revenues and expenses of these hotels and the third party portion of the net income or loss is reported as minority interest in our consolidated statements of operations. If the loss applicable to the minority interest exceeds the minority’s equity, we report the entire loss in our consolidated statement of operations.

      When we account for an entity under the equity method of accounting, we record only our share of the investment on our consolidated balance sheet and our share of the net income or loss in our consolidated statement of operations. We own a 30% non-controlling equity interest in an unconsolidated joint venture and have historically included our share of this investment in “other assets” on our consolidated balance sheet. Our share of the net income or loss of the unconsolidated joint venture is shown in “interest income and other” in our consolidated statements of operations. In the third quarter 2005 we wrote off the investment in this minority-owned hotel as we had plans to surrender this hotel to its lender.

      Deferral policy — We defer franchise application fees on the acquisition or renewal of a franchise as well as loan origination costs related to new or renewed loan financing arrangements. Deferrals relating to the acquisition or renewal of a franchise are amortized on a straight-line basis over the period of the franchise agreement. We amortize deferred financing costs over the term of the loan using the effective interest method. The effective interest method incorporates the present values of future cash outflows and the effective yield on the debt in determining the amortization of loan fees. At December 31, 2005, these deferrals totaled $6.3 million for our continuing operations hotels. If we were to write these expenses off in the year of payment, our operating expenses in those years would be significantly higher.

      Asset impairment — We invest significantly in real estate assets. Property and equipment represent 83.5% of the total assets on our consolidated balance sheet at December 31, 2005. Accordingly, our policy on asset impairment is considered a critical accounting estimate. Under GAAP, real estate assets are stated at the lower of depreciated cost or fair value, if deemed impaired. Management periodically evaluates the Company’s property and equipment to determine whether events or changes in circumstances indicate that a possible

40

impairment in the carrying values of the assets has occurred. The carrying value of a long-lived asset is considered for impairment when the undiscounted cash flows estimated to be generated by that asset over its estimated useful life is less than the asset’s carrying amounts. In determining the undiscounted cash flows we consider the current operating results, market trends, and future prospects, as well as the effects of demand, competition and other economic factors. If it is determined that an impairment has occurred, the excess of the asset’s carrying value over its estimated fair value is charged to operating expenses. We obtain fair values through broker valuations or appraisals. These broker valuations of fair value normally use the “cap rate” approach of estimated cash flows, a “per key valuation” approach, or a “room revenue multiplier” approach for determining fair value. If the projected future cash flow exceeds the asset’s carrying values, no adjustment is recorded. Impairment loss for an asset held for sale is recognized when the asset’s carrying value is greater than the fair value less estimated selling costs. See Note 3 for further discussion of the Company’s charges for asset impairment.

      As part of this evaluation, and in accordance with Statement of Financial Accounting Standard (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”), we classify our properties into two categories, “assets held for sale” and “assets held for use”.

      We consider an asset held for sale when the following criteria per SFAS No. 144 are met:

      1. Management commits to a plan to sell the asset;

      2. The asset is available for immediate sale in its present condition;

      3. An active marketing plan to sell the asset has been initiated at a reasonable price;

      4. The sale of the asset is probable within one year; and

      5. It is unlikely that significant changes to the plan to sell the asset will be made.

      Upon designation of an asset as held for sale, we record the carrying value of the asset at the lower of its carrying value or its estimated fair value (which is determined after consultation with real estate brokers) less estimated selling costs, and we cease depreciation of the asset. The fair values of the assets held for sale are based on the estimated selling prices. We determine the estimated selling prices in conjunction with real estate brokers. The estimated selling costs are based on our experience with similar asset sales. We record impairment charges and write-down respective hotel assets if their carrying values exceed the estimated selling prices less costs to sell. During 2005, we recorded $4.0 million of impairment losses on six assets held for sale. During 2004, we recorded $7.2 million of impairment losses on seven hotels and two land parcels held for sale.

      With respect to assets held for use, we estimate the undiscounted cash flows to be generated by these assets. We then compare the estimated undiscounted cash flows for each hotel with their respective carrying values to determine if there are indicators of impairment. The carrying value of a long-lived asset is considered for impairment when the undiscounted cash flows to be generated by the asset over its estimated useful life is less than the asset’s carrying value. For those assets where there are indicators of impairment, we determine the estimated fair values of these assets using broker valuations or appraisals. The broker valuations of fair value normally use the “cap rate” approach of estimated cash flows, a “per key” approach or a “room revenue multiplier” approach for determining fair value. If the projected future cash flow exceeds the assets carrying value, no adjustment is recorded. During 2005, we recorded $8.3 million of impairment losses, with $7.9 million on six hotels held for use and $0.4 million for net book value write-offs for held for use assets that were replaced in 2005 and had remaining book value. During 2004, we recorded $4.9 million of impairment losses with $4.4 million in adjustments made to the carrying value on two hotels and $0.5 million for net book value write-offs for assets that were replaced in 2004 that had remaining book value.

      Accrual of self-insured obligations — We are self-insured up to certain amounts with respect to employee medical, employee dental, property insurance, general liability insurance, personal injury claims, workers’ compensation, automobile liability and other coverages. We establish reserves for our estimates of the loss that we will ultimately incur on reported claims as well as estimates for claims that have been incurred but not yet reported. Our reserves, which are reflected in other accrued liabilities on our consolidated balance sheet, are based on actuarial valuations and our history of claims. Our actuaries incorporate historical loss experience

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and judgments about the present and expected levels of costs per claim. Trends in actual experience are an important factor in the determination of these estimates. We believe that our estimated reserves for such claims are adequate; however, actual experience in claim frequency and amount could materially differ from our estimates and adversely affect our results of operations, cash flow, liquidity and financial condition. As of December 31, 2005, we had an accrued balance of $12.4 million for these expenses.

Income Statement Overview

      The discussion below focuses primarily on our continuing operations. In the continuing operations discussions, we compare the results of operations for the last three years for 75 consolidated hotels that as of December 31, 2005 are classified as assets held for use.

Revenues

      We categorize our revenues into the following three categories:

•  Room revenues — derived from guest room rentals;

•  Food and beverage revenues — derived from hotel restaurants, room service, hotel catering and meeting room rentals; and

•  Other revenues — derived from guests’ long-distance telephone usage, laundry services, parking services, in-room movie services, vending machine commissions, leasing of hotel space and other miscellaneous revenues.

      Transient revenues, which generally account for approximately 71% of room revenues, are revenues derived from individual guests who stay only for brief periods of time without a long-term contract. Demand from groups makes up approximately 24% of our room revenues while our contract revenues (such as contracts with airlines for crew rooms) account for the remaining 5%.

      We believe revenues in the hotel industry are best explained by the following four key performance indicators:

•  Occupancy — computed by dividing total room nights sold by the total available room nights;

•  Average Daily Rate (ADR) — computed by dividing total room revenues by total room nights sold; and

•  Revenue per available room (RevPAR) — computed by dividing total room revenues by total available room nights. RevPAR can also be obtained by multiplying the occupancy by the ADR.

•  RevPAR Index — computed by dividing Lodgian’s RevPAR performance by the industry (or market) RevPAR performance which is a measure of market share.

      To obtain available room nights for a year, we multiply the number of rooms in our portfolio by the number of days in the year. To obtain available room nights for a hotel sold during the year, we multiply the number of rooms in the hotel by the number of days between January 1 and the date the hotel was sold. We have adjusted available rooms accordingly, for the Crowne Plaza Melbourne, FL hotel, which was closed throughout 2005 due to hurricane renovations, the Crowne Plaza West Palm Beach, FL hotel that reopened December 29, 2005 after the completion of its hurricane repairs, and the Clarksburg, WV hotel, which closed in October 2005 as a result of damage caused from a water main break. The hotel reopened on January 31, 2006.

      These measures are influenced by a variety of factors including national, regional and local economic conditions, the degree of competition with other hotels in the area and changes in travel patterns. The demand for accommodations is also affected by normally recurring seasonal patterns and most of our hotels experience lower occupancy levels in the fall and winter months, November through February, which generally results in lower revenues, lower net income and less cash flow during these months.

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Operating expenses

      Operating expenses fall into the following categories:

•  Direct expenses — these expenses tend to vary with available rooms and occupancy. However, hotel level expenses contain significant elements of fixed costs and, therefore, do not decline proportionately with revenues. Direct expenses are further categorized as follows:

•  Room expenses — expenses incurred in generating room revenues;

•  Food and beverage expenses — expenses incurred in generating food and beverage revenues; and

•  Other direct expenses — expenses incurred in generating the revenue activities classified in “other revenue”;

•  Other hotel operating expenses — these expenses include salaries for hotel management, advertising and promotion, franchise fees, repairs and maintenance and utilities;

•  Property and other taxes, insurance and leases — these expenses include equipment, ground and building rentals, insurance, and property, franchise and other taxes;

•  Corporate and other — these expenses include corporate salaries and benefits, legal, accounting and other professional fees, directors’ fees, costs for office space and information technology costs. Also included are costs related to compliance with Sarbanes-Oxley legislation;

•  Casualty (gains) losses, net — these expenses include hurricane repair costs and charges related to the assets written off that were damaged during the 2004 and 2005 hurricane seasons, netted again any gains realized on the final settlement of our property damage claims;

•  Depreciation and amortization — depreciation of fixed assets (primarily hotel assets) and amortization of deferred franchise fees; and

•  Impairment of long-lived assets — charges which were required to write-down the carrying values of long-term assets to their fair values on assets where the undiscounted cash flows over the life of the asset were less than the carrying value of the asset.

Non-operating items

      Non-operating items include:

•  Business interruption insurance proceeds represent proceeds from our insurance company for lost profits as a result of a business shutdown. Our 2005 business interruption proceeds relate to the recovery of lost profits and reimbursement for additional expenses incurred as a result of hurricane damage sustained during the 2004 hurricane season;

•  Interest expense and other financing costs includes preferred stock dividend, interest expense which includes amortization of deferred loan costs, and loss on preferred stock redemption;

•  Interest income;

•  Our 30% share of the income or loss of our non-controlling equity interest in one hotel, for which we account under the equity method of accounting for 2004 and prior years but which we wrote off in 2005 as the hotel was surrendered to the lender on November 15, 2005; and

•  Minority interests — our equity partners’ share of the income or loss of the four hotels owned by joint ventures that we consolidate.

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Results of Operations — Continuing Operations

Results of operations for the twelve months ended December 31, 2005 and December 31, 2004

Revenues — Continuing Operations

		2005			2004			Increase (decrease)
	Rooms	$	241,441		$	231,255		$	10,186		4.4	%
	Food and beverage		67,715			70,631			(2,916	)	(4.1	)%
	Other		10,108			10,539			(431	)	(4.1	)%
	Total revenues	$	319,264		$	312,425		$	6,839		2.2	%
Occupancy			62.0	%		61.5	%				0.8	%
ADR		$	82.92		$	78.00		$	4.92		6.3	%
RevPAR		$	51.37		$	47.96		$	3.41		7.1	%

      Room revenues increased $10.2 million or 4.4% due to higher occupancy and ADR. Occupancy increased 0.8% and ADR increased 6.3%. Total 2005 revenues increased $6.8 million or 2.2% despite the closure of two hotels (the Crowne Plaza West Palm Beach, FL and the Crowne Plaza Melbourne, FL) for hurricane repairs and displacement at eleven other hotels undergoing guest room renovation including the Holiday Inn Clarksburg, WV hotel that was closed in October 2005 for repair work related to a water main break. Displacement refers to lost revenue and profit due to rooms being out of order as a result of renovation or hurricane repairs. Estimated 2005 full year room and total revenue displacement for the Crowne Plaza West Palm Beach, FL and Crowne Plaza Melbourne, FL hotels, as calculated in the business interruption claims, are $12.6 million and $17.0 million. Revenue is considered “displaced” only when a hotel has sold all available rooms and denies additional reservations due to rooms being out of order. We feel this method is conservative, as it does not include estimated other or “soft” displacement associated with a renovation; for example, guests who depart earlier than planned due to the disruption caused by the renovation work, local customers or frequent guests who may choose an alternative hotel during the renovation, or local groups that may not solicit the hotel to house their groups during renovations. The eleven hotels undergoing guest room renovation resulted in $4.0 million in room revenue displacement and $5.0 million in total revenue displacement in 2005. Accordingly, for the twelve months ended December 31, 2005, total room revenue displacement was $16.6 million and total revenue displacement was $22.0 million.

      For the fourth quarter 2005, total revenues increased $5.2 million or 7.3% despite the closure of two hotels (the Crowne Plaza West Palm Beach, FL and the Crowne Plaza Melbourne, FL) for hurricane repairs and displacement at five other hotels undergoing renovation including the Holiday Inn Clarksburg, WV hotel that was closed in October 2005 for repair work related to a water main break. Estimated fourth quarter 2005 room and total revenue displacement for the Crowne Plaza West Palm Beach, FL and the Crowne Plaza Melbourne, FL hotels, as calculated in the business interruption claims, are $2.7 million and $3.8 million, respectively. The five hotels under renovation resulted in $0.7 million in room revenue displacement and $0.9 million in total revenue displacement. Accordingly, for the three months ended December 31, 2005, total room revenue displacement was $3.4 million and total revenue displacement was $4.7 million.

      The table below shows our occupancy, ADR, RevPAR and RevPAR Index (market share) for our continuing operations hotels for the twelve months ended December 31, 2005. To illustrate the impact of the two hotels closed throughout most of 2005 due to hurricane damage and the Holiday Inn Clarksburg, WV for repairs related to a water main break on our continuing operations, the impact of renovations underway and completed, and the impact of rebranding, we have presented this information into seven different subsets. These subsets indicate that our Marriott and Hilton branded hotels outperformed our IHG branded hotels. In addition, these subsets indicate that where we have recently completed a major renovation, we saw an increase in RevPAR that is greater than the average increase for all of our continuing operations hotels. During 2005 we had eleven hotels under renovation. Eight of the eleven hotels were IHG hotels. As a result, these eight IHG hotels had 117,149 room nights out of service. This is an average of 321 rooms per day which represents approximately 18.6% of the available inventory at these eight hotels. Capital expenditures for the twelve

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months ended December 31, 2005 for these eight IHG hotels were $21.9 million. These renovations had a direct impact on the performance of these IHG hotels during the period.

					Twelve Months Ended
Hotel Count		Room Count			12/31/2005			12/31/2004			Change		% Change
	74		13,401	All Continuing Operations
				Occupancy		62.0	%		61.5	%				0.8%
				ADR	$	82.92		$	78.00		$	4.92		6.3%
				RevPAR	$	51.37		$	47.96		$	3.41		7.1%
	72		12,910	Continuing Operations less two hotels closed due to hurricane damage
				Occupancy		62.0	%		61.3	%				1.1%
				ADR	$	82.92		$	77.59		$	5.33		6.9%
				RevPAR	$	51.37		$	47.54		$	3.83		8.1%
				RevPAR Index		97.7	%		97.7	%				0.0%
	48		8,981	Continuing Operations less two hotels closed due to hurricane damage, one closed due to water damage and hotels under renovation in the first, second, third or fourth quarters of 2004 and 2005
				Occupancy		61.0	%		60.0	%				1.7%
				ADR	$	80.43		$	76.12		$	4.31		5.7%
				RevPAR	$	49.07		$	45.65		$	3.42		7.5%
				RevPAR Index		97.8	%		97.4	%				0.4%
	21		3,013	Hotels completing major renovations in 2003 and 2004
				Occupancy		69.9	%		65.1	%				7.4%
				ADR	$	88.75		$	83.29		$	5.46		6.6%
				RevPAR	$	61.99		$	54.19		$	7.80		14.4%
				RevPAR Index		107.0	%		102.6	%				4.3%
	15		1,740	Marriott Hotels
				Occupancy		71.0	%		67.7	%				4.9%
				ADR	$	90.40		$	85.07		$	5.33		6.3%
				RevPAR	$	64.02		$	57.60		$	6.42		11.1%
				RevPAR Index		117.3	%		115.2	%				1.8%
	4		777	Hilton Hotels
				Occupancy		66.9	%		64.3	%				4.0%
				ADR	$	96.59		$	91.35		$	5.24		5.7%
				RevPAR	$	64.61		$	58.74		$	5.87		10.0%
				RevPAR Index		97.0	%		93.5	%				3.7%

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					Twelve Months Ended
Hotel Count		Room Count			12/31/2005			12/31/2004			Change		% Change
	44		8,722	IHG Hotels less two hotels closed due to hurricane damage and one closed for water damage
				Occupancy		61.9	%		62.5	%				(1.0%	)
				ADR	$	81.66		$	76.92		$	4.74		6.2%
				RevPAR	$	50.53		$	48.07		$	2.46		5.1%
				RevPAR Index		94.6	%		96.4	%				(1.9%	)
	8		1,512	Other Brands and Independent Hotels(A)
				Occupancy		48.5	%		44.5	%				9.0%
				ADR	$	72.42		$	63.47		$	8.95		14.1%
				RevPAR	$	35.10		$	28.27		$	6.83		24.2%
				RevPAR Index		91.9	%		81.2	%				13.2%

           (A) Other Brands and Independent Hotels include the Radisson New Orleans Airport Hotel in Kenner, LA that has seen dramatic increases in Occupancy and ADR, and correspondingly, RevPAR, since September 2005. For this grouping of hotels, after adjusting for the impact of the Radisson hotel, RevPAR would have increased 0.8% for the year and RevPAR Index would have decreased 3.8%.

      Our competitive set RevPAR growth as compared to the lodging industry as a whole has been trending positive over the past eight quarters, which we believe is a result of the improving conditions in the markets in which we operate. As shown below, in the first quarter 2004 the Smith Travel Research (“STR”) market segments in which we operates grew RevPAR at only 58.4% of the U.S. industry average. By the third quarter 2005 and continuing into the fourth quarter 2005, the STR market segments in which we operate had RevPAR growth that exceeded the U.S. average at 101.2% and 101.0%, respectively. We are encouraged that the markets in which we operate are now performing at levels consistent with the national average. As we complete our renovations we will be positioned to improve our RevPAR indices.

RevPAR in Markets in Which Lodgian Operates

Markets in which
Lodgian Operates										Comp
(A)		Quarter		Comp Sets			Industry			Set/Industry
	71		1st Qtr ’04		4.5	%		7.7	%		58.4	%
	71		2nd Qtr ’04		5.6	%		8.6	%		65.1	%
	71		3rd Qtr ’04		5.2	%		6.4	%		81.3	%
	71		4th Qtr ’04		7.6	%		8.4	%		90.5	%
	71		1st Qtr ’05		6.3	%		7.2	%		87.5	%
	71		2nd Qtr ’05		8.1	%		8.3	%		97.6	%
	71		3rd Qtr ’05		8.4	%		8.3	%		101.2	%
	69		4th Qtr ’05		10.0	%		9.9	%		101.0	%

(A)  The 69 hotels in the 4th quarter 2005 include the 75 hotels in our continuing operations portfolio less the hotels in West Palm Beach; Melbourne; Windsor, Canada; Pinehurst; Clarksburg and Columbus.

      Food and beverage revenues declined $2.9 million or 4.1% from 2004 due to the continued closure of the Crowne Plaza West Palm Beach, FL and the Crowne Plaza Melbourne, FL hotels. After adjusting for the impact of the two hotels closed for hurricane renovations, food and beverage revenues were essentially the same as in 2004. Other revenues, which declined by $0.4 million or 4.1%, were affected by a decline in

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telephone revenues as a result of the increased usage of cell phones by our guests as well as the availability of free high speed internet access at many of our hotels, and the continued closure of the Crowne Plaza West Palm Beach, FL and the Crowne Plaza Melbourne, FL hotels.

Direct operating expenses — Continuing Operations

	2005			2004			Increase (decrease)
				($ in thousands)
Direct operating expenses:
Rooms	$	67,344		$	65,019		$	2,325		3.6	%
Food and beverage		48,710			49,966			(1,256	)	(2.5	)%
Other		8,050			7,907			143		1.8	%
Total direct operating expenses	$	124,104		$	122,892		$	1,212		1.0	%
% of total revenues		38.9	%		39.3	%

      Rooms direct operating expenses increased $2.3 million or 3.6% from 2004 due to higher revenues. Total direct operating expenses increased $1.2 million or 1.0% from 2004 while total revenues increased $6.8 million or 2.2%. Total direct operating expenses as a percentage of total revenues were 38.9% in 2005 as compared to 39.3% in 2004 primarily as a result of cost containment initiatives undertaken in 2005.

      Room expenses on an actual cost per occupied room basis increased from $21.93 in 2004 to $23.13 in 2005 or 5.5% primarily as a result of increases in payroll and benefit costs (up 3.7% or 42.5% of the total increase), guest and operating supplies and linen replacement costs due to mandatory program changes required by our franchisors (11.7% of the total increase), credit card, travel agent and other commissions (30.0% of the total increase), and enhanced complimentary food and beverage items to guests enrolled in our brand loyalty programs (17.5% of the total increase). Per occupied room payroll expenses excluding taxes and benefits were up 2.6% while payroll taxes and benefits increased 6.9% as a percent of payroll dollars. Health insurance costs as a percentage of payroll dollars increased approximately 36% in 2005 versus 2004.

      Food and beverage expenses decreased $1.3 million or 2.5% from 2004 as a result of lower food and beverage revenues. The food and beverage profit margin declined 120 basis points as a result of the displaced ala carte and banquet revenues due to the ongoing property renovations as well as higher health insurance costs. After adjusting for the impact of the two closed Florida hotels, the Crowne Plaza West Palm Beach, FL and the Crowne Plaza Melbourne, FL, the food and beverage profit margin declined by 90 basis points from 2004.

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Other operating expenses — Continuing Operations

		2005			2004			Increase (decrease)
		($ in thousands)
Other operating expenses:
Other hotel operating costs
	General and administrative	$	22,745		$	21,011		$	1,734		8.3	%
	Advertising and promotion		16,583			14,932			1,651		11.1	%
	Franchise fees		22,158			21,225			933		4.4	%
	Repairs and maintenance		18,052			17,589			463		2.6	%
	Utilities		20,422			18,282			2,140		11.7	%
	Other expenses		460			77			383		496.9	%
Total other hotel operating expenses			100,420			93,116			7,304		7.8	%
Property and other taxes, insurance and leases			22,369			21,247			1,122		5.3	%
Corporate and other			21,063			16,824			4,239		25.2	%
Casualty (gains) losses, net			(30,929	)		2,313			(33,243	)	(1,436.9	)%
Depreciation and amortization			29,647			26,666			2,981		11.2	%
Impairment of long-lived assets			8,347			4,877			3,470		71.2	%
Total other operating expenses		$	150,917		$	165,043		$	(14,127	)	(8.6	)%
% of total revenues			47.3	%		52.8	%

      Other hotel operating costs increased $7.3 million or 7.8% from 2004 as a result of increases in the following costs:

•  General and administrative costs increased $1.7 million or 8.3%, primarily due to $0.3 million of increased costs related to our property management system conversions, $0.9 million of increased costs related to group medical insurance claims and additional payroll costs, a $0.3 million increase in vacation pay accruals and the $0.5 million write-off of the Delta Airlines and Northwest Airlines receivables as a result of their respective Chapter 11 bankruptcy filings;

•  Advertising and promotion expenses increased $1.7 million or 11.1% primarily due to $1.5 million of increased costs related to the addition of sales personnel and sales programs to promote our newly renovated properties including the Crowne Plaza West Palm Beach, FL and the Crowne Plaza Melbourne, FL hotels, and $0.1 million in added costs related to increased group medical insurance claims;

•  Franchise fees increased $0.9 million or 4.4% primarily as a result of increased revenues. As a percentage of room revenues, 2005 franchise fees were unchanged as compared to 2004 at 9.2%; and

•  Utilities costs increased $2.1 million or 11.7% primarily as a result of significantly higher utility rates.

      Property and other taxes, insurance and leases increased $1.1 million or 5.3% in 2005 primarily because in 2004 expenses were reduced by the settlement of a deferred ground rent obligation for $1.0 million less than what had been previously expensed.

      Corporate and other expenses increased $4.2 million or 25.2% primarily due to $0.6 million in severance costs related to the resignations of our former CEO, COO and CFO including the acceleration of the unvested portion of our former CEO’s restricted stock, $1.1 million of expenses related to hiring costs including signing bonus, restricted stock grants and moving allowance for our new president and chief executive officer, a $0.9 million write-off of the receivable from and the investment in the 30% minority-owned Holiday Inn City Center Columbus, OH. Additionally, we incurred approximately $1.0 million in added legal costs including

48

the $0.5 million settlement for the two Kansas hotels surrendered to the bond Trustee in early 2006. Additionally, expenses were higher year over year because in 2004 we recorded a reduction in our sales and use tax audit reserve that resulted in our 2004 expenses being $1.5 million lower. We realized savings in 2005 on lower Directors & Officers (“D&O”) premiums due to favorable trends in the D&O markets, lower post-emergence Chapter 11 expenses as we have now completed the bankruptcy claims distribution process, lower audit fees, including attestation fees, as a result of the second year of Sarbanes-Oxley (“SOX”), and lower costs related to SOX compliance. In 2005, costs related to Sarbanes-Oxley totaled approximately $0.8 million.

      Casualty (gains) losses, net represent costs related to hurricane damage sustained in the 2004 and 2005 hurricane seasons offset by gains related to the final settlement of the property damage claims at five hotels. In 2005, we recognized a net casualty gain of $30.9 million. We recorded a $31.3 million in casualty gains on the settlement of property damage claims on five hotels: (1) the Crowne Plaza West Palm Beach, FL; (2) the Holiday Inn University Mall Pensacola, FL; (3) the Holiday Inn Winter Haven, FL; (4) the Crowne Plaza Melbourne, FL; and (5) the Holiday Inn Express University Mall Pensacola, FL, which was offset by $0.4 million of hurricane repair expenses on the Radisson New Orleans Airport Hotel in Kenner, LA and other continuing operations hotels. In 2004, we recorded $2.3 million in expenses related to the write-off the net book value of our damaged assets and hurricane repair costs.

      Depreciation and amortization expenses increased $3.0 million or 11.2% primarily due to the completion of numerous renovation projects, thereby resulting in higher depreciation expense related to newly capitalized costs.

      The impairment of long-lived assets of $8.3 million recorded during 2005 represents $7.9 million in reductions made to the carrying values of six hotels held for use, to bring them in line with their estimated fair values, and $0.4 million for furniture, fixtures and equipment net book value write-offs for items that were replaced in 2005. Consistent with our accounting policy on asset impairment and in accordance with SFAS No. 144, we periodically evaluate our real estate assets to determine if there has been any impairment in the carrying value. We record impairment charges if there are indicators of impairment and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying values. With respect to assets held for use, we estimate the undiscounted cash flows to be generated by these assets. We then compare the estimated undiscounted cash flows for each hotel with their respective carrying values to determine if there are indicators of impairment. If there are indicators of impairment, we determine the estimated fair values of these assets in conjunction with real estate brokers. These broker valuations of fair value normally use the “cap rate” approach of estimated cash flows, a “per key” approach, or a “room revenue” multiplier approach for determining fair value. As a result of these evaluations, we recorded impairment charges in 2005 as follows:

      a) $1.6 million on the Holiday Inn Lawrence, KS hotel due to a reduced fair value appraisal;

      b) $1.1 million on the Park Inn Brunswick, GA to write-off the capital improvements made on this property related to the franchise conversion that did not result in an increase in the fair value of this hotel;

      c) $0.9 million on the Holiday Inn Hamburg, NY hotel as the undiscounted future cash flows were less than the asset’s carrying value and the resulting broker opinion required a write-down of the carrying value of the asset to its fair value;

      d) $1.7 million on the Holiday Inn Sheffield, AL as this hotel was identified for sale in January 2006 and the estimated selling price was less than the asset’s carrying value;

      e) $1.8 million on the Fairfield Inn Valdosta, GA as this hotel was identified for sale in January 2006 and the estimated selling price was less than the asset’s carrying value; and

      f) $1.0 million on the Fairfield Inn Merrimack, NH hotel as the undiscounted future cash flows were less than the asset’s carrying value and the resulting broker opinion required a write-down of the carrying value of the asset value to its fair value.

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Non-operating income (expenses) — Continuing Operations

		2005			2004			Increase (decrease)
					($ in thousands)
Non-operating income (expenses):
Business interruption proceeds		$	9,595		$	—		$	9,595		n/m
Interest income and other			855			681			174		25.6	%
Interest expense and other financing costs:
	Preferred stock dividend		—			(9,383	)		9,383		(100.0	)%
	Other interest expense		(27,675	)		(41,725	)		14,050		(33.7	)%
	Loss on preferred stock redemption		—			(6,063	)		6,063		(100.0	)%
Minority interests			(9,588	)		691			(10,279	)	(1,487.6	)%

      Business interruption proceeds relate to the Crowne Plaza West Palm Beach, FL and the Crowne Plaza Melbourne, FL hotels that were closed as a result of damage sustained in the 2004 hurricanes. Business interruption proceeds represent funds received or amounts for which proofs of loss had been signed for the periods from September 2004 to November 2005 for the Crowne Plaza West Palm Beach, FL hotel and September 2004 to December 2005 for the Crowne Plaza Melbourne, FL hotel. At December 31, 2005, $2.9 million was accrued for business interruption proceeds with a corresponding insurance receivable on our consolidated balance sheet.

      The $9.4 million of Preferred Stock dividend costs in 2004 relate to dividends on the Preferred Stock issued on November 25, 2002, all of which were either exchanged for common stock immediately following our equity offering on June 25, 2004 or redeemed using proceeds of that offering on July 26, 2004.

      Interest expense decreased $14.1 million or 33.7% in 2005 primarily due to increased costs in 2004 related to the following: 1) purchase of a $1.9 million swaption contract, 2) the write-off of $6.7 million of deferred loan costs due to the extinguishment of the Merrill Lynch Mortgage, Lehman Debt, and Macon Debt, 3) $2.7 million of prepayment penalties incurred for early retirement on the Merrill Lynch Mortgage debt, and 4) $0.8 million in loan origination costs incurred as part of the 2004 debt refinance.

      The 2004 loss on preferred stock redemption of $6.1 million includes the 4% prepayment premium of $1.6 million that was recognized when we exchanged shares of our common stock for a portion of the outstanding shares of our Preferred Stock and the 4% prepayment premium of $4.5 million, which was paid when the remaining shares of our Preferred Stock were redeemed on July 26, 2004.

      Minority interests represent the third party owners’ share of the net income (losses) of the joint ventures in which we have a controlling interest. The $10.3 million increase in minority interest adjustments primarily resulted from the casualty gain realized on the property damage settlement and the business interruption proceeds realized on the Crowne Plaza Melbourne, FL hotel.

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Results of operations for the twelve months ended December 31, 2004 and December 31, 2003

Revenues — Continuing Operations

							Increase
	2004			2003			(decrease)
	($ in thousands)
Revenues:
Rooms	$	231,255		$	221,543		$	9,712		4.4	%
Food and beverage		70,631			69,016			1,615		2.3	%
Other		10,539			10,839			(300	)	(2.8	)%
Total revenues	$	312,425		$	301,398		$	11,027		3.7	%
Occupancy		61.5	%		60.4	%				1.8	%
ADR	$	78.00		$	75.48		$	2.52		3.3	%
RevPAR	$	47.96		$	45.57		$	2.39		5.2	%

      The $9.7 million or 4.4% increase in room revenues resulted from increases in occupancy and ADR. Occupancy increased 1.8% and ADR increased 3.3%. While occupancy increased 1.8% from 2003, it was negatively impacted by renovations being performed at 16 hotels during 2004, by lost business leading up to the hurricanes that hit the Southeastern United States in the third quarter and by the continued closure of two hotels (the Crowne Plaza West Palm Beach, FL and the Crowne Plaza Melbourne, FL) as they underwent hurricane renovation work. We made substantial progress on our renovation program in 2004, but with many rooms out of service while under renovation, we experienced substantial room revenue displacement. The increase in ADR results from increasing demand for hotels as the economy improved and the shift away from Internet sales that involve more heavily discounted room rates. As we complete our renovation programs, we anticipate our occupancy and ADR performance will continue to improve.

      Food and beverage revenues increased $1.6 million or 2.3% from 2003 despite the continued closure of our Crowne Plaza West Palm Beach, FL and Crowne Plaza Melbourne, FL hotels. Other revenues, which decreased by 2.8%, were affected by a decline in telephone revenues as a result of the increased usage of cell phones by our guests as well as the availability of free high speed internet access at many of our hotels, and the continued closure of our the Crowne Plaza West Palm Beach, FL and the Crowne Plaza Melbourne, FL hotels.

Direct operating expenses — Continuing Operations

							Increase
	2004			2003			(decrease)
	($ in thousands)
Direct operating expenses:
Rooms	$	65,019		$	62,968		$	2,051	3.3	%
Food and beverage		49,966			47,643			2,323	4.9	%
Other		7,907			7,799			108	1.4	%
Total direct operating expenses	$	122,892		$	118,410		$	4,482	3.8	%
% of total revenues		39.3	%		39.3	%

      Direct operating expenses were higher due to higher revenues. Total direct operating expenses as a percentage of hotel revenues remained flat at 39.3% in 2004. Revenues increased 3.7% and total direct operating expenses increased 3.8%.

      Room expenses on an actual cost per occupied room basis increased from $21.45 in 2003 to $21.93 in 2004 primarily as a result of increases in payroll and benefit costs (8.3% of the total increase), reservation equipment costs due to mandatory upgrades required by the InterContinental Hotel Group brands (18.8% of

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the total increase), credit card, travel agent and other commissions (39.6% of the total increase), and enhanced complimentary food and beverage items to guest enrolled in our brand loyalty programs (16.7% of the total increase).

      Food and beverage expenses increased $2.3 million or 4.9% from 2003 primarily as a result of increased revenues.

Other operating expenses — Continuing Operations

		2004			2003			Increase (decrease)
		($ in thousands)
Other operating expenses:
Other hotel operating costs
	General and administrative	$	21,011		$	18,977		$	2,034		10.7	%
	Advertising and promotion		14,932			14,447			485		3.4	%
	Franchise fees		21,225			19,831			1,394		7.0	%
	Repairs and maintenance		17,589			16,983			606		3.6	%
	Utilities		18,282			18,039			243		1.3	%
	Other expenses		77			153			(76	)	(49.7	)%
Total other hotel operating expenses			93,116			88,430			4,686		5.3	%
Property and other taxes, insurance and leases			21,247			24,313			(3,066	)	(12.6	)%
Corporate and other			16,824			20,482			(3,658	)	(17.9	)%
Casualty (gains) losses, net			2,313			—			2,313		n/m
Depreciation and amortization			26,666			28,427			(1,761	)	(6.2	)%
Impairment of long-lived assets			4,877			8,396			(3,519	)	(41.9	)%
Total other operating expenses		$	165,043		$	170,048		$	(5,005	)	(2.9	)%
% of total revenues			52.8	%		56.5	%

      Other hotel operating costs increased $4.7 million or 5.3% from 2003 as a result of increases in the following costs:

•  General and administrative costs increased $2.0 million or 10.7% primarily due $0.9 million in costs related to salary and employee benefits, $0.2 million in costs related to labor union contract negotiations and $0.6 million in higher bad debt costs related to airline contracts;

•  Advertising and promotion expenses increased $0.5 million or 3.4% due to increased costs of advertising marketing research materials and salary and benefit increases;

•  Franchise fees increased $1.4 million or 7.0% primarily as a result of increased revenues. As a percentage of room revenues, franchise fees were 9.2% of revenues in 2004 as compared to 9.0% in 2003, largely due to increased costs of brand loyalty programs; and

•  Repairs and maintenance costs increased $0.6 million or 3.6% primarily as a result of our continued focus on our preventative maintenance programs.

      Property and other taxes, insurance and leases decreased $3.1 million or 12.6% from 2003 primarily due to savings of $0.5 million for successful property tax assessment appeals; insurance premium and self-insured loss savings of $1.1 million due to favorable loss experience (exclusive of the hurricanes) and a stabilization of the insurance premium markets; and ground rent savings of $1.0 million due to the settlement of a deferred ground rent obligation.

      Corporate and other expenses decreased $3.7 million or 17.9% from 2003 primarily as a result of reduced post-emergence legal, professional and other costs related to the Chapter 11 proceedings and a reduction in a

52

sales and use tax return audit reserve of $1.5 million due to favorable audit settlements. Costs incurred related to Sarbanes-Oxley compliance totaled approximately $1.4 million.

      Casualty (gains) losses, net which represent costs related to hurricane damage, were $2.3 million higher in 2004 as a result of eight properties that incurred, in the aggregate, $5.6 million in costs of which $1.9 million was for hurricane repair expenses and approximately $3.7 million was for net book value write-offs of destroyed assets caused by the hurricanes that hit the Southeastern United States in August and September 2004, offset by expected insurance proceeds of $3.3 million. As of December 31, 2004, $2.0 million had been released by our insurance company as advances for repairs on the Crowne Plaza West Palm Beach, FL and the Crowne Plaza Melbourne, FL hotels. All advances are forwarded to our lenders and we receive reimbursements from the lender held escrows as we incur operating and capital expenditures. At December 31, 2004, we had received $1.4 million in reimbursements from our lenders. Until the ultimate claims are settled, we will continue to recognize the advances received from the insurance company as a liability without offset to the insurance receivable recorded on our consolidated balance sheet. Accordingly, at December 31, 2004, we have an insurance receivable balance of $3.3 million and a liability for insurance advances of $2.0 million.

      Depreciation and amortization expenses decreased $1.8 million or 6.2% from 2003 as a result of our reduced asset base on the continuing operations hotels due to $8.4 million in asset write-downs for impairment charges in 2003 and the reduced depreciation charges for assets that had a fresh start life of one year and are now fully depreciated.

      The impairment of long-lived assets of $4.9 million recorded during 2004 represents $4.4 million in adjustments made to the carrying values of two hotels held for use, to reduce them to their estimated fair values, and $0.5 million for furniture, fixtures and equipment net book value write-offs for items that were replaced in 2004. Consistent with our accounting policy on asset impairment and in accordance with SFAS No. 144, we periodically evaluate our real estate assets to determine if there has been any impairment in the carrying value. We record impairment charges if there are indicators of impairment, the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying values and the assets’ carrying values are in excess of their estimated fair values. With respect to assets held for use, we estimate the undiscounted cash flows to be generated by these assets. We then compare the estimated undiscounted cash flows for each hotel with their respective carrying values to determine if there are indicators of impairment. If there are indicators of impairment, we determine the estimated fair values of these assets in conjunction with real estate brokers. These broker valuations of fair value normally use the “cap rate” approach of estimated cash flows, a “per key valuation” approach, or a “room revenue multiplier” approach for determining fair value. As a result of these evaluations, we recorded impairment charges in 2004 as follows:

a)	$3.7 million on the Park Inn Brunswick, GA hotel, which was converted from a Holiday Inn, as this hotel lost the business of a significant military group contract and the conversion of this hotel to a Park Inn was not expected to improve operating results; and
b)	$0.6 million on the Holiday Inn Lawrence, KS hotel as the financial performance of this hotel continued to decline as it is in need of a major renovation which is not economically justifiable as management was notified the franchise agreement would not be renewed.

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Non-operating income (expenses) — Continuing Operations

		2004			2003			Increase (decrease)
		($ in thousands)
Non-operating income (expenses):
Interest income and other		$	681		$	807		$	(126	)	(15.6	)%
Gain on asset dispositions			—			445			(445	)	(100.0	)%
Interest expense and other financing costs:
	Preferred stock dividend		(9,383	)		(8,092	)		1,291		(16.0	)%
	Other interest expense		(41,725	)		(27,626	)		(14,099	)	51.0	%
Loss on preferred stock redemption			(6,063	)		—			(6,063	)	n/m	%
Reorganization items			—			(1,355	)		1,355		(100.0	)%
Minority interests			691			1,294			(603	)	(46.6	)%

      The 2003 $0.4 million gain on asset dispositions related to condemnation proceeds for land seized at two of our hotels.

      The Preferred Stock dividend relates to dividends on the Preferred Stock issued on November 25, 2002. Dividends for the period January 1, 2003 to December 31, 2003 totaled $15.7 million. In accordance with SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity (“SFAS No. 150”), effective for us on July 1, 2003, dividends relating to the period after the effective date are reported as interest expense. Dividends for the period prior to the effective date continue to be shown as a deduction from retained earnings with no effect on our results of operations. As a result, the $8.1 million dividend accrued for the period July 1, 2003 to December 31, 2003 is reported in interest expense while the $7.6 million dividend accrued for the periods January 1, 2003 to June 30, 2003 is shown as a deduction from retained earnings. Preferred Stock dividends for 2004 were $9.4 million. A portion of the outstanding shares of Preferred Stock were exchanged for shares of our common stock immediately following our equity offering on June 25, 2004 and all remaining shares of our Preferred Stock shares were redeemed on July 26, 2004 using a portion of the proceeds of that offering.

      Interest expense increased $14.1 million in 2004 due to the purchase of a $1.9 million swaption contract, the write-off of $6.7 million of deferred loan costs due to the extinguishment of the Merrill Lynch Mortgage, Lehman Debt, and Macon Debt, $2.7 million of prepayment penalties for early retirement on the Merrill Lynch Mortgage debt, the expensing of $0.8 million in loan origination costs incurred as part of the Refinancing Debt and additional mortgage interest in 2004 on the former Lehman hotels since we did not pay interest expense on these hotels during 2003 while they were in Chapter 11.

      Loss on preferred stock redemption of $6.1 million includes the 4% prepayment premium of $1.6 million that was recognized when we exchanged shares of our common stock for some of the outstanding shares of Preferred Stock and the 4% prepayment premium of $4.5 million that we paid when we redeemed the balance of the outstanding Preferred Stock shares on July 26, 2004.

      Reorganization items for 2003 of $1.4 million represent Chapter 11 expenses incurred between January 1, 2003 and May 22, 2003 relating to the 18 hotels which emerged from Chapter 11 on May 22, 2003.

      Minority interests represent the third party owners’ share of the net losses of the joint ventures in which we have a controlling interest. The $0.6 million reduction in losses attributable to minority interests primarily resulted from the reduction in impairment charges at our Crowne Plaza Macon, GA hotel in 2004 as compared to 2003, partially offset by hurricane related losses in 2004 at our Crowne Plaza Melbourne, FL hotel.

Results of Operations — Discontinued Operations

      During 2005, we sold eight hotels, comprising an aggregate 2,073 rooms. The aggregate net proceeds from the sales were approximately $36 million of which $29.2 million was used to pay down debt and the balance

54

was used for capital expenditures and general corporate purposes. The aggregate gain from the sale of these assets was $6.9 million. During 2004, we sold 11 hotels, comprising 2,076 rooms, and two parcels of land. The aggregate net proceeds from these sales were approximately $42.5 million of which $37.4 million was used to pay down debt and the balance was used for capital expenditures and general corporate purposes. The aggregate gain from the sale of these assets was $9.2 million.

      We recorded impairment on assets held for sale in 2005 and 2004. The impairment of long-lived assets held for sale of $4.0 million recorded in 2005 represents the write-down of five hotels and one land parcel held for sale. The fair values of the assets held for sale are based on the estimated selling prices less estimated costs to sell. We determine the estimated selling prices in conjunction with real estate brokers. The estimated selling costs are based on our experience with similar asset sales. We record impairment charges and write down respective hotel asset carrying values if their carrying values exceed the estimated selling prices less costs to sell. As a result of these evaluations, during 2005, we recorded impairment charges as follows:

a)	an additional $0.3 million on the Holiday Inn Express Gadsden, AL to reflect the estimated selling costs of this sale as the hotel was identified for sale in January 2005 and to reflect the write-off of capital improvements spent on this hotel for franchisor compliance that did not add incremental value or revenue generating capacity to the property;
b)	an additional $1.7 million on the Holiday Inn Rolling Meadows, IL to reflect the lowered selling price of the hotel;
c)	an additional $0.3 million on the Holiday Inn Morgantown, WV to reflect the reduced selling price and the additional charges to dispose of this hotel in February 2005;
d)	an additional $0.4 million on the Mt. Laurel, NJ land parcel to reflect the lowered estimated selling price of the land parcel;
e)	$1.3 million on the Holiday Inn St. Louis, MO to reflect the reduced selling price of the hotel; and
f)	$0.1 million on the Holiday Inn McKnight Pittsburgh, PA as the hotel was identified for sale in the fourth quarter 2005 and its carrying value was adjusted to the hotel’s selling price less selling costs.

      The impairment of long-lived assets held for sale of $7.2 million recorded in 2004 represents $7.2 million in the write-down of nine hotels. Consistent with our accounting policy on asset impairment and in accordance with SFAS No. 144, the reclassification of these assets from held for use to held for sale necessitated a determination of fair value less costs of sale. The fair values of the assets held for sale are based on the estimated selling prices less estimated costs to sell. We determine the estimated selling prices in conjunction with real estate brokers. The estimated selling costs are based on our experience with similar asset sales. We record impairment charges and write down respective hotel asset carrying values if their carrying values exceed the estimated selling prices less costs to sell. As a result of these evaluations, during 2004, we recorded impairment charges as follows:

a)	an additional $0.1 million on the Holiday Inn Express Pensacola, FL to reflect the loss recorded on sale of this hotel in March 2004;
b)	an additional $0.5 million on the downtown Plaza Hotel Cincinnati, OH to reflect the lowered estimated selling price of the hotel and the loss recorded on sale of the hotel in April 2004;
c)	an additional $0.4 million on the Holiday Inn Morgantown, WV as capital improvements were spent on this hotel for franchise compliance that did not add incremental value or revenue generating capacity to the property;
d)	an additional $0.7 million on the Holiday Inn Memphis, TN to reflect the reduced selling price and additional charges to dispose of this hotel in December 2004;
e)	an additional $1.0 million on the Holiday Inn Austin (South), TX to reflect a reduction in the estimated selling price due to feedback from potential buyers that this hotel had limited future franchise options due to its exterior corridors;

55

f)	$1.7 million on the Holiday Inn Rolling Meadows, IL to record the difference between the estimated selling price and the carrying value of this hotel consistent with an offer received on the hotel;
g)	$0.4 million on the Holiday Inn Florence, KY primarily related to disposal costs incurred on sale of the hotel in December 2004;
h)	$1.1 million on the Holiday Inn Express Gadsden, AL as this hotel was identified for sale in January 2005 and the estimated selling price was less than the asset’s carrying value. The estimated selling price of this hotel was negatively impacted by its franchise agreement expiring in August 2005 and the franchisor indicating that it will not renew the agreement;
i)	$0.9 million on the Holiday Inn St. Louis, MO as this hotel was identified for sale in January 2005 and the estimated selling price was less than the asset’s previously adjusted carrying value;
j)	$0.6 million on the Quality Inn Hotel & Conference Center Metairie, LA as capital improvements were spent on health and safety items that added no incremental market value or revenue generating capacity at this hotel, resulting in the recording of impairment to bring the asset’s carrying value in line with the fair value; and
k)	additional adjustments on four other assets aggregating to a reduction of impairment charges of $0.1 million.

      Historical operating results and gains are reflected as discontinued operations in our consolidated statement of operations. See notes Note 1 and Note 3 to the accompanying consolidated financial statements for further discussion.

Income Taxes

      Because we reported net losses for federal income tax purposes, we paid no federal income tax for the years ended December 31, 2005 and December 31, 2004. At December 31, 2005, we had available net operating loss carryforwards of approximately $306 million for federal income tax purposes, which will expire in 2006 through 2024, excluding an estimated tax net loss of $8.7 million for the year ended December 31, 2005. We estimate that $10.9 million of NOLs will expire in 2006. Our 2002 reorganization under Chapter 11 and our 2004 secondary stock offering resulted in “ownership changes,” as defined in Section 382 of the Internal Revenue Code. As a result of the most recent Section 382 ownership change, our ability to use these net operating loss carryforwards is subject to an annual limitation of $8.3 million. At December 31, 2005, we established a valuation allowance of $118.2 million to fully offset our net deferred tax asset. In addition, approximately $110.0 million of the $118.2 million of the deferred tax asset remaining is attributable to pre-emergence deferred tax assets and may be booked to additional paid in capital in future periods.

      In addition, we recognized an income tax provision of $8.2 million for 2005, and $0.2 million for 2004.

EBITDA

      Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is a widely-used industry measure of performance and also is used in the assessment of hotel property values. EBITDA is a non-GAAP measure and should not be used as a substitute for measures such as net income (loss), cash flows from operating activities, or other measures computed in accordance with GAAP. Depreciation and amortization are significant non-cash expenses for us as a result of the high proportion of our assets which are long-lived, including property, plant and equipment. We depreciate property, plant and equipment over their estimated useful lives and amortize deferred financing and franchise fees over the term of the applicable agreements. We believe that EBITDA provides pertinent information to investors as an additional indicator of our performance.

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      The following table presents EBITDA, a non-GAAP measure, for 2005, 2004 and 2003, and provides a reconciliation with our income (loss) from continuing operations, a GAAP measure:

	2005			2004			2003
	($ in thousands)
Continuing operations:
Income (loss) from continuing operations	$	10,449		$	(31,537	)	$	(21,765	)
Depreciation and amortization		29,647			26,666			28,427
Interest income		(1,042	)		(650	)		(486	)
Interest expense		27,675			41,725			27,626
Preferred stock dividends		—			9,383			8,092
Loss on preferred stock redemption		—			6,063			—
Provision (benefit) for income taxes — continuing
operations		6,981			228			178
EBITDA from continuing operations	$	73,710		$	51,878		$	42,072

      Income (loss) from continuing operations, and accordingly, EBITDA from continuing operations, is calculated after deducting the following items:

	2005			2004			2003
Post-emergence Chapter 11 expenses, included in corporate and other on consolidated statement of operations	$	173		$	458		$	4,788
Reorganization expenses		—			—			1,355
Gain on asset dispositions		—			—			(444	)
Casualty (gain) loss, net		(30,929	)		2,313			—
Impairment loss		8,347			4,877			8,396
Write-off of receivable from non-consolidated hotel		747			—			—
Guaranty payments on Kansas properties		500			—			—
Adjustments to bankruptcy claims reserves		—			(38	)		(215	)
Write-off of investment in subsidiary for non-consolidated hotel		170			—			—

Quarterly Results of Operations

      The following table presents certain quarterly data for the eight quarters ended December 31, 2005. The data have been derived from our unaudited consolidated financial statements for the periods indicated. Our unaudited consolidated financial statements have been prepared on substantially the same basis as our audited consolidated financial statements included elsewhere in this report and include all adjustments, consisting primarily of normal recurring adjustments, that we consider to be necessary to present this information fairly, when read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. The results of operations for certain quarters may vary from the amounts previously reported on our Forms 10-Q filed for prior quarters due to the timing of our classification of assets held for sale. The allocation of results of operations between our continuing operations and discontinued operations, at the time of the quarterly filings, was based on the assets held for sale, if any, as of the dates of those filings. This table represents the comparative quarterly operating results for the 75 hotels classified in continuing operations at December 31, 2005.

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			2005												2004
			Fourth			Third			Second			First			Fourth			Third			Second			First
			Quarter			Quarter			Quarter			Quarter			Quarter			Quarter			Quarter			Quarter
			($ in thousands)
Revenues:
	Rooms		$	56,989		$	65,743		$	64,416		$	54,293		$	50,254		$	62,425		$	62,675		$	55,901
	Food and beverage			17,534			16,571			18,744			14,866			19,029			16,426			18,984			16,192
	Other			2,306			2,584			2,701			2,517			2,303			2,734			2,775			2,727
				76,829			84,898			85,861			71,676			71,586			81,585			84,434			74,820
Operating expenses:
	Direct:
		Rooms		16,555			17,829			17,541			15,419			15,557			17,782			16,288			15,392
		Food and beverage		12,605			12,047			13,062			10,996			13,874			12,302			12,473			11,317
		Other		1,955			2,012			2,129			1,954			1,851			2,038			2,055			1,963
				31,115			31,888			32,732			28,369			31,282			32,122			30,816			28,672
				45,714			53,010			53,129			43,307			40,304			49,463			53,618			46,148
Other operating expenses:
	Other hotel operating costs			25,281			26,696			24,655			23,788			22,686			24,399			22,890			23,141
	Property and other taxes, insurance and leases			4,971			5,908			5,814			5,676			5,042			5,431			5,165			5,609
	Corporate and other			4,529			6,022			5,863			4,649			3,423			4,389			4,682			4,330
	Casualty (gain) losses, net			(31,251	)		190			28			104			294			2,019			—			—
	Depreciation and amortization			9,167			7,099			6,793			6,588			6,451			6,884			6,725			6,606
	Impairment of long-lived assets			5,111			613			957			1,666			4,877			—			—			—
	Other operating expenses			17,808			46,528			44,110			42,471			42,773			43,122			39,462			39,686
				27,906			6,482			9,019			836			(2,469	)		6,341			14,156			6,462
Other income (expenses):
	Business interruption insurance proceeds			1,772			6,094			1,729			—			—			—			—			—
	Interest income and other			282			348			54			171			360			212			66			43
	Interest expense and other financing costs:
		Preferred stock dividend		—			—			—			—			—			(865	)		(4,233	)		(4,285	)
		Other interest expense		(7,045	)		(6,833	)		(6,890	)		(6,907	)		(7,351	)		(7,160	)		(19,310	)		(7,904	)
		Loss on preferred stock redemption		—			—			—			—			—			(4,471	)		(1,592	)		—
Income (loss) before income taxes and minority interest				22,915			6,091			3,912			(5,900	)		(9,460	)		(5,943	)		(10,913	)		(5,684	)
Minority interests				(8,486	)		(1,127	)		(120	)		145			406			503			(71	)		(147	)
Income (loss) before income taxes — continuing operations				14,429			4,964			3,792			(5,755	)		(9,054	)		(5,440	)		(10,984	)		(5,831	)
(Provision) benefit for income taxes — continuing operations				(6,832	)		(13	)		(68	)		(68	)		261			(337	)		(76	)		(76	)
Income (loss) from continuing operations				7,597			4,951			3,724			(5,823	)		(8,793	)		(5,777	)		(11,060	)		(5,907	)
Discontinued operations:
	(Loss) income from discontinued operations before income taxes			1,442			4,758			(1,850	)		(1,263	)		(4,971	)		2,040			3,813			(1,179	)
	Income tax benefit (provision)			(1,235	)		—			—			—			—			—			—			—
	(Loss) income from discontinued operations			207			4,758			(1,850	)		(1,263	)		(4,971	)		2,040			3,813			(1,179	)
Net income (loss)				7,804			9,709			1,874			(7,086	)		(13,764	)		(3,737	)		(7,247	)		(7,086	)
Net income (loss) attributable to common stock			$	7,804		$	9,709		$	1,874		$	(7,086	)	$	(13,764	)	$	(3,737	)	$	(7,247	)	$	(7,086	)

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      The following table presents EBITDA, a non-GAAP measure, for the past 8 quarters as of December 31, 2005, and provides a reconciliation with our (loss) income from continuing operations, a GAAP measure:

	2005												2004
	Fourth			Third			Second			First			Fourth			Third			Second			First
	Quarter			Quarter			Quarter			Quarter			Quarter			Quarter			Quarter			Quarter
	($ in thousands)
Continuing operations:
Income (loss) from continuing operations	$	7,597		$	4,951		$	3,724		$	(5,823	)	$	(8,793	)	$	(5,777	)	$	(11,060	)	$	(5,907	)
Depreciation and amortization		9,167			7,099			6,793			6,588			6,451			6,884			6,725			6,606
Interest income		(270	)		(347	)		(205	)		(220	)		(346	)		(176	)		(80	)		(48	)
Interest expense		7,045			6,833			6,890			6,907			7,351			7,160			19,310			7,904
Preferred stock dividends		—			—			—			—			—			865			4,233			4,285
Loss on preferred stock redemption		—			—			—			—			—			4,471			1,592			—
Provision (benefit) for income taxes — continuing operations		6,832			13			68			68			(261	)		337			76			76
EBITDA from continuing operations	$	30,371		$	18,549		$	17,270		$	7,520		$	4,402		$	13,764		$	20,796		$	12,916

      Loss from continuing operations, and accordingly, EBITDA from continuing operations, is after deducting the following items;

	2005										2004
	Fourth			Third			Second		First		Fourth			Third		Second		First
	Quarter			Quarter			Quarter		Quarter		Quarter			Quarter		Quarter		Quarter
	($ in thousands)
Post-emergence Chapter 11 expenses, included in corporate and other on consolidated statement of operations	$	(2	)	$	13		$	52	$	110	$	61		$	67	$	135	$	195
Casualty (gain) loss, net		(31,251	)		190			28		104		294			2,019		—		—
Impairment loss		5,111			613			957		1,666		4,877			—		—		—
Write-off (recovery) of receivable from non- consolidated hotel		1			(200	)		946		—		—			—		—		—
Guaranty payments on Kansas properties		—			—			500		—		—			—		—		—
Adjustments to bankruptcy claims reserves		—			—			—		—		(38	)		—		—		—
Write-off of investment in subsidiary for non- consolidated hotel		—			—			170		—		—			—		—		—

      Historically, our operations and related revenues and operating results have varied substantially from quarter to quarter. We expect these variations to continue for a variety of reasons, primarily seasonality. Due to the fixed nature of certain expenses, such as marketing and rent, our operating expenses do not vary as significantly from quarter to quarter.

Liquidity and Capital Resources

Working Capital

      We use our cash flows primarily for operating expenses, debt service, and capital expenditures. Currently, our principal sources of liquidity consist of cash flows from operations, proceeds of insurance claims relating principally to damage caused by the 2004 and 2005 hurricanes and existing cash balances. Additionally, on March 1, 2006, we completed the refinance of three other hotels, all of which had higher than current market rate mortgages and received excess proceeds of $13.4 million.

      Cash flows from operations may be adversely affected by factors such as a reduction in demand for lodging or displacement from large scale renovations being performed at our hotels. To the extent that significant amounts of our accounts receivable are due from airline companies, a further downturn in the airline industry also could materially and adversely affect the collectibility of our accounts receivable, and hence our liquidity. At December 31, 2005, airline receivables represented approximately 20.7% of our

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accounts receivable, net of allowances. A further downturn in the airline industry could also affect our revenues by decreasing the aggregate levels of demand for travel. We expect that the sale of certain assets will provide additional cash to pay down outstanding debt, fund a portion of our capital expenditures and provide additional working capital. Eight hotels were sold in 2005. At December 31, 2005, we had three hotels and one land parcel classified as held for sale. In the first two months of 2006 we identified an additional five hotels for sale. As of March 1, 2006, we had eight hotels and one land parcel as held for sale. Of the 20 hotels, two land parcels and the office building that were sold between November 1, 2003 and March 1, 2006, the aggregate net proceeds received from these sales were $91.2 million, of which $71.7 million was used to pay down debt and the balance was used for general corporate purposes including capital expenditures.

      Our ability to make scheduled debt service payments and fund operations and capital expenditures depends on our future performance and financial results, the successful implementation of our business strategy and, to a certain extent, the general condition of the lodging industry and the general economic, political, financial, competitive, legislative and regulatory environment. In addition, our ability to refinance our indebtedness depends to a certain extent on these factors as well. Many factors affecting our future performance and financial results, including the severity and duration of macro-economic downturns, are beyond our control. See Item 1A, “Risk Factors.”

      We intend to continue to use our cash flow to make scheduled debt service payments and fund operations and capital expenditures and build cash reserves and, therefore, do not currently have plans to pay dividends on our common stock in the foreseeable future.

      On June 30, 2005, we completed the final distribution of shares and cash to general unsecured creditors in connection with the conclusion of our bankruptcy claim distribution process. Because our final distribution was less than the liability established at the time of the stock offering to pay such claims, we have relieved the excess liability related to the bankruptcy claims and credited additional Paid-in Capital. We do not anticipate any additional material charges related to our Chapter 11 bankruptcy filing.

      In accordance with GAAP, all assets held for sale, including assets that would normally be classified as long-term assets in the normal course of business, were reported as “assets held for sale” in current assets. Similarly, all liabilities related to assets held for sale were reported as “liabilities related to assets held for sale” in current liabilities, including debt that would otherwise be classified as long-term liabilities in the ordinary course of business.

      At December 31, 2005, we had working capital (current assets less current liabilities) of $20.8 million compared to $6.9 million at December 31, 2004. The increase in working capital was primarily to the result of the refinancings of our Holiday Inn Hilton Head, SC hotel, which generated approximately $8 million of net proceeds in excess of the payoff of the old loan and the refinance of our Holiday Inn Phoenix West, AZ hotel, which generated approximately $8 million of net proceeds in excess of the payoff of the old loan.

      Two of our hotels, the Quality Inn & Conference Center in Metairie, LA and the Radisson New Orleans Airport Hotel in Kenner, LA, were damaged by Hurricane Katrina in August 2005. The Quality Inn & Conference Center in Metairie, LA is held for sale and is included in discontinued operations and is currently open for business. The Radisson New Orleans Airport Hotel is included in our continuing operations and is currently open for business. The insurance deductible on the Quality Inn & Conference Center Metairie, LA is $0.5 million and $0.7 million on the Radisson New Orleans Airport Hotel. Eight of our hotels were damaged by the hurricanes that hit the southeastern United States in August and September 2004. As of December 31, 2005 we had received $0.5 million in advances for damage related to the Radisson New Orleans Airport Hotel Kenner, LA and $1.5 million related to the Quality Inn & Conference Center Metairie, LA. Two hotels, the Crowne Plaza West Palm Beach, FL and the Crowne Plaza Melbourne, FL hotels, suffered extensive damage and were closed for renovation in September 2004. The Crowne Plaza West Palm Beach, FL reopened on December 29, 2005 and the Melbourne property reopened as a Crowne Plaza on January 24, 2006. In the fourth quarter 2005 we settled the property damage claims on five hotels including the: 1) Crowne Plaza West Palm Beach, FL, 2) Holiday Inn Melbourne, FL (which converted to a Crowne Plaza), 3) Holiday Inn Winter Haven, FL, 4) Holiday Inn Pensacola, FL and 5) Holiday Inn Express Pensacola, FL. The settlement of the property claims for these five hotels resulted in a casualty gain of $31.3 million, offset by hurricane

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repair expenses of $0.4 million on the Radisson New Orleans Airport Hotel Kenner, LA and other continuing operations hotels. Approximately $46.7 million was spent on the repair and renovation of these hotels and we received proceeds for this property damage totaling approximately $37 million through March 1, 2006.

      We have recorded $9.6 million in business interruption proceeds for the Crowne Plaza West Palm Beach, FL and the Crowne Plaza Melbourne, FL hotels. For the Crowne Plaza West Palm Beach, FL hotel, $5.3 million was recorded for the period September 2004 through November 2005. For the Crowne Plaza Melbourne, FL hotel, $4.3 million was recorded for the period September 2004 through December 2005. We had received $6.7 million in proceeds or had signed proofs of loss for $2.9 million which we established as a receivable from the insurance company as of December 31, 2005. At December 31, 2005, $2.9 million was included on our consolidated balance sheet for receivables related to business interruption proceeds.

      At December 31, 2005, we had $0.7 million of liabilities for insurance advances on our continuing operations balance sheet related to outstanding insurance claims. Of this amount, $0.2 million relates to the Crowne Plaza West Palm Beach, FL for an open mold policy claim from the 2004 hurricane season that has not yet been finalized and $0.5 million related to our Radisson New Orleans Airport Hotel claim for Hurricane Katrina. In our discontinued operations, we are carrying a liability of $1.5 million for insurance advances for our claim related to the Quality Inn & Conference Center Metairie, LA hotel from Hurricane Katrina.

      For the year ended December 31, 2005, we spent approximately $83 million on capital expenditures for our continuing operations, which includes $41.8 million for hurricane repairs and $0.8 million on our discontinued operations. During 2006, we expect to spend $37.0 million in capital expenditures for our hotels, which includes committed hurricane repair capital expenditures of approximately $14 million.

      We believe that the combination of our current cash, cash flows from operations, capital expenditure escrows and asset sales will be sufficient to meet our working capital needs for the next 24 months.

      Our ability to meet our long-term cash needs is dependent on the continuation and extent of the recovery of the economy and the lodging industry, improved operating results, the successful implementation of our portfolio improvement strategy and our ability to obtain third party sources of capital on favorable terms when and as needed. In the short term, we continue to diligently monitor our costs. Our future financial needs and sources of working capital are, however, subject to uncertainty, and we can provide no assurance that we will have sufficient liquidity to be able to meet our operating expenses, debt service requirements, including scheduled maturities, and planned capital expenditures. We could lose the right to operate certain hotels under nationally recognized brand names, and furthermore, the termination of one or more franchise agreements could trigger defaults and acceleration under one or more loan agreements as well as obligations to pay liquidated damages under the franchise agreements if we are unable to find a suitable replacement franchisor. See “Item 1A — Risk Factor” for further discussion of conditions that could adversely affect our estimates of future liquidity needs and sources of working capital.

Cash Flow

      Discontinued operations have not been segregated in the consolidated statements of cash flows. Therefore, amounts for certain captions will not agree with respective data in the balance sheets and related statements of operations. In 2005, we revised the classification of changes in restricted cash balances to present such changes as an investing activity. We previously presented such changes as an operating activity.

      Also in 2005, we revised the presentation of property and equipment purchased on account to present such amounts as non-cash investing activities in the consolidated statements of cash flows. The revised presentation was reflected for all three years in the period ended December 31, 2005.

Operating activities

      Operating activities generated cash of $28.7 million in 2005 and generated $26.0 million of cash in 2004. The increase in cash generated by operations is attributable to the improved performance of our hotel portfolio, partially offset by the closure of two hurricane-damaged properties throughout most of 2005 and

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fewer hotels in our portfolio due to the sale of eight hotels in 2005. Operating activities generated cash of $15.0 million in 2003.

Investing activities

      Investing activities used $13.8 million of cash in 2005 and used $20.5 million of cash in 2004. Capital improvements in 2005 were $86.5 million compared to $37.3 million in 2004. Proceeds from sale of assets were $36.4 million in 2005 and $42.5  million in 2004. We purchased one hotel in 2004 for $5.4 million including closing costs. Withdrawals from capital expenditure reserves with our lenders were $15.4 million in 2005 as compared to deposits of $19.0 million in 2004. In 2005, we were advanced $26.2 million for property damage claims related to seven of our hotels that were damaged by hurricanes in 2004 and 2005. In 2004, we were advanced $2.0 million for property damage claims related to two of our hurricane-damaged hotels. Investing activities used $3.4 million of cash in 2003.

Financing activities

      Financing activities used cash of $32.2 million in 2005 and provided cash of $19.8 million in 2004. In 2005, we refinanced mortgages on the Holiday Inn West Phoenix, AZ and the Holiday Inn Hilton Head, SC and encumbered the SpringHill Suites Pinehurst, NC purchased in 2004, resulting in gross proceeds of $32.2 million. Additionally, we made $63.6 million in principal payments. In 2004, we received $370.0 million of proceeds related to the Refinancing Debt in 2004. We raised $175.9 million in the common stock offering on June 25, 2004, of which $114.0 million was used to redeem the preferred stock. Principal payments on long term debt were $406.5 million, including the repayment of the debt we entered into when we emerged from Chapter 11, replaced by the Refinancing Debt on June 25, 2004, as part of our common stock offering. In 2003, financing activities used cash of $11.8 million.

      The payments of deferred loan costs in 2005 were $0.9 million related to the finance of our SpringHill Suites Pinehurst, NC hotel and the refinance of our Holiday Inn West Phoenix, AZ and Holiday Inn Hilton Head, SC hotels. Payments of deferred loan costs in 2004 were $5.4 million and relate to the Refinancing Debt. In 2003 the deferred loan costs were $4.8 million related to the hotels that were refinanced when they emerged from Chapter 11.

Debt and contractual obligations

      The following table sets forth our debt and contractual obligations:

				Contractual Obligations Due by Year
		Total		2006		2007		2008		2009		2010		After 2010
		($ in thousands)
Continuing Operations
Refinancing debt(1)
Merrill Lynch Mortgage Lending, Inc. — Floating		$	66,311	$	741	$	65,570	$	—	$	—	$	—	$	—
Merrill Lynch Mortgage Lending, Inc. — Fixed			252,377		4,318		4,615		4,886		238,558		—		—
Merrill Lynch Mortgage Lending, Inc. — Total			318,688		5,059		70,185		4,886		238,558		—		—
Other financings
Computer Share Trust Company of Canada			7,838		288		7,550		—		—		—		—
Column Financial, Inc.			10,337		706		784		871		968		7,008		—
Lehman Brothers Holdings, Inc.			22,398		580		21,818		—		—		—		—
JP Morgan Chase Bank, Trustee			10,064		10,064		—		—		—		—		—
Wachovia			13,173		212		239		251		269		3,134		9,068
IXIS Real Estate Capital, Inc.			19,000		—		214		18,786		—		—		—
Column Financial, Inc.			8,146		477		524		575		632		5,938		—
	Total — other financing		90,956		12,327		31,129		20,483		1,869		16,080		9,068

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				Contractual Obligations Due by Year
		Total		2006		2007		2008		2009		2010		After 2010
		($ in thousands)
Total Mortgage Debt			409,644		17,386		101,314		25,369		240,427		16,080		6,068
Long-term debt — other(2)			3,319		1,144		1,154		752		187		73		9
Total long-term debt			412,963		18,530		102,468		26,121		240,614		16,153		9,077
Interest Expense(3)			82,887		28,542		22,071		19,893		11,386		995		—
Ground and parking lease obligations			116,585		3,214		3,235		3,307		3,342		3,429		100,058
Executive Employment Contracts			3,708		1,692		1,175		841		—		—		—
Purchase obligations			3,267		892		771		497		480		498		129
Total obligations related to continuing operations		$	619,410	$	52,870	$	129,720	$	50,659	$	255,822	$	21,075	$	109,264
Discontinued operations
Refinancing debt
Merrill Lynch Mortgage Lending, Inc. — Floating		$	1,235	$	14	$	1,221	$	—	$	—	$	—	$	—
Long-term debt — other(2)			52		9		10		10		10		9		4
Interest Expense(3)			105		97		8		—		—		—		—
Ground and parking lease obligations			—		—		—		—		—		—		—
Purchase Obligations			23		18		5		—		—		—		—
	Total obligations related to discontinued operations	$	1,415	$	138	$	1,244	$	10	$	10	$	9	$	4

      We did not include the following information in the table above:

•  Franchise fees — Substantially all of our franchise fees vary with revenues. Franchise fees expense for 2005 relating to continuing operations are shown under the caption “Franchise Agreements and Capital Expenditures.”

Mortgage Debt

      On June 25, 2004, we closed on the $370 million Refinancing Debt secured by 64 of our hotels, of which, as of March 1, 2006, ten hotels have since been sold and two hotels have been released through debt paydown. We refinanced (1) our outstanding mortgage debt (“Merrill Lynch Exit Financing”) with Merrill Lynch Mortgage which, as of June 25, 2004, had a balance of $290.9 million, (2) certain of our Lehman Financing outstanding mortgage debt which, as of June 25, 2004, had a balance of $56.1 million, and (3) our outstanding mortgage debt on the Crowne Plaza Hotel in Macon, Georgia, in which we own a 60% interest that, as of June 25, 2004, had a balance of $6.9 million. As part of this 2004 refinancing, we incurred the following expenses which were charged to other interest expense: (1) prepayment penalties totaling $2.7 million on the Merrill Lynch Exit Financing (as well as $0.2 million allocated to discontinued operations); (2) write-off of deferred loan costs of $3.4 million, $3.3 million and nil related to the Merrill Lynch Exit Financing, Lehman Financing, and Macon debt, respectively, (plus the write-off of $0.3 million and $0.4 million of deferred loan costs for Merrill Lynch and Lehman, respectively, which were allocated to discontinued operations); (3) $1.9 million for the purchase of a swaption contract to hedge against rising interest rates until the interest rate on the fixed rate Refinancing Debt was determined; and (4) $1.1 million of loan origination fees incurred on the Floating Rate Debt, of which $0.8 million was allocated to continuing operations and $0.3 million was allocated to discontinued operations.

      Immediately after closing, the Refinancing Debt consisted of a loan of $110 million bearing a floating rate of interest (the “Floating Rate Debt”), which as of March 1, 2006 was secured by 18 of our hotels (29 hotels at the loan’s inception), and four loans totaling $260 million each bearing a fixed interest rate of 6.58% (the “Fixed Rate Debt”) and secured, in the aggregate, by 34 of our hotels (35 hotels at the loan’s inception). On October 17, 2005, we released the Holiday Inn St. Paul, MN hotel as collateral under one of the Fixed Rate Loans in exchange for debt paydown of $2.1 million. On February 8, 2006, we released the Fairfield Inn Jackson, TN hotel as collateral under the Floating Rate Loan in exchange for debt paydown of $1.6 million.

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Prior to the securitization of the four fixed rate loans, these loans were subject to cross-collateralization provisions. As of March 1, 2006, all four fixed rate loans had been securitized.

      Each of the four fixed rate loans (“Fixed Rate Loan”) comprising the Fixed Rate Debt is a five-year loan and bears a fixed rate of interest of 6.58%. Except for certain defeasance provisions, we may not prepay the Fixed Rate Debt except during the 60 days prior to maturity. We may, after the earlier of 48 months after the closing of any Fixed Rate Loan or the second anniversary of the securitization of any Fixed Rate Loan, defease such Fixed Rate Loan, in whole or in part.

      On April 29, 2005, we entered into an amendment with Merrill Lynch to modify certain of the provisions of the Floating Rate Loan. Under the terms of the amendment, Merrill Lynch agreed to allow the release of the Holiday Inn St. Louis, MO as collateral under the loan in exchange for debt paydown of $4.8 million. Approximately $2.6 million of this amount was paid through the release of certain reserves held on other properties which were sold or were expected to be sold in the near future. We paid the balance of the release price, approximately $2.2 million, from our cash balances. In addition to the release of the St. Louis property from the collateral pool, the amendment provided for the following:

•  Extension of the initial maturity from June 30, 2006 to January 11, 2007. We still maintain the option, subject to certain conditions, to extend the loan for up to three years from the new initial maturity date in January 2007;

•  Three additional properties in the floating rate pool are now classified as “sale properties.” Once classified as “sale properties” a hotel will be able to be released from the collateral pool by payment of the greater of (a) 100% of the aggregate allocated loan amount (lowered from 125%) and (b) the net sales proceeds of the property;

•  The prepayment penalty dropped to 1% in July 2005 and has been further reduced for the three additional sale properties after July 2005 to 0.5%; and

•  Certain required capital and environmental repairs under the original Floating Rate Loan have been determined not to be necessary and have been removed as requirements under the loan.

      As a result of these modifications in the terms of the Floating Rate Loan, the Floating Rate Debt has an initial maturity of January 2007. The Floating Rate Debt is a 2¹/2 year loan (including the six month extension) with three one-year extension options and bears interest at LIBOR plus 3.40%. The first extension option will be available to us only if no defaults exist and we have entered into the requisite interest rate cap agreement. The second and third extension options will be available to us only if no defaults exist, a minimum debt yield ratio of 13% is met, and minimum debt service coverage ratios of 1.3x for the second extension and 1.35x for the third extension are met. An extension fee of 0.25% of the outstanding Floating Rate Debt is payable if we opt to exercise each of the second and third extensions. We may prepay the Floating Rate Debt in whole or in part, subject to a prepayment penalty in the amount of 1% of the amount prepaid. However, after January 11, 2007, there is no prepayment penalty associated with the Floating Rate Loan.

      The Floating Rate Debt provides that when either (i) the debt yield ratio for the hotels for the trailing 12-month period is below 9% during the first year, 10% during the next 18 months and 11%, 12% and 13% during each of the next three extension periods, or (ii) to the extent extended, the debt service coverage ratio is less than 1.30x in the second extension period or 1.35x in the third extension period, excess cash flows produced by the mortgaged hotels securing the applicable loan (after payment of operating expenses, management fees, required reserves, service fees, principal and interest) must be deposited in a restricted cash account. For each Fixed Rate Loan, when the debt yield ratio for the hotels for the trailing 12-month period is below 9% during the first year, 10% during the next year and 11%, 12% and 13% during each of the next three years, excess cash flows produced by the mortgaged hotels securing the applicable loan (after payment of operating expenses, management fees, required reserves, service fees, principal and interest) must be deposited in a restricted cash account. These funds can be used for the prepayment of the applicable loan in an amount required to satisfy the applicable test, capital expenditures reasonably approved by the lender with respect to the hotels securing the applicable loan, and scheduled principal and interest payments due on the Floating Rate Debt of up to $0.9 million or any Fixed Rate Loan of up to $525,000, as applicable. Funds will

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no longer be deposited into the restricted cash account when the debt yield ratio and, if applicable, the debt service coverage ratio are sustained above the minimum requirements for three consecutive months and there are no defaults.

      As of December 31, 2005, our debt yield ratios were above the minimum requirement for the four Fixed Rate Loans and the Floating Rate Loan.

      Each loan comprising the Refinancing Debt is non-recourse; however, we have agreed to indemnify Merrill Lynch Mortgage in certain situations, such as fraud, waste, misappropriation of funds, certain environmental matters, asset transfers in violation of the loan agreements, or violation of certain single-purpose entity covenants. In addition, each loan comprising the Refinancing Debt will become full recourse in certain limited cases such as bankruptcy of a borrower or Lodgian. During the term of the Refinancing Debt, we are required to fund, on a monthly basis, a reserve for furniture, fixtures and equipment equal to 4% of the previous month’s gross revenues from the hotels securing each of the respective loans comprising the Refinancing Debt.

      Third party paid loan costs, incurred as a part of the Refinancing Debt, totaling $5.4 million, were deferred and will be amortized using the effective yield method over five years for the Fixed Rate Debt and 3¹/2 years (including the six month extension) for the Floating Rate Debt.

      We incurred an additional $0.1 million in expenses in 2005 related to the Refinancing Debt. This amount is being amortized using the effective yield method over the remaining life of the debt.

Column Financial Debt

      As of December 31, 2005 and December 31, 2004, the Company was not in compliance with the debt service coverage ratio requirement of the loan from Column Financial secured by one of its hotels in Phoenix, Arizona. The primary reason why the debt service coverage ratio is below the required threshold is due to the property undergoing an extensive renovation in 2004 and the first quarter of 2005 in order to convert from a Holiday Inn Select to a Crowne Plaza. The renovation caused substantial revenue displacement which, in turn, negatively affected the financial performance of this hotel. Under the terms of the Column Financial loan agreement until the required DSCR is met, the lender is permitted to require the borrower to deposit all revenues from the mortgaged property into an account controlled by the lender. The Company was notified by the lender in December 2004 that it was in default of the debt service coverage ratio and would have to establish a restricted cash account whereby all cash generated by the property be deposited in an account from which all payments of interest, principal, operating expenses and impounds (insurance, property taxes and ground rent) would be disbursed. The lender may apply excess proceeds after payment of expenses to additional principal payments. At December 31, 2005, $0.7 million was being retained in this restricted cash account. Notice of repayment has been given to the existing lender as this loan is currently in the process of being refinanced. On March 1, 2006, this mortgage was refinanced and, as such, this non-compliance issue has been resolved. (See Note 17. Subsequent Events).

Other Financings

      As of December 31, 2005, through our wholly-owned subsidiaries, we owed approximately $10.1 million under industrial revenue bonds secured by the Holiday Inns Lawrence, Kansas and Manhattan, Kansas hotels. For the year ended December 31, 2005, the cash flows of the two hotels were insufficient to meet the minimum debt service coverage ratio requirements. On March 2, 2005, we notified the Trustee of the industrial revenue bonds which finance the Holiday Inns in Lawrence, Kansas and Manhattan, Kansas that we would not continue to make debt service payments. We reclassified this debt to current liabilities because the debt became callable on March 2, 2005, when we did not make the March 1, 2005 debt service payment. On February 1, 2006, we surrendered the Holiday Inn Manhattan, KS and the Holiday Inn Lawrence, KS hotels, respectively, to the bond Trustee, and we no longer own or operate these hotels.

      On November 10, 2005, the Company entered into a $19.0 million loan agreement with IXIS Real Estate Capital Inc. (“IXIS”) which is secured by the Holiday Inn Hilton Head, SC hotel. The loan agreement has a

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two-year initial term with three one-year extension options which are exercisable provided the loan is not in default. The loan has a debt service coverage ratio requirement of 1.05x which is calculated quarterly. The loan bears a floating rate of interest which is 290 basis points above the 30-day LIBOR. Contemporaneously with the closing of the loan we purchased an interest rate cap agreement that effectively caps our interest rate for the first two years of the loan agreement at 8.4%.

      Prior to entering into the loan agreement with IXIS, the Holiday Inn Hilton Head, SC hotel served as part of the collateral, along with eight other hotels, under a loan agreement with Column Financial, Inc. The Column Financial loan agreement bears a fixed rate of interest of 10.59%. $10.3 million of the IXIS loan proceeds were used to pay down existing indebtedness under the Column Financial loan. Prior to the debt paydown, we were not in compliance with the debt service coverage ratio of the Column Financial loan. After the debt paydown, the debt service coverage ratio is above the required threshold. As of November 10, 2005, the principal balance of the Column Financial loan is $12.8 million and is now secured by eight of the Company’s hotels. The IXIS Loan Agreement is non-recourse to Lodgian, Inc., except in certain limited circumstances as set forth in the loan agreement.

      On December 22, 2005, the Company entered into a loan agreement with Wachovia Bank, National Association (“Wachovia”). Pursuant to the loan agreement, Wachovia loaned the Company $10 million, which is secured by the Holiday Inn Phoenix West located in Phoenix, AZ. The loan agreement has a five year term and bears a fixed rate of interest of 6.03%.

      Prior to entering into the loan agreement with Wachovia, the Holiday Inn Phoenix West served as part of the collateral, along with seven other hotels, under a loan agreement with Column Financial, Inc. The Column Financial loan agreement bears a fixed rate of interest of 10.59%. $2.0 million of the Wachovia loan proceeds were used to pay down existing indebtedness under the Column Financial loan agreement. As of December 31, 2005, the principal balance of the Column Financial loan agreement is $10.4 million and is now secured by seven of the Company’s hotels. The Wachovia loan agreement is non-recourse to Lodgian, Inc., except in certain limited circumstances as set forth in the loan agreement.

Mortgaged Properties

      Set forth below, by debt pool, is a summary of our long-term debt (including current portion) with the applicable interest rates and the carrying values of the property and equipment which collateralize the long-term debt:

			December 31, 2005
	Number		Property and		Long-term
	of Hotels		Equipment, net (1)		Obligations (1)		Interest Rates
			($ in thousands)
Refinancing Debt
Merrill Lynch Mortgage Lending, Inc. — Floating		19	$	93,977	$	67,546	LIBOR plus 3.40%
Merrill Lynch Mortgage Lending, Inc. — Fixed		34		333,825		252,377	6.58%
Merrill Lynch Mortgage Lending, Inc. — Total		53		427,802		319,923

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					December 31, 2005
		Number			Property and			Long-term
		of Hotels			Equipment, net (1)			Obligations (1)			Interest Rates
					($ in thousands)
Other Financings
Computer Share Trust Company of Canada			1			16,260			7,838		7.88%
Column Financial, Inc.			7			51,603			10,337		10.59%
Lehman Brothers Holdings, Inc.			5			58,161			22,398		$15,777 at 9.40%; $6,621 at 8.90%
JP Morgan Chase Bank			2			6,019			10,064		8.00%
Wachovia			2			13,525			13,173		$10,000 at 6.03%; $3,173 at 5.78%
IXIS Real Estate Capital, Inc.			1			15,378			19,000		LIBOR plus 2.90%
Column Financial, Inc.			1			11,357			8,146		9.45%
	Total — other financing		19			172,303			90,956
			72			600,105			410,879		7.15%(3)
Long-term liabilities — other
Tax notes issued pursuant to our Joint Plan of Reorganization			—			—			2,220
Other			—			—			1,151
			—			—			3,371
Property and equipment — other			5			20,554			—
			77			620,659			414,250
Held for sale			(3	)		(13,797	)		(1,287	)
	Total December 31, 2005(2)		74		$	606,862		$	412,963

(1)	Debt obligations and property and equipment of one hotel in which we have a non-controlling equity interest that we do not consolidate are excluded from the table.
(2)	Debt obligations at December 31, 2005 include the current portion.
(3)	The 7.15% in the table represents our weighted average interest rate on mortgage debt at December 31, 2005, using the December 30, 2005 LIBOR of 4.39%.

      In the table above, approximately 78.9% of our mortgage debt (including current portion) at December 31, 2005, bears interest at fixed rates and 21.1% bears interest at floating rates.

Preferred Stock

      As of December 31, 2005 and December 31, 2004, the Company had no outstanding Preferred Stock shares.

Franchise Agreements and Capital Expenditures

      We benefit from the superior brand qualities of Crowne Plaza, Holiday Inn, Marriott, Hilton and other brands. Included in the benefits of these brands are their reputation for quality and service, revenue generation through their central reservation systems, access to revenue through the global distribution systems, guest loyalty programs and brand Internet booking sites. Reservations made by means of these franchisor facilities generally account for approximately 39% of our total reservations.

      To obtain these franchise affiliations, we enter into franchise agreements with hotel franchisors that generally have terms of between 5 and 20 years. The franchise agreements typically authorize us to operate the hotel under the franchise name, at a specific location or within a specified area, and require that we operate the hotel in accordance with the standards specified by the franchisor. As part of our franchise agreements, we are generally required to pay a royalty fee, an advertising/marketing fee, a fee for the use of the franchisor’s nationwide reservation system and certain other ancillary charges. Royalty fees range from 2.7% to 6.0% of gross room revenues, advertising/marketing fees range from 0.9% to 4.0%, reservation system fees range from

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0% to 2.3% and club and restaurant fees from 0.2% to 4.9%. In the aggregate, royalty fees, advertising/marketing fees, reservation fees and other ancillary fees for the various brands under which we operate our hotels range from 5.2% to 11.9% of gross room revenues.

      These costs vary with revenues and are not fixed commitments. Franchise fees incurred (which are reported in other hotel operating costs on our Condensed Consolidated Statement of Operations) for the years ended December 31, 2005, 2004 and 2003:

	2005		2004		2003
	($ in thousands)
Continuing operations	$	22,158	$	21,225	$	19,831
Discontinued operations		1,486		3,136		4,554
	$	23,644	$	24,361	$	24,385

      During the term of the franchise agreements, the franchisors may require us to upgrade facilities to comply with their current standards. Our current franchise agreements terminate at various times and have differing remaining terms. For example, the terms of 13, eight and nine of our franchise agreements are scheduled to expire in 2006, 2007, and 2008, respectively. As franchise agreements expire, we may apply for a franchise renewal or request a franchise extension. In connection with renewals, the franchisor may require payment of a renewal fee, increased royalty and other recurring fees and substantial renovation of the facilities, or the franchisor may elect not to renew the franchise. The costs incurred in connection with these agreements are primarily monthly payments due to the franchisors based on a percentage of room revenues.

      If we do not comply with the terms of a franchise agreement, following notice and an opportunity to cure, the franchisor has the right to terminate the agreement, which could lead to a default under one or more of our loan agreements, and which could materially and adversely affect us.

      Prior to terminating a franchise agreement, franchisors are required to notify us of the areas of non-compliance and give us the opportunity to cure the non-compliance. In the past, we have been able to cure most cases of non-compliance and most defaults within the cure periods, and those events of non-compliance and defaults did not cause termination of our franchises or defaults on our loan agreements. If we perform an economic analysis of the hotel and determine that it is not economically feasible to comply with a franchisor’s requirements, we will either select an alternative franchisor, operate the hotel without a franchise affiliation or sell the hotel. However, terminating or changing the franchise affiliation of a hotel could require us to incur significant expenses, including liquidated damages, and capital expenditures. Our loan agreements generally prohibit a hotel from operating without a franchise.

      As of March 1, 2006, we have been notified that we were not in compliance with some of the terms of eight of our franchise agreements and have received default and termination notices from franchisors with respect to an additional seven hotels summarized as follows:

•  Six hotels are held for sale. Two of these hotels are in default of their respective franchise agreement for failure to complete their Property Improvement Plan (“PIP”). Four additional hotels are in default or in non-compliance of their respective franchise agreements for not maintaining required guest satisfaction scores. Each of these hotels requires a significant capital investment for which we do not anticipate a sufficient return on our investment. We have entered into a forbearance agreement with the franchisor regarding one of these hotels that is in default which will maintain the flag until the earlier of March 31, 2006 or until we sell the hotel. We plan to enter into a voluntary termination agreement with the franchisor regarding two of these hotels which will maintain the flag until the earlier of June 30, 2006 or until we sell the hotels.

•  One hotel was held for sale but was reclassified into continuing operations in the fourth quarter 2005 as management no longer expected to have the hotel sold within one year due to issues related to the transfer of the ground lease to a prospective buyer. This hotel is in default of its franchise agreement for not maintaining required guest satisfaction scores and has a license termination date of February 14, 2006. We may be subject to liquidated damages. We have entered into a letter of intent to sell this

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	hotel to a joint venture in which we will be a minority owner. However, we will no longer continue to operate the hotel.
•	One hotel has received an extension to its default termination date until August 15, 2006. The franchisor has verbally agreed to our planned renovations of two floors of guestrooms and guestroom corridors. This work began on January 9, 2006 and will take approximately 90 days to complete. We anticipate the renovations will assist us in improving the quest product scores.
•	Seven hotels are in default or non-compliance of their respective franchise agreement because of substandard guest satisfaction or quality scores. Three of these hotels are trending above the required thresholds, however, they must remain above that threshold for two consecutive years to earn a “clean slate” letter. We anticipate these three hotels will earn their “clean slate” letters in August 2006, August 2007 and February 2008, respectively. Two of these hotels are awaiting follow-up quality inspections by the franchisor to cure the non-compliance issues. Two of these hotels have entered into the non-compliance status due to a new measurement process implemented in January 2006 by the franchisor. One of these hotels in non-compliance recently received an up-branding renovation. The scores used to determine this non-compliance were done before the pre-renovation and we anticipate curing this non-compliance as the new scores begin to cycle in. Our corporate operations team, as well as each property’s general manager and associates, have focused their efforts to cure these failures through enhanced service, increased cleanliness, and product improvements by the required cure date. If we do not achieve scores above required thresholds by the designated date, the hotel would be subject to default of its franchise agreement. Each hotel would receive another opportunity to improve its score before the hotel would be at the risk of having its franchise agreement terminated.

      We believe that we will cure the non-compliance and defaults as to which our franchisors have given us notice before the applicable termination dates, but we cannot provide assurance that we will be able to do so or that we will be able to obtain additional time in which to do so. If a franchise agreement is terminated, we will either select an alternative franchisor or operate the hotel independently of any franchisor. However, terminating or changing the franchise affiliation of a hotel could require us to incur significant expenses, including franchise termination payments and capital expenditures, and in certain circumstances could lead to acceleration of parts of our indebtedness. This could adversely affect us.

      We believe we are in compliance with our other franchise agreements in all material aspects. While we can give no assurance that the steps taken to date, and planned to be taken during 2006, will return these properties to full compliance, we believe that we will make significant progress and we intend to continue to give franchise agreement compliance a high level of attention. The 15 hotels that are either in default or non-compliance under the respective franchise agreements are part of the collateral security for an aggregate of $265.3 million of mortgage debt at March 1, 2006.

      In addition, as part of our bankruptcy reorganization proceedings, we entered into stipulations with each of our major franchisors setting forth a timeline for completion of capital expenditures for some of our hotels. However, as of March 1, 2006, we have not completed the required capital expenditures for eight continuing operations hotels in accordance with the stipulations and estimate that completing those improvements will cost $3.3 million. As of March 1, 2006, approximately $2.0 million is deposited in escrow with our lenders to be applied to these capital expenditure obligations pursuant to the terms of the respective loan agreements with these lenders. Under the stipulations, the applicable franchisors could therefore seek to declare certain franchise agreements in default and, in certain circumstances, seek to terminate the franchise agreement. We have scheduled or have begun renovations on eight of these hotels, aggregating $1.4 million of the $3.3 million.

      During 2004, we entered into new franchise agreements for all 15 of our Marriott-branded hotels at that time and agreed to pay a fee aggregating approximately $0.5 million, of which $0.1 million has been paid, and $0.4 million is payable in 2007, subject to offsets.

      To improve our competitive position in individual markets, to comply with the requirements of our franchisors, and repair hurricane damaged hotels, we plan to spend $37.0 million on our hotels in 2006, which includes committed hurricane repair capital expenditures of approximately $14 million. This will substantially

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complete all of our deferred renovations. We spent $82.2 million on capital expenditures during 2005 on our continuing operations hotels including $41.9 million for hurricane repairs.

Off Balance Sheet Arrangements

      We have no off balance sheet arrangements.

New Accounting Pronouncements

      In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, An Amendment of APB Opinion No. 29 (“SFAS No. 153”). The amendments made by SFAS No. 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have “commercial substance.” SFAS No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of SFAS No. 153 on July 1, 2006 did not have a material effect on the Company’s consolidated financial statements.

      In December 2004, the FASB issued FAS 123(R), “Share-Based Payment,” which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” (FAS 123). FAS 123(R) supersedes APB 25, “Accounting for Stock issued to Employees,” and amends SFAS No 95, “Statement of Cash Flows.” The approach in FAS 123(R) is generally similar to the approach described in FAS 123. However, FAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the earnings statements based on their fair values. Pro forma disclosure will no longer be an alternative.

      We adopted FAS 123(R) as of January 1, 2006 using the modified-prospective method. Under this transition method, compensation cost is recognized beginning with the effective date (a) based on the requirements of FAS 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of FAS 123 for all awards granted to employees prior to the effective date of FAS 123(R) that remain unvested on the effective date. As permitted by FAS 123, through December 31, 2005 we accounted for share-based payments to employees using APB 25’s intrinsic value method and, as such, generally have not recognized compensation cost for employee stock options. We estimate that pretax compensation expense for stock options will range between $1.2 million and $1.5 million in 2006.

      In March 2005, the FASB issued Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations, An Interpretation of FASB Statement No. 143 (“FIN 47”). FIN 47 generally requires an entity to recognize a liability equal to the fair value of a conditional asset retirement obligation when incurred. Further, FIN 47 clarifies when an entity would have sufficient information to reasonably estimate the fair value of a conditional asset retirement obligation. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. The adoption of FIN 47 did not have a material impact on its results of operations or financial position.

      In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, A Replacement of APB Opinion No. 20 and FASB Statement No. 3 (“SFAS No. 154”). SFAS No. 154 generally requires retrospective application for reporting a change in accounting principle, unless alternative transition methods are explicitly stated in a newly adopted accounting principle. Additionally, SFAS No. 154 requires that errors be corrected by restating previously issued financial statements. SFAS No. 154 is effective for fiscal years beginning after December 15, 2005. The Company began applying this standard on January 1, 2006.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

      We are exposed to interest rate risks on our variable rate debt. At December 31, 2005 and December 31, 2004, we had outstanding variable rate debt of approximately $86.5 million and $102.6 million, respectively.

      On June 25, 2004, we refinanced both the Merrill Lynch Exit Financing and the Lehman Financing. The new refinancing is organized in four fixed rate pools and one floating rate pool. In order to manage our

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exposure to fluctuations in interest rates with the floating pool, we entered into a two-year interest rate cap agreement, which allowed us to obtain this financing at a floating rate and effectively cap the interest rate at LIBOR of 5.00% plus 3.40%. When LIBOR exceeds 5.00%, the contract requires settlement of net interest receivable at specified intervals, which generally coincide with the dates on which interest is payable on the underlying debt. When LIBOR is below 5.00%, there is no settlement from the interest rate cap. We are exposed to interest rate risks on the floating pool for increases in LIBOR up to 5.00% but we are not exposed to increases in LIBOR above 5.00% because settlements from the interest rate caps would offset the incremental interest expense. The notional principal amount of the interest rate cap outstanding was $110.0 million at December 31, 2005.

      On November 10, 2005, we refinanced the mortgage on our Holiday Inn Hilton Head, SC property. In order to manage our exposure to fluctuations in interest rates with this loan, we entered into a 25-month interest rate cap agreement, which allowed us to obtain the financing at a floating rate and effectively cap the interest at LIBOR of 5.50% plus 2.9%. When LIBOR is below 5.50% there is no settlement from the interest rate cap. We are exposed to interest rate risks on this loan for increases in LIBOR up to 5.50%, but we are not exposed to increases in LIBOR above 5.50% because settlements from the interest rate caps would offset the incremental interest expense. The notional principal amount of the interest rate cap outstanding was $19.0 million at December 31, 2005.

      The fair value of the interest rate cap related to the Refinancing Debt as of December 31, 2005 was approximately $9,000. The fair value of the interest rate cap related to the Holiday Inn Hilton Head, SC loan was approximately $24,000. The fair values of the interest rate caps were recognized on the balance sheet in other assets. Adjustments to the carrying values of the interest rate caps are reflected in interest expense.

      As a result of having our two interest rate caps, we believe that our interest rate risk at December 31, 2005 and December 31, 2004 was minimal. The impact on annual results of operations of a hypothetical one-point interest rate reduction on the interest rate caps as of December 31, 2005 would be a reduction in net income of approximately $30,000. These derivative financial instruments are viewed as risk management tools. We do not use derivative financial instruments for trading or speculative purposes. However, we have not elected the hedging requirements of SFAS No. 133.

      At December 31, 2005, approximately $86.5 million of our outstanding debt instruments were subject to changes in LIBOR. Without regard to additional borrowings under those instruments or scheduled amortization, the annualized effect of each twenty five basis point increase in LIBOR would be a reduction in income before income taxes of approximately $0.2 million. The fair value of the fixed rate debt (book value $324.3 million) at December 31, 2005 is estimated at $328.9 million.

      The nature of our fixed rate obligations does not expose us to fluctuations in interest payments. The impact on the fair value of our fixed rate obligations of a hypothetical one-point interest rate increase on the outstanding fixed-rate debt as of December 31, 2005 would be approximately $9.3 million.

Item 8. Financial Statements and Supplementary Data

      The Consolidated Financial Statements of the Company are included as a separate section of this report commencing on page F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

      There were no disagreements with accountants during the periods covered by this report on Form 10-K.

Item 9A. Controls and Procedures

      Evaluation of Disclosure, Controls and Procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods required by the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the

71

reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to management, including its chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

      As of December 31, 2005, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures was carried out under the supervision and with the participation of our management team, including our chief executive officer and our chief financial officer. This evaluation included the identification of the item described in management’s report on internal control over financial reporting below. As of the date of this evaluation and as a result of the material weakness described below, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective due to the material weakness in internal control over financial reporting discussed below under Management’s Report on Internal Control over Financial Reporting.

      In light of the material weakness described below, we performed additional analysis and other post-closing procedures to ensure our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

      Changes in Internal Control Over Financial Reporting. There was no change in internal control over financial reporting that occurred during the three months ended December 31, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

      Management’s Report on Internal Control over Financial Reporting. The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, management conducted an assessment, including testing, using the criteria in Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

      A material weakness is a control deficiency or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As of December 31, 2005, we identified one material weakness as follows:

      We did not maintain effective controls over the calculation of our income tax provisions. Specifically, our controls over the processes and procedures related to the determination and review of the annual tax provisions did not operate effectively to provide reasonable assurance that the income tax provisions were calculated and recorded in accordance with accounting principles generally accepted accounting principles in the United States. As a result, we incorrectly released the valuation allowance established during fresh-start accounting against the income tax provisions. In accordance with SOP 90-7, the reversal of the valuation allowance established during fresh-start accounting should not be recorded as a reduction to our income tax provisions but rather as an increase to additional paid-in-capital. Due to this error, an adjustment that was material to the financial statements was necessary to present the financial statements for the year ended December 31, 2005 in accordance with accounting principles generally accepted in the United States. This deficiency did not impact our cash flows for 2005.

      Because of the one material weakness described above, management has concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2005, based on criteria in Internal Control — Integrated Framework issued by the COSO.

      Management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2005 has been audited by Deloitte & Touche LLP, the independent registered public accounting firm

72

who has audited the Company’s consolidated financial statements. Deloitte & Touche LLP’s report on management’s assessment of the Company’s internal control over financial reporting appears below.

Management’s Corrective Actions

      This control deficiency did not result in the restatement of the Company’s consolidated financial statements for any previously reported quarter or annual period. Additionally, this deficiency does not impact our cash flow as our federal tax obligation for 2005 remains at zero. Accordingly, management has determined that the impact of this material weakness only relates to the quarter ended December 31, 2005.

      We have reviewed and corrected our accounting procedures for income taxes to accurately track and record the release of valuation allowance related to the deferred tax assets established at the time of fresh-start accounting. Accordingly, in future periods we will properly record any such reversals in accordance with accounting principles generally accepted in the United States.

73

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Lodgian, Inc.

Atlanta, Georgia

      We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Lodgian, Inc. and its subsidiaries (the “Company”) did not maintain effective internal control over financial reporting as of December 31, 2005, because of the effect of the material weakness identified in management’s assessment based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and discussed in the sixth paragraph of this report. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

      We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

      A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

      Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

      A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weakness has been identified and included in management’s assessment:

      The Company did not maintain effective controls over the calculation of its income tax provisions. Controls over the processes and procedures related to the determination and review of the provisions for income taxes did not operate effectively to provide reasonable assurance that the income tax provisions were determined and recorded in accordance with accounting principles generally accepted in the United States. As a result, a material adjustment relating to the recording of income taxes was necessary to present the financial

74

statements for the year ended December 31, 2005 in accordance with accounting principles generally accepted in the United States. The adjustment related to the Company’s failure to recognize a provision for income taxes due to the inappropriate recognition of a decrease in the valuation allowance established during fresh-start accounting as a reduction of the income tax provisions rather than as an increase in additional paid in capital.

      This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements as of and for the year ended December 31, 2005, of the Company and this report does not affect our report on such financial statements.

      In our opinion, management’s assessment that the Company did not maintain effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion because of the effect of the material weakness described above, the Company has not maintained effective internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

      We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2005 and our report dated March 15, 2006 expressed an unqualified opinion on those financial statements.

Deloitte & Touche LLP

Atlanta, Georgia

March 15, 2006

75

SIGNATURES

      Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 15, 2006.

LODGIAN, INC.

By:  /s/ Edward J. Rohling

Edward J. Rohling

President and Chief Executive Officer

      Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Company and in the capacities indicated, on March 15, 2006.

Signature	Title
/s/ Edward J. Rohling Edward J. Rohling	President, Chief Executive Officer and Director
/s/ Linda Borchert Philp Linda Borchert Philp	Executive Vice President and Chief Financial Officer
/s/ Russel S. Bernard Russel S. Bernard	Chairman of the Board of Directors
/s/ Sean F. Armstrong Sean F. Armstrong	Director
/s/ Stewart Brown Stewart Brown	Director
/s/ Stephen P. Grathwohl Stephen P. Grathwohl	Director
/s/ Kenneth A. Caplan Kenneth A. Caplan	Director
/s/ Kevin C. McTavish Kevin C. McTavish	Director
/s/ Dr. Sheryl E. Kimes Dr. Sheryl E. Kimes	Director
/s/ Alex R. Lieblong Alex R. Lieblong	Director

76

PART III

Item 10. Directors and Executive Officers of the Registrant

      Information about our Directors and Executive Officers is incorporated by reference from the discussion in our proxy statement for the 2006 Annual Meeting of Shareholders.

Item 11. Executive Compensation

      Information about Executive Compensation is incorporated by reference from the discussion in our proxy statement for the 2006 Annual Meeting of Shareholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

      Information about security ownership of certain beneficial owners and management is incorporated by reference from the discussion in our proxy statement for the 2006 Annual Meeting of Shareholders.

Item 13. Certain Relationships and Related Transactions

      Information about certain relationships and transactions with related parties is incorporated by reference from the discussion in our proxy statement for the 2006 Annual Meeting of Shareholders.

Item 14. Principal Accounting Fees and Services

      Information about principal accounting fees and services is incorporated by reference from the discussion in our proxy statement for the 2006 Annual Meeting of Shareholders.

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) (1) Our Consolidated Financial Statements are filed as a separate section of this report commencing on page F-1:

      (2) Financial Statement Schedule:

      All Schedules are omitted because they are not applicable or required information is shown in the Consolidated Financial Statements or notes thereto.

      (3) Exhibits:

      The information called for by this paragraph is contained in the Exhibits Index of this report, which is incorporated herein by reference.

77

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

      The following Consolidated Financial Statements and schedule of the registrant and its subsidiaries are submitted herewith in response to Item 8:

	Page
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets as of December 31, 2005 and December 31, 2004		F-3
Consolidated Statements of Operations for the years ended December 31, 2005, December 31, 2004 and December 31, 2003		F-4
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2005, December 31, 2004 and December 31, 2003		F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2005, December 31, 2004 and December 31, 2003		F-6
Notes to the Consolidated Financial Statements		F-7

      All schedules are inapplicable, or have been disclosed in the Notes to Consolidated Financial Statements and, therefore, have been omitted.

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Lodgian, Inc.

Atlanta, Georgia

      We have audited the accompanying consolidated balance sheets of Lodgian, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits.

      We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Lodgian, Inc. and subsidiaries at December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

      As discussed in Note 10 to the consolidated financial statements, effective July 1, 2003, the Company adopted the provisions of Statement of Financial Accounting Standards No. 150.

      We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 15, 2006 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an adverse opinion on the effectiveness of the Company’s internal control over financial reporting because of a material weakness.

Deloitte & Touche LLP

Atlanta, Georgia

March 15, 2006

F-2

LODGIAN, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

				December 31, 2005			December 31, 2004
				($ in thousands, except share data)
ASSETS
Current assets:
	Cash and cash equivalents			$	19,097		$	36,234
	Cash, restricted				15,003			9,840
	Accounts receivable (net of allowances: 2005 — $1,101; 2004 — $684)				8,054			7,967
	Insurance receivable				11,725			3,280
	Inventories				3,955			3,757
	Prepaid expenses and other current assets				20,101			17,542
	Assets held for sale				14,866			30,559
			Total current assets		92,801			109,179
Property and equipment, net					606,862			571,126
Deposits for capital expenditures					19,431			34,787
Other assets					7,591			8,556
				$	726,685		$	723,648
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable			$	14,709		$	10,957
	Other accrued liabilities				31,528			31,785
	Advance deposits				1,914			1,638
	Insurance advances				700			2,000
	Current portion of long-term liabilities				18,531			25,290
	Liabilities related to assets held for sale				4,610			30,572
			Total current liabilities		71,992			102,242
Long-term liabilities					394,432			393,143
Total liabilities					466,424			495,385
Minority interests					11,217			1,629
Commitments and contingencies
Stockholders’ equity:
	Common stock, $.01 par value, 60,000,000 shares authorized; 24,648,405 and 24,579,255 issued at December 31, 2005 and December 31, 2004, respectively				246			246
	Additional paid-in capital				317,034			306,943
	Unearned stock compensation				(604	)		(315	)
	Accumulated deficit				(69,640	)		(81,941	)
	Accumulated other comprehensive income				2,234			1,777
	Treasury stock, at cost, 21,633 and 7,211 shares at December 31, 2005 and December 31, 2004, respectively				(226	)		(76	)
		Total stockholders’ equity			249,044			226,634
				$	726,685		$	723,648

See notes to consolidated financial statements.

F-3

LODGIAN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

				2005			2004			2003
				($ in thousands, except per share data)
Revenues:
	Rooms			$	241,441		$	231,255		$	221,543
	Food and beverage				67,715			70,631			69,016
	Other				10,108			10,539			10,839
					319,264			312,425			301,398
Operating expenses:
	Direct:
		Rooms			67,344			65,019			62,968
		Food and beverage			48,710			49,966			47,643
		Other			8,050			7,907			7,799
					124,104			122,892			118,410
					195,160			189,533			182,988
Other operating expenses:
	Other hotel operating costs				100,420			93,116			88,430
	Property and other taxes, insurance, and leases				22,369			21,247			24,313
	Corporate and other				21,063			16,824			20,482
	Casualty (gains) losses, net				(30,929	)		2,313			—
	Depreciation and amortization				29,647			26,666			28,427
	Impairment of long-lived assets				8,347			4,877			8,396
		Other operating expenses			150,917			165,043			170,048
					44,243			24,490			12,940
Other income (expenses):
	Business interruption insurance proceeds				9,595			—			—
	Interest income and other				855			681			807
	Gain on asset dispositions				—			—			445
	Interest expense and other financing costs:
		Preferred stock dividend			—			(9,383	)		(8,092	)
		Interest expense			(27,675	)		(41,725	)		(27,626	)
		Loss on preferred stock redemption			—			(6,063	)		—
Income (loss) before income taxes, reorganization items and minority interests					27,018			(32,000	)		(21,526	)
Reorganization items					—			—			(1,355	)
Provision for income taxes — continuing operations					(6,981	)		(228	)		(178	)
Minority interests (net of taxes, nil)					(9,588	)		691			1,294
Income (loss) from continuing operations					10,449			(31,537	)		(21,765	)
Discontinued operations:
	Income (loss) from discontinued operations before income taxes				3,087			(297	)		(9,912	)
	Provision for income taxes				(1,235	)		—			—
Income (loss) from discontinued operations					1,852			(297	)		(9,912	)
Net income (loss)					12,301			(31,834	)		(31,677	)
Preferred stock dividend					—			—			(7,594	)
Net income (loss) attributable to common stock				$	12,301		$	(31,834	)	$	(39,271	)
Net earnings (loss) per share attributable to common stock:
			Basic	$	0.50		$	(2.30	)	$	(16.83	)
			Diluted	$	0.50		$	(2.30	)	$	(16.83	)

See notes to consolidated financial statements.

F-4

LODGIAN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

																Accumulated
																Other
		Common Stock					Additional			Unearned						Comprehensive		Treasury Stock					Total
							Paid-In			Stock			Accumulated			Income							Stockholders’
		Shares			Amount		Capital			Compensation			Deficit			(net of tax)		Shares		Amount			Equity
		($ In thousands, except share data)
Balance December 31, 2002			2,333,333		$	23	$	89,270		$	—		$	(10,836	)	$	—		—	$	—		$	78,457
Issuance of restricted stock			—			—		600			(600	)		—			—		—		—			—
Amortization of unearned stock compensation			—			—		—			92			—			—		—		—			92
Exercise of stock options			258			—		4			—			—			—		—		—			4
Comprehensive loss:
	Net loss		—			—		—			—			(31,677	)		—		—		—			(31,677	)
	Currency translation adjustments (related taxes estimated at nil)		—			—		—			—			—			1,324		—		—			1,324
Total comprehensive loss			—			—		—			—			—			—		—		—			(30,353	)
Preferred dividends			—			—		—			—			(7,594	)		—		—		—			(7,594	)
Balance December 31, 2003			2,333,591		$	23	$	89,874		$	(508	)	$	(50,107	)	$	1,324		—		—		$	40,606
Fractional shares cancelled on reverse stock split			(971	)		—		(5	)		—			—			—		—		—			(5	)
Issuance of restricted stock			—			—		25			(25	)		—			—		—		—			—
Issuance of new common shares			18,285,714			183		175,704			—			—			—		—		—			175,887
Surrender of unexchanged shares			(2,657	)		—		—			—			—			—		—		—			—
Amortization of unearned stock compensation			—			—		—			218			—			—		—		—			218
Exercise of stock options			241			—		4			—			—			—		—		—			4
Exchange of preferred shares for common shares			3,941,115			40		41,341			—			—			—		—		—			41,381
Vesting of restricted stock units			22,222			—		—			—			—			—		—		—			—
Treasury stock			—			—		—			—			—			—		7,211		(76	)		(76	)
Comprehensive loss:																								—
Net loss			—			—		—			—			(31,834	)		—		—		—			(31,834	)
Currency translation			—			—		—			—			—			—		—		—			—
adjustments (related taxes estimated at nil)			—			—		—			—			—			453		—		—			453
Total comprehensive loss			—			—		—			—			—			—		—		—			(31,381	)
Balance December 31, 2004			24,579,255		$	246	$	306,943		$	(315	)	$	(81,941	)	$	1,777		7,211	$	(76	)	$	226,634
Amortization of unearned stock compensation											494													494
Issuance of restricted shares			—			—		783			(783	)		—			—		—		—			—
Vesting of restricted stock units			45,826			—		—			—			—			—		—		—			—
Release of surplus accrual on final settlement of bankruptcy claims			—			—		1,292			—			—			—		—		—			1,292
Retirement of disputed claims shares			(16,676	)		—		—			—			—			—		—		—			—
Exercise of Stock Options			40,000			—		361			—			—			—		—		—			361
Treasury stock			—			—		—			—			—			—		14,422		(150	)		(150	)
Realization of pre-emergence deferred tax asset			—			—		7,692			—			—			—		—		—			7,692
Other			—			—		(37	)		—			—			—		—		—			(37	)
Comprehensive income:
Net income			—			—		—			—			12,301			—		—		—			12,301
Currency translation adjustments (related taxes estimated at nil)			—			—		—			—			—			457		—		—			457
Total comprehensive income																								12,758
Balance December 31, 2005			24,648,405		$	246	$	317,034		$	(604	)	$	(69,640	)	$	2,234		21,633	$	(226	)	$	249,044

See notes to consolidated financial statements.

F-5

LODGIAN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

				2005			2004			2003
				($ in thousands)
Operating activities:
	Net income (loss)			$	12,301		$	(31,834	)	$	(31,677	)
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Depreciation and amortization			30,147			27,616			33,128
		Impairment of long-lived assets			12,307			12,112			18,054
		Amortization of unearned stock compensation			494			218			92
		Preferred stock dividends			—			9,383			8,092
		Loss on redemption of preferred stock			—			6,063			—
		Casualty (gains) losses, net			(30,769	)		2,313			—
		Deferred Income Taxes			7,692			—			—
		Minority interests			9,588			(691	)		(1,296	)
		Gain on asset dispositions			(6,872	)		(9,168	)		(3,530	)
		Write-off and amortization of deferred financing costs			942			11,210			4,916
		Other			(540	)		(125	)		(225	)
		Changes in operating assets and liabilities:
			Accounts receivable, net of allowances		(313	)		958			1,262
			Insurance receivable		(3,121	)		—			—
			Inventories		(526	)		(396	)		285
			Prepaid expenses and other assets		(2,617	)		291			(2,808	)
			Accounts payable		58			(181	)		(4,824	)
			Other accrued liabilities		(294	)		(1,330	)		(6,916	)
			Advance deposits		251			(487	)		486
Net cash provided by operating activities					28,728			25,952			15,039
Investing activities:
	Capital improvements				(86,476	)		(37,262	)		(35,434	)
	Proceeds from sale of assets, net of related selling costs				36,396			42,493			13,145
	Acquisitions of property and equipment				—			(5,363	)		—
	(Deposits) withdrawals for capital expenditures				15,361			(18,990	)		6,896
	Insurance proceeds related to hurricanes				26,193			2,000			—
	Net (increase) decrease in restricted cash				(5,163	)		(2,756	)		12,300
	Other				(99	)		(598	)		(261	)
Net cash used in investing activities					(13,788	)		(20,476	)		(3,354	)
Financing activities:
	Proceeds from issuance of long term debt				32,200			370,000			80,000
	Proceeds from working capital revolver				—			—			2,000
	Proceeds from exercise of stock options and issuance of common stock				361			175,890			114
	Principal payments on long-term debt				(63,612	)		(406,515	)		(87,059	)
	Principal payments on working capital revolver				—			—			(2,000	)
	Shares redeemed from reverse stock split				—			(5	)		—
	Preferred stock redemption				—			(114,043	)		—
	Purchase of treasury stock				(150	)		(76	)		—
	Payments of deferred financing costs				(913	)		(5,417	)		(4,839	)
	Other				(37	)		—			—
Net cash (used in) provided by financing activities					(32,151	)		19,834			(11,784	)
Effect of exchange rate changes on cash					74			27			121
Net (decrease) increase in cash and cash equivalents					(17,137	)		25,337			22
Cash and cash equivalents at beginning of year					36,234			10,897			10,875
Cash and cash equivalents at end of year				$	19,097		$	36,234		$	10,897
Supplemental cash flow information:
Cash paid during the period for:
	Interest, net of the amounts capitalized shown below			$	27,154		$	35,010		$	28,660
	Interest capitalized				2,121			800			1,181
	Income taxes, net of refunds				902			483			237
Supplemental disclosure of non-cash investing and financing activities:
	Exchange of preferred shares for common shares				—			41,381			—
	Net non-cash debt increase				1,277			3,187			4,678
	Equipment acquired through capital lease obligations				—			51			—
	Release of surplus accrual on final settlement of bankruptcy claims				1,292			—			—
	Purchases of property and equipment on account				3,330			4,532			(1,210	)
Operating cash receipts and payments resulting from Chapter 11 proceedings:
	Professional fees paid				—			—			(455	)
	Loan extension fee				—			—			(1,500	)
	Other reorganization payments				—			—			(90	)

See notes to consolidated financial statements.

F-6

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005

1. Summary of Significant Accounting Policies

Description of Business

      On December 11, 1998, Servico, Inc. (Servico) merged with Impac Hotel Group, LLC (Impac), pursuant to which Servico and Impac formed a new company, Lodgian, Inc. (“Lodgian” or the “Company”). This transaction (the “Merger”) was accounted for under the purchase method of accounting, whereby Servico was considered the acquiring company. On December 20, 2001, the Company and substantially all of its subsidiaries that owned hotel properties filed for voluntary reorganization under Chapter 11 of the Bankruptcy Code. At the time of the Chapter 11 filing, the Company’s portfolio of hotels consisted of 106 hotel properties. The Company emerged from Chapter 11 with 97 hotels since eight of the hotels were conveyed to the lender in satisfaction of outstanding debt obligations and one hotel was returned to the lessor of a capital lease. Of the portfolio of 97 hotels, 78 hotels emerged from Chapter 11 on November 25, 2002, 18 hotels emerged on May 22, 2003 and one hotel never filed under Chapter 11.

      In 2003, the Company developed a strategy of owning and operating a portfolio of profitable, well-maintained and appealing hotels at superior locations in strong markets. The Company implemented this strategy by renovating and repositioning certain of its existing hotels to improve performance and divesting hotels that do not fit this strategy or that are unlikely to do so without significant effort or expense. In 2004, the Company also acquired one hotel that better fit this strategy.

      In accordance with this strategy and the Company’s efforts to reduce debt and interest costs, in 2003 the Company identified 19 hotels, its only office building and three land parcels for sale. One hotel and the Company’s only office building were sold in 2003. In 2004, the Company sold 11 of these hotels and two of the land parcels. The Company acquired one hotel, a SpringHill Suites by Marriott in Pinehurst, North Carolina, in December 2004. In 2005, the Company sold eight hotels and identified five additional hotels as held for sale. Also, one hotel previously identified as held for sale was reclassified into continuing operations in the fourth quarter 2005 as management no longer expected to have the hotel sold within one year. In the first two months of 2006, the Company identified five additional hotels for sale, surrendered two Holiday Inn hotels, located in Lawrence and Manhattan, KS, to the Trustee pursuant to the settlement agreement entered into in August 2005, and the venture which owns the Holiday Inn City Center Columbus, OH deeded the hotel to the lender, a minority-interest hotel that was accounted for under the equity method of accounting. The Company has completed substantially all of its deferred renovation program, and it has spent $80.8 million in 2005, including $41.8 million for hurricane damage repairs, and $35.1 million in 2004 on capital expenditures on its continuing operations hotels.

Principles of Consolidation

      The financial statements consolidate the accounts of Lodgian, its wholly-owned subsidiaries and four joint ventures in which Lodgian has a controlling financial interest and exercises control. Lodgian believes it has control of the joint ventures when it manages and has control of the joint venture’s assets and operations. The four joint ventures in which the Company exercises control and are consolidated in our financial statements are as follows:

•  Melbourne Hospitality Associates, Limited Partnership (which owns the Crowne Plaza Melbourne, Florida) — This joint venture is in the form of a limited partnership, in which a Lodgian subsidiary serves as the general partner and has a 50% voting interest.

•  New Orleans Airport Motel Associates, Ltd. (which owns the Radisson New Orleans Airport Hotel, Kenner, Louisiana) — This joint venture is in the form of a limited partnership, in which a Lodgian subsidiary serves as the general partner and has an 82% voting interest.

F-7

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

•  Servico Centre Associates, Ltd. (which owns the Crowne Plaza West Palm Beach, Florida) — This joint venture is in the form of a limited partnership, in which a Lodgian subsidiary serves as the general partner and has a 50% voting interest.

•  McKnight Motel, Inc. (which owns the Holiday Inn McKnight Pittsburgh, Pennsylvania) — This joint venture is in the form of a limited partnership, in which a Lodgian subsidiary serves as the limited partner and has a 50% voting interest.

      On April 18, 2005, the Company acquired for $0.7 million its joint venture partner’s 40% interest in the Crowne Plaza hotel located in Macon, GA, which is now consolidated as a wholly-owned subsidiary.

      The Holiday Inn City Center, Columbus, OH in which the Company has a 30% non-controlling equity interest, is accounted for under the equity method. On November 15, 2005, the Company surrendered this hotel to a receiver. On February 3, 2006, the hotel was deeded to the lender. Accordingly, in 2005 the Company recorded a $0.7 million charge for the write-off of the receivable from this subsidiary and a $0.2 million charge for the write-off of the investment in this subsidiary.

      All intercompany accounts and transactions have been eliminated in consolidation.

Inventories

      Linen costs are carried at cost. When the Company has to change its linen inventory as a result of brand standard changes required by our franchisors, the Company will write-off the existing linen inventory carrying costs and establish a new linen inventory carrying cost on the balance sheet. During 2005, the Company determined that linen inventory, on average, has a useful life in excess of one year. As a result, the Company reclassified the estimated long term portion of the linen inventory balance to other assets on the balance sheet. The 2004 balance sheet has been adjusted to reclassify $0.8 million of linen inventory to other assets.

      Also during 2005, the Company determined that most china, glass and silverware inventory had a useful life longer than one year. China, glass and silverware inventory, previously included on our balance sheet as a current asset, was reclassified to long-term assets and is included in property and equipment, net. The 2004 balance sheet has been adjusted to reflect this revised presentation, which resulted in a $1.8 million decrease in inventories, and an increase in property and equipment, net.

Minority Interests

      Minority interests represent the minority stockholders’ proportionate share of equity of joint ventures that are consolidated by the Company and is shown as “minority interests” in the Consolidated Balance Sheet. The Company allocates to minority interests their share of any profits or losses in accordance with the provisions of the applicable agreements. However, if the loss applicable to a minority interest exceeds its total investment and advances, such excess is recorded as a charge in the Consolidated Statement of Operations.

Property and Equipment

      Property and equipment is stated at depreciated cost, less adjustments for impairment, where applicable. Capital improvements are capitalized when they extend the useful life of the related asset. All repair and maintenance items are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful live of the asset. The Company capitalizes interest costs incurred during the renovation and construction of capital assets.

      Management periodically evaluates the Company’s property and equipment to determine whether events or changes in circumstances indicate that a possible impairment in the carrying values of the assets has occurred. The carrying value of a held for use long-lived asset is considered for impairment when the undiscounted cash flows estimated to be generated by that asset over its estimated useful life is less than the asset’s carrying value. In determining the undiscounted cash flows management considers the current operating results, market trends, and future prospects, as well as the effects of demand, competition and other

F-8

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

economic factors. If it is determined that an impairment has occurred, the excess of the asset’s carrying value over its estimated fair value is charged to operating expenses as an impairment charge. Management estimates fair value based on broker opinions or appraisals. If the projected future cash flows exceed the carrying values, no adjustment is recorded. See Note 6 for further discussion of the Company’s charges for asset impairment.

Acquisition of Hotels

      The Company’s hotel acquisitions consist primarily of land, building, furniture, fixtures and equipment, and inventory. Accordingly, the Company allocates the purchase price among these asset classes based upon their respective values determined in accordance with Statement of Financial Accounting Standards, or SFAS 141, “Business Combinations.”.

Assets Held for Sale and Discontinued Operations

      Management considers an asset held for sale when the following criteria per SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” are met:

      a) Management commits to a plan to sell the asset;

      b) The asset is available for immediate sale in its present condition;

      c) An active marketing plan to sell the asset has been initiated at a reasonable price;

      d) The sale of the asset is probable within one year; and

      e) It is unlikely that significant changes to the plan to sell the asset will be made.

      Upon designation of a property as an asset held for sale and in accordance with the provisions of SFAS No. 144, the Company records the carrying value of the property at the lower of its carrying value or its estimated fair market value, less estimated selling costs, and the Company ceases depreciation of the asset.

      All losses and gains on assets sold and held for sale (including any related impairment charges) are included in “income (loss) from discontinued operations before income taxes” in the Consolidated Statement of Operations. All assets held for sale and the liabilities related to these assets are separately disclosed in the Consolidated Balance Sheet. The amount the Company will ultimately realize could differ from the amount recorded in the financial statements. See Note 3 for details of assets and liabilities and operating results of the discontinued operations.

Cash and Cash Equivalents

      The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.

     Restricted Cash

      Restricted cash consisted of amounts reserved for letter of credit collateral, a deposit required by the Company’s bankers and cash reserves pursuant to loan agreements.

Fair Values of Financial Instruments

      The fair value of financial instruments is estimated using market trading information. Where published market values are not available, management estimates fair values based upon quotations received from broker/ dealers or interest rate information for similar instruments. Changes in fair value are recognized in earnings.

      The fair values of current assets and current liabilities are assumed equal to their reported carrying amounts. The fair values of the Company’s fixed rate long-term debt are estimated using discounted cash flow analyses, based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

F-9

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Concentration of Credit Risk

      Concentration of credit risk associated with cash and cash equivalents is considered low due to the credit quality of the issuers of the financial instruments held by the Company and due to their short duration to maturity. Accounts receivable are primarily from major credit card companies, airlines and other travel-related companies. The Company performs ongoing evaluations of its significant credit customers and generally does not require collateral. The Company maintains an allowance for doubtful accounts at a level which management believes is sufficient to cover potential credit losses. At December 31, 2005 and 2004, allowances were $1.1 million and $0.7 million, respectively.

Concentration of Market Risk

      Adverse economic conditions in markets, such as Pittsburgh, Baltimore/ Washington, D.C., and Phoenix, in which the Company has multiple hotels, could significantly and negatively affect the Company’s revenue and results of operations. The 14 hotels in these areas provided approximately 26% of the Company’s 2005 continuing operations revenue and approximately 22% of the Company’s 2005 continuing operations total available rooms. In 2004, these 14 hotels provided approximately 26% of the Company’s continuing operations revenue and approximately 21% of the Company’s continuing operations total available rooms. In 2003, these 14 hotels provided approximately 25% of the Company’s continuing operations revenue and approximately 21% of the Company’s continuing operations total available rooms. As a result of this geographic concentration of these hotels, the Company is particularly exposed to the risks of downturns in these markets, which could have a major adverse affect on the Company’s profitability.

Income Taxes

      The Company accounts for income taxes under SFAS No. 109, “Accounting for Income Taxes,” which requires the use of the liability method of accounting for deferred income taxes. See Note 12 for the components of the Company’s deferred taxes. As a result of the Company’s history of losses, the Company has provided a full valuation allowance against its deferred tax asset.

Statements of Cash Flows

      In 2005, the Company revised the classification of changes in restricted cash balances to present such changes as an investing activity. Previously, the Company presented such changes as an operating activity in its Consolidated Statement of Cash Flows. The revised presentation increased net cash used in investing activities by $2.8 million for the year ended December 31, 2004, and decreased net cash used in investing activities by $12.3 million for the year ended December 31, 2003, with a corresponding change in net cash provided by operating activities.

      In 2005, the Company revised the presentation of property and equipment purchased on account to present such amounts as non-cash investing activities in its Consolidated Statement of Cash Flows. The revised presentation was reflected for all three years in the period ended December 31, 2005.

Earnings per Common and Common Equivalent Share

      Basic earnings per share is calculated based on the weighted average number of common shares outstanding during the period. Dilutive earnings per common share includes the Company’s outstanding stock options, restricted stock, restricted stock units, and warrants to acquire common stock, if dilutive. See Note 14 for a computation of basic and diluted earnings per share.

F-10

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Stock-Based Compensation

      The Company accounts for stock option grants in accordance with Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees” and related interpretations. Under APB No. 25, if the exercise price of the Company’s employee stock options is equal to the market price of the underlying stock on the date of grant, no compensation expense is recognized. Under SFAS No. 123, “Accounting for Stock-Based Compensation,” compensation cost is measured at the grant date based on the estimated value of the award and is recognized over the service (or vesting) period.

      The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant.

      In December 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure (“SFAS No. 148”).” SFAS No. 148 amended SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for an entity that voluntarily changes to the fair-value-based method of accounting for stock-based employee compensation. It also amended the disclosure provisions of SFAS No. 123 to require prominent disclosure about the effects on reported net income and earnings per share and the entity’s accounting policy decisions with respect to stock-based employee compensation. The Company continues to account for stock issued to employees, using the intrinsic value method in accordance with the recognition and measurement principles of APB Opinion No. 25.

      The following table reconciles net income and basic and diluted earnings per share (“EPS”), as reported, to pro-forma net income and basic and diluted EPS, as if the Company had expensed the fair value of stock options as permitted by SFAS No. 123, as amended by SFAS No. 148:

		Year Ended			Year Ended			Year Ended
		December 31, 2005			December 31, 2004			December 31, 2003
		($ in thousands, except share data)
Income (loss) from continuing operations:
	As reported	$	10,449		$	(31,537	)	$	(21,765	)
	Add: Stock-based compensation expense included in net income, net of tax effects		302			218			92
	Deduct: Total pro forma stock-based employee compensation expense, net of tax effects		(1,354	)		(1,155	)		(705	)
	Pro forma		9,397			(32,474	)		(22,378	)
Income (loss) from discontinued operations:
	As reported		1,852			(297	)		(9,912	)
	Add: Stock-based compensation expense included in net income, net of tax effects		—			—			—
	Deduct: Total pro forma stock-based employee compensation expense, net of tax effects		—			—			—
	Pro forma		1,852			(297	)		(9,912	)

F-11

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		Year Ended			Year Ended			Year Ended
		December 31, 2005			December 31, 2004			December 31, 2003
		($ in thousands, except share data)
Net income (loss):
	As reported		12,301			(31,834	)		(31,677	)
	Add: Stock-based compensation expense included in net income, net of tax effects		302			218			92
	Deduct: Total pro forma stock-based employee compensation expense, net of tax effects		(1,354	)		(1,155	)		(705	)
	Pro forma		11,249			(32,771	)		(32,290	)
Net income (loss) attributable to common stock:
	As reported		12,301			(31,834	)		(39,271	)
	Add: Stock-based compensation expense included in net income, net of tax effects		302			218			92
	Deduct: Total pro forma stock-based employee compensation expense, net of tax effects		(1,354	)		(1,155	)		(705	)
	Pro forma		11,249			(32,771	)		(39,884	)
Basic earnings (loss) per common share:
Income (loss) from continuing operations:
	As reported	$	0.42		$	(2.28	)	$	(9.33	)
	Add: Stock-based compensation expense included in net income, net of tax effects		0.01			0.02			0.04
	Deduct: Total pro forma stock-based employee compensation expense, net of tax effects		(0.06	)		(0.08	)		(0.30	)
	Pro forma		0.37			(2.34	)		(9.59	)
Income (loss) from discontinued operations:
	As reported		0.08			(0.02	)		(4.25	)
	Add: Stock-based compensation expense included in net income, net of tax effects		—			—			—
	Deduct: Total pro forma stock-based employee compensation expense, net of tax effects		—			—			—
	Pro forma		0.08			(0.02	)		(4.25	)
Net income (loss):
	As reported		0.50			(2.30	)		(13.58	)
	Add: Stock-based compensation expense included in net income, net of tax effects		0.01			0.02			0.04
	Deduct: Total pro forma stock-based employee compensation expense, net of tax effects		(0.06	)		(0.08	)		(0.30	)
	Pro forma		0.45			(2.36	)		(13.84	)

F-12

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		Year Ended			Year Ended			Year Ended
		December 31, 2005			December 31, 2004			December 31, 2003
		($ in thousands, except share data)
Net income (loss) attributable to common stock:
	As reported		0.50			(2.30	)		(16.83	)
	Add: Stock-based compensation expense included in net income, net of tax effects		0.01			0.02			0.04
	Deduct: Total pro forma stock-based employee compensation expense, net of tax effects		(0.06	)		(0.08	)		(0.30	)
	Pro forma		0.45			(2.36	)		(17.09	)
Diluted earnings (loss) per common share:
Income (loss) from continuing operations:
	As reported	$	0.42		$	(2.28	)	$	(9.33	)
	Add: Stock-based compensation expense included in net income, net of tax effects		0.01			0.02			0.04
	Deduct: Total pro forma stock-based employee compensation expense, net of tax effects		(0.06	)		(0.08	)		(0.30	)
	Pro forma		0.37			(2.34	)		(9.59	)
Income (loss) from discontinued operations:
	As reported		0.08			(0.02	)		(4.25	)
	Add: Stock-based compensation expense included in net income, net of tax effects		—			—			—
	Deduct: Total pro forma stock-based employee compensation expense, net of tax effects		—			—			—
	Pro forma		0.08			(0.02	)		(4.25	)
Net income (loss):
	As reported		0.50			(2.30	)		(13.58	)
	Add: Stock-based compensation expense included in net income, net of tax effects		0.01			0.02			0.04
	Deduct: Total pro forma stock-based employee compensation expense, net of tax effects		(0.06	)		(0.08	)		(0.30	)
	Pro forma		0.45			(2.36	)		(13.84	)
Net income (loss) attributable to common stock:
	As reported		0.50			(2.30	)		(16.83	)
	Add: Stock-based compensation expense included in net income, net of tax effects		0.01			0.02			0.04
	Deduct: Total pro forma stock-based employee compensation expense, net of tax effects		(0.06	)		(0.08	)		(0.30	)
	Pro forma		0.45			(2.36	)		(17.09	)

Revenue Recognition

      Revenues are recognized when the services are rendered. Revenues are comprised of room, food and beverage and other revenues. Room revenues are derived from guest room rentals, whereas food and beverage

F-13

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

revenues primarily include sales from hotel restaurants, room service and hotel catering and meeting rentals. Other revenues include charges for guests’ long-distance telephone service, laundry and parking services, in-room movie services, vending machine commissions, leasing of hotel space and other miscellaneous revenues.

Foreign Currency Translation

      The financial statements of our Canadian operation have been translated into U.S. dollars in accordance with SFAS No. 52, “Foreign Currency Translation.” All balance sheet accounts have been translated using the exchange rates in effect at the balance sheet dates. Income statement amounts have been translated using the average rate for the year. The gains and losses resulting from the changes in exchange rates from year to year are reported in “accumulated other comprehensive income” in the Consolidated Statements of Shareholders’ Equity (Deficit). The effects on the statements of operations of translation gains and losses are insignificant for all years presented.

Operating Segments

      SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” requires the disclosure of selected information about operating segments. Based on the guidance provided in the standard, the Company has determined that its business of ownership and management of hotels is conducted in one operating segment. During 2005, the Company derived approximately 98% of its revenue from hotels located within the United States and the balance from the Company’s one hotel located in Windsor, Canada.

Use of Estimates

      The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Self-insurance

      The Company is self-insured up to certain limits with respect to employee medical, employee dental, property insurance, general liability insurance, personal injury claims, workers’ compensation and automobile liability. Liabilities for these self-insured obligations are established annually, based on actuarial valuations and the Company’s history of claims. As of December 31, 2005 and December 31, 2004, the Company had accrued $12.4 million and $11.4 million, respectively, for such liabilities.

New Accounting Pronouncements

      In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, An Amendment of APB Opinion No. 29 (“SFAS No. 153”). The amendments made by SFAS No. 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have “commercial substance.” SFAS No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of SFAS No. 153 on July 1, 2005 did not have a material effect on the Company’s consolidated financial statements.

      In December 2004, the FASB issued FAS 123(R), “Share-Based Payment,” which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” (FAS 123). FAS 123(R) supersedes APB 25, “Accounting for Stock issued to Employees,” and amends SFAS No 95, “Statement of Cash Flows.” The

F-14

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

approach in FAS 123(R) is generally similar to the approach described in FAS 123. However, FAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the earnings statements based on their fair values. Pro forma disclosure will no longer be an alternative.

      The Company adopted FAS 123(R) as of January 1, 2006 using the modified-prospective method. Under this transition method, compensation cost is recognized beginning with the effective date (a) based on the requirements of FAS 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of FAS 123 for all awards granted to employees prior to the effective date of FAS 123(R) that remain unvested on the effective date. As permitted by FAS 123, through December 31, 2005 the Company accounted for share-based payments to employees using APB 25’s intrinsic value method and, as such, generally have not recognized compensation cost for employee stock options. The Company estimates that pretax compensation expense related to the compensation expense for existing unvested and newly granted stock options that will be recognized during fiscal 2006 will range between $1.2 million and $1.5 million in 2006.

      In March 2005, the FASB issued Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations, An Interpretation of FASB Statement No. 143 (“FIN 47”). FIN 47 generally requires entity to recognize a liability equal to the fair value of a conditional asset retirement obligation when incurred. Further, FIN 47 clarifies when an entity would have sufficient information to reasonably estimate the fair value of a conditional asset retirement obligation. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. The adoption of FIN 47 did not have a material impact on its results of operations or financial position.

      In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, A Replacement of APB Opinion No. 20 and FASB Statement No. 3 (“SFAS No. 154”). SFAS No. 154 generally requires retrospective application for reporting a change in accounting principle, unless alternative transition methods are explicitly stated in a newly adopted accounting principle. Additionally, SFAS No. 154 requires that errors be corrected by restating previously issued financial statements. SFAS No. 154 is effective for fiscal years beginning after December 15, 2005. The Company began applying this standard on January 1, 2006.

2. Stock-Based Compensation

      On November 25, 2002, the Company adopted a Stock Incentive Plan which replaced the stock option plan previously in place. In accordance with the Stock Incentive Plan, and prior to the completion of the secondary offering of common stock on June 25, 2004, the Company was permitted to grant awards to acquire up to 353,333 shares of common stock to its directors, officers, or other key employees or consultants as determined by a committee appointed by the Board of Directors. Awards may consist of stock options, stock appreciation rights, stock awards, performance share awards, section 162(m) awards or other awards determined by the committee. The Company cannot grant stock options pursuant to the Stock Incentive Plan at an exercise price which is less than 100% of the fair market value per share on the date of the grant. Vesting, exercisability, payment and other restrictions pertaining to any awards made pursuant to the Stock Incentive Plan are determined by the committee. At the annual meeting held on March 19, 2004, stockholders approved an amendment and restatement of the Stock Incentive Plan to, among other things, increase the number of shares of common stock available for issuance thereunder by 29,667 immediately and, in the event the Company consummated a secondary offering of its common stock, by an additional amount to be determined pursuant to a formula. With the completion of the secondary offering of common stock on June 25, 2004, the total number of shares available for issuance under our Stock Incentive Plan increased to 3,301,058 shares.

F-15

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Pursuant to the Stock Incentive Plan, the committee made the following awards during the year ended December 31, 2005:

	Issued Under				Available for Issuance
	the Stock				Under the Stock
	Incentive Plan			Type	Incentive Plan
Available under the plan, less previously issued						2,713,314
Issued — January 31, 2005		25,000		stock options		2,688,314
Issued — February 28, 2005		7,500		stock options		2,680,814
Issued — April 18, 2005		2,500		stock options		2,678,314
Issued — May 9, 2005		392,500		stock options		2,285,814
Issued — July 15, 2005		75,000		restricted stock		2,210,814
Issued — September 8, 2005		2,500		stock options		2,208,314
Issued — September 26, 2005		5,000		stock options		2,203,314
Issued — December 29, 2005		5,000		stock options		2,198,314
Options forfeited in 2005		(332,516	)			2,530,830
Shares withheld from awards to satisfy tax withholding obligations		(14,422	)			2,545,252
		168,062

      On January 31, 2005, the Company awarded stock options to acquire 25,000 shares of the Company’s common stock to Linda Borchert Philp upon her promotion to chief financial officer.

      On May 9, 2005, the Company awarded stock options to acquire 392,500 shares of the Company’s common stock to certain of the Company’s employees and to independent members of the board of directors. Each of the four independent members of the board of directors received non-qualified options to acquire 5,000 shares of the Company’s common stock. The exercise price of the awards granted was $9.05, the average of the high and low market prices of our common stock on the day of the grant, and the awards vest in three equal annual installments beginning on May 9, 2006.

      On July 15, 2005, the Company issued 75,000 restricted stock shares to Mr. Rohling our president and chief executive officer. The shares will vest in two equal installments on July 15, 2006 and July 15, 2007. The restricted stock shares were valued at $10.44 per share, the average of the high and low market prices of our common stock on the day of the grant.

      Additionally, in 2005 the Company awarded stock options to acquire an aggregate 22,500 shares of the Company’s common stock to new employees of the Company. In total in 2005 the Company awarded 440,000 stock option grants.

      All stock options expire ten years from the date of grant.

      On September 8, 2005, Thomas Parrington resigned as chief executive officer as part of a transition plan and Edward Rohling was elected chief executive officer by the Company’s Board of Directors. Mr. Parrington was originally awarded 66,666 units, of which 22,222 units had not yet vested at the time of Mr. Parrington’s resignation. When Mr. Parrington resigned these 22,222 units of restricted stock immediately vested. In total, 14,422 shares were withheld to satisfy tax obligations related to Mr. Parrington’s restricted stock units in 2005. The withheld shares were deemed repurchased by the Company and thus were added to treasury stock.

      At December 31, 2005, the Company had 2,545,252 shares that remained available for issuance under the Stock Incentive Plan.

F-16

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The stock option and restricted stock activity is summarized below:

					Weighted Average
		Options			Exercise Price
Balance, December 31, 2002			—			—
	Granted		157,785		$	13.92
	Exercised		(258	)		15.21
	Forfeited		—			—
Balance, December 31, 2003			157,527		$	13.92
	Granted		383,500			10.52
	Exercised		(239	)		15.21
	Forfeited		(14,378	)		13.42
Balance, December 31, 2004			526,410		$	11.46
	Granted		440,000			9.29
	Exercised		(40,000	)		9.05
	Forfeited		(332,516	)		10.75
Balance, December 31, 2005			593,894		$	10.41

		Restricted			Restricted
		Stock Units			Stock Shares
Balance, December 31, 2002			—			—
	Granted		200,000			—
	Units converted to common stock		—			—
	Forfeited		—			—
Balance, December 31, 2003			200,000	(1)		—
	Adjustment for 3:1 reverse stock split		(133,333	)(1)		—
	Granted		1,382			—
	Units converted to common stock		(22,222	)(2)		—
	Forfeited		—			—
Balance, December 31, 2004			45,827			—
	Granted					75,000	(3)
	Units converted to common stock		(45,826	)(2)		—
	Unit lost due to 1:3 stock split		(1	)		—
	Forfeited		—			—
Balance, December 31, 2005			(0	)		75,000

(1)	At December 31, 2003 and December 31, 2002, none of the restricted stock units had vested.
(2)	For the years ended December 31, 2005, December 31, 2004 and December 31, 2003, 68,048, 22,222, and zero restricted stock units had vested, respectively.
(3)	On July 15, 2005, we issued our president and chief executive officer, Edward Rohling, 75,000 restricted stock shares in accordance with his employment agreement. At December 31, 2005, none of the restricted stock shares had vested.

F-17

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following table summarizes information for options outstanding and exercisable at December 31, 2005:

		Options outstanding						Options exercisable
				Weighted average		Weighted Average				Weighted Average
Range of prices		Number		remaining life (in years)		Exercise Price		Number		Exercise Price
	$ 7.83 to $ 9.39		271,000		9.3	$	9.05		—	$	0.00
	$ 9.40 to $10.96		250,916		8.4	$	10.51		82,222	$	10.52
	$10.97 to $15.66		71,978		7.6	$	15.21		71,978	$	15.21
			593,894		8.7	$	10.41		154,200	$	12.71

      At December 31, 2005, options exercisable and the weighted average exercise price of the options were 154,200 and $12.71, respectively.

      The effects of applying SFAS 123 in this pro forma disclosure are not indicative of future amounts.

      The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

	Year Ended			Year Ended			Year Ended
	December 31, 2005			December 31, 2004			December 31, 2003
Expected life of option		10 years			10 years			10 years
Risk free interest rate		4.56	%		4.09	%		4.09	%
Expected volatility		22.80	%		55.74	%		55.75	%
Expected dividend yield		—			—			—

      The fair values of options granted (net of forfeitures) were as follows:

	Year Ended		Year Ended		Year Ended
	December 31, 2005		December 31, 2004		December 31, 2003
Weighted average fair value of options granted	$	4.21	$	7.32	$	9.67
Total number of options granted		440,000		383,500		157,784
Total fair value of all options granted	$	1,852,400	$	2,807,067	$	1,526,434

3. Discontinued Operations

      During 2003, the Company identified 19 hotels, one office building and three land parcels for sale as part of its portfolio improvement strategy and its efforts to reduce debt and interest costs. During 2003, the Company sold one hotel and the office building. During 2004, the Company sold 11 hotels and two land parcels. At December 31, 2004, seven hotels and one land parcel were held for sale. During 2005, an additional five hotels were identified for sale. In 2005, the Company sold eight hotels for an aggregate sales price of $36.4 million, $29.2 million of which was used to pay down debt. The Company realized gains of approximately $6.9 million in 2005 from the sale of these assets. In the first two months of 2006, the Company identified an additional five hotels as held for sale.

      Management considers an asset held for sale when the following criteria per SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”) are met:

a)	Management commits to a plan to sell the asset;
b)	The asset is available for immediate sale in its present condition;
c)	An active marketing plan to sell the asset at a reasonable price has been initiated;

F-18

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

d) The sale of the asset is probable within one year; and

e) It is unlikely that significant changes to the plan to sell the asset will be made.

      Upon designation of a property as an asset held for sale, and in accordance with the provisions of SFAS No. 144, the Company adjusts the carrying value of the property at the lower of its carrying value or its estimated fair value, less estimated selling costs, and the Company ceases depreciation of the asset.

      The Holiday Inn Jekyll Island, GA hotel was listed for sale. Jekyll Island is owned by the state of Georgia. The Company operates the hotel under a ground lease from the state. On October 26, 2005, the Company was notified that the prospective buyer of the hotel was not going to be able to secure an extension of the ground lease. The buyer required such an extension of the lease as a condition to purchasing the property. Accordingly, because management no longer expected to have hotel sold within one year, the hotel was reclassified into continuing operations in the fourth quarter 2005 and the Company recaptured the depreciation that would have been recognized if the assets were held for use. The Company has since entered into a February 11, 2006 letter of intent to sell this hotel and enter into a joint venture to share in the operating and potential future capital event cash flows of this hotel. At December 31, 2005, three hotels and one land parcel were held for sale.

      In accordance with SFAS No. 144, the Company has included the results of hotel assets sold during 2005, 2004 and 2003 as well as the hotel assets held for sale at December 31, 2005, December 31, 2004 and December 31, 2003 including any related impairment charges, in discontinued operations in the Consolidated Statements of Operations. The assets held for sale at December 31, 2005 and December 31, 2004 and the liabilities related to these assets are separately disclosed in the Consolidated Balance Sheets. All losses and gains on assets sold and held for sale (including any related impairment charges) are included in “(Loss) income from discontinued operations before income taxes” in the Consolidated Statement of Operations. The amount the Company will ultimately realize on these asset sales could differ from the amount recorded in the financial statements.

      The Company recorded impairment on assets held for sale in 2005, 2004 and 2003. The impairment of long-lived assets held for sale of $4.0 million recorded in 2005 represents the write-down of five hotels and one land parcel for sale. The fair values of the assets held for sale are based on the estimated selling prices less estimated costs to sell. The Company determines the estimated selling prices in conjunction with its real estate brokers. The estimated selling costs are based on its experience with similar asset sales. The Company records impairment charges and writes down respective hotel asset carrying values if the carrying values exceed the estimated selling prices less costs to sell. As a result of these evaluations, during 2005, the Company recorded impairment charges as follows:

a)	an additional $0.3 million on the Holiday Inn Express Gadsden, AL to reflect the estimated selling costs of this sale as the hotel was identified for sale in January 2005 and to reflect the write-off of capital improvements spent on this hotel for franchisor compliance that did not add incremental value or revenue generating capacity to the property;
b)	an additional $1.6 million on the Holiday Inn Rolling Meadows, IL to reflect the lowered selling price of the hotel;
c)	an additional $0.3 million on the Holiday Inn Morgantown, WV to reflect the reduced selling price and the additional charges to dispose of this hotel in February 2005;
d)	an additional $0.4 million on the Mt. Laurel, NJ land parcel to reflect the lowered estimated selling price of the land parcel;
e)	$1.3 million on the Holiday Inn St. Louis, MO to reflect the reduced selling price of the hotel; and

F-19

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

f) $0.1 million on the Holiday Inn McKnight Pittsburgh, PA as the hotel was identified for sale in the fourth quarter 2005 and its carrying value was adjusted to the hotel’s selling price less selling costs.

      As a result of the impairment evaluations in 2004, the Company recorded impairment charges of $7.2 million on ten hotels as follows:

a)	an additional $0.1 million on the Holiday Inn Express Pensacola, FL to reflect the loss recorded on sale of this hotel in March 2004;
b)	an additional $0.5 million on the downtown Plaza Hotel Cincinnati, OH to reflect the lowered estimated selling price of the hotel and the loss recorded on sale of the hotel in April 2004;
c)	an additional $0.4 million on the Holiday Inn Morgantown, WV as capital improvements were spent on this hotel for franchise compliance that did not add incremental value or revenue generating capacity to the property;
d)	an additional $0.7 million on the Holiday Inn Memphis, TN to reflect the reduced selling price and additional charges to dispose of this hotel in December 2004;
e)	an additional $1.0 million on the Holiday Inn Austin (South), TX to reflect a reduction in the estimated selling price due to feedback from potential buyers that this hotel had limited future franchise options due to its exterior corridors;
f)	$1.7 million on the Holiday Inn Rolling Meadows, IL to record the difference between the estimated selling price and the carrying value of this hotel consistent with an offer received on the hotel;
g)	$0.3 million on the Holiday Inn Florence, KY primarily related to disposal costs incurred on sale of the hotel in December 2004;
h)	$1.1 million on the Holiday Inn Express Gadsden, AL as this hotel was identified for sale in January 2005 and the estimated selling price was less than the asset’s carrying value. The estimated selling price of this hotel was negatively impacted by its franchise agreement expiring in August 2005 and the franchisor indicating that it will not renew the agreement;
i)	$0.9 million on the Holiday Inn St. Louis, MO as this hotel was identified for sale in January 2005 and the estimated selling price was less than the asset’s previously adjusted carrying value;
j)	$0.6 million on the Quality Inn Hotel & Conference Center Metairie, LA as capital improvements were spent on health and safety items that added no incremental market value or revenue generating capacity at this hotel, resulting in the recording of impairment to bring the asset’s carrying value in line with the fair value; and
k)	additional adjustments on four other assets aggregating to a reduction of impairment charges of $0.1 million.

      As a result of its impairment evaluations in 2003, the Company recorded impairment charges of $9.7 million on 11 hotels and two land parcels held for sale and $0.2 million for furniture, fixtures and equipment net book value write-offs for items that were replaced as follows:

a)	$1.1 million on the Holiday Inn Express Pensacola, FL as this hotel was identified for sale in the second quarter 2003. The performance of this hotel was negatively impacted in 2003 by the opening of three new hotels in its market and the conversion of another fully renovated hotel to the Holiday Inn Express brand in April 2003;
b)	$1.0 million on the Downtown Plaza Hotel Cincinnati, OH as this hotel was listed for sale in the second quarter 2003. Operating profits decreased more than forecast at this hotel following the loss of its franchise affiliation in May 2003;

F-20

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

c)	$0.8 million on the Holiday Inn Morgantown, WV as this hotel was identified for sale in the second quarter 2003 at which time, based on the anticipated selling price, no impairment was required. In the fourth quarter of 2003 the expected selling price of this hotel was lowered as a result of the opening of a Radisson hotel in the market, which negatively impacted the operating results of this hotel;
d)	$0.6 million on the Holiday Inn Fort Mitchell, KY as this hotel was identified for sale in the second quarter 2003 at which time, based on the anticipated selling price, no impairment was required. In the third quarter of 2003 it was determined with the broker that the selling price needed to be lowered to find a willing buyer, resulting in an impairment charge;
e)	$0.6 million on the land parcel in Mt. Laurel, NJ as this property was identified for sale in the second quarter of 2003. During the sales process the broker recommended a price reduction which resulted in $0.6 million of impairment charges;
f)	$0.6 million on the Holiday Inn Market Center Dallas, TX as this hotel was identified for sale in the second quarter 2003 at which time $0.6 million of impairment was recorded. The reduction in value was primarily related to the franchisor’s decision to not transfer the franchise agreement on this hotel to a new buyer. This hotel was sold in January 2004 for net proceeds of $2.5 million compared to its adjusted net book value of $2.4 million;
g)	$0.3 million on the Holiday Inn Memphis, TN as this hotel was identified for sale in the second quarter of 2003 at which time, based on the anticipated selling price, no impairment was required. In the third quarter of 2003 it was determined by the broker that it was advisable that the selling price should be lowered because the franchise agreement was not going to be renewed;
h)	$0.1 million on the Holiday Inn Austin (South), TX as this hotel was identified for sale in the second quarter of 2003 at which time impairment was recorded based on a listing broker’s evaluation of the hotel;
i)	$0.1 million on the land parcel in Fayetteville, NC as this property was identified for sale in the second quarter of 2003 at which time, based on the anticipated selling price, no impairment was required. In the third quarter 2003 the listing broker determined it was advisable to lower the asking price which resulted in an impairment charge;
j)	$2.5 million on the Holiday Inn St. Louis North, MO because the nearby airport renovations drastically changed the ingress and egress of this hotel thereby significantly lowering the financial performance of this hotel; and
k)	$1.8 million on the Quality Hotel & Conference Center Metairie, LA because of a significant decline in this hotel’s group room business because this hotel is in need of a major renovation, which the company had previously planned but subsequently discarded due to an inadequate expected return on investment. Transient business has also declined, resulting in reduced operating profits which led to the recording of impairment.

F-21

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Assets related to discontinued operations consist primarily of real estate, net of accumulated depreciation and liabilities related to discontinued operations consist primarily of accounts payable and other accrued liabilities. Summary balance sheet information for discontinued operations is as follows:

	December 31, 2005		December 31, 2004
	($ in thousands)
Property and equipment, net	$	13,796	$	28,389
Other assets		1,070		2,170
Total Assets	$	14,866	$	30,559
Other liabilities	$	3,346	$	3,311
Long-term debt		1,264		27,261
Total Liabilities	$	4,610	$	30,572

      Summary statement of operations information for discontinued operations for the years ended December 31, 2005, December 31, 2004 and December 31, 2003 is as follows:

	2005			2004			2003
	($ in thousands)
Total revenues	$	20,963		$	47,883		$	71,153
Total expenses		19,952			44,159			69,586
Impairment of long-lived assets		3,960			7,235			9,658
Interest income and other		286			50			—
Interest expense and other financing costs		(1,122	)		(6,004	)		(4,906	)
Gain on asset disposition		6,872			9,168			3,085
Provision for income taxes		(1,235	)		—			—
Income (loss) from discontinued operations	$	1,852		$	(297	)	$	(9,912	)

      Discontinued operations were not segregated in the consolidated statements of cash flows.

4. Accounts Receivable

      At December 31, 2005 and December 31, 2004, accounts receivable, net of allowances consisted of the following:

	December 31, 2005			December 31, 2004
	($ in thousands)
Trade accounts receivable	$	8,205		$	7,664
Allowance for doubtful accounts		(1,101	)		(684	)
Other receivables		950			987
	$	8,054		$	7,967

F-22

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5. Prepaid Expenses and Other Current Assets

      At December 31, 2005 and December 31, 2004, prepaid expenses and other current assets consisted of the following:

	December 31, 2005		December 31, 2004
	($ in thousands)
Deposit for property taxes	$	7,552	$	5,745
Prepaid insurance		3,244		3,730
Lender-required insurance deposits		3,489		3,560
Deposits and other prepaid expenses		5,816		4,507
	$	20,101	$	17,542

6. Property and Equipment

      At December 31, 2005 and December 31, 2004, property and equipment consisted of the following:

	Useful Lives		December 31,			December 31,
	(years)		2005			2004
			($ in thousands)
Land		—	$	73,254		$	77,554
Buildings and improvements		10-40		440,973			449,105
Property and equipment		3-10		116,259			77,419
China, glass and silverware				2,144			1,755
				632,630			605,833
Less accumulated depreciation				(80,901	)		(56,667	)
Construction in progress				55,133			21,960
			$	606,862		$	571,126

      On December 27, 2004, the Company acquired the SpringHill Suites by Marriott hotel, located in Pinehurst, NC, for an aggregate purchase price of $5.4 million including closing costs. Upon receipt of the cost approach appraisal in 2005, the Company finalized the purchase price allocation with $0.8 million allocated to land, $4.2 million allocated to building, and $0.4 million allocated to property and equipment.

      In 2005, the Company sold eight hotels for net sales proceeds of $36.4 million and realized gains from the sales of approximately $6.9 million. See Note 3 for details relating to hotels sold and hotels classified in discontinued operations.

      The impairment of held for use long-lived assets of $8.3 million recorded during 2005 represents $7.9 million in reductions made to the carrying values of six hotels, to bring them in line with their estimated fair values, and $0.4 million for furniture, fixtures and equipment net book value write-offs for items that were replaced in 2005. Consistent with our accounting policy on asset impairment and in accordance with SFAS No. 144, we periodically evaluate our real estate assets to determine if there has been any impairment in the carrying value. We record impairment charges if there are indicators of impairment and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying values. With respect to assets held for use, we estimate the undiscounted cash flows to be generated by these assets. We then compare the estimated undiscounted cash flows for each hotel with their respective carrying values to determine if there are indicators of impairment. If there are indicators of impairment, we determine the estimated fair values of these assets in conjunction with real estate brokers. These broker valuations of fair value normally use the “cap rate” approach of estimated cash flows, a “per key” approach, or a “room revenue

F-23

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

multiplier” approach for determining fair value. As a result of these evaluations, we recorded impairment charges in 2005 as follows:

a)	$1.5 million on the Holiday Inn Lawrence, KS hotel due to a reduced fair value appraisal;
b)	$1.0 million on the Park Inn Brunswick, GA to write-off the capital improvements made on this property related to the franchise conversion that did not result in an increase in the fair value of this hotel;
c)	$0.9 million on the Holiday Inn Hamburg, NY hotel as the undiscounted future cash flows were less than the asset’s carrying value and the resulting broker opinion required a write-down of the carrying value of the asset to its fair value;
d)	$1.7 million on the Holiday Inn Sheffield, AL as this hotel was identified for sale in January 2006 and the estimated selling price was less than the asset’s carrying value;
e)	$1.8 million on the Fairfield Inn Valdosta, GA as this hotel was identified for sale in January 2006 and the estimated selling price was less than the asset’s carrying value; and
f)	$1.0 million on the Fairfield Inn Merrimack, NH hotel as the undiscounted future cash flows were less than the asset’s carrying value and the resulting broker opinion required a write-down of the carrying value of the asset value to its fair value.

      The impairment of held for use long-lived assets of $4.9 million recorded during 2004 represents $4.4 million in adjustments made to the carrying values of two hotels, to reduce them to their estimated fair values, and $0.5 million for furniture, fixtures and equipment net book value write-offs for items that were replaced in 2004. As a result of these evaluations, we recorded impairment charges in 2004 as follows:

a)	$3.8 million on the Park Inn Brunswick, GA hotel, which was converted from a Holiday Inn, as this hotel lost the business of a significant military group contract and the conversion of this hotel to a Park Inn was not expected to improve operating results; and
b)	$0.6 million on the Holiday Inn Lawrence, KS hotel as the financial performance of this hotel continued to decline as it was in need of a major renovation which was not economically justifiable as management was notified the franchise agreement would not be renewed.

      In 2003, the Company recorded impairment of long-lived assets of $8.4 million representing $7.3 million in adjustments made to the carrying values of three hotels held for use, to reduce them to their estimated fair values, and $1.1 million for furniture, fixtures and equipment net book value write-offs for items that were replaced in 2003. The Company reported impairment charges in 2003 as follows:

a)	$4.5 million on the Crown Plaza Macon, GA as the expected holding period for this hotel was reduced to six months because the Company was unable to locate a lender to refinance the maturing mortgage on this hotel as a single asset loan;
b)	$1.5 million on the Crowne Plaza Cedar Rapids, IA as the primary revenue source at this hotel has historically been group room revenues which have declined considerably in the past two years due to the poor condition of a city-owned ballroom attached to this hotel; and
c)	$1.3 million on the Holiday Inn Winter Haven, FL as this hotel had been identified for sale in the second quarter of 2003 and the estimated sales price, less costs to sell, was below the hotel’s carrying value. The estimated sales price of the hotel was negatively impacted by the unanticipated closure of a nearby tourist attraction and the unexpected announcement that a major baseball team was going to relocate their spring training facilities away from this property. In the fourth quarter of 2003, the Company ceased its selling efforts with respect to this hotel because the allocated loan amount on this hotel significantly exceeded the fair value of the hotel.

F-24

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

7. Other Assets

      At December 31, 2005 and December 31, 2004, other assets consisted of the following:

	December 31, 2005		December 31, 2004
	($ in thousands)
Deferred financing costs	$	4,258	$	4,250
Deferred franchise fees		2,001		2,821
Utility and other deposits		495		704
Linen inventory (long-term portion)		837		781
	$	7,591	$	8,556

      Deferred franchise fees are amortized using the straight-line method over the terms of the related franchise, and deferred financing costs are amortized using the effective interest method over the related term of the debt.

      Based on the balances at December 31, 2005, the five year amortization schedule for deferred financing and deferred loan costs is as follows:

	Total		2006		2007		2008		2009		2010		After 2010
	($ in thousands)
Deferred financing costs	$	4,258	$	1,360	$	1,337	$	1,055	$	468	$	38
Deferred franchise fees		2,001		353		283		199		180		156		830
	$	6,259	$	1,713	$	1,620	$	1,254	$	648	$	194	$	830

8. Other Accrued Liabilities

      At December 31, 2005 and December 31, 2004, other accrued liabilities consisted of the following:

	December 31, 2005		December 31, 2004
	($ in thousands)
Salaries and related costs	$	6,358	$	5,754
Self-insurance loss accruals		12,436		11,357
Property and sales taxes		7,192		7,399
Professional fees		883		1,056
Provision for state income taxes		—		207
Franchise fee accrual		1,004		1,050
Accrued interest		2,631		2,035
Accrual for allowed claims		—		2,152
Other		1,024		775
	$	31,528	$	31,785

F-25

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9. Long-Term Liabilities

      At December 31, 2005 and December 31, 2004, long-term liabilities consisted of the following:

	December 31,			December 31,
	2005			2004
	($ in thousands)
Refinancing Debt
Merrill Lynch Mortgage Lending, Inc. — Floating	$	67,546		$	102,617
Merrill Lynch Mortgage Lending, Inc. — Fixed		252,377			258,410
Merrill Lynch Mortgage Lending, Inc. — Total		319,923			361,027
Other Financings
Computer Share Trust Company of Canada		7,838			7,843
Column Financial, Inc.		10,337			25,058
Lehman Brothers Holdings, Inc.		22,398			22,927
JP Morgan Chase Bank, Trustee		10,064			10,110
DDL Kinser		—			2,286
Wachovia		13,173			—
IXIS Real Estate Capital, Inc.		19,000			—
Column Financial, Inc.		8,146			8,545
Column Financial, Inc.		—			3,069
Total — Other Financings		90,956			79,838
Long-term liabilities — other
Tax notes issued pursuant to Lodgian’s Joint Plan of Reorganization		2,220			3,302
Other long-term liabilities		1,151			1,865
		3,371			5,167
		414,250			446,032
Long-term liabilities related to assets held for sale		(1,287	)		(27,599	)
		412,963			418,433
Less: Current portion of long-term liabilities — continuing operations		(18,531	)		(25,290	)
Total long-term liabilities — continuing operations	$	394,432		$	393,143

Merrill Lynch Mortgage Lending, Inc. Debt

      On June 25, 2004, the Company closed on the $370 million Merrill Lynch Mortgage Lending, Inc. (“Merrill Lynch Mortgage”) refinance (“Refinancing Debt”) secured by 64 hotels, of which, as of March 1, 2006, ten hotels have since been sold and two hotels have been released through debt paydown. The Company refinanced (1) its outstanding mortgage debt (“Merrill Lynch Exit Financing”) with Merrill Lynch Mortgage which, as of June 25, 2004, had a balance of $290.9 million, (2) certain of its outstanding mortgage debt (the “Lehman Financing”) with Lehman Brothers Holdings, Inc. (“Lehman”) which, as of June 25, 2004, had a balance of $56.1 million, and (3) its outstanding mortgage debt on the Crowne Plaza Hotel in Macon, Georgia which, as of June 25, 2004, had a balance of $6.9 million.

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LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Immediately after closing, the Refinancing Debt consisted of a loan of $110 million bearing a floating rate of interest (the “Floating Rate Debt”), which as of March 1, 2006 was secured by 18 of our hotels (29 hotels at the loan’s inception), and four loans totaling $260 million each bearing a fixed interest rate of 6.58% (the “Fixed Rate Debt”) and secured, in the aggregate, by 34 of our hotels (35 hotels at the loan’s inception). On October 17, 2005, we released the Holiday Inn St. Paul, MN hotel as collateral under one of the Fixed Rate Loans in exchange for debt paydown of $2.1 million. On February 8, 2006, we released the Fairfield Inn Jackson, TN hotel as collateral under the Floating Rate Loan in exchange for debt paydown of $1.6 million. Prior to the securitization of the four fixed rate loans, these loans were subject to cross-collateralization provisions. As of March 1, 2006, all four fixed rate loans had been securitized.

      The Company cannot prepay the Fixed Rate Debt except during the 60 days prior to maturity. The Company may, after the earlier of June 25, 2008 or the second anniversary of the securitization of any Fixed Rate Loan, defease such Fixed Rate Loan, in whole or in part.

      On April 29, 2005, the Company entered into an amendment with Merrill Lynch to modify certain of the provisions of the Floating Rate Loan. Under the terms of the amendment, Merrill Lynch agreed to allow the release of the Holiday Inn St. Louis, MO as collateral under the loan in exchange for debt paydown of $4.8 million. Approximately $2.6 million of this amount was paid through the release of certain reserves held on other properties which were sold or were expected to be sold in the near future. The Company paid the balance of the release price, approximately $2.2 million, from its cash balances. In addition to the release of the St. Louis property from the collateral pool, the amendment provided for the following:

•  Extension of the initial maturity from June 30, 2006 to January 11, 2007. The Company still maintains the option, subject to certain conditions, to extend the loan for up to three years from the new initial maturity date in January 2007;

•  Three additional properties in the floating rate pool are now classified as “sale properties.” Once classified as a “sale property” the Company will be able to be release the hotel from the collateral pool by payment of the greater of (a) 100% of the aggregate allocated loan amount (lowered from 125%) and (b) the net sales proceeds of the property;

•  The prepayment penalty dropped to 1% in July 2005 and has been further reduced for the three additional sale properties after July 2005 to 0.5%; and

•  Certain required capital and environmental repairs under the original Floating Rate Loan have been determined not to be necessary and have been removed as requirements under the loan.

      As a result of these modifications in the terms of the Floating Rate Loan, the Floating Rate Debt has an initial maturity of January 11, 2007. The Floating Rate Debt is a 2¹/2 year loan (including the six month extension) with three one-year extension options and bears interest at LIBOR plus 3.40%. The first extension option will be available to the Company only if no defaults exist and the Company has entered into the requisite interest rate cap agreement. The second and third extension options will be available to the Company only if no defaults exist, a minimum debt yield ratio of 13% is met, and minimum debt service coverage ratios of 1.3x for the second extension and 1.35x for the third extension are met. An extension fee of 0.25% of the outstanding Floating Rate Debt is payable if the Company opts to exercise each of the second and third extensions. The Company may prepay the Floating Rate Debt in whole or in part, subject to a prepayment penalty in the amount of 1% of the amount prepaid. However, after January 11, 2007, there is no prepayment penalty associated with the Floating Rate Loan.

      The Floating Rate Debt provides that when either (i) the debt yield ratio for the hotels for the trailing 12-month period is below 9% during the first year, 10% during the next 18 months and 11%, 12% and 13% during each of the next three extension periods, or (ii) to the extent extended, the debt service coverage ratio is less than 1.30x in the second extension period or 1.35x in the third extension period, excess cash flows

F-27

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

produced by the mortgaged hotels securing the applicable loan (after payment of operating expenses, management fees, required reserves, service fees, principal and interest) must be deposited in a restricted cash account. For each Fixed Rate Loan, when the debt yield ratio for the hotels for the trailing 12-month period is below 9% during the first year, 10% during the next year and 11%, 12% and 13% during each of the next three years, excess cash flows produced by the mortgaged hotels securing the applicable loan (after payment of operating expenses, management fees, required reserves, service fees, principal and interest) must be deposited in a restricted cash account. These funds can be used for the prepayment of the applicable loan in an amount required to satisfy the applicable test, capital expenditures reasonably approved by the lender with respect to the hotels securing the applicable loan, and scheduled principal and interest payments due on the Floating Rate Debt of up to $0.9 million or any Fixed Rate Loan of up to $525,000, as applicable. Funds will no longer be deposited into the restricted cash account when the debt yield ratio and, if applicable, the debt service coverage ratio are sustained above the minimum requirements for three consecutive months and there are no defaults.

      As of December 31, 2005, our debt yield ratios were above the minimum requirements for the four Fixed Rate Loans and the Floating Rate Loan.

      Each loan comprising the Refinancing Debt is non-recourse; however, the Company has agreed to indemnify Merrill Lynch Mortgage in certain situations, such as fraud, waste, misappropriation of funds, certain environmental matters, asset transfers in violation of the loan agreements, or violation of certain single-purpose entity covenants. In addition, each loan comprising the Refinancing Debt will become a full recourse loan in certain limited cases such as bankruptcy of a borrower or Lodgian. During the term of the Refinancing Debt, the Company is required to fund, on a monthly basis, a reserve for furniture, fixtures and equipment equal to 4% of the previous month’s gross revenues from the hotels securing each of the respective loans comprising the Refinancing Debt.

      Other loan costs incurred as a part of the Refinancing Debt, totaling $5.4 million, were deferred and are being amortized using the effective yield method over five years for the Fixed Rate Debt and 3¹/2 years (which includes the six month extension) for the Floating Rate Debt.

      The Company incurred an additional $0.1 million in expenses in 2005 related to the Refinancing Debt. This amount is being amortized using the effective yield method over the remaining life of the debt.

      If the Company does not comply with the terms of a franchise agreement, following notice and an opportunity to cure, the franchisor has the right to terminate the agreement, which could lead to a default under one or more of our loan agreements and which could materially and adversely affect the Company. If a franchise agreement is terminated, the Company will either select an alternative franchisor, operate the hotel independent of any franchisor or sell the hotel. However, terminating or changing the franchise affiliation of a hotel could require the Company to incur significant expenses, including franchise termination payments and capital expenditures associated with the change of a brand. Moreover, the loss of a franchise agreement could have a material adverse effect upon the operations or the underlying value of the hotel covered by the franchise because of the loss of associated guest loyalty, name recognition, marketing support and centralized reservation systems provided by the franchisor. Loss of a franchise agreement may result in a default under, and acceleration of, the related mortgage debt. In particular, the Company would be in default under the Refinancing Debt if the Company experiences either:

•  multiple franchise agreement defaults and the continuance thereof beyond all notice and grace periods for hotels whose allocated loan amounts total 10% or more of the outstanding principal amount of such Refinancing Debt;

•  with regard to the Floating Rate Debt, either the termination of franchise agreements for more than two properties or the termination of franchise agreements for hotels whose allocated loan amounts represent more than 5% of the outstanding principal amount of the Floating Rate Debt, and such hotels

F-28

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	continue to operate for more than five consecutive days without being subject to replacement franchise agreements;
•	with regard to the Fixed Rate Debt, either the termination of franchise agreements for more than one property or the termination of franchise agreements for hotels whose allocated loan amounts represent more than 5% of the outstanding principal amount of the fixed rate loan, and such hotels continue to operate for more than five consecutive days without being subject to replacement franchise agreements; or
•	a franchise termination for any hotel currently subject to a franchise agreement that remains without a franchise agreement for more than six months.

      A single franchise agreement termination could materially and adversely affect the Company’s revenues, cash flow and liquidity.

Column Financial Debt

      As of December 31, 2005, the Company was not in compliance with the debt service coverage ratio requirement of the loan from Column Financial secured by one hotel in Phoenix, AZ. The primary reason the debt service coverage ratio was below the required threshold is that the property underwent an extensive renovation in 2004 and the first quarter of 2005 in order to convert from a Holiday Inn Select to a Crowne Plaza. The renovation caused substantial revenue displacement which, in turn, negatively affected the financial performance of this hotel. Under the terms of the Column Financial loan agreement until the required DSCR is met, the lender is permitted to require the borrower to deposit all revenues from the mortgaged property into an account controlled by the lender. Accordingly, in December 2004, the Company was notified by the lender that it was not in compliance with the debt service coverage ratio requirement and that the Company would have to establish a restricted cash account whereby all cash generated by the property be deposited in an account from which all payments of interest, principal, operating expenses and escrows (insurance, property taxes and ground rent) would be disbursed. The lender may apply excess proceeds after payment of expenses to additional principal payments. As of December 31, 2005, $0.7 million was retained in the restricted cash account for this hotel. This loan can be repaid in full without penalty on the first day of the month following a 30 day written notice. On March 1, 2006 this loan was refinanced. (See Note 17. Subsequent Events).

JP Morgan Chase Bank Debt

      As of December 31, 2005, through wholly-owned subsidiaries, the Company owed $10.1 million under industrial revenue bonds (“IRBs”) secured by the Holiday Inns in Lawrence, Kansas and Manhattan, Kansas. For the year ended December 31, 2004, the cash flows of the two hotels were insufficient to meet the minimum debt service coverage ratio requirements. The IRBs are non-recourse to Lodgian, except for certain limited guaranties (the “Limited Guaranties”) given by one of our other subsidiaries, Servico, Inc. (“Guarantor”), in the aggregate amount of approximately $1.4 million. The IRBs originally were issued to provide acquisition and development funding to the prior owners and the IRBs were assumed upon our acquisition of the projects. On March 2, 2005, the Company notified the Trustee of the IRBs that the Company would not continue to make debt service payments. Additionally, management asserted that the Guarantor had satisfied its payment obligations under the Limited Guaranties by virtue of having made payments to the Trustee in prior years to cover debt service on the IRBs in excess of the liability limit under the Limited Guaranties.

      On August 31, 2005, the Company reached a settlement agreement with the Trustee. Under the terms of the settlement, the Company agreed to sell the hotels to a third party or convey its rights and interests in the hotels to the Trustee or its nominee by deed-in-lieu of foreclosure or a “consensual” foreclosure and pay to the

F-29

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Trustee for the benefit of the bondholders the sum of $0.5 million in exchange for a full release of all claims, including any claims related to the Limited Guaranties. This $0.5 million guaranty was paid in September 2005. On February 1, 2006, the hotels were transferred to the Trustee pursuant to the settlement agreement and the Trustee took title to the properties. Accordingly, as of February 1, 2006, the Company no longer owns or operates these hotels.

IXIS Real Estate Capital, Inc. and Wachovia Bank Debt

      On November 10, 2005, the Company entered into a $19.0 million loan agreement with IXIS Real Estate Capital Inc. (“IXIS”) which is secured by the Holiday Inn Hilton Head, SC hotel. The loan agreement has a two-year initial term with three one-year extension options which are exercisable provided the loan is not in default. The loan has a debt service coverage ratio requirement of 1.05x which is calculated quarterly. The loan bears a floating rate of interest which is 290 basis points above the 30-day LIBOR. Contemporaneously with the closing of the loan we purchased an interest rate cap agreement that effectively caps our interest rate for the first two years of the loan agreement at 8.4%.

      Prior to entering into the loan agreement with IXIS, the Holiday Inn Hilton Head, SC hotel served as part of the collateral, along with eight other hotels, under a loan agreement with Column Financial, Inc. The Column Financial loan agreement bears a fixed rate of interest of 10.59%. Between loan proceeds and existing reserves $10.3 million went to pay down existing indebtedness under the Column Financial loan. Prior to the debt paydown, we were not in compliance with the debt service coverage ratio of the Column Financial loan. After the debt paydown, the debt service coverage ratio is above the required threshold. The IXIS Loan Agreement is non-recourse to Lodgian, Inc., except in certain limited circumstances as set forth in the loan agreement.

      On December 22, 2005, the Company entered into a loan agreement with Wachovia Bank, National Association (“Wachovia”). Pursuant to the loan agreement, Wachovia loaned the Company $10.0 million, which is secured by the Holiday Inn Phoenix West located in Phoenix, AZ. The loan agreement has a five year term and bears a fixed rate of interest of 6.03%. Prior to entering into the loan agreement with Wachovia, the Holiday Inn West Phoenix, AZ served as part of the collateral, along with seven other hotels, under a loan agreement with Column Financial, Inc. The Column Financial loan agreement bears a fixed rate of interest of 10.59%. $2.0 million of the Wachovia loan proceeds were used to pay down existing indebtedness under the Column Financial loan agreement. As of December 31, 2005, the principal balance of the Column Financial loan agreement is $10.3 million and is now secured by seven of the Company’s hotels. The Wachovia loan agreement is non-recourse to Lodgian, Inc., except in certain limited circumstances as set forth in the loan agreement.

Franchise Agreements

      The Company is subject to certain property maintenance and quality standard compliance requirements under its franchise agreements. The Company periodically receives notifications from its franchisors of events of non-compliance with such agreements. In the past, management has cured most cases of non-compliance within the applicable cure periods and the events of non-compliance did not result in events of default under the respective loan agreements. However, in selected situations and based on economic evaluations, management may elect to not comply with the franchisor requirements. In such situations, the Company will either select an alternative franchisor, operate the property independent of any franchisor or sell the hotel.

      As of March 1, 2006, the Company had been notified that it was not in compliance with some of the terms of eight of its franchise agreements and have received default and termination notices from franchisors with respect to an additional seven hotels (see Note 15).

F-30

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      While the Company can give no assurance that the steps taken to date, and planned to be taken during 2006, will return these properties to full compliance, management believes that it will make significant progress and it intends to continue to give franchise agreement compliance a high level of attention. The 15 hotels that are either in default or non-compliance under the respective franchise agreements are part of the collateral security for an aggregate of $265.3 million of mortgage debt at March 1, 2006.

Interest Rate Cap Agreements

      At December 31, 2005, the Company had two interest rate cap agreements with aggregate notional values of $129 million. An agreement with a notional value of $110 million was entered into in June 2004 to manage the Company’s exposure to fluctuations in the interest rate on its variable rate debt with Merrill Lynch Mortgage. The cap agreement allowed the Company to obtain the loan at a floating rate and effectively cap the interest rate at LIBOR of 5% plus 3.4%. The extended maturity date of the agreement is now January 11, 2007, which coincides with the modified 2¹/2 year term of the loan.

      The Company entered into an agreement with a notional value of $19 million on November 10, 2005, to manage the company’s exposure to fluctuations in the interest rate on its variable rate debt with IXIS. The cap agreement allowed the Company to obtain the loan at a floating rate and effectively cap the interest rate at LIBOR of 5.5% plus 2.9%.

      These derivative financial instruments are viewed as risk management tools and are entered into for hedging purposes only. The Company does not use derivative financial instruments for trading or speculative purposes. However, the Company has not elected to follow the hedging requirements of SFAS No. 133.

      The aggregate fair value of the two interest rate caps as of December 31, 2005 was approximately $33,000. The fair values of the interest rate caps are recognized in the accompanying balance sheet in other assets. Adjustments to the carrying values of the interest rate caps are reflected in interest expense.

      The notional amounts of the two interest rate caps and their termination dates match the original principal amounts and maturity dates on these loans.

Collateral for Loans

      Seventy-two of the Company’s consolidated hotels are pledged as collateral for long-term obligations. Certain of the mortgage notes are subject to a prepayment or yield maintenance penalty if the Company repays them prior to their maturity. At December 31, 2005, approximately 79% of the long-term debt bears interest at fixed rates and approximately 21% of the debt is subject to floating rates of interest. Set forth below, by debt pool, is a summary of the Company’s long-term debt (including the current portion) along with the applicable interest rates and the related carrying values of the property and equipment which collateralize the long-term debt:

			December 31, 2005
			Property and
	Number		Equipment,		Long-term
	of Hotels		Net (1)		Obligations (1)		Interest Rates
	($ in thousands)
Refinancing Debt
Merrill Lynch Mortgage Lending, Inc. — Floating		19	$	93,977	$	67,546	LIBOR plus 3.40%
Merrill Lynch Mortgage Lending, Inc. — Fixed		34		333,825		252,377	6.58%
Merrill Lynch Mortgage Lending, Inc. — Total		53		427,802		319,923

F-31

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

				December 31, 2005
				Property and
	Number			Equipment,			Long-term
	of Hotels			Net (1)			Obligations (1)			Interest Rates
	($ in thousands)
Other Financings
Computer Share Trust Company of Canada		1			16,260			7,838		7.88%
Column Financial, Inc.		7			51,603			10,337		10.59%
Lehman Brothers Holdings, Inc.		5			58,161			22,398		$15,777 at 9.40%; $6,621 at 8.90%
JP Morgan Chase Bank		2			6,019			10,064		8.00%
Wachovia		2			13,525			13,173		$10,000 at 6.03%; $3,173 at 5.78%
IXIS Real Estate Capital, Inc.		1			15,378			19,000		LIBOR plus 2.90%
Column Financial, Inc.		1			11,357			8,146		9.45%
Total — other financing		19			172,303			90,956
		72			600,105			410,879		7.15%(3)
Long-term liabilities — other
Tax notes issued pursuant to our Joint Plan of Reorganization		—			—			2,220
Other		—			—			1,151
		—			—			3,371
Property and equipment — other		5			20,554			—
		77			620,659			414,250
Held for sale		(3	)		(13,797	)		(1,287	)
Total December 31, 2005(2)		74		$	606,862		$	412,963

(1)	Debt obligations and property and equipment of one hotel in which we have a non-controlling equity interest that we do not consolidate are excluded from the table.
(2)	Debt obligations at December 31, 2005 include the current portion.
(3)	The 7.15% in the table represents our weighted average interest rate on mortgage debt at December 31, 2005, using the December 30, 2005 LIBOR of 4.39%.

      The fair value of the fixed rate mortgage debt (book value $324.3 million) at December 31, 2005 is estimated at $328.9 million.

F-32

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Future Loan Repayment Projections

      Future scheduled principal payments on these long-term liabilities as of December 31, 2005 are as follows:

	Debt			Maturities
	Obligations
	December 31,														After
	2005			2006			2007		2008		2009		2010		2010
	($ in thousands)
Refinancing Debt:
Merrill Lynch Mortgage Lending, Inc. — Floating	$	67,546		$	755		$	66,791	$	—	$	—	$	—	$	—
Merrill Lynch Mortgage Lending, Inc. — Fixed		252,377			4,318			4,615		4,886		238,558		—		—
Merrill Lynch Mortgage Lending, Inc. — Total		319,923			5,073			71,406		4,886		238,558		—		—
Other Financings:
Computer Share Trust Company of Canada		7,838			288			7,550		—		—		—		—
Column Financial, Inc.		10,337			706			784		871		968		7,008		—
Lehman Brothers Holdings, Inc.		22,398			580			21,818		—		—		—		—
JP Morgan Chase Bank, Trustee		10,064			10,064			—		—		—		—		—
Wachovia		13,173			213			240		253		271		3,135		9,061
IXIS Real Estate Capital, Inc.		19,000			—			214		18,786		—		—		—
Column Financial, Inc.		8,146			477			524		575		632		5,938		—
Total — Other Financings		90,956			12,328			31,130		20,485		1,871		16,081		9,061
Other long-term liabilities:
Tax notes issued pursuant to our Joint Plan of Reorganization		2,220			971			620		597		32		—		—
Other long-term liabilities		1,151			182			544		165		165		82		13
		3,371			1,153			1,164		762		197		82		13
Total debt obligations		414,250			18,554			103,700		26,133		240,626		16,163		9,074
Less: Debt obligations — discontinued		(1,287	)		(23	)
Total Debt obligations — continued	$	412,963		$	18,531

10.     12.25% Cumulative Preferred Shares Subject to Mandatory Redemption

      On November 25, 2002, the Company issued 5,000,000 shares of Preferred Stock with a par value $0.01 at $25.00 per share. On June 25, 2004, immediately upon the effective date of the equity offering, the Company exchanged 3,941,115 shares of its common stock for 1,483,558 shares of Preferred Stock (“the Preferred Share Exchange”) held by (1) certain affiliates of, and investments accounts managed by, Oaktree Capital Management, LLC (“Oaktree”), (2) BRE/ HY Funding LLC (“BRE/ HY”), and (3) Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”), based on a common stock price of $10.50 per share. In the Preferred Share Exchange, Oaktree, BRE/ HY and Merrill Lynch received 2,262,661, 1,049,034 and 629,420 shares of the Company’s common stock, respectively. As part of the Preferred Share Exchange, the Company incurred a charge of $1.6 million for a 4% prepayment premium for early redemption of the Preferred Stock.

      Additionally, on July 26, 2004, the Company redeemed 4,048,183 shares of Preferred Stock totaling approximately $114.0 million from the proceeds of the public equity offering at the liquidation value of $25 per

F-33

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

share, plus 4% prepayment premium as provided by the terms of the Preferred Stock agreement. A liability of $2.2 million replaced the 79,278 shares of Preferred Stock that were part of the disputed claims reserve. Approximately $4.5 million was paid for the 4% prepayment premium on the Preferred Stock when it was redeemed on July 26, 2004. As at December 31, 2005 and December 31, 2004, the Company had no preferred stock shares outstanding.

      Each share of Preferred Stock had a liquidation preference over the Company’s common stock. The dividend was cumulative, compounded annually and was payable at the rate of 12.25% per annum on November 21 of each year. As provided by the terms of the Preferred Stock, the first dividend was paid on November 21, 2003 by means of the issuance of additional shares of Preferred Stock, with fractional shares paid in cash. The Company thus issued 594,299 shares of Preferred Stock as dividends and paid cash dividends of approximately $18,500 for fractional shares. The Preferred Stock was subject to redemption at any time, at the Company’s option and to mandatory redemption on November 21, 2012.

      On July 1, 2003, in accordance with SFAS No. 150, the Company reclassified the Preferred Stock to the liability section of its consolidated balance sheet and began presenting the related dividends in interest expense which totaled $8.1 million for the period July 1, 2003 to December 31, 2003. Prior to the adoption of SFAS No. 150, the Company presented the Preferred Stock between liabilities and equity in its consolidated balance sheet (called the “mezzanine” section) and reported the Preferred Stock dividend as a deduction from retained earnings with no effect on its results of operations. In accordance with SFAS No. 150, the Preferred Stock and the dividends for the period prior to July 1, 2003, have not been reclassified. See Note 11 for additional information related to the redemption of the Preferred Stock in 2004.

11. Stockholders’ Equity

2004 Reverse Stock Split

      On April 27, 2004, the Company’s Board of Directors authorized a reverse stock split of the Company’s common stock in a ratio of one-for-three (1:3) with resulting fractional shares paid in cash. The reverse stock split affected all of the Company’s issued and outstanding common shares, warrants, stock options, and restricted stock. The record date for the reverse stock split was April 29, 2004 and the Company’s new common stock began trading under the split adjustment on April 30, 2004.

      All amounts for common stock, warrants, stock options, and restricted stock, and all earnings per share computations have been retroactively adjusted to reflect the change in the Company’s capital structure.

2004 Public Equity Offering

      On June 25, 2004, the Company completed a public equity offering of 18,285,714 shares of its common stock, par value $0.01 per share, at a price of $10.50 per share. Net proceeds from this equity offering, after deducting the underwriting discount, advisory fee and other offering expenses, amounted to approximately $175.9 million.

      Additionally, immediately upon the effective date of the equity offering, the Company executed the Preferred Share Exchange. In the Preferred Share Exchange, Oaktree, BRE/ HY and Merrill Lynch received 2,262,661, 1,049,034 and 629,420 shares of the Company’s common stock, respectively. As part of the Preferred Share Exchange, the Company incurred a charge of $1.6 million for 4% prepayment premium for early redemption of the Preferred Stock.

      From the proceeds of the public equity offering, on July 26, 2004, the Company redeemed 4,048,183 shares of Preferred Stock totaling approximately $114.0 million. A liability of $2.2 million replaced the 79,278 shares of Preferred Stock that were part of the disputed claims reserve. Approximately $4.5 million

F-34

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

was paid for the 4% prepayment premium on the Preferred Stock when the remaining outstanding shares were redeemed on July 26, 2004.

Treasury Stock

      On July 15, 2004, July 15, 2005 and September 8, 2005, a total of 66,666 restricted stock units previously issued to the Company’s former CEO, Thomas Parrington vested in three equal installments of 22,222 shares. Mr. Parrington, pursuant to the restricted unit award agreement between the Company and him, elected to have the Company withhold 21,633 shares to satisfy the employment tax withholding requirements associated with the vested shares. The withheld shares were deemed repurchased by the company and thus were added to treasury stock.

2002 Joint Plan of Reorganization

      Pursuant to the Joint Plan of Reorganization confirmed by the Bankruptcy Court in November 2002, the Company issued Class A and B warrants.

      The Class A warrants provide for the purchase of an aggregate of 1,510,638 shares (reverse split adjusted) of the common stock at an exercise price of $18.29 per share and expire on November 25, 2007.

      The Class B warrants provide for the purchase of an aggregate of 1,029,366 shares (reverse split adjusted) of the common stock at an exercise price of $25.44 per share and expire on November 25, 2009.

12. Income Taxes

      Provision for income taxes for the Company is as follows:

	2005						2004
	Current		Deferred		Total		Current		Deferred		Total
	($ in thousands)
Federal	$	—	$	7,057	$	7,057	$	—	$	—	$	—
State and local		362		635		997		62		—		62
Foreign		162		—		162		166		—		166
		524		7,692		8,216		228		—		228
Less: Discontinued operations		—		1,235		1,235		—		—		—
	$	524	$	6,457	$	6,981	$	228	$	—	$	228

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LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The components of the cumulative effect of temporary differences in the deferred income tax asset (liability) balances at December 31, 2005 and December 31, 2004 are as follows:

		2005									2004
		Total			Current			Non-current			Total			Current			Non-current
		($ in thousands)									($ in thousands)
Property and equipment		$	(12,703	)	$	—		$	(12,703	)	$	4,951		$	—		$	4,951
Net operating loss carryforwards (“NOLs”)			122,220			—			122,220			127,547			—			127,547
Loan costs			567			—			567			782			—			782
Legal and workers’ compensation reserves			4,048			4,048			—			3,609			3,609			—
AMT and FICA credit carryforwards			2,360			—			2,360			2,341			—			2,341
Other operating accruals			2,158			2,158			—			937			937			—
Other			(450	)		—			(450	)		4,988			—			4,988
	Total		118,200			6,206			111,994			145,155			4,546			140,609
	Less valuation allowance		(118,200	)		(6,206	)		(111,994	)		(145,155	)		(4,546	)		(140,609	)
		$	—		$	—		$	—		$	—		$	—		$	—

      The difference between income taxes using the effective income tax rate and the federal income tax statutory rate of 34% is as follows:

	2005		2004
	($ in thousands)
Federal income tax (benefit) charge at statutory federal rate	$	6,974	$	(10,746	)
State income tax (benefit) charge, net		985		(1,517	)
Non-deductible items		95		7,338
Other		162		—
Change in valuation allowance		0		5,153
		8,216		228
Less discontinued operations		1,235		—
Provision (benefit) for income taxes	$	6,981	$	228

      At December 31, 2005, the Company had established a valuation allowance of $118.2 million to fully offset its net deferred tax asset. As a result of the Company’s history of losses, the Company believed that it was more likely than not that its net deferred tax asset would not be realized and, therefore, provided a valuation allowance to fully reserve against these amounts. Of this $118.2 million, the 2005 deferred tax asset was reduced by $27.0 million with $15.6 million of the reduction attributable to write-offs of deferred tax assets, $7.7 million related to utilization of pre-emergence deferred tax assets credited to additional paid in capital in accordance with SOP 90-7, and $3.0 million of expiring NOLs. In addition, approximately $110.0 million of the $118.2 million of the deferred tax asset remaining is attributable to pre-emergence deferred tax assets and may be booked to additional paid in capital in future periods.

      In addition to the estimated current period tax loss of $8.7 million, at December 31, 2005, the Company had available net operating loss carry forwards (“NOLs”) of approximately $306 million for federal income tax purposes, which will expire in 2006 through 2024. NOLs totaling approximately $8 million expired unused at December 31, 2005. It is estimated $10.9 million of NOLs will expire unused in 2006. The Company has

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LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

undergone several “ownership changes,” as defined in Section 382 of the Internal Revenue Code. Consequently, the Company’s ability to use the net operating loss carryforwards to offset future income is subject to certain limitations. The annual net operating loss carryforward limitation is $8.3 million per year. Due to these and other limitations, a portion or all of these net operating loss carryforwards could expire unused.

13. Related Party Transactions

Preferred Share Exchange

      On June 25, 2004, Oaktree and BRE/ HY, representatives of which serve as certain of the Company’s directors, and/or affiliates received 2,262,661 shares and 1,049,034 shares of common stock that were exchanged as part of the Preferred Share Exchange. Approximately $26.3 million and $11.1 million of the net proceeds from the equity offering were used to redeem the remaining shares of Preferred Stock held by Oaktree and BRE/ HY, respectively. Including the common shares they received as part of the Preferred Share Exchange, Oaktree and BRE/ HY are currently the beneficial owners of shares of the Company’s common stock.

Merrill Lynch Mortgage Lending, Inc. Debt

      On June 25, 2004, the public equity offering was completed along with the funding of the $370 million of Refinancing Debt with Merrill Lynch Mortgage. Lodgian paid Merrill Lynch an advisory fee of $1.4 million, a 1% origination fee on the Floating Rate Debt of $1.1 million and prepayment penalties on the exit financing debt of $2.9 million.

Consultancy

      Linda Philp, the Company’s Executive Vice President and Chief Financial Officer, resigned effective December 16, 2005. Ms. Philp will remain the Company’s Executive Vice President and Chief Financial Officer on a consulting basis while the company searches for her replacement. The company was billed $20,050 for her consultancy services for the period December 19, 2005 to December 31, 2005 and $95,085 for the period January 1, 2006 to February 28, 2006.

Related Party Receivable

      Amounts due from Columbus Hospitality Associates LP, in which the Company has a 30% non-controlling equity interest, were nil at December 31, 2005 and $0.9 million at December 31, 2004, respectively, and are included in other receivables. The receivable owed to the Company was written off in 2005 as the Company determined it was uncollectible as management had plans to surrender this hotel to its lender.

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LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

14. Earnings Per Share

      The following table sets forth the computation of basic and diluted earnings per common share:

		2005		2004			2003
		($ in thousands, except per share data)
Basic and diluted earnings per share:
Numerator:
	Income (loss) from continuing operations	$	10,449	$	(31,537	)	$	(21,765	)
	Income from discontinued operations		1,852		(297	)		(9,912	)
	Net income (loss)		12,301		(31,834	)		(31,677	)
	Preferred stock dividend		—		—			(7,594	)
	Net income (loss) attributable to common stock	$	12,301	$	(31,834	)	$	(39,271	)
Denominator:
	Denominator for basic earnings per share — weighted average shares		24,576		13,817			2,333
	Denominator for diluted earnings per share — weighted average shares		24,630		13,817			2,333
Basic earnings (loss) per common share:
	Income (loss) from continuing operations	$	0.42	$	(2.28	)	$	(9.33	)
	Income from discontinued operations		0.08		(0.02	)		(4.25	)
	Net income (loss)		0.50		(2.30	)		(13.58	)
	Net income (loss) attributable to common stock	$	0.50	$	(2.30	)	$	(16.83	)
Diluted earnings (loss) per common share:
	Income (loss) from continuing operations	$	0.42	$	(2.28	)	$	(9.33	)
	Income from discontinued operations		0.08		(0.02	)		(4.25	)
	Net income (loss)		0.50		(2.30	)		(13.58	)
	Net income (loss) attributable to common stock	$	0.50	$	(2.30	)	$	(16.83	)

      The computation of diluted income per share for the year ended December 31, 2005, as calculated above, did not include the shares associated with the assumed conversion of options to acquire 315,394 shares of common stock and A and B warrants (rights to acquire 503,546 and 343,122 shares of common stock, respectively) because their inclusion would have been antidilutive.

      The computation of diluted loss per share for the year ended December 31, 2004, as calculated above, did not include the shares associated with the assumed conversion of the restricted stock units (45,826 shares) or stock options (options to acquire 526,410 shares of common stock) and A and B warrants (rights to acquire 503,546 and 343,122 shares of common stock, respectively) because their inclusion would have been antidilutive.

      The computation of diluted loss per share for the year ended December 31, 2003, as calculated above, did not include the shares associated with the assumed conversion of the restricted stock (66,666 shares), stock options (options to acquire 157,575 shares of common stock), and Class A and Class B warrants (rights to acquire 1,510,638 and 1,029,366 shares of common stock, respectively) because their inclusion would have been antidilutive.

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LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

15. Commitments and Contingencies

Franchise Agreements and Capital Expenditure

      The Company has entered into franchise agreements with various hotel chains which require annual payments for license fees, reservation services and advertising fees. The license agreements generally have original terms of between 5 and 20 years. The franchisors may require the Company to upgrade its facilities at any time to comply with its then current standards. Upon the expiration of the term of a franchise, the Company may apply for a franchise renewal. In connection with the renewal of a franchise, the franchisor may require payment of a renewal fee, increase license, reservation and advertising fees, as well as substantial renovation of the facility. Costs incurred in connection with these agreements for the years ended December 31, 2005, 2004 and 2003:

	2005		2004		2003
	($ in thousands)
Continuing operations	$	22,158	$	21,225	$	19,831
Discontinued operations		1,486		3,136		4,554
	$	23,644	$	24,361	$	24,385

      As of March 1, 2006, the Company had been notified that it was not in compliance with some of the terms of eight of its franchise agreements and have received default and termination notices from franchisors with respect to an additional seven hotels summarized as follows:

•  Six hotels are held for sale. Two of these hotels are in default of their respective franchise agreement for failure to complete their Property Improvement Plan (“PIP”). Four additional hotels are in default or in non-compliance of their respective franchise agreements for not maintaining required guest satisfaction scores. Each of these hotels requires a significant capital investment for which the Company does not anticipate a sufficient return on its investment. The Company has entered into a forbearance agreement with the franchisor regarding one of these hotels that is in default which will maintain the flag until the earlier of March 31, 2006 or until the Company sells the hotel. The Company plans to enter into a voluntary termination agreement with the franchisor regarding two of these hotels which will maintain the flag until the earlier of June 30, 2006 or until the Company sells the hotels.

•  One hotel was held for sale but was reclassified into continuing operations in the fourth quarter 2005 as management no longer expected to have the hotel sold within one year due to issues related to the transfer of the ground lease to a prospective buyer. This hotel is in default of its franchise agreement for not maintaining required guest satisfaction scores and has a license termination date of February 14, 2006. The Company may be subject to liquidated damages. The Company has entered into a letter of intent to sell this hotel to a joint venture in which the Company will be a minority owner. However, the Company will no longer continue to operate the hotel.

•  One hotel has received an extension to its default termination date until August 15, 2006. The franchisor has verbally agreed to the Company’s planned renovations of two floors of guestrooms and guestroom corridors. This work began on January 9, 2006 and will take approximately 90 days to complete. The Company anticipates that the renovations will assist in improving the quest product scores.

•  Seven hotels are in default or non-compliance of their respective franchise agreement because of substandard guest satisfaction or quality scores. Three of these hotels are trending above the required thresholds, however, they must remain above that threshold for two consecutive years to earn a “clean

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LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

slate” letter. The Company anticipates these three hotels will earn their “clean slate” letters in August 2006, August 2007 and February 2008, respectively. Two of these hotels are awaiting follow-up quality inspections by the franchisor to cure the non-compliance issues. Two of these hotels have entered into the non-compliance status due to a new measurement process implemented in January 2006 by the franchisor. One of these hotels in non- compliance recently received an up-branding renovation. The scores used to determine this non-compliance were done before the pre-renovation and the Company anticipates curing this non-compliance as the new scores begin to cycle in. The corporate operations team, as well as each property’s general manager and associates, have focused their efforts to cure these failures through enhanced service, increased cleanliness, and product improvements by the required cure date. If the Company does not achieve scores above required thresholds by the designated date, the hotel would be subject to default of its franchise agreement. Each hotel would receive another opportunity to improve its score before the hotel would be at the risk of having its franchise agreement terminated.

      However, the Company cannot be certain that it will be able to complete its action plans, which in aggregate are estimated to cost approximately $5.4 million, to cure the alleged defaults prior to the specified termination dates or be granted any extended time to cure any defaults. The Company believes it is in compliance with its other franchise agreements in all material aspects. While the Company can give no assurance that the steps taken to date, and planned to be taken during 2006, will return these properties to full compliance, the Company believes that it will make significant progress and intends to continue to give franchise agreement compliance a high level of attention. The 15 hotels that are either in default or non-compliance under the respective franchise agreements are part of the collateral security for an aggregate of $265.3 million of mortgage debt as of March 1, 2006.

      In addition, as part of its bankruptcy reorganization proceedings, the Company entered into stipulations with each of its major franchisors setting forth a timeline for completion of capital expenditures for some of its hotels. However, as of March 1, 2006, the Company has not completed the required capital expenditures for eight continuing operations hotels in accordance with the stipulations and estimates the cost to comply with those stipulations to be $3.3 million of which $2.0 million is reserved with its lenders. Under the stipulations, the applicable franchisors could therefore seek to declare certain franchise agreements in default and, in certain circumstances, seek to terminate the franchise agreement. The Company has scheduled or has begun renovations on eight of these hotels, aggregating $1.4 million of the $3.3 million.

      If a franchise agreement is terminated, the Company will either select an alternative franchisor, operate the hotel independently of any franchisor or sell the hotel. However, terminating or changing the franchise affiliation of a hotel could require the Company to incur significant expenses, including franchise termination payments and capital expenditures associated with the change of a brand. Moreover, the loss of a franchise agreement could have a material adverse effect upon the operations or the underlying value of the hotel covered by the franchise because of the loss of associated guest loyalty, name recognition, marketing support and centralized reservation systems provided by the franchisor. Loss of a franchise agreement may result in a default under, and acceleration of, the related mortgage debt. In particular, the Company would be in default under the Refinancing Debt if the Company experiences either;

•  multiple franchise agreement defaults and the continuance thereof beyond all notice and grace periods for hotels whose allocated loan amounts total 10% or more of the outstanding principal amount of such Refinancing Debt;

•  with regards to the Merrill Lynch Mortgage floating rate refinancing debt (“Floating Rate Debt”), either the termination of franchise agreements for more than two properties or the termination of franchise agreements for hotels whose allocated loan amounts represent more than 5% of the outstanding principal amount of the floating rate debt, and such hotels continue to operate for more than five consecutive days without being subject to replacement franchise agreements;

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LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

•  with regards to the Merrill Lynch Mortgage fixed rate refinancing debt (“Fixed Rate Debt”), either the termination of franchise agreements for more than one property or the termination of franchise agreements for hotels whose allocated loan amounts represent more than 5% of the outstanding principal amount of the fixed rate loan, and such hotels continue to operate for more than five consecutive days without being subject to replacement franchise agreements; or

•  a franchise termination for any hotel currently subject to a franchise agreement that remains without a franchise agreement for more than six months.

      A single franchise agreement termination could materially and adversely affect the Company’s revenues, cash flow and liquidity.

      During 2004, the Company entered into new franchise agreements for all 15 of its Marriott-branded hotels at that time and agreed to pay a fee aggregating approximately $0.5 million, of which $0.1 million has been paid, and $0.4 million is payable in 2007, subject to offsets.

      To comply with the requirements of its franchisors, to improve its competitive position in individual markets, and repair hurricane damaged hotels, the Company plans to spend $37.0 million on its hotels in 2006, which includes hurricane expenditures of $14.4 million. The Company spent $82.2 million on capital expenditures during 2005 on its continuing operations hotels, which includes $41.8 million for hurricane repairs.

Letters of Credit

      As of December 31, 2005, the Company had one irrevocable letter of credit for $3.4 million outstanding, fully collateralized by cash (classified as restricted cash in the accompanying Consolidated Balance Sheets), as a guarantee to Zurich American Insurance Company for self-insured losses. This letter of credit will expire in November 2006 but may be renewed beyond that date.

Self-insurance

      The Company is self-insured up to certain limits with respect to employee medical, employee dental, property insurance, general liability insurance, personal injury claims, workers’ compensation and auto liability. The Company establishes liabilities for these self-insured obligations annually, based on actuarial valuations and its history of claims. If these claims escalate beyond the Company’s expectations, this could cause a negative impact on its future financial condition and results of operations. As of December 31, 2005 and December 31, 2004, the Company had accrued $12.4 million and $11.4 million, respectively, for these liabilities.

      There are other types of losses for which the Company cannot obtain insurance at all or at a reasonable cost, including losses caused by acts of war. If an uninsured loss or a loss that exceeds the Company’s insurance limits were to occur, the Company could lose both the revenues generated from the affected hotel and the capital that it has invested. The Company also could be liable for any outstanding mortgage indebtedness or other obligations related to the hotel. Any such loss could materially and adversely affect our financial condition and results of operations.

Casualty Losses

      On August 29, 2005, Hurricane Katrina made landfall in the U.S. Gulf Coast region. Two of our hotels in the New Orleans area, the Quality Inn & Conference Center in Metairie, LA and the Radisson New Orleans Airport Hotel in Kenner, LA, were damaged. The Quality Inn & Conference Center in Metairie, LA is held for sale and is included in discontinued operations. The Radisson New Orleans Airport Hotel in Kenner, LA is included in continuing operations. The insurance deductible on the Radisson New Orleans Airport Hotel is

F-41

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

$0.7 million and $0.5 million on the Quality Inn & Conference Center. Both the Quality Inn & Conference Center hotel and the Radisson New Orleans Airport Hotel are currently open. All of our properties are covered by property casualty and business interruption insurance. The Company will incur capital expenditures and repair costs on these two hotels. The current estimate of repair damage and capital expenditures on the Radisson New Orleans Airport Hotel is $2.3 million and $3.4 million on the Quality Inn & Conference Center. In 2006, approximately $1 million will be spent on the Radisson New Orleans Airport Hotel and approximately $2 million will be spent on the Quality Inn Metairie hotel.

      During August and September 2004, eight of our hotels were damaged (six extensively) from the hurricanes that made landfall in the Southeastern United States. Two of the hotels (the Crowne Plaza West Palm Beach, FL and the Crowne Plaza Melbourne, FL) were closed for most or all of 2005. The Crowne Plaza West Palm Beach, FL hotel reopened on December 29, 2005 and the Crowne Plaza Melbourne, FL hotel reopened on January 24, 2006.

      With regard to physical property damage, the Company is recognizing repair expenses related to hurricane damage as it incurs them. The Company has written off the net book value (“NBV”) of the assets that were destroyed by the hurricanes. As the combined repair expenses and NBV write-offs for each property exceed the relevant insurance deductibles, the Company has recorded or will record a receivable from the insurance carriers. In the fourth quarter 2005, we settled the property damage claims on the five hotels that had hurricane damage that exceeded the applicable deductible(s). These five hotels include the: 1) Crowne Plaza West Palm Beach, FL; 2) Holiday Inn University Mall Pensacola, FL; 3) Holiday Inn Winter Haven, FL; 4) Crowne Plaza Melbourne, FL; and 5) Holiday Inn Express University Mall Pensacola, FL. The Company recognized $31.3 million in casualty gains on these five hotels, offset by $0.4 million in hurricane repair expenses on the Radisson New Orleans Airport Hotel and other continuing operations hotels. With the settlement of these claims we released the insurance advance liability as these property damage claims are now closed. At December 31, 2005, we established an $11.7 million receivable for signed proofs of loss for $8.8 million of property damage proceeds for the Crowne Plaza West Palm Beach, FL and the Crowne Plaza Melbourne, FL hotels and $2.9 million for business interruption proceeds for these two hotels. As of March 1, 2006, we had received all of the property damage proceeds and all but $38,000 of the business interruption proceeds that were accrued at December 31, 2005.

      The business interruption proceeds recorded in 2005 are for the September 2004 to November 2005 time period for the Crowne Plaza West Palm Beach, FL hotel and the September 2004 to December 2005 time period for the Crowne Plaza Melbourne, FL hotel. For purposes of expediting the business interruption claims, some of the months during this period were based on estimates and, accordingly, actual operating results will be trued up to finalize the business interruption claims. Additionally, our business interruption coverage continues for the six months following the opening date of the hotel, to cover the revenue ramp-up and additional expense period. As such, the true-up for these periods will result in the recording of additional business interruption proceeds in 2006.

      All advances are forwarded to our lenders from which we receive reimbursements as we incur hurricane-related repair and capital expenditures. At December 31, 2005, $3.3 million was at our lenders in escrow accounts related to property damage claims.

      On October 13, 2005, an underground water main ruptured underneath the Holiday Inn in Clarksburg, WV. The rupture caused flooding in certain areas of the hotel and a limited amount of structural damage. The property was temporarily closed while the Company made repairs. The hotel reopened on January 31, 2006. We believe the cost to repair the building, as well as losses due to business interruption, will be covered by insurance, subject to a deductible.

      On January 15, 2006, our Holiday Inn hotel in Marietta, GA suffered a major fire. One of the guest towers, containing 146 rooms was severely damaged. One person died in the fire and a number of people were

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LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

taken to local hospitals with injuries. The Company believes it has sufficient property and liability insurance coverage to reimburse the Company for the damage to the property, including coverage for business interruption, as well as to pay any claims that may be asserted against the Company by guests or others related to the fatality and other injuries. The hotel is currently closed, and management is working with its property insurance carrier to determine the cost to rebuild.

Litigation

      From time to time, as the Company conducts its business, legal actions and claims are brought against it. The outcome of these matters is uncertain. However, management believes that all currently pending matters will be resolved without a material adverse effect on the Company’s results of operations or financial condition. Claims relating to the period before the Company filed for Chapter 11 protection were limited to the amounts approved by the Bankruptcy Court for settlement of such claims and were payable out of the disputed claims reserve that was recorded on the Company’s balance sheet. On July 26, 2004, the Preferred Stock was redeemed and cash of $2.2 million replaced the Preferred Stock shares held in the disputed claims reserve. Accordingly, when this liability was established, it reduced Additional Paid-in Capital. On June 30, 2005, the Company completed the final distribution for its bankruptcy claims and released the remaining unused accrual balance of $1.3 million with a corresponding adjustment to Additional Paid-in Capital.

Operating Leases

      Thirteen of the Company’s continuing operations hotels are subject to long-term ground leases, parking and other leases expiring from 2006 through 2075 which provide for minimum payments as well as incentive rent payments. Two of these hotels with ground leases were listed for sale during the first two months of 2006 and the two Kansas hotels transferred to the bond Trustee on February 1, 2006 were also subject to ground leases. In addition, most of the Company’s hotels have non-cancelable operating leases, mainly for operating equipment. Lease expense for the non-cancelable ground, parking and other leases for the twelve months ended December 31, 2005, December 31, 2004 and December 31, 2003 were as follows:

	2005		2004		2003
	($ in thousands)
Continuing operations	$	3,368	$	2,641	$	4,698
Discontinued operations		—		—		—
Total operations	$	3,368	$	2,641	$	4,698

      At December 31, 2005, the future minimum commitments for non-cancelable ground and parking leases were as follows (amounts in thousands):

2006	$	3,214
2007		3,235
2008		3,307
2009		3,342
2010		3,429
2011 and thereafter		100,058
	$	116,585

16. Employee Retirement Plans

      The Company makes contributions to several multi-employer pension plans for employees of various subsidiaries covered by collective bargaining agreements. These plans are not administered by the Company

F-43

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

and contributions are determined in accordance with provisions of negotiated labor contracts. Certain withdrawal penalties may exist, the amounts of which are not determinable at this time. The cost of pension contributions for the twelve months ended December 31, 2005, December 31, 2004 and December 31, 2003 were as follows:

	2005		2004		2003
	($ in thousands)
Continuing operations	$	178	$	203	$	260
Discontinued operations		0		0		0
	$	178	$	203	$	260

      The Company adopted a 401(k) plan for the benefit of its non-union employees and two groups of union employees under which participating employees may elect to contribute up to 15% of their compensation. The Company matches an employee’s elective contributions to the 401(k) plan, subject to certain conditions. These employer contributions vest immediately. Contributions to the 401(K) plan made by the Company for the twelve months ended December 31, 2005, December 31, 2004 and December 31, 2003 were as follows:

	2005		2004		2003
	($ in thousands)
Continuing operations	$	706	$	661	$	582
Discontinued operations		40		75		95
	$	746	$	736	$	677

17. Subsequent Events

Additions to Held for Sale Hotels

      In the first two months of 2006 the Company identified five additional hotels for sale. The five hotels identified for sale are the Holiday Inn Sheffield, AL; the Fairfield Inn Valdosta, GA; the Holiday Inn Valdosta, GA; the Crowne Plaza Cedar Rapids, IA; and the Fairfield Inn Colchester, VT.

Wachovia Bank Refinance

      On February 1, 2006, the Company closed on two loan agreements with Wachovia Bank National Association for $17.4 million secured by the Crowne Plaza Worcester, MA hotel and $6.1 million secured by the Holiday Inn Express Palm Desert, CA hotel. Each loan has a five-year term and bears a fixed rate of interest of 6.04%. The proceeds of these loans were used to paydown debt related to Column Financial, and as such, six hotels are now unencumbered. These hotels include the Radisson Phoenix, AZ, the Radisson New Orleans Airport Hotel Kenner, LA, the Holiday Inn Washington, PA, the Holiday Inn Santa Fe, NM, the Hilton Ft. Wayne, IN and the Crowne Plaza Coraopolis, PA hotels. These loan agreements are non-recourse to Lodgian, Inc. except in certain situations as set forth in the loan agreements.

IXIS Real Estate Capital Refinance

      On March 1, 2006, the Company entered into a loan agreement with IXIS Real Estate Capital Inc. (“IXIS”). Pursuant to the loan agreement, IXIS loaned the Company $21.5 million, which is secured by all of the assets of the Crowne Plaza Phoenix, AZ; the Radisson Phoenix, AZ; and the Crowne Plaza Coraopolis Pittsburgh, PA. The loan agreement has a two year initial term with three one year extension options which are exercisable provided the loan is not in default. The loan bears a floating rate of interest at LIBOR plus 2.95%. Contemporaneously with the closing of the loan agreement, the Company purchased an interest rate cap that effectively caps our interest rate for the first two years of the loan agreement at 8.45%. Prior to

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LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

entering into the loan agreement with IXIS, the Crowne Plaza Phoenix, AZ served as collateral under a loan agreement with Column Financial, Inc. The Column loan agreement had a fixed rate of interest of 9.45%. At December 31, 2005 we were not in compliance with the covenants on this refinanced loan, and as such, we were subject to cash trap provisions. Of the IXIS loan proceeds, $6.6 million was used to pay off the existing indebtedness under this Column loan agreement. The IXIS Loan Agreement is non-recourse to Lodgian, Inc., except in certain limited circumstances as set forth in the loan agreement.

Fire at Holiday Inn Marietta, GA

      On January 15, 2006, our Holiday Inn hotel in Marietta, GA suffered a major fire. One of the guest towers, containing 146 rooms was severely damaged. One person died in the fire and a number of people were taken to local hospitals with injuries. The Company believes it has sufficient property and liability insurance coverage to reimburse the Company for the damage to the property, including coverage for business interruption, as well as to pay any claims that may be asserted against the Company by guests or others related to the fatality and other injuries. The hotel is currently closed, and management is working with its property insurance carrier to determine the cost to rebuild.

18. Selected Quarterly Financial Data, Unaudited

      The following table presents certain quarterly operating data for the year ended December 31, 2005 and December 31, 2004. The data have been derived from the Company’s unaudited condensed consolidated financial statements for the periods indicated. The unaudited consolidated financial statements have been prepared on substantially the same basis as the Company’s audited consolidated financial statements and include all adjustments, consisting primarily of normal recurring adjustments consider necessary to present fairly this information when read in conjunction with the consolidated financial statements. The results of operations for certain quarters may vary from the amounts previously reported on the Company’s Forms 10-Q filed for prior quarters due to of the reclassification of certain assets as held for sale and discontinued operations during the course of the fiscal year ended December 31, 2004. The allocation of results of operations between the continuing operations and discontinued operations, at the time of the quarterly filings, was based on the assets held for sale, if any, as of the dates of those filings. This table represents the comparative quarterly operating results for the 71 hotels classified in continuing operations at December 31, 2005.

		2005								2004
		Fourth		Third		Second		First		Fourth		Third		Second		First
		Quarter		Quarter		Quarter		Quarter		Quarter		Quarter		Quarter		Quarter
		($ in thousands)
Revenues:
	Rooms	$	56,989	$	65,743	$	64,416	$	54,293	$	50,254	$	62,425	$	62,675	$	55,901
	Food and beverage		17,534		16,571		18,744		14,866		19,029		16,426		18,984		16,192
	Other		2,306		2,584		2,701		2,517		2,303		2,734		2,775		2,727
			76,829		84,898		85,861		71,676		71,586		81,585		84,434		74,820
Operating expenses:
Direct:
	Rooms		16,555		17,829		17,541		15,419		15,557		17,782		16,288		15,392
	Food and beverage		12,605		12,047		13,062		10,996		13,874		12,302		12,473		11,317
	Other		1,955		2,012		2,129		1,954		1,851		2,038		2,055		1,963
			31,115		31,888		32,732		28,369		31,282		32,122		30,816		28,672
			45,714		53,010		53,129		43,307		40,304		49,463		53,618		46,148

F-45

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

			2005												2004
			Fourth			Third			Second			First			Fourth			Third			Second			First
			Quarter			Quarter			Quarter			Quarter			Quarter			Quarter			Quarter			Quarter
			($ in thousands)
Other operating expenses:
	Other hotel operating costs			25,281			26,696			24,655			23,788			22,686			24,399			22,890			23,141
	Property and other taxes, insurance and leases			4,971			5,908			5,814			5,676			5,042			5,431			5,165			5,609
	Corporate and other			4,529			6,022			5,863			4,649			3,423			4,389			4,682			4,330
	Casualty (gain) losses, net			(31,251	)		190			28			104			294			2,019			—			—
	Depreciation and amortization			9,167			7,099			6,793			6,588			6,451			6,884			6,725			6,606
	Impairment of long-lived assets			5,111			613			957			1,666			4,877			—			—			—
	Other operating expenses			17,808			46,528			44,110			42,471			42,773			43,122			39,462			39,686
				27,906			6,482			9,019			836			(2,469	)		6,341			14,156			6,462
Other income (expenses):
	Business interruption insurance proceeds			1,772			6,094			1,729			—			—			—			—			—
	Interest income and other			282			348			54			171			360			212			66			43
	Interest expense and other financing costs:
		Preferred stock dividend		—			—			—			—			—			(865	)		(4,233	)		(4,285	)
		Other interest expense		(7,045	)		(6,833	)		(6,890	)		(6,907	)		(7,351	)		(7,160	)		(19,310	)		(7,904	)
		Loss on preferred stock redemption		—			—			—			—			—			(4,471	)		(1,592	)		—
Income (loss) before income taxes and minority interest				22,915			6,091			3,912			(5,900	)		(9,460	)		(5,943	)		(10,913	)		(5,684	)
Minority interests				(8,486	)		(1,127	)		(120	)		145			406			503			(71	)		(147	)
Income (loss) before income taxes — continuing operations				14,429			4,964			3,792			(5,755	)		(9,054	)		(5,440	)		(10,984	)		(5,831	)
(Provision) benefit for income taxes — continuing operations				(6,832	)		(13	)		(68	)		(68	)		261			(337	)		(76	)		(76	)
Income (loss) from continuing operations				7,597			4,951			3,724			(5,823	)		(8,793	)		(5,777	)		(11,060	)		(5,907	)
Discontinued operations:
	(Loss) income from discontinued operations before income taxes			1,442			4,758			(1,850	)		(1,263	)		(4,971	)		2,040			3,813			(1,179	)
	Income tax benefit (provision)			(1,235	)		—			—			—			—			—			—			—
	(Loss) income from discontinued operations			207			4,758			(1,850	)		(1,263	)		(4,971	)		2,040			3,813			(1,179	)
Net income (loss)				7,804			9,709			1,874			(7,086	)		(13,764	)		(3,737	)		(7,247	)		(7,086	)
Net income (loss) attributable to common stock			$	7,804		$	9,709		$	1,874		$	(7,086	)	$	(13,764	)	$	(3,737	)	$	(7,247	)	$	(7,086	)

F-46

Index to Exhibits

Exhibit
Number			Description
	2	.1	Disclosure Statement for Joint Plan of Reorganization of Lodgian, Inc., et al (other than the CCA Debtors), Together with the Official Committee of Unsecured Creditors under Chapter 11 of the Bankruptcy Code, dated September 26, 2002) (Incorporated by reference to Exhibit 10.6 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 1-14537), filed on March 9, 2004).
	2	.2	First Amended Joint Plan of Reorganization of Lodgian, Inc., et al (Other than CCA Debtors), Together with the Official Committee of Unsecured Creditors under Chapter 11 of the Bankruptcy Code, dated September 26, 2002) (Incorporated by reference to Exhibit 10.7 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 1-14537), filed on March 9, 2004).
	2	.3	Order Confirming First Amended Joint Plan of Reorganization of Lodgian, Inc., et al issued on November 5, 2002 by the United States Bankruptcy Curt for the Southern District of New York (Incorporated by reference to Exhibit 10.8 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 1-14537), filed on March 9, 2004).
	2	.4	Disclosure Statement for Joint Plan of Reorganization of Impac Hotels II, L.L.C. and Impac Hotels III, L.L.C. Together with the Official Committee of Unsecured Creditors Under Chapter 11 of the Bankruptcy Code (Incorporated by reference to Exhibit 10.13.1 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 1-14537), filed on March 9, 2004).
	2	.5	Joint Plan of Reorganization of Impac Hotels II, L.L.C. and Impac Hotels III, L.L.C. Together with the Official Committee of Unsecured Creditors under Chapter 11 of the Bankruptcy Code (Incorporated by reference to Exhibit 10.13.2 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 1-14537), filed on March 9, 2004).
	2	.6	Order Confirming Joint Plan of Reorganization of Impac Hotels II, L.L.C. and Impac Hotels III, L.L.C. Together with the Official Committee of Unsecured Creditors under Chapter 11 of the Bankruptcy Code (Incorporated by reference to Exhibit 10.13.3 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 1-14537), filed on March 9, 2004).
	2	.7	Post Confirmation Order and Notice for Joint Plan of Reorganization of Impac Hotels III, L.L.C. Together with the Official Committee of Unsecured Creditors under Chapter 11 of the Bankruptcy Code (Incorporated by reference to Exhibit 10.13.4 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 1-14537), filed on March 9, 2004).
	3	.1	Amended and Restated Certificate of Incorporation of Lodgian, Inc. (Incorporated by reference to Exhibit 3.1 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-113410), filed on June 6, 2004).
	3	.2	Amended and Restated Bylaws of Lodgian, Inc. (Incorporated by reference to Exhibit 3.4 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 1-14537), filed on March 9, 2004).
	4	.1	Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-113410), filed on June 6, 2004).
	4	.2	Class A Warrant Agreement, dated as of November 25, 2002, between Lodgian, Inc. and Wachovia Bank, N.A. (Incorporated by reference to Exhibit 10.9 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 1-14537), filed on March 9, 2004).
	4	.3	Class B Warrant Agreement, dated as of November 25, 2002, between Lodgian, Inc. and Wachovia Bank, N.A. (Incorporated by reference to Exhibit 10.10 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 1-14537), filed on March 9, 2004).
	4	.4	Registration Rights Agreement, dated as of November 25, 2002, between Lodgian, Inc. and the other signatories thereto (Incorporated by reference to Exhibit 10.11 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 1-14537), filed on March 9, 2004).
	4	.5	Preferred Share Exchange Agreement, dated June 22, 2004, by and among Lodgian, Inc. and the record and/or beneficial stockholders as signatories thereto (Incorporated by reference to Exhibit 10.9 to the Company’s Quarterly Report for the period ended June 30, 2004 (File No. 1-14537), filed on August 16, 2004).

Exhibit
Number			Description
	4	.6	Registration Rights Agreement, dated June, dated June 22, 2004, by and among Lodgian, Inc. and the signatories thereto (Incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report for the period ended June 30, 2004 (File No. 1-14537), filed on August 16, 2004).
	10	.1	Loan Agreement, dated as of January 31, 1995, by and among Column Financial, Inc., Servico Fort Wayne, Inc., Washington Motel Enterprises, Inc., Servico Hotels I, Inc., Servico Hotels II, Inc., Servico Hotels III, Inc., Servico Hotels IV, Inc., New Orleans Airport Motels Associates, Ltd., Wilpen, Inc., Hilton Head Motels Enterprises, Inc., and Moon Airport Hotel, Inc. (Incorporated by reference to Exhibit 10.1.1 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 1-14537), filed on March 9, 2004).
	10	.2	Promissory Note, in original amount of $60.5 million, dated as of January 31, 1995, by Servico Fort Wayne, Inc., Washington Motel Enterprises, Inc., Servico Hotels I, Inc., Servico Hotels II, Inc., Servico Hotels III, Inc., Servico Hotels IV, Inc., New Orleans Airport Motels Associates, Ltd., Wilpen, Inc., Hilton Head Motels Enterprises, Inc., and Moon Airport Hotel, Inc., in favor of Column Financial, Inc. (Incorporated by reference to Exhibit 10.1.2 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 1-14537), filed on March 9, 2004).
	10	.3	Loan and Security Agreement (Floating Rate), dated as of June 25, 2004, by and between the Borrowers listed on Schedule 1 thereto and Merrill Lynch Mortgage Lending, Inc. (Incorporated by reference to Exhibit 10.1.1 to the Company’s Quarterly Report for the period ended June 30, 2004 (File No. 1-14537), filed on August 16, 2004).
	10	.4	Loan Modification Agreement (Floating Rate) between Merrill Lynch Mortgage Lending, Inc. and the Borrowers identified on the signature pages thereto dated April 29, 2005 (Incorporated by reference to Exhibit 10.40 to the Company’s Quarterly Report for the period ended March 31, 2005 (File No. 1-14537), filed with the Commission on May 10, 2005.
	10	.5	Promissory Note A in the original amount of $72,000,000.00, dated as of June 25, 2004, by the Borrowers listed on the signature pages thereto in favor of Merrill Lynch Mortgage Lending, Inc. (Incorporated by reference to Exhibit 10.1.2 to the Company’s Quarterly Report for the period ended June 30, 2004 (File No. 1-14537), filed on August 16, 2004).
	10	.6	Promissory Note B in the original amount of $38,000,000, dated as of June 25, 2004, by the Borrowers listed on the signature pages thereto in favor of Merrill Lynch Mortgage Lending, Inc. (Incorporated by reference to Exhibit 10.1.3 to the Company’s Quarterly Report for the period ended June 30, 2004 (File No. 1-14537), filed on August 16, 2004).
	10	.7	Loan and Security Agreement (Fixed Rate #1), dated as of June 25, 2004, 2004, by and between the Borrowers listed on Schedule 1 thereto and Merrill Lynch Mortgage Lending, Inc. (Incorporated by reference to Exhibit 10.2.1 to the Company’s Quarterly Report for the period ended June 30, 2004 (File No. 1-14537), filed on August 16, 2004).
	10	.8	Promissory Note in the original amount of $63,801,000.00, dated as of June 25, 2004, by the Borrowers listed on the signature pages thereto in favor of Merrill Lynch Mortgage Lending, Inc. (Incorporated by reference to Exhibit 10.2.2 to the Company’s Quarterly Report for the period ended June 30, 2004 (File No. 1-14537), filed on August 16, 2004).
	10	.9	Loan and Security Agreement (Fixed Rate #2), dated as of June 25, 2004, by and between the Borrowers listed on Schedule 1 thereto and Merrill Lynch Mortgage Lending, Inc. (Incorporated by reference to Exhibit 10.3.1 to the Company’s Quarterly Report for the period ended June 30, 2004 (File No. 1-14537), filed on August 16, 2004).
	10	.10	Promissory Note in the original amount of $67,864,000.00, dated as of June 25, 2004, by the Borrowers listed on the signature pages thereto in favor of Merrill Lynch Mortgage Lending, Inc. (Incorporated by reference to Exhibit 10.3.2 to the Company’s Quarterly Report for the period ended June 30, 2004 (File No. 1-14537), filed on August 16, 2004).
	10	.11	Loan and Security Agreement (Fixed Rate #3), dated as of June 25, 2004, by and between the Borrowers listed on Schedule 1 thereto and Merrill Lynch Mortgage Lending, Inc. (Incorporated by reference to Exhibit 10.4.1 to the Company’s Quarterly Report for the period ended June 30, 2004 (File No. 1-14537), filed on August 16, 2004).

Exhibit
Number			Description
	10	.12	Promissory Note in the original amount of $66,818,500.00, dated as of June 25, 2004, by the Borrowers listed on the signature pages thereto in favor of Merrill Lynch Mortgage Lending, Inc. (Incorporated by reference to Exhibit 10.4.2 to the Company’s Quarterly Report for the period ended June 30, 2004 (File No. 1-14537), filed on August 16, 2004).
	10	.13	Loan and Security Agreement (Fixed Rate #4), dated as of June 25, 2004, by and between the Borrowers listed on Schedule 1 thereto and Merrill Lynch Mortgage Lending, Inc. (Incorporated by reference to Exhibit 10.5.1 to the Company’s Quarterly Report for the period ended June 30, 2004 (File No. 1-14537), filed on August 16, 2004).
	10	.14	Loan Modification Agreement (Fixed Rate #4) dated October 17, 2005, by and between Merrill Lynch Mortgage Lending, Inc. and certain Lodgian, Inc. subsidiaries (Incorporated by reference to Exhibit 99.1 to Company’s Current Report on Form 8-K. (File No. 1-14537), filed on October 21, 2005).
	10	.15	Promissory Note in the original amount of $61,516,500.00, dated as of June 25, 2004, 2004, by the Borrowers listed on the signature pages thereto in favor of Merrill Lynch Mortgage Lending, Inc. (Incorporated by reference to Exhibit 10.5.2 to the Company’s Quarterly Report for the period ended June 30, 2004 (File No. 1-14537), filed on August 16, 2004).
	10	.16	Employment Agreement with W. Thomas Parrington, dated December 18, 2003 (Incorporated by reference to Exhibit 10.12 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 1-14537), filed on March 9, 2004).
	10	.17	Amendment to Employment Agreement between, Lodgian, Inc. and W. Thomas Parrington, dated August 3, 2005 (Incorporated by reference to Exhibit 10.22 to the Company’s Quarterly Report for the period ended June 30, 2005 (File No. 1-14537), filed on August 9, 2005).
	10	.18	Restricted Unit Award Agreement with W. Thomas Parrington, dated as of July 15, 2003 (Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report for the period ended March 31, 2004 (File No. 1-14537), filed with the Commission on May 14, 2004).
	10	.19	Restricted Unit Award Agreement with W. Thomas Parrington, dated as of April 9, 2004 (Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report for the period ended March 31, 2004 (File No. 1-14537), filed with the Commission on May 14, 2004).
	10	.20	Letter Agreement dated January 21, 2005, between Thomas W. Parrington and Lodgian, Inc. related to Mr. Parrington’s waiver of his 2004 Annual performance bonus (Incorporated by reference to Exhibit 10.26 to the Company’s Annual Report for the period ended December 31, 2004 (File No. 1-14537), filed with the Commission on March 23, 2005).
	10	.21	Employment Agreement between Lodgian, Inc. and Daniel E. Ellis, dated May 2, 2004 (Incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report for the period ended March 31, 2004 (File No. 1-14537), filed with the Commission on May 14, 2004).
	10	.22	Participation Form for Daniel E. Ellis under the Lodgian, Inc. Executive Incentive Plan (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 1-14537), filed with the Commission on February 6, 2006).
	10	.23	Employment Agreement between Lodgian, Inc. and Manuel E. Artime, dated May 10, 2004 (Incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report for the period ended March 31, 2004 (File No. 1-14537), filed with the Commission on May 14, 2004).
	10	.24	Release Agreement, dated January 31, 2004, between Manuel E. Artime and Lodgian, Inc. (Incorporated by reference to Exhibit 10.29 to the Company’s Annual Report for the period ended December 31, 2004 (File No. 1-14537), filed with the Commission on March 23, 2005).
	10	.25	Employment Agreement between Lodgian, Inc. and Michael W. Amaral, dated May 4, 2004 (Incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report for the period ended March 31, 2004 (File No. 1-14537), filed with the Commission on May 14, 2004).
	10	.26	Separation and Release Agreement between Lodgian, Inc. and Michael W. Amaral dated October 4, 2005 (Incorporated by reference to Exhibit 10.32 to the Company’s Quarterly Report for the period ended October 31, 2005 (File No. 1-14537), filed with the Commission on November 9, 2005.

Exhibit
Number			Description
	10	.27	Employment Agreement between Lodgian, Inc. and Samuel J. Davis, dated May 14, 2004 (Incorporated by reference to Exhibit 10.19 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (Registration Number 333-113410), filed with the Commission on June 4, 2004).
	10	.28	Executive Employment Agreement between Lodgian, Inc. and Linda B. Philp, dated February 7, 2005 (Incorporated by reference to Exhibit 10.32 to the Company’s Annual Report for the period ended December 31, 2004 (File No. 1-14537), filed with the Commission on March 23, 2005).
	10	.29	Stock Option Award Agreement, dated January 31, 2005, between Linda B. Philp and Lodgian, Inc. (Incorporated by reference to Exhibit 10.33 to the Company’s Annual Report for the period ended December 31, 2004 (File No. 1-14537), filed with the Commission on March 23, 2005).
	10	.30	Incentive Stock Option Award Agreement, dated January 31, 2005, between Linda B. Philp and Lodgian, Inc. (Incorporated by reference to Exhibit 10.34 to the Company’s Annual Report for the period ended December 31, 2004 (File No. 1-14537), filed with the Commission on March 23, 2005).
	10	.31	Agreement for Consulting Services between Lodgian, Inc. and Linda Borchert Philp dated December 19, 2005 (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 1-14537), filed with the Commission on December 22, 2005).
	10	.32	Release Agreement between Lodgian, Inc. and Linda Borchert Philp dated December 16, 2005 (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 1-14537), filed with the Commission on December 22, 2005).
	10	.33	Incentive Stock Option Award Agreement, dated February 28, 2005, between Daniel G. Owens and Lodgian, Inc. (Incorporated by reference to Exhibit 10.35 to the Company’s Annual Report for the period ended December 31, 2004 (File No. 1-14537), filed with the Commission on March 23, 2005).
	10	.34	Executive Employment Agreement between Edward J. Rohling and Lodgian, Inc., dated July 12, 2005 (Incorporated by reference to Exhibit 10.35 to the Company’s Quarterly Report for the period ended June 30, 2005 (File No. 1-14537), filed with the Commission on August 9, 2005).
	10	.35	Restricted Stock Award Agreement between Edward J. Rohling and Lodgian, Inc., dated July 15, 2005 (Incorporated by reference to Exhibit 10.36 to the Company’s Quarterly Report for the period ended June 30, 2005 (File No. 1-14537), filed with the Commission on August 9, 2005).
	10	.36	Employment Agreement between Lodgian, Inc. and James A. MacLennan dated March 1, 2006 (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 1-14537), filed with the Commission on March 3, 2006).
	10	.37	Restricted Stock Award Agreement between Lodgian, Inc. and James A. MacLennan dated March 1, 2006 (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 1-14537), filed with the Commission on March 3, 2006).
	10	.38	Participation Form for James A. MacLennan under the Lodgian, Inc. Executive Incentive Plan (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (File No. 1-14537), filed with the Commission on March 3, 2006).
	10	.39	2002 Amended and Restated Stock Incentive Plan of Lodgian, Inc. (Incorporated by reference to Exhibit 10.5 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-1113410), filed on June 6, 2004).
	10	.40	First Amendment to the Amended and Restated 2002 Stock Incentive Plan of Lodgian, Inc. dated April 28, 2005 (Incorporated by reference to Exhibit 10.34 to the Company’s Quarterly Report for the period ended March 31, 2005 (File No. 1-14537), filed with the Commission on May 10, 2005.)
	10	.41	Form of Stock Option Award Agreement (Incorporated by reference to Exhibit 10.37 to the Company’s Annual Report for the period ended December 31, 2004 (File No. 1-14537), filed with the Commission on March 23, 2005).
	10	.42	Form of Restricted Stock Award Agreement (Incorporated by reference to Exhibit 10.40 to the Company’s Quarterly Report for the period ended June 30, 2005 (File No. 1-14537), filed with the Commission on August 9, 2005).
	10	.43	Lodgian, Inc. 401(k) Plan, As Amended and Restated Effective September 1, 2003 (Incorporated by reference to Exhibit 20.1.1 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-113410), filed on June 6, 2004).

Exhibit
Number			Description
	10	.44	Amendment No. 1 to the Lodgian, Inc. 401(k) Plan (As Amended and Restated Effective September 1, 2003) (Incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report for the period ended March 31, 2004 (File No. 1-14537), filed with the Commission on May 14, 2004).
	10	.45	Amendment No. 2 to the Lodgian, Inc. 401(K) Plan dated March 24, 2005 (As Amended and Restated Effective as of September 1, 2003). (Incorporated by reference to Exhibit 10.38 to the Company’s Quarterly Report for the period ended March 31, 2005 (File No. 1-14537), filed with the Commission on May 10, 2005).
	10	.46	Amendment No. 3 to the Lodgian, Inc. 401(K) Plan dated April 28, 2005 (As Amended and Restated Effective as of September 1, 2003). (Incorporated by reference to Exhibit 10.39 to the Company’s Quarterly Report for the period ended March 31, 2005 (File No. 1-14537), filed with the Commission on May 10, 2005).
	10	.47	Lodgian, Inc. Executive Incentive Plan (Covering the calendar years 2006-2008). (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 1-14537), filed with the Commission on February 6, 2006).
	14		Lodgian’s Policy on Business Ethics. **
	21		Lodgian’s list of subsidiaries. **
	31	.1	Sarbanes-Oxley Section 302 Certification by the CEO.**
	31	.2	Sarbanes-Oxley Section 302 Certification by the CFO.**
	32		Sarbanes-Oxley Section 906 Certification by the CEO and CFO.**

**  Filed herewith.

EX-14

                                                                      EXHIBIT 14

                              If you have questions, please call the Senior Vice
                                     President - General Counsel at 404-812-3176


                       LODGIAN'S POLICY ON BUSINESS ETHICS


1.       GENERAL INTEGRITY -- To maintain and enhance Lodgian's reputation for
         integrity in its business, it is vital for each of us to adhere to the
         highest moral, ethical and legal standards. Honesty and integrity are
         the backbone of our relationship with our associates, shareholders,
         suppliers, guests and governmental authorities. This policy is a formal
         statement of the ethical conduct and common sense standards that sets
         the tone for all of Lodgian's business activities. The standards
         presented are intended as guidelines and obviously cannot cover every
         situation in our business environment. Lodgian is committed to these
         principles of ethical business conduct and any questionable practices
         should be evaluated in this light.

2.       COMPLIANCE WITH LAWS AND REGULATIONS (of the United States, Canada and
         other foreign countries) -- Compliance with the law is essential. While
         acting on behalf of Lodgian, each associate must comply with the
         applicable rules and regulations of federal, state and local
         governments and of appropriate public and private regulatory agencies
         or organizations. Associates should not take any action on behalf of
         the Company that they know, or should reasonably be expected to know,
         violates any governmental laws, rules, or regulations.

         While Lodgian does not expect all associates to be experts in law and
         governmental regulations, we do expect associates to take reasonable
         precautions. When there is question or doubt regarding a particular
         action, associates should obtain clarification from their manager. In
         all cases, Lodgian expects a good faith effort to follow the spirit and
         intent of this policy and the law.

3.       ACCOUNTING PRACTICES -- Lodgian will follow generally accepted
         accounting rules and controls. The books of account, budgets and
         similar records must accurately reflect these rules and controls. All
         assets of the company should be accounted for carefully and properly.
         No payment of company funds shall be approved if it is known that it
         will be made contrary to this policy. The company's independent
         auditors will be given access to all information necessary for them to
         properly conduct their audits.

         Associates are responsible for maintaining accurate records regarding
         the financial and administrative transactions of the Company. To ensure
         that accurate financial and administrative information is maintained,
         associates should not permit or take any action that would result in
         the inaccurate recording of entries in Company books, records and
         ledgers. No asset, fund, expenditure, or account should be established
         unless it is accurately reflected in the records of the Company.

         Financial activities are to be recorded in compliance with all
         applicable laws and accounting practices and shall be maintained for
         the time period required by the Internal Revenue Code and other
         applicable laws. All prepared financial statements and reports
         submitted to the Securities and Exchange Commission and to the public
         must be full, fair, accurate, timely and understandable.

4.       ANTITRUST AND TRADE REGULATIONS -- Lodgian is committed to the letter
         and spirit of applicable antitrust and trade laws and regulations.
         Business activities must be conducted in a fair and equitable manner.

         Under no circumstance should an associate or an individual associated
         with Lodgian be party to any agreement, collusion or concerted activity
         of any type involving any competitor, customer, or any other party,
         that restrains trade or is in violation of the antitrust laws and
         regulations designed to foster competition. Prohibited activities
         include





                       LODGIAN'S POLICY ON BUSINESS ETHICS


         price fixing; predatory pricing; allocation of customers; allocation of
         territories; exclusivity agreements; group boycotts; monopolization;
         unlawful termination of suppliers or distributors; price
         discrimination; or any attempts to engage in such conduct.

         Any discussion, action, or transaction that may involve prohibited
         conduct should be avoided and any knowledge of such conduct should be
         reported immediately to the Senior Vice President -- General Counsel.
         Any questions about what is permissible conduct should be raised with
         the Senior Vice President -- General Counsel before any action is
         taken.

5.       INSIDER TRADING -- The Securities and Exchange Act prohibits Lodgian's
         insiders in possession of "inside information" from engaging in
         securities transactions. To ensure Lodgian is in compliance with all
         regulations regarding stock transactions, the Company has established a
         separate Insider Trading Policy which should be carefully reviewed by
         associates prior to the buying or selling company stock.

6.       COMPLIANCE WITH INTERNAL POLICIES AND PROCEDURES -- The Company's
         policies and procedures define how we conduct business and how various
         business tasks are to be performed. To ensure our operations are
         conducted in a consistent and high quality manner, associates must
         comply with these policies and procedures in performing their job
         responsibilities. Internal policies and procedures should not conflict
         with the basic provisions of Lodgian's Policy on Business Ethics.

7.       ANTI-FRAUD POLICIES -- Associates are prohibited from engaging in any
         scheme to defraud any person or organization of money, property, or the
         honest services of another. The making of any false or fraudulent
         statements to a government official or concealing a material fact from
         a government official is also prohibited.

8.       CONTRACTS AND AGREEMENTS -- All contracts and agreements entered into
         by Lodgian must be in compliance with all applicable laws and
         regulations. Contracts with outside parties should be in writing and
         should include a complete description of all obligations of the various
         parties as well as details on fees. Lodgian's attorneys should review
         contracts in the negotiation stage, and should endorse all contracts
         prior to final approval and execution. Contracts may not be signed by
         anyone other than the Senior Vice President -- General Counsel or
         his/her authorized representatives.

9.       USE OF FUNDS AND ASSETS -- Lodgian's funds and assets should not be
         used for any unlawful or unauthorized purpose. The payment or receipt
         of bribes, kickbacks, secret commissions, unauthorized gratuities or
         other unethical payments is prohibited. The use of funds for
         non-company purposes is prohibited.

         Assets (both tangible and intangible, including but not limited to
         Lodgian's buildings, property, vehicles, equipment, software, and the
         Lodgian name) should only be used for business activities. Any
         exceptions to this policy on the use of assets should be documented in
         writing and approved by the Senior Vice President -- General Counsel
         prior to the event.

10.      PURCHASING -- In general, all Lodgian purchases should be made strictly
         on the basis of quality, suitability, service, price and efficiency.
         Suppliers should be treated fairly and equitably. It is the policy of
         Lodgian to award orders and contracts on the basis of merit and without
         favoritism. Purchases and contracts with companies owned or controlled
         by associates are allowed as long as the transaction fully complies
         with the conflict of


Page 2 of 8



                       LODGIAN'S POLICY ON BUSINESS ETHICS


         interest provisions of this policy, receive the prior approval of
         senior management and are entered into upon the same terms and
         conditions available to any other supplier. These purchases must also
         meet all of the specified standards of quality, suitability, service,
         price, and efficiency.

11.      ASSOCIATE EXPENSES -- All associates must comply with the applicable
         Internal Revenue Code (IRC) standards and requirements when reporting
         their authorized travel, entertainment, business and relocation
         expenses. The travel, relocation and other applicable policies are
         designed to ensure compliance with the IRC standards. Associates are
         required to conform to policies when incurring and reporting business
         expenses. Any questions or issues not specifically covered by the
         policies should be referred to the Chief Financial Officer or his/her
         designee prior to the expense(s) being incurred.

12.      GIFTS TO ASSOCIATES -- Gifts to associates from Lodgian are prohibited,
         except as part of a Human Resources-approved associate incentive
         program. The term "gift" may include such items as incentives, money,
         clothing, consumables, entertainment, and merchandise. Senior
         management reserves the exclusive right to grant exceptions to this
         policy if it can be shown that a deviation is both warranted and in the
         best interests of Lodgian. Personal gifts from managers to their
         associates are allowed for special occasions as long as they convey no
         message other than appreciation for work effort and are not paid for
         using Lodgian's funds.

13.      GIFTS TO OUTSIDE PARTIES

         A.       Personal Gift-Giving: Associates are generally not restricted
                  from giving personal gifts to outside parties. A "personal
                  gift" is a gift item that does not belong to Lodgian nor was
                  purchased using company funds. Personal gift-giving is
                  discouraged in those situations where Lodgian has actual or
                  potential business dealings with an individual or
                  organization.

         B.       Company Gift-Giving: Gifts given by Lodgian to an individual
                  using corporate funds or assets must comply with Internal
                  Revenue Policy on gift-giving and must be approved in writing
                  by senior management prior to the conveyance. Any gift that
                  exceeds $500 in value must have the advance written approval
                  of the Chief Executive Officer or the Senior Vice President --
                  General Counsel. Associates should not use their personal
                  funds to circumvent these standards. The Internal Revenue Code
                  policies on gift giving may be obtained from the Senior Vice
                  President -- General Counsel.

         C.       Political Gift-Giving: The giving of gifts by Lodgian either
                  directly or indirectly, including the offering or promising of
                  value to a public official (either domestic or foreign) with
                  intent to influence the public official, or as a result of an
                  official act performed, or to be performed, by the public
                  official is prohibited.

14.      COMMUNICATIONS WITH MANAGEMENT -- Lodgian is committed to keeping the
         lines of communication between associates and management open.
         Significant or sensitive issues (operational, financial, personnel or
         other) facing Lodgian or its associates should be promptly communicated
         to management.

15.      CONTACT AND COMMUNICATION WITH THE MEDIA -- Lodgian will respond in a
         timely, accurate, and appropriate manner to all legitimate requests for
         information from the


Page 3 of 8



                       LODGIAN'S POLICY ON BUSINESS ETHICS


         media or any other external organization, association, or individual.
         All such requests should be referred to the Chief Operating Officer or
         Chief Executive Officer. Any public announcements to the media or other
         external groups will be made only by designated personnel. Associates
         should be familiar with the Company's crisis policy in the event of an
         emergency.

16.      ADVERTISING AND PROMOTIONS -- Lodgian will not engage in any unfair
         competition or deceptive advertising practices. All claims of fact made
         in advertising should be substantiated by supporting data before they
         are made.

17.      POLITICAL ACTIVITIES

         A.       Domestic: While Lodgian has a significant interest in many
                  governmental issues on a local, state and national level,
                  there are laws that dictate the degree of involvement of the
                  Company and its associates in political activities. Any
                  proposed payments or transactions on behalf of or in the name
                  of Lodgian to any government officials or candidates for
                  public office or for public referendums must be reviewed and
                  approved in writing by the Chief Executive Officer.

         B.       International: Lodgian may make political contributions to
                  candidates and committees in certain foreign countries. Prior
                  to such contributions being made, however, approval of the
                  Senior Vice President -- General Counsel is required.

18.      DISCLOSURE OF CONFIDENTIAL INFORMATION -- As a publicly-owned company,
         Lodgian is subject to strict securities laws regarding the
         dissemination of information about the company to the public. In
         addition, the company's ability to compete depends upon confidential
         information. In addition, release of confidential information without
         authorization could violate a person's right to privacy, cause Lodgian
         to suffer financial loss, or create a potentially embarrassing
         situation. In conversations (business and personal) associates should
         limit disclosures to information which has been publicly released by
         the company and should not disclose to unauthorized persons or entities
         any confidential business information regarding operations, finances,
         guests, or associates. Moreover, Lodgian associates may not make use of
         such information to further personal interests. Unauthorized persons
         and entities could include other associates and non-associates, as well
         as other companies and organizations not specifically authorized to
         receive such information. Only authorized Company personnel (as
         designated by senior management) should release information to the
         public. If there is any question as to whether information should be
         released, consult the Senior Vice President -- General Counsel.

19.      RELATIONS WITH OUTSIDE PARTIES -- Associates may personally accept
         business-related gifts, provided that they are customarily associated
         with ethical business practice and do not place the associate or
         Lodgian under any obligation to the donor. As used in this section,
         business-related gifts are anything of value and include, but are not
         limited to, normal services, cash, merchandise, travel, and
         entertainment. Business-related gifts valued in excess of $500 are
         discouraged, but if received, they must be reported in writing to the
         Senior Vice President -- General Counsel within ten days of receipt.
         If, in the sole discretion of the Senior Vice President -- General
         Counsel, a business gift creates or appears to create a conflict of
         interest, or to any degree impairs the objective business judgment of
         an associate, then the Senior Vice President -- General Counsel
         reserves the sole and exclusive right in the case of a tangible gift to
         claim the gift and the gift shall become the property of Lodgian.



Page 4 of 8



                       LODGIAN'S POLICY ON BUSINESS ETHICS


20.      ASSOCIATE RELATIONS -- We are committed to a policy of equal
         opportunity and will not tolerate discrimination on the basis of race,
         color, national origin, age, veteran status, disability, gender,
         religion, or any other characteristic protected by law. We will comply
         with all applicable federal, state, and local laws and regulations
         regarding employment practices. We will provide a safe and healthy work
         place for our associates and they will be compensated in a fair and
         equitable manner.

         Lodgian will provide a safe and healthy work place for its associates
         and will compensate its associates fairly and equitably.

         We encourage our associates to work diligently and to deal with our
         guests and suppliers with integrity.

         Each associate should treat other associates in a humane manner without
         regard to race, color, national origin, age, veteran status,
         disability, gender, religion, or any other forms of discrimination.

         Lodgian will provide a work environment that is free of discrimination
         and harassment. Any associate who violates Lodgian's policies will be
         subject to discipline, up to and including termination.

21.      GUEST RELATIONS -- Lodgian will succeed only if we serve our guests
         well. Our guests deserve to be treated courteously without
         discrimination or bias. Our guests have the right to adequate
         information about the prices of the rooms and services we offer to
         enable them to assess the value they are receiving. They deserve
         accurate and unambiguous advertising.

22.      SHAREHOLDER RELATIONS -- Lodgian is owned by shareholders who have
         invested in the Company's stock. We are accountable to them. We are
         obligated to keep them informed concerning matters affecting the
         company. They deserve good corporate governance. A key aspect of our
         corporate governance structure is having our board of directors
         comprised primarily of independent directors who as a result of their
         experience, knowledge and skill can adequately represent the interests
         of shareholders and guide management.

23.      CONFLICTS OF INTEREST -- The term "conflict of interest" refers to any
         circumstance which would cast doubt on an associate's ability to act
         objectively when representing the Company's interest. Associates should
         not use their position or association with Lodgian for their own or
         their family's personal gain and should avoid situations in which their
         personal interests (or those of their family) conflict or overlap, or
         appear to conflict or overlap, with Lodgian's best interests.

         Significant ownership in a firm with which Lodgian does business could
         give rise to a conflict of interest. Where possible, the prior approval
         of Senior Management should be obtained. Moreover, an associate or
         relative may not receive any kickback, bribe, substantial gift, or
         special consideration as a result of any transaction or business
         dealings involving Lodgian.

         Business dealings with outside firms should not result in unusual gains
         for those firms. Unusual gain refers to bribes, special fringe
         benefits, unusual price breaks, and other windfalls designed to
         ultimately benefit either the Company, the associate, or both.



Page 5 of 8



                       LODGIAN'S POLICY ON BUSINESS ETHICS


         Some examples of situations which could give rise to a conflict of
         interest are given below. These examples do not limit the general scope
         of this policy.

- -        Concurrent employment by Lodgian and any other business if such
         employment encroaches materially on time or attention which should be
         devoted to the Company's affairs.

- -        Concurrent employment by Lodgian and any other business that is a
         present or potential competitor, customer, supplier of goods or
         services, or contractor of Lodgian or receipt of compensation from any
         such business.

- -        Holding of a financial interest in any present or potential competitor,
         customer, supplier, or contractor unless the business or enterprise in
         which the associate holds a financial interest is publicly owned and
         the financial interest constitutes less than 10 percent of the equity
         securities of that business or enterprise.

- -        Acceptance of a membership on the Board of Directors or serving as a
         consultant or advisor to any board of any management of a business
         which is a present or potential competitor, customer, supplier, or
         contractor unless approved in writing by the Chief Executive Officer.

- -        Engaging in any transaction involving Lodgian from which the associate
         can benefit, financially or otherwise, apart from regular compensation
         received in the usual course of business. This prohibition is intended
         to include lending or borrowing of money, guaranteeing debts, or
         accepting gifts, entertainment, or favors from a present or potential
         competitor, customer, supplier, or contractor.

- -        Use or disclosure to a third party of any unpublished information
         obtained by an associate in connection with their employment for
         personal benefit.

- -        Commission of any act which is considered illegal under the laws of the
         United States when dealing on behalf of Lodgian.

- -        Each potential conflict of interest will be considered individually,
         and the final decision as to the existence of a conflict will be made
         by the Chief Executive Officer.

24.      OWNERSHIP OF COMPUTER RESOURCES AND SOFTWARE -- Computer programs and
         routines that are developed by associates as part of their job
         responsibilities are the property of Lodgian. Lodgian retains all
         rights to such software. Sharing of external files or downloading of
         trademarked information from the internet is prohibited.

         Much of the software utilized at Lodgian is licensed by the vendor for
         use according to specific software licensing agreements. It is
         Lodgian's intention to comply with all requirements of software
         licensing agreements. Unauthorized use, modification, or copying of
         licensed software documentation by associates is prohibited. Software
         that has been illegally copied or altered is not to be used on any
         Lodgian computer equipment.

25.      REPORTING VIOLATIONS OF LODGIAN'S POLICY ON BUSINESS ETHICS -- If
         associates feel that they or another individual has violated this
         policy, the action must be reported immediately to the Senior Vice
         President -- General Counsel. The Senior Vice President -- General
         Counsel will review the issue and either take action directly or
         forward it to the



Page 6 of 8



                       LODGIAN'S POLICY ON BUSINESS ETHICS


         appropriate party for investigation and ultimate resolution. All
         inquiries will be appropriately investigated with due regard for the
         concerns of all involved, and will be kept as confidential as possible
         given the nature of the situation. The results of significant
         investigations will be communicated to the Chief Executive Officer. The
         Company's whistle-blower policy is available on its website.

         It is Lodgian's intent to protect innocent parties in their reporting
         of violations. Associates who, in good faith, report a suspected
         violation will not be subjected to retaliation as a result of their
         actions. In situations in which the reporting party is personally
         involved in the violation, Lodgian will consider whether some measure
         of leniency in disciplinary actions is appropriate, based on the
         severity of the violation and the level of cooperation provided by the
         associate.

26.      COMPLIANCE AUDITS -- While all associates are expected to abide by the
         provisions of this Policy on Business Ethics, there will be periodic
         reviews made by our auditors and others, when appropriate, to ensure
         that compliance is achieved in all operations.

27.      ACTIONS FOR NON-COMPLIANCE -- All issues of non-compliance with this
         policy will be reviewed and evaluated according to the circumstances
         and severity of the problem. Senior management will take actions as it
         deems appropriate, which can include disciplinary action up to and
         including termination, legal action, and other measures.

28.      SETTING THE TONE AT THE TOP -- The Executive Officers including, but
         not limited to, Chief Executive Officer, Chief Operating Officer, Chief
         Financial Officer and Chief Accounting Officer, as leaders within
         Lodgian, are charged with the additional responsibility to set the tone
         for ethical conduct throughout the Company by complying with the
         following:

         1.       Creating an environment within the Company in which compliance
                  with this Policy on Business Ethics is treated as a serious
                  obligation and policy breaches will be not tolerated.

         2.       Adhering to and promoting the best of corporate governance
                  practices in exercising oversight of the Company. This
                  includes recommending updates to this policy to reflect
                  evolving standards for ethical business operations and the
                  behaviors of associates.

         3.       Educating associates about applicable rules and regulations
                  and monitoring compliance with these requirements.

         4.       Establishing procedures for associates to report possible
                  wrongdoing to senior management.

         5.       Reporting irregularities, deficiencies in the Company's
                  internal controls, and violations to the Audit Committee and
                  the Board of Directors.

29.      FOLLOW-UP -- The Lodgian policy on business ethics must be disseminated
         throughout the company. Managers should encourage associates to discuss
         with them any questions regarding compliance with this policy.
         Associates are encouraged to be candid with management if they believe
         there are violations of this policy, regardless of how insignificant it
         may be.



Page 7 of 8



                       LODGIAN'S POLICY ON BUSINESS ETHICS


         Managers must review this policy with their associates once per year
         and investigate any indications of unethical conduct with assistance
         from the Senior Vice President -- General Counsel.

         Officers, presidents, vice presidents and persons responsible for
         purchasing goods must provide a written statement each year
         acknowledging their understanding of the code of ethics as it relates
         to them and confirming that they have complied with this policy in the
         conduct of Lodgian's business or indicating the extent to which they
         have not complied with the policy.

         All associates are expected to comply with this policy.































Page 8 of 8

EX-21

                                                                               .
                                                                               .
                                                                               .

                                                                      EXHIBIT 21

SUBSIDIARIES OF LODGIAN, INC.



                   ENTITY                      STATE OF INCORPORATION
                   ------                      ----------------------
                                            
1075 Hospitality, LP                                     GA
12801 NWF Beverage Management, Inc.                      TX
Albany Hotel, Inc.                                       FL
AMI Operating Partners, L.P.                             DE
AMIOP Acquisition General Partner SPE Corp.              DE
Apico Hills. Inc.                                        PA
Apico Inns of Greentree, Inc.                            PA
Apico Inns of Pennsylvania, Inc.                         PA
Apico Inns of Pittsburgh, Inc.                           PA
Apico Management Corp.                                   PA
Atlanta-Boston Holdings, LLC                             GA
Atlanta-Boston Lodging, LLC                              GA
Atlanta-Boston SPE, Inc.                                 GA
Brunswick Motel Enterprises, Inc.                        GA
Courtyard Club                                           AR
Dedham Lodging Assocates I, LP                           GA
Dedham Lodging SPE, Inc.                                 DE
Dothan Hospitality 3053, Inc.                            AL
Dothan Hospitality 3071, Inc.                            AL
East Washington Hospitality, LP                          FL
Fayetteville Motel Enterprises, Inc.                     NC
Fort Wayne Hospitality Associates II, LP                 FL
Fourth Street Hospitality, Inc.                          IA
Gadsden Hospitality, Inc.                                AL
Harrisburg Motel Enterprises, Inc.                       PA
Hilton Head Motel Enterprises, Inc.                      SC
Impac Holdings III, LLC                                  GA
Impac Hotel Group, LLC                                   GA
Impac Hotels I, LLC                                      GA
Impac Hotels III, LLC                                    GA
Impac Hotels Member SPE, Inc.                            DE
Impac Spe #2, Inc.                                       GA






                   ENTITY                      STATE OF INCORPORATION
                   ------                      ----------------------
                                            
Impac SPE #4, Inc.                                       GA
Island Motel Enterprises, Inc.                           GA
KDS Corporation                                          NV
Kinser Motel Enterprises, Inc.                           IN
Lawrence Hospitality Associates, LP                      KS
Little Rock Beverage Management, Inc.                    AR
Little Rock Lodging Associates I, LP                     GA
Lodgian Abeline Beverage Corp.                           TX
Lodgian Abilene, L.P.                                    TX
Lodgian Abilene GP, Inc.                                 DE
Lodgian Acquisition, LLC                                 GA
Lodgian AMI, Inc.                                        MD
Lodgian Augusta LLC                                      DE
Lodgian Bridgeport LLC                                   DE
Lodgian Cincinnati LLC                                   DE
Lodgian Coconut Grove LLC                                DE
Lodgian Colchester LLC                                   DE
Lodgian Dallas Beverage Corp.                            TX
Lodgian Denver LLC                                       DE
Lodgian Fairmont LLC                                     DE
Lodgian Financing Corp.                                  DE
Lodgian Financing Mezzanine, LLC                         DE
Lodgian Florida, Inc.                                    FL
Lodgian Fort Mitchell LLC                                DE
Lodgian Hamburg LLC                                      DE
Lodgian Hotel Acquisition, LLC                           GA
Lodgian Hotels, Inc.                                     DE
Lodgian Hotels Fixed I, LLC                              DE
Lodgian Hotels Fixed II, Inc.                            MD
Lodgian Hotels Fixed III, LLC                            DE
Lodgian Hotels Fixed IV, LP                              TX
Lodgian Hotels Fixed IV GP, Inc.                         DE
Lodgian Hotels Floating, LLC                             DE
Lodgian Jackson LLC                                      DE
Lodgian Lafayette LLC                                    DE
Lodgian Lancaster North, Inc.                            PA
Lodgian Little Rock SPE, Inc.                            DE






                   ENTITY                      STATE OF INCORPORATION
                   ------                      ----------------------
                                            
Lodgian Management Corp.                                 DE
Lodgian Memphis LLC                                      DE
Lodgian Memphis Property Owner, LLC                      DE
Lodgian Merrimack LLC                                    DE
Lodgian Mezzanine Fixed, LLC                             DE
Lodgian Mezzanine Floating, LLC                          DE
Lodgian Mezzanine Springing Member, Inc.                 DE
Lodgian Morgantown LLC                                   DE
Lodgian Mortgage Springing Member, Inc.                  DE
Lodgian Mount Laurel, Inc.                               NJ
Lodgian North Miami LLC                                  DE
Lodgian Ontario, Inc.                                    CA
Lodgian Pinehurst, LLC                                   GA
Lodgian Pinehurst Holdings, LLC                          GA
Lodgian Syracuse LLC                                     DE
Lodgian Tulsa LLC                                        DE
Lodgian York Market Street, Inc.                         PA
Macon Hotel Associates LLC                               MA
Macon Hotel Associates Manager, Inc.                     GA
Manhattan Hospitality Associates, LP                     KS
McKnight Motel, Inc.                                     PA
Melbourne Hospitality Associates, LP                     FL
Minneapolis Motel Enterprises, Inc.                      MN
Moon Airport Motel, Inc.                                 PA
New Orleans Airport Motel Associates, LP                 FL
New Orleans Airport Motel Enterprises, Inc.              LA
NH Motel Enterprises, Inc.                               MI
Penmoco, Inc.                                            MI
Raleigh Downtown Enterprises, Inc.                       NC
Royce Management Corp of Morristown                      NJ
Saginaw Hospitality, LP                                  MI
Second Fayetteville Motel Enterprises, Inc.              NC
Servico Austin, Inc.                                     TX
Servico Cedar Rapids, Inc.                               IA
Servico Centre Associates, Ltd.                          FL
Servico Colesville, Inc.                                 MD
Servico Columbia II, Inc.                                MD
Servico Columbia, Inc.                                   MD
Servico Columbus, Inc.                                   FL






                   ENTITY                      STATE OF INCORPORATION
                   ------                      ----------------------
                                            
Servico Council Bluffs, Inc.                             IA
Servico East Washington, Inc.                            FL
Servico Flagstaff, Inc.                                  AZ
Servico Fort Wayne II, Inc.                              FL
Servico Fort Wayne, Inc.                                 FL
Servico Frisco, Inc.                                     CO
Servico Grand Island, Inc.                               NY
Servico Hilton Head, Inc.                                SC
Servico Hotels I, Inc.                                   FL
Servico Hotels II, Inc.                                  FL
Servico Hotels III, Inc.                                 FL
Servico Hotels IV, Inc.                                  FL
Servico Houston, Inc.                                    TX
Servico Jamestown, Inc.                                  NY
Servico Lansing, Inc.                                    MI
Servico Lawrence II, Inc.                                KS
Servico Lawrence, Inc.                                   KS
Servico Management Corporation                           FL
Servico Management Corporation                           TX
Servico Manhattan II, Inc.                               KS
Servico Manhattan, Inc.                                  KS
Servico Market Center, Inc.                              TX
Servico Maryland, Inc.                                   MD
Servico Melbourne, Inc.                                  FL
Servico Metairie, Inc.                                   LA
Servico New York, Inc.                                   NY
Servico Niagara Falls, Inc.                              NY
Servico Northwoods, Inc.                                 FL
Servico Operations Corporation                           FL
Servico Operations Mezzanine, LLC                        DE
Servico Palm Beach General Partner SPE, Inc.             DE
Servico Pensacola 7200, Inc.                             DE
Servico Pensacola 7330, Inc.                             DE
Servico Pensacola, Inc.                                  DE
Servico Rolling Meadows, Inc.                            IL
Servico Tucson, Inc.                                     AZ
Servico Windsor, Inc.                                    FL
Servico Winter Haven, Inc.                               FL






                   ENTITY                      STATE OF INCORPORATION
                   ------                      ----------------------
                                            
Servico Worcester, Inc.                                  FL
Servico, Inc.                                            FL
Sharon Motel Enterprises, Inc.                           PA
Sheffield Motel Enterprises, Inc.                        AL
Sixteen Hotels, Inc.                                     MD
South Carolina Interstate Motel Enterprises              SC
Southfield Hotel Group II, LP                            MI
Washington Motel Enterprises, Inc.                       PA
Wilpen, Inc.                                             PA
Worcester Hospitality Associates, LP                     FL

EX-31.1

                                                                    Exhibit 31.1

              FORM OF SARBANES-OXLEY SECTION 302 (a) CERTIFICATION

I, Edward J. Rohling, certify that:

     1)  I have reviewed this annual report on Form 10-K of Lodgian, Inc (the
         "Registrant");

     2)  Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this annual report;

     3)  Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the Registrant as of, and for, the periods presented in
         this annual report;

     4)  The Registrant's other certifying officer and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a - 15(e) and 15d - 15(e)) and internal
         control over financial reporting (as defined in Exchange Act rules
         13a-15(f) and 15d-15(f)) for the Registrant and have:

              a)  Designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, to ensure that material information relating
                  to the Registrant, including its consolidated subsidiaries, is
                  made known to us by others within those entities, particularly
                  during the period in which this annual report is being
                  prepared;
              b)  Designed such internal control over financial reporting, or
                  caused such internal control over financial reporting to be
                  designed under our supervision, to provide reasonable
                  assurance regarding the reliability of financial reporting and
                  the preparation of financial statements for external purposes
                  in accordance with generally accepted accounting principles;
              c)  Evaluated the effectiveness of the Registrant's disclosure
                  controls and procedures and presented in this annual report
                  our conclusions about the effectiveness of the disclosure
                  controls and procedures, as of the end of the period covered
                  by this report based on such evaluation; and
              d)  Disclosed in this report any change in the Registrant's
                  internal control over financial reporting that occurred during
                  the Registrant's fourth fiscal quarter that has materially
                  affected, or is reasonably likely to materially affect, the
                  Registrant's internal control over financial reporting; and

     5)  The Registrant's other certifying officer and I have disclosed, based
         on our most recent evaluation of internal control over financial
         reporting, to the Registrant's auditors and the audit committee of the
         Registrant's board of directors:

              a)  All significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  Registrant's ability to record, process, summarize and report
                  financial information; and
              b)  Any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  Registrant's internal control over financial reporting.

Date:  March 15, 2006               By: /s/ EDWARD J. ROHLING
                                        ------------------------------------
                                                EDWARD J. ROHLING
                                        President and Chief Executive Officer

EX-31.2

                                                                    Exhibit 31.2

              FORM OF SARBANES-OXLEY SECTION 302 (a) CERTIFICATION

I, Linda Borchert Philp, certify that:

     1)  I have reviewed this annual report on Form 10-K of Lodgian, Inc (the
         "Registrant");

     2)  Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this annual report;

     3)  Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the Registrant as of, and for, the periods presented in
         this annual report;

     4)  The Registrant's other certifying officer and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a - 15(e) and 15d - 15(e)) and internal
         control over financial reporting (as defined in Exchange Act rules
         13a-15(f) and 15d-15(f)) for the Registrant and have:

              a)  Designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, to ensure that material information relating
                  to the Registrant, including its consolidated subsidiaries, is
                  made known to us by others within those entities, particularly
                  during the period in which this annual report is being
                  prepared;
              b)  Designed such internal control over financial reporting, or
                  caused such internal control over financial reporting to be
                  designed under our supervision, to provide reasonable
                  assurance regarding the reliability of financial reporting and
                  the preparation of financial statements for external purposes
                  in accordance with generally accepted accounting principles;
              c)  Evaluated the effectiveness of the Registrant's disclosure
                  controls and procedures and presented in this annual report
                  our conclusions about the effectiveness of the disclosure
                  controls and procedures, as of the end of the period covered
                  by this report based on such evaluation; and
              d)  Disclosed in this report any change in the Registrant's
                  internal control over financial reporting that occurred during
                  the Registrant's fourth fiscal quarter that has materially
                  affected, or is reasonably likely to materially affect, the
                  Registrant's internal control over financial reporting; and

     5)  The Registrant's other certifying officer and I have disclosed, based
         on our most recent evaluation of internal control over financial
         reporting, to the Registrant's auditors and the audit committee of the
         Registrant's board of directors:

              a)  All significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  Registrant's ability to record, process, summarize and report
                  financial information; and
              b)  Any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  Registrant's internal control over financial reporting.



Date:   March 15, 2006   By: /s/ LINDA BORCHERT PHILP
                            ----------------------------------------------------
                                           LINDA BORCHERT PHILP
                            Executive Vice President and Chief Financial Officer

EX-32

                                                                      Exhibit 32


                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


         In connection with the Annual Report of Lodgian, Inc., (the "Company")
on Form 10-K for the year ended December 31, 2005 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), we, Edward J.
Rohling, the Chief Executive Officer and Linda Borchert Philp, the Chief
Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of
our knowledge and after reasonable inquiry:

     1.  The Report fully complies with the requirements of section 13(a) or
         15(d) of the Securities Exchange Act of 1934; and
     2.  The information contained in the Report fairly presents, in all
         material respects, the financial condition and results of operations of
         the Company.





                                            LODGIAN, INC.

                            By:  /s/ EDWARD J. ROHLING
                                 ----------------------------------
                                            EDWARD J. ROHLING
                                 President and Chief Executive Officer

                       By: /s/ LINDA BORCHERT PHILP
                           ----------------------------------------------------
                                           LINDA BORCHERT PHILP
                           Executive Vice President and Chief Financial Officer





Date: March 15, 2006

A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to Lodgian, Inc. and will be retained
by Lodgian, Inc. and furnished to the Securities and Exchange Commission or its
staff upon request.