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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Period ended March 31, 2003

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.

Registrant’s telephone number, including area code (404) 364-9400

(Former name, former address and former fiscal year, if changed since last report): Not applicable

     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   x    No   o

     Indicate by check mark whether the registrant is an accelerated filer as defined by section 12-b – 2 of the Act.     Yes   o    No   x

     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   x    No   o

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

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LODGIAN, INC. AND SUBSIDIARIES
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LODGIAN, INC. AND SUBSIDIARIES

See notes to condensed consolidated financial statements.

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LODGIAN, INC. AND SUBSIDIARIES

Upon emergence from Chapter 11, the Company adopted fresh start reporting. As a result, all assets and liabilities were restated to reflect their fair values. The consolidated financial statements of the new reporting entity (the “Successor”) are not comparable to the reporting entity prior to the Company’s emergence from Chapter 11 (the “Predecessor”).

See notes to condensed consolidated financial statements.

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LODGIAN, INC. AND SUBSIDIARIES

The comprehensive loss for the three months ended March 31, 2002 was $14.5 million.

See notes to condensed consolidated financial statements.

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LODGIAN, INC. AND SUBSIDIARIES

Upon emergence from Chapter 11, the Company adopted fresh start reporting. As a result, all assets and liabilities were restated to reflect their fair values. The consolidated financial statements of the new reporting entity (the “Successor”) are not comparable to the reporting entity prior to the Company’s emergence from Chapter 11 (the “Predecessor”).

See notes to condensed consolidated financial statements.

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LODGIAN, INC. AND SUBSIDIARIES

1. General

     The condensed consolidated financial statements include the accounts of Lodgian, Inc., its wholly-owned subsidiaries and four joint ventures in which Lodgian owns at least a 50% interest and exercises control (collectively “Lodgian” or the “Company”). Lodgian believes it has control of the joint ventures when the Company manages and has control of the joint ventures’ assets and operations. One unconsolidated entity (the “Unconsolidated Entity”) which owns one hotel is accounted for using the equity method of accounting. All significant intercompany accounts and transactions have been eliminated in consolidation.

     The accounting policies followed for quarterly financial reporting are the same as those disclosed in Note 1 of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K (“Form 10-K”) for the year ended December 31, 2002.

     As previously indicated in the Company’s Form 10-K for the year ended December 31, 2002, the Company and substantially all of its subsidiaries which owned hotel properties filed for voluntary reorganization under Chapter 11 of the Bankruptcy Code on December 20, 2001 in the Southern District of New York. The Bankruptcy Court confirmed the Company’s First Amended Joint Plan of Reorganization (the “Joint Plan of Reorganization”) on November 5, 2002, and on November 25, 2002, the Company and entities owning 78 hotels officially emerged from Chapter 11. Pursuant to the terms of the Joint Plan of Reorganization, eight other wholly-owned hotels were returned to the lender in early January 2003 in satisfaction of outstanding debt obligations and one hotel (also wholly-owned) was returned to the lessor of a capital lease.

     Of the Company’s 97 hotel portfolio, 18 hotels (the “Impac Hotels”) are owned by two subsidiaries (the “Impac Debtors”) which were not part of the Joint Plan of Reorganization and remain in Chapter 11. The Impac Hotels represent approximately 19% of the Company’s total hotel properties and 14% of the Company’s total hotel rooms as of May 12, 2003. The Impac Hotels contributed approximately 12% and 13% of the Successor revenues for the three months ended March 31, 2003 and the Predecessor revenues for the three months ended March 31, 2002, respectively. All of the Impac Hotels received financing prior to the bankruptcy filing from one lender which has a secured claim of $109.0 million against the Impac Debtors secured by the Impac Hotels. The Company and the Impac Debtors reached an agreement on October 21, 2002 (approved by the Bankruptcy Court on October 31, 2002) with such lender which provides for a release of the hotel collateral in exchange for the payment by the Impac Debtors of an agreed amount (the “Impac Settlement Amount”) by a date no later than May 31, 2003. If the agreed amount is not paid by May 31, 2003, the Impac Hotels will, consensually, be returned to the lender or disposed of at the secured lender’s direction. On April 24, 2003, the plan of reorganization for the Impac Debtors (the “Impac Plan of Reorganization”) was confirmed by the Bankruptcy Court pursuant to the terms of which the Company and the Impac Debtors, through 18 newly-formed subsidiaries, will obtain financing from Lehman Brothers Holdings Inc. (the “Lehman Financing”), which is to be used to pay the Impac Settlement Amount. Although there can be no assurance, the Company is hopeful that the Lehman Financing will be successfully completed on or before May 31, 2003 and, accordingly, that the Company will be able to retain the Impac Hotels.

     The effects of the Joint Plan of Reorganization were recorded in accordance with the American Institute of Certified Public Accountant’s Statement of Position (“SOP”) 90-7, “Financial Reporting by Entities in Reorganization under the Bankruptcy Code,” effective November 22, 2002. SOP 90-7 required the application of Fresh Start Accounting. As a result, the Consolidated Financial Statements subsequent to the Company’s emergence from Chapter 11 are those of a new reporting entity (the “Successor”) and are not comparable with the financial statements of the Company prior to the effective date of the Joint Plan of Reorganization (the “Predecessor”).

     In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting primarily of normal recurring adjustments, necessary to present fairly the financial position of the Company as of March 31, 2003, the results of its operations for the three months ended March 31, 2003 (Successor) and 2002 (Predecessor) and its cash flows for the three months ended March 31, 2003 (Successor) and 2002 (Predecessor). The results for interim periods are not

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necessarily indicative of the results for the entire year. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Form 10-K for the year ended December 31, 2002.

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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.

2. Discontinued operations

     Pursuant to the terms of the Joint Plan of Reorganization, eight wholly-owned hotels were returned to the lender in early January 2003 in satisfaction of outstanding debt obligations and one hotel (also wholly-owned) was returned to the lessor of a capital lease.

     In accordance with Statement of Financial Standards (“SFAS”) No. 144, the results of operations of these hotels are reported separately as Discontinued Operations for the three months ended March 31, 2003 and 2002. There was no gain or loss on this transaction.

     The following condensed table summarizes the assets and liabilities of these hotels at December 31, 2002:

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     The results of operations of these hotels at March 31, 2003 and 2002 were as follows:

3. Liabilities subject to compromise

     Liabilities subject to compromise refers to known liabilities incurred prior to the commencement of the Chapter 11 cases, including those considered by the Bankruptcy Court to be pre-petition claims. These liabilities consist primarily of amounts outstanding under long-term debt and also include accounts payable. These amounts represent the Company’s estimate of known or potential claims to be resolved in the Chapter 11 cases. Such claims remain subject to future adjustments. Adjustments may result from (1) negotiations; (2) actions of the Bankruptcy Court; (3) further development with respect to disputed claims; (4) proofs of claim; or (5) other events.

     The principal categories of claims classified as liabilities subject to compromise in the Chapter 11 Cases as of March 31, 2003 and December 31, 2002, are identified below (amounts in thousands):

     4.     Cash, restricted

     Restricted cash as of March 31, 2003 consists of amounts reserved for letter of credit collateral, debt service, taxes, insurance and other lender-restricted cash balances.

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5. Property and equipment, net

     As previously disclosed, pursuant to the terms of the Joint Plan of Reorganization, eight wholly-owned hotels were returned to the lender in early January 2003 in satisfaction of outstanding debt obligations and one hotel (also wholly-owned) was returned to the lessor of a capital lease. As a result, property and equipment with a carrying value of $15.6 million were surrendered. The results of operations for the surrendered hotels are presented in these Condensed Consolidated Statement of Operations as Discontinued Operations.

6. Earnings per share

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

     The computation of diluted earnings per share for the Successor period ended March 31, 2003, as calculated above, did not include shares associated with the assumed conversion of the A and B warrants because their inclusion would have been antidilutive. The computation of diluted earnings per share for the Predecessor period ended March 31, 2002, as calculated above, did not include shares associated with the assumed conversion of the CRESTS (8,169,935 shares) or stock options because their inclusion would have been antidilutive.

7. Other accrued liabilities

     At March 31, 2003 and December 31, 2002, other accrued liabilities consisted of the following:

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8. Long-term debt

     On November 25, 2002, the effective date of the Joint Plan of Reorganization, loans approximating $83.5 million, secured by 20 hotel properties, were substantially reinstated on their original terms, except for the extension of certain maturities. The terms of one loan, in the amount of $2.5 million and secured by one hotel, were amended to provide for a new interest rate as well as a new maturity date.

     In addition, the Company received exit financing of $309 million with and through Merrill Lynch Mortgage Lending, Inc. (“Merrill”), secured by 57 hotel properties. The exit financing was initially comprised of three separate components as follows:

	•		Senior debt of $224.0 million accruing interest at the rate of LIBOR plus 2.2442%, secured by, among other things, first mortgage liens on the fee simple and leasehold interests in 55 of the Company’s hotels;
	•		Mezzanine debt of $78.7 million accruing interest at the rate of LIBOR plus 9.00% secured by the equity interest in the subsidiaries of 56 hotels (the 55 which secure the Senior Debt and one additional hotel); and
	•		Canadian debt provided through Computershare Trust Company of Canada, a Canadian lender, of $10.0 million Canadian dollars (equated to approximately $6.3 million U.S. dollars at inception) maturing in December 2007 accruing interest at the rate of 7.879% (secured by a mortgage on the Windsor property).

     In March 2003, as permitted by the terms of the Senior and Mezzanine debt agreements, Merrill exercised the right to “resize” the Senior and Mezzanine debt amounts, prior to the securitization of the mortgage loan. As a result, the principal amount of the Mortgage Loan was decreased from $223.5 million (initially $224.0 less $0.5 million of principal payments) to $218.1 million, and the initial principal amount of the Mezzanine Loan was increased from $78.7 million to $84.1 million. In connection with the resizing, the interest rates on the Senior and Mezzanine debts were also modified to LIBOR plus 2.36% and LIBOR plus 8.2546%, respectively.

     The Senior and Mezzanine debts mature in November 2004. There are, however, three one-year options to renew which could extend the facility for an additional three years. The first option to extend the maturity date of the Senior and Mezzanine debts by one year (i.e. to November 2005) is available only if no events of default occur in respect of the payments of principal, interest and other required payments. The second and third extension terms are available only if no events of default (as defined by the agreement) exist and are subject to minimum Debt Service Coverage Ratio and Debt Yield requirements. Payments of principal and interest on all three portions of the facility are due monthly; however, the principal payments on the Senior and Mezzanine debts may be deferred during the first twelve months of the agreement.

     The Senior and Mezzanine debt agreements provide that when either the Debt Yield (as defined) for the trailing 12-month period is below 12.75% during the first year of the loan ending November 2003

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(13.25% during the second year) or the Debt Service Coverage Ratio (as defined) is below 1.20, excess cash flows (after payment of operating expenses, management fees, required reserves, principal and interest) produced by the 56 properties must be deposited in a special deposit account. These funds cannot be transferred to the parent company, but can be used for capital expenditures on these properties with lender’s approval, or for principal and interest payments. Funds placed into the special deposit account are released to the borrowers when the Debt Yield and the Debt Service Coverage Ratio are sustained above the minimum requirements for three consecutive months. As of March 31, 2003, the Debt Yield for the 56 properties was below the 12.75% threshold and, therefore, any excess cash produced by the 56 properties will be retained in the special deposit account until the Debt Yield increases above the minimum.

     The Company through its wholly owned subsidiaries owes approximately $11.4 million under Industrial Revenue Bonds (“IRB’s”) issued on the Holiday Inn Lawrence, Kansas and Holiday Inn Manhattan, Kansas properties. The IRB’s require a minimum debt service coverage ratio (“DSCR”) (as defined). For the year ended December 31, 2002, the cash flows of the two properties were insufficient to meet the minimum DSCR requirements due in part to renovations that were being performed at the properties during 2002. The trustee of the IRB’s may give notice of default, at which time the Company could remedy the default by depositing with the trustee an amount currently estimated at less than $1 million. In the event a default is declared and not cured, the properties could be subject to foreclosure and the Company would be obligated pursuant to a partial guaranty in an amount not to exceed $1.4 million.

     Substantially all of the Company’s property and equipment are pledged as collateral for long-term obligations. Certain of the mortgage notes are subject to a prepayment penalty if repaid prior to their maturity.

     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 or operate the property independent of any franchisor (See Note 10).

9. Income taxes

     The Company recorded an income tax provision of $0.1 million for the three months ended March 31, 2003. The provision for the Predecessor period ended March 31, 2002 was also $0.1 million. Both related primarily to provisions for state income taxes.

10. Commitments and Contingencies

     As of May 14, 2003, the Company had received termination notices from franchisors with respect to seven properties (this does not include two hotels for which the Company has met all of the requirements to “cure” but has not yet received the cure letter from the franchisor). Also, the Company was not in strict compliance with the terms of eleven other franchise agreements (this does not include four other hotels for which the Company has met all of the requirements to “cure” but has not yet received the cure letter from the franchisor). The Company has a capital improvement program to address the capital improvements required by the franchisors, the re-branding of several hotels and general renovation projects intended to ultimately improve the operations of the hotels. As of March 31, 2003, the anticipated expenditures for such projects during the two years ending December 2004 are approximately $61.6 million, with approximately $15.1 million escrowed for such improvements.

     While it is the Company’s belief that it will cure any defaults under the franchise agreements before the applicable termination dates, there can be no assurance that it will be able to do so or be able to obtain additional time in which to cure any defaults. In the event of a franchise termination, management may seek to license the hotel with another nationally-recognized brand.

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     The license agreements are subject to cancellation in the event of a default, including the failure to operate the hotel in accordance with the quality standards and specification of the licensors. The Company believes that the loss of a license for any individual hotel would not have a material adverse effect on the Company’s financial condition and results of operations. The Company believes it will be able to renew its current licenses or obtain replacements of a comparable quality.

     As part of the Impac Plan of Reorganization, the Company has elected to reject its license agreement relating to its hotel in Cincinnati, Ohio and to cease operating this hotel as a Holiday Inn upon the effective date of the Impac Plan of Reorganization.

     The Company is contingently liable with respect to three irrevocable letters of credit totaling $4.9 million issued as guarantees to Zurich American Insurance Company, Donlen Fleet Management Services and U.S. Food Services. The letters of credit expire in November 2003 but may require renewal beyond those dates.

     The Company is self insured up to certain limits (deductibles) with respect to employee medical, employee dental, property insurance, general liability insurance, personal injury claims, workers’ compensation and auto liability. Should unanticipated events cause these claims to escalate beyond normal expectations, the Company’s financial condition and results of operations could be adversely affected.

     The Company was a party in litigation with Hospitality Restoration and Builders, Inc. (“HRB”), a general contractor hired to perform work on six of the Company’s hotels. The litigation involved hotels in Texas (filed in the District Court of Harris County in October 1999), Illinois (in the United States District Court, Northern District of Illinois, Eastern Division in February 2000) and New York (filed in the Supreme Court, New York County in July 1999). In general, HRB claimed that the Company breached contracts to renovate the hotels by not paying for work performed. The Company contended that it was over-billed by HRB and that a significant portion of the completed work was defective. In July 2001, the parties agreed to settle the litigation pending in Texas and Illinois. In exchange for mutual dismissals and full releases, the Company paid HRB $750,000. With respect to the matter pending in the state of New York, HRB claimed that it was owed $10.7 million. The Company asserted a counterclaim of $7 million. In February 2003, the Company and HRB agreed to settle the litigation pending in the state of New York. In exchange for mutual dismissals and full releases, the Company agreed to pay HRB $625,000. The Company provided fully for this liability in its Consolidated Financial Statements for the year ended December 31, 2002.

     The Company is party to other legal proceedings arising in the ordinary course of business, the impact of which would not, either individually or in the aggregate, in management’s opinion, have a material adverse effect on its financial position or results of operations. Certain of these claims are limited to the amounts available under the Company’s disputed claims reserve.

11. New Accounting Pronouncements

     In November 2002, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”) which elaborates on the disclosures to be made by a guarantor in its financial statements. It also requires a guarantor to recognize a liability for the fair value of the obligation undertaken in issuing the guarantee at the inception of a guarantee. The disclosure requirements of FIN 45 were effective for the Company as of December 31, 2002. The recognition provisions of FIN 45 will be applied on a prospective basis to guarantees issued after December 31, 2002. The Company does not expect the requirements of FIN 45 to have a material impact on its financial position and results of operations.

     In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). FIN 46 addresses consolidation by a business of variable interest entities in which it is the primary beneficiary. FIN 46 is effective immediately for certain disclosure requirements and variable interest entities created after January 31, 2003, and effective for periods beginning after June 15, 2003 for existing variable interest entities. At March 31, 2003, the Company had no variable interest entities and

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therefore anticipates that the effects of adopting FIN 46 will not be material to its financial position and results of operations.

12. Related party transactions

     Richard Cartoon, the Company’s Executive Vice President and Chief Financial Officer, is a principal in a business that the Company retained in October 2001 to provide Richard Cartoon’s services as Chief Financial Officer and other restructuring support and services. In addition to amounts paid for Richard Cartoon’s services, the Company was billed $52,000, including expenses, for other support and services provided by associates of Richard Cartoon, LLC for the three months ended March 31, 2003.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Chapter 11 proceedings

     As previously discussed in the Notes to the Condensed Consolidated Financial Statements included in this Form 10-Q, the Company and substantially all of its subsidiaries which owned hotel properties filed for voluntary reorganization under Chapter 11 of the Bankruptcy Code on December 20, 2001. The Bankruptcy Court confirmed the Company’s First Amended Joint Plan of Reorganization (the “Joint Plan of Reorganization”) on November 5, 2002 and on November 25, 2002, the Company and entities owning 78 hotels officially emerged from Chapter 11. Pursuant to the terms of the Joint Plan of Reorganization, eight other wholly-owned hotels were returned to the lender in early January 2003 in satisfaction of outstanding debt obligations and one hotel (also wholly-owned) was returned to the lessor of a capital lease.

     Of the Company’s 97 hotel portfolio, 18 hotels (the “Impac Hotels”) are owned by two subsidiaries (the “Impac Debtors”) which were not part of the Joint Plan of Reorganization and remain in Chapter 11. The Impac Hotels represent approximately 19% of the Company’s total hotel properties and 14% of the Company’s total hotel rooms as of May 12, 2003. The Impac Hotels contributed approximately 12% and 13% of the Successor revenues for the three months ended March 31, 2003 and the Predecessor revenues for the three months ended March 31, 2002, respectively. All of the Impac Hotels received financing prior to the bankruptcy filing from one lender which has a secured claim of $109.0 million against the Impac Debtors secured by the Impac Hotels. The Company and the Impac Debtors reached an agreement on October 21, 2002 (approved by the Bankruptcy Court on October 31, 2002) with such lender which provides for a release of the hotel collateral in exchange for the payment by the Impac Debtors of an agreed amount (the “Impac Settlement Amount”) by a date no later than May 31, 2003. If the agreed amount is not paid by May 31, 2003, the Impac Hotels will, consensually, be returned to the lender or disposed of at the secured lender’s direction. On April 24, 2003, the plan of reorganization for the Impac Debtors (the “Impac Plan of Reorganization”) was confirmed by the Bankruptcy Court pursuant to the terms of which the Company and the Impac Debtors, through 18 newly-formed subsidiaries, will obtain financing from Lehman Brothers Holdings Inc. (the “Lehman Financing”), which is to be used to pay the Impac Settlement Amount. Although there can be no assurance, the Company is hopeful that the Lehman Financing will be successfully completed on or before May 31, 2003, and, accordingly, that the Company will be able to retain the Impac Hotels.

     The effects of the Joint Plan of Reorganization were recorded in accordance with the American Institute of Certified Public Accountant’s Statement of Position (“SOP”) 90-7, “Financial Reporting by Entities in Reorganization under the Bankruptcy Code,” effective November 22, 2002. SOP 90-7 required the application of Fresh Start Accounting. As a result, the Consolidated Financial Statements subsequent to the Company’s emergence from Chapter 11 are those of a new reporting entity (the “Successor”) and are not comparable with the financial statements of the Company prior to the effective date of the Joint Plan of Reorganization (the “Predecessor”).

Forward-looking statements/risk factors

     The following discussion should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and related notes thereto included elsewhere herein.

     The discussion below and elsewhere in this Form 10-Q includes statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act. These include management’s expectations with respect to the Chapter 11 filing, statements that describe anticipated revenues, capital expenditures and other financial items, statements that describe the Company’s business plans and objectives, and statements that describe the expected impact of competition, government regulation, litigation and other factors on the Company’s future financial condition and results of operations. The words “may,” “should,” “expect,” “believe,” “anticipate,” “project,” “estimate,” and similar expressions are intended to identify forward-looking statements. Such risks and

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uncertainties, any one of which may cause actual results to differ materially from those described in the forward-looking statements, include or relate to, among other things:

	•		Risks associated with the Company’s ability to maintain its existing franchise affiliations which could affect the Company’s revenue generating capabilities;
	•		The impact of potential litigation and/or governmental inquiries and investigation involving the Company;
	•		The effect of competition and the economy on the Company’s ability to maintain margins on existing operations, including uncertainties relating to competition;
	•		The Company’s ability to generate sufficient cash flows from operations to meet its obligations;
	•		The effectiveness of changes in management and the ability of the Company to retain qualified individuals to serve in senior management positions;
	•		The potential for additional impairment charges against earnings related to long-lived assets;
	•		Risks associated with reductions in hotel values which are dependent upon the successful operation of the hotels;
	•		Risks associated with increases in the cost of debt;
	•		Risks associated with the holders of the Company’s common stock exercising significant control over the Company and selling large blocks of shares;
	•		Risks as a result of the short time that the public market for the Company’s new securities has existed;
	•		Risks as a result of the Company not being able to meet the continuing listing requirements of the American Stock Exchange;
	•		Risks associated with self-insured claims escalating beyond expectations;
	•		Risks associated with the Company’s ability to finalize the Lehman financing by May 31, 2003;
	•		Risks associated with the Company’s short operating history since the effectiveness of its Joint Plan of Reorganization; and
	•		Risks associated with environmental, state and federal regulations.

     Many of these factors are not within the Company’s control and readers are cautioned not to put undue reliance on these forward looking statements.

General Overview

     Management believes that results of operations in the hotel industry are best explained by three key performance measures: occupancy, average daily rate (“ADR”) and revenue per available room (“RevPAR”) levels. 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 the Company’s hotels experience lower occupancy levels in the fall and winter months (November through February) which may result in lower revenues, lower net income and less cash flow during these months. RevPAR is derived by dividing room revenues by the number of available room nights for a given period or, alternatively, by multiplying the occupancy by the ADR.

     The following table shows room data, occupancy, average daily rate and RevPAR by category of hotel for the quarter ended March 31, 2003 and 2002 (shown for those hotels owned and managed as of March 31, 2003):

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