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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

For Quarter Ended September 30, 2001

Commission File no. 2-64309

GOLF HOST RESORTS, INC.

(727) 942-2000

     Indicate by check mark whether the registrant (1) has filed all reports required to Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding twelve months, and (2) has been subject to the filing requirements for the past 90 days. Yes[X]      No [   ]

     Issuer has no common stock subject to this report.

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GOLF HOST RESORTS, INC. AND SUBSIDIARY
(a wholly owned subsidiary of Golf Hosts, Inc.)

CONSOLIDATED BALANCE SHEETS

ASSETS
(Substantially all pledged)

The accompanying notes are an integral part of these consolidated financial statements.

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GOLF HOST RESORTS, INC. AND SUBSIDIARY
(a wholly owned subsidiary of Golf Hosts, Inc.)

CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDER’S DEFICIT

The accompanying notes are an integral part of these consolidated financial statements.

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GOLF HOST RESORTS, INC. AND SUBSIDIARY
(a wholly owned subsidiary of Golf Hosts, Inc.)

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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GOLF HOST RESORTS, INC AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDER’S DEFICIT

The accompanying notes are an integral part of these consolidated financial statements.

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GOLF HOST RESORTS, INC. AND SUBSIDIARY
(a wholly owned subsidiary of Golf Hosts, Inc.)

STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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GOLF HOST RESORTS, INC. AND SUBSIDIARY
(a wholly owned subsidiary of Golf Hosts, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of preparation

The financial statements for December 31, 2000 were prepared assuming the Company will continue as a going concern. As discussed in the notes to consolidated financial statements on Form 10-K dated December 31, 2000, the Company has suffered recurring losses from operations, has negative working capital and has a shareholder’s deficit that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also discussed in the footnotes. Additionally, as described in Note 12 of the notes to consolidated financial statements on Form 10-K, subsequent to December 31, 2000 the Company has defaulted under the terms of its debt agreement and is a defendant to a class action lawsuit. These financial statements do not include any adjustments that might result from the outcome of the uncertainties.

These financial statements and related notes are presented for interim periods on a going concern basis in accordance with the requirements of Form 10-Q and, consequently, do not include all disclosures normally provided in the Company’s Annual Report on Form 10-K. Accordingly, these financial statements and related notes should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.

The accompanying balance sheet for September 30, 2001, and statements of operations and cash flows for the periods ended September 30, 2001 and 2000, are unaudited but reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented on a going concern basis. All such adjustments are of a normal recurring nature.

The Company’s business is seasonal. Therefore, the results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the fiscal years.

Certain prior year balances have been reclassified to conform with the current year presentation.

(2) Asset held for sale

On May 4, 2001, the Company sold the remaining land parcel at Innisbrook included in asset held for sale as of December 31, 2000 for $4,578,000. Net proceeds of $3,929,000 were distributed by the Company to its shareholder.

(3) Intangible Assets

The Company recorded at closing in 1997, a resort intangible of approximately $30,400,000. This intangible related to the purchase of the Innisbrook Resort, which contained an existing rental pool agreement and a recently executed management agreement with Westin Hotels. The intangible is being amortized over twenty years on as straight-line basis. Amortization expense for all intangible assets was approximately $1,157,000 and $1,158,000 for the nine months ended September 30, 2001 and September 30, 2000, respectively.

As noted in the Company’s 10-K for December 31, 2000, management had determined that due to declining demand in the resort business and reduced rental pool participation which led to declines in operating results, impairment had occurred. At December 31, 2000, an impairment charge of $7,441,000 was recorded.

As a result of the continuing decline in destination golf resort business during 2001 and the events of September 11, 2001, the Company has determined that further impairment has occurred and consequently has recognized an additional $3,000,000 impairment charge during the quarter ended September 30, 2001.

(4) Long-term obligations

Long-term obligations consist of the following:

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GOLF HOST RESORTS, INC. AND SUBSIDIARY
(a wholly owned subsidiary of Golf Hosts, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(4) Long-term obligations cont.

On May 22, 2001, Golf Trust of America, Inc. (“GTA”), the lender on the $78,975,000 participating mortgage, announced that its shareholders approved a plan for its liquidation. The impact of GTA’s plan of its liquidation on the Company, if any, is uncertain.

(5) Contingencies

The Company has been named as a defendant in consolidated class action lawsuit whereby the plaintiffs allege breaches of contract, including breaches in connection with the Rental Pool Master Lease Agreement. The plaintiffs are seeking unspecified damages and declaratory judgement declaring that the plaintiffs are entitled to participate in the rental pool if one exits and a limitation of golf course access to persons who are either condominium owners, members, their accompanied guests, or guests of the resort. Deposition of class members and others, including depositions of prior executives of Golf Host Resorts, have been taken and additional discovery remains. A court date of February 3, 2003 has been set. As this litigation is still in its early stages, the Company is not yet able to determine whether the resolution of this matter will have a material adverse effect on the Company’s financial condition or results of operations although the Company believes it has successful defenses and intends to vigorously defend this action.

(6) Tamarron’s results of operations

The Company assumes responsibility for the net income (loss) of Tamarron under the terms of the lease agreement between the Company and Golf Host II, Inc. entered into during 2000. The net income (loss) is as follows and is included in loss on assets held for sale and leased asset in the statements of income.

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GOLF HOST RESORTS, INC. AND SUBSIDIARY
(a wholly owned subsidiary of Golf Hosts, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(7) Subsequent events

The Company was informed by GTA on November 29, 2001 that the Company is in default on the $78,975,000 participating mortgage with GTA arising from the Company’s failure to pay the October 2001 interest payment. GTA has asserted its right to accelerate payment of the total outstanding principal amounts.

As a result of the default, Wells Fargo Business Credit, Inc. has elected to terminate their credit line with the Company effective May 23, 2002. The Company expects to develop a replacement facility upon reaching a resolution with GTA.

As of July 2002, the Company is seeking to negotiate a Settlement Agreement with GTA. In connection with the proposed Settlement Agreement, The Company would transfer to GTA the resort property, three condo- minium properties located at the Innisbrook Resort, the Company’s GTA stock interests, and all rights, title, and interests of the Company under existing contracts and agreements. In addition, the Company would provide a limited indemnity to defend and hold harmless GTA (and its affiliates) from and against any and all costs, liabilities, claims, losses, judgements or damages arising out of or in connection with the Class Action Lawsuit, as well as liabilities accruing on or before the closing date relating to employee benefits and liabilities for contracts or agreements not disclosed by the Company to GTA. In return, it is anticipated that GTA would deliver to the Company a duly executed release. No Settlement Agreement has yet been signed and no terms are definite. Neither GTA nor any of its affiliates is under any obligation to continue to negotiate with the Company or to execute the Settlement Agreement and could initiate foreclosure proceedings and pursue its other remedies at any time.

On November 19, 2001, GH II, an affiliated company and lessor of Tamarron, sold Tamarron for $9,500,000. A portion of the proceeds were contributed to the Company as a capital contribution and were used to settle the remaining balance due under the mortgage note from the previous owners.

A revised Master Lease Agreement (“Revised MLA”) has been presented to the rental pool participants, effective January 1, 2002, resulting from the expiration of the existing Master Lease Agreement (“MLA”) between the Company and rental pool participants under the existing Master Lease Agreement on December 31, 2001. On an annual basis, beginning in 2002 each condominium owner will elect to participate in either the Revised MLA or the Guaranteed Master Lease Agreement (“GMLA”). As of December 26, 2001, 605 rental units had elected participation in the Revised MLA and 13 in the GMLA. The Revised MLA provides for Adjusted Gross Revenues, as defined, to be divided 40% to the Innisbrook rental pool participants and 60% to the Company. In addition, the Company has agreed as part of the Revised MLA, to reimburse participants in the Revised MLA for up to 50% of actual unit refurbishment costs. If the Company proves unsuccessful in its defenses in the class-action lawsuit (Note 4), any rental pool participant who elects, subject to the Revised MLA, will forego reimbursement by the Company for renovations or offset against future quarterly distributions equal to their pro-rata amount of the class-action settlement proceeds.

On October 3, 2001, the FASB issued FASB Statement No. 144 (“FAS 144”), Accounting for the Impairment or Disposal of Long-Lived Assets. FAS 144 excludes goodwill from its scope and, therefore, eliminates the requirement to allocate goodwill to long-lived assets to be tested for impairment. The provisions of FAS 144 will be effective for fiscal years beginning after December 15, 2001. The Company has not completed the process of evaluating the impact that will result from adopting FAS 144.

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GOLF HOST RESORTS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

Quarter Ended September 30, 2001

During the third quarter of 2001, the Company has continued to experience reduced occupancy and overall resort revenue. This downturn was in large part the result of the decline in travel in the United States prior to and following the September 11, 2001 attacks in New York and Washington, DC, as several large groups cancelled plans to utilize the Innisbrook facilities during late September.

Total room nights for the quarter were down 2,985 as compared to the prior year third quarter of 22,123, or 13.5%. Total revenue per room night increased for the quarter from $337.87 to $339.13, or less than a percent. The reduction in room nights, offset by the improvement in spending levels, resulted in a net decrease in gross revenue of $984,452, or 13.2%, as compared to 2000. In response to and in anticipation of this further decline in operating revenue, management continues its focus on establishing the most effective utilization of its resources. Operating expenses, were also reduced from $10,054,460 in 2000 to $8,928,283, or a 11.2% savings (before intangible impairment). The operating loss for the quarter of $5,890,027 was greater than the same period last year.

Interest expense was $123,422 less in the current quarter as compared to last year. This decrease is attributed to reductions in the utilization of the Accounts Receivable credit line and interest expense on the note due to the prior shareholders partially offset by an increase in the Golf Trust mortgage contractual interest of approximately $108,000.

Year to Date September 30, 2001

During the nine months ended September 30, 2001, the Company continued to experience a reduction in overall occupancy and resort revenue and reflects the general downturn in the hotel golf resort industry prior to and following the September 11, 2001 terrorist attacks. Gross revenues declined from the comparable 2000 numbers by $4,278,075, or 9.8%. Room nights were down by 8.5%, or 8,310. Room night sales for 2001 and 2000, respectively, were 89,604 and 97,914.

Operating expense (before intangible impairment) for the nine months were reduced by 8.2%, or $3,225,270 from the prior year. In total, operating expenses (before intangible impairment) in 2000 were $39,531,342, as compared to $36,306,072 in 2001. With the reduction in gross revenues of $4,278,075, partially offset by the reduction in operating expenses of $3,225,270, the Company has a reduction of $1,052,805 in operating income (before intangible impairment), or 24.3% for the nine month comparative period.

Interest expense for 2001 was less than the 2000 amount by $70,622. This net decrease is due to the reductions in the utilization of the Accounts Receivable revolving credit line and reduced interest expense on the note payable to the prior shareholders partially offset by the contractual increase in the Golf Trust of America's mortgage in the aggregate of $324.000.

During the nine months ended September 30, 2001, the Company set aside capital reserves in the amount of approximately $1,733,000. Actual capital expenditures during the period amounted to approximately $926,000. These funds were utilized to finalize the Highlands Clubhouse renovation, repair the Island Clubhouse roof and water heater, replace the Innisbrook property water softener, fund the property’s golf cart and golf course equipment leases, replace trees lost to the Southern Pine Beetle and upgrade the computer systems and software.

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Financial Condition and Liquidity

The Company’s working capital position (exclusive of Asset Held for Sale) has decreased to a deficit of approximately $17,603,000. This $4,699,000 reduction in working capital from the December 31, 2000 deficit of approximately $12,904,000 is primarily the result of net losses after interest of $1,192,663 (excluding depreciation and amortization) in addition to the reclassification of the prior shareholders note of $2,668,000 as a current liability. This obligation was subsequently relieved through the utilization of the proceeds on the sale of the Tamarron property on November 18, 2001.

The Company continues to experience seasonal fluctuations with net working capital position. These fluctuations have been managed through the utilization of an Accounts Receivable revolving credit line in the amount of $3,000,000 with Wells Fargo Business Credit, Inc. As described below, the Company has defaulted on its mortgage obligation to Golf Trust of America. As a result of that default, Wells Fargo Business Credit, Inc. has elected to terminate their credit line with Golf Host Resorts effective May 23, 2002. While the Company has utilized this credit line to facilitate short term cash needs in past years, its utilization during 2001 has been limited. The Company expects to develop a replacement facility upon completion of the loan settlement agreement. Management believes that the Company will have to restructure the GTA loan for the economic viability of the Resort.

The Company was informed by GTA on November 29, 2001 that the company is in default on the $78,975,000 participating mortgage with GTA arising from the Company’s failure to pay the October 2001 interest payment. GTA has asserted its right to accelerate payment of the total outstanding principal amounts.

As of July 2002, the Company is seeking to negotiate a Settlement Agreement with GTA. In connection with the proposed Settlement Agreement, the Company would transfer to GTA the resort property, three condominium properties located at the Innisbrook Resort, the Company’s GTA stock interests, and all rights, title and interests of the Company under existing contracts and agreements. In addition, the Company would provide a limited indemnity to defend and hold harmless GTA (and its affiliates) from and against any and all costs, liabilities, claims, losses, judgments or damages arising out of or in connection with the Class Action Lawsuit, as well as liabilities accruing on or before the closing date relating to employee benefits and liabilities for contracts or agreements not disclosed by the Company to GTA. In return, it is anticipated that GTA would deliver to the Company a duly executed release. No Settlement Agreement has yet been signed and no terms are definite. Neither GTA nor any of its affiliates is under any obligation to continue negotiating with the Company or to execute the Settlement Agreement and could initiate foreclosure proceedings and pursue its other remedies at any time.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

The Company has been named as a defendant in consolidated class action lawsuit whereby the plaintiffs allege breaches of contract, including breaches in connection with the Rental Pool Master Lease Agreement. The plaintiffs are seeking unspecified damages and declaratory judgement declaring that the plaintiffs are entitled to participate in the rental pool if one exits and a limitation of golf course access to persons who are either condominium owners, members, their accompanied guests, or guests of the resort. Deposition of class members and others, including depositions of prior executives of Golf Host Resorts, have been taken and additional discovery remains. A court date of February 3, 2003 has been set. As this litigation is still in its early stages, the Company is not yet able to determine whether the resolution of this matter will have a material adverse effect on the Company’s financial condition or results of operations although the Company believes it has successful defenses and intends to vigorously defend this action.

Item 2. Changes in Securities

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

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

Not applicable.

Item 5. Other Information

Pursuant to an agreement with the SEC staff, included in this 10-Q filing are unaudited financial statements of the Innisbrook Rental Pool Lease Operation and the Tamarron Rental Pool Lease Operation for the quarter ended September 30, 2001 and 2000.

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RENTAL POOL LEASE OPERATIONS

The following unaudited financial statements of the Innisbrook Rental Pool Lease Operation and the Tamarron Rental Pool Lease Operation (the Rental Pools) are for the quarters and nine months ended September 30, 2001 and 2000.

The operations of the Rental Pools are tied closely to that of Golf Host Resorts, Inc. (the Company), and provide for distribution of a percentage of the Company’s room revenues, as defined in the Rental Pool Master Lease Agreements, to participating condominium owners (Participants).

The Innisbrook Rental Pool Operation is party to lease agreements with an affiliated entity, whose ability to continue as a going concern is in substantial doubt.

The operations of the Rental Pools are more fully discussed in Form 10-K, for the fiscal year ended December 31, 1999 (file No. 2-64309).

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INNISBROOK RENTAL POOL LEASE OPERATION

BALANCE SHEETS

These statements were prepared from the books and records of the Rental Pool without audit and, in the opinion of management, include all adjustments which are necessary for a fair presentation.

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INNISBROOK RENTAL POOL LEASE OPERATION

STATEMENTS OF OPERATIONS
FOR THE QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(unaudited)

DISTRIBUTION FUND

These statements were prepared from the books and records of the Rental Pool without audit and, in the opinion of management, include all adjustments which are necessary for a fair presentation.

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INNISBROOK RENTAL POOL LEASE OPERATION

STATEMENTS OF CHANGES IN PARTICIPANTS’ FUND BALANCES
FOR THE QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(unaudited)