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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

For Quarter Ended June 30, 2002

Commission File no. 2-64309

GOLF HOST RESORTS, INC.

     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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PART I — FINANCIAL INFORMATION

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

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.)

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

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GOLF HOST RESORTS, INC AND SUBSIDIARY

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.)

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.)

(1) BASIS OF PRESENTATION

			The financial statements for December 31, 2001 were prepared assuming the Company will continue as a going concern. As discussed in the notes to the consolidated financial statements on Form 10-K dated December 31, 2001, the Company has suffered recurring losses from operations, has negative working capital and has a shareholder’s deficit that raises 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 7 of the notes to the consolidated financial statements on Form 10-K, the Company had defaulted under the terms of its debt agreement and Golf Hosts, Inc., the Company’s parent company, is a defendant to a class action lawsuit. These financial statements do not include any adjustments that might result from the outcome of these uncertainties.
			These financial statements and related notes are presented for interim periods 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, 2001.
			The accompanying consolidated balance sheet for June 30, 2002, and consolidated statements of operations and cash flows for the periods ended June 30, 2002 and 2001, 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. 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.

(2) INTANGIBLE ASSETS

			The Company recorded at closing in 1997, a resort intangible asset 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 a straight-line basis. Amortization expense for all intangible assets was approximately $383,000 and $772,000 for the six months ended June 30, 2002 and June 30, 2001, respectively.
			As noted in the Company’s 10-K for December 31, 2001, 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 continued decline in destination golf resort business during 2001 and the events of September 11, 2001, the Company determined that further impairment had occurred and consequently had recognized an additional $3,000,000 impairment charge during the quarter ended September 30, 2001.

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GOLF HOST RESORTS, INC. AND SUBSIDIARY
(a wholly owned subsidiary of Golf Hosts, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(3) Debt

Debt consists of the following:

(4) CONTINGENCIES

Golf Hosts, Inc., the Company’s parent, has been named as a defendant in a 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 judgment stating that the plaintiffs are entitled to participate in the rental pool if one exists 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, Inc. have been taken and additional discovery remains. The previously scheduled trial date of February 3, 2002 has been postponed by the Court; a new trial date has not yet been set. As this litigation is still in progress, 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 Golf Hosts, Inc. has successful defenses based upon consultations with legal counsel and intends to vigorously defend this action.

The Company has recorded a liability and related asset in the approximate amount of $3,256,000, in recognition of the Master Lease Agreement refurbishment reimbursement program. The liability and asset will be amortized consistent with the repayment schedule as defined within the Master Lease Agreement.

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GOLF HOST RESORTS, INC. AND SUBSIDIARY
(a wholly owned subsidiary of Golf Hosts, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(5) TAMARRON’S RESULTS OF OPERATIONS

The Company assumed 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 loss is as follows and is included in loss on leased asset and asset held for sale in the statement of operations:

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 $5,000,000 mortgage note from the previous owners.

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GOLF HOST RESORTS, INC.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Quarter ended June 30, 2002

The comparative results for 2001 exclude the activities of the Tamarron Resort. The Company assumed responsibility for the net income (loss) under the terms of a lease agreement entered into between the Company and Golf Host II during 2000. Golf Host II sold the Tamarron Resort on November 19, 2001. The exclusion of Tamarron’s results allows for comparison on a period to period basis for the Innisbrook property.

During the second quarter of 2002, the Company’s results of operations continued to reflect the downward trend in the destination golf resort business coupled with the effect of the September 2001 terrorist acts. Occupancy percentage at the Innisbrook property for the quarter was down 17.9% or 5,769 room nights when compared to the 2001 occupied room night level of 32,245. Revenue per room night for the period improved from $394.43 to $443.15 or 12.4%. These reductions in room nights offset by the increase in overall guest spending produced a net decrease in gross revenue of approximately $982,000. Room nights during the period were down in both the social and group sectors. Social nights were down 1,283 while group was down 4,486. While revenue decreased by the above noted amount, operating expenses before depreciation and amortization decreased approximately $675,000 from 2001. Operating income after depreciation and amortization in 2002 was approximately $593,000 less than 2001.

Interest expense for the period continues to reflect the Company’s accrual of its monthly debt service to Golf Trust of America (GTA). Interest for the period was approximately $255,000 less than 2001 and is the result of the contractual increase of $13,000 related to the GTA loan for the $9,000,000 portion offset by reductions in interest expense primarily associated with the accounts receivable credit line and the prior shareholders’ loan.

Capital expenditure reserves in the amount of approximately $580,000 were set-aside during the period. Of this amount, $110,000 was utilized to fund operating leases for golf carts, golf grounds equipment and other resort leased operating assets. In addition, $159,000 has been expended for repairs and or replacements of resort operating assets such as clubhouse and conference center water heaters and air conditioners.

Year to date June 30, 2002

During the six months ended June 30, gross revenues declined approximately $7,337,000 or 21.9% from the previous year. Room nights for the period were down at the Innisbrook property by 14,824 or 21%. The property produced 55,642 room nights in 2002 as compared to 70,466 in 2001. This drop in nights is primarily the result of reduced group nights. Both the social and group sectors were down from 2001, 1,504 and 13,320 room nights, respectively. These reductions continue to reflect the customers’ concern with not only the September 2001 terrorist acts but also general concerns about the economy as a whole. Room night spending levels were up 1.1% from the prior year, $471.00 versus $476.03 for 2001. The combined reduction in room nights and increase in average spending resulted in the reduction of gross revenues noted above.

Operating expenses were further reduced to attempt to capture as much revenue retention as was possible. Total operating expense before depreciation and amortization was down approximately $4,262,000 from the 2001 amounts, or 16.7%. Operating income, excluding the Tamarron property was $3,295,000 or $2,872,000 less than 2001, due to the issues noted above.

Interest expense for the six-month period was $305,000 less than the 2001 period. This is a result of the contractual increase of 5% per year under the GTA loan structure for the $9,000,000 portion, which accounted for a $26,000 increase which was offset by reductions in interest expense associated with the prior shareholders’ loans, accounts receivable line of credit and capital leases.

During the six month period of 2002, the Company set aside $1,159,000 in the capital reserve account. These reserves are included in restricted cash on the Balance Sheet and are designated for capital improvements. Through June 2002, $219,000 has been expended for golf carts, golf course equipment and other resort operating asset leases. An additional $178,000 has been spent to build a new guard house, install new water

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GOLF HOST RESORTS, INC.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

heaters in the clubhouse and conference facilities, replace faulty air conditioners, upgrade computer systems and support numerous deferred projects.

Liquidity and Capital Resources

The Company’s working capital position has decreased to a deficit of approximately $92,849,000. This is a $2,827,000 reduction in working capital from December 31, 2001 deficit of $90,022,000.

The Company continues to experience seasonal fluctuations with net working capital position. These fluctuations had 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 (“GTA”). As a result of that default, Wells Fargo Business Credit, Inc. elected to terminate their credit line with Golf Host Resorts effective May 23, 2002. While the Company had utilized this credit line to facilitate short-term cash needs in past years, its utilization during 2002 had been limited. 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 20, 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. In order to preserve its legal position, GTA has asserted its right to accelerate payment of the total outstanding principal and interest amounts and continues to negotiate a settlement as described below.

As of March 2003, 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 related 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.

As noted in the Company’s 10-K for December 31, 2001, management had determined that due to declining demand in the hotel golf 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 continued decline in destination golf resort business during 2001 and the events of September 11, 2001, the Company had determined that further impairment had occurred and consequently recognized an additional $3,000,000 impairment charge during the quarter ended September 30, 2001.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

The Registrant does not have significant market risk with respect to foreign currency exchanges or other market rates. The Registrant’s debt has a fixed contractual interest rate through the year 2027 and, accordingly, fluctuations in interest rates are not expected to affect financial results.

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GOLF HOST RESORTS, INC.

ITEM 4. Controls and Procedures

Within the 90 days prior to the date of this report, the Registrant’s management, including the Chief Executive Officer, the Principal Financial Officer and the Registrant’s agent (Westin North American Management Company), carried out an evaluation of the effectiveness of the design and operation of the disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon the evaluation, the Registrant’s Chief Executive officer and the Principal Financial Officer concluded that the Registrant’s disclosure controls and procedures are effective in timely alerting them to material information to be included in the Registrant’s periodic SEC filings.

There have been no significant changes in the Registrant’s internal controls or in other factors that could significantly affect internal controls subsequent to the date the Chief Executive Officer and the Principal Financial Officer carried out this evaluation.

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INNISBROOK RENTAL POOL LEASE OPERATION

The following unaudited financial statements of the Innisbrook Rental Pool Lease Operation (the Rental Pool) are for the quarters and six months ended June 30, 2002 and 2001.

The operation of the Rental Pool is 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 (MLA), to participating condominium owners (Participants).

Effective January 1, 2002, the Company replaced the MLA, which expired on December 31, 2001, with a new Master Lease Agreement (NMLA). The NMLA provides for Adjusted Gross Revenues, as defined, to be divided 40% to the Innisbrook participants and 60% to the Company. At December 31, 2001, 605 condominium units had elected to participate in the NMLA while 3 had elected to participate or remain in the Guaranteed Distribution Master Lease Agreement (GMLA).

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 operation of the Rental Pool is more fully discussed in Form 10-K, for the fiscal year ended December 31, 2001 (file No. 2-64309).

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INNISBROOK RENTAL POOL LEASE OPERATION

DISTRIBUTION FUND

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

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INNISBROOK RENTAL POOL LEASE OPERATION

DISTRIBUTION FUND

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

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INNISBROOK RENTAL POOL LEASE OPERATION

DISTRIBUTION FUND