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Table of Contents

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


For Quarter Ended September 30, 2003

Commission File no. 2-64309

GOLF HOST RESORTS, INC.


(Exact name of registrant as specified in its charter)
     
Colorado   84-0631130

 
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
     
36750 US 19 N., Palm Harbor, Florida  
34684


(Address of principal executive offices)
 

(Zip Code)

   

 
         
(727) 942-2000

(Registrant’s telephone number, including area code)
       

      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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TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S DEFICIT
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations
PART II -- OTHER INFORMATION
SIGNATURES
Ex-31.1 Section 302 CEO Certification
Ex-31.2 Section 302 CFO Certification
Ex-32.1 Section 906 CEO Certification
Ex-32.2 Section 906 CFO Certification


Table of Contents

PART I — FINANCIAL INFORMATION

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

ASSETS
(Substantially all pledged)

                   
      September 30,   December 31,
      2003   2002
     
 
      (unaudited)        
CURRENT ASSETS:
               
 
Cash
  $ 139,518     $  
 
Restricted cash
    2,670,865       2,520,849  
 
Accounts receivable, net
    1,397,783       2,069,962  
 
Other receivables
    180,373       61,554  
 
Inventories and supplies
    1,362,136       1,157,792  
 
Prepaid expenses and other assets
    427,684       514,493  
 
   
     
 
 
Total current assets
    6,178,359       6,324,650  
INTANGIBLES, net
    11,817,643       12,463,987  
PROPERTY AND EQUIPMENT, net
    37,428,334       38,025,063  
OTHER ASSETS
    5,181,886       5,701,950  
 
   
     
 
 
  $ 60,606,222     $ 62,515,650  
 
   
     
 

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

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Table of Contents

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

LIABILITIES AND SHAREHOLDER’S DEFICIT

                   
      September 30,   December 31,
      2003   2002
     
 
      (unaudited)        
CURRENT LIABILITIES:
               
 
Cash overdrafts
  $ 480,771     $ 69,846  
 
Debt due within one year
    79,001,205       79,003,552  
 
Accounts payable
    3,768,698       4,973,036  
 
Accrued payroll costs
    1,150,735       893,224  
 
Accrued interest
    21,451,823       14,538,319  
 
Other payables and accrued expenses
    3,006,963       2,721,823  
 
Deposits and deferred revenues
    2,174,310       2,003,938  
 
Due to related parties
    598,013       198,802  
 
   
     
 
 
Total current liabilities
    111,632,518       104,402,540  
DEBT DUE AFTER ONE YEAR
    88,330        
OTHER LONG-TERM LIABILITIES
    10,265,009       10,265,009  
LONG TERM REFURBISHMENT
    5,623,095       5,548,514  
DEFERRED INCOME TAXES
    1,255,000       1,255,000  
 
   
     
 
 
Total liabilities
    128,863,952       121,471,063  
 
   
     
 
SHAREHOLDER’S DEFICIT
               
 
Common stock, $1 par, 5,000 shares authorized, issued, and outstanding
    5,000       5,000  
 
5.6% cumulative preferred stock, $1 par, 4,577,000 shares authorized, issued, and outstanding
    4,577,000       4,577,000  
 
Paid-in capital
    (8,487,323 )     (8,487,323 )
 
Shareholder receivable
    (219,784 )      
 
Accumulated deficit
    (64,132,623 )     (55,050,090 )
 
   
     
 
 
Total shareholder’s deficit
    (68,257,730 )     (58,955,413 )
 
   
     
 
 
Total liabilities and shareholder’s deficit
  $ 60,606,222     $ 62,515,650  
 
   
     
 

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

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Table of Contents

GOLF HOST RESORTS, INC. AND SUBSIDIARY
(a wholly owned subsidiary of Golf Hosts, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

                                   
      Quarters Ended September 30,   Nine months ended September 30,
     
 
      2003   2002   2003   2002
     
 
 
 
REVENUES:
                               
 
Resort facilities
  $ 2,015,046     $ 1,752,027     $ 8,628,252     $ 10,149,089  
 
Food and beverage
    1,623,538       1,675,795       7,921,313       9,076,147  
 
Golf
    1,717,147       1,715,605       8,347,857       9,187,693  
 
Other
    870,351       1,327,330       3,264,267       4,265,135  
 
   
     
     
     
 
 
    6,226,082       6,470,757       28,161,689       32,678,064  
 
   
     
     
     
 
COST AND OPERATION EXPENSES:
                               
 
Resort facilities
    1,544,593       1,333,655       6,788,304       7,562,081  
 
Food and beverage
    1,515,733       1,426,942       5,817,633       6,194,251  
 
Golf
    1,734,641       1,440,819       5,188,103       4,699,426  
 
Other
    2,148,252       1,910,170       6,728,247       6,611,544  
 
General and administrative
    763,045       1,053,885       2,832,666       3,379,422  
 
Depreciation and amortization
    1,358,480       1,311,941       2,852,876       2,943,464  
 
   
     
     
     
 
 
    9,064,744       8,477,412       30,207,829       31,390,188  
 
   
     
     
     
 
OPERATING (LOSS)/INCOME
    (2,838,662 )     (2,006,655 )     (2,046,140 )     1,287,876  
INTEREST, NET
    2,275,869       2,256,235       6,844,162       6,862,945  
 
   
     
     
     
 
LOSS BEFORE PREFERRED STOCK DIVIDEND
    (5,114,531 )     (4,262,890 )     (8,890,302 )     (5,575,069 )
DIVIDEND REQUIREMENTS ON PREFERRED STOCK
    64,077       64,077       192,231       192,231  
 
   
     
     
     
 
LOSS AVAILABLE TO COMMON SHAREHOLDER
  $ (5,178,608 )   $ (4,326,967 )     (9,082,533 )   $ (5,767,300 )
 
   
     
     
     
 

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

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Table of Contents

GOLF HOST RESORTS, INC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDER’S DEFICIT

                                                         
$1 Par Value 5.6% Cumulative
Common Stock Preferred Stock


Paid-In Shareholder Retained
Shares Amount Shares Amount Capital Receivable Deficit







Balance, December 31, 2002
    5,000     $ 5,000       4,577,000     $ 4,577,000     $ (8,487,323 )   $ 0     $ (55,050,090 )
Shareholder receivable
                                  (219,784 )      
Loss available to common shareholder (unaudited)
                                        (9,082,533 )
     
     
     
     
     
     
     
 
Balance, September 30, 2003
    5,000     $ 5,000       4,577,000     $ 4,577,000     $ (8,487,323 )   $ (219,784 )   $ (64,132,623 )
     
     
     
     
     
     
     
 

[Additional columns below]

[Continued from above table, first column(s) repeated]
         
Total
Shareholders’
Deficit

Balance, December 31, 2002
  $ (58,955,413 )
Shareholder receivable
    (219,784 )
Loss available to common shareholder (unaudited)
    (9,082,533 )
     
 
Balance, September 30, 2003
  $ (68,257,730 )
     
 

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

                       
          2003   2002
         
 
CASH FLOWS FROM OPERATING ACTIVITIES:
               
 
(Loss)/income before dividend requirements on preferred stock
  $ (8,890,302 )   $ (5,575,069 )
 
Adjustments to reconcile net income to net cash provided by operations:
               
   
Management company contribution
          (425,688 )
   
Depreciation and amortization
    2,241,594       2,638,202  
   
Provision for bad debts
    (159,349 )     212,449  
   
Gain on disposal of capital lease
    (27,739 )     (294,822 )
   
Rental pool expense
    611,282       305,262  
   
Changes in operating working capital
    7,265,465       5,659,421  
 
   
     
 
     
Cash provided by operations
    1,040,951       2,519,755  
 
   
     
 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
 
Increase in other assets
    (16,637 )     (34,235 )
 
Purchases of property and equipment
    (948,979 )     (282,945 )
 
   
     
 
     
Cash used in investing activities
    (965,616 )     (317,180 )
 
   
     
 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
 
Contribution from owners
          21,239  
 
Repayment of existing debt
    (68,417 )     (133,645 )
 
Additional borrowings on existing debt
    132,600        
 
Increase/(decrease) in other long-term liabilities
          (1,940,194 )
 
   
     
 
     
Cash used in financing activities
    64,183       (2,052,600 )
 
   
     
 
NET INCREASE IN CASH
    139,518       149,975  
CASH, BEGINNING OF PERIOD
          665,402  
 
   
     
 
CASH, END OF PERIOD
  $ 139,518     $ 815,377  
 
   
     
 
NONCASH FINANCING AND INVESTING ACTIVITIES:
               
The Company satisfied its preferred stock dividend liability to GHI through the intercompany account
  $ 192,231     $ 192,231  
 
   
     
 
Master lease agreement refurbishment program
  $ 5,623,095     $ 3,256,120  
 
   
     
 
Capital lease extension
  $ 49,542     $  
 
   
     
 

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 PRESENTATION

    The financial statements for December 31, 2002 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, 2002, the Company has suffered recurring losses from operations, has negative working capital and has a shareholder’s deficit. These issues raise substantial doubt about the Company’s 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 6 of the notes to consolidated financial statements on Form 10-K, the Company has defaulted under the terms of its debt agreement and Golf Host, 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 the 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, 2002.

    Certain prior year amounts have been reclassified within the Form 10-Q to conform with the current year presentation.

    The accompanying consolidated balance sheet for September 30, 2003, and consolidated statements of operations and cash flows for the periods ended September 30, 2003 and 2002, 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 $646,000 and $644,000 for the nine months ended September 30, 2003 and September 30, 2002, respectively.

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Table of Contents

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

2)   INTANGIBLE ASSETS

    During 2002 and through September 30, 2003, the Company reviewed the carrying value of the intangible asset and determined that further impairment had not occurred. Advance booking and rental pool participation have stabilized from a historical perspective, and pro-forma cash flows, based upon advance bookings indicate that no further deterioration in the carrying value needs to be recognized.

(3)   DEBT

    Debt consists of the following:

                 
    September 30,   December 31,
    2003   2002
   
 
Participating mortgage note at varying pay rates maturing in 2027 (in default)
  $ 69,975,000     $ 69,975,000  
$9,000,000 participating mortgage note credit facility maturing in 2007 (in default)
    9,000,000       9,000,000  
Capital leases ranging from 9.0% to 9.51%
    114,535       28,552  
 
   
     
 
 
    79,089,535       79,003,552  
Less current maturities
    (79,001,205 )     (79,003,552 )
 
   
     
 
 
  $ 88,330     $  
 
   
     
 

(4)   CONTINGENCIES

    Golf Hosts, Inc., the Company’s parent, was 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. By order dated April 2, 2003, the Company was substituted in place of Golf Hosts, Inc. as the defendant in the lawsuit. The plaintiffs are seeking unspecified damages and declaratory judgment stating that the plaintiffs are entitled to participate in the rental pool if one exists, a restriction of golf course access to persons who are either condominium owners, members, their accompanied guests, or guests of the resort and a restriction of the total number of club memberships. Deposition of class members and others, including depositions of prior executives of Golf Host Resorts, have been taken and additional discovery remains. The previously scheduled trial date of February 3, 2003 has been postponed by the Court;

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

(4)   CONTINGENCIES (continued)

    a new trial date has not yet been set. In July 2003, the lawsuit class was de-certified leaving approximately 80 plaintiffs in the lawsuit. Plaintiffs have filed a notice of appeal regarding the de-certification decision. 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. The Company believes it 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 $5,623,000, in recognition of the Master Lease Agreement refurbishment reimbursement program. The liability will be settled in accordance with the terms of the agreement and the asset will be amortized on a straight line basis beginning in 2002 and ending December 31, 2009. Amortization expense for the asset was approximately $611,000 and $305,000 for the periods ended September 30, 2003 and September 30, 2002, respectively.

    As noted in the Company’s 10K filed as of December 31, 2002, the Company has defaulted on its primary mortgage with Golf Trust of America (“GTA”). The Company is engaged in negotiations with “GTA” and is seeking a solution to its default status. At the time of this publication, no definite or final agreement has been reached.

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RENTAL POOL LEASE OPERATION

The following unaudited financial statements of the Innisbrook Rental Pool Lease Operation (the Rental Pool) are for the quarters ended September 30, 2003 and 2002

The operation of the Rental Pool is tied closely to that of Golf Host Resorts, Inc. (the Company), and provides 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 operation of the Rental Pool is more fully discussed in Form 10-K, for the fiscal year ended December 31, 2002 (file No. 2-64309).

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INNISBROOK RENTAL POOL LEASE OPERATION
BALANCE SHEETS

DISTRIBUTION FUND

                 
    September 30,   December 31,
    2003   2002
   
    (unaudited)    
         
ASSETS
LIFE SAFETY RECEIVABLE FROM PARTICIPANTS
  $ 44,271     $  
RECEIVABLE FROM GOLF HOST RESORTS, INC. FOR DISTRIBUTION
    680,446       1,790,798  
INTEREST RECEIVABLE FROM MAINTENANCE ESCROW FUND
    8,314       15,856  
 
   
     
 
 
  $ 733,031     $ 1,806,654  
 
   
     
 
LIABILITIES AND PARTICIPANTS’ FUND BALANCES
DUE TO PARTICIPANTS FOR DISTRIBUTION
  $ 470,319     $ 1,480,977  
DUE TO MAINTENANCE ESCROW FUND
    218,441       325,677  
LIFE SAFETY SETTLEMENT LIABILITY
    44,271        
 
   
     
 
 
  $ 733,031     $ 1,806,654  
 
   
     
 
MAINTENANCE ESCROW FUND
ASSETS
CASH AND CASH EQUIVALENTS
  $ 1,888,015     $ 4,991,956  
RECEIVABLE FROM DISTRIBUTION FUND
    218,441       325,677  
CONSTRUCTION WORK IN PROGRESS
    39,421       7,284  
CARPET CARE RECEIVABLE
    9,018       23,576  
INTEREST RECEIVABLE
    13,519       9,012  
 
   
     
 
 
  $ 2,168,414     $ 5,357,505  
 
   
     
 
LIABILITIES AND PARTICIPANTS’ FUND BALANCES
ACCOUNTS PAYABLE
  $ 108,387     $ 2,820  
CONSTRUCTION RETAINAGE
    4,302        
INTEREST PAYABLE TO DISTRIBUTION FUND
    8,314       15,856  
PARTICIPANTS’ FUND BALANCES — ESCROW A
    1,601,935       1,366,611  
PARTICIPANTS’ FUND BALANCES — ESCROW B
    445,476       3,972,218  
 
   
     
 
 
  $ 2,168,414     $ 5,357,505  
 
   
     
 

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

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STATEMENTS OF OPERATIONS
FOR THE QUARTERS ENDED SEPTEMBER 30, 2003 AND 2002

DISTRIBUTION FUND
(unaudited)

                                   
      Current quarter   Year-to-Date
     
 
      2003   2002   2003   2002
     
 
 
 
GROSS REVENUES
  $ 1,965,259     $ 1,728,450     $ 8,463,294     $ 9,981,870  
 
   
     
     
     
 
DEDUCTIONS:
                               
 
Agents’ commissions
    56,349       47,699       316,817       420,815  
 
Credit card fees
    45,388       40,776       199,308       236,282  
 
Audit fees
    5,387       3,813       16,161       12,187  
 
Uncollectable room rents
          2,295       2,119       26,666  
 
Linen replacements
    28,655       17,351       102,852       126,379  
 
Rental pool complimentary fees
    824       2,413       2,453       4,233  
 
   
     
     
     
 
 
    136,603       114,347       639,710       826,562  
 
   
     
     
     
 
ADJUSTED GROSS REVENUES
    1,828,656       1,614,103       7,823,584       9,155,308  
MANAGEMENT FEE
    (1,096,909 )     (967,743 )     (4,692,888 )     (5,488,598 )
 
   
     
     
     
 
GROSS INCOME DISTRIBUTION
    731,747       646,360       3,130,696       3,666,710  
ADJUSTMENTS TO GROSS INCOME DISTRIBUTION:
                               
 
Management fee
    (172 )     (417 )     (747 )     (2,705 )
 
Marketing fee
    (94 )     (228 )     (407 )     (1,476 )
 
General pooled expense
                      (12,355 )
 
Miscellaneous pooled expense
          (49 )     (45 )     (218 )
 
Corporate complimentary occupancy fees
    6,526       7,705       14,328       16,422  
 
Interest (Paragraph 3.1 (3))
    (3,183 )     (3,183 )     (9,549 )     (9,549 )
 
Gtd MLA guaranteed payment
                1,592        
 
Occupancy fees
    (242,777 )     (223,879 )     (814,308 )     (914,830 )
 
Advisory Committee expenses
    (47,068 )     (50,641 )     (148,605 )     (154,406 )
 
Life-safety reimbursement
    (22,135 )           (156,962 )      
 
   
     
     
     
 
NET INCOME DISTRIBUTION
    422,844       375,668       2,015,993       2,587,593  
ADJUSTMENTS TO NET INCOME DISTRIBUTION:
                               
 
Occupancy fees
    242,777       223,879       814,308       914,830  
 
Hospitality suite fees
    370       1,216       4,234       4,234  
 
Westin Associate room fees
    14,455       22,393       53,899       61,838  
 
Interest
                2,890        
 
   
     
     
     
 
AMOUNT AVAILABLE FOR DISTRIBUTION TO PARTICIPANTS
  $ 680,446     $ 623,156     $ 2,891,324     $ 3,568,495  
 
   
     
     
     
 
Average daily distribution
  $ 12.17     $ 11.53     $ 17.93     $ 22.61  
Average room rate
  $ 102.89     $ 94.31     $ 131.34     $ 134.94  
Occupied room nights
    19,101       18,326       64,440       73,970  
Available room nights
    55,927       54,040       161,213       157,815  
Occupancy percentage
    34.2 %     33.9 %     40.0 %     46.9 %
Average number of available units
    608       587       591       578  

These statements were prepared from the books and records of the Rental Pool without audit and, in the opinion of the Rental Pool Operators, 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 ENDED SEPTEMBER 30, 2003 AND 2002

DISTRIBUTION FUND
(unaudited)

                                     
        Current Quarter   Year-to-date
       
 
        2003   2002   2003   2002
       
 
 
 
BALANCE, beginning of period
  $     $     $     $  
ADDITIONS:
                               
 
Amount available for distribution
    680,446       623,156       2,891,324       3,568,495  
 
Interest received or receivable from Maintenance Escrow Fund
    8,314       19,303       33,354       57,021  
REDUCTIONS:
                               
 
Amounts withheld for Maintenance Escrow Fund
    (218,441 )     (211,923 )     (733,409 )     (833,779 )
 
Amounts accrued or paid to participants
    (470,319 )     (430,536 )     (2,191,269 )     (2,791,737 )
 
   
     
     
     
 
BALANCE, end of period
  $     $     $     $  
 
   
     
     
     
 
MAINTENANCE ESCROW FUND
BALANCE, beginning of period
  $ 3,079,987     $ 4,943,836     $ 3,444,280     $ 2,726,458  
ADDITIONS:
                               
 
Amounts withheld from occupancy fees
    218,441       211,923       733,409       833,779  
 
Interest earned
    8,314       19,303       33,354       57,021  
 
Charges to participants to establish or restore escrow balances
    35,032       74,749       1,823,283       4,565,917  
REDUCTIONS:
                               
 
Maintenance charges
    (232,585 )     (163,948 )     (671,400 )     (452,259 )
 
Refurbishment Phase II
    (1,000,928 )     (1,310,243 )     (3,012,953 )     (3,281,652 )
 
Carpet care reserve deposit
    (14,562 )     (11,774 )     (43,138 )     (42,704 )
 
Interest accrued or paid to Distribution Fund
    (8,314 )     (19,303 )     (33,354 )     (57,021 )
 
Refunds to participants as prescribed by the master lease agreements
    (37,974 )     (108,881 )     (226,070 )     (713,877 )
 
   
     
     
     
 
BALANCE, end of period
  $ 2,047,411     $ 3,635,662     $ 2,047,411     $ 3,635,662  
 
   
     
     
     
 

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

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GOLF HOST RESORTS, INC.

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

Quarter ended September 30, 2003

During the third quarter of 2003, the Company’s results of operations continued to reflect the downward trend in the hospitality industry and the destination golf resort segment of that industry. Occupancy percentages at the Innisbrook resort were 4.2% greater than the same three-month period for the prior year. Total room nights were 773 greater for the period ended September 30, 2003 compared to the three months ended September 30, 2002. Group room nights were up 1,933 while transient rooms decreased by 1,160 room nights, as compared to the same period last year. Total revenue per room night decreased by 7.7% or $27.10 as compared to the prior year. Gross revenue per room night for the three months ended September 30, 2003 was $325.96 as compared to $353.05 for the three months ended September 30, 2002. Despite increases in room nights, the decrease in total revenue per room night resulted in net decrease in gross revenue of approximately $245,000 or 3.8%.

All expenses have been managed to respond to the reduced demand in the market place, including the day-to-day maintenance costs of the four golf courses. Operating expenses, exclusive of depreciation and amortization, increased approximately $541,000 or 7.6%. Depreciation and amortization also increased by approximately $47,000 or 3.6%.

The decrease in revenue combined with the increases in operating expenses and depreciation and amortization noted above, produced a net reduction in the comparative three month operating income of approximately $832,000. Operating income, before interest expense and preferred dividend requirements, was a loss of approximately $2,839,000 versus a loss of approximately $2,007,000 for the three months ended September 30, 2003 and September 30, 2002, respectively.

Interest expense, net of interest income, reflects the continued accrual of the Company’s GTA interest obligations. Total interest expense increased by approximately $20,000 or 1%. This increase was the result of effective interest rate changes on the GTA mortgage.

Capital expenditure reserves in the amount of approximately $603,000 were set-aside during the quarter ended September 30, 2003. Of this amount, approximately $184,000 was used to fund capital lease payments on operating assets such as golf carts, golf grounds equipment and computer equipment while $239,000 was used to replace and repair the conference center and clubhouse HVAC, clubhouse roofing, systems and miscellaneous deferred maintenance projects. The balance is being held in reserve to fund the new telephone switch and additional golf course equipment, both of which will be installed and or delivered before the end of the first quarter of 2004.

Nine months ended September 30, 2003

During the nine months ended September 30, 2003, the Company’s results of operations continued to reflect the downward trend in the hospitality industry and the destination golf resort segment of that industry as noted above. Occupancy percentages at the Innisbrook resort were 12.9% less than the same nine-month period for the prior year. Total room nights were down 9,530 for the period ended September 30, 2003 as compared to the nine months ended September 30, 2002. Group and transient room nights were down 6,978 and 2,552 room nights respectively, as compared to the same period last

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GOLF HOST RESORTS, INC.

     
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Continued)

year. Total revenue per room night decreased by $4.75 or 1.1% over the prior year. Gross revenue per room night for the nine months ended September 30, 2003 was $437.02 as compared to $441.77 for the nine months ended September 30, 2002. These reductions in room nights coupled with the decrease in room night spending levels produced a net decrease in gross revenue of approximately $4,516,000 or 13.8%.

Due to management’s reducing operating expenses in response to reduced demands, operating expenses, exclusive of depreciation and amortization, decrease approximately $1,092,000 or 3.8%. Depreciation and amortization decreased by approximately $90,000 or 3.1%.

The decrease in revenue combined with the decreases in operating expenses and increase in depreciation and amortization noted above, produced a net reduction in the comparative nine month operating income of approximately $3,334,000. Operating income, before interest expense and preferred dividend requirements, was a loss of approximately $2,046,000 versus income of approximately $1,288,000 for the nine months ended September 30, 2003 and September 30, 2002, respectively.

Interest expense, net of interest income, reflects change in the effective interest rates related to the GTA interest obligations. Total interest expense decreased by approximately $19,000 or .3%.

Capital expenditure reserves in the amount of approximately $1,808,000 were set-aside during the nine months ended September 30, 2003. Of this amount, approximately $663,000 was used to fund capital lease payments on operating assets such as golf carts, golf grounds equipment and computer equipment while $439,000 was used to replace and repair the conference center and clubhouse HVAC, roofing systems and miscellaneous deferred maintenance projects. The balance is being held in reserve to fund the new telephone switch and golf course equipment, both of which are expected be installed and or delivered before the end of the first quarter of 2004.

The following information may contain forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act. Such statements may be identified by the inclusion of terms such as “believe,” “expect,” “hope” or “may.” Although the Company believes that such forward-looking statements are based upon sound and reasonable assumptions, given the circumstances in which the statements are made, the actual results could differ significantly from those described in the forward-looking statements.

Certain factors that might cause such a difference include the following: changes in general economic conditions that may influence group conferences and guests’ vacations plans; changes in travel patterns; changes in consumer tastes in destinations or accommodations for group conferences and vacations; changes in rental pool participation by the current condominium owners; reaching a settlement agreement with the Company’s primary lender; settlement of the Class Action Lawsuit; the ability of the Company to continue to operate the Innisbrook property under its management contracts; and the resale of condominiums to owners who elect neither to participate in the rental pool nor to become Club members. Given these uncertainties, readers are cautioned not to put undue reliance on such statements.

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GOLF HOST RESORTS, INC.

     
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Continued)

Liquidity and Capital Resources

The Company’s working capital position has decreased to a deficit of approximately $105,454,000. This is a reduction of approximately $7,376,000 in working capital from the December 31, 2002 deficit of approximately $98,078,000.

The Company continues to experience seasonal fluctuations in its net working capital position. These fluctuations have been managed in the past through the utilization of an accounts receivable revolving credit line. Effective May 23, 2002, the revolving credit line with Wells Fargo Business Credit was terminated by Wells Fargo as a result of the Company’s default on the participating mortgage with Golf Trust of America (GTA).

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

As of November 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 Innisbrook resort property, three condominium units located at the resort, the Company’s ownership interests in GTA stock, and all rights, title and interests of the Company under existing contracts and agreements. In addition, the Company would provide 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 are under any obligation to execute the Settlement Agreement and GTA could initiate foreclosure proceedings or pursue any other legal remedies available to it at any time.

During October 2003, Westin Hotel Company, the manager of the Innisbrook Resort, provided ownership with updated net cash flow projections for the fourth quarter of 2003 and for the year 2004. Due to continuing softness in the general economy and specifically the destination resort industry, these net cash flow projections are significantly less favorable than previously projected for these periods, and will result in operating deficits for such periods.

As described in Note 4 of the notes to consolidated financial statements on the Company’s Form 10-K for December 31, 2002, management had determined that due to declining demand in the hotel golf resort business and related rental pool participation, which led to declines in operating results, impairment of the intangible asset 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 recorded an additional $3,000,000 impairment charge during the quarter ended September 30, 2001. No further impairment has been recognized subsequent to the period ended September 30, 2001.

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GOLF HOST RESORTS, INC.

     
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.
     
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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PART II — OTHER INFORMATION

     
Item 1.   Legal Proceedings
     
    Golf Hosts, Inc., the Company’s parent, was 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 Lease Agreement. By order dated April 3, 2003, the Company was substituted in place of Golf Hosts, Inc. as the defendant in the lawsuit. The plaintiffs are seeking unspecified damages and a declaratory judgment stating that the plaintiffs are entitled to participate in the rental pool if one exists, a limitation of golf course access to persons who are either condominium owners, members, their accompanied guest, or guests of the resort and a limitation of the total number of Club memberships. Deposition of class members and others, including depositions of prior executives of Golf Host Resorts, have been taken and additional discovery remains. The previously scheduled trial date of February 3, 2003 has been postponed by the Court; a new trial date has not yet been set. In July 2003, the lawsuit was de-certified leaving approximately 80 plaintiffs in the lawsuit. Plaintiffs have filed a notice of appeal regarding the de-certification decision. As this litigation in 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 it has successful defenses based upon consultations with legal counsel and intends to vigorously defend this action.
     
Item 2.   Changes in Securities and Use of Proceeds
     
    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 the 10-Q filing are unaudited financial statements of the Innisbrook Rental Pool Lease Operation for the quarters ended March 31, 2003 and 2002.
     
Item 6.   Exhibits and Reports on Form 8-K
     
    (a) The following exhibits are included in this Form 10-Q:
     
    31.1 President Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
     
    31.2 Principal Financial Officer Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
     
    32.1 President Certification pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
     
    32.2 Principal Financial Officer Certification pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
     
    (b) The Registrant did not file Form 8-K during the three months ended March 31, 2003.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

GOLF HOST RESORTS, INC.

         
Date:    November 24, 2003

  By: /s/ Merrick Kleeman

Merrick Kleeman
President
 
Date:    November 24, 2003

  By: /s/ R. Keith Wilt

R. Keith Wilt
Vice President and Treasurer
(Principal Financial Officer)

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