FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

For Quarter Ended ~~September~~June 30, ~~2003~~2004

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	~~34684~~
(Address of principal executive offices)	(Zip Code)	~~(Zip Code)~~
(727) 942-2000 (Registrant’s telephone number, including area code)

~~Indicate by check mark whether the registrant~~ (1727) ~~has filed all reports required~~942-2000 ~~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~~

(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.

TABLE OF CONTENTS

PART I —- FINANCIAL INFORMATION ~~CONSOLIDATED~~Item ~~BALANCE~~1. ~~SHEETS~~Financial ~~CONSOLIDATED~~Statements ~~STATEMENTS~~Item OF2. ~~OPERATIONS~~Management’s ~~CONSOLIDATED~~Discussion ~~STATEMENTS~~and OFAnalysis ~~SHAREHOLDER'S~~of ~~DEFICIT~~Financial ~~CONSOLIDATED~~Condition ~~STATEMENTS~~and OFResults ~~CASH~~of ~~FLOWS~~Operations ~~NOTES~~Item TO3. ~~CONSOLIDATED~~Quantitative ~~FINANCIAL~~and ~~STATEMENTS~~Qualitative Disclosures About Market Risk Item 4. Controls and Procedures PART II - OTHER INFORMATION Item 1. Legal Proceedings Item 2. —Changes ~~Management’s~~in ~~Discussion~~Securities, Use of Proceeds and ~~Analysis~~Issuer Purchases of ~~Financial~~Equity ~~Condition~~Securities ~~and~~Item ~~Results~~3. Defaults Upon Senior Securities Item 4. Submission of ~~Operations~~Matters ~~PART~~to IIa --Vote ~~OTHER~~of ~~INFORMATION~~Security ~~SIGNATURES~~Holders ExItem 5. Other Information Item 6. Exhibits and Reports on Form 8-K SIGNATURES EXHIBITS 31.1 Section 302 CEO Certification ~~Ex-~~31.2 Section 302 ~~CFO~~Principal Financial Officer Certification ~~Ex-~~32.1 Section 906 CEO Certification ~~Ex-~~32.2 Section 906 Principal Financial Officer Certification EX-31.1 302 Certification of CEO EX-31.2 302 Certification of CFO EX-32.1 906 Certification of CEO EX-32.2 906 Certification of CFO

PART I — -FINANCIAL INFORMATION

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

ASSETS
(Substantially all pledged)

			September 30,			December 31,
		June 30,			December 31,
			2003			2002
		2004			2003
			(unaudited)
CURRENT ASSETS:
Cash	~~Cash~~	$	$—	~~139,518~~	$	$—	—
Restricted cash	~~Restricted cash~~		3,283,223	~~2,670,865~~		2,489,761	~~2,520,849~~
Accounts receivable, net	~~Accounts receivable, net~~		1,411,859	~~1,397,783~~		1,578,294	~~2,069,962~~
Other receivables	~~Other receivables~~		128,877	~~180,373~~		120,966	~~61,554~~
Inventories and supplies	~~Inventories and supplies~~		1,134,514	~~1,362,136~~		1,348,526	~~1,157,792~~
Prepaid expenses and other assets	~~Prepaid expenses and other assets~~		568,527	~~427,684~~		350,161	~~514,493~~
Total current assets	~~Total current assets~~		6,527,000	~~6,178,359~~		5,887,708	~~6,324,650~~
INTANGIBLES, net			11,171,299	~~11,817,643~~		11,602,195	~~12,463,987~~
PROPERTY AND EQUIPMENT, net			36,838,251	~~37,428,334~~		37,164,124	~~38,025,063~~
OTHER ASSETS			5,756,519	~~5,181,886~~		6,279,340	~~5,701,950~~
			$	60,606,222		$	62,515,650
TOTAL ASSETS		$	60,293,069		$	60,933,367

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

Page 2

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,
		June 30,				December 31,
			2003				2002
		2004				2003
			(unaudited)
CURRENT LIABILITIES:
	Cash overdrafts		$	480,771			$	69,846
Debt due within one year		$	78,975,000			$	78,975,000
	Debt due within one year			79,001,205				79,003,552
Cash overdrafts			116,632				—
Accounts payable	~~Accounts payable~~		3,606,580	~~3,768,698~~			4,501,132	~~4,973,036~~
Accrued payroll costs	~~Accrued payroll costs~~		990,632	~~1,150,735~~			885,531	~~893,224~~
Accrued interest	~~Accrued interest~~		28,312,136	~~21,451,823~~			23,751,133	~~14,538,319~~
Other payables and accrued expenses	~~Other payables and accrued expenses~~		1,729,136	~~3,006,963~~			2,541,365	~~2,721,823~~
Deposits and deferred revenues	~~Deposits and deferred revenues~~		1,784,896	~~2,174,310~~			1,867,326	~~2,003,938~~
Due to related parties	~~Due to related parties~~		2,398,097	~~598,013~~			832,774	~~198,802~~
Total current liabilities	~~Total current liabilities~~		117,913,109	~~111,632,518~~			113,354,261	~~104,402,540~~
DEBT DUE AFTER ONE YEAR				88,330				—
OTHER LONG-TERM LIABILITIES			10,265,009				10,265,009
OTHER LONG-TERM LIABILITIES				10,265,009				10,265,009
LONG TERM REFURBISHMENT			6,960,748				6,960,748
LONG TERM REFURBISHMENT				5,623,095				5,548,514
DEFERRED INCOME TAXES			1,255,000				1,255,000
DEFERRED INCOME TAXES				1,255,000				1,255,000
Total liabilities			136,393,866				131,835,018
	Total liabilities			128,863,952				121,471,063
SHAREHOLDER’S DEFICIT
SHAREHOLDER’S DEFICIT
Common stock, $1 par, 5,000 shares authorized, issued, and outstanding			5,000				5,000
	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
	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	)
	Paid-in capital			(8,487,323	)			(8,487,323	)
Shareholder receivable			(223,709	)			(223,709	)
	Shareholder receivable			(219,784	)			—
Accumulated deficit			(71,971,765	)			(66,772,619	)
	Accumulated deficit			(64,132,623	)			(55,050,090	)
Total shareholder’s deficit			(76,100,797	)			(70,901,651	)
	Total shareholder’s deficit			(68,257,730	)			(58,955,413	)
Total liabilities and shareholder’s deficit		$	60,293,069			$	60,933,367
	Total liabilities and shareholder’s deficit		$	60,606,222			$	62,515,650

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

Page 3

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

			Quarters Ended September 30,								Nine months ended September 30,
		Quarter ended June 30,								Six months ended June 30,
			2003				2002				2003				2002
		2004				2003				2004				2003
REVENUES:
		(unaudited)								(unaudited)
	Resort facilities		$	2,015,046			$	1,752,027			$	8,628,252			$	10,149,089
REVENUES:
	Food and beverage			1,623,538				1,675,795				7,921,313				9,076,147
Resort facilities		$	2,696,928			$	2,537,629			$	6,447,144			$	6,613,206
	Golf			1,717,147				1,715,605				8,347,857				9,187,693
Food and beverage			2,471,455				2,871,574				5,696,248				6,297,775
	Other			870,351				1,327,330				3,264,267				4,265,135
Golf			2,897,568				2,869,517				6,868,855				6,630,710
				6,226,082				6,470,757				28,161,689				32,678,064
Other			1,369,718				1,189,196				2,864,688				2,620,929
COST AND OPERATION EXPENSES:
			9,435,669				9,467,916				21,876,935				22,162,620
	Resort facilities			1,544,593				1,333,655				6,788,304				7,562,081
COSTS AND OPERATING EXPENSES:
	Food and beverage			1,515,733				1,426,942				5,817,633				6,194,251
Resort facilities			2,492,501				2,146,932				5,280,318				5,243,711
	Golf			1,734,641				1,440,819				5,188,103				4,699,426
Food and beverage			2,061,601				2,041,635				4,378,596				4,301,900
	Other			2,148,252				1,910,170				6,728,247				6,611,544
Golf			1,977,147				1,747,929				3,850,192				3,453,462
	General and administrative			763,045				1,053,885				2,832,666				3,379,422
Other			2,232,431				2,238,575				4,577,016				4,579,995
	Depreciation and amortization			1,358,480				1,311,941				2,852,876				2,943,464
General and administrative			1,304,946				1,065,098				2,632,134				2,296,634
				9,064,744				8,477,412				30,207,829				31,390,188
Depreciation and amortization			702,198				747,198				1,494,396				1,494,396
OPERATING (LOSS)/INCOME				(2,838,662	)			(2,006,655	)			(2,046,140	)			1,287,876
			10,770,824				9,987,367				22,212,652				21,370,098
INTEREST, NET				2,275,869				2,256,235				6,844,162				6,862,945
OPERATING (LOSS)/INCOME			(1,335,155	)			(519,451	)			(335,717	)			792,522
LOSS BEFORE PREFERRED STOCK DIVIDEND				(5,114,531	)			(4,262,890	)			(8,890,302	)			(5,575,069	)
INTEREST EXPENSE, NET			2,351,421				2,338,834				4,735,275				4,568,293
DIVIDEND REQUIREMENTS ON PREFERRED STOCK				64,077				64,077				192,231				192,231
LOSS BEFORE PREFERRED STOCK DIVIDEND			(3,686,576	)			(2,858,285	)			(5,070,992	)			(3,775,771	)
LOSS AVAILABLE TO COMMON SHAREHOLDER			$	(5,178,608	)		$	(4,326,967	)			(9,082,533	)		$	(5,767,300	)
DIVIDEND REQUIREMENTS ON PREFERRED STOCK			64,077				64,077				128,154				128,154
LOSS ATTRIBUTABLE TO COMMON SHAREHOLDER		$	(3,750,653	)		$	(2,922,362	)		$	(5,199,146	)		$	(3,903,925	)

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

Page 4

GOLF HOST RESORTS, INC AND SUBSIDIARY (a wholly owned subsidiary of Golf Host, Inc.) CONSOLIDATED STATEMENTS OF SHAREHOLDER’S DEFICIT (unaudited)

	$1 Par Value				5.6% Cumulative													Total
	Common Stock				Preferred Stock				Paid-In			Shareholder’s			Accumulated			Shareholder’s
									Paid-In			Shareholder			Retained
	Shares		Amount		Shares		Amount		Capital			Receivable			Deficit			Deficit
	Shares		Amount		Shares		Amount		Capital			Receivable			Deficit
Balance, December 31, 2003		5,000	$	5,000		4,577,000	$	4,577,000	$	(8,487,323	)	$	(223,709	)	$	(66,772,619	)	$	(70,901,651	)
Balance, December 31, 2002		5,000	$	5,000		4,577,000	$	4,577,000	$	(8,487,323	)	$	0		$	(55,050,090	)
Loss attributable to common shareholder (unaudited)		—		—		—		—		—			—			(5,199,146	)		(5,199,146	)
Shareholder receivable		—		—		—		—		—			(219,784	)		—
Balance, June 30, 2004		5,000	$	5,000		4,577,000	$	4,577,000	$	(8,487,323	)	$	(223,709	)	$	(71,971,765	)	$	(76,100,797	)
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.

Page 5

GOLF HOST RESORTS, INC. AND SUBSIDIARY (a wholly owned subsidiary of Golf ~~Hosts~~Host, Inc.) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, (unaudited)

					2003				2002
		2004				2003
CASH FLOWS FROM OPERATING ACTIVITIES:
	(Loss)/income before dividend requirements on preferred stock				$	(8,890,302	)		$	(5,575,069	)
Loss before dividend requirements on preferred stock		$	(5,070,992	)		$	(3,775,771	)
Adjustments to reconcile net income to net cash provided by operations:	~~Adjustments to reconcile net income to net cash provided by operations:~~
		Management company contribution				—				(425,688	)
Depreciation and amortization			1,494,396				1,494,396
		Depreciation and amortization				2,241,594				2,638,202
Provision for bad debts			54,052				(75,520	)
		Provision for bad debts				(159,349	)			212,449
Amortization of refurbishment costs			522,831				390,919
Gain on disposal of capital lease		~~Gain on disposal of capital lease~~	—			~~(27,739~~	)(27,739	)		~~(294,822~~	)
		Rental pool expense				611,282				305,262
Changes in operating working capital			3,737,343				2,807,375
		Changes in operating working capital				7,265,465				5,659,421
Cash provided by operations			737,630				813,660
			Cash provided by operations			1,040,951				2,519,755
CASH FLOWS FROM INVESTING ACTIVITIES:
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in other assets			—				3,369
	Increase in other assets					(16,637	)			(34,235	)
Purchases of property and equipment			(737,630	)			(627,492	)
	Purchases of property and equipment					(948,979	)			(282,945	)
Cash used in investing activities			(737,630	)			(624,123	)
			Cash used in investing activities			(965,616	)			(317,180	)
CASH FLOWS FROM FINANCING ACTIVITIES:
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of existing debt			—				(62,245	)
	Contribution from owners					—				21,239
Additional borrowings on existing debt			—				132,600
	Repayment of existing debt					(68,417	)			(133,645	)
Cash used in financing activities			—				70,355
	Additional borrowings on existing debt					132,600				—
NET INCREASE IN CASH			—				259,892
	Increase/(decrease) in other long-term liabilities					—				(1,940,194	)
CASH, BEGINNING OF PERIOD			—				—
			Cash used in financing activities			64,183				(2,052,600	)
CASH, END OF PERIOD		$	—			$	259,892
NET INCREASE IN CASH						139,518				149,975
NONCASH FINANCING AND INVESTING ACTIVITIES:
CASH, BEGINNING OF PERIOD						—				665,402
The Company recorded its preferred stock dividend liability to GHI		$	128,154			$	128,154
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.

Page 6

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

(1) BASIS OF PRESENTATION

(1)		BASIS OF PRESENTATION

		The financial statements for December 31, 2003 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, 2003, 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.(“GHI”) (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, 2003.

		The accompanying consolidated balance sheets for June 30, 2004, and consolidated statements of operations and cash flows for the periods ended June 30, 2004 and 2003, 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. Certain reclassifications have been made to the June 30, 2003 financial statements to conform to June 30, 2004 presentation.

		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 entire fiscal year.

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 $431,000 and $431,000 for the six months ended June 30, 2004 and June 30, 2003, respectively.

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.

Page 7

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

2) INTANGIBLE ASSETS

2)		INTANGIBLE ASSETS

		During the six months ended June 30, 2004, the Company reviewed the carrying value of the intangible asset and determined that further impairment had not occurred. Advance bookings and rental pool participation had stabilized from a historical perspective, and the pro forma cash flows, based upon advance bookings indicate that no further deterioration in the carrying value should be recognized in 2004.

(3)		DEBT

		Debt consists of the following:

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.


	June 30,			December 31,
	2004			2003
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

		78,975,000			78,975,000
Less current maturities		(78,975,000	)		(78,975,000	)

	$	—		$	—

(3) DEBT

(4)		CONTINGENCIES

		The Company, in the normal course of operations, is subject to claims and lawsuits. The Company does not believe that the ultimate resolution of such matters will materially impair operations or have an adverse effect on the Company’s financial position and results of operations.

		GHI was named as a defendant in a consolidated class action lawsuit (“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, a limitation of the total number of club memberships and a limitation of golf course access to persons who are either condominium owners who are members, their accompanied guests, or guests of the resort. Depositions of class members and others, including depositions of prior executives of the Company, have been taken and additional discovery remains. The Court has postponed the previously scheduled trial date of February 3, 2003; a new trial date has not yet been set. As of December 31, 2003, the Court had decertified the class and denied the plaintiffs’ subsequent motion to permit additional owners to intervene in the lawsuit. In addition, the plaintiffs filed a complaint seeking to “pierce the corporate veil”. The court dismissed the veil piercing complaint with prejudice. The plaintiffs appealed the

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;

Page 8

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

(4) CONTINGENCIES (continued)

(4)		CONTINGENCIES (continued)

		decertification of the class; the denial to intervene and the veil piercing dismissal to the Florida Court of Appeals, Second District. The Court of Appeals has affirmed the lower court’s decertification of the class and has affirmed the lower court’s dismissal with prejudice of the veil piercing case. On July 29, 2004, the Circuit Court for the Sixth Judicial Court entered an order granting defendant’s motion for summary judgment. No decision on the intervention appeal has been made. The Company does not believe the resolution of this matter will have a material adverse effect on the Company’s financial condition or results of operations.

		The Company has recorded a liability and related asset in the approximate amount of $6,961,000, 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 is being amortized on a straight line basis over the period from the time each phase of the refurbishment is placed is service through the completion of payment in 2009. The amortization expense for the period ending June 30, 2004 and 2003 was approximately $523,000 and $391,000, respectively.

		As noted in the Company’s 10-K filed as of December 31, 2003, the Company has defaulted on its primary mortgage with Golf Trust of America ("GTA"). On July 15, 2004, the Company and GTA entered into a Settlement Agreement wherein the Resort property, three condominium units and a linen room located at the Innisbrook Resort, the acquired interest in common stock and operating partnership units of GTA held by the parent and all rights, title and interests of the Company under existing contracts and agreements were transferred to GTA. In addition, the Company provided 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 lawsuit known as 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, GTA delivered a duly executed release.

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.

Page 9

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~~June 30, ~~2003~~2004 and 2003. ~~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, 2003 (file No. 2-64309).

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).

Page 10

INNISBROOK RENTAL POOL LEASE OPERATION
BALANCE SHEETS

~~DISTRIBUTION~~Distribution ~~FUND~~Fund

	September 30,		December 31,
	June 30,
	2003		2002
	2004		December 31,
	(unaudited)		2003
ASSETS
Assets
LIFE SAFETY RECEIVABLE FROM PARTICIPANTS	$	44,271	$	—
Receivable from Golf Host Resorts, Inc. for distribution	$	975,210	$	1,040,282
RECEIVABLE FROM GOLF HOST RESORTS, INC. FOR DISTRIBUTION		680,446		1,790,798
Interest receivable from Maintenance Escrow Fund		4,654		6,489
INTEREST RECEIVABLE FROM MAINTENANCE ESCROW FUND		8,314		15,856
	$	979,864	$	1,046,771
	$	733,031	$	1,806,654
Liabilities and participants’ fund balances
LIABILITIES AND PARTICIPANTS’ FUND BALANCES
Due to participants for distribution	$	725,395	$	788,162
DUE TO PARTICIPANTS FOR DISTRIBUTION	$	470,319	$	1,480,977
Due to Maintenance Escrow Fund		254,469		258,609
DUE TO MAINTENANCE ESCROW FUND		218,441		325,677
	$	979,864	$	1,046,771
LIFE SAFETY SETTLEMENT LIABILITY		44,271		—
Maintenance Escrow Fund Assets
	$	733,031	$	1,806,654
Cash and cash equivalents	$	125,623	$	246,192
MAINTENANCE ESCROW FUND
Short term investments		1,520,000		1,330,000
ASSETS
Inventory		4,494		535
CASH AND CASH EQUIVALENTS	$	1,888,015	$	4,991,956
Receivable from Distribution Fund		254,469		258,609
RECEIVABLE FROM DISTRIBUTION FUND		218,441		325,677
Interest receivable		4,716		15,858
CONSTRUCTION WORK IN PROGRESS		39,421		7,284
	$	1,909,302	$	1,851,194
CARPET CARE RECEIVABLE		9,018		23,576
Liabilities and Participants’ Fund Balances
INTEREST RECEIVABLE		13,519		9,012
Accounts payable	$	3,542	$	43,590
	$	2,168,414	$	5,357,505
Construction retainage		5,344		5,389
LIABILITIES AND PARTICIPANTS’ FUND BALANCES
Interest payable to Distribution Fund		4,654		6,489
ACCOUNTS PAYABLE	$	108,387	$	2,820
Carpet care payable		18,796		4,137
CONSTRUCTION RETAINAGE		4,302		—
Participants’ fund balances		1,876,966		1,791,589
INTEREST PAYABLE TO DISTRIBUTION FUND		8,314		15,856
	$	1,909,302	$	1,851,194
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.

Page 11

~~STATEMENTS~~INNSBROOK RENTAL POOL LEASE OPERATIONSTATEMENTS OF OPERATIONS FOR THE QUARTERS ENDED ~~SEPTEMBER~~JUNE 30, ~~2003~~2004 AND ~~2002~~2003

~~DISTRIBUTION~~Distribution ~~FUND~~Fund (unaudited)

		Current quarter	~~Current quarter~~							Year-to-Date	~~Year-to-Date~~
			2003				2002				2003				2002
		2004				2003				2004				2003
GROSS REVENUES			$	1,965,259			$	1,728,450			$	8,463,294			$	9,981,870
Gross Revenues		$	2,636,067			$	2,485,774			$	6,325,161			$	6,498,035
DEDUCTIONS:
Deductions:
Agents’ commissions	~~Agents’ commissions~~		122,967	~~56,349~~			82,033	~~47,699~~			271,597	~~316,817~~			260,468	~~420,815~~
Credit card fees	~~Credit card fees~~		62,182	~~45,388~~			58,723	~~40,776~~			151,854	~~199,308~~			153,920	~~236,282~~
Audit fees	~~Audit fees~~		6,250	~~5,387~~			5,387	~~3,813~~			12,500	~~16,161~~			10,774	~~12,187~~
Uncollectable room rents	~~Uncollectable room rents~~		390	—			—	~~2,295~~			2,459	~~2,119~~			2,119	~~26,666~~
Linen replacements	~~Linen replacements~~		16,877	~~28,655~~			21,290	~~17,351~~			74,679	~~102,852~~			74,197	~~126,379~~
Rental pool complimentary fees	~~Rental pool complimentary fees~~		1,183	~~824~~			654	~~2,413~~			2,634	~~2,453~~			1,629	~~4,233~~
				136,603				114,347				639,710				826,562
			209,849				168,087				515,723				503,107
ADJUSTED GROSS REVENUES				1,828,656				1,614,103				7,823,584				9,155,308
Adjusted Gross Revenues			2,426,218				2,317,687				5,809,438				5,994,928
MANAGEMENT FEE				(1,096,909	)			(967,743	)			(4,692,888	)			(5,488,598	)
Management Fee			(1,455,730	)			(1,390,575	)			(3,485,662	)			(3,596,867	)
GROSS INCOME DISTRIBUTION				731,747				646,360				3,130,696				3,666,710
Gross Income Distribution			970,488				927,112				2,323,776				2,398,061
ADJUSTMENTS TO GROSS INCOME DISTRIBUTION:
Adjustments to Gross Income Distribution:
	Management fee			(172	)			(417	)			(747	)			(2,705	)
General pooled expense			(1,195	)			(21	)			(3,240	)			(45	)
	Marketing fee			(94	)			(228	)			(407	)			(1,476	)
Corporate complimentary occupancy fees			5,470				5,040				9,340				7,802
	General pooled expense			—				—				—				(12,355	)
Interest expense			(3,183	)			(3,183	)			(6,366	)			(6,366	)
	Miscellaneous pooled expense			—				(49	)			(45	)			(218	)
Gtd MLA guaranteed payment			—				—				—				1,592
	Corporate complimentary occupancy fees			6,526				7,705				14,328				16,422
Occupancy fees			(279,601	)			(264,162	)			(575,551	)			(571,531	)
	Interest (Paragraph 3.1 (3))			(3,183	)			(3,183	)			(9,549	)			(9,549	)
Advisory Committee expenses			(43,585	)			(54,143	)			(94,503	)			(101,537	)
	Gtd MLA guaranteed payment			—				—				1,592				—
Life-safety reimbursement			—				(46,284	)			—				(134,827	)
	Occupancy fees			(242,777	)			(223,879	)			(814,308	)			(914,830	)
Net Income Distribution			648,394				564,359				1,653,456				1,593,149
	Advisory Committee expenses			(47,068	)			(50,641	)			(148,605	)			(154,406	)
Adjustments to Net Income Distribution:
	Life-safety reimbursement			(22,135	)			—				(156,962	)			—
Occupancy fees			279,601				264,162				575,551				571,531
NET INCOME DISTRIBUTION				422,844				375,668				2,015,993				2,587,593
Hospitality suite fees			2,282				2,424				4,207				3,864
ADJUSTMENTS TO NET INCOME DISTRIBUTION:
Westin Associate room fees			44,933				15,288				80,409				39,444
	Occupancy fees			242,777				223,879				814,308				914,830
Interest			—				—				—				2,890
	Hospitality suite fees			370				1,216				4,234				4,234
Amount available for Distribution to Participants		$	975,210			$	846,233			$	2,313,623			$	2,210,878
	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

Page 12

INNISBROOK RENTAL POOL LEASE OPERATION STATEMENTS OF CHANGES IN PARTICIPANTS’ FUND BALANCES FOR THE QUARTERS ENDED ~~SEPTEMBER~~JUNE 30, ~~2003~~2004 AND ~~2002~~2003

~~DISTRIBUTION~~Distribution ~~FUND~~Fund (unaudited)

		Current Quarter		~~Current Quarter~~						Year-to-date		~~Year-to-date~~
				2003				2002				2003				2002
		2004				2003				2004				2003
BALANCE, beginning of period				$	—			$	—			$	—			$	—
Balance, beginning of period		$	—			$	—			$	—			$	—
ADDITIONS:
Additions:
Amount available for distribution	~~Amount available for distribution~~		975,210		~~680,446~~		846,233		~~623,156~~		2,313,623		~~2,891,324~~		2,210,878		~~3,568,495~~
Interest received or receivable from Maintenance Escrow Fund	~~Interest received or receivable from Maintenance Escrow Fund~~		4,654		~~8,314~~		14,068		~~19,303~~		9,655		~~33,354~~		25,040		~~57,021~~
REDUCTIONS:
Reductions:
Amounts withheld for Maintenance Escrow Fund	~~Amounts withheld for Maintenance Escrow Fund~~		(254,469	)	~~(218,441~~	)	(237,746	)	~~(211,923~~	)	(520,825	)	~~(733,409~~	)	(514,698	)	~~(833,779~~	)
Amounts accrued or paid to participants	~~Amounts accrued or paid to participants~~		(725,395	)	~~(470,319~~	)	(622,555	)	~~(430,536~~	)	(1,802,453	)	~~(2,191,269~~	)	(1,721,220	)	~~(2,791,737~~	)
BALANCE, end of period				$	—			$	—			$	—			$	—
Balance, end of period		$	—			$	—			$	—			$	—
MAINTENANCE ESCROW FUND
Maintenance Escrow Fund
BALANCE, beginning of period				$	3,079,987			$	4,943,836			$	3,444,280			$	2,726,458
Balance, beginning of period		$	1,831,463			$	4,568,662				1,791,589				3,444,280
ADDITIONS:
Additions:
Amounts withheld from occupancy fees	~~Amounts withheld from occupancy fees~~		254,469		~~218,441~~		237,746		~~211,923~~		520,825		~~733,409~~		514,698		~~833,779~~
Interest earned	~~Interest earned~~		4,654		~~8,314~~		14,068		~~19,303~~		9,655		~~33,354~~		25,040		~~57,021~~
Charges to participants to establish or restore escrow balances	~~Charges to participants to establish or restore escrow balances~~		103,578		~~35,032~~		249,203		~~74,749~~		123,603		~~1,823,283~~		1,788,521		~~4,565,917~~
REDUCTIONS:
Reductions:
Maintenance charges	~~Maintenance charges~~		(261,606	)	~~(232,585~~	)	(188,829	)	~~(163,948~~	)	(472,699	)	~~(671,400~~	)	(438,815	)	~~(452,259~~	)
Refurbishment Phase II	~~Refurbishment Phase II~~		—		~~(1,000,928~~	)	(1,611,768	)	~~(1,310,243~~	)	—		~~(3,012,953~~	)	(2,012,025	)	~~(3,281,652~~	)
Carpet care reserve deposit	~~Carpet care reserve deposit~~		(16,964	)	~~(14,562~~	)	(13,208	)	~~(11,774~~	)	(34,720	)	~~(43,138~~	)	(28,576	)	~~(42,704~~	)
Interest accrued or paid to Distribution Fund	~~Interest accrued or paid to Distribution Fund~~		(4,654	)	~~(8,314~~	)	(14,068	)	~~(19,303~~	)	(9,655	)	~~(33,354~~	)	(25,040	)	~~(57,021~~	)
Refunds to participants as prescribed by the master lease agreements	~~Refunds to participants as prescribed by the master lease agreements~~		(33,974	)	~~(37,974~~	)	(161,819	)	~~(108,881~~	)	(51,632	)	~~(226,070~~	)	(188,096	)	~~(713,877~~	)
BALANCE, end of period				$	2,047,411			$	3,635,662			$	2,047,411			$	3,635,662
Balance, end of period		$	1,876,966			$	3,079,987			$	1,876,966			$	3,079,987

Page 13

GOLF HOST RESORTS, INC.

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

~~Quarter~~Selected Operational ~~ended September 30, 2003~~Information

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%.


	Current quarter						Year-to-Date
	2004			2003			2004			2003

Average daily distribution	$	18.06		$	15.85		$	21.71		$	21.00
Average room rate	$	119.39		$	119.74		$	138.16		$	143.32
Occupied room nights		22,080			20,760			45,783			45,339
Available room nights		54,009			53,379			106,565			105,286
Occupancy percentage		40.9	%		38.9	%		43.0	%		43.1	%
Average number of available units		594			587			586			582

~~All~~Quarter ~~expenses~~ended ~~have been managed to respond to the reduced demand in the market place~~June 30, ~~including the day-to-day maintenance costs of the four golf courses.~~2004 ~~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~~During ~~decrease~~the insecond ~~revenue~~quarter ~~combined~~of ~~with~~2004, the ~~increases~~Company’s results of operations continued to reflect the soft trend in ~~operating~~the ~~expenses~~hospitality industry and the ~~depreciation~~destination ~~and~~golf ~~amortization~~resort ~~noted~~segment ~~above,~~of ~~produced~~that aindustry. ~~net~~Occupied ~~reduction~~room innights at the ~~comparative~~Innisbrook ~~three~~resort were 6.4% greater than the same three-month ~~operating~~period ~~income~~for ofthe prior ~~approximately~~year. ~~$832~~Total room nights were up 1,~~000.~~320 ~~Operating income~~for the period ended June 30, ~~before~~2004 as ~~interest~~compared ~~expense~~to ~~and~~the ~~preferred~~three ~~dividend~~months ~~requirements~~ended June 30, ~~was~~2003. aGroup ~~loss~~room nights were ofdown ~~approximately~~1,824 $2or 12.1% while transient rooms increased by 3,~~839~~144 room nights or 55.0%,~~000~~ ~~versus~~as acompared ~~loss~~to ofthe ~~approximately~~same period last year. Total revenue per room night decreased by 6.3% or $~~2,007,000~~28.73 ~~for~~over the prior year. Gross revenue per room night for the three months ended ~~September~~June 30, ~~2003~~2004 ~~and~~was ~~September~~$427.34 as compared to $456.07 for the three months ended June ~~30,~~2003. ~~2002~~These net increases in room nights offset with the decrease in room night spending levels produced a net decrease in gross revenue of approximately $32,000 ~~respectively~~or 0.3%.

~~Interest~~Expenses ~~expense~~are being managed in response to the reduced demand in the market place, ~~net~~including the day-to-day maintenance costs of ~~interest~~the ~~income~~four golf courses. Operating expenses, ~~reflects~~before depreciation and amortization, increased for the comparative ~~continued~~three ~~accrual~~month period ended June 30, 2004 by approximately $828,000 or 9.0%. Approximately $357,000 of this variance is a result of cost of living raises that were not issued in 2003, in the approximate amount of ~~Company~~$52,000, increased workman’s ~~GTA~~compensation ~~interest~~costs ~~obligations~~of approximately $145,000 as a result of an increase in premiums and deductibles, increased health, dental and disability premiums in the approximate amount of $96,000 and an aggregate increase in other employee benefit costs such as 401K matching, Federal and State employment taxes in the approximate amount of $64,000. ~~Total~~The ~~interest~~remaining ~~expense~~increase in operating expenses is a result of increased utilization in contract labor in the approximate amount of $21,000 necessitated by ~~approximately~~short term operational needs, an increase in the allocation expenses of the parent company in the approximate amount of $2064,000, oran ~~1%.~~increase ~~This~~in personnel recruiting, relocation and training expenses due to the hiring of replacement operational personnel by Westin, in the approximate amount of $55,000, an increase ~~was~~in promotional marketing costs as a result of new collateral material production in the approximate amount of $18,000, increased referral expenses as a result of ~~effective~~improved guest ~~interest~~referral ~~rate~~programs ~~changes~~in onthe approximate amount of $29,000, increases in security, sewer and water costs in the ~~GTA~~approximate ~~mortgage~~amount of $101,000 and an aggregate increase in all other operational expenses of approximately $183,000.

~~Capital~~The ~~expenditure~~increase ~~reserves~~ in ~~the~~revenue ~~amount~~combined ofwith ~~approximately~~the ~~$603,000~~net ~~were set-aside~~increases ~~during~~in ~~the~~operating ~~quarter~~expenses and ~~ended~~depreciation ~~September 30,~~and ~~2003.~~amortization Ofnoted ~~this amount~~above, ~~approximately~~ ~~$184,000~~produced ~~was~~a ~~used~~net toreduction ~~fund~~in ~~capital~~the comparative ~~lease~~three-month ~~payments on~~ operating ~~assets~~ ~~such~~income asof ~~golf~~approximately ~~carts~~$816,000. ~~golf grounds equipment and computer equipment while~~Operating ~~$239~~loss,~~000~~ ~~was~~before ~~used~~interest toexpense ~~replace~~ and ~~repair~~preferred ~~the~~dividend ~~conference~~requirements, ~~center and clubhouse~~was ~~HVAC,~~approximately ~~clubhouse roofing~~$1,335,000 ~~systems~~versus ~~and~~a ~~miscellaneous~~loss ~~deferred~~of ~~maintenance projects.~~approximately ~~The~~$519,000 ~~balance~~for ~~is being held in reserve to fund~~ the ~~new telephone~~three ~~switch~~months ~~and~~ended ~~additional golf course equipment~~June 30, ~~both~~2004 ~~of which will be installed~~ and orJune 30, ~~delivered~~2003, ~~before the end of the first quarter of 2004~~respectively.

~~Nine~~Interest expense, net of interest income, which approximated $2,351,000 and $2,339,000 for the three months ended ~~September~~June 30, 2004 and June 30, 2003 respectively, reflects the continued accrual of the Company’s GTA mortgage interest obligations.

~~During~~Capital ~~the~~expenditure ~~nine~~reserves ~~months ended September 30, 2003, the Company’s results of operations continued to reflect the downward trend~~ in the ~~hospitality~~amount ~~industry and the destination golf resort segment~~ of ~~that~~approximately ~~industry~~$627,000 ~~as noted above.~~were ~~Occupancy~~set-aside ~~percentages~~during at the ~~Innisbrook~~quarter ~~resort~~ended ~~were~~June 30, 122004.9% ~~less~~During ~~than~~ the ~~same~~quarter ~~nine-month~~approximately ~~period~~$149,000 ~~for~~was ~~the~~used ~~prior~~to ~~year.~~fund ~~Total~~lease ~~room~~payments ~~nights~~on ~~were~~the ~~down~~new 9telephone switch,~~530~~ ~~for~~approximately ~~the period ended September 30~~$37,000 ~~2003~~was asinvested ~~compared~~in toHeating ~~the~~and ~~nine~~Air-conditioning systems ~~months~~of ~~ended~~the ~~September 30,~~resort ~~2002.~~facilities ~~Group~~ and ~~transient~~approximately ~~room~~$172,000 ~~nights~~was ~~were~~disbursed ~~down~~to fund ~~6,978~~golf ~~and~~cart 2leases,~~552~~ ~~room nights~~golf ~~respectively,~~course asequipment ~~compared~~leases toand ~~the~~miscellaneous ~~same~~deferred maintenance ~~period~~capital ~~last~~items.

Page 14

~~GOLF~~Six ~~HOST~~months ~~RESORTS~~ended June 30, ~~INC.~~2004

~~Item~~During 2.the ~~Management~~six months ended June 30, 2004, the Company’s ~~Discussion~~results of operations continued to reflect the soft trend in the hospitality industry and ~~Analysis~~the destination golf resort segment of ~~Financial~~that ~~Condition~~industry. ~~and~~Occupied ~~Results~~room nights at the Innisbrook resort were 1.0% greater than the same six-month period for the prior year. Total room nights were up 444 for the six-month period ended June 30, 2004 as compared to the six-months ended June 30, 2003. Group room nights were down 4,918 or 14.8% while transient rooms increased by 5,362 room nights or 44.5%, as compared to the same period last year. Total revenue per room night decreased by 2.2% or $10.98 from the prior year. Gross revenue per room night for the six months ended June 30, 2004 was $477.84 as compared to $488.82 for the six months ended June 30, 2003. These net increases in room nights offset with the decrease in room night spending levels produced net decreases in gross revenue of ~~Operations~~approximately ~~(Continued)~~$286,000 or 1.3%.

~~year.~~Expenses ~~Total~~continue ~~revenue~~to ~~per~~be ~~room~~managed ~~night~~in ~~decreased~~response byto ~~$4.75~~the orreduced ~~1.1%~~demand ~~over~~in the ~~prior~~market ~~year~~place, including the day-to-day maintenance costs of the four golf courses. Operating ~~Gross~~expenses, ~~revenue~~before ~~per~~depreciation ~~room~~and ~~night~~amortization, increased for the comparative ~~nine~~six ~~months~~month period ended ~~September~~June 30, 2004 by approximately $842,000 or 4.2%. Approximately $572,000 of this variance is a result of increased employee costs associated primarily with cost of living raises that were not issued in 2003 in ~~was~~the approximate amount of $~~437.02~~292,000, increased workman’s compensation costs of approximately $75,000 primarily as ~~compared~~a toresult of an increase in premiums and deductibles, increased health, dental and disability premiums in the approximate amount of $~~441~~97,000 and an aggregate increase in other employee benefit costs such as 401K matching, Federal and State employment taxes in the approximate amount of $108,000.77 ~~for~~The remaining increase in operating expenses is a result of increased utilization in contract labor in the ~~nine~~approximate ~~months~~amount ~~ended~~of $66,000 ~~September 30~~necessitated by short term operational needs, an increase in ~~2002~~costs of goods sold in the approximate amount of $83,000 as a result of approximately a 2.7% ~~These~~increase ~~reductions~~in the number of meals served, an increase in ~~room~~the ~~nights~~allocation ~~coupled~~expenses ~~with~~of the ~~decrease~~parent company in ~~room~~the approximate ~~night~~amount of $18,000, an increase in personnel recruiting, ~~spending~~relocation ~~levels~~and ~~produced~~training expenses due to the hiring of replacement operational personnel by Westin, in the approximate amount of $85,000, an increase in promotional marketing costs as a ~~net~~result ~~decrease~~of new collateral material production in ~~gross~~the ~~revenue~~approximate amount of $59,000, ~~approximately~~increased referral expenses as a result of improved guest referral programs in the approximate amount of $478,~~516~~000, increases in security, sewer and water costs of $241,000 orand 13an aggregate reduction in all other operational expenses of approximately $360,000.~~8%.~~

~~Due~~The todecrease ~~management’s~~in ~~reducing~~revenue ~~operating~~combined ~~expenses~~with inthe ~~response~~net toincreases ~~reduced~~in ~~demands,~~ operating expenses, and ~~exclusive of~~ depreciation and amortization noted above, ~~decrease~~produced a net reduction in the comparative six-month operating income of approximately $1,~~092~~128,000. orOperating loss, ~~3.8%.~~before ~~Depreciation~~interest expense and ~~amortization decreased~~preferred bydividend requirements, was approximately $90336,000 orversus 3income of approximately $792,000 for the six months ended June 30, 2004 and June 30, 2003, respectively.~~1%.~~

~~The~~Interest ~~decrease~~expense, innet ~~revenue~~of ~~combined~~interest ~~with~~income, ~~the~~which ~~decreases~~approximated in$4,735,000 ~~operating expenses~~ and ~~increase~~$4,568,000 infor ~~depreciation~~the ~~and~~six ~~amortization~~months ~~noted~~ended ~~above~~June 30, ~~produced~~2004 aand ~~net~~June 30, ~~reduction~~2003 inrespectively, reflects the ~~comparative~~continued ~~nine~~accrual ~~month~~of ~~operating~~the ~~income~~Company’s GTA mortgage interest obligations of approximately $3760,~~334,~~000~~. Operating~~ ~~income,~~per ~~before~~month plus interest ~~expense and preferred dividend requirements,~~related ~~was~~to acapital ~~loss~~leases ofin ~~approximately~~the ~~$2,046,000~~approximate ~~versus~~amount ~~income~~ of ~~approximately~~ $1162,~~288,~~000 ~~for~~during the ~~nine~~six-month period ~~months~~ ended ~~September~~June 30, ~~2003 and September 30, 2002, respectively~~2004.

~~Interest~~Capital ~~expense,~~expenditure ~~net~~reserves in the amount of ~~interest~~approximately ~~income~~$1,254,000 ~~reflects~~were set-aside ~~change~~during inthe six months ended June 30, 2004. During the ~~effective~~quarter ~~interest~~approximately ~~rates~~$572,000 ~~related~~was used to fund the ~~GTA~~acquisition ~~interest~~and ~~obligations.~~initial ~~Total~~lease payments ~~interest~~on the new telephone switch, approximately $168,000 was disbursed to ~~expense~~fund ~~decreased~~golf bycart leases, golf course equipment leases and other property leases and approximately $19198,000 orwas expended for deferred maintenance capital items.~~3%.~~

~~Capital~~The ~~expenditure~~following ~~reserves~~information inmay ~~the~~contain ~~amount~~forward-looking ofstatements ~~approximately~~within ~~$1,808,000 were~~the ~~set-aside~~meaning ~~during~~of ~~the~~Section 27A ~~nine~~of ~~months~~the ~~ended~~Securities ~~September 30~~Act, ~~2003.~~and OfSection 21E ~~this~~of ~~amount,~~the Exchange ~~approximately~~Act. ~~$663,000~~Such ~~was~~statements ~~used~~may tobe ~~fund~~identified ~~capital~~by ~~lease~~the ~~payments~~inclusion onof ~~operating assets~~terms such as ~~golf carts~~ “believe,” ~~golf grounds equipment and computer equipment while $439~~“expect,~~000~~” ~~was~~“hope” ~~used~~or to“may.” ~~replace~~Although ~~and repair~~ the ~~conference~~Company ~~center~~believes ~~and~~that ~~clubhouse~~such ~~HVAC,~~forward-looking ~~roofing~~statements ~~systems~~are ~~and~~based ~~miscellaneous~~upon ~~deferred~~sound ~~maintenance~~and ~~projects.~~reasonable ~~The~~assumptions, ~~balance~~given isthe ~~being~~circumstances ~~held~~ in ~~reserve~~which ~~to fund~~ the ~~new~~statements ~~telephone~~are ~~switch and golf course equipment~~made, ~~both~~the ofactual ~~which~~results could ~~are~~differ ~~expected~~significantly befrom ~~installed~~those ~~and~~described orin ~~delivered before~~ the ~~end of the first quarter of 2004~~forward-looking statements.

~~The~~Page ~~following information may contain forward-looking statements within the~~15 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.

CertainTable 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. Contents

~~Page~~Certain 15factors 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; 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.

~~Table~~Liquidity ofand ~~Contents~~Capital Resources

~~GOLF~~The ~~HOST~~Company’s ~~RESORTS~~working capital position has decreased to a deficit of approximately $111,386,000. ~~INC~~This is a reduction of approximately $3,919,000 in working capital from the December 31, 2003 deficit of approximately $107,467,000.

~~Item~~The 2Company continues to experience seasonal fluctuations in its net working capital position. ~~Management’s~~These ~~Discussion~~fluctuations ~~and~~have ~~Analysis~~been ofmanaged ~~Financial~~in ~~Condition~~the ~~and~~past ~~Results~~by utilizing ofthe ~~Operations~~funding ~~(Continued)~~for capital expenditures as a revolving credit line, as approved by GTA, through negotiated payment plans with excess revenues. In addition, working capital needs have been funded with advances from the parent company.

~~Liquidity~~The Company was informed by GTA on November 29, 2001 that the Company is in default on the $78,975,000 mortgage and ~~Capital~~accrued ~~Resources~~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. The Company continues to accrue interest on the GTA participating mortgage of approximately $760,000 per month.

~~The~~On July ~~Company’s~~15, ~~working~~2004, ~~capital~~the ~~position~~Company, ~~has~~GHI ~~decreased~~and toGTA entered into a ~~deficit~~Settlement Agreement wherein the Resort property, three condominium units and linen storage closet located at the Innisbrook Resort, the acquired interest in common stock and partnership operating units of GTA held by the ~~approximately~~parent ~~$105~~and all rights,~~454,000~~ title and interests in and liabilities related to the Company under existing contracts and agreements were transferred to GTA. ~~This~~In addition, isGTA aassumed ~~reduction~~all liabilities of ~~approximately~~the $7Company except for the Due to GHI and the Company provided a limited indemnity to defend and hold harmless GTA (and its affiliates) from and against any and all costs,~~376~~ liabilities,~~000~~ claims, losses, judgments, or damages arising out of or in connection with the Class Action Lawsuit as ~~working~~well ~~capital~~as ~~from~~liabilities accruing on or before the ~~December 31,~~closing ~~2002~~date ~~deficit~~relating to ofemployee ~~approximately~~benefits and liabilities for contracts or agreements not ~~$98~~disclosed by the Company to GTA. In return,~~078~~ GTA delivered to GHI,~~000~~ a duly executed release of the Company from the liabilities owed to GTA.

~~The~~Concurrent with ~~Company~~the ~~continues~~transfer toof ~~experience~~the ~~seasonal~~Resort ~~fluctuations~~property into ~~its~~GTA, ~~net~~all ~~working~~inter-company ~~capital~~receivables ~~position.~~and ~~These~~payables ~~fluctuations~~between ~~have~~the ~~been~~Company, ~~managed~~Golf inHosts, ~~the~~Inc., ~~past through the~~and ~~utilization~~Golf ofHost anHoldings, ~~accounts~~Inc. ~~receivable~~were ~~revolving~~forgiven ~~credit~~by ~~line.~~the ~~Effective May 23,~~respective ~~2002,~~Companies. ~~the~~The ~~revolving~~balances ~~credit~~forgiven ~~line~~were ~~with~~in ~~Wells~~the ~~Fargo~~approximate ~~Business~~amounts ~~Credit~~of $1,476,000 ~~was~~owed ~~terminated~~ by ~~Wells~~the ~~Fargo~~Company asto aGolf ~~result~~Hosts, ofInc. ~~the~~and ~~Company’s~~$1,468,000 owed ~~default~~by on the ~~participating mortgage~~Company ~~with~~to Golf ~~Trust~~Host ofHoldings, ~~America (GTA)~~Inc.

~~The~~As ~~Company~~described ~~was~~in ~~informed~~Note by4 ~~GTA~~of the notes to consolidated financial statements on ~~November~~the Company’s Form 10-K for December 2931, ~~2001~~2003, management had determined that ~~the~~due to ~~Company~~declining isdemand in the hotel golf resort business and related rental pool ~~default~~participation, onwhich led to declines in operating results, impairment of the intangible asset had occurred. At December 31, 2000, an impairment charge of $787,~~975~~441,000 ~~mortgage~~was ~~and~~recorded. ~~accrued~~As ~~interest,~~a ~~arising~~result ~~from~~of the continued decline in destination ~~Company’s~~golf ~~failure~~resort tobusiness ~~pay~~during 2001 and the ~~October~~events of September 11, 2001, ~~interest~~the Company had determined that further impairment had occurred and ~~all~~consequently recorded ~~subsequent~~an ~~monthly~~additional $3,000,000 impairment charge during the quarter ended ~~installments~~September 30, 2001. ~~GTA~~The Company feels that the market has ~~asserted~~stabilized and ~~its~~therefore ~~right~~no tofurther ~~accelerate~~impairment ~~payment~~has ofbeen ~~the~~recognized ~~total~~subsequent to ~~outstanding~~the ~~principal~~period ~~and~~ended ~~interest~~September 30, ~~amounts~~2001.

AsPage ~~of November 2003, the Company is seeking to negotiate a Settlement Agreement~~16 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.

DuringTable 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. Contents

AsGOLF ~~described~~HOST ~~in Note 4 of the notes to consolidated financial statements on the Company’s Form 10-K for December 31~~RESORTS, 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 occurredINC. ~~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.

~~Page~~Item 16 3. Quantitative and Qualitative Disclosures About Market Risk

~~Table~~The ofRegistrant ~~Contents~~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.

~~GOLF~~Item ~~HOST~~4. ~~RESORTS,~~Controls ~~INC.~~ and Procedures

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.

Within the 90 days prior to the date of this report, the Registrant’s management, including the Chief Executive Officer and the Principal Financial Officer 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.

~~Page~~There 17have 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.

~~Table~~PART ofII ~~Contents~~- OTHER INFORMATION

~~PART~~Item II1. —Legal ~~OTHER INFORMATION~~ Proceedings

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.

The Company, in the normal course of operations, is subject to claims and lawsuits. The Company does not believe that the ultimate resolution of such matters will materially impair operations or have an adverse effect on the Company’s financial position and results of operations.

~~Page~~GHI 18was named as a defendant in a consolidated class action lawsuit (“class action lawsuit”) whereby the plaintiffs allege breaches of contract, including breaches in connection with the Rental Pool Lease Agreement. 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 the total number of club memberships and a limitation of golf course access to persons who are either condominium owners who are members, their accompanied guests, or guests of the resort. Depositions of class members and others, including depositions of prior executives of the Company, have been taken and additional discovery remains. The Court has postponed the previously scheduled trial date of February 3, 2003; a new trial date has not yet been set. As of December 31, 2003, the Court had decertified the class and denied the plaintiffs’ subsequent motion to permit additional owners to intervene in the lawsuit. In addition, the plaintiffs filed a complaint seeking to “pierce the corporate veil”. The court dismissed the veil piercing complaint with prejudice. The plaintiffs appealed the decertification of the class; the denial to intervene and the

~~Table~~Page ~~of Contents~~17

SIGNATURES Table of Contents

~~Pursuant~~Item to1. ~~the~~Legal ~~requirements~~Proceedings ~~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.~~ continued

~~GOLF~~veil ~~HOST~~piercing ~~RESORTS~~dismissal to the Florida Court of Appeals, ~~INC~~Second District. The Court of Appeals has affirmed the lower court’s decertification of the class and has affirmed the lower court’s dismissal with prejudice of the veil piercing case. On July 29, 2004, the Circuit Court for the Sixth Judicial Circuit entered an order granting defendant’s motion for summary judgment. No decision on the intervention appeal has been made. The Company does not believe the resolution of this matter will have a material adverse effect on the Company’s financial condition or results of operations.

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)

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

~~Page~~Not 19applicable.

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 June 30, 2004 and 2003.

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 June 30, 2004.

Page 18

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: September 24, 2004	By:	/s/ Merrick Kleeman
		Merrick Kleeman
		President



Date: September 24, 2004	By:	/s/ R. Keith Wilt
		R. Keith Wilt
		Vice President and Treasurer (Principal Financial Officer)

Page 19

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