SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K
              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1999
                         Commission file number 1-14280

                               Host Funding, Inc.
               (Exact name of Company as specified in its charter)

            Maryland                                    52-1907962
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

     1640 School Street, Suite 100, Moraga, California          94556
      (Address of principal executive offices)               (Zip Code)

                                 (925) 631-7929
                (Company's Telephone Number, Including Area Code)

        Securities registered pursuant to Section 12(b) of the Act: None

          Securities registered pursuant to Section 12 (g) of the Act.
Class "A" Common Stock - $0.01 par value         American Stock Exchange
          (Title of Class)                        (Name of each exchange
                                                   on which registered)



         Indicate  by check mark  whether  the Company (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934 during the preceding 12 months (or for such shorter period that the Company
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days. Yes X No___

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulations S-K is not contained herein,  and will not be contained,
to the best of the  Company's  knowledge,  in  definitive  proxy or  information
statements  incorporated  by  reference  in Part III of this Form  10-K,  or any
amendment to this Form 10-K [X]

         As of March 27,  2000,  the Company had  1,720,000  shares of Class "A"
Common  Stock and  500,000  shares of Series  "A"  Convertible  Preferred  Stock
outstanding. Of the total shares of Class "A" Common Stock outstanding,  932,158
shares  were  held by other  than  those who may be  deemed  affiliates,  for an
aggregate  market  value held by  non-affiliates  of  $1,864,316  based upon the
closing  bid of the  Company's  Class "A"  Common  Stock on the  American  Stock
Exchange  on March 27,  2000 of $2.00 per share.  The basis of this  calculation
does not constitute a  determination  by the Company that all of such persons or
entities are  affiliates of the Company as defined in Rule 405 of the Securities
Act of 1933, as amended.

                       Documents Incorporated by Reference

                                      None.

<PAGE>



                                TABLE OF CONTENTS


Item                                                                       Page
Number                                                                    Number

                                     PART I

1.       Business                                                              3

2.       Properties                                                           10

3.       Legal Proceedings                                                    13

4.       Submission of Matters to a Vote of Securities Holders                14

                                     PART II

5.       Market for the Company's Common Equity and Related
         Shareholder Matters                                                  14

6.       Selected Financial Data                                              17

7.       Management's Discussion and Analysis of Financial Condition and
         Results of Operations                                                17

7A.      Quantitative and Qualitative Disclosures About Market Risk           22

8.       Financial Statements and Supplementary Data                          22

9.       Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosure                                             22

                                    PART III

10.      Directors and Executive Officers of the Company                      23

11.      Executive Compensation                                               26

12.      Security Ownership of Certain Beneficial Owners and Management       27

13.      Certain Relationships and Related Transactions                       31

                                     PART IV

14.      Exhibits, Financial Statements, Financial Statement Schedules and
         Reports on Form 8-K                                                  31

15.      Schedule III: Real Estate and Accumulated Depreciation               65

                                       2
<PAGE>


                                     PART I

         Certain  statements  in  this  Form  10-K  constitute  "forward-looking
statements"  as that term is defined  under the  Private  Securities  Litigation
Reform Act of 1995 (the "Act").  The words  "believe,"  "expect,"  "anticipate,"
"intend," "estimate," and other expressions which are predictions of or indicate
future events and trends and which do not relate to historical  matters identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements and to note that they speak only as of the date
hereof.  Although  forward-looking  statements  reflect  management's good faith
beliefs,  reliance should not be placed on  forward-looking  statements  because
they involve known and unknown risks, uncertainties and other factors, which may
cause the actual results,  performance, or achievements of the Company to differ
materially  from  anticipated  future  results,   performance,  or  achievements
expressed or implied by such forward-looking  statements. The Company undertakes
no  obligation  to  publicly  update or revise  any  forward-looking  statement,
whether as a result of new  information,  future  events or  otherwise.  Certain
factors that might cause a difference  in actual  results  include,  but are not
limited to, the Company's  dependence  upon rental  payments from the lessees of
the Company's hotel properties for  substantially  all of the Company's  income;
the  Company's  dependence  upon the  abilities of the lessees of the  Company's
hotel properties to manage the hotel properties; risks associated with the hotel
industry  and real estate  markets in general;  and risks  associated  with debt
financing.

ITEM 1.  BUSINESS

General

          Host Funding,  Inc. (the  "Company") was  incorporated in the State of
Maryland in December 1994 and was inactive from inception to March 31, 1995. The
Company's Class "A" Common Stock began trading on the American Stock Exchange on
April 22, 1996, the date of the Company's initial public offering.  Upon closing
of the Company's initial public offering,  the Company owned five Super 8 Hotels
located in Somerset,  Kentucky;  Miner, Missouri;  Poplar Bluff, Missouri;  Rock
Falls,  Illinois;  and Mission Bay,  California  (the "Initial  Hotels").  As of
December 31, 1999, the hotel property  portfolio of the Company  consisted of 11
hotels located in 8 states consisting of approximately 850 rooms.

          The Company is engaged in the  business  of  acquiring  high  quality,
limited-service and full service hotels throughout the United States,  which are
affiliated  with  national or regional  hotel  chains.  Although the Company was
initially structured as a real estate investment trust ("REIT"),  it has not yet
elected REIT status under the Internal  Revenue Code.  Since the commencement of
Company  operations and the acquisition of the Initial  Hotels,  the Company has
formed  wholly-owned  subsidiaries  for the purpose of financing  and owning the
Initial Hotels and acquiring  additional  hotel  properties.  Unless the context
otherwise  requires,  references  to the  Company  include  the  Company and its
subsidiaries,  and references to the hotel  properties owned by the subsidiaries
of the Company are referred to as the "Company Hotels."

                                       3
<PAGE>

Business Development

         In January,  1999,  the Company  effectively  entered  into a new lease
agreement relating to the Company Hotel located in Mission Bay,  California (the
"Mission Bay Property") with RPD Mission Bay, LLC, an affiliate of Vagabond Inns
("RPD").  RPD thereafter converted the Mission Bay Property from a Super 8 Hotel
to a Vagabond Inn, and pursuant to a services  agreement,  RPD also  transferred
the  day-to-day  management  of the Mission Bay Property to RPD 18, LLC, also an
affiliate of Vagabond  Inns.  The Company also granted RPD an option to purchase
the  Mission  Bay  Property  for a purchase  price of  $3,225,000.00,  which was
exercised by RPD in March, 1999. The sale of the Mission Bay Property to RPD has
not yet  closed  due to a dispute  with the  Company's  lender  relating  to the
governing deed of trust and the applicable  defeasance and release requirements.
See Item 2. "Properties - Changes in Properties."

         Effective  November 12, 1999,  the Company sold the Country  Hearth Inn
located in Findlay,  Ohio (the "Findlay  Property") for a cash purchase price of
$2,400,000.00. The cash proceeds were used to pay the first lien indebtedness on
the Findlay  Property  and to satisfy the seller  finance note held by the prior
owner of the Findlay  Property,  including  the judgment  lien held by the prior
owner.  The  Company  did not  receive  any cash  proceeds  from the sale of the
Findlay Property. See Item 2. "Properties - Changes in Properties" and Item 3.
"Legal Proceedings."

         On December 22, 1999, the Company sold to Mackenzie Patterson,  Inc., a
California real estate venture capitalist ("MPI"),  500,000 shares of the Series
"A"  Convertible  Preferred  Stock,  $0.01 par value per share (the  "Series "A"
Preferred"),  for a purchase price of $1,500,000.00.  The proceeds from the sale
of the Series "A" Preferred  were used by the Company for working  capital.  The
Company also issued to MPI warrants to purchase  500,000 shares of the Class "A"
Common  Stock  of  the  Company  for an  exercise  price  of  $3.00  per  share,
exercisable  at any time for a period of six (6) years from the date of issuance
(the  "Warrants").  Concurrently  with the  purchase of the shares of Series "A"
Preferred and the issuance of the Warrants,  the Company and MPI entered into an
Advisory  Agreement  pursuant to which MPI assumed the day to day  operations of
the Company and direction of new investments on behalf of the Company.  In order
to  implement  the  responsibilities  of MPI under the Advisory  Agreement,  the
principal  offices  of the  Company  were moved  from  Dallas,  Texas to Moraga,
California in January,  2000. See Item 13.  "Certain  Relationships  and Related
Transactions."

Leases

          In General

         All of the  Company  Hotels are leased and  operated  pursuant to lease
agreements (the  "Leases"),  excluding the Company Hotel located in Tallahassee,
Florida (the "Tallahassee  Property") which is managed and operated by BAC Hotel
Management,  Inc. ("BAC Hotel"),  a wholly owned  subsidiary of Buckhead America
Corporation  (NASDAQ:BUCK)  pursuant to a management  agreement.  Except for the
Company  Hotels  located in Flagstaff,  Arizona (the  "Flagstaff  Property") and

                                       4
<PAGE>

Mission Bay,  California  (the "Mission Bay  Property"),  the Company Hotels are
leased and operated by either  Buckhead  America  Corporation (as to the Company
Hotel  located in Auburn,  Indiana  only) or BAC Hotel.  The  remaining  Company
Hotels are leased,  operated  and/or  managed by Crossroads  Hospitality  Tenant
Company,  LLC  (Flagstaff  Property)  and RPD Mission  Bay,  LLC and RPD 18, LLC
(Mission  Bay  Property).  Except as  otherwise  set  forth  below,  each  Lease
generally contains the provisions described below.

         Lease Terms

         Each  Lease has a term of  fifteen  (15)  years  (other  than the Lease
relating to the Mission Bay  Property,  which has an initial term of twenty [20]
years).  Each Lease is subject to earlier  termination  upon the  occurrence  of
certain  contingencies  described  in  the  Leases  (including,  as  applicable,
provisions relating to damage to the Company Hotels, condemnation of the Company
Hotels,  defaults  by the  Company  or the  lessee  under  the  Leases,  lack of
compliance by lessee with certain of the terms of the associated  loan documents
relating to the Company  Hotels,  and  termination on disposition of the Company
Hotels).  Other than the Leases with respect to the Mission Bay Property and the
Lease in effect with regard to the Company Hotel located in Auburn, Indiana (the
"Auburn Property"),  the term of each Lease may, at the option of the lessee, be
extended  for  two  (2) or more  five  (5) or ten  (10)  year  periods,  as more
particularly described in each Lease.

          Amounts Payable Under the Leases

         During the term of each Lease,  the lessee is obligated to pay (i) base
rent,  (ii)  percentage  rent,  (iii) all personal  property  taxes  relating to
lessee's  personal  property,  ground  rents,  water,  sewer or other  rents and
charges,  excises,  tax inspection,  authorization or similar fees and all other
governmental charges (the "Impositions"),  except that the lessee of the Mission
Bay Property is not required to pay percentage  rent, (iv) every fine,  penalty,
interest and cost for non-payment or late payment of base rent, percentage rent,
or the  Impositions  and (v) franchise fees as described  below.  The Company is
obligated to pay real property taxes on all Company  Hotels,  except the Mission
Bay Property.  Base rent accrues and is required to be paid monthly, and, except
for the Leases in effect with respect to the Auburn Property and the Mission Bay
Property,  base rent is  subject  to  potential  reduction  if a hotel or hotels
similar in nature to the Company Hotel in question are or will be constructed in
an area in the general vicinity of such Company Hotel (the  "Competitive  Set").
Percentage  rent is  based on  percentages  of  gross  revenues  for each of the
Company Hotels, is due and payable  quarterly,  and (a) except for the Leases in
effect  with  respect to the  Auburn  Property  and the  Mission  Bay  Property,
percentage  rent is subject to potential  reduction  pursuant to the Competitive
Set, (b) except for the Leases in effect with respect to the Auburn Property and
the Mission Bay Property,  percentage rent is subject to potential  reduction to
the extent,  at any time during the first four (4) years of the Lease term,  the
Company  Hotel cash flow is less than the base  rent,  and (c)  percentage  rent
payable with regard to the Lease in effect with  respect to the Auburn  Property
is  subject  to a  "CPI"  adjustment  factor.  See  Item 2.  "Properties"  for a
comprehensive analysis of base rent and percentage rent, as applicable,  payable
under the Leases.

                                       5
<PAGE>


         Prohibition on Ownership and Operation of Additional Hotels

         Generally, all of the Leases contain provisions prohibiting the Company
from owning,  or having any interest in, any hotel or motel properties  within a
five (5) mile radius of the  applicable  Company  Hotel.  All of the Leases also
generally  prohibit the lessee from  owning,  operating or managing any hotel or
motel properties within a five (5) mile radius of the applicable Company Hotel.

         Maintenance, Modifications and Capital Expenditures

         Generally,  the lessee,  at its  expense,  is required to maintain  the
Company Hotels in good order and repair,  except for ordinary wear and tear, and
to make non-structural repairs,  foreseen and unforeseen,  and ordinary repairs,
which may be necessary and  appropriate to keep the Company Hotels in good order
and repair. The Company is, at its expense,  required to maintain the structural
elements of the Company  Hotels,  including  the roof,  except the lessee of the
Mission Bay Property is, at its expense, responsible for structural maintenance.

          The lessee, at its expense and subject to approval by the Company, may
make  non-capital and capital  additions,  modifications  or improvements to the
Company  Hotels,  provided  that such  action does not  significantly  alter the
character or purposes of the Company  Hotels or  significantly  detract from the
value or operating  efficiencies  of the Company Hotels.  All such  alterations,
replacements  and   improvements   become  the  property  of  the  Company  upon
termination of the Leases.  The Company owns substantially all personal property
(other than inventory,  linens and other non-depreciable  personal property) not
affixed to, or deemed a part of, the real estate or improvements.

          Under the Leases,  the  Company is  required to fund into  replacement
reserve accounts (the "Reserve Accounts") amounts ranging from four percent (4%)
to six percent (6%) of gross room revenues for the preceding month.  Deposits in
the Reserve  Accounts are used to fund  replacements of furniture,  fixtures and
equipment, for capital additions to the Company Hotels, and, as appropriate, for
reconstruction  or restoration of the Company Hotels incident to casualty damage
or  condemnation.  Expenditures  from the  Reserve  Accounts  generally  must be
jointly approved by the Company and the lessee.

         With  respect  to  the  Company  Hotels  leased  to  Buckhead   America
Corporation   (the  Auburn  Property  only)  or  BAC  Hotel,  its  wholly  owned
subsidiary, the Company has previously entered into agreements with such parties
generally  requiring  the  lessee  to,  at its  expense,  make  various  capital
improvements to such Company Hotels.

         Insurance on Company Hotels

         The lessee is required to pay for all insurance on the Company  Hotels,
with extended coverage, including business interruption, casualty, comprehensive
general public liability,  workers'  compensation and other insurance,  and must
name the Company as the insured or an additional named insured.

                                       6
<PAGE>

         Indemnification

         Under each of the Leases, the lessee is obligated to indemnify and hold
harmless,  the  Company  from and against all  liabilities,  costs and  expenses
(including reasonable attorneys' fees and expenses) incurred by, imposed upon or
asserted  against  the  Company.  Such  indemnification,  however,  will  not be
construed to require the lessee to indemnify  the Company  against the Company's
own grossly negligent acts or omissions or willful misconduct.

         First Right of Refusal

         With the  exception of the Lease  regarding  the Mission Bay  Property,
each of the Leases contains  provisions  whereby, if the Company receives a bona
fide third party offer to purchase a Company Hotel,  the lessee may purchase the
Company  Hotel in question at the same price and  otherwise  upon the same terms
and conditions as are contained in any such bona fide offer.

         Security Deposits

         With the  exception of the Lease  regarding  the Mission Bay  Property,
each of the Leases  requires  the lessee,  as security  for the  performance  by
lessee of its obligations under the Leases, to deliver to the Company a security
deposit.  In the instance of the Leases with Buckhead America Corporation or BAC
Hotel, its wholly owned  subsidiary,  each such deposit is in the form of shares
of the Company's Class "A" Common Stock, and with respect to the Lease in effect
for the Flagstaff Property, the security deposit is in the form of cash.

         Certain Termination Rights

         Except for the Lease  relating to the Company  Hotel  located in Miner,
Missouri,  the Leases  with BAC Hotel,  a wholly  owned  subsidiary  of Buckhead
America  Corporation,  provide the lessee the right to without  cause  terminate
either one (1) or two (2) of such Leases  after the first (1st) but prior to the
fifth (5th)  anniversary of the Lease term,  but, as to the second of such Lease
terminations,  as  applicable,  only  upon  the  payment  to  the  Company  of a
termination fee more  specifically  set forth in each Lease.  Additionally,  the
Lease with respect to the  Flagstaff  Property  provides the lessee the right to
without cause terminate the Lease at any time after the first (1st)  anniversary
of the Lease term, but only upon forfeiture of lessee's security  deposit,  and,
additionally  provides  the lessee the  one-time  right to  terminate  the Lease
without  cause  (and  without  forfeiture  of the  lessee's  security  deposit),
effective as of the fifth (5th) anniversary of the Lease term.

         Lease Cancellation Fees

         Except for the Lease relating to the Mission Bay Property,  each of the
Leases contains provisions  generally requiring the Company to pay a termination
fee to the  lessee  if a Company  Hotel is sold  during  the Lease  term and the
purchaser of the Company  Hotel does not assume the  obligations  of the Company
under the associated Lease.

                                       7
<PAGE>



Franchise Agreements

         All of the Company Hotels are currently  operated pursuant to franchise
agreements  with Super 8 Motels,  Sleep Inn Hotels or Country  Hearth Inn Hotels
(the  "Franchise  Agreements"),  other than the Mission Bay  Property,  which is
operated  as a  Vagabond  Inn (but with no  franchise  agreement).  The  Company
expects  that a majority  of any  additional  hotel  properties  acquired by the
Company will also be subject to similar agreements.  Franchises (including hotel
licenses)  generally  provide  advantages to hotel operators  through the use of
advertising  on a much broader  scale than would be possible  for an  individual
hotel or small group of hotels,  nationally  recognized brand names,  nationally
accessible  reservations  systems,  technical  and  business  assistance  to the
individual franchisee and substantial buying power over approved suppliers.

         The  Franchise  Agreements  generally  require the  franchisee to pay a
monthly  franchise fee based on gross sales and to pay various  other  marketing
fees   associated   with  certain   marketing  or  advertising  and  centralized
reservation service funds,  usually based on gross sales. The lessee,  under the
Leases,  is responsible for payment of franchise  fees.  Franchise fees may vary
between  individual hotels within a franchise system based on the type of marks,
restaurants or other aspects of the particular franchise system.

         The Franchise  Agreements generally contain specific standards for, and
restrictions  and  limitations  on, the operation and maintenance of the hotels,
which are  established by the  franchisors to maintain  uniformity in the system
created by each  franchisor.  Such  standards  generally  regulate  the hours of
operation,  maintenance,  appearance and cleanliness,  quality and type of goods
and services  offered,  signage,  protection of marks and  advancement of marks.
Compliance  with such standards  could require  significant  expenditures by the
lessee for capital improvements.  Any such improvements could increase the value
of the applicable hotel to the benefit of the Company.

         The  Franchise   Agreements   generally  require  the  consent  of  the
franchisor  to a  transfer  of  an  interest  in  the  applicable  franchise  or
franchisee  and  the  payment  of a  termination  fee  upon  termination  of the
franchise agreement prior to its expiration.

Business Plan

         The  Company  intends  to  continue  its  core  business   strategy  of
attempting  to increase  cash flow and enhance  shareholder  value by  acquiring
additional  existing hotels which meet the Company's  investment criteria and by
participating in revenue growth of the Company Hotels through percentage leases.
The Company intends to make strategic  investments in hotel  properties  through
the Company or its subsidiaries or in conjunction with business partners. Future
hotel investments may be financed in whole or in part, from borrowings, from the
balance of the net proceeds  from future  public  offerings,  if any, or through
private placements of the Company's stock or debt instruments.

                                       8
<PAGE>

         The Company  intends to consider  investments in hotel  properties that
meet one or more of the  following  criteria,  (i)  properties  in markets  with
projected growth potential; (ii) properties which may be under-performing due to
poor management or weak franchise affiliation;  (iii) properties with relatively
stable operating histories; and (iv) properties with attractive purchase prices.
The Company believes that the engagement of MacKenzie Patterson, Inc. ("MPI") in
January 2000 as the external advisor of the Company will increase the management
expertise  of the Company and enable the  Company to benefit  from MPI's  hotel,
real estate and finance  industry  contacts.  The Company also believes that MPI
will further facilitate the Company's ability to identify,  evaluate,  negotiate
and finance potential hotel investment opportunities.

Environmental Matters

         Under various federal,  state and local environmental laws, ordinances,
regulations  and common  law, a current or  previous  owner or  operator of real
property may be liable for the costs of removal or  remediation  of hazardous or
toxic  substances  on,  under,  or in  such  property,  whether  or  not  it was
responsible for their presence.  Such laws and common law principles  could also
be used to impose  liability  upon owners or  operators of real  properties  for
release of asbestos  containing  materials that cause  personal  injury or other
damage.  The  policy  of the  Company  is to  obtain  a  Phase  I  environmental
assessment report for each of the hotels acquired by the Company, prepared by an
independent environmental consultant.

         The Company is not aware of any environmental condition with respect to
the Company  Hotels that could have a material  adverse  affect on the Company's
financial  condition  or  results of  operations.  No  assurances  can be given,
however,  that (i)  environmental  assessments  undertaken  with  respect to the
Company Hotels have revealed all potential environmental  liabilities,  (ii) any
prior  owner or operator  of the real  property on which the Company  Hotels are
located did not create any  material  environmental  condition  not known to the
Company, or (iii) a material environmental condition does not otherwise exist as
to any one or more Company Hotels. Pursuant to the Leases, the lessee has agreed
to comply with applicable environmental regulations.

Employees

         As of December 31, 1999, the Company had two (2) full-time employees.

Competition

         The hotel industry is highly competitive. All of the Company Hotels are
located in developed areas and experience  competition  primarily found in other
similarly priced hotels within their immediate vicinity. Each Company Hotel also
competes with other hotel properties in its particular  geographic  market.  The
number of competitive hotel properties in a particular market or geographic area
could have a material and adverse affect on the rental market for the room units
at each  Company  Hotel and the rates  which may be charged for such room units.
The Company Hotels must also compete for occupants with new hotels in the area.

                                       9
<PAGE>

          In addition,  when the Company seeks to acquire hotel properties,  the
Company   competes  for  investment   opportunities   with  entities  that  have
substantially   greater  financial  resources  than  the  Company.   Competition
generally reduces the number of suitable investment opportunities offered to the
Company and increases the bargaining power of property owners seeking to sell.

Seasonality of the Hotel Business

         The hotel industry is seasonal in nature. Generally, hotel revenues are
greater in the second and third  quarters than in the first and fourth  quarters
of a calendar year. All of the Company Hotels  typically  reflect the effects of
this industry  seasonality.  This  seasonality may cause  significant  quarterly
fluctuations in the Company's lease revenues.

Regulatory Matters

         General

         Hotel   properties   are  subject  to  various  laws,   ordinances  and
regulations,  including regulations relating to recreational facilities, such as
swimming pools, activity centers and other common areas. Based on its inspection
and  evaluation of the Company  Hotels,  the Company  believes that each Company
Hotel has the necessary  permits and approvals  required to enable the lessee or
manager of the  particular  hotel to operate and manage such hotel in the manner
contemplated by the applicable lease agreement or management agreement.

         Americans with Disabilities Act

         The Company  Hotels must  comply with Title III of the  Americans  with
Disabilities  Act (the  "ADA") to the extent  that such  properties  are "public
accommodations" and/or "commercial  facilities" as defined by the ADA. Under the
public  accommodations  provisions  of the  ADA,  the  Company,  as owner of the
Company Hotels,  will be obligated to reasonably  accommodate the patrons of the
Company Hotels who have physical,  mental or other  disabilities.  This includes
the obligation to remove architectural and communication barriers at the Company
Hotel when doing so is "readily achievable".  In addition,  under the commercial
facilities  provisions  of the ADA,  the  Company is  obligated  to ensure  that
alterations to any hotel properties conform to the specific  requirements of the
ADA implementing  regulations.  Noncompliance  could result in the imposition of
fines,  injunctive  relief,  and an award of damages and  attorneys'  fees.  The
lessee  generally is obligated to remedy any ADA compliance  matters pursuant to
the Leases.  Currently,  the  Company  believes  that all Company  Hotels are in
compliance with the ADA in all material respects.

ITEM 2.  PROPERTIES

         During the fiscal year ended December 31, 1999, the Company's principal
executive  offices were located at 6116 North  Central  Expressway,  Suite 1313,
Dallas, Texas 75206. Effective as of January 1, 2000, the principal offices were
relocated to 1640 School Street,  Suite 100, Moraga,  California 94556, in order
to implement MacKenzie  Patterson,  Inc. as the external advisor of the Company.


                                       10
<PAGE>

See Item 13.  "Certain  Relationships  and  Related  Transactions."  The Company
leased  approximately  1,200  square  feet at an  annual  rate of  approximately
$16,000 for the prior Dallas,  Texas offices. The lease term expired on December
31, 1999. The Company believes that the size of both the prior and new principal
executive  offices were and are adequate for the Company's needs.  During all or
portions of the fiscal year ended  December 31, 1999,  the Company  owned twelve
hotel properties  located in nine states  consisting of approximately 922 rooms.
Set forth below is certain summary information relating to the Company Hotels.

<TABLE>
<CAPTION>

                                                                            Gross
                                                                            Revenues
                                                                            for the 12     Annual     Year
                                   Annual Percentage                        Months Ended   Base       Acquired/
                        Rooms      Rent Formula (year to Date "YTD") (1)    12-31-99       Rent (1)   Built
                        -----      -------------------------------------    ------------   --------   --------

<S>                     <C>                       <C>                         <C>            <C>        <C>
Miner,                  63         35% YTD Revenues over initial Break-Even
Missouri                           Threshold of $706,860 on first $200,000
(Super 8)                          over Bread-Even Threshold, and 40%        $727,000       $263,000   1995/85
                                   thereafter, less Percentage Rent
                                   previously paid YTD. (2)

Poplar Bluff,           63         35% YTD Revenues over initial Break-Even
Missouri                           Threshold of $586,500 on first $100,000
(Super 8)                          over Break-Even Threshold, and 37%        $630,000       $226,000   1995/85
                                   thereafter, less Percentage Rent
                                   previously  paid YTD. (2)

Rock Falls,             63         28.75% YTD Revenues over initial Break-Even
Illinois                           Threshold of $622,120 on first $200,000
(Super 8)                          over Break-Even Threshold, and 35%        $671,000       $266,000   1995/85
                                   thereafter, less Percentage Rent
                                   previously  paid YTD. (2)

Somerset,               63         32% YTD Revenues over initial Break-Even
Kentucky                           Threshold of $425,000 on first $200,000
(Super 8)                          over  Break-Even Threshold, and 35%       $416,000       $127,000   1995/85
                                   thereafter, less Percentage Rent
                                   previously paid YTD. (2)

Mission Bay,
California
(Vagabond Inn)          117        N/A                                     $1,415,000       $280,200   1996/87

Flagstaff,
Arizona                 90         32% YTD over $925,000 less Percentage
(Super 8)                          Rent previously paid.                   $1,132,000       $505,000   1997/85

Tallahassee,            78
Florida                            10% of Revenues, payable 5% quarterly
(Sleep Inn)                        and 5% at expiration of Lease term (3)   $917,000        $255,000   1996/94

                                       11
<PAGE>

Destin,                 77         30% YTD Revenues over initial Break-Even
Florida                            Threshold of $850,500 on first $350,000
(Sleep Inn)                        over Break-Even Threshold, and 35%        $914,000       $382,000   1996/92
                                   thereafter, less Percentage Rent
                                   previously  paid YTD. (2)

Ocean Springs,          78         30% YTD Revenues over initial Break-Even
Mississippi                        Threshold of $788,400 on first $350,000
(Sleep Inn)                        over Break-Even Threshold, and 35%        $736,000       $369,000   1996/95
                                   thereafter, less Percentage Rent
                                   previously  paid YTD. (2)

Sarasota,               80         30% YTD Revenues over initial Break-Even
Florida                            Threshold of $802,800 on first $300,000
(Sleep Inn)                        over Break-Even Threshold, and 35%        $817,000       $303,500   1996/93
                                   thereafter, less Percentage Rent
                                   previously  paid YTD. (2)

Auburn,                 78         30% YTD Revenues over initial Break-Even
Indiana                            Threshold of $760,000 on first $260,000
(Country Hearth Inn)               over Break-Even  Threshold, and 40%       $733,000       $303,000   1997/87
                                   thereafter, less Percentage Rent
                                   previously paid YTD (subject to CPI
                                   adjustment).

Findlay,                72         30% YTD Revenues over initial             $852,000                  1997/88
Ohio                               Break-Even (4)
(Country Hearth Inn)


Consolidated Total for Hotels                                              $9,960,000    $ 3,622,000
                                                                           ----------    ===========

                                   11 (cont.)
<PAGE>

<FN>
(1)      Unless  otherwise  set  forth  above,  Base  Rent and  Percentage  Rent
         effective December 31, 1999

(2)      Break-Even Threshold increases by 2% per year

(3)      The Lease with Capital  Circle Hotel Company was terminated on June 30,
         1999; since  termination the Tallahassee,  Florida  Sleep Inn  has been
         managed by BAC Hotel Management, Inc. See Item 2. "Properties - Changes
         in Properties"

(4)      The Findlay, Ohio Country Hearth Inn was sold on November 12, 1999, and
         the Lease with Buckhead America  Corporation  relating to  such Company
         Hotel was terminated. See Item 2. "Properties - Change in Properties"

(5)      Threshold  of $740,000  for first  $300,000  and  40%  thereafter  less
         Percentage Rent previously paid YTD.
</FN>
</TABLE>


Changes in Properties

         Mission Bay Property

         In January,  1999,  the  Company  effectively  transferred  leasing and
operation of the Company Hotel located in Mission Bay,  California (the "Mission
Bay  Property")  to RPD Mission Bay, LLC, an affiliate of Vagabond Inns ("RPD"),
which in turn,  pursuant to a services  agreement,  transferred  the  day-to-day
management  of the Mission Bay  Property to RPD 18, LLC,  also an  affiliate  of
Vagabond  Inns, a proven hotel operator  located in  California.  RPD thereafter
terminated the prior  franchise  agreement with Super 8 Hotels and converted the
Mission  Bay  Property  to a  Vagabond  Inn.  In  consideration  for such  lease
transfer,  RPD paid the Company a  non-refundable  fee (the  "Mission  Bay Lease
Fee") in the amount of  $500,000.00.  The Mission Bay Lease Fee was used in part
to pay portions of certain termination fees to the previous  franchisor,  to pay
the termination fee to the previous lessee, and for general corporate purposes.

         The Company  also  granted  RPD an option to  purchase  the Mission Bay
Property for a base  acquisition  price of  $3,225,000.00.  The base acquisition
price  incrementally  reduces on a monthly basis through application of portions
of the base rent payments made to the Company by RPD under the Lease relating to
the Mission Bay Property  (the "RPD  Option").  RPD  exercised the RPD Option in
March,  1999.  The sale of the Mission Bay  Property to RPD  resulting  from the
exercise  of the RPD Option has not yet closed due to a dispute  relating to the
governing deed of trust and the applicable  defeasance and release requirements.
RPD and the  Company,  with the  knowledge  of First  Union  National  Bank (the
"Master  Servicer"),  relied  upon  the Deed of Trust  filed  of  record  in the
Recorder's  Office of San  Diego  County  on March  17,  1997,  as the basis for
negotiating  the terms of the RPD Option.  Additionally,  Lennar  Partners  (the
"Special Servicer"), on behalf of the Master Servicer, acknowledged such deed of
trust  through  the  Subordination,   Non-Disturbance,  &  Attornment  Agreement

                                       12
<PAGE>

previously  executed by the Special  Servicer.  Upon giving notice to the Master
Servicer of the exercise of the RPD Option and  requesting a release of the deed
of trust lien encumbering the Mission Bay Property, the Master Servicer informed
the Company  that the deed of trust filed of record was an  incorrect  document.
The Master Servicer  further  informed the Company that the Mission Bay Property
could  not  be  released  until  certain   additional   release  and  defeasance
requirements  set forth in the deed of trust contained in the Master  Servicer's
files  (which the Master  Servicer  claims is the  correct  deed of trust)  were
satisfied  by the  Company.  Although  the  Company  and RPD  dispute the Master
Servicer's  position as to the governing deed of trust, the Company is currently
evaluating  options as to the  incremental  costs  associated  with  meeting the
additional  requirements imposed by the Master Servicer's version of the deed of
trust or, in the alternative, pursuing legal action against the Master Servicer.

         Findlay Property

         Effective November 12, 1999, the Company sold the Company Hotel located
in  Findlay,  Ohio  (the  "Findlay  Property")  for a  cash  purchase  price  of
$2,400,000.  The cash  proceeds  were  used to  satisfy  closing  costs  and all
outstanding indebtedness relating to the Findlay Property, including a judgement
lien  held  by  the  seller  of  the  Findlay  Property.   See  Item  3.  "Legal
Proceedings." The Company did not receive any cash proceeds from the sale of the
Findlay Property.

         Tallahassee Property

         During a portion of 1999,  the Company  Hotel  located in  Tallahassee,
Florida (the "Tallahassee  Property") was leased to Capital Circle Hotel Company
("Capital Circle"), the prior owner of the Tallahassee Property. Effective as of
June 30, 1999,  Capital Circle  terminated the lease relating to the Tallahassee
Property and BAC Hotel Management,  Inc.  ("BAC"),  a wholly owned subsidiary of
Buckhead  America  Corporation,  currently  operates and manages the Tallahassee
Property pursuant to a management  agreement providing for the payment to BAC of
a  management  fee in an amount  equal to five  percent  (5%) of gross  revenues
generated  from the  Tallahassee  Property  (together  with a $500.00  per month
accounting fee).

ITEM 3.  LEGAL PROCEEDINGS

         Five  Lion, Inc.  and  Lion  Investment  Limited  Partnership  vs. Host
Funding, Inc.; United  States  District  Court,  District  of  Minnesota,  Fifth
Division; Court File Number 98-2154-MJD/RLE.

         The Company was named as a defendant  in the above  complaint  filed on
September 24, 1998. The complaint alleges,  among other things, that the Company
is obligated to reimburse  $150,000 which the plaintiffs paid to the Company for
certain due diligence  items pursuant to a letter  agreement  dated February 13,
1998. On January 20, 2000, the plaintiffs obtained a summary judgment for breach
of contract with regard to a portion of their claims. It is anticipated that the
Company will appeal the summary judgment;  however,  the Company has accrued the
full $150,000.00 in the consolidated financial statements of the Company.

                                       13
<PAGE>

         Auburn Equity Partners vs. BH-Auburn, L.P. and Host Funding, Inc., Case
No. 99 CVE-04-2725,  and  Findlay  Equity  Partners  vs.  BH-Findlay,  L.P.  and
Host  Funding,  Franklin  County  Common Please  Court,  Columbus,  Ohio,  Civil
Division, Case No. 99CVH-04-2726.

         The Company was named as a defendant in the above  complaints  filed on
April 1, 1999.  The  complaints  were filed based upon the default by BH-Auburn,
L.P. and BH-Findlay, L.P. (collectively, the "Partnerships") of their respective
payment  obligations  under two seller  promissory  notes (the  "Country  Hearth
Notes")  delivered  to the  respective  plaintiffs  in  partial  payment  of the
purchase  price for the  Company  Hotels  located in  Findlay,  Ohio and Auburn,
Indiana.  The Company was named as a defendant in both complaints based upon the
Company's guaranty of the payment of the Country Hearth Notes. On July 30, 1999,
a judgment was rendered in favor of the plaintiffs  against the Partnerships and
the  Company  in  the  approximate   aggregate  amount  of  $1,550,000.00.   The
obligations of B-H Findlay under the seller  promissory note, both principal and
interest,  related  to  the  Company  Hotel  located  in  Findlay,  Ohio  in the
approximate  settlement  amount of  $650,000.00  were satisfied in full from the
proceeds of the sale of the property.  The Company guaranty  continues to secure
the obligations and judgment lien of B-H Auburn, L.P., in the approximate amount
of $800,000.00.

         Vance  Linge  vs.  Joseph  Clarence  Kuntz;  Vira Louis Shamman;  Louis
Shamman;  RPD  Hotels 18,  LLC/Vagabond  Inns;  City  of  San Diego;  CrossHost,
Inc.; et al, Superior Court of the State of California,  San Diego County,  Case
No. 730228.

         CrossHost,  Inc., a wholly  owned  subsidiary  of the Company,  and RPD
Mission Bay, LLC, and RPD Hotels 18, LLC ("RPD"), the Company's operators of the
Company  Hotel located in Mission Bay,  California,  were named as defendants in
the above  complaint  filed August 4, 1999. The complaint  alleges,  among other
things,  that inadequate  safety  precautions led in part to the occurrence of a
traffic  accident  and  related  personal  injuries  on the public  thoroughfare
adjacent  to the  Company  Hotel.  The  lawsuit is being  defended  on behalf of
CrossHost, Inc. by the insurance carrier of RPD.

         The Company is a party to other,  non-material legal procedures through
the ordinary course of business.  The Company does not anticipate the losses, if
any,  will  have a  material  impact  on the  financial  condition,  results  of
operation or liquidity of the Company.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

         There were no submissions of matters to a vote of securities holders in
the fourth quarter of 1999.

                                     PART II

ITEM 5.  MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

         The  Company's  Class "A" Common  Stock  trades and is  reported on the
American  Stock Exchange  ("AMEX") under the symbol "HFD".  The Class "A" Common
Stock began trading on April 22, 1996, the date of the Company's  initial public
offering.

                                       14
<PAGE>

         The  following  table shows the range of high and low bid prices of the
Company's  Class "A" Common Stock for the years 1997,  1998 and 1999 as reported
on the AMEX.

                                          1997

                                 High                Low

      First Quarter             10 1/2              7 1/2
      Second Quarter             9 7/8              8 3/8
      Third Quarter              9 5/8              8 5/8
      Fourth Quarter             9 3/16             5

                                          1998
                                 High                Low

      First Quarter              7 3/4              5 1/4
      Second Quarter             5 7/16             4 3/8
      Third Quarter              4 3/4              1 7/8
      Fourth Quarter             2 5/16             1 11/16

                                         1999
                                 High                Low

      First Quarter              3                  2 1/4
      Second Quarter             2 7/8              2 1/4
      Third Quarter              2 7/8              2
      Fourth Quarter             2 7/8              1 7/8

         As of March 27, 2000, there were  approximately  1,014  shareholders of
record of the  Company's  Class "A" Common  Stock and the  closing bid price was
$2.00.

          During  1997,  the Company  declared  dividends  of $0.24 per share on
February 4, $0.24 per share on May 30, $0.24 per share on September 2, and $0.24
per share on December 12. No dividends  were  declared or paid by the Company in
1998 or 1999.  Future  distributions to stockholders  will be dependent upon the
Company's  net cash flow from the  operations of the Company  Hotels,  financial
condition,  capital  requirements and other factors deemed relevant by the Board
of Directors of the Company.

                                       15
<PAGE>


         As of December 31,  1999,  the Company had issued and  outstanding  two
series of warrants  designated  "Series A Warrants" and "Series B Warrants." The
Series A Warrants  provide warrants to purchase 225,000 shares of Host Funding's
Class "A" Common Stock at $9.90 per share,  and expired on February 2, 2000. The
Series B Warrants  provide  warrants to purchase 225,000 shares of the Company's
Class "A" Common  Stock at $10.80 per share,  and  expired on  February 2, 2001.
There were  additional  provisions  in the  Series A  Warrants  and the Series B
Warrants that allowed certain limited registration rights and pro-rata treatment
upon the occurrence of certain  events,  including,  without  limitation,  stock
splits,  mergers,  reclassifications  of  stock,  or a  recapitalization  of the
Company. The Series A Warrants expired on February 2, 2000.

         On December 20, 1999, the Company filed Articles Supplementary with the
Maryland  State  Department  of  Taxation  designating  2,000,000  shares of the
authorized but unissued  shares of Preferred  Stock of the Company as Series "A"
Convertible  Preferred  Stock,  $0.01  par  value per  share  (the  "Series  `A'
Preferred").  Of the 2,000,000 shares of the Series "A" Preferred  designated by
the  Company,  Mackenzie  Patterson,  Inc.,  a  California  real estate  venture
capitalist  ("MPI"),  purchased 500,000 shares for a purchase price of $3.00 per
share.  MPI purchased the shares of Series "A" Preferred on December 22, 2000 in
an exempt transaction  pursuant to Rule 506 of Regulation D under the Securities
Act of 1933. See Item 13. "Certain  Relationships and Related Transactions." The
holders of the Series "A"  Preferred are entitled to  participate  pro rata with
the holders of shares of the Class "A" Common  Stock of the Company with respect
to dividend  distributions and are entitled to a liquidation preference of $4.00
per  share  over the  holders  of shares of Class  "A"  Common  Stock,  upon the
voluntary or involuntary  dissolution,  liquidation or winding up the affairs of
the Company.  The holders of shares of Series "A" Preferred also have the right,
exercisable  at any time after  December 23,  2002,  to convert such shares into
shares  of Class  "A"  Common  Stock on a  one-for-one  basis  (the  "Conversion
Ratio"),  or to require  the  Company to redeem all or any part of the shares of
Series "A" Preferred at the redemption price of $4.00 per share plus any accrued
and unpaid cash  dividends.  The Conversion  Ratio is subject to adjustment upon
the occurrence of certain  events,  including  issuance of additional  shares of
Class   "A"   Common   Stock,   stock   dividends,    stock   splits,   mergers,
reclassifications of stock, or a recapitalization of the Company. The holders of
shares of Series "A"  Preferred are entitled to the number of votes equal to the
number of shares of Class "A"  Common  Stock  into  which a share of Series  "A"
Preferred is convertible  and are further  entitled to vote together as a single
group with the  holders of Class "A" Common  Stock on all matters  submitted  or
required to be submitted to the Company's common stockholders for approval.  The
holders of Series "A" Preferred,  voting together as a single voting group, have
the right to elect, at each annual stockholders  meeting of the Company, two (2)
of the five (5) members of the Board of Directors of the Company.

         The Company also issued  Warrants to MPI to purchase  500,000 shares of
Class "A" Common  Stock of the Company for an exercise  price of $3.00 per share
(the  "Warrants").  The Warrants are  exercisable  at any time after the date of
issuance with an expiration  date of December 21, 2005. The Warrants are subject
to exercise price  adjustments upon the occurrence of certain events,  including
stock  dividends,  stock  splits,  mergers,  reclassifications  of  stock,  or a
recapitalization of the Company.

                                       16
<PAGE>


         Pursuant to the terms and conditions of a Registration Rights Agreement
(the "Registration  Agreement")  between the Company and MPI, the holders of the
Series "A"  Preferred  and the  Warrants  are  entitled  to  certain  demand and
"piggy-back"  registration  rights  relating  to the  shares of Class "A" Common
Stock  issuable upon  conversion of the Series "A" Preferred or upon exercise of
the  Warrants  (the  "Underlying  Common  Stock").  The  Registration  Agreement
provides  that at any time after the date of  issuance  the  holders of at least
twenty-five  percent (25%) of the Series "A" Preferred and the Warrants may make
in the  aggregate,  up to four (4) written  requests  to register  the number of
shares  of  Underlying  Common  Stock  set  forth in each  written  request.  In
addition,  if the Company  proposes to file a registration  statement  under the
Securities  Act of 1933 with respect to an offering by the Company of securities
for its own account  (other than a  registration  statement  on Form S-4 or Form
S-8),  the holders of Series "A" Preferred and the Warrants shall be entitled to
participate in the Company registration,  subject to the approval of the Company
underwriter.

ITEM 6.  SELECTED FINANCIAL DATA

          The  following   table  sets  forth  selected   historical   financial
information for the Company, all of which has been derived from the consolidated
financial  statements  included  with  this  Annual  Report  on Form  10-K.  The
following  information  should  be read in  conjunction  with  the  consolidated
financial  statements  and  the  notes  thereto  for  the  Company  and  Item 7.
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations."

                                       17
<PAGE>

<TABLE>
<CAPTION>

                                      Year Ended         Year Ended          Year Ended         Year Ended       Nine Months Ended
                                  December 31, 1999   December 31, 1998  December 31, 1997   December 31, 1996   December 31, 1995

     <S>                                <C>                 <C>                 <C>                 <C>                <C>
OPERATING RESULTS:

GROSS REVENUES                    $  3,879,333        $ 3,926,042        $  3,837,350        $  1,768,783          $   942,343
LOSS BEFORE INCOME TAXES          $ (1,972,726)       $  (904,316)       $ (1,025,514)       $   (149,276)         $   (31,217)
NET LOSS                          $ (1,972,726)       $  (904,316)       $ (1,025,514)       $   (149,276)         $   (28,217)

BASIC AND DILUTED NET LOSS PER
COMMON SHARE                      $      (1.22)       $     (0.58)       $       (0.68)      $      (0.12)         $     (0.04)


WEIGHTED AVERAGE NUMBER OF BASIC
AND DILUTED COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING      1,615,894            1,559,916          1,516,652            690,000                690,000

DISTRIBUTIONS PER COMMON SHARE:
CLASS A                                    -0-                 -0-       $       0.96        $      0.465
CLASS B                                    -0-                 -0-                -0-                 -0-
CLASS C                                    -0-                 -0-                -0-                 -0-
TOTAL ASSETS                      $ 30,570,050        $ 32,449,658       $ 31,996,180        $ 20,435,575          $2,694,694
LONG TERM DEBT
 (Including current portion)      $ 23,611,300        $ 25,790,837       $ 25,036,346        $ 15,500,000          $4,230,565

PREFERRED STOCK                   $  1,500,000                 -0-                -0-                 -0-

SHAREHOLDERS' EQUITY              $  2,789,580        $  3,587,500       $  4,279,337        $  4,703,395         $(2,064,834)
</TABLE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

Recent Developments

         Effective  November 12, 1999,  the Company sold the Country  Hearth Inn
located in Findlay,  Ohio (the "Findlay  Property") for a cash purchase price of
$2,400,000.00. The cash proceeds were used to pay the first lien indebtedness on
the Findlay  Property  and to satisfy the seller  finance note held by the prior
owner of the Findlay  Property,  including  the judgment  lien held by the prior
owner. The Company did not receive any net proceeds from the sale of the Findlay
Property. See Item 2. "Properties - Changes in Properties" and Item 3.
"Legal Proceedings."

                                       17 (cont.)
<PAGE>


         On December 22, 1999, the Company sold to Mackenzie Patterson,  Inc., a
California real estate venture capitalist ("MPI"),  500,000 shares of the Series
"A"  Convertible  Preferred  Stock,  $0.01 par value per share (the  "Series "A"
Preferred"),  for a purchase price of $1,500,000.00.  The proceeds from the sale
of the Series "A" Preferred  were used by the Company for working  capital.  The
Company also issued to MPI warrants to purchase  500,000 shares of the Class "A"
Common  Stock  of  the  Company  for an  exercise  price  of  $3.00  per  share,
exercisable  at any time for a period of six (6) years from the date of issuance
(the  "Warrants").  Concurrently  with the  purchase of the shares of Series "A"
Preferred and the issuance of the Warrants,  the Company and MPI entered into an
Advisory  Agreement  pursuant to which MPI assumed the day to day  operations of
the Company and direction of new investments on behalf of the Company.  In order
to  implement  the  responsibilities  of MPI under the Advisory  Agreement,  the
principal  offices  of the  Company  were moved  from  Dallas,  Texas to Moraga,
California in January,  2000. See Item 13.  "Certain  Relationships  and Related
Transactions."

Results of Operations

Years Ended December 31, 1999, 1998, and 1997:

          Occupancy,  average room rates, and revenue per available room of 60%,
$48.53,  and $29.11 for the Company  Hotels for the year ended December 31, 1999
resulted in total sales, including room sales, of approximately $9,960,000.

         Property  Operation:  Effective  July 1, 1999 the Company and BAC Hotel
Management,  Inc.  entered   into  a  management   agreement   relating  to  the
Tallahassee property. Room revenue, operating expenses, and income from property
operations  of  approximately  $425,000,  $244,000,  and $181,000  were realized
though December 31. 1999.

          Lease Revenue: The 1999 amount of approximately  $3,368,000 reflects a
reduction  due to major  renovations  at the Company  Hotel located in Sarasota,
Florida and is further reduced by reflecting room revenue and operating expenses
separately  for the Company  Hotel  located in  Tallahassee,  Florida.  The 1998
amount of $3,891,000 reflects a full year of operations for all properties;  the
1997 amount of $3,679,000  reflects revenues  associated with the acquisition of
the Super 8 Motel  located in  Flagstaff,  Arizona and the  Country  Hearth Inns
located in Auburn,  Indiana and Findlay, Ohio. The 1997 amount also reflects the
first full year of unrelated parties as lessees.

                                       18
<PAGE>

          Interest Income, Related Parties:  Reduced to $0 in 1999 and 1998 from
$122,000 in 1997.  The 1998 amount was reduced  from the 1997 amount  based upon
the  satisfaction  of a note  receivable  from a related party in 1997,  and the
directors of Host Funding agreed to forego director fees,  provided interest due
on the director notes is forgiven.

          Interest Expense,  Depreciation and Amortization,  and Property Taxes:
The 1999 and 1998  amounts  are  greater  than the 1997  amount  because  of the
additional debt, capitalized cost, loan cost, and property taxes associated with
the  acquisition  of the Super 8 motel  located in  Flagstaff,  Arizona  and the
Country Hearth Inn properties located in Findlay, Ohio and Auburn,  Indiana (the
"1997  Properties").  1998 was the first  full year of  operations  for the 1997
Properties.

          Depreciation   expense,   which  is  included  in   depreciation   and
amortization,  is calculated based upon the original historical cost of the five
initial  hotels  acquired  by the  Company  and  the  acquisition  value  of the
remaining Company Hotels. The Company's hotel properties located in Mission Bay,
California  and  Findlay,  Ohio  were  classified  under  "Land,  Property,  and
Equipment  - Held for  Sale"  in the  fourth  quarter,  1998.  Amortization  and
Depreciation  expense is not  recognized  for  properties  classified  as "Land,
Property,  and Equipment - Held for Sale", so the 1999 amounts are less than the
1998 amounts.

          Administrative  Expenses,  Other:  The 1999  amount  is  approximately
$862,000.  The 1998 total amount of  approximately  $704,000 is reduced from the
1997 total of $1,020,000,  primarily  because of reductions in direct  corporate
overhead  in 1998,  and certain  one-time  charges  incurred in 1997  related to
moving the corporate office from California to Texas.

          Administrative  Expenses,  Other totaled $862,000 and $704,000 for the
years  ended  1999  and  1998,  including  the  following  approximate  amounts:
salaries & benefits:  $325,000 and $285,000;  audit and accounting fees: $69,000
and  $83,000;  legal fees:  $154,000 and $82,000;  contract  labor:  $69,000 and
$52,000; corporate office rent: $12,000 and $16,000; office supplies: $3,000 and
$5,000; telephone: $17,000 and $17,000; travel: $30,000 and $32,000; marketing &
advertising:  $18,000 and $2,000;  stock  transfer  costs:  $30,000 and $36,000;
statutory  filing and printing  costs:  $28,000 and  $30,000;  taxes & licenses:
$21,000 and $6,000; other administrative costs: $86,000 and $58,000.

         Directors  Fees for 1999 totaled  approximately  $90,000 and is greater
than the 1998 and 1997  amounts of $20,000  and  $18,000 due to shares of common
stock issued to former directors.

         Minority Interest in Partnerships: Represents the 19% minority interest
in the operations of the Country Hearth Inn Hotels.

         Relinquished  project costs of $294,000 for the year ended 1999 include
costs incurred  related to hotel  acquisitions in Florida and other parts of the
southeastern United States.

         Amortization  of Unearned  Directors  Compensation  has been calculated
based upon the terms of the independent directors' notes.

                                       19
<PAGE>

         The Net Loss from Sale of  Property  recognized  in 1999 was  $607,000.
This is greater than the amount  recognized as Valuation Reserve in 1998 because
the contract for sale of the Country Hearth Inn was not finalized until 1999.

         The Net Gain from Transfer of Lease of approximately  $279,000 resulted
from the  change in lessee on the  property  the  Company  owns in  Mission  Bay
California from Crossroads  Hospitality Tenant Company to Vagabond Inns. The Net
Gain from Transfer of Lease of approximately  $573,000 in 1998 resulted from the
change in lessees on seven of the Company properties in 1998.

Liquidity and Capital Resources

         On December 22, 1999, the Company sold to Mackenzie Patterson,  Inc., a
California real estate venture capitalist ("MPI"),  500,000 shares of the Series
"A"  Convertible  Preferred  Stock,  $0.01 par value per share (the  "Series "A"
Preferred"),  for a purchase price of $1,500,000.00.  The proceeds from the sale
of the  Series  "A"  Preferred  were  used by the  Company  to  satisfy  current
obligations and for working capital.  The Company also issued to MPI warrants to
purchase  500,000  shares of the Class "A" Common  Stock of the  Company  for an
exercise  price of $3.00 per share,  exercisable at any time for a period of six
(6) years from the date of  issuance  (the  "Warrants").  Concurrently  with the
purchase of the shares of Series "A" Preferred and the issuance of the Warrants,
the  Company and MPI entered  into an Advisory  Agreement  pursuant to which MPI
assumed  the  day  to  day  operations  of  the  Company  and  direction  of new
investments on behalf of the Company. In order to implement the responsibilities
of MPI under the Advisory  Agreement,  the principle offices of the Company were
moved from Dallas,  Texas to Moraga,  California in January  2000.  See Item 13.
"Certain Relationships and Related Transactions."

         Effective May 12, 1998, Host Ventures,  Inc. ("HVI") entered into a new
loan agreement (the "HVI Modified Loan") with Credit Suisse First Boston ("First
Boston") in which the principal amount of the existing debt from First Boston to
HVI was increased from $8,725,000 to $9,075,000.  The additional proceeds of the
loan were used for general corporate purposes. The term of the HVI Modified Loan
provides that all principal and outstanding interest is due and payable in June,
2023.  The  annual  interest  rate was  modified  to 8.12%,  with  interest  and
principal amortized over a 25 year term, payable monthly.  The HVI Modified Loan
provides for a  "Hyperamortization  Date," after which the annual  interest rate
increases substantially.  The hyperamortization provision is intended to provide
incentive for the loan to be paid off on the tenth  anniversary  date of the HVI
Modified Loan.

         Also  effective  May 12,  1998,  the  Company  entered  into a new loan
agreement with First Boston (the "Mezzanine  Loan") in which First Boston loaned
the Company  $825,000.  The proceeds of the loan were used for general corporate
purposes.  Interest  accrues at a floating  rate of the 30-day  LIBOR,  plus 500
basis points.  Interest and principal,  based on a 5 year amortization,  are due
monthly.  The Company  subsequently formed Host Enterprises,  Inc. ("HEI"), as a
wholly owned, special purpose entity of HVI, for the purpose of transferring the
Mezzanine  Loan to HEI. The Company  guaranteed  the  performance  by HEI of the
terms of the  Mezzanine  Loan and pledged  the stock of HVI as security  for the
Mezzanine Loan.

                                       20
<PAGE>

         On June 19, 1997,  the Company  executed a  promissory  note payable to
Blacor,  Inc.  ("Blacor")  in the  original  principal  amount of  $70,000  (the
"Original  Blacor  Note").  On December 30, 1997,  the Original  Blacor Note was
extended by a new promissory  note in the original  principal  amount of $86,600
(the "Blacor Note").  Effective  December 30, 1998, the Blacor note was extended
to April 30, 1999.  During 1999, the balance of the Blacor Note was increased to
$108,600.  On September 29, 1999, the Company paid a portion of the  outstanding
principal balance and all accrued interest on the Blacor Note by the issuance to
Blacor of  33,000  shares of the Class  "A"  Common  Stock of the  Company.  The
remaining principal and interest outstanding was paid in full in December, 1999.

         In October 1997,  B-H Findlay,  L.P.  ("B-H  Findlay")  executed a note
payable  (the  "Findlay  Note") to the seller of the  Company  Hotel  located in
Findlay,  Ohio (the "Findlay  Property")  and  BH-Auburn,  L.P.  ("B-H  Auburn")
executed a note payable (the "Auburn  Note") to the seller of the Company  Hotel
located in Auburn,  Indiana (the "Auburn  Property")  in partial  payment of the
purchase  price of the  hotel  properties  (collectively,  the  "Country  Hearth
Notes"). The Company is the beneficial owner of 81% of the partnership interests
in each of B-H Findlay and B-H Auburn.  The Country Hearth Notes were originally
secured  by 90,000  shares of the Class "B"  Common  Stock of the  Company  (the
"Pledged  Stock") and the  corporate  guaranty of the Company (the "Host Funding
Guaranty").  The Country  Hearth Notes were  modified on June 15,1998 to provide
that if, on October 21, 1998, the closing price of the Company's  Class A Common
Stock as traded on the  American  Stock  Exchange was less than $6.50 per share,
the Company would make an additional  cash payment (the "Full Cash  Payment") to
the  sellers so that the total  value of the Class "A"  Common  Stock at the per
share price on October 21,  1998,  plus the amount of such Full Cash  Payment to
the sellers, equaled $750,000.

         B-H  Findlay  and B-H  Auburn  defaulted  on their  respective  payment
obligations  under the Country  Hearth  Notes in January 1999 and the holders of
the Country  Hearth Notes filed a complaint in the Franklin  County Common Pleas
Court,  Columbus,  Ohio,  Civil Division  against each of the  partnerships,  as
maker,  and the Company,  as guarantor.  The complaints were filed in April 1999
and  together  demanded  payment  of the  Country  Hearth  Notes in full and the
related Full Cash Payment in the aggregate amount of  approximately  $1,550,000.
On July 30, 1999, a judgment  was rendered  against B-H Findlay,  B-H Auburn and
the Company in the approximate  aggregate amount of $1,550,000.  The obligations
of B-H Findlay under the Findlay  Note,  both  principal  and  interest,  in the
approximate settlement amount of $650,000.00 were satisfied in full from the net
proceeds of the sale of the Findlay Property in November 1999. The Host Guaranty
and the Pledged Stock continue to secure the obligations of B-H Auburn under the
Auburn Note and the Full Cash Payment in the approximate of  $800,000.00,  as of
December 31, 1999.

          The Company's  principal source of cash to meet its cash requirements,
including  distributions to shareholders and repayments of indebtedness,  is the
cash flow from the Leases.  For the year ended December 31, 1999, cash flow used
in operating activities was approximately $358,000.

         The Company has addressed the "Year 2000 Problem" and  determined  that
the Company's  automated  systems are "Y2K Compliant." The lessees and operators
of the Company Hotels have also advised the Company that the systems relating to
the Company  Hotels are "Y2K  Compliant."  Such  compliance  includes  all front

                                       21
<PAGE>


office systems,  electronic locks,  telephone  systems,  credit card processing,
communications software with primary bankers, motel VCRs, FAX machines, copiers,
cash registers,  television systems, and elevators,  among other systems. If the
Company  suffers  material  loss or  significant  adverse  effects to operations
resulting from  non-compliance,  the Company may terminate the related lease due
to  default  by the  lessee  and  execute  leases  with a new lessee who is "Y2K
Compliant." Any cost incurred by the Company to maintain  compliance is expected
to be immaterial.

          The Company has no committed  additional sources of external liquidity
available;  therefore,  the Company will rely on its internal  cash flow to meet
its liquidity  needs.  The Company's  principal  source of cash to meet its cash
requirements,  including  distributions  to  shareholders,  is its  share of the
Company's  cash flow from the Company  Hotels.  Although the  obligations of BAC
Hotel Management,  Inc. ("BAC"),  as lessee,  under the Company Hotels leased by
BAC are guaranteed in part by Buckhead American Corporation (BUCK:  NASDAQ), the
ability of BAC to make lease  payments  under the  Company  Hotel  leases,  and,
therefore, the Company's liquidity,  including its ability to make distributions
to shareholders,  is dependent on the ability of BAC to generate sufficient cash
flow from such Company Hotels.

         Other than debt service on the Company's loan facilities and notes, the
capital  expenditures  required  under the Company Hotel leases or the Company's
loan  facilities,  property  taxes  on the  Company  Hotels,  obligations  under
employment  agreements,  and other administrative  expenses,  the Company is not
aware of any demands,  commitments,  events or uncertainties that will result or
are likely to result in a change in the Company's liquidity.

         The Company intends to make additional  investments in hotel properties
and may incur  indebtedness to make such  investments to the extent that working
capital and cash flow from the Company's  investments  are  insufficient to make
such investments. The Company will invest in additional hotel properties only as
suitable  opportunities  arise,  and the Company will not undertake  investments
unless  adequate  sources of financing are available.  The Company  expects that
future  investments in hotel  properties will be financed,  in whole or in part,
with the capital stock of the Company, proceeds from additional issuances of the
capital  stock of the  Company,  or from the  issuance  of other  debt or equity
securities. The Company, in the future, may seek to obtain a line of credit or a
permanent credit facility,  negotiate  additional  credit  facilities,  or issue
corporate debt instruments, all in compliance with its charter restrictions. Any
debt incurred or issued by the Company may be secured or unsecured, long-term or
short-term,  charge a fixed or variable interest rate and may be subject to such
other terms as the Board of Directors of the Company  deems  reasonably  prudent
and in the best interest of the Company.

Inflation

         Operators  of hotels,  in  general,  possess the ability to adjust room
rates  quickly.  Competitive  pressures may,  however,  limit the ability of the
lessees and  operators of the Company  Hotels to raise room rates in the face of
inflation.

                                       22
<PAGE>

Seasonality

         Hotel operations are generally seasonal in nature based upon geographic
locations.  This  seasonality  can be  expected  to  cause  fluctuations  in the
Company's  quarterly  lease  revenue to the extent that it  receives  percentage
rent.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Information and disclosures  regarding  market risks  applicable to the
Company are  incorporated  herein by reference to the  discussion  under Item 7.
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" and "Liquidity and Capital Resources."


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         See Item 14(a).

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None.

                                       22 (cont.)
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

         The  Company's  Board of Directors  consists of five (5)  members.  The
directors are elected at the annual meeting of  stockholders or are appointed by
the  incumbent  Board of  Directors  and serve until the next annual  meeting of
stockholders or until a successor has been elected or appointed. Set forth below
is certain  information  regarding the  directors and executive  officers of the
Company during fiscal year 1999.

Michael S. McNulty, Director and President

         Michael  S.  McNulty  has  served as a director  and  president  of the
Company since 1996. Mr. McNulty,  52, received his Juris Doctorate from Southern
Methodist University in 1973. From 1977 to 1985, Mr. McNulty was employed by the
real estate  development  corporation of a  multi-national  family with business
interests in various countries.  During that period, Mr. McNulty was responsible
for developing  partnerships for investments in over thirty real estate projects
with gross investments  exceeding  $200,000,000.  Prior to election in September
1995 as  President  of the  Corporation,  Mr.  McNulty  owned  his  own  private
financial  consulting  firm.  Mr.  McNulty is also  President  and Director of a
controlling venture in a Napa Valley based winery. In addition,  Mr. McNulty has
served from 1994 to the present as the President and a director of Blacor, Inc.,
the principal corporation of a group of companies controlled by a multi-national
investor,  the  primary  purpose of which is to invest in real  property  in the
United States. Mr. McNulty resigned as a director of the Company effective as of
December 23, 1999 and as  President of the Company  effective as of December 31,
1999.

Guy E. Hatfield, Director

         Guy E.  Hatfield  has  served as a  director of the Company since 1996.
Mr.  Hatfield,  65, has  been  President  of  All   American   Group,  Inc.,   a
Delaware  corporation,  since 1989.  Mr.  Hatfield  earned a Bachelor of Science
degree from Bradley University in 1955 and a Juris Doctorate from the University
of San Diego in 1962.  From 1984 to 1989, Mr. Hatfield was Chairman of the Board
and Chief  Executive  Officer of Motels of America,  Inc., a  corporation  which
built and managed 107 Super 8 motels and had gross annual sales of  $80,000,000.
Since 1989, Mr.  Hatfield has served as President and Chairman of Hatfield Inns,
Inc.,  a  corporation   involved  in  the  ownership  and  management  of  hotel
properties.

                                       23
<PAGE>

William M. Birdsall, Director

         William M. Birdsall has served as a director of the Company since 1996.
Mr. Birdsall,  51, was Chairman of the Board and Chief Executive  Officer of the
Company until March 31, 1998. Effective April 1, 1998, Mr. Birdsall resigned his
position as Chairman of the Board and Chief Executive Officer, but has continued
to serve as a director of the Company. He also serves as President of Birdsall &
Corporation,  a real  estate  investment  and finance  firm  located in Durango,
Colorado.  Before  starting  Birdsall & Corporation  in 1993,  Mr.  Birdsall was
Chairman and CEO of the Price REIT, a public  corporation,  which he  co-founded
and took public in 1991 in the form of a Real Estate Investment Trust trading on
NASDAQ.  Mr. Birdsall has been involved with real estate development since 1978.
He  was  Chief  Operating  Officer  of  Estes  Properties,  Inc.,  where  he was
responsible  for  operations of the Lowes Ventana Canyon Resort and Golf Club in
Tucson,  Arizona,  a 2,000-acre  planned  community and resort hotel.  From 1982
through 1987 he was Senior  Vice-President of Real Estate for Ramada,  Inc., the
international  hotel  chain.  He now serves on the  Scripps  Memorial  Hospitals
Foundation Board and is a member of the Young Presidents  Organization,  Arizona
Bar Association,  Urban Land Institute,  and  International  Council of Shopping
Centers.

Brian K. Rodgers, Director

         Brian K.  Rodgers  was  appointed  a director of the Company in 1999 to
fill the vacancy created by the resignation of Don Cockroft. Mr. Rodgers, 28, is
an associate at HVS  International,  a worldwide hotel  consulting and appraisal
firm serving hotel owners and lenders  throughout  the United States and abroad.
Mr. Rodgers has conducted  appraisals on hotel assets and  development  projects
valued at over $1 billion.  Prior to his  employment at HVS  International,  Mr.
Rodgers gained hotel operational  experience at Four Seasons Hotels and Resorts,
serving a  management  role in the opening of the Four  Seasons  Resort  Aviara,
located in Carlsbad, California. Mr. Rodgers earned a Bachelor of Arts degree in
psychology  from the  University of California at San Diego in 1994 and a Master
of Management  in  Hospitality  from Cornell  University  in 1998.  Mr.  Rodgers
resides in San  Francisco,  California  and is an active  member of the  Cornell
Hotel Society.

Robert E. Dixon, Director

         Robert E.  Dixon was  appointed  a director  of the Company  in 1999 to
fill the  vacancy  created  by  the  resignation of Charles Dunn. Mr. Dixon, 31,
is the  managing  member  and  controlling  interest  holder in  Sutter  Capital
Management,  LLC.  Mr. Dixon is a Canadian  citizen and  received his  bachelors
degree from the University of California at Los Angeles in 1992. During 1993 and
1994, Mr. Dixon was employed by Lehman  Brothers in equity sales and trading and
in October,  1994 joined  MacKenzie  Patterson,  Inc., as a securities  research
analyst.  In June, 1996, Mr. Dixon left MacKenzie  Patterson to begin buying and
selling securities for his own account and that of Sutter Opportunity Fund, LLC,
an entity which he controls. Mr. Dixon was a registered  representative of North
Coast  Securities  from 1994  through  1997.  In  January  2000,  Mr.  Dixon was
appointed chairman of the Board of the Company.

Glen Fuller, Director

         Glen Fuller,  26, was  appointed  a  director  of  the Company  by  the
incumbent  Board  of  Directors,  effective as  of December 23,  1999,  to  fill
the vacancy  created by the  resignation  of Michael S. McNulty.

                                       24
<PAGE>


Bona K. Allen, Chief Financial Officer

         Bona K. Allen was elected Chief Financial  Officer and Secretary of the
Company  effective  February 1, 1997.  Mr.  Allen,  39, has been involved in the
financial  aspects  of real  estate  investment,  development,  management,  and
construction since graduating from Birmingham-Southern College in 1982. Prior to
appointment to the Company,  Mr. Allen served as a financial  executive with The
Myrick  Company  (Atlanta,  Georgia)  and as a  financial  consultant  from 1994
through  1996.  From  1986 to 1994,  Mr.  Allen  was  employed  by  Wilma  South
Management Corporation (and affiliates),  the United States holding company of a
Dutch-owned  real estate  group.  Mr.  Allen  served in several  positions  with
increasing  responsibility and was named Vice President/Chief  Financial Officer
in 1991. He was responsible  for the financial  operations of the Company at the
time Wilma owned or  controlled  assets  with a cost  totaling in excess of $500
million located in the Southwest,  Southeast and Southern  California regions of
the United States.  Mr. Allen is a member of the American Institute of Certified
Public Accountants, the Georgia Society of Certified Public Accountants, and the
Alabama Society of Certified Public Accountants.

Compensation of Directors

         In 1999, Messrs. Dixon and Rodgers purchased 10,000 shares of the Class
"A" Common  Stock of the Company.  The  purchase  price for the Class "A" Common
Stock was paid by the  execution by each  director of a $25,000.00  non-recourse
promissory note secured by the purchased shares. In connection with the purchase
of the  shares,  the  Company  agreed to  forgive  the  promissory  notes (i) in
increments of 20% of the  principal  amount per annum for each year the director
remains a  director  of the  Company,  and (ii) upon the  death,  disability  or
resignation  of the director  (except for  voluntary  resignation  or failure to
serve). The Company did not pay any directors fees during fiscal year 1999.

         The Company has not paid and does not anticipate  paying  directors for
service on  committees.  All of the  directors  of the Company  are  entitled to
participate  in the Host  Funding,  Inc. 1997  Incentive  Plan,  however,  since
adoption, no benefits have been issued under the Incentive Plan.

Section 16-(a): Beneficial Ownership Reporting Compliance

         Section 16-(a) of the Exchange Act requires the Company's  officers and
directors, and persons who own more than ten percent (10%) of a registered class
of the Company's equity  securities,  to file reports of ownership and change in
ownership  with the Securities and Exchange  Commission  (the "SEC").  Officers,
directors  and greater than ten percent (10%)  stockholders  are required by SEC
regulations  to furnish the Company with copies of all Section 16-(a) forms they
file.  Based solely on its review of the copies of such forms received by it, or
written  representations  from certain reporting persons that no Forms 3, 4 or 5
were required for those persons, the Company believes that, from January 1, 1999
to December  31,  1999,  all filing  requirements  applicable  to its  officers,
directors,  and greater than ten percent (10%)  beneficial  owners,  were timely
met.

                                       25
<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION

         The  following   table  sets  forth  for  the  years   presented,   the
compensation paid to the executive officers of the Company serving during 1999:

                                                       Other            All
     Name and                                          Annual          Other
     Principal       Year    Salary ($)   Bonus ($)  Compensation   Compensation
    Position (1)
Michael S. McNulty,  1999    $108,000
President            1998    $108,000
                     1997    $ 99,000
Bona K. Allen,       1999    $ 76,875
Chief Financial      1998    $ 84,375
Officer              1997    $ 65,625

[FN]
(1)  Each of Messrs.  McNulty and Allen was  employed  during fiscal years 1997,
     1998 and 1999 pursuant to an employment  agreement with  the  Company.  See
     "Employment Agreements and Other Compensation Arrangements" below.
</FN>

     Employment Agreements and other Compensation Arrangements

Michael S. McNulty

         The Company's  employment  agreement with Mr. McNulty dated February 1,
1997,  provides for an initial  thee-year  term through  January 31, 2000,  with
automatic  renewal for a period of one year on each anniversary date of February
1 ("Anniversary  Date"), unless terminated for any reason by written notice from
either party given to the other at least one hundred  twenty (120) days prior to
the next Anniversary Date, or unless otherwise  terminated pursuant to the terms
of the  agreement.  The  agreement  vests Mr.  McNulty  with full  authority  as
President and Chief Operating  Officer of the Company and provides for an annual
base salary of  $108,000,  subject to an annual  increase to (i) $150,000 if the
assets of the Company exceed $150,000,000 and (ii) $250,000 if the assets of the
Company  exceed  $250,000,000.  The  agreement  also  provides  for payment of a
performance  bonus  calculated  pursuant  to a  formula  based on the  financial
results  achieved by the Company  during any fiscal year. No employment  bonuses
were owed to Mr.  McNulty  for  fiscal  year 1999.  Mr.  McNulty  resigned  as a
director of the Company  effective  as of December  23, 1999 and as President of
the  Company  effective  as of  December  31,  1999.  Mr.  McNulty's  employment
agreement  terminated by its terms effective as of January 31, 2000. Mr. McNulty
was  compensated  through  January  31,  2000,  the date of  termination  of his
employment agreement, and received no further severance.

Bona K. Allen

         The Company's  employment  agreement  with Mr. Allen dated  February 1,
1997,  provides for an initial  thee-year  term through  January 31, 2000,  with
automatic  renewal for a period of one year on each anniversary date of February
1 ("Anniversary  Date"), unless terminated for any reason by written notice from
either party given to the other at least one hundred  twenty (120) days prior to
the next Anniversary Date, or unless otherwise  terminated pursuant to the terms
of the  agreement.  The agreement  vests Mr. Allen with full  authority as Chief
Financial  Officer of the  Company  and  provides  for an annual  base salary of
$75,000,  subject to an annual  increase  to (i)  $112,500  if the assets of the
Company  exceed  $150,000,000,  and (ii)  $150,000  if the assets of the Company
exceed  $250,000,000.  The agreement  also provides for payment of a performance

                                      26
<PAGE>

bonus calculated  pursuant to a formula based on the financial  results achieved
by the Company  during any fiscal year. No  employment  bonuses were owed to Mr.
Allen for fiscal year 1999.  The Company and Mr.  Allen have agreed to terminate
Mr.  Allen's  employment  agreement  effective as of March 31,  2000.  Mackenzie
Patterson,  Inc., the external advisor of the Company,  has agreed to retain Mr.
Allen on a month-to-month basis as a financial consultant to MPI. Mr. Allen will
provide consulting services to MPI on financial matters relating to the Company.
The  Company  has agreed to pay Mr.  Allen a one-time  severance  payment in the
amount of $25,000  with respect to the  termination  of Mr.  Allen's  employment
agreement. The severance payment is due and payable on March 31, 2000.

Compensation Committee Interlocks and Insider Participation

         The Compensation Committee of the Company consists of Brian K. Rodgers,
Robert  E.  Dixon,  and  Guy  E.  Hatfield,  each  of  whom  is a  director  and
non-employee  of the Company.  No member of the  Compensation  Committee  was an
executive  officer or employee of the Company or any of its  subsidiaries at any
time during, or prior to, fiscal year 1999.  Executive  Compensation for Messrs.
McNulty and Allen for fiscal year 1999 was  determined  in  accordance  with the
terms and conditions of their respective employment agreements.  See "Employment
Agreements and Other Compensation Arrangements."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Security Ownership of Certain Beneficial Owners

         The following  table sets forth the ownership of the voting  securities
of the Company both  beneficially  and of record,  both  individually and in the
aggregate, for those persons or entities known by the Company to be the owner of
more than five  percent (5%) of the voting  securities  of the Company as of the
close of  business  on March 27,  2000.  The  number of  shares  and  percentage
ownership  of Common  Stock for each  person or entity  assumes  that  shares of
Common Stock  issuable upon exercise of stock  warrants to such person or entity
(exclusive of others) exercisable within sixty (60) days from March 27, 2000 are
outstanding.  The information in the following table is taken from or based upon
ownership filings made by the listed persons or entities with the Securities and
Exchange Commission or upon information provided by such persons or entities.
<TABLE>
<CAPTION>

                                                                                Amount
                                                                                and
                                                                                Nature of
                          Name and Address                      Beneficial      Percent of
   Title of Class         of Beneficial Owner                   Ownership       Class (1)
   --------------         -------------------                   ---------       ---------
       <S>                       <C>                               <C>            <C>

Class "A" Common          MacKenzie Patterson, Inc.             621,838(1)       28.01%
                          1640 School Street
                          Moraga, California 94556
Class "A" Common          Guy E. Hatfield                       378,716(2)       22.02%
                          230 West Laurel Street, #1003
                          San Diego, California  92101
Class "A" Common          Sutter Opportunity Fund, LLC          255,488(3)       14.85%
                          595 Market Street, Suite 2100
                          San Francisco, California  94105
Series "A" Preferred      MacKenzie Patterson, Inc.             500,000(4)       100  %
                          1640 School Street
                          Moraga, California 94556


                                       27
<PAGE>

<FN>
(1)      Includes  warrants  to  purchase 500,000 shares of the Class "A" Common
         Stock of the  Company.  Also includes 106,838 shares owned collectively
         by MP Value Fund, LLC, Accelerated High Yield Pension Investors,  Ltd.,
         Accelerated High Yield Income Fund II, Ltd., and Accelerated High Yield
         Income Fund, Ltd., of which MacKenzie Patterson, Inc. ("MPI") is either
         the general  partner or manager,  and 15,000 shares owned  individually
         by C.E. Patterson,  the  president  and  a  director  of  MPI  and  the
         President and Chief Executive Officer of the Company. Mr. Patterson may
         be deemed to be a beneficial owner of the shares owned by MPI by virtue
         of his position as a director and President of MPI.

(2)      Includes  l,106 shares held in an  Individual  Retirement  Account with
         Sunwest  Federal Credit Union for the benefit of Mr.  Hatfield's  wife,
         Dorothy Hatfield; 1,574 shares held in an Individual Retirement Account
         with Sunwest Federal Credit Union for the benefit of Mr. Hatfield;  425
         shares held in trust by Mr.  Hatfield,  as trustee,  for the benefit of
         Mr.  Hatfield and his wife;  240,000 shares held in the Hatfield Family
         Trust;  340 shares held by Sunwest Federal Credit Union for the benefit
         of Mr.  Hatfield's  son, Scott J. Hatfield;  and 340 shares held in the
         name of Scott J.  Hatfield,  of which Mr.  Hatfield  may be deemed  the
         beneficial owner.

(3)      Includes 22,500 shares owned by Sutter Capital Management, LLC ("Sutter
         Capital"),  the  manager  of  Sutter  Opportunity  Fund,  LLC  ("Sutter
         Opportunity").  Robert E.  Dixon,  a director  of the  Company,  is the
         managing   member  of  Sutter  Capital  and  thereby   controls  Sutter
         Opportunity.  Mr. Dixon may be deemed to be a  beneficial  owner of the
         shares owned by Sutter Capital and Sutter  Opportunity by virtue of his
         position as the managing member of Sutter Capital.

(4)      C.E.  Patterson,  the  President  and Chief  Executive  Officer  of the
         Company,  may be deemed to be a beneficial owner of the shares owned by
         MacKenzie  Patterson,  Inc.  ("MPI")  by  virtue of his  position  as a
         director and president of MPI.
</FN>
</TABLE>

                                       28
<PAGE>

         Security Ownership of Management

         The  following  table sets forth the  ownership of each class of equity
securities of the Company,  both  beneficially and of record,  both individually
and in the aggregate,  for the directors and executive  officers of the Company,
as of the  close of  business  on March 27,  2000.  The  number  of  shares  and
percentage  ownership  of Common  Stock for each person or entity  assumes  that
shares of Common Stock  issuable upon exercise of stock  warrants to such person
or entity  (exclusive of others)  exercisable  within sixty (60) days from March
27, 2000 are  outstanding.  The information in the following table is taken from
or based upon  ownership  filings made by the listed persons with the Securities
and Exchange Commission or upon information provided by such persons.

                                                   Amount and
                         Name of                   Nature of             Percent
Title of Class           Beneficial                Beneficial               of
                         Owner                     Ownership              Class
--------------           ----------                -----------           -------

Class "A" Common        C.E. Patterson              621,838(1)            28.01%
Class "A" Common        Guy E. Hatfield             378,716(2)            22.02%
Class "A" Common        Robert E. Dixon             255,488(3)            14.85%
Class "A" Common        William M. Birdsall         20,000                *
Class "A" Common        Brian K. Rodgers            10,000                *
Class "A" Common        Bona K. Allen               1,800                 *
Series "A" Preferred    C.E. Patterson              500,000(4)            100%
Class "A" Common        All Directors and           1,287,842             58.01%
                        Executive Officers as a
                        Group (7 persons)(5)
Series "A" Preferred    All Directors and           500,000               100%
                        Executive Officers as
                        a Group (7 persons)(6)
[FN]
(1)      Includes  warrants  to  purchase 500,000 shares of the Class "A" Common
         Stock of the Company owned by MacKenzie Patterson,  Inc. ("MPI").  Also
         includes  106,838  shares  owned  collectively  by MP  Value Fund, LLC,
         Accelerated High Yield Pension Investors, Ltd.,  Accelerated High Yield
         Income Fund II, Ltd., and Accelerated High Yield Income Fund, Ltd.,  of
         which MPI is either the general  partner or manager.  Mr. Patterson  is
         the  president  and a director  of MPI.  Mr. Glen  Fuller may be deemed
         to be a  beneficial owner of the shares  owned by MPI by virtue of his
         position  as a director  and an  executive  officer of MPI.  Mr. Fuller
         disclaims beneficial ownership of such shares.

                                       29
<PAGE>


(2)      Includes  l,106 shares held in an  Individual  Retirement  Account with
         Sunwest  Federal Credit Union for the benefit of Mr.  Hatfield's  wife,
         Dorothy Hatfield; 1,574 shares held in an Individual Retirement Account
         with Sunwest Federal Credit Union for the benefit of Mr. Hatfield;  425
         shares held in trust by Mr.  Hatfield,  as trustee,  for the benefit of
         Mr.  Hatfield and his wife;  240,000 shares held in the Hatfield Family
         Trust;  340 shares held by Sunwest Federal Credit Union for the benefit
         of Mr.  Hatfield's  son, Scott J. Hatfield;  and 340 shares held in the
         name of Scott J.  Hatfield,  of which Mr.  Hatfield  may be deemed  the
         beneficial owner.

(3)      Includes 22,500 shares owned by Sutter Capital Management, LLC ("Sutter
         Capital") and 232,988  shares owned by  Sutter  Opportunity  Fund,  LLC
         ("Sutter  Opportunity").  Mr.  Dixon is the  managing  member of Sutter
         Capital which is the manager of Sutter Opportunity.

(4)      Includes  500,000  shares owned by MacKenzie Patterson, Inc. ("MPI") of
         which Mr. Patterson serves as president and a director. Mr. Glen Fuller
         may be deemed to be a beneficial  owner of  the shares owned  by MPI by
         virtue of his  position  as a director and an executive officer of MPI.
         Mr.  Fuller  disclaims beneficial ownership of such shares.

(5)      See Note (4) above.

(6)      See Notes (1), (2) and (3) above.
</FN>

                                       30
<PAGE>


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


Related Party Note

         In the  third  and  fourth  quarters  of  1999,  the  Company  paid the
outstanding principal balance, and all accrued interest, in the aggregate amount
of $114,828, due and payable on that certain promissory note (the "Blacor Note")
executed  by the  Company  on  December  30,  1998  in  favor  of  Blacor,  Inc.
("Blacor").  The proceeds of the Blacor Note were previously used by the Company
for general operating purposes. Mr. Michael S. McNulty, President of the Company
during fiscal year 1999,  is the president and a director of Blacor.  The Blacor
Note was paid by the issuance to Blacor of 33,000 shares of the Class "A" Common
Stock of the Company and the payment to Blacor of $53,118 in cash.

Advisory Agreement

         Effective  January  1,  2000,  the  Company  entered  into an  Advisory
Agreement with MacKenzie  Patterson,  Inc. ("MPI") pursuant to which the Company
engaged  MPI  as the  external  advisor  of  the  Company.  Under  the  Advisory
Agreement,  the  Company  appointed  MPI as the  Company's  exclusive  agent  to
supervise the day-to-day  operations of the Company,  including,  overseeing the
lessees of the Company Hotels,  serving as the Company's  advisor and consultant
in connection with the administrative,  policy and investment  decisions made by
the Board of Directors of the Company, and performing or supervising the various
administrative  and  accounting  functions  necessary for the  management of the
Company.  The Company agreed to pay MPI an advisory fee of $350,000 per year for
the  advisory  and  administrative  services  provided by MPI under the Advisory
Agreement.  In order to implement the responsibilities of MPI under the Advisory
Agreement,  the  principal  offices of the  Company  were  relocated  to Moraga,
California in January, 2000. Mr. C.E. Patterson,  Chief Executive Officer of the
Company,  and Mr. Glen Fuller,  Chief Operating Officer of the Company, are also
executive  officers  and  directors  of MPI.  MPI is also the direct or indirect
beneficial  owner of 621,838  shares of the Class "A" Common  Stock and  500,000
shares of the Series "A" Convertible  Preferred  Stock of the Company.  See Item
12. "Security Ownership of Certain Beneficial Owners and Management."

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND
         REPORTS ON FORM 8-K

(a)      The following documents are filed as part of this Report on Form 10-K
Annual Report:

         (1)      Financial Statements:

                  The Report of Independent Accountants

                  Consolidated Balance Sheets at December 31, 1999 and 1998

                                       31
<PAGE>

                  Consolidated Statements of Operations for the years ended
                  December 31, 1999, 1998 and 1997

                  Consolidated  Statement of Shareholders'  Equity for the years
                  ended December 31, 1999, 1998, and 1997

                  Consolidated Statements of Cash Flows for the years ended
                  December 31, 1999, 1998, and 1997

                  Notes to Consolidated Financial Statements

         Financial Statement Schedule:

                  Report of Independent Accountants

                  Financial Statement Schedule:
                  Schedule III - Real Estate and Accumulated Depreciation

(b)      The  Company  did not file any  reports  on Form 8-K  during the fourth
         quarter of 1999. The Company did, however, file a report on Form 8-K on
         January 6, 2000 relating to (i) the acquisition by MacKenzie Patterson,
         Inc. ("MPI") of 500,000 shares of the Series "A" Convertible  Preferred
         Stock of the Company,  (ii) the issuance to MPI of warrants to purchase
         500,000 shares of the Class "A" Common Stock of the Company,  and (iii)
         the engagement of MPI as the external advisor of the Company.

(c)      Exhibits.

Exhibit Number                              Description

         3.1    Amended  and  Restated  Charter  of the  Company  (incorporated
                by  reference  to  Exhibit  3.1 to Company's Amendment No. 8 to
                Form S-11, effective April 17, 1996).

         3.2    Amended and Restated  By-Laws of the Company  (incorporated  by
                reference to Exhibit 3.2 to Company's Amendment No. 8 to Form
                S-11, effective April 17, 1996).

         3.3    Articles  Supplementary  filed  with  the  State  Department  of
                Assessments  and  Taxation  of the State of Maryland on December
                20, 1999  (incorporated by reference to Exhibit 2.3 to Company's
                Report on Form 8-K filed on January 6, 2000).

         4.1    Form of Share  Certificate (incorporated by reference to Exhibit
                4.1 to  Company's Amendment No. 8 to Form S-11, effective April
                17, 1996).

         4.2    Form of Series "A" Convertible Preferred Stock Certificate.

                                       32
<PAGE>

         4.3    Form of Series A Warrant dated  effective as of February 3, 1997
                (incorporated  by reference  to Exhibit 4.2 to Company's  Annual
                Report on Form 10-K filed on March 31, 1997).

         4.4    Form of Series B Warrant dated  effective as of February 3, 1997
                (incorporated  by reference  to Exhibit 4.3 to Company's  Annual
                Report on Form 10-K filed on March 31, 1997).

         4.5    Form of Common Stock Warrant dated  effective as of December 22,
                1999  (incorporated  by  reference  to Exhibit 2.4 to  Company's
                Report on Form 8-K filed on January 6, 2000).

         10.1   Stock Purchase Agreement dated effective as of December 21, 1999
                by  and  between  the  Company  and  MacKenzie  Patterson,  Inc.
                (incorporated by reference to Exhibit 2.1 to Company's Report on
                Form 8-K filed on January 6, 2000).

         10.2   Advisory  Agreement dated effective as of January 1, 2000 by and
                between the Company and MacKenzie Patterson,  Inc. (incorporated
                by  reference  to Exhibit  2.2 to  Company's  Report on Form 8-K
                filed on January 6, 2000).

         10.3   Registration Rights Agreement dated effective as of December 21,
                1999 by and between the Company and  MacKenzie  Patterson,  Inc.
                (incorporated by reference to Exhibit 2.5 to Company's Report on
                Form 8-K filed on January 6, 2000).

         21.1   Subsidiaries of Registrant.

         27     Financial Data Schedule.

         The Company  will furnish copies of these Exhibits upon request and the
payment of $.20 per page.  Requests should be addressed to Glen Fuller, c/o Host
Funding, Inc., 1640 School Street, Suite 100, Moraga, California 94556.


                                       33
<PAGE>


                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange  Act of 1934,  the  Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Host Funding, Inc.


By:  /s/ C. E. Patterson
     ----------------------
     C. E. Patterson

Title:   President

Date:    April 13, 2000

          Pursuant to the  requirements of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Company and in the capacities and on the dates indicated.

   Signature                       Title                       Date

/s/ William M. Birdsall            Director                    April 13, 2000
---------------------------
William M. Birdsall

/s/ Robert E. Dixon                Director                    April 13, 2000
---------------------------
Robert E. Dixon

/s/ Guy E. Hatfield                Director                    April 13, 2000
---------------------------
Guy E. Hatfield

/s/ Glen Fuller                    Director                    April 13, 2000
---------------------------
Glen Fuller

/s/ Brian K. Rodgers               Director                    April 13, 2000
---------------------------
Brian K. Rodgers

/s/ C. E. Patterson                President and Chief         April 13, 2000
---------------------------        Executive Officer
C. E. Patterson

/s/ Bona K. Allen                  Chief Financial and         April 13, 2000
---------------------------        Accounting Officer
Bona K. Allen


                                       34
<PAGE>


                                  Exhibit 21.1

                           Subsidiaries of Registrant


Name or Organization                                   State of Incorporation

   CrossHost, Inc.                                     Maryland
   Host Ventures, Inc.                                 Maryland
   Host Enterprises, Inc.                              Maryland
   Host Findlay GP, Inc.                               Maryland
   Host Auburn GP, Inc.                                Maryland
   BacHost, LLC                                        Texas
   B-H Findlay, L.P.                                   Ohio
   B-H Auburn, L.P.                                    Indiana









                                       35
<PAGE>

                          INDEX TO FINANCIAL STATEMENTS

                               HOST FUNDING, INC.

                                                                          Page
                                                                          Number

Report of Independent Accountants                                          37

Consolidated Balance Sheet as of December 31, 1999 and 1998                38

Consolidated Statements of Operations for the years ended
December 31, 1999, 1998, and 1997                                          39

Consolidated Statement of Shareholders' Equity for the years ended
December 31, 1999, 1998, and 1997                                          40

Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998, and 1997                                          43

Notes to Financial Statements                                              46






                                       36
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and Shareholders
of Host Funding, Inc.:


In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material  respects,  the financial position of Host
Funding,  Inc.  and its  subsidiaries  at December  31,  1999 and 1998,  and the
results of their  operations and their cash flows for each of the three years in
the period ended  December 31, 1999 in  conformity  with  accounting  principles
generally  accepted in the United  States.  In  addition,  in our  opinion,  the
financial  statement  schedules listed in the accompanying index present fairly,
in all  material  respects,  the  information  set  forth  therein  when read in
conjunction with the related consolidated financial statements.  These financial
statements  and  financial  statement  schedules are the  responsibility  of the
Company's  management;  our  responsibility  is to  express  an opinion on these
financial  statements and financial  statement schedules based on our audits. We
conducted our audits of these  statements in accordance with auditing  standards
generally accepted in the United States,  which require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence  supporting the amounts and  disclosures  in the financial  statements,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe  that our audits  provide a reasonable  basis for the opinion  expressed
above.




PricewaterhouseCoopers LLP
San Francisco, California
March 24, 2000





                                       37
<PAGE>


                               HOST FUNDING, INC.
                           CONSOLIDATED BALANCE SHEET

--------------------------------------------------------------------------------
                                             December 31,        December 31,
                                                1999                1998
--------------------------------------------------------------------------------

                    ASSETS
                    ------

LAND, PROPERTY AND EQUIPMENT - HELD
     FOR INVESTMENT:
          Building and improvements          $17,664,925         $17,323,312
          Furnishings and equipment            3,200,271           2,873,180
          Less accumulated depreciation       (2,832,258)         (1,906,466)
                                             ------------        ------------
                                              18,032,938          18,290,026
          Land                                 5,667,570           5,667,570
                                             ------------        ------------
               Land, property and equipment   23,700,508          23,957,596
                    - held for investment

LAND, PROPERTY AND EQUIPMENT - HELD
     FOR SALE:
          Building and improvements            1,912,730           4,299,007
          Furnishings and equipment              379,698             876,093
          Less accumulated depreciation         (275,774)           (392,539)
          Less impairment reserve                                   (444,000)
          Land                                   702,500           1,239,206
                                             ------------        ------------
               Land, property and equipment
                    - held for sale            2,719,154           5,577,767
                                             ------------        ------------
               Total Land, property and
                    equipment                 26,419,662          29,535,363

CASH AND CASH EQUIVLANTS                       1,129,115              66,328

RESTRICTED CASH                                  271,341             486,573

RENT RECEIVABLE                                   49,823             236,754

NOTES AND OTHER RECEIVABLES, SALE OF
     LEASE RIGHTS                                      0             265,459

DUE FROM RELATED PARTIES                           4,223              36,612

LONG-TERM ADVANCES TO LESSEES                    110,090             110,090

RESTRICTED INVESTMENTS                           288,000             288,000

DEFERRED ADVISORY FEE                            750,000

LOAN COMMITMENT FEES, NET OF ACCUMULATED
     AMORTIZATION OF $755,338 AT DECEMBER
     31, 1999 AND $703,211 AT DECEMBER 31,
     1998                                      1,023,212           1,105,402

FRANCHISE FEES - NET OF ACCUMULATED
     AMORTIZATION OF $27,989 AT DECEMBER
     31, 1999 AND $21,340 AT DECEMBER 31,
     1998                                         73,011              99,660

PREPAID AND OTHER ASSETS                         451,573             219,417
                                             ------------        ------------
          TOTAL ASSETS                       $30,570,050         $32,449,658
                                             ============        ============


                  The accompanying notes are an integral part
                    of the consolidated financial statements.
--------------------------------------------------------------------------------
                                       38
<PAGE>

                               HOST FUNDING, INC.
                           CONSOLIDATED BALANCE SHEET

--------------------------------------------------------------------------------
                                             December 31,        December 31,
                                                1999                1998
--------------------------------------------------------------------------------

      LIABILITIES AND SHAREHOLDERS' EQUITY
      ------------------------------------

LIABILITIES:
LONG-TERM DEBT                               $23,611,300         $25,790,837

SHORT TERM DEBT                                  386,691           1,025,941

LONG-TERM LEASE DEPOSIT                          588,000             588,000

OPTION DEPOSITS                                   20,000

ACCOUNTS PAYABLE AND OTHER ACCRUED
     LIABILITIES                               1,167,444             854,556

ACCRUED INTEREST                                 311,971             231,577

ACCRUED PROPERTY TAXES                           107,111             132,465
                                             ------------        ------------
          Total liabilities                   26,192,517          28,623,376
                                             ------------        ------------
MINORITY INTEREST IN PARTNERSHIPS                 87,953             238,782

     Series A Preferred stock; $0.01 par
       value; $4.00 liquidation perference;
       authorized 2,000,000 shares; issued
       and outstanding 500,000 and 0 shares
       at December 31, 1999 and December 31,
       1998 respectively                       1,500,000

COMMITMENTS AND CONTINGENCIES (NOTE 5)

SHAREHOLDERS' EQUITY:
     Class A Common stock, $.01 par value;
       authorized 50,000,000 shares; issued
       and outstanding 1,720,000 and
       1,546,369 shares at December 31, 1999
       and December 31, 1998 respectively         18,645              16,907

     Warrants to purchase 500,000 shares of
       Class A Common Stock; exercise price
       $3.00 per share; exercisable any time
       through December 22, 2005                 750,000

     Additional Paid in Capital                9,160,237           8,805,953
     Accumulated Deficit                      (6,011,046)         (4,038,321)

     Less: Unearned directors' compensation
       net of accumulated amorttization of
       $72,402 and $145,208 at December 31,
       1999 and December 31, 1998,
       respectively                              (73,597)           (142,792)
                                             ------------        ------------
                                                3,844,239           4,641,747

     Less: Common stock in treasury at cost,
       144,550 and 144,400 shares at
       December 31, 1999 and December 31,
       1998, respectively                     (1,054,659)         (1,054,247)
                                             ------------        ------------

          Total shareholders' equity           2,789,580            3,587,500
                                             ------------        ------------
          TOTAL LIABILITIES AND
              SHAREHOLDERS' EQUITY           $30,570,050         $32,449,658
                                             ============        ============

                  The accompanying notes are an integral part
                    of the consolidated financial statements.
--------------------------------------------------------------------------------
                                       39
<PAGE>

                               HOST FUNDING, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
             FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997

--------------------------------------------------------------------------------

                                                  TWELVE MONTHS ENDED
                                                      DECEMBER 31,

                                       1999           1998           1997
                                   ------------------------------------------

NET INCOME/LOSS FROM OPERATIONS
     Room revenue                  $   424,637    $              $
     Operating expenses                243,628
                                   ------------   ------------   ------------
     Income from property
          operations                   181,009              -              -

CORPORATE REVENUES:
     Lease revenue                   3,368,330      3,891,259      3,679,355
     Interest income - related
          parties                            -                       121,976
     Interest other income              86,366         34,783         36,019
                                   ------------   ------------   ------------
          Total revenue               3,454,696     3,926,042      3,837,350
                                   ------------------------------------------

CORPORATE EXPENSES:

     Interest expense, including
          amortization of loan
          costs                      2,660,667      2,693,219      2,375,059
     Depreciation and amortization     994,849      1,068,308        861,031
     Administrative expenses - other   862,407        704,271      1,019,918
     Director fees                      88,700         20,000              -
     Property taxes                    354,543        329,116        291,448
     Other Expenses                     56,456
     Amortization of unearned
          directors' compensation      119,195         54,000         54,000
                                   ------------   ------------   ------------
          Total expenses             5,136,817      4,868,913      4,601,456
                                   ------------------------------------------

NET LOSS FROM OPERATIONS            (1,501,112)      (942,871)      (746,106)

VALUATION RESERVE                            0       (444,000)

NET LOSS FROM SALE OF PROPERTY        (607,299)

NET GAIN FROM TRANSER OF LEASE         278,862        572,846

RELINQUISHED PROJECT COSTS             (294,005)      (107,000)      (274,000)

MINORITY INTEREST IN PARTNERSHIPS      150,829         16,710         12,592
                                   ------------   ------------   ------------
NET LOSS                            (1,972,725)      (904,315)    (1,025,514)
                                   ============   ============   ============

BASIC AND DILUTED NET LOSS
     PER SHARE                     $     (1.22)    $     (0.58)  $     (0.68)
                                   ==========================================
WEIGHTED AVERAGE NUMBER OF
     COMMON SHARES OUTSTANDING       1,615,894      1,559,916      1,516,652
                                   ==========================================



                  The accompanying notes are an integral part
                    of the consolidated financial statements.
--------------------------------------------------------------------------------
                                       39
<PAGE>
<TABLE>
<CAPTION>

                                                       HOST FUNDING, INC.

                                        CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                     FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997

------------------------------------------------------------------------------------------------------------------------------------
                                                                        Retained                                            Total
                   Class A   Class B   Class C             Additional   Earnings     Related     Unearned                   Share-
                   Common    Common    Common              Paid in     (Accumulat-   Party Note  Directors'     Treasury    holders'
                   Stock     Stock     Stock     Warrants  Capital      ed Deficit)  Receivable  Compensation   Stock       Equity
------------------------------------------------------------------------------------------------------------------------------------
   <S>              <C>       <C>       <C>        <C>       <C>           <C>          <C>           <C>         <C>        <C>

BALANCE, DECEMBER
  31, 1996         $ 12,340  $  1,400  $  1,400            $7,501,494   $(744,772)  $(1,805,675)  $(262,792)    $         $4,703,395

COMMON STOCK
  ISSUED FOR
  ACQUIRED
  PROPERTIES
  ACQUISTION FEE        160                                   151,840                                                        152,000

COMMON STOCK
  ISSUED AS DEP-
  OSITS AND HELD
  IN ESCROW SUB-
  JECT TO THE
  RELATED PURCHASE
  CONTRACTS (AS
  AMENDED)               55                                    49,745                                                         49,800

PRINCIPAL REDUC-
  TION: NOTES
  RECEIVABLE:
  DIRECTORS                                                                                          6,000                     6,000

AMORTIZATION OF
  UNEARNED DIREC-
  TORS COMPENSA-
  TION                                                                                              54,000                    54,000

CONVERSION OF CLASS
  C COMMON STOCK TO
  CLASS A COMMON
  STOCK               1,400              (1,400)

CONVERSION OF CLASS
  B COMMON STOCK TO
  CLASS A COMMON
  STOCK               1,400    (1,400)

90,000 SHARES OF
  COMMON STOCK IN
  TREASURY AT COST                                                                                              (900,000)  (900,000)

PRINCIPAL REDUC-
  TION:NOTES RE-
  CEIVABLE:
  HATFIELD                                                                           1,805,675                             1,805,675
  ISSUED AND CON-
  TRIBUTED TO
  BACHOST, L.L.C.       808                                    749,192                                                       750,000

COMMON STOCK
  ISSUED AS DEPO-
  SIT FOR LEGAL
  FE                    150                                     97,350                                                        97,500

REFUND OF COMMON
  STOCK ISSUED AS
  DEPOSIT AND HELD
  PURSUANT TO RE-
  LATED ADQUISTION
  FEE                   (55)                                  (49,745)                                                      (49,800)

DISTRIBUTIONS                                                           (1,363,719)                                      (1,363,719)

NET LOSS                                                                (1,025,514)                                      (1,025,514)
                   -------   ------    -------   --------  ----------  ------------  ----------  -----------  ----------  ----------
BALANCE, DECEMBER
  31, 1997         $16,258   $   0     $   0     $      0  $8,499,876  $(3,134,005)  $      0    $ (202,792)  $(900,000)  $4,279,337
</TABLE>
                  The accompanying notes are an integral part                 40
                    of the consolidated financial statements.
<PAGE>

<TABLE>
<CAPTION>

                                                       HOST FUNDING, INC.

                                        CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                     FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997

------------------------------------------------------------------------------------------------------------------------------------
                                                                        Retained                                            Total
                   Class A   Class B   Class C             Additional   Earnings     Related     Unearned                   Share-
                   Common    Common    Common              Paid in     (Accumulat-   Party Note  Directors'     Treasury    holders'
                   Stock     Stock     Stock     Warrants  Capital      ed Deficit)  Receivable  Compensation   Stock       Equity
------------------------------------------------------------------------------------------------------------------------------------
   <S>              <C>       <C>       <C>        <C>       <C>           <C>          <C>           <C>         <C>        <C>
BALANCE, DECEMBER
  31, 1997         $16,258   $   0     $   0     $    0  $ 8,499,876   $(3,134,005)  $      0    $ (202,792)  $(900,000)  $4,279,337

AMORTIZATION OF
  UNEARNED DIR-
  ECTORS COMPEN-
  SATION                                                                                              54,000                  54,000

COMMON STOCK
  ISSUED FOR
  ACQUIRED PRO-
  PERTIES AC-
  QUISITION FEE        175                                  114,925                                                          115,100

COMMON STOCK
  ISSUED AS COM-
  PENSATION TO
  EMPLOYEE               2                                    1,124                                                            1,126

COMMON STOCK
  ISSUED PURSU-
  ANT TO SALE OF
  LEASE RIGHTS         622                                  287,378                                                          288,000

PRINCIPAL REDUC-
  TION: NOTES
  RECEIVABLE
  DIRECTORS                                                                                            6,000                   6,000

54,400 SHARES OF
  COMMON STOCK IN
  TREASURY AT COST                                                                                              (154,247)  (154,247)

COMMON STOCK
  ISSUED AS DEPO-
  SIT FOR LEGAL
  FEES RETURNED       (150)                                 (97,350)                                                        (97,500)

NET LOSS                                                                  (904,316)                                        (904,316)
                   -------   ------    -------   --------  ---------   ------------  ----------  -----------  ----------- ----------
BALANCE, DECEMBER
  31, 1998         $16,907   $   0     $   0     $      0 $8,805,953   $(4,038,321)  $      0    $ (142,792) $(1,054,247) $3,587,500
</TABLE>
                  The accompanying notes are an integral part                 41
                    of the consolidated financial statements.
<PAGE>

<TABLE>
<CAPTION>

                                                       HOST FUNDING, INC.

                                        CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                     FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997

------------------------------------------------------------------------------------------------------------------------------------
                                                                        Retained                                            Total
                   Class A   Class B   Class C             Additional   Earnings     Related     Unearned                   Share-
                   Common    Common    Common              Paid in     (Accumulat-   Party Note  Directors'     Treasury    holders'
                   Stock     Stock     Stock     Warrants  Capital      ed Deficit)  Receivable  Compensation   Stock       Equity
------------------------------------------------------------------------------------------------------------------------------------
   <S>              <C>       <C>       <C>        <C>       <C>           <C>          <C>           <C>         <C>        <C>
BALANCE, DECEMBER
  31, 1998         $16,907   $   0     $   0     $    0   $8,805,953   $(4,038,321)  $      0    $ (142,792) $(1,054,247) $3,587,500

COMMON STOCK
  ISSUED AS
  COMPENSATION
  TO EMPLOYEE           10                                     2,240                                                           2,250

AMORTIZATION OF
  UNEARNED DIR-
  ECTORS COMPEN-
  SATION                                                                                            24,000                    24,000

FORGIVENESS OF
  BALANCE OF UN-
  EARNED COMPEN-
  SATION TO FORM-
  ER DIRECTORS                                                                                      95,195                    95,195

COMMON STOCK SOLD
  TO DIRECTOR          200                                    19,800                                                          20,000

COMMON STOCK
  REDEEMED                                                                                                         (412)       (412)

COMMON STOCK
  ISSUED TO FORMER
  DIRECTORS AND
  CHAIRMAN             300                                    82,200                                                          82,500

COMMON STOCK
  ISSUED TO NEW
  DIRECTORS            200                                    49,800                               (50,000)                       -

COMMON STOCK
  ISSUED IN PAY-
  MENT OF DEBT       1,028                                   200,244                                                         201,272

WARRANTS ISSUED
  TO NEW INVESTOR                                 750,000                                                                    750,000

NET LOSS                                                                (1,972,725)                                      (1,972,725)
                   -------   ------    -------   --------  ---------   ------------  ---------  -----------  ----------- ----------
BALANCE, DECEMBER
  31, 1999         $18,645   $    -    $     -   $750,000 $9,160,237   $(6,011,046)  $       -  $  (73,597) $(1,054,659)  $2,789,580
</TABLE>
                  The accompanying notes are an integral part                 42
                    of the consolidated financial statements.
<PAGE>

                               HOST FUNDING, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997

                                        1999           1998           1997
--------------------------------------------------------------------------------

OPERATING ACTIVTIES:
  Net loss                         $  (1,972,725) $   (904,316)  $(1,025,514)
  Adjustments to reconcile net
     income to net cash provided
     by operating activities:
     Depreciation and amorti-
     zation                              994,849      1,068,307      861,031
     Amortization of loan fees            55,207        135,086      372,772
     Amortization of unearned
       directors' compensation           119,195         54,000       54,000
     Common stock issued as
       compensation                        2,250          1,126
     Gain from transfer of
       lease                            (278,862)      (572,846)
     Minority interest in
       partnerships                     (150,829)       (16,040)     (12,592)
     Impairment loss on assets
       held for sale                                    444,000
     Loss from sale of property          607,299
     Common stock issued to
       directors for director
       fees                               82,500
     Common stock issued in
       payment of interest                19,335
  Changes in operating assets
     and liabilities:
     Rent receivable                     186,931       (121,426)    107,832
     Rent, interest and other
       receivable - due from
       related party                      32,389        (16,670)     10,448
     Prepaid and other assets           (230,573)      (135,967)    (22,985)
     Notes receivable: directors                          6,000       6,000
     Credit on note receivable,
       related party                                                 31,397
     Accounts payable and
       accrued expenses                  176,358        438,077     548,341
                                      -----------    -----------   ----------
     Net cash provided by (used
       in) operating activities         (356,676)       379,331     930,730
                                      -----------    -----------   ----------

                                       43
<PAGE>

                               HOST FUNDING, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997

                                        1999           1998           1997
--------------------------------------------------------------------------------

INVESTING ACTIVITIES:
   Investment in land, property
     and equipment                      (211,675)    (1,044,746) (10,435,232)
   Investment in restricted cash         215,232         71,185     (428,806)
   Long-term advances to lessee                        (110,090)     (30,841)
   Proceeds from sale of property      2,400,000
   Costs of property sale               (165,690)
   Proceeds related to transfer
     of lease                            500,000
   Payments related to transfer
     of lease                           (221,138)
   Reimbursement of advances to
     lessee                                             255,841
   Franchise fees                                                     (62,750)
   Proceeds related to sale of
     leasing rights                                     807,200
   Payments related to sale of
     leasing rights                                    (346,354)
                                      -----------    -----------   ----------
        Net cash provided by (used
          in) investing activities     2,516,729       (366,964)  (10,957,629)
                                      -----------    -----------   ----------

FINANCING ACTIVITIES:
   Stock sold to director                 20,000
   Cash portion of related
     party note receivable
     payment                                                         874,278
   Preferred stock sold                1,500,000
   Fees related to preferred
     stock sale
   Payment of loan fees                               (275,937)     (834,985)
   Borrowings on short-term
     debt                                207,000                   1,345,154
   Payment of short term debt           (664,314)     (319,213)
   Borrowings on long-term
     debt                                            1,175,000     9,682,645
   Payments on long-term debt         (2,179,536)     (420,509)     (146,300)
   Long-term lease deposit                                           300,000
   Distributions                                                  (1,363,719)
   Receipt of option deposits             20,000
                                      -----------    -----------  -----------
        Net cash provided by (used
          in) financing activities    (1,097,265)         5,094    9,857,073
                                      -----------    -----------  -----------
NET CHANGE IN CASH AND CASH
     EQUIVALENTS                       1,062,787         17,461    (169,926)

CASH AND CASH EQUIVALENTS AT
     BEGINNING OF PERIOD                  66,328         48,867     218,693
                                      -----------    -----------  -----------
CASH AND CASH EQUIVALENTS AT
     END OF YEAR                       1,129,115         66,328      48,867
                                      ============  ============  ============

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

                                       43 (cont.)
<PAGE>
<TABLE>
<CAPTION>

                                Host Funding, Inc.
                       Consolidated Statements Of Cash Flows
               For The Years Ended December 31, 1999, 1998, AND 1997

                                                       1999           1998           1997
-------------------------------------------------------------------------------------------------
     <S>                                               <C>               <C>         <C>

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION
 Cash paid during the year for interst            $ 2,525,067    $  2,522,609   $   1,921,127

 Non-cash investing activities:

     Common stock issued as compensation
          Class A common                          $        10    $          2   $
          Additional paid in capital                    2,240           1,124
          Salary expense                               (2,250)         (1,126)

          Net non-cash investing act$vity         $              $              $

     Property & equipment additions; repairs
               made by Buckhead
     To certain properties
          Notes and other receivable              $  (265,459)   $    (134,541) $
          Other accrued expenses                     (191,570)
          Land, property & equipment                   457,02          134,541

          Net non-cash investing actvity          $              $              $

     Acquisition costs funded by note payable
          Other assets                            $    190,000   $              $
          Short term debt                             (190,000)

          Net non-cash investing actvity          $              $              $

     Common stock issued in payment of interest and principal on
     short term debt
          Common stock                            $     1,028    $              $
          Additional paid in capital                  200,244
          Interest                                    (19,336)
          Short term debt                            (181,936)

          Net non-cash financing actvity          $              $              $

      Common stock issued to former directors
        and Chairman
          Common Stock                            $       300    $              $
          Additional paid in capital                   82,200
          Directors fees                              (82,500)

          Total non cash activity                 $              $              $

      Common Stock issued to new directors
          Common stock                            $       200    $              $
          Additional paid in capital                   19,800
          Notes receivable, directors                 (20,000)

          Net non-cash investing actvity          $              $              $

       Common stock issued pursuant to the sale of lease rights
          Common stock                            $              $         622  $
          Additional paid in capital                                   287,378
          N/R: Buckhead                                               (288,000)
</TABLE>

                     The accompanying notes are an integral
                 part of the consolidated financial statements
                                       44
Commonstock pledged to Host
Funding as security deposit
<PAGE>
<TABLE>
<CAPTION>

                                Host Funding, Inc.
                       Consolidated Statements Of Cash Flows
               For The Years Ended December 31, 1999, 1998, AND 1997

(cont.)                                                1999           1998           1997
-------------------------------------------------------------------------------------------------
     <S>                                               <C>               <C>         <C>
  Net non-cash investing actvity                  $              $              $
    relating to leases to Buckland
           Restricted investments                 $              $    288,000   $
           Security deposits                                         (288,000)

           Net non-cash investing activity        $              $              $

  Common stock issued for Acquired Properties
  Acquisition Fee
           Additional paid in capital             $              $    114,925   $   151,840
           Common stock                                                   175           160
           Land, property and equipment                              (115,000)     (152,000)

           Net non-cash investing activity        $              $              $

  Common stock returned as deposit for legal fee
           Deposits                               $              $     97,500   $   (97,500)
           Additional paid in capital                                 (97,350)       97,350
           Common stock                                                   150           150

           Net non-cash investing activity        $              $              $

  Sale of leasing rights
           Buckhead stock receivable              $              $   (400,000)  $
           Acquisition finance note receivable                       (212,000)
           Sale of lease rights                                       612,000   $

           Net non-cash investing activity        $              $              $

  Receipt of Buckhead stock
           Buckhead stock receivable              $              $    400,000   $
           Investment in Buckhead                                    (400,000)

           Net non-cash investing activity        $              $              $

  Reimbursement of capital expenditures
     relating to property
      Leased to Buckhead
           Capital expenditure reserve            $              $    100,000   $
           Note receivable, Buckhead                                 (100,000)

           Net non-cash investing activity        $              $              $

  Conversion of Class C common stock to
  Class A common stock
           Class A common stock                   $              $              $     1,400
           Class C common stock                                                      (1,400)

           Net non-cash investing activity        $              $              $

  Receipt of Class A common stock in partial payment
  of related party note receivable
           Class A common stock held in
               treasury (at cost)                 $             $               $   900,000
           Related party note receivable                                           (900,000)

           Net non-cash investing activity        $             $               $
</TABLE>


                     The accompanying notes are an integral
                 part of the consolidated financial statements.
                                       45
<PAGE>


                               HOST FUNDING, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Background:

Host Funding,  Inc., a Maryland  corporation  ("Host Funding" or the "Company"),
was initially  formed on December 22, 1994,  and structured to qualify as a Real
Estate  Investment Trust ("REIT").  The principal  business of the Company is to
acquire and then lease limited service and full service  hotels/motels to proven
hotel  operators,  which manage and operate the  hotels/motels  pursuant to such
leases.

On  December  22,  1999,  the  Company  sold to  Mackenzie  Patterson,  Inc.,  a
California real estate venture capitalist ("MPI"),  500,000 shares of the Series
"A"  Convertible  Preferred  Stock,  $0.01 par value per share (the  "Series "A"
Preferred"), of the Company for a purchase price of $1,500,000.00.  The proceeds
from the sale of the Series "A"  Preferred  were used by the  Company to satisfy
current  obligations  and for working  capital.  The Company  also issued to MPI
warrants to purchase 500,000 shares of the Class "A" Common Stock of the Company
for an exercise  price of $3.00 per share,  exercisable at any time for a period
of six (6) years from December 22, 1999 (the "Warrants").  Concurrently with the
purchase of the shares of Series "A" Preferred and the issuance of the Warrants,
the  Company and MPI entered  into an Advisory  Agreement  pursuant to which MPI
assumed  the  day  to  day  operations  of  the  Company  and  direction  of new
investments on behalf of the Company.

Unless stated  otherwise,  the hotel properties owned by the subsidiaries of the
Company are herein referred to as the "Company Hotels" or "Company Properties."

Host  Funding is listed  and traded on the  American  Stock  Exchange  under the
symbol "HFD."

Summary of Significant Accounting Policies:

Operating Segments

The Company's business consists of a single operating  segment,  hotel ownership
and  leasing,  and is  reliant  upon  revenues  from its eleven  hotel  lease as
described  in Note 2. The Company  does not have  revenues  derived from foreign
operations

Principles of Consolidation

The  accompanying  consolidated  financial  statements include  the  accounts of
Host  Funding  and  its  wholly  owned  subsidiaries,   CrossHost,   Inc.,  Host
Enterprises, Inc. and Host Ventures, Inc., an 81% ownership interest in BacHost,
LLC ("BacHost"),  the accounts of the limited  partnerships which own (or owned)
two Country  Hearth Inns, and of which BacHost owns 99%. 19% of BacHost is owned
by an affiliate of Buckhead America Corporation.

                                       46
<PAGE>

Land, Property, and Equipment Held for Investment; Land, Property and Equipment
Held for Sale

Buildings and  improvements  are stated at historical cost and depreciated  over
useful  lives of 35 years  from  the  original  date of  acquisition  using  the
straight-line  method.  Hotel furnishings and equipment are stated at historical
cost and  depreciated  using primarily  straight-line  methods over useful lives
ranging from 3 to 7 years from the original historical date of acquisition.  The
Vagabond  Inn  property  (formerly  a Super 8 Motel)  located  in  Mission  Bay,
California  (the "Mission Bay Property") has been included under Land,  Property
and Equipment Held for Sale, and is subject to an option  agreement  whereby the
lessee has the right to purchase the Mission Bay Property  upon written  notice.
The Company has received such notice,  see Note 2 for a further  description  of
the pending Mission Bay Property sale.

The Country  Hearth Inn located in Findlay,  Ohio (the "Findlay  Property")  was
sold in the fourth  quarter,  1999, see Note 2 for a further  description of the
sale of the  Findlay  Property.  Prior to the sale,  the  Findlay  property  was
included under Land, Property, and Equipment Held for Sale.

The  Company  periodically  evaluates  the  carrying  value of its  real  estate
properties  to determine if  circumstances  exist  indicating  impairment in the
carrying  value  of such  properties.  If  facts or  circumstances  support  the
possibility  of  impairment,  the  Company  will  prepare  a  projection  of the
undiscounted future cash flows from each individual property.  In cases when the
Company does not expect to recover the carrying value, the Company recognizes an
impairment loss. When management  identifies an asset held for sale, the Company
estimates  the fair value of such assets.  If in  management's  opinion the fair
value of the asset is less than the carrying  amount of the asset, a reserve for
impairment  is  established.  Fair value is estimated as the amount at which the
carrying asset could be bought or sold, less costs to sell.

Cash and Cash Equivalents

Cash and cash  equivalents  are  defined  as cash on hand and in banks  plus all
short-term investments with a maturity, at the date of purchase, of three months
or less.

Restricted CashR

Restricted cash  represents cash deposited in escrow accounts under  contractual
agreements for property taxes,  capital improvements and other uses that are set
forth in such agreements.

Restricted Investments

Buckhead America Corporation, or its affiliates ("Buckhead"), agreed to purchase
$288,000  in Class "A" Common  Stock of the Company and return such stock to the
Company to hold as security deposits (the "Buckhead  Security  Deposit") against
the  Country  Hearth  Leases  (defined in Note 2). As the Company is holding the
Buckhead  Security  Deposit,  it is reflected as a restricted  investment  and a
security deposit obligation on the balance sheet of the Company. Since the stock
is held as a security deposit,  the Company did not recognize a reduction of the
asset and  correlating  liability  to reflect the value of the stock at December
31, 1999 in accordance with SFAS No. 115.

                                       47
<PAGE>

Rent Receivable

Represents rent outstanding and receivable pursuant to the Percentage Leases.

Notes and Other Receivables, Sale of Lease Rights

In connection with the execution of the Country Hearth Leases, Buckhead executed
separate notes payable to Host Ventures,  Inc. and CrossHost,  Inc. with the net
face amount of the notes aggregating $400,000. Such notes are to be satisfied by
periodic  disbursements  made by Buckhead,  with approval  from the Company,  to
satisfy  obligations  related to certain capital  expenditures under the Country
Hearth  Leases.  As of December 31, 1999,  Buckhead has disbursed  funds in full
satisfaction of the above notes.

Loan Commitment Fees

Loan  commitment  fees are  amortized  over the  terms of the  loans  using  the
straight-line  method,  which  approximates the effective  interest rate method.
Accumulated  amortization  of  loan  fees  totaled  approximately  $755,000  and
$703,000 as of December 31, 1999 and 1998, respectively.

Franchise Fees

Franchise  fees are  amortized  on a  straight-line  basis  over the life of the
franchise  agreements.   Accumulated  amortization  of  franchise  fees  totaled
approximately   $28,000  and  $21,000  as  of  December  31,  1999,   and  1998,
respectively.

Revenues

The Company  recognizes base and contingent lease revenue on an accrual basis as
earned in accordance with the terms of the lease agreements.

Fair Value of Financial  Instruments and Concentration of Credit Risk

Statement of Financial  Accounting  Standards ("SFAS") 107 requires all entities
to disclose the fair value of certain  financial  instruments in their financial
statements.

The  following  disclosure of estimated  fair value was  determined by available
market   information   and   appropriate   valuation   methodologies.   However,
considerable  judgement is  necessary  to interpret  market data and develop the
related estimates of fair value. Accordingly, the estimates presented herein are
not  necessarily   indicative  of  the  amounts  that  could  be  realized  upon
disposition  of  the  financial   instruments.   The  use  of  different  market
assumptions  and/or  estimation  methodologies may have a material affect on the
estimated fair value amounts.

Notes  and  Other  Receivables:  Sale  of  Lease Rights;  and Long-term Advances
to Lessees are carried at amounts which approximate their value.

The carrying  value of  long-term  debt  approximates  fair value as the related
interest rate is variable and approximates market rates.

                                       48
<PAGE>

Seasonality

The hotel industry is seasonal in nature.  Revenues are generally greater in the
first and second quarters of a calendar year. Seasonal variations in revenues at
the hotels may cause quarterly fluctuations in he Company's lease revenue.

Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
their  reported  amounts of revenues and expenses  during the reporting  period.
Actual results could differ from those estimates.

Income Taxes

The Company has not  qualified  as a REIT under  Sections 856 through 860 of the
Internal  Revenue Code for the three years ended  December  31, 1999.  Under the
Internal  Revenue Code, if certain  requirements  are not met in a given year, a
corporation  will be subject to Federal  Income Tax with  respect to all income,
including  that which is  distributed to  Shareholders.  Therefore,  the Company
records its provision for income taxes in  accordance  with SFAS No. 109.  Under
the liability  method of SFAS 109,  deferred taxes are  determined  based on the
difference  between  the  financial  statement  amounts  for tax  and  financial
reporting purposes.

NOTE 2: REAL ESTATE INVESTMENTS

The Company's  acquisition of hotel  properties for the years 1999,  1998, 1997,
and 1996 may be summarized as follows:

               Purchase Cost            Number of                Number
  Year        (in Thousands)         Hotel Properties           of Rooms
  ----        --------------         ----------------           --------

  1996            $16,664                   5                      430
  1997             11,530                   3                      240
  1998             - 0 -                  - 0 -                   - 0 -
  1999             - 0 -                  - 0 -                   - 0 -

As of December  31,  1999,  the Company  owned 11 Company  Hotels,  located in 8
states,  and comprised of 850 rooms. The Company Hotels are subject to leases as
described in Note 5.

The purchase cost of all 11 hotel properties totaled approximately  $24,528,000,
including   the  purchase  cost  related  to  one  property  held  for  sale  of
approximately $2,528,000.

The purchase costs above include purchase prices, as well as related commissions
and closing costs.

In April,  1996,  the Company  acquired a 117 room Super 8 motel  located in San
Diego,  California  from  Mission  Bay  Super  8,  Ltd.,  a  California  limited

                                       49
<PAGE>

partnership.  The  acquisition  price of  $2,810,000  was funded by the  Company
issuing 252,049 shares of Class "A" Common Stock at a stated value of $10.00 per
share ($2,520,490), plus cash of $290,000.

In September 1996, the Company formed  CrossHost,  Inc., a Maryland  corporation
("CrossHost"),  as a wholly owned,  REIT qualified  subsidiary.  Upon formation,
CrossHost  acquired four (4) Sleep Inn properties  located in Destin,  Sarasota,
and  Tallahassee,  Florida and Ocean  Springs,  Mississippi.  This  purchase was
completed with a loan facility (the "Initial  CrossHost  Facility")  provided by
Credit Suisse First Boston, LLC ("First Boston").

In March 1997, the Company formed Host  Ventures,  Inc., a Maryland  Corporation
"Host Ventures"),  a wholly owned,  special purpose  subsidiary of Host Funding.
Upon  formation,  Host  Ventures  entered into a loan (the "Host  Ventures  Loan
Facility")  totaling  $8,725,000 and CrossHost entered into a loan facility (the
"CrossHost Loan Facility") totaling $13,000,000. Host Ventures used a portion of
the Host Ventures Loan Facility to acquire a Super 8 motel located in Flagstaff,
Arizona. Additionally,  CrossHost assigned,  transferred, and conveyed the Sleep
Inn properties  located in Sarasota,  Florida and Ocean Springs,  Mississippi to
Host Ventures, and satisfied the Initial CrossHost Facility.

On October 21, 1997, the Company purchased from Findlay Equity Partners, an Ohio
general  partnership,  a Country Hearth Inn (the "Findlay  Property") located in
Findlay, Ohio and from Auburn Equity Partners, an Indiana general partnership, a
Country  Hearth  Inn  (the  "Auburn  Property")   located  in  Auburn,   Indiana
(collectively,   the  "Country   Hearth   Inns"),   including  an  aggregate  of
approximately 150 rooms,  which increased the Company's real estate portfolio to
twelve hotel properties containing approximately 922 rooms.

The Company  completed  the  purchase of the Country  Hearth Inns by forming two
separate,   special  purpose   limited   partnerships   with  Buckhead   America
Corporation,  a publicly traded hotel company,  or its affiliates  ("Buckhead").
Wholly owned subsidiaries of Host Funding (Host Findlay GP, Inc. and Host Auburn
GP, Inc.) own 1% of the  respective  limited  partnerships  and BacHost,  L.L.C.
(BacHost) owns 99% of each limited partnership. Host Funding owns 81% of BacHost
and Buckhead owns 19% of BacHost. Each limited partnership leased its respective
Country  Hearth Inn to Buckhead (or to  affiliates  of  Buckhead)  pursuant to a
separate percentage lease agreement (collectively, the "Country Hearth Leases").
Buckhead also manages the hotel  properties  and holds the franchise for each of
the Country Hearth Inns outside of the limited partnerships  (collectively,  the
"Country Hearth Franchise Agreements").

In January,  1999, the Company effectively  transferred leasing and operation of
the  Company  Hotel  located  in  Mission  Bay,  California  (the  "Mission  Bay
Property") to RPD Mission Bay, LLC, an affiliate of Vagabond Inns ("RPD"), which
in turn, pursuant to a services agreement, transferred the day-to-day management
of the Mission Bay Property to RPD 18, LLC, also an affiliate of Vagabond  Inns,
a proven hotel  operator  located in California.  RPD thereafter  terminated the
prior  franchise  agreement  with Super 8 Hotels and  converted  the Mission Bay
Property to a Vagabond Inn. In consideration  for such lease transfer,  RPD paid
the Company a non-refundable  fee (the "Mission Bay Lease Fee") in the amount of
$500,000.  The Mission Bay Lease Fee was used in part to pay portions of certain
termination fees to the previous  franchisor,  to pay the termination fee to the
previous lessee, and for general corporate purposes.

                                       50
<PAGE>

The Company  also granted RPD an option to purchase the Mission Bay Property for
a base acquisition price of $3,225,000. The base acquisition price incrementally
reduces on a monthly  basis  through  application  of  portions of the base rent
payments made to the Company by RPD under the Lease  relating to the Mission Bay
Property (the "RPD  Option").  RPD exercised the RPD Option in March,  1999. The
sale of the Mission Bay Property to RPD  resulting  from the exercise of the RPD
Option has not yet closed due to a dispute  relating  to the  governing  deed of
trust  and the  applicable  defeasance  and  release  requirements.  RPD and the
Company,   with  the  knowledge  of  First  Union  National  Bank  (the  "Master
Servicer"),  relied  upon the Deed of Trust  filed of record  in the  Recorder's
Office of San Diego County on March 17, 1997, as the basis for  negotiating  the
terms of the RPD Option. Additionally, Lennar Partners (the "Special Servicer"),
on behalf of the Master  Servicer,  acknowledged  such deed of trust through the
Subordination,  Non-Disturbance,  & Attornment  Agreement previously executed by
the Special Servicer.  Upon giving notice to the Master Servicer of the exercise
of the RPD Option and requesting a release of the deed of trust lien encumbering
the Mission Bay Property, the Master Servicer informed the Company that the deed
of trust filed of record was an incorrect document.  The Master Servicer further
informed the Company that the Mission Bay Property  could not be released  until
certain additional release and defeasance  requirements set forth in the deed of
trust contained in the Master Servicer's files (which the Master Servicer claims
is the correct  deed of trust)  were  satisfied  by the  Company.  Although  the
Company and RPD dispute the Master Servicer's  position as to the governing deed
of trust,  the Company is  currently  evaluating  options as to the  incremental
costs associated with meeting the additional  requirements imposed by the Master
Servicer's  version of the deed of trust or, in the alternative,  pursuing legal
action against the Master Servicer.

Effective  November 12, 1999,  the Company sold the Findlay  Property for a cash
purchase  price of  $2,400,000.00.  The cash proceeds were used to pay the first
lien indebtedness on the Findlay Property and to satisfy the seller finance note
held by the prior owner of the Findlay  Property,  including  the judgment  lien
held by the prior owner.  The Company did not receive any net proceeds  from the
sale of the Findlay Property.

Approximately  $202,000 in  percentage  rentals were paid to the Company in 1999
and are included in net income. Approximate minimum future base rents (excluding
contingent rents) due under the operating leases are as follows:

          2000                $ 3,024,700
          2001                $ 3,024,700
          2002                $ 3,024,700
          2003                $ 3,024,700
          2004                $ 3,024,700
          Thereafter          $29,187,308
                              -----------
          Total               $44,310,808

NOTE 3:  LONG TERM DEBT AND NOTES PAYABLE (INCLUDING DEFAULT ON CERTAIN
         NOTES PAYABLE)

                                       51
<PAGE>

Long-Term Debt:

The following  presents a summary of the long-term  debt of Host Funding and its
subsidiaries as of December 31:

                                           1999                      1998

Host Ventures  first  mortgage
note payable,  collateralized
by the  properties owned by Host
Ventures,  interest of 8.12% per
annum,  interest  and  principal
payable in monthly installments
of $70,765, due June, 2023           $   8,905,472              $  9,016,516

Mezzanine loan, collateralized
by the stock in Host Ventures,
interest at LIBOR plus 500 basis
points (LIBOR was ___at 12/31/99),
payable  in  monthly installments
of $17,184, due in June of 2003      $      608,718             $    750,030

First  mortgage  note  payable,
collateralized by the properties
owned  by CrossHost, interest at
9.46% per annum, interest and
principal  payable in monthly
installments of $120,838, due in
March 2017                           $  12,388,055             $  12,636,889

First  mortgage  payable,
collateralized  by the property
owned by B-H Auburn, interest at
10.78% per annum,  interest and
principal  payments due in
monthly installments of $17,405,
due in August, 2016                  $    1,709,053            $   1,740,855

First  mortgage  note  payable,
collateralized  by the  property
owned  by B-H Findlay, interest
at 10.78% per annum, interest
and principal payable in monthly
installments of $18,402, originally
due in August, 2016, fully
satisfied in the 4th quarter, 1999  $         0                $    1,646,547
                                    ---------------            --------------

                                    $   23,611,298             $   25,790,837
                                    ===============            ==============



                                       52
<PAGE>


Short Term Debt/Notes Payable (Including Default on Certain Notes):

In 1998 the Company entered into a note payable in the original principal amount
of  $141,000 to Beta  Construction  for  certain  improvements  to the Sleep Inn
property located in Tallahassee,  Florida. The note is amortized over 24 months,
with a maturity date of November, 2000, and an annual interest rate of 9.25%. In
May, 1999 the Company discontinued monthly payments of interest and principal as
an offset  against  rental  amounts owed to the Company by Capital  Circle Hotel
Corporation ("Capital Circle") related to the Tallahassee  property.  The amount
offset by the Company  approximated  the  principal  balance the Company owes to
Capital Circle. The Company has received no notice of default.

In  May  1999,  the  Company  entered  into  negotiations  to  purchase  certain
properties.  In  connection  with the  negotiations,  the  Company  executed  an
application with a lender to obtain  financing for the properties.  $140,000 was
funded to the  lender by an  unaffiliated  party on  behalf  of the  Company  in
prepayment  of  certain  due  diligence  costs  related  to such  financing.  In
September,  1999 an  additional  $50,000 was  advanced by the same  unaffiliated
party in partial  payment of  certain  legal  fees.  Approximately  $140,000  in
principal  and  interest  was  repaid by the  issuance  of 69,781  shares of the
Company's Class "A" Common Stock in September,  1999. Repayment of the remaining
amount  of  approximately  $56,746  is  evidenced  by two notes  payable  to the
unaffiliated  party.  Interest accrues on each outstanding  balance at an annual
interest rate of 12%. The notes matured on December 31, 1999. The beneficiary of
such notes may,  at the  beneficiary's  option,  elect to receive  shares of the
Company in full or  partial  satisfaction  of the notes at a per share  price of
$2.00 per share.

In October, 1997, B-H Findlay, L.P. ("Findlay") entered into a note payable (the
"Findlay  Note") to the sellers of the Country Hearth Inn in Findlay,  Ohio (the
"Findlay  Country Hearth Inn") and B-H Auburn,  L.P.  ("Auburn")  entered into a
note  payable  (the  "Auburn  Note") to the  sellers of the  Country  Hearth Inn
located in Auburn,  Indiana (the "Auburn  Country Hearth Inn").  The Auburn Note
and the Findlay  Note are herein  referred  to,  collectively,  as the  "Country
Hearth  Notes."  The sellers of the  Findlay  Country  Hearth Inn and the Auburn
Country  Hearth Inn are herein  referred to as the "Sellers." The Company is the
beneficial  owner of 81% of both  Findlay and  Auburn,  and  executed  corporate
guarantees  pursuant to which the Company  guarantees the performance of Findlay
and Auburn under the Country Hearth Notes  (collectively,  the "Host Guaranty").
The Country  Hearth Notes are further  secured by 90,000 shares of the Class "B"
Common Stock of the Company (the "Pledged Stock").

The Company  issued 80,819  shares of the Company's  Class A Common Stock with a
per-share value of  approximately  $9.27 and an aggregate value of approximately
$750,000 in partial  payment of the purchase price of the Findlay Country Hearth
Inn and the Auburn Country Hearth Inn. The Country Hearth Notes were modified to
provide that, if, on October 21, 1998, the closing price of the Company's  Class
"A" Common  Stock as traded on the American  Stock  Exchange was less than $6.50
per share,  the Company  would be obligated to make an  additional  cash payment
(the "Price Protection  Amount") to the Sellers so that the total value of Class
"A" Common  Stock  issued to the Sellers at the  per-share  price on October 21,
1998, plus the amount of such Price Protection  Amount,  equaled  $750,000.  The
Company has recorded a liability in the approximate  amount of $455,000  related
to the Price Protection  Amount for the Class "A" Common Stock currently held by
the Sellers based upon a closing price of $2.00 per share on October 21, 1998.

                                       53
<PAGE>

In April 1999,  the Company was notified  that Auburn  Equity  Partners  filed a
complaint,  Case Number 99CVE-04-2725 (the "Auburn Complaint"),  in the Franklin
County Common Pleas Court, Columbus,  Ohio, Civil Division (the "Franklin County
Court").  The Auburn  Complaint  named  BH-Auburn LP and Host Funding,  Inc., as
defendants.  Concurrently  with receiving  notice of the Auburn  Complaint,  the
Company received notice that Findlay Equity Partners had also filed a complaint,
Case Number  99CVH-04-2726  (the "Findlay  Complaint"),  in the Franklin  County
Court. The Findlay  Complaint named  BH-Findlay,  LP and Host Funding,  Inc., as
defendants.  The Auburn Complaint and the Findlay  Complaint  together  demanded
payment of the  Country  Hearth  Notes and the Price  Protection  amounts in the
aggregate  amount of  approximately  $1,550,000.  On July 30, 1999, the Franklin
County  Court  entered  a  judgement  for the  plaintiffs  in both  the  Findlay
Complaint and the Auburn Complaint.

In November,  1999 the Country  Hearth Note related to the Findlay  Property was
satisfied  by the  payment  of  $650,000  from the  proceeds  of the sale of the
Findlay Property. The Host Guaranty and the Pledged Stock continue to secure the
obligations of Auburn under the Auburn Note and the Price  Protection  Amount in
the approximate amount of $800,000, as of December 31, 1999.

Five Year Debt Maturity Schedule:

Aggregate  principal  payments under  long-term and short-term debt for the next
five (5) calendar years ended December 31, 2004 and thereafter are as follows:

                  2000                      $ 960,000
                  2001                        638,000
                  2002                        703,000
                  2003                        661,000
                  2004                        562,000
                  Thereafter               20,473,988
                                            -----------
                  Total                   $23,997,988

NOTE 4:   PREFERRED STOCK

On December 20, 1999, the Company filed Articles Supplementary with the Maryland
State Department of Taxation designating  2,000,000 shares of the authorized but
unissued  shares of  Preferred  Stock of the  Company as Series "A"  Convertible
Preferred Stock, $0.01 par value per share (the "Series "A" Preferred").  Of the
2,000,000  shares  of the  Series  "A"  Preferred  designated  by  the  Company,
Mackenzie Patterson,  Inc., a California real estate venture capitalist ("MPI"),
purchased  500,000 shares for a purchase price of $3.00 per share. MPI purchased
the shares of Series "A" Preferred on December 22, 2000 in an exempt transaction
pursuant  to Rule 506 of  Regulation  D under the  Securities  Act of 1933.  The
holders of the Series "A"  Preferred are entitled to  participate  pro rata with
the holders of shares of the Class "A" Common  Stock of the Company with respect
to dividend  distributions and are entitled to a liquidation preference of $4.00
per  share  over the  holders  of shares of Class  "A"  Common  Stock,  upon the
voluntary or involuntary  dissolution,  liquidation or winding up the affairs of
the Company.  The holders of shares of Series "A" Preferred also have the right,
exercisable  at any time after  December 23,  2002,  to convert such shares into
shares  of Class  "A"  Common  Stock on a  one-for-one  basis  (the  "Conversion
Ratio"),  or to require  the  Company to redeem all or any part of the shares of
Series "A" Preferred at the redemption price of $4.00 per share plus any accrued
and unpaid cash  dividends.  The Conversion  Ratio is subject to adjustment upon
the occurrence of certain events,  including,  without  limitation,  issuance of
additional  shares of Class "A" Common  Stock,  stock  dividends,  stock splits,
mergers,  reclassifications  of stock, or a recapitalization of the Company. The
holders of shares of Series "A"  Preferred  are  entitled to the number of votes
equal to the  number of shares of Class "A"  Common  Stock into which a share of


                                       54
<PAGE>


Series "A" Preferred is convertible and are further entitled to vote together as
a single  group  with the  holders  of Class  "A"  Common  Stock on all  matters
submitted or required to be submitted to the Company's  common  stockholders for
approval.  The  holders of Series "A"  Preferred,  voting  together  as a single
voting group,  have the right to elect, at each annual  stockholders  meeting of
the  Company,  two (2) of the five (5) members of the Board of  Directors of the
Company.

NOTE 5:   SHAREHOLDERS' EQUITY

Host  Funding  is  authorized  to  issue  55,000,000  shares  of  Common  Stock,
consisting  of 50,000,000  shares of Class "A" Common Stock,  $.01 par value per
share, and 4,000,000 shares of Class "B" Common Stock, $.01 par value per share,
and 1,000,000  shares of Class "C" Common Stock,  $.01 par value per share.  The
Company is also authorized to issue 20,000,000 shares of Preferred Stock,  $0.01
par value per share.

As of December 31, 1999,  the Company had issued and  outstanding  two series of
warrants  designated  "Series A Warrants" and "Series B Warrants."  The Series A
Warrants provide warrants to purchase 225,000 shares of Host Funding's Class "A"
Common Stock at $9.90 per share,  and expires on February 2, 2000.  The Series B
Warrants  provide warrants to purchase 225,000 shares of the Company's Class "A"
Common  Stock at $10.80 per share,  and expire on  February  2, 2001.  There are
additional  provisions  in the Series A Warrants and the Series B Warrants  that
allow  certain  limited  registration  rights and  pro-rata  treatment  upon the
occurrence  of certain  events,  including,  without  limitation,  stock splits,
mergers,  reclassifications  of stock, or a recapitalization of the Company. The
Series A Warrants expired on February 2, 2000.

The Company also issued Warrants to MPI to purchase  500,000 shares of Class "A"
Common  Stock of the  Company  for an  exercise  price of $3.00 per  share  (the
"Warrants"). The Warrants are exercisable at any time after the date of issuance
with an  expiration  date of December  21,  2005.  The  Warrants  are subject to
exercise price  adjustments  upon the occurrence of certain  events,  including,
without limitation, stock dividends, stock splits, mergers, reclassifications of
stock, or a recapitalization of the Company. The Company placed a value of $1.50
per share on the  Warrants for an  aggregate  value of  $750,000.  The value was
determined using the Black-Scholes Option Pricing Model. The aggregate value has
been capitalized as a deferred  advisory fee and will be amortized on a straight
line basis over three years.

Pursuant to the terms and  conditions of a  Registration  Rights  Agreement (the
"Registration Agreement") between the Company and MPI, the holders of the Series
"A" Preferred and the Warrants are entitled to certain  demand and  "piggy-back"
registration  rights  relating to the shares of Class "A" Common Stock  issuable
upon  conversion  of the Series "A"  Preferred or upon  exercise of the Warrants
(the "Underlying Common Stock"). The Registration Agreement provides that at any
time after the date of  issuance  the  holders of at least  twenty-five  percent
(25%) of the Series "A" Preferred and the Warrants may make in the aggregate, up
to four (4)  written  requests to  register  the number of shares of  Underlying

                                       55
<PAGE>

Common Stock set forth in each  written  request.  In  addition,  if the Company
proposes to file a registration  statement under the Securities Act of 1933 with
respect to an offering by the Company of securities  for its own account  (other
than a  registration  statement on Form S-4 or Form S-8),  the holders of Series
"A" Preferred and the Warrants  shall be entitled to  participate in the Company
registration, subject to the approval of the Company underwriter.

Diluted earnings per share for the year ended December 31, 1999 has not included
the effect of conversion of Series "A" Preferred  Shares nor the Warrants  since
conversion would be antidilutive.

On or about April 26, 1996, the Company sold to each  independent  director then
in office  10,000 shares of Class "A" Common Stock at a price per share equal to
$10 per share.  The purchase price ($300,000) was paid through the delivery of a
five year  promissory  note executed in favor of Host Funding by each purchaser,
which bears interest,  payable quarterly, at a fixed rate equal to 7% per annum.
The company has agreed to forgive the  promissory  notes  issued in exchange for
the shares of common  stock in  increments  of 18% of the  principal  amount per
annum for each year the maker  remains a director  of the  Company.  The Company
also  subsequently   agreed  to  forgive  quarterly  interest  payments  and  an
additional  2% of the  principal  amounts  of the  promissory  notes  from  each
director in lieu of payment of  director's  fees to the  Directors.  The Company
suspended  directors  fees for fiscal years 1998 and 1999.  The shares of Common
Stock  purchased  by each  independent  director  are  pledged to the Company to
collateralize  payment of the  promissory  note,  which is  non-recourse  to the
maker, except for 10% of the principal amount.

In  the  second  quarter  of  1999,  the Board  approved  the  release  of  the
outstanding  balances of the notes  receivable from Mr. Charles Dunn and Mr. Don
Cockroft as a result of Mr. Dunn and Mr.  Cockroft  resigning their seats on the
Board.  The Board also  approved the  issuance of 10,000  shares each to Messrs.
Dunn and Cockroft, as well as Mr. William Birdsall.

Concurrently  with  the  resignation  of  Messrs.  Dunn and Cockroft,  the Board
appointed  Mr.  Robert Dixon and Mr. Brian  Rodgers as directors of the Company.
The Board  approved  the  issuance of 10,000  shares  each to Messrs.  Dixon and
Rodgers.  Payment of such shares are evidenced by promissory notes in the amount
of  $25,000  due from Mr.  Dixon  and Mr.  Rodgers,  under  the same  terms  and
conditions as the director notes described above.

NOTE 6. COMMITMENTS AND CONTINGENCIES

REIT Status:

The Company,  as a requirement under the Code to elect REIT status, must have no
more than five (5)  shareholders  who own no more than 50% of the common  stock,
common stock equivalents, or other forms of equity outstanding.  The Company has
not met this requirement as of December 31, 1999. Under the Code, the Company is
allowed a six-month  exemption after the tax year in which the election is to be
effective to meet the requirement. Management of the Company does not anticipate
that such requirement will be met during fiscal year 2000.

                                       56
<PAGE>


Leases:

          In General

All of the Company Hotels are leased and operated  pursuant to lease  agreements
(the "Leases"), excluding the Company Hotel located in Tallahassee, Florida (the
"Tallahassee  Property") which is managed and operated by BAC Hotel  Management,
Inc., a wholly owned  subsidiary of Buckhead America  Corporation  pursuant to a
management  agreement.  Except for the  Company  Hotels  located  in  Flagstaff,
Arizona (the "Flagstaff Property") and Mission Bay, California (the "Mission Bay
Property"),  the  Company  Hotels  are leased and  operated  by either  Buckhead
America Corporation (as to the Company Hotel located in Auburn, Indiana only) or
BAC Hotel  Management,  Inc.,  a wholly  owned  subsidiary  of Buckhead  America
Corporation  (NASDAQ:  BUCK). The remaining Company Hotels are leased,  operated
and/or  managed  by  Crossroads   Hospitality  Tenant  Company,  LLC  (Flagstaff
Property)  and RPD Mission  Bay,  LLC and RPD 18, LLC  (Mission  Bay  Property).
Except  as  otherwise  set forth  herein,  each  Lease  generally  contains  the
provisions described below.

         Lease TermsLease Terms

Each Lease has a term of fifteen  (15) years  (other than the Lease  relating to
the  Mission  Bay  Property),  which has an initial  term of twenty  (20) years,
subject to earlier  termination  upon the  occurrence  of certain  contingencies
described in the Leases including, as applicable,  provisions relating to damage
to the  Company  Hotels,  condemnation  of the Company  Hotels,  defaults by the
Company or the lessee thereunder,  lack of compliance by the lessee with certain
of the terms of the associated loan documents, and termination on disposition of
the  Company  Hotels.  Other than the Leases  with  respect to the  Mission  Bay
Property  and the Lease in effect with regard to the  Company  Hotel  located in
Auburn,  Indiana  (the  "Auburn  Property"),  the term of each Lease may, at the
option of the lessee,  be extended for two (2) or more five (5) or ten (10) year
periods, as more particularly described in such Leases.

 Amounts Payable Under the Leases Amounts Payable Under the Leases

During the term of each  Lease,  the lessee is  obligated  to pay (i) base rent,
(ii)  percentage  rent,  (iii) all personal  property taxes relating to lessee's
personal  property,  ground  rents,  water,  sewer or other  rents and  charges,
excises,   tax  inspection,   authorization   or  similar  fees  and  all  other
governmental charges (the "Impositions"), except the Company is obligated to pay
real property  taxes on all Company Hotels except for the Mission Bay Property),
and except that the lessee of the Mission  Bay  Property is not  required to pay
percentage rent, (iv) every fine, penalty,  interest and cost for non-payment or
late payment of base rent, percentage rent, or the Impositions and (v) franchise
fees as described  below.  Base rent accrues and is required to be paid monthly,
and, except for the Leases in effect with respect to the Auburn Property and the
Mission Bay Property,  base rent is subject to potential reduction if a hotel or
hotels  similar  in  nature  to the  Company  Hotel in  question  are or will be
constructed  in an area in the  general  vicinity  of such  Company  Hotel  (the
"Competitive  Set").  Percentage  rent is based on percentages of gross revenues
for each of the Company Hotels, is due and payable quarterly, and (a) except for
the Leases in effect  with  respect to the Auburn  Property  and the Mission Bay
Property,  percentage  rent is subject to  potential  reduction  pursuant to the
Competitive  Set, (b) except for the Leases in effect with respect to the Auburn

                                       57
<PAGE>

Property and the Mission Bay Property,  percentage  rent is subject to potential
reduction  to the  extent,  at any time  during  the first four (4) years of the
Lease  term,  the  Company  Hotel cash flow is less than the base rent,  and (c)
percentage  rent  payable with regard to the Lease in effect with respect to the
Auburn Property is subject to a "CPI" adjustment factor.

         Prohibition on Ownership and Operation of Additional Hotels

Generally,  all of the Leases contain  provisions  prohibiting  the Company from
owning,  or having any interest in, any hotel or motel properties  within a five
(5) mile radius of the Company  Hotel in question,  and  prohibiting  the lessee
from owning,  operating or managing any hotel or motel properties  within a five
(5) mile radius of such Company Hotel.

         Maintenance, Modifications and Capital Expenditures

Generally,  the lessee,  at its  expense,  is  required to maintain  the Company
Hotels in good order and repair,  except for ordinary wear and tear, and to make
non-structural repairs, foreseen and unforeseen, and ordinary repairs, which may
be  necessary  and  appropriate  to keep the  Company  Hotels in good  order and
repair.  The Company is, at its  expense,  required to maintain  the  structural
elements of the Company Hotels,  including the roof, except, with respect to the
Mission Bay Property, the lessee is, at its expense,  responsible for structural
maintenance.

The lessee,  at its expense  and  subject to approval by the  Company,  may make
non-capital and capital additions,  modifications or improvements to the hotels,
provided that such action does not significantly alter the character or purposes
of the hotels or significantly detract from the value or operating  efficiencies
of the hotels.  All such alterations,  replacements and improvements  become the
property of the  Company  upon  termination  of the  Leases.  The  Company  owns
substantially  all personal  property  (other than  inventory,  linens and other
non-depreciable personal property) not affixed to, or deemed a part of, the real
estate or improvements.

Under the  Leases,  the Company is  required  to fund into  replacement  reserve
accounts (the "Reserve  Accounts") amounts ranging from four percent (4%) to six
percent (6%) of gross room  revenues for the  preceding  month.  Deposits in the
Reserve  Accounts  are used to fund  replacements  of  furniture,  fixtures  and
equipment, for capital additions to the Company Hotels, and, as appropriate, for
reconstruction  or restoration of the Company Hotels incident to casualty damage
or  condemnation.  Expenditures  from the  Reserve  Accounts  generally  must be
jointly approved by the Company and the lessee.

With respect to the Company Hotels leased to Buckhead  America  Corporation (the
Auburn Property only) or BAC Hotel  Management,  Inc., a wholly owned subsidiary
of  Buckhead  America  Corporation,  the  Company has  previously  entered  into
agreements with such parties generally  requiring the lessee to, at its expense,
make various capital improvements to such Company Hotels.


                                       58
<PAGE>

         Insurance on Company Hotels

The lessee is required to pay for all  insurance  on the  Company  Hotels,  with
extended coverage,  including  business  interruption,  casualty,  comprehensive
general public liability,  workers'  compensation and other insurance,  and must
name the Company as the insured or an additional named insured.

         Indemnification

Under each of the  Percentage  Leases,  the lessee is obligated to indemnify and
hold harmless, the Company from and against all liabilities,  costs and expenses
(including reasonable attorneys' fees and expenses) incurred by, imposed upon or
asserted against the Company; provided,  however, that such indemnification will
not be  construed  to require the lessee to  indemnify  the Company  against the
Company's own grossly negligent acts or omissions or willful misconduct.

         First Right of RefusalFirst Right of Refusal

With the exception of the Lease  relating to the Mission Bay  Property,  each of
the Leases  contains  provisions  whereby,  if the Company  receives a bona fide
third party  offer to  purchase a Company  Hotel,  the lessee may  purchase  the
Company  Hotel in question at the same price and  otherwise  upon the same terms
and conditions as are contained in any such bona fide offer.

         Security DepositsSecurity Deposits

With the exception of the Lease  relating to the Mission Bay  Property,  each of
the Leases requires the lessor, as security for the performance by the lessee of
its obligations  under the Leases, to deliver to the Company a security deposit.
In the instance of the Leases with  Buckhead  America  Corporation  or BAC Hotel
Management,  Inc., its wholly owned subsidiary, each such deposit is in the form
of shares of the Company's Class "A" Common Stock,  and with regard to the Lease
in effect for the Company  Hotel  located in  Flagstaff,  Arizona,  the security
deposit is in the form of cash.

         Certain Termination RightsCertain Termination Rights

Other  than the  Lease  with  regard  to the  Company  Hotel  located  in Miner,
Missouri, the Leases with BAC Hotel Management,  Inc., a wholly owned subsidiary
of Buckhead America Corporation, provide the lessee the right to, without cause,
terminate  either one (1) or two (2) of such  Leases  after the first  (1st) but
prior to the fifth (5th) anniversary of the Lease term, but, as to the second of
such Lease  terminations,  as  applicable,  only upon the payment to Lessor of a
termination fee more  specifically  set forth therein.  Additionally,  the Lease
with respect to the Company Hotel located in Flagstaff, Arizona, provides lessee
the right to,  without  cause,  terminate  the Lease at any time after the first
(1st)  anniversary of the Lease term,  but only upon  forfeiture of the lessee's
security deposit, and, notwithstanding the foregoing,  additionally provides the
lessee the one-time  right to  terminate  the Lease  without  cause (and without
forfeiture of the lessee's  security  deposit),  effective as of the fifth (5th)
anniversary of the Lease term.


                                       59
<PAGE>

         Lease Cancellation FeesLease Cancellation Fees

With the  exception of the Lease  regarding the Company Hotel located in Mission
Bay, California,  each of the Leases contains provisions generally requiring the
Company to pay a termination fee to lessee if a Company Hotel is sold during the
Lease term and the  purchaser  thereof  does not assume the  obligations  of the
Company under the associated Lease.

         Franchise Agreements

The Company has been granted franchise license agreements from Super 8 and Sleep
Inns for terms expiring in 2005 and 2011, respectively. Pursuant to the terms of
the  franchise  agreements,  the Company is  required  to pay  royalty  fees and
advertising fees of 5% to 4% and 3% to 1.3%, respectively,  and reservation fees
due under the  Sleep  Inn  agreements  of  1.75%,  of gross  room  revenue.  The
responsibility for payment of the fees has been assigned to the lessees pursuant
to the Percentage Leases.

Findlay and Auburn have each been  granted  franchise  license  agreements  from
Buckhead under terms and  conditions  that are typical of the hotel industry and
substantially similar to the franchise agreements relating to the Super 8 Hotels
and the Sleep Inn Hotels currently owned directly or indirectly by the Company.

Employment Agreements:

Host  Funding  has  entered  into   Employment   Agreements   (the   "Employment
Agreements")  with  Michael S.  McNulty,  President;  and Bona K.  Allen,  Chief
Financial Officer,  for a term of three years from February 1997. The Employment
Agreements provide for combined base salaries of $183,000,  with a minimum bonus
of 15% up to a maximum of 50%, based upon a prescribed formula in the Employment
Agreements,  of base  compensation in the first year. The Employment  Agreements
also provide for base salary  increases based upon  prescribed  increases in the
Company's  asset size. The Employment  Agreements are terminable by the Company,
for cause,  upon thirty (30) days' written notice,  or upon death or disability,
with  severance  payments  due  employees  ranging  from nothing or two years of
current base salary then in effect.

Mr. McNulty resigned  as  a  director of  the Company  effective  as of December
23, 1999 and as President of the Company  effective as of December 31, 1999. Mr.
McNulty's  employment  agreement terminated by its terms effective as of January
31, 2000.  Mr.  McNulty was  compensated  through  January 31, 2000, the date of
termination of his employment agreement,  and received no further severance. The
Company and Mr. Allen have agreed to terminate Mr. Allen's employment  agreement
effective as of March 31, 2000. Mackenzie Patterson,  Inc., the external advisor
of the Company,  has agreed to retain Mr. Allen on a  month-to-month  basis as a
financial  consultant to MPI. Mr. Allen will provide consulting  services to MPI
on financial matters relating to the Company.  The Company has agreed to pay Mr.
Allen a one-time  severance payment in the amount of $25,000 with respect to the
termination of Mr. Allen's  employment  agreement.  The severance payment is due
and payable on March 31, 2000.


                                       60
<PAGE>


Host Funding, Inc. 1997 Incentive Plan:

At  the  Annual  Meeting  of  the  Stockholders  of  Host  Funding,   Inc.,  the
Stockholders  approved the Host  Funding,  Inc. 1997  Incentive  Plan (the "1997
Plan"), pursuant to which certain individuals,  including officers and directors
of the Company, may be granted awards for incentive stock options, non-statutory
stock options,  stock awards,  performance  shares and incentive awards. No such
awards have been awarded for the years ended December 31, 1999, 1998 and 1997.

Litigation:Litigation:

Five  Lion,  Inc. and  Lion Investment  Limited  Partnership vs.  Host  Funding,
Inc.; United States District Court; District of Minnesota, Fifth Division; court
file number 98-2154-MJD/RLE.

The  Company  was  named as a  defendant  in the  preceding  complaint  filed on
September 24, 1998. The complaint alleges,  among other things, that the Company
is obligated to reimburse  $150,000 which the plaintiffs paid to the Company for
certain due diligence  items pursuant to a letter  agreement  dated February 13,
1998. On January 20, 2000, the plaintiffs obtained a summary judgment for breach
of contract with regard to a portion of their claims. It is anticipated that the
Company will appeal the summary judgment;  however,  the Company has accrued the
full $150,000.00 in the consolidated financial statements of the Company.

Auburn  Equity  Partners  vs.  BH-Auburn, L.P. and  Host Funding, Inc., Case No.
99  CVE-04-2725,  and Findlay Equity  Partners vs.  BH-Findlay,  L.P.,  Case No.
99CVH-04-2726.

The Company was named as a defendant in the preceding  complaints filed on April
1, 1999. The complaints were filed based upon the default by BH-Auburn, L.P. and
BH-Findlay, L.P. (collectively,  the "Partnerships") of their respective payment
obligations  under two seller  promissory  notes (the  "Country  Hearth  Notes")
delivered to the respective  plaintiffs in partial payment of the purchase price
for the Company Hotels located in Findlay, Ohio and Auburn, Indiana. The Company
was named as a defendant in both complaints based upon the Company's guaranty of
the  payment of the Country  Hearth  Notes.  On July 30,  1999,  a judgment  was
rendered in favor of the plaintiffs  against the Partnerships and the Company in
the  approximate  aggregate  amount of  $1,550,000.00.  The  obligations  of B-H
Findlay under the seller  promissory note, both principal and interest,  related
to the Company  Hotel  located in Findlay,  Ohio in the  approximate  settlement
amount of  $650,000.00  were  satisfied in full from the proceeds of the sale of
the  property.  The Company  guaranty  continues to secure the  obligations  and
judgment lien of B-H Auburn, L.P., in the approximate amount of $800,000.00.

Vance Linge  vs. Joseph Clarence  Kuntz;   Vira Louis  Shamman;  Louis  Shamman;
RPD Hotels 18,  LLC/Vagabond  Inns; City of San Diego;  CrossHost,  Inc.; et al,
Case No. 730228.

CrossHost,  Inc., a wholly owned subsidiary of the Company, and RPD Mission Bay,
LLC,  and RPD Hotels 18, LLC  ("RPD"),  the  Company's  operators of the Company
Hotel  located in Mission  Bay,  California,  were  named as  defendants  in the
preceding  complaint  filed August 4, 1999. The complaint  alleges,  among other
things,  that inadequate  safety  precautions led in part to the occurrence of a
traffic  accident  and  related  personal  injuries  on the public  thoroughfare
adjacent  to the  Company  Hotel.  The  lawsuit is being  defended  on behalf of
CrossHost, Inc. by the insurance carrier of RPD.


                                       61
<PAGE>

The  Company is a party to other,  non-material  legal  proceedings  through the
normal course of business.  The Company does not anticipate the losses,  if any,
will have a material impact on the financial position or results of operations.

Advisory Agreement:

Effective  January 1, 2000, the Company entered into an Advisory  Agreement with
MacKenzie  Patterson,  Inc. ("MPI") pursuant to which the Company engaged MPI as
the external advisor of the Company.  Under the Advisory Agreement,  the Company
appointed  MPI as the  Company's  exclusive  agent to supervise  the  day-to-day
operations  of the  Company,  including,  overseeing  the lessees of the Company
Hotels,  serving as the Company's  advisor and consultant in connection with the
administrative,  policy and investment  decisions made by the Board of Directors
of the Company,  and performing or supervising  the various  administrative  and
accounting  functions  necessary for the management of the Company.  The Company
agreed to pay MPI an advisory  fee of  $350,000  per year for the  advisory  and
administrative  services provided by MPI under the Advisory Agreement.  In order
to  implement  the  responsibilities  of MPI under the Advisory  Agreement,  the
principal  offices  of the  Company  were  relocated  to Moraga,  California  in
January,  2000. Mr. C.E. Patterson,  Chief Executive Officer of the Company, and
Mr. Glen Fuller,  Chief  Operating  Officer of the Company,  are also  executive
officers and  directors  of MPI.  MPI is also the direct or indirect  beneficial
owner of 621,838  shares of the Class "A" Common Stock and 500,000 shares of the
Series "A" Convertible Preferred Stock of the Company.

NOTE  6.   INCOME  TAXES

The primary  components of the Company's  deferred  income tax  liabilities  and
assets as of December 31, 1999 were as follows:

                                    1999              1998             1997
                                    ----              ----             ----
Deferred Tax Liabilities
Depreciation                      $ 250,000         $   360,000      $  284,000

Total Deferred Tax Liabilities    $ 250,000         $   360,000      $  284,000
                                  =========         ===========      ==========

Deferred Tax Assets
         Accrued Expenses         $    67,000       $    67,000      $  109,000
         Net Operating Loss       $ 1,677,000       $   825,000      $  499,000
         Impairment Loss          $                 $   173,000      $
                                   --------------   -----------      ----------

Total Deferred Tax Assets         $ 1,744,000       $1,065,000       $  608,000
                                  ===========       ==========       ==========

Net Deferred Tax Assets           $ 1,494,000       $   705,000      $  324,000
Valuation Allowance               $ (1,494,000      $(  705,000)     $( 324,000)
                                  ------------      -----------      ----------

                                          -0-              -0-              -0-
                                   ============================================

     At December  31,  1999,  the Company had  approximately  $ 4,300,000 of net
operating loss carry  forwards,  which will expire -- between  December 31, 2010
and 2019.

                                       62
<PAGE>


In assessing the  realizability  of a deferred tax asset,  management  considers
whether it is more likely than not that some portion or the entire  deferred tax
asset will not be realized.  The ultimate  realization of deferred tax assets is
dependent  upon the  generation of future  taxable  income during the periods in
which those temporary  differences  become  deductible.  Based upon the level of
historical  taxable  income and  projections  for future taxable income over the
periods which the deferred tax assets are deductible,  management believes it is
more  likely than not that the  Company  will not realize the  benefits of these
deductible differences.

Income tax benefit  differs from the amount  computed by applying the  statutory
rate of loss before tax,  due to the  valuation  allowance.  The Company and its
subsidiaries file a consolidated federal income tax return. Due to the Company's
net operating loss position and the valuation  allowance on the net deferred tax
assets,   the  Company   will  not   recognize   a  current  or   deferred   tax
expense/benefit.

The Company,  as a requirement  under the Internal  Revenue Code (the "Code") to
elect REIT status, must have no more than five (5) shareholders, who own no more
than 50% of the common stock, common stock equivalents, or other forms of equity
outstanding  of the Company.  The Company had expected to make an election to be
treated as a REIT under the provisions of the Code beginning with the 1996 year.
As a result,  the  Company  would not be subject  to  federal  income tax on its
taxable income at corporate  rates to the extent it distributes  annually 95% of
its  taxable  income  to  its  shareholders  and  complies  with  certain  other
requirements. The Company did not satisfy the REIT shareholder requirement as of
June 30, 1997, and therefore, did not elect to qualify as a REIT during the 1996
tax year and was subject to the corporate tax provisions. However, at that date,
the Company was in a net  operating  loss  position,  and has a net deferred tax
asset under SFAS 109, Accounting for Income Taxes, that has been fully reserved.
The Company's decision not to elect REIT qualification will not adversely affect
the  stockholders of the Company in that the Company will have no taxable income
for the 1999 tax year.


                                       63
<PAGE>


<TABLE>
<CAPTION>


                                                                 HOST FUNDING, INC.
                                                     REAL ESTATE AND ACCUMULATED DEPRECIATION
                                                                 December 31, 1999

SCHEDULE III


                                                                                                       Gross amount at which
                                                Initial Costs                 Costs Subsequent         which Carried at close
                                                  to Company                  to Acquisition                 of period
                                         ----------------------------      -----------------------     -----------------------------

                                                            Buildings and                                             Buildings and
Description                    Encumbrances       Land      Improvements       Land    Improvements       Land        Improvements
-----------                    ------------    ----------   --------------   --------- ------------    ----------    --------------
   <S>                             <C>            <C>             <C>           <C>        <C>             <C>            <C>

Super 8, Rock Falls, IL        $   (A)           131,627      $   491,711        -      $  5,521        $  131,627     $   497,232
Super 8, Somerset, KY              (A)           170,000          449,541        -         5,017           170,000         454,558
Super 8, Miner, MO                 (A)           187,660          461,494        -        17,655           187,660         479,149
Super 8, Poplar Bluff, MO          (A)           153,000          410,515        -        23,534           153,000         434,049
Super 8, San Diego, CA             (A)           702,500        1,826,500        -        86,230           702,500       1,912,730
Sleep Inn, Ocean Springs, MS       (B)           924,162        2,402,821        -        13,247           924,162       2,416,068
Sleep Inn, Destin, FL              (B)           993,429        2,382,915        -       499,278           993,429       2,882,193
Sleep Inn, Sarasota, FL            (B)           834,990        2,170,975        -       288,784           834,990       2,459,759
Sleep Inn, Tallahassee, FL         (B)           710,679        1,847,767        -       231,054           710,679       2,078,821
Super 8, Flagstaff, AZ             (A)         1,321,800        3,436,680        -        29,941         1,321,800       3,466,621
Country Hearth Inn, Auburn, IN   1,709,053       229,896        2,287,655     10,327     208,820           240,223       2,496,475
                               -------------  --------------  -------------  --------- ------------     ----------    ------------
                               $23,002,580    $6,359,743      $18,168,574    $10,327  $1,409,081        $6,370,070    $ 19,577,655
                               =============  =============== =============  ======== =============   ============    =============

                                                                                        Land           $ 6,370,070
                                                                                        Furniture &
                                                                                          equipment      3,579,969       1,153,725
                                                                                                      ------------    -------------
                                                                                                       $29,527,694     $ 3,108,032
                              Accumulated
                              Depreciation &   Year of       Date
Description (cont.)           Amortization     Construction  Acquired    Life
-------------------           --------------   ------------  --------    ----
      <S>                           <C>             <C>         <C>       <C>

Super 8, Rock Falls, IL           91,422        1985         4/1/1995      35
Super 8, Somerset, KY             90,433        1985         4/1/1995      35
Super 8, Miner, MO                94,967        1985         4/1/1995      35
Super 8, Poplar Bluff, MO         85,731        1985         4/1/1995      35
Super 8, San Diego, CA           189,786        1987         4/22/1995     35
Sleep Inn, Ocean Springs, MS     262,314        1995         9/13/1996     35
Sleep Inn, Destin, FL            280,960        1992         9/13/1996     35
Sleep Inn, Sarasota, FL          235,439        1993         9/13/1996     35
Sleep Inn, Tallahassee, FL       202,414        1994         9/13/1996     35
Super 8, Flagstaff, AZ           273,682        1985         3/14/1997     35
Country Hearth Inn, Auburn, IN   147,159        1987        10/21/1997     35
                              ----------
                              $1,954,307
<FN>

     (A)CrossHost  hotel assets are cross  collateralized  and  encumbered  by a
first mortgage note payable with an outstanding principal balance of $12,388,055
at December 31, 1999.

     (B) Host Ventures hotel assets are cross collateralized and encumbered by a
first mortgage note payable with an outstanding  principal balance of $8,905,472
at December 31, 1999.

</FN>
</TABLE>
                                       65