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, 2001
                         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           OTCBB
          (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 29, 2002, the Company had 2,443,762 shares of Class "A"
Common Stock and 1,000 shares of Series "A" Convertible Preferred Stock
outstanding. Of the total shares of Class "A" Common Stock outstanding,
1,864,558 shares were held by other than those who may be deemed affiliates, for
an aggregate market value held by non-affiliates of $121,196 based upon the
closing bid of the Company's Class "A" Common Stock on the "Over The Counter
Bulletin Board" of $0.065 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                                                           9

3.       Legal Proceedings                                                   11

4.       Submission of Matters to a Vote of Securities Holders               12

                                     PART II

5.       Market for the Company's Common Equity and Related
         Shareholder Matters                                                 12

6.       Selected Financial Data                                             15

7.       Management's Discussion and Analysis of Financial Condition and
         Results of Operations                                               15

7A.      Quantitative and Qualitative Disclosures About Market Risk          19

8.       Financial Statements and Supplementary Data                         19

9.       Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosure                                            19

                                    PART III

10.      Directors and Executive Officers of the Company                     20

11.      Executive Compensation                                              21

12.      Security Ownership of Certain Beneficial Owners and Management      21

13.      Certain Relationships and Related Transactions                      23

                                     PART IV

14.      Exhibits, Financial Statements, Financial Statement Schedules and
         Reports on Form 8-K                                                 24

15.      Schedule III: Real Estate and Accumulated Depreciation              60




                                       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, 2001, the hotel property portfolio of the Company consisted of 8
hotels located in 7 states consisting of approximately 600 rooms. The Company's
subsidiary, Crosshost, Inc. is the owner of hotels in Somerset, Kentucky, Miner
Missouri, Poplar Bluff, Missouri, Rock Falls, Illinois, Tallahassee, Florida,
and Mission Bay, California. The subsidiary, BH Auburn, L. P. is the owner of a
hotel in Auburn, Indiana.

          The Company is engaged in the business of owning 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."

On January 4, 2001, the Company received notice from the American Stock Exchange
("Exchange") Staff indicating that the Company no longer complied with the
Exchange's continued listing guidelines and that, as a result, the Exchange
intended to file an application with the Securities and Exchange Commission to
strike the Company's common stock from listing and registration on the Exchange.
The Exchange had indicated that its actions are in response to the following
circumstances.

The Company had fallen below the continued listing guidelines triggered by
losses from continuing operations in each of its last five most recent fiscal
years as set forth in Section 1003(a)(iii) of the Company Guide. In addition,
the Company did not meet the continued listing guidelines due to its
unsatisfactory operating results and an impaired financial condition for the
fiscal year ending December 31, 1999 and the period ending September 30, 2000 as
set forth in Section 1003(a)(iv) of the Company Guide.

                                       3

<PAGE>

The Exchange also took the position that the Company failed to comply with its
listing agreement with the Exchange by effecting a transaction on June 30, 2000
with Bufete Grupo Internacional S.A. de C.V. ("Bufete") and its U.S. affiliate
Hotel International Advisors, LLC by issuing shares without shareholder approval
which were not listed with the Exchange prior to their issuance as required in
Sections 301, 705 and 712 of the Company Guide.

In view of the above, the Company had fallen below the continued listing
guidelines. The Company appealed this determination and requested a hearing
before a committee of the Exchange. The Company received notification from the
Amex Adjudicatory Council of the American Stock Exchange Board of Governors that
the Council has affirmed the decision of the Amex Committee on Securities to
strike Host Funding's common stock from listing and registration on the
exchange. Accordingly, the Exchange filed an application with the United States
Securities and Exchange Commission to strike the company's stock from the
exchange. The Company's common stock was delisted during the first quarter of
2001.
          During the fourth quarter of 2001, the Company terminated its leases
with Buckhead America Corporation and BAC Hotel Management, Inc., and terminated
the Management Agreement with BAC Hotel Management, Inc. with regard to the
Tallahassee hotel, and subsequently entered into Management Agreements with
Cornerstone Hospitality Group, Inc. to operate all of the Company Hotels other
than Mission Bay, California. These agreements are discussed more fully below.
As a result, the only Company Hotel subject to a lease is the Mission Bay,
California Property.

         In 2001, the Company Hotels owned by the Company's wholly owned
subsidiary, Host Ventures, Inc. were foreclosed upon by the lender. Two of the
three hotels were transferred in 2001 as a result of foreclosure sales. The
third hotel was transferred in January, 2002, through a foreclosure sale.

         In August of 2001, the lessee of the Destin, FL hotel exercised a right
under the lease agreement to reduce rent due to the construction of a
competitive hotel property in the Destin area. As a result of the decreased
rent, the loan secured by the Crosshost, Inc. hotels fell into default due to
the fact that cash flow generated from the properties after the competitive rent
adjustment was inadequate to meet debt service. Negotiations are under way with
Lennar Partners, Inc, the Special Servicer of the lender, to pay to the lender
all of the proceeds generated from the Company Hotels owned by Crosshost, Inc.,
with the hope of renegotiating the terms of the loan to enable Crosshost to
continue in an ownership status. If such negotiations are not successful, one or
all of the Company Hotels will be foreclosed upon. Further, negotiations are
under way with the lessee of the Mission Bay Hotel Property, and Lennar
Partners, Inc., to allow the optionee to consummate the purchase of the Mission
Bay hotel pursuant to the option agreement discussed below.

Business Developments

         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 initially to a dispute with the Company's lender relating to
the governing deed of trust and the applicable defeasance and release
requirements, and later, due to the Company's inability to meet certain
requirements of the Lender to release the property. 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."

                                       4
<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."

         On June 30, 2000, the Company entered into an agreement with Hotel
International Advisors, LLC, whereby it was to acquire interests in four Mexican
Hotel Properties from Bufete Grupo Internacional S.E. de C.V, ("Bufete") a
Mexican company which controls several dozen hotel properties in Mexico, in
exchange for 1,000,000 shares of the Company's Class A Common Stock. HIA has
guaranteed that the Interests exchanged for the common stock have a value of
$3,000,000 and has further guaranteed that distributions from the interests to
the Company will be at least $450,000 per year. As of December 31, 2001, no
payments have been received, and after conducting an independent investigation,
the Company has doubts that the securities in question were actually transferred
to the Company. The Company has initiated litigation against HIA and Bufete with
regard to this transaction.

         In December 2000, the Company sold to MPI and Sutter Opportunity Fund,
LLC (Sutter), an additional 377,112 shares of the Series "A" Convertible
Preferred Stock, $0.01 par value per share (the "Series "A" Preferred"), for a
purchase price of $754,224. The proceeds were used to settle outstanding
litigation regarding the Auburn and Findlay properties as well as fund working
capital obligations.

         In December 2000, the Company entered into a letter of intent with
Carnegie International Corporation (Carnegie), calling for the Company to issue
shares in exchange for shares of Carnegie. The merger required certain
conditions of the agreement as follows: a) advancement of funds to the Company
by Sutter Capital Management and MPI (Investors) for the redemption of the
Company's preferred stock, b) completion of legal settlement payable to Auburn
Equity Partners, c) the satisfaction of all liabilities to the Investors, d) the
existence of working capital in the amount of $200,000, in the form of a note
payable to the Investors, e) cancellation of the existing management agreement
between the Company and MPI and commencement of a new management agreement
between the Company, MPI, and Carnegie, f) cancellation of issued warrants, g)
issuance of new class of preferred stock, and several other performance criteria
required by Carnegie.

In connection with the proposed transaction, Crosshost advanced funds to
Carnegie in the amount of $150,000. The promissory note from Carnegie is in the
amount of $175,000, which includes an amendment fee for an amendment to the
merger agreement term sheet . A Guarantee Agreement and a Stock Pledge agreement
secure the promissory note from Carnegie. Subsequently, the Company determined
not to proceed with the merger, and Carnegie failed to pay the promissory note
when it came due. A lawsuit was initiated to collect on the note and the
guarantee, and a settlement agreement has been reached whereby Carnegie will
confess judgement, and allow for judgment to be entered later in 2002.

         In September, 2001, the Company entered into an agreement with Leisure
Living Properties PLF, LLC ("Leisure Living") calling for the sale of common
stock of the Company to Leisure Living in exchange for the contribution of three
properties owned by Leisure Living. In addition, the transaction anticipated the
redemption of the Series A Preferred Stock of the Company in exchange for
secured promissory notes payable to the preferred shareholders, the transfer of
the Advisory Agreement to Leisure Living, and the execution of a separate
Management Agreement between Crosshost, Inc. and MacKenzie Patterson, Inc.

                                       5
<PAGE>

         At the time of its approval of the Leisure Living transaction, the
Board of Directors of the Company authorized the redemption of the Series "A"
Preferred stock in exchange for the Company's promissory note in the amount of
$4,113,322, which note was guaranteed by Crosshost, Inc. The face amount of the
note represented the redemption price of the preferred stock at $4.00 per share,
plus other amounts which had been advanced to the Company by the preferred
shareholders. Concurrently, the Board of Directors authorized the execution of a
Financing Agreement with HALTA, LLC, a California limited liability company
which agreed to provide the Company with additional working capital in exchange
for the execution of second deeds of trust on the Crosshost properties, the
pledge of the shares of Crosshost, Inc. to HALTA, LLC, and assurances that
Crosshost, Inc. would continue to be operated by MacKenzie Patterson, Inc.

         The Leisure Living transaction did not take place due to the withdrawal
of Leisure Living from the transaction. The redemption of all but 1,000 shares
of Series "A" Preferred shares was concluded in October, 2001, with the
execution of a promissory note ("Company Note") in favor of HFD Investors, LLC,
("HFDI") a California limited liability company which was formed by the holders
of the preferred shares to facilitate the sale of the Company Note. The Company
Note was subsequently sold to HALTA, LLC by HFDI.

         As of the end of 2001, and as of the date of this report, MacKenzie
Patterson, Inc. has continued to perform its duties under the Advisory Agreement
dated December, 1999, without compensation.

Termination of Leases

In General

         At the beginning of 2001, all of the Company Hotels were leased and
operated pursuant to lease agreements (the "Leases"), except for the Company
Hotel located in Tallahassee, Florida (the "Tallahassee Property") which was
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 Hotel at Mission Bay, California
(the "Mission Bay Property"), the Company Hotels were leased and operated by
either Buckhead America Corporation (as to the Company Hotel located in Auburn,
Indiana only) or BAC Hotel. The Mission Bay Property is leased to RPD Mission
Bay, LLC (Mission Bay Property). In August, 2001, BAC Hotel asserted rights in
the lease to reduce monthly base rent on the Destin, FL Hotel Property, as a
result of the presence of a competitive hotel in the Destin area, exercised its
right to terminate the Rock Falls, IL lease, and BUCK defaulted on the Auburn,
IN lease. As a result, a negotiated settlement agreement was entered into
between the Company, its subsidiaries, BAC Hotel and BUCK, resulting in the
termination of all of the remaining leases between BAC Hotel and Crosshost,
Inc., and BUCK and BH Auburn, LP, and the payment to Crosshost, Inc. of
$75,000.00 in consideration for the cancellation of lease termination fees,
lease deposits and reserves for capital expenditures. As a result of the
settlement agreement, a management agreement with Cornerstone Hospitality Group,
Inc. ("Management Agreement") was entered into with respect to all of the
Company Hotels except the Mission Bay Property. The Management Agreement
provides for the net operating revenue from each of the Company Hotels to be
forwarded to the Company on a monthly basis, less a management fee of 4.5% of
Gross Revenue, and the agreed upon reimbursable costs of operating the facility.
The Management Agreement is terminable by either party with respect to all or
one or more properties on 30 days notice.


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). 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.

                                       6
<PAGE>

         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

         For the calendar year 2001, the Company's business plan was (a) to
locate a strategic partner which would provide additional working capital to the
Company, or provide other business opportunities for the Company in the hotel
industry or in a complementary business, (b) to pursue the Company's claims
against HIA arising out of the Mexican Transactions, and (3) to resolve the
claims against the Company from Keystone Advisors, Inc. / Crossroads
Investments, LLC, and Choice Hotels, International. Further to those ends, the
Company considered, but declined to proceed with the Carnegie International
transaction, which is more fully discussed in the Business Developments section
above, entered into an agreement with Leisure Living Properties PLF, LLC, to
acquire three income producing properties in exchange for common stock of the
Company, and investigated a number of other possible transactions, none of which
resulted in a completed transaction. Litigation was initiated against HIA and
Bufete arising out of the Mexican Transactions, and settlement agreements were
reached to resolve the Keystone and Choice matters. On March 27, 2002, a
settlement agreement was reached with Carnegie and E. David Gable wherein
Carnegie and Gable agreed to the entry of a judgement against them in favor of
Crosshost, Inc. the amount of $240,000.00. Entry of Judgment against Carnegie is
postponed until October 30, 2002, and against Gable until January 1, 2003.

         In August, 2001, BAC Hotel Management, Inc., lessee of the Destin, FL
property, notified the Company that it was exercising its right to reduce base
rent under a Competitive Set rent adjustment clause in the lease, commencing as
of August 1, 2001. As a result, cash flow from Company operations was no longer
sufficient to meet the Company's ongoing debt service requirements, and the
loan, secured by all of the Crosshost, Inc. hotel properties fell into default.
In addition, Buckhead America Corporation defaulted on the Auburn lease, and the
Company terminated that lease in September, 2001. Payments on the Auburn, IN
note are also in default. Management Agreements have been put into place with
Cornerstone Hospitality Group, Inc. with respect to each of the Company Hotels
other than the Mission Bay Property. Negotiations with the lenders are underway
with a view towards restructuring the loans to allow the Company to retain its
ownership interests in the properties, and to allow the optionee on the Mission
Bay Property to consummate the purchase of the Mission Bay Property.



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.

                                       7
<PAGE>

         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, 2001, the Company had no 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.


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

                                       8
<PAGE>

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, 2001, the Company's principal
executive offices were located at 1640, School St. Moraga, CA 94556.

See Item 13. "Certain Relationships and Related Transactions." During all or
portions of the fiscal year ended December 31, 2001, the Company owned eight
hotel properties located in seven states consisting of approximately 600 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)      12-31-01        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%           $652,000      $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%           $592,000      $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%           $528,000      $228,000        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%          $386,000      $ 90,000        1995/85
                        thereafter, less Percentage Rent
                        previously paid YTD. (2)

Mission Bay,
California
(Vagabond Inn) 117         N/A                                     $1,503,000      $280,200        1995/87

Flagstaff,
Arizona         90      32% YTD over $925,000 less Percentage
(Super 8)               Rent previously paid. (3)                        N/A         N/A           1997/85

Tallahassee,    78         N/A
Florida
(Sleep Inn)                                                          $811,000        N/A           1996/94

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%           $912,000      $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%               N/A         N/A           1996/95
                        thereafter, less Percentage Rent
                        previously  paid YTD. (2)(3)


                                                            9
<PAGE>

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%               N/A         N/A           1996/93
                        thereafter, less Percentage Rent
                        previously  paid YTD. (2)(3)

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%           $506,000      $303,000        1997/87
                       thereafter, less Percentage Rent
                       previously paid YTD (subject to CPI
                       adjustment).


Consolidated Total for Hotels                                      $5,890,000    $2,673,700
                                                                   ==========    ==========

<FN>
(1)      Unless otherwise set forth above, Base Rent and Percentage Rent
         effective December 31, 2000. All leases except for the Mission Bay
         lease were terminated in December, 2001. Except for Mission Bay, all
         properties to be operated under management agreements.

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

(3)      The Host Ventures properties were foreclosed upon during 2001. The
         properties were Held for Sale during 2001. All lease payments were made
         to and for the benefit of the lender.
</FN>
</TABLE>


Changes in Properties

         In January 2000, Buckhead America Corporation (BAC) notified the
Company that pursuant to certain Competitive Set Clauses in the leases, the
annual base rent on these properties would be reduced as follows:

                  2001 Base Rent           Previous Base Rent
Ocean Springs           $179,000                  $369,000
Sarasota                $217,500                  $303,500
Rock Falls              $228,000                  $266,000
Somerset                $ 90,000                  $127,000

In August, 2001, BAC notified the company that pursuant to the Competitive Set
Clause in the Destin, FL lease, it would be reducing base rent. As a result of
that change, the Company's cash flow was insufficient to meet the Company's debt
service requirements. Further, the lessee of the Auburn, IN hotel defaulted, the
lease was terminated, and the loan securing the Auburn, IN hotel is now in
default.

In December, 2001 the Company terminated its remaining leases with BAC and BUCK
and entered into management agreements by which Buckhead will operate the
properties for a fee. As of February 1, 2002, a management agreement with
Cornerstone Hospitality Group, Inc. ("Management Agreement") was entered into
with respect to all of the Company Hotels except the Mission Bay Property. The
Management Agreement provides for the net operating revenue from each of the
Company Hotels to be forwarded to the Company on a monthly basis, less a
management fee of 4.5% of Gross Revenue, and the agreed upon reimbursable costs
of operating the facility. The Management Agreement is terminable by either
party with respect to all or one or more properties on 30 days notice.

                                       10
<PAGE>
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. On
  May 10, 2000, the Company entered into a settlement agreement with the
  plaintiffs in satisfaction of the judgment including pre-judgment interest.
  All amounts were paid pursuant to the Settlement Agreement by May 11, 2001.


     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,  Inc.  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.

         In December 2000, the Company settled all outstanding litigation
regarding the above with a payment of $500,000.00 and an agreement to pay an
additional $200,000.00 by April 30, 2001 and $125,000.00 by June 1, 2001. All
payments were made pursuant to the Agreement


     Keystone  Advisors,  Inc and Crossroads  Investments,  LLC vs. Host Funding
Inc.; Superior Court of the State of California,  Santa Barbara County,  Anacapa
Division, Case No. 1035199.

In September, 1999 the Company issued shares of the Company's Class A Common
Stock to Keystone Advisors and Crossroads Investments (Keystone/Crossroads) in
repayment of approximately $140,000 of advances made to the Company.
Keystone/Crossroads disputed the stock payment and was awarded a judgement
regarding these claims. A levy was granted on certain Company bank accounts and
approximately $51,000 was awarded to Keystone/Crossroads to partially satisfy
their claim. During the year 2001, the Company entered into a Settlement
Agreement with Keystone/Crossroads whereby the Company agreed to make monthly
installments of $15,000 to satisfy the obligation. Installment payments in the
amounts of $95,000.00 were made. However, in October, 2001, such payments were
terminated due to the lack of sufficient cash flow from the Company Hotels to
make such payments. Nevertheless, the plaintiffs continue to pursue collection
efforts against the Company.

     Choice Hotels International v. Host Ventures Inc. Demand for Arbitration

     The Company and its operating  subsidiaries, Host  Ventures,  Inc.  and
Crosshost, Inc., received a claim from Choice Hotels, International ("Choice")
arising out of the termination  for default of the Franchise Agreement for the
Ocean Springs, MI Sleep Inn. The Agreement was between Choice and Host Ventures,
Inc., but had been guaranteed by both  Crosshost,  Inc  and the  Company.  A
negotiated settlement was reached with Choice, resulting in the agreement of the
Company to pay 174 monthly payments of $1,494.25.

                                       11
<PAGE>

     Crosshost, Inc. vs Carnegie International

         Prior to the proposed completion of the merger with Carnegie,
Crosshost, Inc. advanced $150,000 to Carnegie in exchange for Carnegie's
promissory note, which was guaranteed by the personal guarantee of E. David
Gable, Carnegie's Chairman, and the pledge of the shares of Romnet Data
Services, Inc. The promissory note was in the amount of $175,000, which includes
Carnegie's agreement to pay a fee of $25,000 for an amendment to the merger
agreement term sheet. In addition, Carnegie agreed to pay a break-up fee of
$150,000 to the Company if the merger was not consummated. Subsequently, the
Company determined not to proceed with the merger, and Carnegie failed to pay
the promissory note when it came due and failed to pay the break-up fee.

         The Company filed an action in Contra Costa County Superior Court
entitled Crosshost, Inc., a Maryland Corporation, Plaintiff, v. E. David Gable,
an individual, Defendant, identified as Case Number C01-02232, to collect on the
guarantee of Gable. Gable and Carnegie cross complained, and Crosshost then
filed an action in Superior Court, Contra Costa County, California, entitled
Crosshost, Inc., a Maryland Corporation, Cross-Complainant, v. Carnegie
International Corporation, a Colorado Corporation, and ROES 1 through 10,
inclusive. In March, 2002, a settlement agreement was reached whereby Carnegie
agreed to future entry of judgement, if the amounts agreed to be paid in the
settlement have not been paid by October 30, 2002. Gable agreed to future entry
of the judgement against him on January 1, 2003, if any amounts remain unpaid at
that date. The Settlement Agreement calls for Gable and Carnegie to pay the
total amount of $240,000 to Crosshost, plus interest on $200,000 at a rate of 9
percent beginning on April 5, 2002. This total amount of $240,000 is comprised
of the following: $175,000 on the Promissory Note dated January 3, 2001 that is
the subject of Crosshost's cross-action referred to above; $25,000, which is a
compromised amount of the break up fee; $22,000 for Crosshost's and the
Company's attorneys' fees; and $18,000 in interest from April 5, 2001 to April
5, 2002 at a rate of 9 percent per annum. Interest will continue to run on the
sum of $200,000 at the rate of 9 percent per annum until the $200,000 is paid.

         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 2001.

                                     PART II

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

         The Company's Class "A" Common Stock was traded 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.

         On January 4, 2001, the Company received notice from the American Stock
Exchange ("Exchange") Staff indicating that the Company no longer complied with
the Exchange's continued listing guidelines and that, as a result, the Exchange
intended to file an application with the Securities and Exchange Commission to
strike the Company's common stock from listing and registration on the Exchange.
The Exchange has indicated that its actions were in response to the following
circumstances.

The Company had fallen below the continued listing guidelines triggered by
losses from continuing operations in each of its last five most recent fiscal
years as set forth in Section 1003(a)(iii) of the Company Guide. In addition,
the Company did not meet the continued listing guidelines due to its

                                       12
<PAGE>

unsatisfactory operating results and an impaired financial condition for the
fiscal year ending December 31, 1999 and the period ending September 30, 2000 as
set forth in Section 1003(a)(iv) of the Company Guide.

The Exchange also had taken the position that the Company failed to comply with
its listing agreement with the Exchange by effecting a transaction on June 30,
2000 with Bufete Grupo Internacional S.A. de C.V. ("Bufete") and its U.S.
affiliate Hotel International Advisors, LLC by issuing shares without
shareholder approval which were not listed with the Exchange prior to their
issuance as required in Sections 301, 705 and 712 of the Company Guide.

In view of the above, the Company had fallen below the continued listing
guidelines. The Company appealed this determination and requested a hearing
before a committee of the Exchange. The Company received notification from the
Amex Adjudicatory Council of the American Stock Exchange Board of Governors that
the Council has affirmed the decision of the Amex Committee on Securities to
strike Host Funding's common stock from listing and registration on the
exchange. Accordingly, the exchange filed an application with the United States
Securities and Exchange Commission to strike the company's stock from the
exchange. The Company's common stock was delisted during the first quarter of
2001. Shares of the Company are now traded on the Over the Counter Bulletin
Board under the symbol HFDI.OB


         As of December 31, 2001, there were approximately 900 shareholders of
record of the Company's Class "A" Common Stock and the closing bid price on the
Bulletin Board was $0.065

          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, 1999, 2000, or 2001. Future distributions to shareholders 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.

         As of December 31, 2000, the Company had issued and outstanding one
series of warrants "Series B Warrants." 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. During 2000, the Company also
had Series "A" Warrants outstanding. The Series A Warrants provided warrants to
purchase 225,000 shares of Host Funding's Class "A" Common Stock at $9.90 per
share. 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
stock dividends, stock splits, mergers, reclassifications of stock, or a
recapitalization of the Company.

         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, 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, 1999 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

                                       13
<PAGE>

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.

         In December 2000, the Company sold to MPI and Sutter an additional
377,112 shares of the Series "A" Convertible Preferred Stock, $0.01 par value
per share (the "Series "A" Preferred"), for a purchase price of $754,224. The
proceeds of which were used to settle outstanding litigation regarding the
Auburn and Findlay properties as well as fund working capital obligations.

         In 2001, the Company sold to MPI and Sutter 162,500 shares of the
Series "A" Preferred for a purchase price of $325,000. The proceeds were used to
settle the balance of the claim regarding the Auburn and Findlay properties.

         Pursuant to the terms and conditions of a Registration Rights Agreement
(the "Registration Agreement") between the Company and MPI and Sutter
Opportunity Fund, LLC, 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.

In December, 2001, all but 1,000 shares of Series "A" Preferred stock were
redeemed in exchange for the secured promissory note of the Company in the face
amount of $4,113,322 As a result, 1,000 shares of Series "A" Preferred stock
remain outstanding, and are issued to MacKenzie Patterson, Inc. ("MPI"). MPI
continues to operate the Company pursuant to the Advisory Agreement, although it
has received no compensation in 2001 for so doing. The Advisory Agreement
provides for an annual base advisory fee of $350,000.00.













                                      14
<PAGE>
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."
<TABLE>
<CAPTION>
                                Year Ended           Year Ended          Year Ended          Year Ended          Year Ended
                            December 31, 2001   December 31, 2000    December 31, 1999   December 31, 1998   December 31, 1997
     <S>                           <C>                  <C>                <C>                 <C>                 <C>
OPERATING RESULTS:

GROSS REVENUES                  $ 2,769,101          $  3,974,075        $ 3,879,333        $  3,926,042        $  3,837,350
LOSS BEFORE INCOME TAXES        $(4,732,912)         $ (1,237,165)       $(1,972,725)       $   (904,316)       $ (1,025,514)
NET LOSS                        $(4,732,912)         $ (1,237,165)       $(1,972,725)       $   (904,316)       $ (1,025,514)

BASIC AND DILUTED NET LOSS PER
COMMON SHARE                         $(1.82)         $      (0.57)       $     (1.22)       $      (0.58)       $     (0.68)

WEIGHTED AVERAGE NUMBER OF BASIC
AND DILUTED COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING     2,600,918             2,163,753          1,615,894           1,559,916           1,516,652

DISTRIBUTIONS PER COMMON SHARE:
CLASS A                               -0-                     -0-                -0-        $        -0-        $       0.96
CLASS B                               -0-                     -0-                -0-                 -0-                 -0-
CLASS C                               -0-                     -0-                -0-                 -0-                 -0-
TOTAL ASSETS                    $20,398,414          $ 31,622,297       $ 29,820,050        $ 32,449,658        $ 31,996,180
LONG TERM DEBT
 (Including current portion)    $19,975,661          $ 23,098,200       $ 23,611,298        $ 25,790,837        $ 25,036,346

PREFERRED STOCK                 $     3,000          $  2,254,222       $  1,500,000                -0-                 -0-

SHAREHOLDERS' EQUITY            $(1,401,017)         $  3,871,298       $  2,039,580        $  3,587,500        $  4,279,337

</TABLE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

Recent Developments

On June 30, 2000, the Company purportedly acquired interests in four Mexican
Hotel Properties from Hotel International Advisors, LLC,("HIA") in exchange for
1,000,000 shares of the Company's Class A Common Stock. HIA has guaranteed that
the Interests exchanged for the common stock have a value of $3,000,000 and has
further guaranteed that distributions from the interests to the Company will be
at least $450,000 per year. No such payments have been received, and the Company
has initiated legal proceedings against HIA.

At the end of 2000 The Company initiated litigation regarding the sale of the
Mission Bay Property, against the Master Servicer, the Special Servicer, and
Credit Suisse First Boston ("the mortgage holder") Said litigation was settled
during the fourth quarter of 2000 with the payment to the Company of $185,000.
The company endeavored to close the sale of Mission Bay in the third quarter of
2001, but was unable to do so because of its inability to pay the defeasance
costs involved, and its inability to meet post-closing debt service covenants .

In December 2000, the Company settled all outstanding litigation regarding the
Auburn and Findlay notes and judgments in the aggregate amount of $1,550,000.00
previously held by Auburn Equity Partners and Findlay Equity Partners. Such
settlement was made with a payment $500,000.00 and an agreement to pay an
additional $200,000.00 by April 30, 2001 and $125,000.00 by June 1, 2001, for a
total of $825,000.00.

The Company was notified in 2001 by Orix Real Estate Capital Markets, LLC, who
is the mortgage holder of the Host Ventures, Inc. properties, that they intend

                                       15
<PAGE>

to foreclose on the properties due to the Company's default on the mortgage
payments. The Host Ventures, Inc. properties consist of the Sarasota, FL, Ocean
Springs, MS, and Flagstaff, AZ properties. The default is a result of
competitive rent-reduction clauses in the respective leases which resulted in
the lessees paying less rent on the properties than the debt service cost. The
Company was unsuccessful in its efforts to re-structure the loans. During 2001,
the three Host Ventures, Inc. properties were foreclosed upon.

In December, 2001 the Company terminated its remaining leases with Buckhead
America Corp. and entered into management agreements by which Buckhead will
operate the properties for a fee. As of February 1, 2002, a management agreement
with Cornerstone Hospitality Group, Inc. ("Management Agreement") was entered
into with respect to all of the Company Hotels except the Mission Bay Property.
The Management Agreement provides for the net operating revenue from each of the
Company Hotels to be forwarded to the Company on a monthly basis, less a
management fee of 4.5% of Gross Revenue, and the agreed upon reimbursable costs
of operating the facility. The Management Agreement is terminable by either
party with respect to all or one or more properties on 30 days notice.


Results of Operations

Years Ended December 31, 2001, 2000, and 1999:

          Occupancy, average room rates, and revenue per available room of 54%,
$48.20, and $26.15 for the Company Hotels for the year ended December 31, 2001
resulted in total sales, including room sales, of approximately $5,744,000.

         Property Operation: Property operations include the Tallahassee results
effective July 1, 1999 and the operations of Poplar Bluff, Rock Falls, Destin,
Miner, Somerset and Auburn effective December 18, 2001. Room revenue, operating
expenses, and income from property operations were approximately $950,000,
$715,000 and $235,000 for 2001, $858,000, $715,000, and $338,000 for 2000 and
$425,000, 244,000 and 181,000 for 1999.

         Lease Revenue: Lease Revenues were approximately $1,765,000 for 2001,
$2,909,000 for 2000 and $3,368,000 for 1999. The reduction is a result of the
foreclosure of the three Host Ventures properties for all of 2001 as well as the
termination of the lease agreements in December, 2001. The reduction from 1999
levels was due to the termination of the Tallahassee lease July 1, 1999 and the
sale of the Findlay, Ohio property in November, 1999.

          Interest Expense: Interest expense of approximately $1,509,000
decreased from the prior years levels due to the foreclosure of the Host
Ventures properties and the sale of the Findlay, Ohio property November, 1999.

          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 had various properties sold or Held for
Sale since 1999. Since amortization and Depreciation expense is not recognized
for properties classified as "Land, Property, and Equipment - Held for Sale",
the 2001 amounts are less than the 2000 and 1999 amounts. The 2001 amount is
further reduced as compared to 1999 as a result of the sale of the Findlay
property in November, 1999.

          Administrative Expenses, Other: The 2001 amount of approximately
$415,000 is $554,000 less than 2000 due to the assumption by MPI of costs of
approximately $323,000as well as a reduction in legal and settlement expenses.

          Administrative Expenses, Other were approximately $415,000, $768,000
and $862,000 for the years ended 2001, 2000 and 1999, respectively, and
consisted primarily of the following approximate amounts: advisory fees of
$350,000, $350,000 and $0; insurance of $2,000, 61,000, and $0; legal fees of
$7,000, $211,000 and $154,000; settlement claims of $0, $40,000 and $0; and
other costs of $56,000, $106,000 and $86,000.

         Directors Fees for 2001 and 2000 totaled approximately $4,000 which is
less than the 1999 amount of $89,000. The amount in 1999 was due primarily to
shares of common stock issued to former directors. There were no fees paid to
directors in 2001.

                                       16
<PAGE>

         Minority Interest in Partnerships: Represents the 19% minority interest
in the operations of the Country Hearth Inn Hotels. During 2001, Buckhead
America Corporation relinquished its 19% interest in the entity which owns the
Auburn, IN property, thus the Company now owns all of the beneficial interest in
the property.

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

         The 2001 Valuation Reserve of $1,581,146 and the Loss from Sale of
Property of $997,331 were as a result of the foreclosure of the three Host
Ventures properties in 2001. The valuation reserve was established to write-down
the value of the Sarasota, Florida property for which title had not transferred
as of December 31, 2001. The loss on sale of property reflects the loss on the
foreclosure sales of the Flagstaff, Arizona and Ocean Springs, Mississippi
properties. The 1999 loss form sale of property of $607,000 was due to the sale
of the Findlay, Ohio property.

         Loss from Transfer of Lease: The Company recognized a loss of $489,000
on the termination of its lease agreements with Buckhead in December, 2001. The
loss was primarily due to the release of capital expenditure reserves, rent
receivable and deposits in exchange for a waiver by Buckhead of any lease
termination fees due them as a result of the cancellation of the leases. The
gain recognized in 1999 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

         Franchise Termination Reserve: The Company recorded a charge of
$154,000 in 2001 resulting from a settlement with Choice Hotels International
over a default on the franchise agreement on the Ocean Springs, Mississippi
property.

         Preferred Stock Premium: The Company recorded a charge of $902,000 in
2001 as a result of the conversion of the Company's Series "A" Preferred stock
to a note payable in favor of HFD Investors, LLC (representing the holders of
the Series "A" Preferred). The Board of Directors authorized the conversation of
the preferred to facilitate an anticipated merger with Leisure Living.

         Relinquished project costs of $227,000 for the year ended 2000 include
costs incurred related to potential hotel acquisitions in the Northeastern
United States. As the Company had written off all acquisition costs during 2000,
there were no charges for 2001.


Liquidity and Capital Resources

          The Company's principal source of cash to meet its cash requirements,
including repayments of indebtedness, is the cash flow from the Company Hotels.
For the year ended December 31, 2001, cash flow used in operating activities was
approximately $920,000. For the year ended December 31, 2001, cash flow provided
by operating activities was approximately $140,000.

          The Company has no committed additional sources of external liquidity
available; therefore, the Company relies exclusively on its internal cash flow
to meet its liquidity needs. The Company's principal source of cash to meet its
cash requirements, is its share of the Company's cash flow from the Company
Hotels. Without any additional capital or a restructuring of the Crosshost loan,
the Company will be unable to meet its ongoing obligations. It is therefore
highly unlikely that the Company will be able to continue as a going concern.


         In December 2000, the Company sold to MPI and Sutter an additional
377,112 shares of the Series "A" Convertible Preferred Stock, $0.01 par value
per share (the "Series "A" Preferred"), for a purchase price of $754,224. The
proceeds were used to settle outstanding litigation regarding the Auburn and
Findlay property as well as fund working capital obligations.

                                       17
<PAGE>

         On December 23, 2000 the Company settled outstanding litigation with
Credit Suisse First Boston. Part of the terms of the settlement was a payment of
$185,000 to the Company. The proceeds from the settlement were used to pay
current obligations and for working capital.

         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.

         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

                                       18
<PAGE>

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 continued to secure the obligations of B-H Auburn under
the Auburn Note and the Full Cash Payment in the approximate of $800,000. This
obligation was settled on December 22, 2000 with the payment of $500,000 and an
agreement to pay $200,000 by April 30,2001 and $125,000 by June 1, 2001, which
payments were made as required.

          During the first quarter of 2002, all of the agreements with Buckhead
America Corp. were terminated and replaced with Management Agreements with
Cornerstone Hospitality Group, Inc. The Management Agreement provides for the
net operating revenue from each of the Company Hotels to be forwarded to the
Company on a monthly basis, less a management fee of 4.5% of Gross Revenue, and
the agreed upon reimbursable costs of operating the facility. The Management
Agreement is terminable by either party with respect to all or one or more
properties on 30 days notice.The Company has advised the manager to forward the
net operating revenues received from the Crosshost, Inc. Hotel Properties
directly to Lennar Partners, Inc., Special Servicer for the Lender.

                  Other than debt service on the Company's loan facilities and
notes, the capital expenditures required the Company Hotels or the Company's
loan facilities, property taxes on the Company Hotels, administrative expenses,
and the unpaid liabilities to Keystone and Choice, and unpaid advisory fees
under the Advisory Agreement with MPI, as discussed above, the Company is not
aware of any demands, commitments, events or circumstances that will result or
are likely to result in a change in the Company's liquidity.

Inflation

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

Seasonality


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).


                                       19
<PAGE>

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

         Effective July 10, 2000 the Company's independent accountant and
auditor, PriceWaterhouse Coopers, LLP, elected to resign. PriceWaterhouse
Coopers, LLP, issued an unqualified independent accountant's report on the
Company's 1999 consolidated financial statements that contained no adverse
opinion or disclaimer of opinion. There have not been any disagreements between
the Company and PriceWaterhouse Coopers, LLP, on any matters of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, nor have there been any reportable events as defined under Item
304(a)(1)(v). The Audit Committee approved the engagement of Merdinger,
Fruchter, Rosen, and Corso, P.C. as the Company's independent accountant and
auditor. The Board of Directors, on recommendation of the Audit Committee, has
selected the firm as the Company's independent accountant and auditor for the
year ending December 31, 2001. Due to insufficient funding to pay for an audit,
there will be no independent audit of the Company's 2001 financial statements.
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

         The Company's Board of Directors consists of five (5) members (although
2 seats remain vacant). The directors are elected at the annual meeting of
shareholders or are appointed by the incumbent Board of Directors and serve
until the next annual meeting of shareholders 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 2001.

Guy E. Hatfield, Director

         Mr. Hatfield has served as a Director of the Company since 1996. Mr.
Hatfield,  67, 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 J.D. 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 that 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.

Brian K. Rodgers, Director

         Mr.  Rodgers has served as a Director of the Company since 1999.  Mr.
Rodgers,  30, is an  associate  of 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 Masters 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 (resigned January, 2002)

         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.

                                       20
<PAGE>

Glen Fuller, Director

         Glen W. Fuller, 28, was appointed a Director by the incumbent Board of
Directors, effective as of December 23, 1999, to fill the vacancy created by the
resignation of Michael S. McNulty. Mr. Fuller was appointed Chief Operating
Officer in January 2000. Mr. Fuller is also senior vice president, chief
operating officer, and a director of MacKenzie Patterson, Inc., the Company's
external advisor. Prior to becoming a senior vice president, Mr. Fuller served
MacKenzie Patterson for two years as a portfolio manager and research analyst.
Prior to joining MacKenzie Patterson, Mr. Fuller was responsible for managing
the over the counter trading desk for North Coast Securities Corp., a registered
broker-dealer, with responsibility for both the proprietary and retail trading
desks. Mr. Fuller was also the registered options principal and registered
municipal bond principal for North Coast Securities. Mr. Fuller currently is a
NASD registered options principal, registered bond principal, and holds a NASD
Series 7, general securities license. Mr. Fuller has also worked on the floor of
the New York Stock Exchange as a trading clerk and on the floor of the Pacific
Stock Exchange in San Francisco as an assistant specialist for LIT America.



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 2000
however, the Company forgave $4,200 in interest due on notes. This amount was
considered directors fees in 2000.

         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, 2000
to December 31, 2000, all filing requirements applicable to its officers,
directors, and greater than ten percent (10%) beneficial owners, were timely
met.

ITEM 11.  EXECUTIVE COMPENSATION

                     none


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

                                       21
<PAGE>

close of business on March 29, 2002. 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, 2002 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>

        Five Percent Shareholders, Directors, Director                                           Approximate
            Nominees and Named Executive Officers                           Shares              Percentage of
                                                                      Beneficially Owned            Class
--------------------------------------------------------          -------------------------- ------------------
          <S>                                                              <C>                      <C>

      MacKenzie Patterson, Inc.(1)
          Class A Common                                                    500,000(2)              17.0%
          Series A Convertible Preferred                                      1,000(2)             100.0%

      C.E. Patterson(1)
          Class A Common                                                    515,000(2,3)            17.5%
          Series A Convertible Preferred                                      1,000(3)             100.0%

      Guy E. Hatfield(4)
          Class A Common                                                    378,716(5)              12.9%

      Sutter Opportunity Fund, LLC(6)
          Class A Common                                                    155,488(7,8)             5.3%


      Robert Dixon(6)
          Class A Common                                                    155,488(7,8)             5.3%


      William M. Birdsall(1)
          Class A Common                                                     20,000                   *

      Brian K. Rodgers(1)
          Class A Common                                                     10,000                   *

      Hotel International
      Advisors, LLC ("HIA") (9)
          Class A Common                                                  1,000,000                 34.0%


      Michael S. McNulty(10)
          Class A Common                                                  1,000,000(11)             34.0%


      All Directors  and  Executive  Officers as a Group
      (6 persons)
          Class A Common                                                  1,079,204                 36.7%
          Series A Convertible Preferred                                      1,000                100.0%

* Represents holdings of less than one percent.
<FN>
     (1)  1640 School Street, Moraga, CA 94556.
     (2)  Includes  warrants to purchase up to 500,000  shares of Class A Common
Stock. Mr. Patterson is the President and a Director of MacKenzie Patterson. Mr.
Glen W.  Fuller may be deemed to be a  beneficial  owner of the shares  owned by
MacKenzie  Patterson,  Inc.  by  virtue of his  position  as a  Director  and an
Executive  Officer of  MacKenzie  Patterson.  Mr.  Fuller  disclaims  beneficial
ownership of such shares.

                                                            22
<PAGE>

     (3)  Mr.  Patterson may be deemed to be a  beneficial  owner of the  shares
owned by MacKenzie  Patterson,  Inc. by virtue of his position as a Director and
President of MacKenzie  Patterson.  Mr. Patterson disclaims beneficial ownership
of such  shares  except to the extent of his  pecuniary  interest  therein.  Mr.
Patterson does own 15,000 shares individually.  Mr. Glen W. Fuller may be deemed
to be a beneficial  owner of the shares owned by  MacKenzie  Patterson,  Inc. by
virtue of his  position  as a Director  and an  Executive  Officer of  MacKenzie
Patterson, Inc. Mr. Fuller disclaims beneficial ownership of such shares.
     (4)  230 West Laurel Street, #1003, San Diego, CA 92101.
     (5)  Includes 1,106 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. Mr. Hatfield disclaims  beneficial  ownership of
such shares except to the extent of his pecuniary interest therein.
     (6)  595 Market Street, Suite 2100, San Francisco, CA 94105.
     (7)  Includes 22,500 shares owned by Sutter  Capital  Management,  LLC, the
manager of Sutter Opportunity Fund, LLC, which owns 132,988 shares. Mr. Dixon is
the  managing  member  of  Sutter  Capital,  which  is  the  manager  of  Sutter
Opportunity.
     (8)  Includes  22,500 shares owned by Sutter  Capital  Management,  LLC and
232,988 shares owned by Sutter  Opportunity  Fund, LLC. Robert E. Dixon,  one of
the  Directors 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.  Mr.  Dixon  disclaims
beneficial  ownership  of such  shares  except to the  extent  of his  pecuniary
interest therein.
     (9)  6116 N. Central Expressway, Suite 1313, Dallas, TX 75206.
     (10)  McNulty is the managing member of HIA.
     (11)  Mr.  McNulty  may  be  deemed to  be a beneficial owner of the shares
owned by HIA by virtue of his  position as a managing member of HIA. Mr. McNulty
disclaims  beneficial  ownership  of such  shares  except  to the  extent of his
pecuniary interest therein.
</FN>
</TABLE>


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Advisory Agreement

         Effective January 1, 2000, the Company entered into an Advisory
Agreement with 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 606,838 shares of
the Class "A" Common Stock and 1000 shares of the Series "A" Convertible
Preferred Stock of the Company. During 2001, no amounts were paid to MPI for
advisory fees under the Advisory Agreement. See Item 12. "Security Ownership of
Certain Beneficial Owners and Management."

                                       23
<PAGE>



                                     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:

          Consolidated Balance Sheets at December 31, 2001 and 2000 (unaudited)

          Consolidated Statements of Operations for the years ended
          December 31, 2001, 2000 and 1999 (unaudited)

          Consolidated Statements of Shareholders' Equity for the years
          ended December 31, 2001, 2000, and 1999 (unaudited)

          Consolidated Statements of Cash Flows for the years ended
          December 31, 2001, 2000, and 1999 (unaudited)

          Notes to Consolidated Financial Statements (unaudited)

     (2)  Financial Statement Schedule:

           Report on Supplemental Information (unaudited)

           Schedule III - Real Estate and Accumulated Depreciation (unaudited)

(b)      The  Company  did not file any  reports  on Form 8-K  during the fourth
         quarter of 2001.

(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).

                                       24
<PAGE>

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

         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.

                                   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 16, 2002

                                       25
<PAGE>

          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/ Guy E. Hatfield               Director                   April 16, 2002
--------------------

Guy E. Hatfield

/s/ Glen Fuller                    Director                   April 16, 2002
---------------

Glen Fuller

/s/ Brian K. Rodgers               Director                   April 16, 2002
--------------------

Brian K. Rodgers

/s/ C. E. Patterson                President and Chief        April 16, 2002
-------------------                Executive Officer
C. E. Patterson

/s/ Paul Koslosky                  Chief Financial and        April 16, 2002
-----------------                  Accounting Officer
Paul Koslosky

                                  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











                                       26

<PAGE>


                               HOST FUNDING, INC.
                                AND SUBSIDIARIES
                        CONSOLIDATED FINANCIAL STATEMENTS


                                      INDEX






                                                                            Page
                                                                          Number

Independent Auditors' Report (Omitted)                                         -

Consolidated Balance Sheets                                                   28

Consolidated Statements of Operations                                         30

Consolidated Statement of Shareholders' Equity                                31

Consolidated Statements of Cash Flows                                         33

Notes to Consolidated Financial Statements                                    36

Independent Auditors' Report on Supplementary Information (Omitted)            -

Schedule III Real Estate and Accumulated Depreciation                         60











                                       27
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                                                          December 31,
                                             -----------------------------------
ASSETS                                            2001                   2000
                                             ----------------     --------------
Land, Property and Equipment -
   Held for Investment:
         Buildings and improvements                $9,322,477       $17,664,925
         Furnishings and equipment                  1,946,226         3,319,371
         Less accumulated depreciation             (2,573,276)       (3,767,068)
                                                -------------     -------------
                                                    8,695,427        17,217,228
         Land                                       2,586,618         5,667,570
                                                -------------     -------------
         Total land, property and equipment
         - held for investment                     11,282,045        22,884,798
                                                -------------     -------------

Land, Property and Equipment - Held for Sale:
         Building and improvements                  4,372,489         1,912,730
         Furnishings and equipment                    874,301           379,698
         Less accumulated depreciation               (787,604)         (275,774)
         Less impairment reserve                   (1,538,199)                -
         Land                                       1,537,490           702,500
                                                -------------   ---------------
         Land, property and equipment
         - held for sale                            4,458,477         2,719,154
                                                -------------    --------------

Investment in Hotel Properties                      3,266,146         3,266,146
                                                -------------    --------------

         Total land, property and equipment        19,006,668        28,870,098

Cash and Cash Equivalents                               9,456            36,744

Restricted Cash                                       289,738           622,593

Rent Receivable                                       229,917           309,661

Due from Related Parties                                  525            20,611

Long-Term Advances to Lessees                               -           110,090

Restricted Investments                                      -           288,000

Loan Commitment Fees, net of accumulated
 amortization of $503,570 and $809,269                622,196           967,547

Franchise Fees - net of accumulated
 amortization of $25,963 and $37,088                   39,037            63,912

Prepaid Expenses and Other Current Assets             200,877           333,041
                                                -------------    --------------

TOTAL ASSETS                                      $20,398,414       $31,622,297
                                                  ===========       ===========


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


                                       28

<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS (Continued)

                                                          December 31,
                                             -----------------------------------
                                                  2001                   2000
                                             ----------------     --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Long-term Debt                                  $17,646,043         $22,460,998

Short-term Debt                                   2,424,618           1,194,597

Long-term Lease Deposit                                   -             468,000

Advances by Lessee                                        -             191,571

Option Deposits                                           -              20,000

Accounts Payable and Other Accrued Expenses         193,849             212,027

Due to Related Parties                              684,753             269,245

Accrued Interest                                    662,528             425,592

Accrued Property Taxes                              141,575             178,772
                                              -------------       --------------
         Total liabilities                       21,753,366          25,420,802
                                              ---------------     --------------

Minority Interest in Partnerships                    43,065              75,975
                                              ---------------     --------------

   Series A Preferred stock; $0.01 par value;
   $4.00 liquidation preference; 2,000,000 shares
   authorized; 1,000 and 877,112 shares issued
   and outstanding                                    3,000           2,254,222

Commitments and Contingencies (Note 6)

SHAREHOLDERS' EQUITY
   Class A Common stock, $.01 par value;
   50,000,000 shares authorized; 2,443,762
   and 2,650,000 shares issued and outstanding       24,438              26,501

   Additional Paid-In Capital                    10,590,223          11,148,160

   Accumulated Deficit                          (11,981,123)         (7,248,211)

   Less:  Unearned directors' compensation
          net of accumulated amortization of
          $120,000 and $99,403                      (26,000)            (46,597)
                                              ---------------     --------------
                                                 (1,392,462)          3,879,853
   Less: Common stock in treasury, at cost,
    3,800 and 3,800 shares                           (8,555)             (8,555)
                                              ---------------     --------------
   Total shareholders' Equity                    (1,401,017)          3,871,298
                                              ---------------     --------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY      $20,398,414         $31,622,297
                                                ===========         ===========

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


                                       29
<PAGE>
                                    HOST FUNDING, INC. AND SUBSIDIARIES
                                   CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                                For The Year Ended
                                                                                    December 31,
                                                                   -----------------------------------------------
                                                                        2001             2000              1999
                                                                   -------------    -------------     ------------
     <S>                                                                <C>               <C>               <C>
INCOME FROM PROPERTY OPERATIONS
         Room revenue                                                $   949,661      $   858,571      $   424,637
         Operating expenses                                              715,111          520,192          243,628
                                                                   -------------    -------------     ------------
                  Total income from property operations                  234,550          338,379          181,009
                                                                   -------------    -------------     ------------
CORPORATE REVENUE
         Lease revenue - lessees                                       1,764,856        2,909,193        3,368,330
         Interest and other income                                        54,584          206,311           86,366
                                                                   -------------    -------------     ------------
                  Total corporate revenue                              1,819,440        3,115,504        3,454,696
                                                                   -------------    -------------     ------------
Total Revenue                                                          2,053,990        3,453,883        3,635,705
                                                                   -------------    -------------     ------------
EXPENSES
         Interest expense                                              1,508,534        2,415,957        2,660,667
         Depreciation and amortization                                   525,431          968,880          994,849
         Administrative expenses - other                                 414,852          768,221          862,407
         Director fees                                                     4,200            4,200           88,700
         Property taxes                                                  223,157          393,950          354,543
         Minority interest in partnerships                               (32,910)         (11,978)        (150,829)
         Other expenses                                                        -                -           56,456
         Amortization of unearned directors' compensation                 20,597           27,000          119,195
                                                                   -------------    -------------     ------------
         Total expenses                                                2,663,861        4,566,230        4,985,988
                                                                   -------------    -------------     ------------

Loss From Operations                                                    (609,871)      (1,112,347)      (1,350,283)
                                                                   -------------    -------------     ------------

OTHER INCOME (EXPENSE)
         Valuation Reserve                                            (1,581,146)               -                -
         Loss from Sale of Property                                     (997,331)               -         (607,299)
         Gain/(Loss) from Transfer of Lease                             (488,863)               -          278,862
         Franchise Termination Reserve                                  (153,602)               -                -
         Preferred Stock Premium                                        (902,099)               -                -
         Relinquished Project Costs                                            -         (226,734)        (294,005)
                                                                   -------------    -------------     ------------
         Total Other Income (Expense)                                 (4,123,041)        (226,734)        (622,442)
                                                                   -------------    -------------     ------------

Net Loss Before Extraordinary Item                                    (4,732,912)      (1,339,081)      (1,972,725)
                                                                   -------------    -------------     ------------

Extraordinary Gain on Restructure of Notes                                     -          101,916                -
                                                                   -------------    -------------     ------------

NET LOSS                                                             $(4,732,912)     $(1,237,165)    $ (1,972,725)
                                                                   =============    =============     ============

NET LOSS PER COMMON SHARE - Basic and Diluted

Net loss per share before extraordinary item                     $       (1.82)    $       (0.62)    $     (1.22)
   Extraordinary gain per share                                              -              0.05               -
                                                                   -------------    -------------     ------------
Net loss per share including extraordinary item                  $       (1.82)    $       (0.57)    $     (1.22)
                                                                   =============    =============     ============


               The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


                                       30
<PAGE>

<TABLE>
<CAPTION>

                                              HOST FUNDING, INC. AND SUBSIDIARIES
                                       CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                     FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 and 1999

                                         Class A Common Stock         Additional  Earnings      Unearned                    Total
                              ---------------------------------------  Paid-in    (Accumulated  Directors'   Treasury  Shareholders'
                                Shares      Par Value     Warrants     Capital    Deficit)     Compensation   Stock        Equity
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
     <S>                           <C>         <C>          <C>          <C>          <C>           <C>         <C>           <C>
Balance at December 31, 1998    1,546,300       15,463          -      7,753,150   (4,038,321)    (142,792)          -     3,587,500
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
Common stock issued as
  compensation to employee          1,000           10           -         2,240           -            -            -        2,250

Amortization of unearned
  directors compensation               -            -            -            -            -        24,000           -       24,000

Forgiveness of balance of
  unearned compensation to
  former directors                     -            -            -            -            -        95,195           -       95,195

Common stock sold to director      20,000          200           -        19,800           -            -            -       20,000

Retirement of common stock           (100)          (1)          -          (411)          -            -            -         (412)

Common stock issued to former
  directors and chairman           30,000          300           -        82,200           -            -            -       82,500

Common stock issued to new         20,000          200           -        49,800           -       (50,000)          -            -
  directors

Common stock issued in payment
  of debt                         102,800        1,028           -       200,244           -            -            -      201,272

Warrants issued to new investor        -            -       750,000           -            -            -            -      750,000

Net loss                               -            -            -            -    (1,972,725)          -            -    1,972,725)
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
Balance at December 31, 1999    1,720,000       17,200      750,000    8,107,023   (6,011,046)     (73,597)          -    2,789,580

Prior period adjustment                -            -      (750,000)          -            -            -            -     (750,000)

Balance at December 31, 1999
  as adjusted                 -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
                                1,720,000       17,200           -     8,107,023   (6,011,046)     (73,597)          -    2,039,580




The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
                                                                 31
<PAGE>

<TABLE>
<CAPTION>
                                           HOST FUNDING, INC. AND SUBSIDIARIES
                              CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Continued)
                                  FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 and 1999

                                         Class A Common Stock         Additional  Earnings      Unearned                    Total
                              ---------------------------------------  Paid-in    (Accumulated  Directors'   Treasury  Shareholders'
                                Shares      Par Value     Warrants     Capital    Deficit)     Compensation   Stock        Equity
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
     <S>                           <C>         <C>          <C>          <C>          <C>           <C>         <C>           <C>
Amortization of unearned
  directors compensation               -            -            -            -            -        27,000           -       27,000

Retirement of common stock        (69,900)       (699)           -      (138,863)          -            -            -     (139,562)

Purchase of treasury stock             -           -             -            -            -            -        (8,555)     (8,555)

Common stock issued for
  purchase of Mexican hotel
  properties                    1,000,000       10,000           -     3,180,000           -            -            -    3,190,000

Net loss                               -            -            -            -    (1,237,165)          -            -   (1,237,165)
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
Balance at December 31, 2000    2,650,100  $    26,501  $        -   $11,148,160  $(7,248,211) $   (46,597)  $   (8,555) $3,871,298
                              ===========  ===========  ===========  ===========  ===========  ===========  ===========  ===========
Amortization of unearned
  directors compensation               -            -            -            -            -        20,597           -       20,597

Conversion of common stock       (206,338)      (2,063)          -      (557,937)          -            -            -     (560,000)
  to class A preferred

Net loss                               -            -            -            -    (4,732,912)          -            -   (4,732,912)
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
Balance at December 31, 2001    2,443,762  $    24,438  $        -   $10,590,223 $(11,981,123) $   (26,000)  $   (8,555)$(1,401,017)
                              ===========  ===========  ===========  ===========  ===========  ===========  ===========  ===========








The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>

                                                            32
<PAGE>

<TABLE>
<CAPTION>
                                                  HOST FUNDING, INC. AND SUBSIDIARIES
                                                  CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                              For The Year Ended December 31,
                                                                   -----------------------------------------------
                                                                        2001             2000              1999
                                                                   -------------    -------------     ------------
     <S>                                                                <C>               <C>               <C>
CASH FLOW FROM OPERATING ACTIVITIES
     Net loss                                                       $ (4,732,912)     $(1,237,165)     $(1,972,725)
     Adjustments to reconcile net loss to net cash
      provided by (used in) operating activities:
     Depreciation and amortization                                       525,431          968,880          994,849
     Amortization of loan fees                                            35,956           53,931           55,207
     Amortization of unearned directors' compensation                     20,597           27,000          119,195
     Stock issued as compensation                                              -                -            2,250
     Gain from transfer of lease                                               -                -        ( 278,862)
     Minority interest in partnerships                                  ( 32,910)        ( 11,978)       ( 150,829)
     Loss from lease termination                                        ( 53,956)               -                -
     Loss from conversion of preferred stock                             902,099                -                -
     Loss on assets sold/held for sale                                 2,585,581                -                -
     Loss from sale of property                                                -           12,115          607,299
     Common stock issued to directors
      for director fees                                                        -                -           82,500
     Common stock issued in payment of interest                                -                -           19,335
Changes in certain operating assets and liabilities:
     Rent receivable                                                      79,744        ( 259,838)         186,931
     Due from related parties                                                            ( 16,388)          32,389
     Prepaid expenses and other current assets                           282,164           44,118        ( 230,573)
     Option deposits                                                    ( 20,000)               -                -
     Accounts payable and accrued expenses                              ( 18,179)       ( 955,417)         121,318
     Due to related parties                                              360,594          269,245                -
     Accrued interest                                                    242,687          113,621           80,394
     Accrued property taxes                                             ( 37,197)          71,661         ( 25,354)
                                                                   -------------    -------------     ------------
     Net cash provided by (used in) operating activities                 139,699        ( 920,215)       ( 356,676)
                                                                   -------------    -------------     ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase of land, property and equipment                          ( 143,839)       ( 156,184)       ( 211,675)
     Increase/(decrease) in restricted cash                              332,855        ( 351,252)         215,232
     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)
                                                                   -------------    -------------     ------------
         Net cash provided by (used in)
          investing activities                                           189,016        ( 507,436)       2,516,729
                                                                   -------------    -------------     ------------


               The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


                                                            33

<PAGE>

<TABLE>
<CAPTION>

                                                HOST FUNDING, INC. AND SUBSIDIARIES
                                         CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

                                                                              For The Year Ended December 31,
                                                                   -----------------------------------------------
                                                                        2001             2000              1999
                                                                   -------------    -------------     ------------
     <S>                                                                <C>               <C>               <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
     Sale of common stock                                                      -                -           20,000
     Sale of preferred stock                                             325,000          754,222        1,500,000
     Short -term advances                                               (150,000)               -                -
     Borrowings on short-term debt                                       193,000          214,126          207,000
     Payment of short-term debt                                         (505,395)        (121,882)       ( 664,314)
     Purchase of treasury stock                                                -          ( 8,555)          (  416)
     Payments on long-term debt                                         (218,608)        (574,202)      (2,179,536)
     Payment of long-term lease deposit                                        -         (120,000)               -
     Receipt of advances by lessee                                             -          191,571                -
     Receipt of option deposits                                                -                -           20,000
                                                                   -------------    -------------     ------------
         Net cash provided by (used in)
          financing activities                                          (356,003)         335,280       (1,097,266)
                                                                   -------------    -------------     ------------
Net Change in Cash and Cash Equivalents                                 ( 27,288)      (1,092,371)       1,062,787

Cash and Cash Equivalents - Beginning                                     36,744        1,129,115           66,328
                                                                   -------------    -------------     ------------
Cash and Cash Equivalents - Ending                                 $       9,456     $     36,744      $ 1,129,115
                                                                   =============    =============     ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION

Cash Paid During the Year for:
     Interest Expense                                                $ 1,030,463    $  2,2,48,405       $2,525,067
                                                                   =============    =============     ============
     Income Taxes                                                  $          -     $          -      $         -
                                                                   =============    =============     ============

Non-Cash Investing Activities:
-----------------------------
Common stock issued in exchange
      for investment property
         Class A common stock                                      $          -     $       9,301     $         -
         Additional paid in capital                                           -         3,180,699               -
         Land, property and equipment                                         -        (3,190,000)              -
                                                                   -------------    -------------     ------------
         Net non-cash investing activity                           $          -     $          -      $         -
                                                                   =============    =============     ============

Property & equipment additions; repairs
      made by Buckhead to certain properties
            Notes and other receivable                             $          -     $          -      $ ( 265,459)
         Other accrued expenses                                               -                -        ( 191,570)
         Land, property & equipment                                           -                -          457,029
                                                                   -------------    -------------     ------------
         Net non-cash investing activity                           $          -     $          -      $         -
                                                                   =============    =============     ============
</TABLE>



                                                            34
<PAGE>

<TABLE>
<CAPTION>

                                                HOST FUNDING, INC. AND SUBSIDIARIES
                                         CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

                                                                              For The Year Ended December 31,
                                                                   -----------------------------------------------
                                                                        2001             2000              1999
                                                                   -------------    -------------     ------------
     <S>                                                                <C>               <C>               <C>
     Non-Cash Financing Activities:
     ------------------------------
     Common stock converted to preferred
         Class A preferred stock                                   $    560,000     $          -      $         -
         Class A common stock                                           (  2,063)              -                -
         Additional paid in capital                                     (557,937)              -                -
                                                                   -------------    -------------     ------------
         Net non-cash financing activity                           $          -     $          -      $         -
                                                                   =============    =============     ============

Notes payable converted to preferred
         Class A preferred stock                                   $      81,729    $          -      $         -
         Due to related party                                          (  75,000)              -                -
         Accrued interest payable                                      (   6,729)              -                -
                                                                   -------------    -------------     ------------
         Net non-cash financing activity                           $          -     $          -      $         -
                                                                   =============    =============     ============

Class A preferred converted to note
         Class A preferred stock                                   $  (3,217,952)   $          -      $         -
         Preferred stock premium                                       ( 902,099)              -                -
         Gain on lease transfer                                            6,729               -                -
         Note payable-HFDI                                             4,113,322               -                -
                                                                   -------------    -------------     ------------
         Net non-cash financing activity                           $          -     $          -      $         -
                                                                   =============    =============     ============

Acquisition costs funded by note payable
         Other assets                                              $          -     $          -      $   190,000
         Short term debt                                                      -                -         (190,000)
                                                                   -------------    -------------     ------------
         Net non-cash financing activity                           $          -     $          -      $         -
                                                                   =============    =============     ============

     Retirement of stock previously issued in
      payment of interest and principal
      on short-term debt
         Common stock                                              $          -     $      (  699)    $         -
         Additional paid-in capital                                           -         ( 138,863)              -
         Short-term debt                                                      -           139,562               -
                                                                   -------------    -------------     ------------
         Net non-cash financing activity                           $          -     $          -      $         -
                                                                   =============    =============     ============

     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 activity                           $          -     $          -      $         -
                                                                   =============    =============     ============

Common stock issued to new directors
         Common stock                                              $          -     $          -      $        200
         Additional paid in capital                                           -                -            19,800
         Notes receivable, directors                                          -                -          ( 20,000)
                                                                   -------------    -------------     ------------
         Net non-cash financing activity                           $          -     $          -      $         -
                                                                   =============    =============     ============


          The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                       35
<PAGE>

                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000

NOTE 1 -          ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

                  Principles of Consolidation
                  The accompanying consolidated financial statements include the
                  accounts of Host Funding ("Host Funding" or the "Company"),
                  incorporated under the laws of the state of Maryland on
                  December 22, 1994, and structured to qualify as a Real Estate
                  Investment Trust ("REIT") and its subsidiaries:

                    a) CrossHost, Inc. ("CrossHost"), (owned 100% by the
                       Company);
                    b) Host Enterprises, Inc. ("Enterprise"), (owned 100% by the
                       Company);
                    c) Host Ventures, Inc., ("Ventures"), (owned 100% by
                       Enterprise);
                    d) BacHost, LLC ("BacHost"), (an 81% ownership interest by
                       the Company  through  December 18,  2001;  100% by the
                       Company thereafter);
                    e) BH Findlay LP ("BHF"), (owned 99% by BacHost) and;
                    f) BH Auburn LP ("BHA"), (owned 99% by BacHost).

                  Organization and Background

                  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. ("MPI"), a California real estate venture capitalist,
                  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. 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 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 (see Note 6).

                  During 2001, the Company issued additional Series "A"
                  Preferred stock to MPI, its affiliates, and Sutter Opportunity
                  Fund and Sutter Opportunity Fund 2 for amounts advanced to
                  meet working capital needs. As of October 5, 2001, the Company
                  had issued 1,233,740 shares of the Series "A" Preferred at an
                  average price of $2.60 per share. On October 5, 2001, the
                  Company exchanged 1,232,740 shares of the Series "A" Preferred
                  for a note payable to HFD Investors, LLC (representing the
                  Series "A" Preferred shareholders) in the amount of
                  $4,113,322. The Company recognized a Preferred Premium charge
                  in the amount of $902,099.


                                       36
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000

NOTE 1 -          ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
                  (Continued)

                  The HFD Investors note accrues interest at 5% and is due
                  October 5, 2003. The Company was notified by HFD Investors,
                  LLC that it sold the note to HALTA, LLC, an unaffiliated third
                  party.

                  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 Over the Counter Bulletin Board under
                  the symbol "HFDI."

                  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.

                  Revenue Recognition

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

                  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. Depreciation expense as of December 31,
                  2001 and 2000 is $521,431 and $959,780, respectively.

                  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.

                  The Host Ventures properties located in Flagstaff, Arizona and
                  Ocean Springs, Mississippi were sold in foreclosure sales
                  during 2001. The Host Ventures property located in Sarasota,
                  Florida is also subject to a foreclosure sale but, as of
                  December 31, 2001, was still owned by The Company and is
                  included under Land, Property and Equipment Held for Sale. The
                  property was foreclosed upon in 2002.


                                       37
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000

NOTE 1 -          ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
                  (Continued)

                  Land, Property, and Equipment Held for Investment/
                  Land, Property and Equipment Held for Sale (continued)

                  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.

                  In 2001, the Company recorded an impairment charge of
                  $1,581,146 related to the property located in Sarasota,
                  Florida reflecting the anticipated loss when the foreclosure
                  sale of the property is completed.

                  Investment in Hotel Properties

                  In connection with the Investment Letter Agreement between the
                  Company and Hotel International Advisers, LLC, effective June
                  2000, the Company exchanged 1,000,000 shares of its Class A
                  Common Stock for interests in four hotel properties owned by
                  Bufete Grupo Internacional, a subsidiary of Hotel
                  International Advisers, LLC. The Company received a 25% equity
                  interest in each of the properties and is recording the
                  investment using the equity method.

                  Cash and Cash Equivalents

                  The Company considers all highly liquid investments purchased
                  with original maturities of three months or less to be cash
                  equivalents.

                  Concentration of Credit Risk

                  The Company places its cash in what it believes to be
                  credit-worthy financial institutions. However, cash balances
                  may exceed FDIC insured levels at various times during the
                  year.

                  Restricted Cash

                  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.




                                       38
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000



NOTE 1 -          ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
                  (Continued)

                  Rent Receivable

                  Rent receivable represents rent outstanding and receivable
                  pursuant to the management agreements.

                  Long-term Advances to Lessees

                  Long-term advances represent amounts forwarded, per the lease
                  contracts, to lessees at the inception of the lease, which are
                  used by the lessees for operating expenses incurred upon lease
                  inception. These advances were waived by the Company in 2001
                  as part of a lease cancellation agreement.

                  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 7). The deposits
                  were released by the Company in 2001 as part of a lease
                  cancellation agreement.

                  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. Amortization expense is
                  included in interest expense in the statement of operations.
                  Accumulated amortization of loan fees totaled approximately
                  $504,000 and $809,000 as of December 31, 2001 and 2000,
                  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 $26,000 and $37,000 as of
                  December 31, 2001, and 2000, respectively.

                  Long-Lived Assets

                  Statement of Financial Accounting Standard ("SFAS") No. 121,
                  "Accounting for the Impairment of Long-Lived Assets and for
                  Long-Lived Assets to be Disposed of," requires that long-lived
                  assets be reviewed for impairment whenever events or changes
                  in circumstances indicate that the carrying amount of an asset
                  may not be recoverable. The Company has adopted this statement
                  and has recorded an impairment reserve for the property
                  located in Sarasota, Florida which is subject to foreclosure
                  proceedings and was transferred to the lender in 2002.


                                       39
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000

NOTE 1 -          ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
                  (Continued)

                  Stock-Based Compensation

                  SFAS No. 123, "Accounting for Stock-Based Compensation",
                  establishes financial accounting and reporting standards for
                  stock-based employee compensation plans. Transactions in which
                  goods or services are received for the issuance of equity
                  securities are accounted for based on the fair value of the
                  consideration received. Compensation to employees and
                  directors paid for by issuance of equity securities is
                  accounted for based on the fair value of the services
                  provided.

                  Loss Per Share

                  SFAS No. 128,  "Earnings Per Share"  requires  presentation
                  of basic loss per share ("Basic LPS") and diluted loss
                  per share ("Diluted LPS"). The computation of basic loss per
                  share is computed by dividing loss available to common
                  shareholders by the weighted average number of outstanding
                  common shares during the period. Diluted loss per share gives
                  effect to all dilutive potential common shares outstanding
                  during the period. The computation of diluted LPS does not
                  assume conversion, exercise or contingent exercise of
                  securities that would have an anti-dilutive effect on losses.

                  The shares used in the computation of loss per share, were as
follows:

                                           For The Year Ended
                                                 December 31,
                                 ---------------------------------------------
                                       2001          2000             1999
                                 -----------      -----------      -----------
                  Basic           2,600,918        2,163,753        1,615,894
                                 ===========      ===========      ===========
                  Diluted         2,600,918        2,163,753        1,615,894
                                 ===========      ===========      ===========


                  Comprehensive Income

                  SFAS No. 130, "Reporting Comprehensive Income," establishes
                  standards for the reporting and display of comprehensive
                  income and its components in the financial statements. As of
                  December 31, 2001, 2000, and 1999, the Company has no items
                  that represent comprehensive income and, therefore, has not
                  included a schedule of comprehensive income in the financial
                  statements.







                                       40
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000

NOTE 1 -          ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
                  (Continued)

                  Fair Value of Financial Instruments

                  SFAS 107 requires all entities to disclose the fair value of
                  certain financial instruments in their financial statements.
                  The fair value of financial instruments was estimated based on
                  the following methods and assumptions:

                              a.    Cash and cash equivalents, restricted cash,
                                    receivables, long-term advances to lessees,
                                    accounts payable and notes payable are
                                    recorded at carrying amounts which
                                    approximate fair value due to the short
                                    maturity of these instruments.

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

                  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 the Company's lease
                  revenue.

                  Reclassifications

                  Certain reclassifications have been made in the prior year
                  financial statements to conform to the current year
                  presentation.

                  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, 2001. 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.



                                       41
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000


NOTE 2 - REAL ESTATE INVESTMENTS

                  As of December 31, 2001, the Company owns 9 Company Hotels, 8
                  held for investment, 1 held for sale, located in seven states,
                  and comprised of 602 rooms.

                  The original purchase cost of the nine hotel properties
                  totaled approximately $16,400,000. The amount reflected in the
                  financial statements of $20,639,601 at December 31, 2001
                  includes the original purchase cost and capital expenditures
                  subsequent to acquisition (see financial statement schedule
                  III).

                  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 partnership. The acquisition price
                  of $2,529,000 was funded by the Crosshost, Inc. loan facility.

                  In September 1996, the Company formed CrossHost, Inc., a
                  Maryland corporation ("CrossHost"), as a wholly owned, REIT
                  qualified subsidiary. Upon formation, CrossHost acquired four
                  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"). The Company subsequently acquired
                  properties in Somerset, Kentucky; Miner, Missouri; Poplar
                  Bluff, Missouri; and Rock Falls, Illinois.

                  In March 1997, the Company formed Host Ventures, Inc. ("Host
                  Ventures"), a Maryland corporation, 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.


                                       42
<PAGE>

                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000


NOTE 2 -          REAL ESTATE INVESTMENTS (Continued)

                  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, LLC (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.

                  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 Company has been unable to
                  complete the sale of the property due to defeasance
                  requirements of the loan. The Company continues to pursue the
                  consummation of this transaction. The Company has recorded
                  this property as Land, Property, and Equipment - Held for Sale
                  at December 31, 2001.

                  Effective November 12, 1999, the Company sold the Findlay
                  Property for a cash purchase price of $2,400,000. 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.



                                       43
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000

NOTE 2 -          REAL ESTATE INVESTMENTS (Continued)

                  Effective October 5, 2001, the Flagstaff, Arizona property was
                  sold in a foreclosure auction. The Company was relieved of its
                  debt obligations in exchange for the property. The Company did
                  not receive any net proceeds from the sale of the Flagstaff
                  Property.

                  Effective October 10, 2001, the Ocean Springs, Mississippi
                  property was sold in a foreclosure auction. The Company was
                  relieved of its debt obligations in exchange for the property.
                  The Company did not receive any net proceeds from the sale of
                  the Ocean Springs Property.

                  As discussed in Note 1, in connection with the Investment
                  Letter Agreement between the Company and Hotel International
                  Advisers, LLC, effective June 2000, the Company exchanged
                  1,000,000 shares of its Class A Common Stock for a 25%
                  interest in each of four hotel properties owned by Bufete
                  Grupo Internacional, a subsidiary of Hotel International
                  Advisers, LLC. The Company has recorded the exchange at the
                  investments' fair market value of $3,000,000, plus capitalized
                  purchase costs of $266,146, at December 31, 2001.

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

                  Long-Term Debt

                  The following is a summary of the long-term debt of the
                  Company:

                                                         December 31,
                                                --------------------------------
                                                    2001               2000
                                                -------------     --------------
                  Host Ventures first mortgage
                  note payable, collateralized
                  by the Sarasota, FL property
                  in foreclosure proceedings    $  1,794,072       $  8,818,572

                  Mezzanine loan, collateralized
                  by the stock in Host Ventures,
                  interest at LIBOR plus 500 basis
                  points (LIBOR was 2.0225% at
                  12/31/01), payable in monthly
                  installments of $17,314, due in
                  June of 2003                       494,926            494,679



                                       44

<PAGE>



                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000


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

                  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                         11,895,552      12,117,744

                  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                         1,627,790       1,667,205

                  Note payable collateralized by all
                  outstanding shares of Crosshost, Inc.
                  and Host Funding Acquisition Corp,
                  interest at 5% per annum, principal
                  and interest due October 5, 2003    4,163,321               -
                                                   -------------  --------------

                                                   $ 19,975,661   $  23,098,200
                                                   =============  ==============

                  Less:  current maturities of
                         long-term debt              (2,329,618)       (637,202)
                                                   -------------  --------------

                  Total long-term debt             $ 17,646,043   $  22,460,998
                                                   =============  ==============





                                       45
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000


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

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

                  The following is a summary of the short-term debt of the
                  Company, including current maturities of long-term debt:

                                                         December 31,
                                                --------------------------------
                                                    2001               2000
                                                -------------     --------------

                  Auburn/Findlay Equity
                    Partners (a)                $         -       $     325,000
                  Crossroads/Keystone
                    Investments (b)                   95,000            190,000
                  Five Lions (c )                         -              42,395
                                                -------------     --------------
                  Total                         $     95,000      $     557,395

                  Current maturities of
                    long-term debt                 2,329,618            637,202
                                                -------------     --------------

                  Total short-term debt         $  2,424,618      $   1,194,597
                                                -------------     --------------

                  (a) 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").







                                       46
<PAGE>





                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000

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

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

                  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 had originally 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.

                  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.

                  In 2000, the Company settled with Auburn for the remainder of
                  the amounts due in the amount of $825,000, of which $500,000
                  was paid during 2000 and the balance paid during 2001.




                                       47
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000


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

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

                  (b) 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
                  (Crossroads/Keystone Investments) 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. In 2000,
                  the unaffiliated parties informed the Company that the issued
                  shares would not be accepted as payment, and sued the Company
                  for default on the notes. The parties reached a settlement
                  during 2001 calling for a reduction in the interest rate and
                  costs awarded. The Company made payments totaling $95,000
                  during 2001 but was unable to make any further payments. As of
                  December 31, 2001, the Company owes a total of $161,028 in
                  principal and accrued interest on the notes.

                  (c ) In March 2000, a judgment was entered against the Company
                  for payment of $150,000 to Five Lion, Inc. and Lion Investment
                  Limited Partnership for reimbursement of due diligence fees.
                  The balance of the settlement of$42,395 was paid during 2001.


                  Five Year Debt Maturity Schedule
                  Aggregate principal payments under long-term and short-term
                  debt for the next five calendar years ended December 31, 2006
                  and thereafter are as follows:

                           2002                    $  2,435,458
                           2003                       4,760,470
                           2004                         572,819
                           2005                         492,950
                           2006                         543,285
                           Thereafter                11,265,679
                                                   ------------
                                Total              $ 20,070,661
                                                   ============





                                       48
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000

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, 1999 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 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 of the five members
                  of the Board of Directors of the Company.

                  In July 2000, the Company received advances of $50,000 each
                  from Sutter Opportunity Fund, LLC and MPI for working capital
                  purposes, each of which were secured by 25,000 shares of
                  preferred stock of the Company. Such advances were not repaid
                  in accordance with their terms, and as of December 31, 2000,
                  the respective secured parties have elected to retain the
                  pledged shares with respect to such unpaid loans, plus
                  additional shares to represent accrued but unpaid interest. In
                  addition, Sutter Opportunity Fund 2, LLC advanced the Company
                  $125,000 in December 2000 for payment of a legal settlement.
                  Also due to default on the note by the Company, the Company
                  converted the note into 62,500 shares of Series A Preferred
                  Stock.

                                       49
<PAGE>

                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000

NOTE 4 - PREFERRED STOCK (Continued)

                  During 2000, MPI had advanced to the Company a total of
                  $505,000, with a commitment to advance an additional $20,000,
                  which was advanced in January 2001. The advances were used by
                  the Company for working capital purposes and for payment of a
                  legal settlement. As a result of default on the note, the
                  Company converted the note to 262,500 shares of Series A
                  Preferred Stock.

                  During 2001, MPI and Sutter purchased 162,500 shares of the
                  Series "A" Preferred for a purchase price of $325,000. The
                  proceeds were used to fund the balance of the Auburn/Findlay
                  settlement.

                  In order to facilitate the anticipated merger between the
                  Company and Leisure Living, Inc. the Board of Directors
                  authorized the conversion of 206,338 shares of the Company's
                  Class "A" Common stock held by affiliates of MPI and Sutter as
                  well as notes held by the same affiliates into 194,128 shares
                  of the Series"A" Preferred. All but 1,000 shares of the
                  outstanding Series "A" Preferred were then converted to a note
                  in the amount of $4,113,322 in favor of HFD Investors, LLC
                  (representing the owners of all the Series "A" Preferred). MPI
                  holds the remaining 1,000 shares of preferred stock.


NOTE 5 - SHAREHOLDERS' EQUITY

                  Common Stock

                  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 2,000,000
                  shares of Preferred Stock, $0.01 par value per share.

                  Warrants

                  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 expire on February 2, 2001.
                  There are additional provisions in the 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.


                                       50
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000

NOTE 5 -          SHAREHOLDERS' EQUITY (Continued)

                  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 has
                  determined that the warrants possess no value.

                  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 25% of the Series "A"
                  Preferred and the Warrants may make in the aggregate, up to
                  four 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.

                  Diluted earnings per share for the year ended December 31,
                  2001, has not included the effect of conversion of Series "A"
                  Preferred Shares nor the Warrants since conversion would be
                  antidilutive.

                  Other Equity Transactions

                  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 director's 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.

                                       51
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000

NOTE 5 -          SHAREHOLDERS' EQUITY (Continued)

                  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 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, 2001. 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 2002.

                  Leases

                  In General

                  At the beginning of 2001, all of the Company Hotels were
                  leased and operated pursuant to lease agreements (the
                  "Leases"), except for the Company Hotel located in
                  Tallahassee, Florida which was managed and operated by BAC
                  Hotel Management, Inc. pursuant to a management agreement. In
                  August, 2001, BAC Hotel asserted rights in the lease to reduce
                  monthly base rent on the Destin, Florida Hotel Property, as a
                  result of the presence of a competitive hotel in the Destin
                  area, exercised its right to terminate the Rock Falls,
                  Illinois lease, and defaulted on the Auburn, Indiana lease. As
                  a result, a negotiated settlement agreement was entered into
                  between the Company, its subsidiaries and BAC Hotel resulting
                  in the termination of all of the remaining leases between BAC
                  Hotel and Crosshost, Inc., and BUCK and BH Auburn, LP, and the
                  payment to Crosshost, Inc. of $75,000.00 in consideration for
                  the cancellation of lease termination fees, lease deposits and
                  reserves for capital expenditures.


                                       52
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000

NOTE 6 - COMMITMENTS AND CONTINGENCIES (Continued)

                  As a result of the settlement agreement, a management
                  agreement was entered into with Cornerstone Hospitality with
                  respect to all of the Company Hotels except the Mission Bay
                  Property. The Management Agreement provides for the net
                  operating revenue from each of the Company Hotels to be
                  forwarded to the Company on a monthly basis, less a management
                  fee of 4.5% of Gross Revenue, and the agreed upon reimbursable
                  costs of operating the facility. The Management Agreement is
                  terminable by either party with respect to all or one or more
                  properties on 30 days notice.

                  As of December 31, 2001, the Mission Bay Property is the only
                  property under lease. It has an initial term of twenty 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.

                  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 4% to 5% and 1.3% to 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 property managers pursuant to
                  the management agreements.

                  Auburn has been granted a Country Hearth franchise license
                  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.

                  Host Funding, Inc. 1997 Incentive Plan:

                  Under the Host Funding, Inc. 1997 Incentive Plan 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, 2001, 2000 and 1999.

                  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.


                                       53
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000

NOTE 6 - COMMITMENTS AND CONTINGENCIES (Continued)

                  Litigation (Continued)

                  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. On March 9, 2000, judgment was
                  rendered against the Company for $164,000 (includes legal
                  fees) plus interest. The Company paid $121,882 during 2000;
                  and the balance owing during 2001.

                  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, Inc., 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. 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 were
                  satisfied in full from the proceeds of the sale of the
                  property in 1999. In 2000, the Company settled with Auburn for
                  the remainder of the amounts due in the amount of $825,000. In
                  December 2000, the Company paid $500,000 against the
                  settlement. The balance of $325,000 was paid during 2001 per
                  the terms of the agreement.






                                       54
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000

NOTE 6 - COMMITMENTS AND CONTINGENCIES (Continued)

                  Litigation (continued)

                  Keystone Advisers, Inc. and Crossroads Investments,  LLC vs.
                  Host Funding, Inc., California Superior Court, Santa Barbara
                  County, Anacapa Division, Case No. 1035199.

                  In September 1999, the Company issued shares of the Company's
                  Class A Common Stock to Keystone Advisers and Crossroads
                  Investments ("Keystone/Crossroads") in repayment of
                  approximately $140,000 of advances made to the Company.
                  Keystone/Crossroads rejected the stock payment and was awarded
                  a judgment regarding these claims for approximately $282,000,
                  which includes interest and legal fees. A levy was granted on
                  certain Company bank accounts and approximately $51,000 was
                  awarded to Keystone/Crossroads to partially satisfy the
                  settlement. During 2001 a settlement was reached which called
                  for monthly payments of $15,000. The Company made payments
                  totaling $95,000 but was unable to make payments due October,
                  2001 and following. As of December 31, 2001, the Company has
                  accrued approximately $161,000 which includes interest and
                  legal fees.

                  Choice Hotels International v. Host Ventures, Inc.

                  The Company received a claim from Choice Hotels International,
                  the franchisor for the Ocean Springs hotel, as a result of a
                  default on the franchise agreement on the Ocean Springs Sleep
                  Inn. The Company settled the dispute by agreeing to 174
                  monthly payments of $1,494.25. The Company has recorded a
                  liability in the amount of approximately $153,000 representing
                  the present value of said payments.

                  Crosshost, Inc. vs. Carnegie International

                  The Company filed a claim against Carnegie International and
                  its owner David Gable for failure to repay a loan issued in
                  conjunction with a planned merger of Carnegie and Host as
                  previously discussed. The Company sought repayment of its note
                  totaling $175,000 as well as a break-up fee of $150,000. In
                  March, 2002, a settlement agreement was reached whereby
                  Carnegie agreed to future entry of judgement, if the amounts
                  agreed to be paid in the settlement have not been paid by
                  October 30, 2002. The Settlement Agreement calls for Gable and
                  Carnegie to pay the total amount of $240,000 to Crosshost,
                  plus interest on $200,000 at a rate of 9 percent beginning on
                  April 5, 2002. The Company has recorded only the note in the
                  amount of $175,000 as collection of additional amounts was
                  deemed questionable.





                                       55
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000


NOTE 6 - COMMITMENTS AND CONTINGENCIES (Continued)

                  Advisory Agreement

                  Effective January 1, 2000, the Company entered into an
                  Advisory Agreement with 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. The Company did not pay MPI the
                  advisory fee owed for 2001.

                  Note Payable-HALTA, LLC

                  The Company issued a note payable in the amount of $4,117,322
                  to HFD Investors, LLC in exchange for all but 1,000 shares of
                  the Series "A" Preferred stock. The note accrues interest at
                  5% per annum and is payable on October 5, 2003. HFD Investors
                  sold the note to HALTA, LLC who agreed to make additional
                  advances to the Company. Accordingly, HALTA advanced an
                  additional $50,000 to the Company during 2001. As of December
                  31, 2001, the total amount owed HALTA is $4,212,940.









                                       56
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000


NOTE 7 - INCOME TAXES

               The primary components of the Company's deferred income tax
               liabilities and assets are as follows:
<TABLE>
<CAPTION>
                                                           2001               2000                1999
                                                     ---------------     --------------      ------------
                         <S>                                <C>               <C>                  <C>

                    Deferred Tax Liabilities:
                      Depreciation                   $       150,000     $      140,000      $    250,000
                                                     ---------------     --------------      ------------
                    Total Deferred Tax Liabilities   $       150,000     $      140,000      $    250,000
                                                     ===============     ==============      ============

                    Deferred Tax Assets:
                      Accrued Expenses               $            -      $           -       $     67,000
                      Net Operating Loss                   3,338,000          2,184,000         1,677,000
                      Impairment Loss                        616,000                 -                 -
                                                     ---------------     --------------      ------------
                    Total Deferred Tax Assets        $     3,954,000     $    2,184,000      $ 1,1744,000
                                                     ===============     ==============      ============

                    Net Deferred Tax Assets          $     3,804,000     $    2,044,000      $  1,494,000
                    Valuation Allowance                   (3,804,000)        (2,044,000)       (1,494,000)
                                                     ---------------     --------------      ------------
                                                     $            -      $           -       $         -
                                                     ===============     ==============      ============
</TABLE>

                  At December 31, 2001, the Company had approximately $8,600,000
                  of net operating loss carry forwards, which will expire
                  between December 31, 2010 and 2020.

                  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.

                  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.

                                       57
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000


NOTE 7 - INCOME TAXES (Continued)


                  The Company, as a requirement under the Internal Revenue Code
                  (the "Code") to elect REIT status, must have no more than five
                  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 December 31, 2001, and
                  therefore, will not elect to qualify as a REIT for the 2000
                  tax year and is, thus, subject to the corporate tax
                  provisions. The Company's decision not to elect REIT
                  qualification will not adversely affect the shareholders of
                  the Company in that the Company will have no taxable income
                  for the 2001 tax year.

NOTE 8 -          RELATED PARTY TRANSACTIONS

                  The Company has recorded amounts due to related parties of
                  $684,753 at December 31, 2001. The amount primarily relates to
                  amounts owed to MPI for advisory services and a working
                  capital advance owed to an affiliate of MPI.


NOTE 9 -          PROPOSED MERGER

                  In December 2000, the Company entered into a letter of intent
                  with Carnegie International Corporation (Carnegie), whereas
                  the Company will issue shares in exchange for shares of
                  Carnegie. The merger, expected to occur in May, 2001, did not
                  materialize. The Company has terminated discussions with
                  Carnegie and is seeking repayment of amounts advanced during
                  the merger discussions.

NOTE 10 -         GOING CONCERN

                  As reflected in the accompanying financial statements, the
                  Company has suffered from recurring losses from operations as
                  well as negative cash flows from operations. These matters
                  raise substantial doubt about the Company's ability to
                  continue as a going concern. Furthermore, the loans securing
                  the Company Hotels are in default. The Company is attempting
                  to renegotiate the terms of the loans to enable it to continue
                  in an ownership position of one or more of the properties, but
                  there is no assurance that it will be successful in doing so.

                                       58
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000

NOTE 10 -         GOING CONCERN (Continued

                  In view of the matters described in the preceding paragraph,
                  recoverability of a major portion of the recorded asset
                  amounts shown in the accompanying balance sheet is dependent
                  upon continued operations of the Company which, in turn, is
                  dependent upon the Company's ability to continue to raise
                  capital and generate positive cash flows from operations. The
                  financial statements do not include any adjustments relating
                  to the recoverability and classification of recorded asset
                  amounts or amounts and classifications of liabilities that
                  might be necessary should the Company be unable to continue
                  its existence.

                  The ability of the Company to continue to operate its existing
                  properties depends primarily on management's ability to
                  restructure current debt service obligations.

NOTE 11 -         SUBSEQUENT EVENTS

                  The Company property located in Sarasota, Florida was sold in
                  a foreclosure sale in January, 2002. The Company recorded a
                  valuation reserve of $1,581,146 in 2001 to reflect the
                  anticipated transfer.



















                                       59

<PAGE>

<TABLE>
<CAPTION>

                                                    HOST FUNDING, INC. AND SUBSIDIARIES
                                                  REAL ESTATE AND ACCUMULATED DEPRECIATION
                                                               DECEMBER 31, 2001

SCHEDULE III
                                                                                                                  Gross Amount
                                             Initial Costs                      Costs Subsequent                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
Vagabond Inn, San Diego, CA               (A)     702,500     1,826,500          -         86,230          702,500         1,912,730
Sleep Inn, Destin, FL                     (A)     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                (A)     710,679     1,847,767          -        231,054          710,679         2,078,821
Country Hearth Inn, Auburn, IN      1,627,790     229,896     2,287,655      10,327       208,820          240,223         2,496,475
                                 ------------ -----------  ------------     -------   -----------      -----------       -----------
                                 $15,317,414  $ 4,113,781  $ 12,329,073     $10,327   $ 1,365,893      $ 4,1241090      $ 13,694,966
                                 ============ ===========  ============     =======   ===========      ===========       ===========

                                                                            Land                                        $  4,124,109
                                                                            Furniture & equipment                          2,820,527
                                                                                                                       -------------
                                                                                                                        $ 20,639,602
                                                                                                                       =============

</TABLE>

                                                            60

<PAGE>

<TABLE>
<CAPTION>

                                                  HOST FUNDING, INC. AND SUBSIDIARIES
                                               REAL ESTATE AND ACCUMULATED DEPRECIATION
                                                            DECEMBER 31, 2001

SCHEDULE III (Continued)
                                         Accumulated
                                        Depreciation &            Year of         Date
Description (cont.)                      Amortization           Construction     Acquired       Life
-------------------                      ------------          --------------   ----------      ----
     <S>                                       <C>                 <C>             <C>           <C>
Super 8, Rock Falls, IL                  $    120,224              1985         04/01/1995       35
Super 8, Somerset, KY                         116,834              1985         04/01/1995       35
Super 8, Miner, MO                            123,767              1985         04/01/1995       35
Super 8, Poplar Bluff, MO                     109,731              1985         04/01/1995       35
Vagabond Inn, San Diego, CA                   189,786              1987         04/22/1995       35
Sleep Inn, Destin, FL                         441,760              1992         09/13/1996       35
Sleep Inn, Sarasota, FL                       303,839              1993         09/13/1996       35
Sleep Inn, Tallahassee, FL                    322,414              1994         09/13/1996       35
Country Hearth Inn, Auburn, IN                282,470              1987         10/21/1997       35
                                        -------------
Buildings and Improvements                  2,010,825
Furniture and Equipment                     1,350,055
                                        -------------
                                          $ 3,360,880
                                        =============
<FN>

(A)      CrossHost hotel assets are cross collateralized and encumbered by the
         CrossHost Loan facility with an outstanding principal balance of
         $11,895,552 at December 31, 2001.

(B)      Host Ventures hotel assets are cross collateralized and encumbered by
         the Host Ventures Loan facility with an outstanding principal balance
         of $1,794,072 at December 31, 2001.
</FN>
</TABLE>










                                                   61