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, 2000
                         Commission file number 1-14280

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

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

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

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

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

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


      Indicate by check mark whether the Company (1) has filed all reports

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

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

         As of March 29, 2001, the Company had 2,650,100 shares of Class "A"
Common Stock and 877,112 shares of Series "A" Convertible Preferred Stock
outstanding. Of the total shares of Class "A" Common Stock outstanding, 932,158
shares were held by other than those who may be deemed affiliates, for an
aggregate market value held by non-affiliates of $848,092.44 based upon the
closing bid of the Company's Class "A" Common Stock on the American Stock
Exchange on March 29, 2001 of $0.32 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                                              14

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                      19

11.      Executive Compensation                                               21

12.      Security Ownership of Certain Beneficial Owners and Management       21

13.      Certain Relationships and Related Transactions                       24

                                     PART IV

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

15.      Schedule III: Real Estate and Accumulated Depreciation               70

                                       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, 2000, the hotel property portfolio of the Company consisted of 11
hotels located in 8 states consisting of approximately 850 rooms.

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

Business Development

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

         Effective November 12, 1999, the Company sold the Country Hearth Inn
located in Findlay, Ohio (the "Findlay Property") for a cash purchase price of
$2,400,000.00. The cash proceeds were used to pay the first lien indebtedness on

                                       3
<PAGE>

the Findlay Property and to satisfy the seller finance note held by the prior
owner of the Findlay Property, including the judgment lien held by the prior
owner. The Company did not receive any cash proceeds from the sale of the
Findlay Property. See Item 2. "Properties - Changes in Properties" and Item 3.
"Legal Proceedings."

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

         On June 30, 2000, the Company acquired 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. Bufete 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 March 30, 2001, no payments have been
received. The Company is currently in negotiations with Bufete and is
considering its legal remedies.

         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), whereas the Company will issue
shares in exchange for shares of Carnegie. The merger is pending 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
as may be 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. A Guarantee Agreement and a Stock Pledge agreement secure the
promissory note from Carnegie.

The Company contemplates that the proposed merger will close during the second
quarter of 2001. In the event that the closing does not occur prior to May 31,
2001, either party shall have the election to terminate the merger by providing
written notice of such termination to the other party.

Leases
          In General

         All of the Company Hotels are leased and operated pursuant to lease
agreements (the "Leases"), excluding the Company Hotel located in Tallahassee,
Florida (the "Tallahassee Property") which is managed and operated by BAC Hotel
Management, Inc. ("BAC Hotel"), a wholly owned subsidiary of Buckhead America

                                       4
<PAGE>

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

         Lease Terms

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

          Amounts Payable Under the Leases

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

         Prohibition on Ownership and Operation of Additional Hotels

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

         Maintenance, Modifications and Capital Expenditures

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

                                       5
<PAGE>

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

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

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

         Insurance on Company Hotels

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

         Indemnification

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

         First Right of Refusal

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

         Security Deposits

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

         Certain Termination Rights

         Except for the Lease relating to the Company Hotel located in Miner,
Missouri, the Leases with BAC Hotel, a wholly owned subsidiary of Buckhead
America Corporation, provide the lessee the right to without cause terminate

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<PAGE>

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

         Lease Cancellation Fees

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

Franchise Agreements

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

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

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

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

Business Plan

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

         The Company intends to consider investments in hotel properties that
meet one or more of the following criteria: (i) properties in markets with

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projected growth potential; (ii) properties which may be under-performing due to
poor management or weak franchise affiliation; (iii) properties with relatively
stable operating histories; and (iv) properties with attractive purchase prices.
The Company believes that the engagement of MPI in December 1999 as the external
advisor of the Company will increase the management expertise of the Company and
enable the Company to benefit from MPI's hotel, real estate and finance industry
contacts. The Company also believes that MPI will further facilitate the
Company's ability to identify, evaluate, negotiate and finance potential hotel
investment opportunities.

Environmental Matters

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

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

Employees

         As of December 31, 2000, 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.

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

Seasonality of the Hotel Business

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

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<PAGE>

Regulatory Matters

         General

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

         Americans with Disabilities Act

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

ITEM 2.  PROPERTIES

         During the fiscal year ended December 31, 2000, 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, 2000, the Company owned eleven
hotel properties located in eight states consisting of approximately 850 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)      12-31-00        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%           $686,000      $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%           $574,000      $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%           $620,000      $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%          $422,000      $ 90,000    1995/85
                        thereafter, less Percentage Rent
                        previously paid YTD. (2)

Mission Bay,
California
(Vagabond Inn) 117      N/A                                        $1,352,000      $280,200    1995/87


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Flagstaff,
Arizona         90      32% YTD over $925,000 less Percentage
(Super 8)               Rent previously paid.                      $1,193,000      $505,000    1997/85

Tallahassee,    78      N/A (3)
Florida
(Sleep Inn)                                                          $859,000           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%           $961,000      $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%           $541,000      $179,000    1996/95
                        thereafter, less Percentage Rent
                        previously  paid YTD. (2)

Sarasota,      80       30% YTD Revenues over initial Break-Even
Florida                 Threshold of $802,800 on first $300,000
(Sleep Inn)             over Break-Even Threshold, and 35%           $957,000      $217,500    1996/93
                        thereafter, less Percentage Rent
                        previously  paid YTD. (2)

Auburn,       78       30% YTD Revenues over initial Break-Even
Indiana                Threshold of $760,000 on first $260,000
(Country Hearth Inn)   over Break-Even  Threshold, and 40%           $545,000      $303,000    1997/87
                       thereafter, less Percentage Rent
                       previously paid YTD (subject to CPI
                       adjustment).

Consolidated Total for Hotels                                      $8,710,000    $2,673,700
                                                                   ==========    ==========
<FN>
(1)      Unless  otherwise  set  forth  above,  Base  Rent and  Percentage  Rent
         effective December 31, 2000

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

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


                                       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.  The  settlement  agreement
provides for a one time cash payment of $64,276.00 to the plaintiffs accompanied
by the  execution and delivery of a promissory  note in the principal  amount of
$100,000.  The  promissory  note is payable in 12 equal annual  installments  of
$8,606.64  and is  secured  by  50,000  shares  of the  Series  "A"  Convertible
Preferred  Stock of the Company.  As of December  31, 2000 there was  $42,395.19
still due under the  payment  plan.  The  Company  anticipates  that all amounts
should be paid 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.

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

         CrossHost, Inc., a wholly owned subsidiary of the Company, and RPD
Mission Bay, LLC, and RPD Hotels 18, LLC ("RPD"), the Company's operators of the
Company Hotel located in Mission Bay, California, were named as defendants in
the above complaint filed August 4, 1999. The complaint alleges, among other
things, that inadequate safety precautions led in part to the occurrence of a
traffic accident and related personal injuries on the public thoroughfare
adjacent to the Company Hotel. The lawsuit was being defended on behalf of
CrossHost, Inc. by the insurance carrier of RPD. In December 2000, the company
was dismissed from the lawsuit.

         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.

                                       11
<PAGE>

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. The Company is continuing to negotiate a settlement of the claim
and has accrued approximately $237,000, which includes the remaining settlement
and additional legal fees.

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

         We are in receipt of a demand for arbitration from Choice Hotels,
International, arising out of an alleged breach of a franchise agreement on the
Ocean Springs, MS hotel. We have not yet analyzed the claim, or the
documentation related thereto, and, accordingly do not have an opinion on the
merits of the claim or how we will proceed.

         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 2000.

                                     PART II

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

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

         On January 4, 2001, the Company received notice from the American Stock
Exchange ("Exchange") Staff indicating that the Company no longer complies with
the Exchange's continued listing guidelines and that, as a result, the Exchange
intends 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 are in response to the following
circumstances.

The Company has 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 does 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.

The Exchange also has 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 has fallen below the continued listing
guidelines. The Company appealed this determination and requested a hearing
before a committee of the Exchange which was held. The company is awaiting final
notice from the SEC on the delisting.

                                       12
<PAGE>

         The following table shows the range of high and low bid prices of the
Company's Class "A" Common Stock for the years 1998, 1999 and 2000 as reported
on the AMEX.

                                                     1998
                                 High                                  Low

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

                                                     1999
                                 High                                  Low

      First Quarter              3                                     2 1/4
      Second Quarter             2 7/8                                 2 1/4
      Third Quarter              2 7/8                                 2
      Fourth Quarter             2 7/8                                 1 7/8
                                                     2000
                                 High                                  Low

      First Quarter              2 7/16                                1 13/16
      Second Quarter             1 7/8                                 1 1/16
      Third Quarter              1 1/2                                 1 1/16
      Fourth Quarter             1 1/8                                 3/16

         As of March 29, 2001, there were approximately 904 shareholders of
record of the Company's Class "A" Common Stock and the closing bid price was
$0.32.

          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 or 2000. 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"

                                       13
<PAGE>

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
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

         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.

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, 2000   December 31, 1999    December 31, 1998   December 31, 1997   December 31, 1996
<S>                             <C>               <C>                 <C>                 <C>                 <C>
OPERATING RESULTS:

GROSS REVENUES                  $ 3,974,075          $  3,879,333        $ 3,926,042        $  3,837,350        $  1,768,783
LOSS BEFORE INCOME TAXES        $(1,237,165)         $ (1,972,725)       $  (904,316)       $ (1,025,514)       $   (149,276)
NET LOSS                        $(1,237,165)         $ (1,972,725)       $  (904,316)       $ (1,025,514)       $   (149,276)

BASIC AND DILUTED NET LOSS PER
COMMON SHARE                         $ (.57)         $      (1.22)       $     (0.58)       $       (0.68)      $      (0.21)


                                                       14
<PAGE>

WEIGHTED AVERAGE NUMBER OF BASIC
AND DILUTED COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING      2,163,753            1,615,894            1,559,916          1,516,652            690,000

DISTRIBUTIONS PER COMMON SHARE:
CLASS A                               -0-                     -0-                 -0-       $       0.96        $      0.465
CLASS B                               -0-                     -0-                 -0-                -0-                 -0-
CLASS C                               -0-                     -0-                 -0-                -0-                 -0-
TOTAL ASSETS                     $31,622,297         $ 29,820,050        $ 32,449,658       $ 31,996,180        $ 20,435,575
LONG TERM DEBT
 (Including current portion)     $23,098,200         $ 23,611,298        $ 25,790,837       $ 25,036,346        $ 15,500,000

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

SHAREHOLDERS' EQUITY             $ 3,871,298         $  2,039,580        $  3,587,500       $  4,279,337        $  4,703,395
</TABLE>

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

Recent Developments

On June 30, 2000, the Company acquired 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. Bufete 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.

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 expects to close the sale of Mission in the second quarter of 2001.

In December 2000, the Company settled all outstanding litigation regarding the
Auburn and Findlay notes and judgements 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
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 restructure the loans. The Company
does not expect to incur any material liabilities as a result of the lease
transfers, however there may be a significant charge as a result of the
tranfer of the properties.

Results of Operations

Years Ended December 31, 2000, 1999, and 1998:

          Occupancy, average room rates, and revenue per available room of 55%,
$49.36, and $27.34 for the Company Hotels for the year ended December 31, 2000
resulted in total sales, including room sales, of approximately $8,490,000.

         Property Operation: Effective July 1, 1999 the Company and BAC Hotel
Management, Inc. entered into a management agreement relating to the Tallahassee

                                       15
<PAGE>

property. Room revenue, operating expenses, and income from property operations
were approximately $858,000, $520,000 and $338,000 for 2000 while 1999 results
were approximately $425,000, $244,000, and $181,000.

         Lease Revenue: Lease Revenue of approximately $2,909,000 includes a
negative competitive adjustment of approximately $342,000 compared to 1999 and
is further reduced by reflecting room revenue and operating expenses separately
for the Company Hotel located in Tallahassee, Florida. 1999 and 1998 revenues
included $309,000 and $370,000, respectively, from the Company Hotel located in
Findlay, Ohio that was sold November, 1999.

          Interest Expense: Interest expense of approximately $2,416,000 has
decreased from the prior years levels due primarily to 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's hotel properties located in Mission Bay,
California and Findlay, Ohio were classified under "Land, Property, and
Equipment - Held for Sale" in the fourth quarter, 1998. Amortization and
Depreciation expense is not recognized for properties classified as "Land,
Property, and Equipment - Held for Sale", so the 2000 and 1999 amounts are less
than the 1998 amounts. The 2000 amount is further reduced as a result of the
sale of the Findlay property in November , 1999.

          Administrative Expenses, Other: The 2000 amount of approximately
$768,000 is $94,000 less than 1999 due to cost savings of approximately $272,000
realized under the MPI Advisory Agreement offset partially by settlement claims
and other costs.

          Administrative Expenses, Other were approximately $768,000, $862,000
and $704,000 for the years ended 2000, 1999 and 1998, respectively, and
consisted primarily of the following approximate amounts: advisory fees of
$350,000, $0 and $0; insurance of $61,000, $0 and $0; legal fees of $211,000,
$154,000 and $82,000; settlement claims of $40,000, $0 and $0; and other costs
of $106,000, $86,000 and $58,000. Costs incurred in 1999 and 1998 but included
in advisory fee to MPI in 2000 were $0, $622,000 and $564,000. 1999 and 1998
expenses covered by the MPI advisory fee included the following approximate
amounts: salaries & benefits of $325,000 and $285,000; audit and accounting fees
of $69,000 and $83,000; contract labor of $69,000 and $52,000; corporate office
rent of $12,000 and $16,000; office supplies of $3,000 and $5,000; telephone of
$17,000 and $17,000; travel of $30,000 and $32,000; marketing & advertising of
$18,000 and $2,000; stock transfer costs of $30,000 and $36,000; statutory
filing and printing costs of $28,000 and $30,000; and other administrative costs
of $21,000 and $6,000.

         Directors Fees for 2000 totaled approximately $4,000 which is less than
the 1999 and 1998 amounts of $89,000 and $20,000. The amount in 1999 was due
primarily to shares of common stock issued to former directors.

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

         Relinquished project costs of $227,000 for the year ended 2000 include
costs incurred related to potential hotel acquisitions in the Northeastern
United States.

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

         The Net Loss from Sale of Property recognized in 1999 was $607,000.
This is greater than the amount recognized as Valuation Reserve in 1998 because

                                       16
<PAGE>

the contract for sale of the Country Hearth Inn was not finalized until 1999. No
valuation adjustments were made for 2000.

         The Net Gain from Transfer of Lease 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. The Net Gain from Transfer of Lease of approximately $573,000 in 1998
resulted from the change in lessees on seven of the Company properties in 1998.

Liquidity and Capital Resources

         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.

         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.

                                       17
<PAGE>

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

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

          The Company's principal source of cash to meet its cash requirements,
including distributions to shareholders and repayments of indebtedness, is the
cash flow from the Leases. For the year ended December 31, 2000, cash flow used
in operating activities was approximately $920,000.

         The Company has addressed the "Year 2000 Problem" and determined that
the Company's automated systems are "Y2K Compliant." The lessees and operators
of the Company Hotels have also advised the Company that the systems relating to
the Company Hotels are "Y2K Compliant." Such compliance includes all front
office systems, electronic locks, telephone systems, credit card processing,
communications software with primary bankers, motel VCRs, FAX machines, copiers,
cash registers, television systems, and elevators, among other systems. If the
Company suffers material loss or significant adverse effects to operations
resulting from non-compliance, the Company may terminate the related lease due
to default by the lessee and execute leases with a new lessee who is "Y2K
Compliant." Any cost incurred by the Company to maintain compliance is expected
to be immaterial.

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

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

                                       18
<PAGE>

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

Inflation

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

Seasonality

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         See Item 14(a).

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

         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, 2000
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

         The Company's Board of Directors consists of five (5) members. The
directors are elected at the annual meeting of 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 2000.

                                       19
<PAGE>

William M. Birdsall, Director

         Mr. Birdsall was Chairman of the Board and Chief Executive Officer of
the Company until December 18, 1997, effective as of that date. Mr. Birdsall
resigned his position as Chairman of the Board and Chief Executive Officer, but
continues to serve as an independent Director of the Company. He also serves as
President of Birdsall & Corporation, a real estate investment and finance firm
located in Durango, Colorado. Before starting Birdsall & Corporation in 1993,
Mr. Birdsall was Chairman and CEO of Price REIT, a public corporation that he
co-founded and took public in 1991. Mr. Birdsall has been involved with real
estate development since 1978. He was Chief Operating Officer of Estes
Properties, Inc., where he was responsible for operations of the Lowes Ventana
Canyon Resort and Golf Club in Tucson, Arizona, a 2,000-acre planned community
and resort hotel. From 1982 through 1987 he was Senior Vice-President of Real
Estate for Ramada, Inc., an international hotel chain. He now serves on the
Scripps Memorial Hospitals Foundation Board and is a member of the Young
Presidents Organization, Arizona Bar Association, Urban Land Institute, and
International Council of Shopping Centers.

Guy E. Hatfield, Director

         Mr. Hatfield has served as a Director of the Company since 1996. Mr.
Hatfield,  66, 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,  29, 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, Chairman

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

Glen Fuller, Director

         Glen W. Fuller, 27, 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.

                                       20
<PAGE>

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
close of business on March 29, 2000. The number of shares and percentage
ownership of Common Stock for each person or entity assumes that shares of
Common Stock issuable upon exercise of stock warrants to such person or entity
(exclusive of others) exercisable within sixty (60) days from March 27, 2001 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.

                                       21
<PAGE>

Five Percent Shareholders,                                          Approximate
Directors, Director, Nominees                   Shares             Percentage of
and Named Executive Officers                Beneficially Owned        Class
-----------------------------------         ------------------     -------------
MacKenzie Patterson, Inc.(1)
    Class A Common                               606,838(2)             22.9%
    Series A Convertible Preferred               788,556(3)             90.0%

C.E. Patterson(1)
    Class A Common                               621,838(4)             23.5%
    Series A Convertible Preferred              788,556(30)             90.0%

Guy E. Hatfield(5)
    Class A Common                               378,716(6)             14.3%

Sutter Opportunity Fund, LLC(7)
    Class A Common                             255,488(8,9)              9.6%
    Series A Convertible Preferred                88,556                10.0%

Robert Dixon(7)
    Class A Common                             255,488(8,9)              9.6%
    Series A Convertible Preferred                  88,556              10.0%

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

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

Hotel Internacional
Advisors, LLC ("HIA") (10)
    Class A Common                               1,000,000              37.7%

Michael S. McNulty(11)
    Class A Common                            1,000,000(12)             37.7%

All Directors  and  Executive
Officers as a Group
(6 persons)(15)
    Class A Common                               1,286,042              48.5%
    Series A Convertible Preferred                 877,112             100.0%

* Represents holdings of less than one percent.

(1)      1640 School Street, Moraga, CA  94556.

(2)      Includes  warrants to purchase up to 500,000 shares of Class A Common
     Stock.  Also includes 106,838 shares owned  collectively by MP Value Fund,
     LLC, Accelerated High Yield Pension Investors,  Ltd.,  Accelerated High
     Yield Income Fund II, Ltd., and Accelerated  High Yield Income Fund, Ltd.,
     of which MacKenzie  Patterson,  Inc. is either the general partner or
     manager. 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)      Includes  warrants to purchase 500,000 shares of Class A Common Stock
     of the Company owned by MacKenzie  Patterson,  Inc. Also includes  106,838
     shares owned  collectively  by MP Value Fund,  LLC,  Accelerated High Yield
     Pension  Investors,  Ltd., Accelerated High Yield Income Fund II, Ltd., and
     Accelerated High Yield Income Fund, Ltd., of which MacKenzie  Patterson,
     Inc. is either the general partner or manager.  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)      Includes 500,000 shares owned by MacKenzie  Patterson,  Inc. of which
     Mr.  Patterson serves as President and a Director.  C.E. Patterson,  the
     Company's  Chief  Executive  Officer,  may be deemed to be a  beneficial
     owner of the  shares  owned by MacKenzie  Patterson  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. Glen W. Fuller may be deemed to be
     a beneficial  owner of the shares owned by MacKenzie  Patterson by virtue
     of his position as a Director and an Executive Officer of MacKenzie
     Patterson.  Mr. Fuller disclaims beneficial ownership of such shares.

(5)      230 West Laurel Street, #1003, San Diego, CA  92101.

(6)  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.

(7)      595 Market Street, Suite 2100, San Francisco, CA  94105.

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

(9)  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.

(10)     6116 N. Central Expressway, Suite 1313, Dallas, TX 75206.

(11)     McNulty is the managing member of HIA.

(12)     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.

                                       23
<PAGE>

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 788,556 shares of the Series "A" Convertible
Preferred Stock of the Company. See Item 12. "Security Ownership of Certain
Beneficial Owners and Management."

                                     PART IV

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

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

         (1)    Financial Statements:

                Independent Auditors' Report

                Consolidated Balance Sheets at December 31, 2000 and 1999

                Consolidated Statements of Operations for the years ended
                December 31, 2000, 1999 and 1998

                Consolidated  Statements of Shareholders'  Equity for the years
                ended December 31, 2000, 1999, and 1998

                Consolidated Statements of Cash Flows for the years ended
                December 31, 2000, 1999, and 1998

                Notes to Consolidated Financial Statements

         (2)    Financial Statement Schedule:

                Independent Auditors' Report on Supplemental Information

                Schedule III - Real Estate and Accumulated Depreciation

(b)      The  Company  did not file any  reports  on Form 8-K  during the fourth
         quarter of 2000.

                                       24
<PAGE>

(c)      Exhibits.

Exhibit Number                             Description

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

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

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

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

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

         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.

                                       25
<PAGE>

         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 12, 2001

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

   Signature                       Title                      Date

/s/ William M. Birdsall            Director                   April 12, 2001
-----------------------

William M. Birdsall

/s/ Robert E. Dixon                Director                   April 12, 2001
-------------------

Robert E. Dixon

/s/ Guy E. Hatfield                Director                   April 12, 2001
-------------------

Guy E. Hatfield

/s/ Glen Fuller                    Director                   April 12, 2001
---------------

Glen Fuller

/s/ Brian K. Rodgers               Director                   April 12, 2001
--------------------

Brian K. Rodgers

/s/ C. E. Patterson                President and Chief        April 12, 2001
-------------------                Executive Officer

C. E. Patterson

/s/ Paul Koslosky                  Chief Financial and        April 12, 2001
-----------------                  Accounting Officer
Paul Koslosky


                                       26
<PAGE>

                                  Exhibit 21.1

                           Subsidiaries of Registrant


Name or Organization                                  State of Incorporation

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


























                                       27
<PAGE>



                               HOST FUNDING, INC.
                                AND SUBSIDIARIES
                        CONSOLIDATED FINANCIAL STATEMENTS

                                      INDEX


                                                                            Page
                                                                          Number


Independent Auditors' Report                                                  29

Consolidated Balance Sheets                                                   30

Consolidated Statements of Operations                                         32

Consolidated Statement of Shareholders' Equity                                33

Consolidated Statements of Cash Flows                                         36

Notes to Consolidated Financial Statements                                    40

Independent Auditors' Report on Supplementary Information                     69

Schedule III Real Estate and Accumulated Depreciation                         70



















                                       28
<PAGE>





                          INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying consolidated balance sheet of Host Funding,
Inc. and Subsidiaries as of December 31, 2000, and the related consolidated
statements of operations, shareholders' equity and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. The accompanying
consolidated financial statements of Host Funding, Inc. and Subsidiaries as of
December 31, 1999 and 1998, were audited by other auditors whose report dated
March 24, 2000, expressed an unqualified opinion on those statements.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the financial position of Host Funding, Inc.
and Subsidiaries as of December 31, 2000, and the results of their operations
and their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 12 to
the consolidated financial statements, the Company has suffered recurring losses
from operations and its limited capital resources raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 12. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.


                                MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
                                Certified Public Accountants

Los Angeles, California
April 9, 2001



                                       29
<PAGE>

                       HOST FUNDING, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                                                             December 31,
                                                  ------------------------------
ASSETS                                                2000              1999
                                                  -----------        -----------
Land, Property and Equipment -
   Held for Investment:
         Buildings and improvements                 $17,664,925     $17,664,925
         Furnishings and equipment                    3,319,371       3,200,271
         Less accumulated depreciation               (3,767,068)     (2,832,258)
                                                  -------------    -------------
                                                     17,217,228      18,032,938
         Land                                         5,667,570       5,667,570
                                                  -------------    -------------
         Total land, property and equipment
         - held for investment                       22,884,798      23,700,508
                                                  -------------    -------------

Land, Property and Equipment - Held for Sale:
         Building and improvements                    1,912,730       1,912,730
         Furnishings and equipment                      379,698         379,698
         Less accumulated depreciation                 (275,774)       (275,774)
         Land                                           702,500         702,500
                                                  -------------    -------------
         Land, property and equipment
         - held for sale                              2,719,154       2,719,154
                                                  -------------    -------------

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

         Total land, property and equipment          28,870,098      26,419,662

Cash and Cash Equivalents                                36,744       1,129,115

Restricted Cash                                         622,593         271,341

Rent Receivable                                         309,661          49,823

Due from Related Parties                                 20,611           4,223

Long-Term Advances to Lessees                           110,090         110,090

Restricted Investments                                  288,000         288,000

Loan Commitment Fees, net of accumulated
 amortization of $809,269 and $755,338                  967,547       1,023,212

Franchise Fees - net of accumulated
 amortization of $37,088 and $27,989                     63,912          73,011

Prepaid Expenses and Other Current Assets               333,041         451,573
                                                  -------------    -------------

TOTAL ASSETS                                        $31,622,297     $29,820,050
                                                  =============    =============

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

                                       30
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS (Continued)
<TABLE>
<CAPTION>

                                                                       December 31,
                                                           -----------------------------------
                                                                2000                  1999
<S>                                                             <C>                   <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Long-term Debt                                               $22,460,998          $23,035,200

Short-term Debt                                                1,194,597              962,791

Long-term Lease Deposit                                          468,000              588,000

Advances by Lessee                                               191,571                    -

Option Deposits                                                   20,000               20,000

Accounts Payable and Other Accrued Expenses                      212,027            1,167,444

Due to Related Parties                                           269,245                    -

Accrued Interest                                                 425,592              311,971

Accrued Property Taxes                                           178,772              107,111
                                                           -------------        -------------
         Total liabilities                                    25,420,802           26,192,517
                                                            ------------        -------------

Minority Interest in Partnerships                                 75,975               87,953
                                                           -------------        -------------

         Series A Preferred stock; $0.01 par value;
          $4.00 liquidation preference;  2,000,000 shares
         authorized; 877,112 and 500,000 shares issued
         and outstanding                                       2,254,222            1,500,000

Commitments and Contingencies (Note 7)

SHAREHOLDERS' EQUITY
         Class A Common stock, $.01 par value;
         50,000,000 shares authorized; 2,650,100
         and 1,720,000 shares issued and outstanding              26,501               17,200

         Additional Paid-In Capital                           11,148,160            8,107,023

         Accumulated Deficit                                  (7,248,211)          (6,011,046)

         Less:  Unearned directors' compensation net of
          accumulated amortization of $99,403 and $72,403        (46,597)        (     73,597)
                                                           -------------        --------------
                                                               3,879,853            2,039,580
         Less: Common stock in treasury, at cost,
          3,800 and -0- shares                                   ( 8,555)                   -
                                                           -------------        -------------
         Total shareholders' Equity                            3,871,298            2,039,580
                                                           -------------        -------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                   $31,622,297          $29,820,050
                                                             ===========        =============
</TABLE>

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

                                       31
<PAGE>
                       HOST FUNDING, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                                                                   For The Year Ended
                                                                                       December 31,
                                                                    ----------------------------------------------
                                                                            2000          1999             1998
                                                                    ------------     ------------     ------------
<S>                                                                         <C>           <C>               <C>
INCOME FROM PROPERTY OPERATIONS
         Room revenue                                                $   858,571      $   424,637  $             -
         Operating expenses                                              520,192          243,628                -
                                                                    ------------     ------------     ------------
                  Total income from property operations                  338,379          181,009                -
                                                                    ------------     ------------     ------------

CORPORATE REVENUE
         Lease revenue - lessees                                       2,909,193        3,368,330        3,891,259
         Interest and other income                                       206,311           86,366           34,783
                                                                    ------------    -------------     ------------
                  Total corporate revenue                              3,115,504        3,454,696        3,926,042
                                                                     -----------      -----------       ----------
Total Revenue                                                          3,453,883        3,635,705        3,926,042
                                                                     -----------      -----------       ----------

EXPENSES
         Interest expense                                              2,415,957        2,660,667        2,693,219
         Depreciation and amortization                                   968,880          994,849        1,068,308
         Administrative expenses - other                                 768,221          862,407          704,272
         Director fees                                                     4,200           88,700           20,000
         Property taxes                                                  393,950          354,543          329,115
         Minority interest in partnerships                               (11,978)     (   150,829)       (  16,710)
         Other expenses                                                        -           56,456                -
         Amortization of unearned directors' compensation                 27,000          119,195           54,000
                                                                   -------------     ------------     ------------
         Total expenses                                                4,566,230        4,985,988        4,852,204
                                                                     -----------      -----------       ----------

Loss From Operations                                                  (1,112,347)      (1,350,283)        (926,162)
                                                                     -----------      -----------       ----------

OTHER INCOME (EXPENSE)
         Valuation Reserve                                                     -                -         (444,000)
         Loss from Sale of Property                                            -      (   607,299)               -
         Gain from Transfer of Lease                                           -          278,862          572,846
         Relinquished Project Costs                                  (   226,734)     (   294,005)        (107,000)
                                                                     -----------    -------------       ----------
         Total Other Income (Expense)                                (   226,734)     (   622,442)          21,846
                                                                     ------------   --------------     -----------

Net Loss Before Extraordinary Item                                    (1,339,081)      (1,972,725)        (904,316)
                                                                     -----------     ------------       -----------

Extraordinary Gain on Restructure of Notes (Note 9)                      101,916                 -               -
                                                                     -----------     -------------      -----------

NET LOSS                                                             $(1,237,165)     $(1,972,725)      $ (904,316)
                                                                     ============     ============     ============

NET LOSS PER COMMON SHARE - Basic and Diluted

Net loss per share before extraordinary item                      $       (0.62)    $       (1.22)    $     (0.58)
   Extraordinary gain per share                                            0.05                 -               -
                                                                  --------------    --------------    ------------
Net loss per share including extraordinary item                   $       (0.57)    $       (1.22)    $     (0.58)
                                                                  ==============    ==============    ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.

                                       32
<PAGE>

<TABLE>

                                                HOST FUNDING, INC. AND SUBSIDIARIES
                                          CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                       FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 and 1998
<CAPTION>
                                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, 1997       1,535,800   $ 15,358     $     -    $ 7,600,776   $ (3,134,005)   $  (202,792)     $    -      $ 4,279,337

Amortization of
 unearned directors
 compensation                    -          -           -              -              -         54,000           -           54,000

Common stock issued
 for acquired
  properties
  acquisition fee           17,500        175           -        114,925              -              -           -          115,100

Common stock issued
 as compensation to
 employee                      200          2           -          1,124              -              -           -            1,126

Common stock issued
 pursuant to sale
 of lease rights            62,200        622           -        287,378              -              -           -          288,000

Principal reduction:
 notes receivable
 directors                       -          -           -              -              -          6,000           -            6,000

Retirement of common
 stock                     (54,400)      (544)          -       (153,703)             -              -           -         (154,247)

Common stock issued
 as deposit for legal
 fees returned             (15,000)      (150)          -        (97,350)             -              -           -          (97,500)

Net loss                         -          -           -              -       (904,316)             -           -         (904,316)
                        ----------- ----------   ---------   ------------    -----------   ------------   ---------   --------------
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


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

                                                                 33

<PAGE>

<TABLE>

                                                HOST FUNDING, INC. AND SUBSIDIARIES
                                    CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Continued)
                                       FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 and 1998
<CAPTION>
                                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                -              -           -           -             -             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 directors       20,000            200           -      49,800             -            (50,000)         -                 -

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>

                                                                 34
<PAGE>

<TABLE>

                                                HOST FUNDING, INC. AND SUBSIDIARIES
                                    CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Continued)
                                       FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 and 1998
<CAPTION>
                                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
                    ===========    ===========   ========= ============= ============      ============  ==========   ==============







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




                                                                35

<PAGE>


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

<TABLE>
<CAPTION>
                                                                           For The Year Ended December 31,
                                                                 -----------------------------------------------------
                                                                       2000                1999              1998
                                                                -----------------   ----------------    ---------------
   <S>                                                               <C>              <C>                <C>
CASH FLOW FROM OPERATING ACTIVITIES
     Net loss                                                        $(1,237,165)     $(1,972,725)       $(904,316)
     Adjustments to reconcile net loss to net cash
      provided by (used in) operating activities:
     Depreciation and amortization                                       968,880          994,849        1,068,308
     Amortization of loan fees                                            53,931           55,207          135,086
     Amortization of unearned directors' compensation                     27,000          119,195           54,000
     Stock issued as compensation                                              -            2,250            1,126
     Gain from transfer of lease                                               -         (278,862)        (572,846)
     Minority interest in partnerships                                   (11,978)        (150,829)         (16,040)
     Impairment loss on assets held for sale                                   -                -          444,000
     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                                                    (259,838)         186,931         (121,426)
     Due from related parties                                            (16,388)          32,389          (16,670)
     Prepaid expenses and other current assets                            44,118         (230,573)        (135,967)
     Notes receivable - directors                                              -                -            6,000
     Accounts payable and accrued expenses                              (955,417)         121,318          518,911
     Due to related parties                                              269,245                -                -
     Accrued interest                                                    113,621           80,394           35,524
     Accrued property taxes                                               71,661          (25,354)        (116,358)
                                                                   --------------    -------------    -------------
     Net cash provided by (used in) operating activities                (920,215)        (356,676)         379,332
                                                                   --------------    -------------    -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase of land, property and equipment                           (156,184)        (211,675)      (1,044,746)
     Increase/(decrease) in restricted cash                             (351,252)         215,232           71,185
     Long-term advances to lessee                                              -                -         (110,090)
     Proceeds from sale of property                                            -        2,400,000                -
     Costs of property sale                                                    -         (165,690)               -
     Proceeds related to transfer of lease                                     -          500,000                -
     Payments related to transfer of lease                                     -         (221,138)               -
     Reimbursement of advances to lessee                                       -                -          255,841
     Proceeds related to sale of leasing rights                                -                -          807,200
     Payments related to sale of leasing rights                                -                -         (346,355)
                                                                   --------------    -------------    -------------
         Net cash provided by (used in)
          investing activities                                          (507,436)       2,516,729         (366,965)
                                                                   --------------    -------------    -------------

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


                                                                  36
<PAGE>

<TABLE>

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

<CAPTION>
                                                                           For The Year Ended December 31,
                                                                 -----------------------------------------------------
                                                                       2000                1999              1998
                                                                -----------------   ----------------    ---------------
   <S>                                                               <C>              <C>                <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
     Sale of common stock                                                      -           20,000                -
     Sale of preferred stock                                             754,222        1,500,000                -
     Payment of loan commitment fees                                           -                -         (275,937)
     Borrowings on short-term debt                                       214,126          207,000                -
     Payment of short-term debt                                         (121,882)        (664,314)        (319,213)
     Borrowings on long-term debt                                              -                -        1,175,000
     Purchase of treasury stock                                           (8,555)            (416)        (154,247)
     Payments on long-term debt                                         (574,202)      (2,179,536)        (420,509)
     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                                           335,280       (1,097,266)           5,094
                                                                   --------------    -------------    -------------

Net Change in Cash and Cash Equivalents                               (1,092,371)       1,062,787           17,461

Cash and Cash Equivalents - Beginning                                  1,129,115           66,328           48,867
                                                                   --------------    -------------    -------------

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

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION

Cash Paid During the Year for:
     Interest Expense                                                 $2,248,405       $2,525,067       $2,522,609
                                                                   ==============    =============    =============
     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                            $          -      $         -      $         -
                                                                   ==============    =============    =============

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

                                                                  37

<PAGE>

<TABLE>

                                                HOST FUNDING, INC. AND SUBSIDIARIES
                                         CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<CAPTION>
                                                                           For The Year Ended December 31,
                                                                 -----------------------------------------------------
                                                                       2000                1999              1998
                                                                -----------------   ----------------    ---------------
   <S>                                                               <C>              <C>                <C>
Non-Cash Investing Activities (continued):

     Property & equipment additions; repairs
      made by Buckhead to certain properties
            Notes and other receivable                             $           -     $   (265,459)    $   (134,541)
         Other accrued expenses                                                -         (191,570)               -
         Land, property & equipment                                            -          457,029          134,541
                                                                   --------------    -------------    -------------
         Net non-cash investing activity                           $           -     $          -     $          -
                                                                   ==============    =============    =============

     Common stock issued for acquired properties
      acquisition fee
         Additional paid in capital                                $           -     $          -     $    114,925
         Common stock                                                          -                -              175
         Land, property and equipment                                          -                -         (115,100)
                                                                   --------------    -------------    -------------
         Net non-cash investing activity                           $           -     $          -     $          -
                                                                   ==============    =============    =============

     Sale of leasing rights
         Buckhead stock receivable                                 $           -     $          -     $   (400,000)
         Acquisition finance note receivable                                   -                -         (212,000)
         Sale of lease rights                                                  -                -          612,000
                                                                   --------------    -------------    -------------
         Net non-cash investing activity                           $           -     $              - $          -
                                                                   ==============    =============    =============

     Receipt of Buckhead stock
         Buckhead stock receivable                                 $           -     $          -     $    400,000
         Investment in Buckhead                                                -                -         (400,000)
                                                                   --------------    -------------    -------------
         Net non-cash investing activity                           $           -     $          -     $          -
                                                                   ==============    =============    =============

     Reimbursement of capital expenditures
      relating to property leased to Buckhead
         Capital expenditure reserve                               $           -     $          -     $    100,000
         Note receivable, Buckhead                                             -                -         (100,000)
                                                                   --------------    -------------    -------------
         Net non-cash investing activity                           $           -     $          -     $          -
                                                                   ==============    =============    =============


     Receipt of stock for Buckhead lease deposit
         Restricted investments                                    $           -     $          -     $    288,000
         Security deposits                                                     -                -         (288,000)
                                                                   --------------    -------------    -------------
         Net non-cash investing activity                           $           -     $          -     $          -
                                                                   ==============    =============    =============

     Common stock issued pursuant to the
      sale of lease rights
         Common stock                                              $           -     $          -      $       622
         Additional paid in capital                                            -                -          287,378
         Note receivable - Buckhead                                            -                -         (288,000)
                                                                   --------------    -------------    -------------
         Net non-cash investing activity                           $           -     $          -      $         -
                                                                   ==============    =============    =============

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

                                                                  38
<PAGE>

<TABLE>
                                                HOST FUNDING, INC. AND SUBSIDIARIES
                                         CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<CAPTION>
                                                                           For The Year Ended December 31,
                                                                 -----------------------------------------------------
                                                                       2000                1999              1998
                                                                -----------------   ----------------    ---------------
   <S>                                                               <C>              <C>                <C>
     Non-Cash Financing Activities:

     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                           $           -     $          -     $          -
                                                                   ==============    =============    =============

     Common stock returned as deposit for legal fee
         Deposits                                                  $           -     $          -     $     97,500
         Additional paid in capital                                            -                -          (97,350)
         Common stock                                                          -                -             (150)
                                                                   --------------    -------------    -------------
         Net non-cash financing activity                           $           -     $          -     $          -
                                                                   ==============    =============    =============





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


                                                                  39

<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999



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);
                  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 7).

                  Unless stated otherwise, the hotel properties owned by the
                  subsidiaries of the Company are herein referred to as the
                  "Company Hotels" or "Company Properties". Host Funding is
                  listed and traded on the American Stock Exchange under the
                  symbol "HFD."

                                       40
<PAGE>




                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999



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

                  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,
                  2000 and 1999 is $959,780 and $984,016, 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 (see Note
                  3 for a further description of the pending Mission Bay
                  Property sale).

                  The Country Hearth Inn located in Findlay, Ohio (the "Findlay
                  Property") was sold in the fourth quarter of 1999 (see Note 3
                  for a further description of the sale of the Findlay
                  Property). Prior to the sale, the Findlay property was
                  included under Land, Property, and Equipment Held for Sale.




                                       41
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999



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.

                  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.

                                       42
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999



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

                  Rent Receivable

                  Rent receivable represents rent outstanding and receivable
                  pursuant to the lease 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.

                  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). As the Company
                  is holding the Buckhead Security Deposit, it is reflected as a
                  restricted investment and a security deposit obligation on the
                  balance sheet of the Company. Since the stock is held as a
                  security deposit, the Company did not recognize a reduction of
                  the asset and correlating liability to reflect the value of
                  the stock at December 31, 2000 in accordance with SFAS No.
                  115.

                  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
                  $809,000 and $755,000 as of December 31, 2000 and 1999,
                  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 $37,000 and $28,000 as of
                  December 31, 2000, and 1999, respectively.





                                       43
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999



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

                  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 determined that recognition of an impairment loss for
                  applicable assets of continuing operations is not necessary.

                  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,
                               ---------------------------------------------
                                  2000             1999              1998
                               ----------     ------------      -----------
                  Basic         2,163,753        1,615,894        1,559,916
                               ==========     ============      ===========
                  Diluted       2,163,753        1,615,894        1,559,916
                               ==========     ============      ===========


                                       44
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999



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

                  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, 2000, 1999, and 1998, the Company has no items
                  that represent comprehensive income and, therefore, has not
                  included a schedule of comprehensive income in the financial
                  statements.

                  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, 2000. 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.

                                       45
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999



NOTE 2 -          PRIOR PERIOD ADJUSTMENT

                  The Company recorded a prior period adjustment in the amount
                  of $750,000. This adjustment was made to correct the
                  recognition of a deferred advisory fee recognized in the
                  previous year, which was the result of the issuance of certain
                  warrants in connection with the sale of certain preferred
                  stock (see Note 7). The effect on the current year financial
                  statements of the prior period adjustment is a reduction to
                  shareholders' equity of $750,000.

NOTE 3 -          REAL ESTATE INVESTMENTS

                  As of December 31, 2000, the Company owns 11 Company Hotels,
                  10 held for investment, 1 held for sale, located in eight
                  states, and comprised of 850 rooms. The Company Hotels are
                  subject to leases as described in Note 7.

                  The original purchase cost of the eleven hotel properties
                  totaled approximately $24,500,000. The amount reflected in the
                  financial statements of $29,646,794 at December 31, 2000
                  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.


                                       46
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999


NOTE 3 -          REAL ESTATE INVESTMENTS (Continued)

                  Upon formation, Host Ventures entered into a loan (the "Host
                  Ventures Loan Facility") totaling $8,725,000 and CrossHost
                  entered into a loan facility (the "CrossHost Loan Facility")
                  totaling $13,000,000. Host Ventures used a portion of the Host
                  Ventures Loan Facility to acquire a Super 8 motel located in
                  Flagstaff, Arizona. Additionally, CrossHost assigned,
                  transferred, and conveyed the Sleep Inn properties located in
                  Sarasota, Florida and Ocean Springs, Mississippi to Host
                  Ventures, and satisfied the Initial CrossHost Facility.

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

                  The Company completed the purchase of the Country Hearth Inns
                  by forming two separate, special purpose limited partnerships
                  with Buckhead America Corporation, a publicly-traded hotel
                  company, or its affiliates ("Buckhead"). Wholly owned
                  subsidiaries of Host Funding (Host Findlay GP, Inc. and Host
                  Auburn GP, Inc.) own 1% of the respective limited partnerships
                  and BacHost, 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.

                                       47
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999

NOTE 3 -          REAL ESTATE INVESTMENTS (Continued)

                  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 expects the sale of
                  the property to occur in the second quarter of 2001. The
                  Company has recorded this property as Land, Property, and
                  Equipment - Held for Sale at December 31, 2000.

                  The Company has recorded an option deposit of $20,000 at
                  December 31, 2000 and 1999, for capital expenditures to be
                  made as a result of the lease transfer on the Flagstaff, AZ
                  property from RPD to Crossroads.

                  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.

                  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, 2000.

NOTE 4 -          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,
                                                     ---------------------------
                                                         2000           1999
                                                     ------------   ------------
                  Host Ventures first mortgage
                  note payable, collateralized by
                  the properties owned by Host
                  Ventures, interest of 8.12% per
                  annum, interest and principal
                  payable in monthly installments
                  of $70,765, due June 2023          $  8,818,572   $  8,905,472


                                       48
<PAGE>
                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999

NOTE 4 -          LONG TERM DEBT AND NOTES PAYABLE (INCLUDING DEFAULT ON CERTAIN
                  NOTES PAYABLE) (Continued)

                  Long-Term Debt (continued)
                                                              December 31,
                                                   -----------------------------
                                                       2000            1999
                                                   -------------    ------------
                  Mezzanine loan, collateralized
                  by the stock in Host Ventures,
                  interest at LIBOR plus 500
                  basis points (LIBOR was 11.75%
                  at 12/31/00), payable in
                  monthly installments of
                  $17,184, due in June of 2003        494,679           608,718

                  First mortgage note payable,
                  collateralized by the
                  properties owned by
                  CrossHost, interest at 9.46%
                  per annum, interest and
                  principal payable in monthly
                  installments of $120,838, due
                  in March 2017                    12,117,744        12,388,055

                  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       1,667,205         1,709,053
                                                  ------------       -----------

                                                 $ 23,098,200      $ 23,611,298
                                                 =============     =============

                  Less:  current maturities
                    of long-term debt                (637,202)         (576,098)
                                                 -------------     -------------

                  Total long-term debt           $ 22,460,998      $ 23,035,200
                                                 =============     =============

                                       49
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999



NOTE 4 -          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,
                                             -----------------------------------
                                                   2000                 1999
                                             --------------        -------------

                  Auburn/Findlay Equity
                    Partners (a)              $   325,000           $   225,697
                  Crossroads/Keystone
                    Investments (b)               190,000                56,744
                  Five Lions (c )                  42,395                     -
                  Buckhead America
                    Corporation                         -                18,863
                  Beta Construction                     -                85,387
                                             --------------        -------------
                  Total                       $   557,395           $   386,691

                  Current maturities of
                    long-term debt                637,202               576,100
                                             ---------------       -------------

                  Total short-term debt       $ 1,194,597           $   962,791
                                              -------------        -------------

                  (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").


                                       50
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999


NOTE 4 -          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
                  has been paid prior to December 31, 2000. The consolidated
                  balance sheet at December 31, 2000 includes the remaining
                  liability of $325,000.

                                       51
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999


NOTE 4 -          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. As of December 31, 2000, the Company
                  has accrued $234,000 ($190,000 plus $44,000 accrued interest),
                  which represents the judgments of approximately $281,000, net
                  of amounts garnished from the Company's bank account.

                  (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 remaining balance of the settlement which the Company has
                  accrued at December 31, 2000, is $42,395, including interest.

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

                  In November 2000, five individual MPI funds, affiliates of
                  MPI, granted a loan to the Company in the amount of $75,000,
                  which accrues interest at 10% and is due in May 2001. This
                  amount is included in Due to Related Parties in the December
                  31, 2000, consolidated balance sheet.


                                       52
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999



NOTE 4 -          LONG TERM DEBT AND NOTES PAYABLE (INCLUDING DEFAULT ON CERTAIN
                  NOTES PAYABLE) (Continued)

                  Five Year Debt Maturity Schedule
                  Aggregate principal payments under long-term and short-term
                  debt for the next five calendar years ended December 31, 2005
                  and thereafter are as follows:

                           2001                 $   1,269,597
                           2002                       703,857
                           2003                       703,751
                           2004                       620,683
                           2005                       681,318
                           Thereafter              19,751,389
                                                -------------
                                Total            $ 23,730,595
                                                 ============

NOTE 5 - 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


                                       53
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999



NOTE 5 - PREFERRED STOCK (Continued)

                  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.

                  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.

NOTE 6 - 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.


                                       54
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999

NOTE 6 -          SHAREHOLDERS' EQUITY (Continued)

                  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.

                  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,
                  2000, has not included the effect of conversion of Series "A"
                  Preferred Shares nor the Warrants since conversion would be
                  antidilutive.

                                       55
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999


NOTE 6 -          SHAREHOLDERS' EQUITY (Continued)

                  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.

                  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 7 - 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, 2000. 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 2001.

                                       56
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999


NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)

                  Leases

                  In General

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

                  Lease Terms

                  Each Lease has a term of fifteen years (other than the Lease
                  relating to the Mission Bay Property), which 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. Other than the Leases with respect to the Mission Bay
                  Property and the Lease in effect with regard to the Company
                  Hotel located in Auburn, Indiana (the "Auburn Property"), the
                  term of each Lease may, at the option of the lessee, be
                  extended for two or more five or ten year periods, as more
                  particularly described in such Leases.

                  Amounts Payable Under the Leases

                  During the term of each Lease, the lessee is obligated to pay
                  (i) base rent, (ii) percentage rent, (iii) all personal
                  property taxes relating to lessee's personal property, ground
                  rents, water, sewer or other rents and charges, excises, tax
                  inspection, authorization or similar fees or other
                  governmental charges (the "Impositions"), except the Company
                  is  obligated  to  pay  real  property  taxes  on  all


                                       57
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999


NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)

                  Company Hotels (except for the Mission Bay Property), and
                  except that the lessee of the Mission Bay Property is not
                  required to pay percentage rent, (iv) every fine, penalty,
                  interest and cost for non-payment or late payment of base
                  rent, percentage rent, or the Impositions and (v) franchise
                  fees as described below:

                           Base rent accrues and is required to be paid monthly,
                           and, except for the Leases in effect with respect to
                           the Auburn Property and the Mission Bay Property,
                           base rent is subject to potential reduction if a
                           hotel or hotels similar in nature to the Company
                           Hotel in question are or will be constructed in an
                           area in the general vicinity of such Company Hotel
                           (the "Competitive Set"). Percentage rent is based on
                           percentages of gross revenues for each of the Company
                           Hotels, is due and payable quarterly, and (a) except
                           for the Leases in effect with respect to the Auburn
                           Property and the Mission Bay Property, percentage
                           rent is subject to potential reduction pursuant to
                           the Competitive Set, (b) except for the Leases in
                           effect with respect to the Auburn Property and the
                           Mission Bay Property, percentage rent is subject to
                           potential reduction to the extent, at any time during
                           the first four years of the Lease term, the Company
                           Hotel cash flow is less than the base rent, and (c)
                           percentage rent payable with regard to the Lease in
                           effect with respect to the Auburn Property is subject
                           to a "CPI" adjustment factor.

                  Approximately $145,000 in percentage rentals were paid to the
                  Company in 2000 and are included in the statement of
                  operations. Approximate minimum future base rents (excluding
                  contingent rents) due under the operating leases are as
                  follows:

                           2001                   $ 2,705,157
                           2002                     2,717,157
                           2003                     2,735,157
                           2004                     2,735,157
                           2005                     2,735,157
                           Thereafter              20,664,267
                                                 ------------
                                Total             $34,292,052
                                                  ===========

                  Prohibition on Ownership and Operation of Additional Hotels
                  Generally, all of the Leases contain provisions prohibiting
                  the Company from owning, or having any interest in, any hotel
                  or motel properties within a five mile radius of the Company
                  Hotel in question, and prohibiting the lessee from owning,
                  operating or managing any hotel or motel properties within a
                  five mile radius of such Company Hotel.

                                       58
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999


NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)

                  Maintenance, Modifications and Capital Expenditures

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

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

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

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

                  Insurance on Company Hotels

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


                                       59
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999


NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)

                  Indemnification

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

                  First Right of Refusal

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

                  Security Deposits

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

                  Certain Termination Rights

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


                                       60
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999


NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)

                  Lease Cancellation Fees

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

                  Franchise Agreements

                  The Company has been granted franchise license agreements from
                  Super 8 and Sleep Inns for terms expiring in 2005 and 2011,
                  respectively. Pursuant to the terms of the franchise
                  agreements, the Company is required to pay royalty fees and
                  advertising fees of 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 lessees pursuant to the leases.

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

                  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, 2000, 1999 and 1998.

                  Litigation

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

                  The Company was named as a defendant in the preceding
                  complaint filed on September 24, 1998. The complaint alleges,
                  among other things, that the Company is obligated to reimburse
                  $150,000, which the plaintiffs paid to the Company for certain
                  due diligence items pursuant to a letter agreement dated
                  February 13, 1998. On January 20, 2000, the plaintiffs
                  obtained a summary

                                       61
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999



NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)

                  Litigation (continued)

                  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; thus, the remaining
                  accrual at December 31, 2000 is $42,395.

                  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, and, thus has accrued the remaining balance of
                  $325,000 in the accompanying consolidated financial
                  statements.

                  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

                                       62
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999


NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)

                  Litigation (continued)

                  certain Company bank accounts and approximately $51,000 was
                  awarded to Keystone/Crossroads to partially satisfy the
                  settlement. As of December 31, 2000, the Company has accrued
                  approximately $237,000, which includes the remaining
                  settlement and additional legal fees.

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

                  CrossHost, Inc., a wholly owned subsidiary of the Company, and
                  RPD Mission Bay, LLC, and RPD Hotels 18, LLC ("RPD"), the
                  Company's operators of the Company Hotel located in Mission
                  Bay, California, were named as defendants in the preceding
                  complaint filed August 4, 1999. The complaint alleges, among
                  other things, that inadequate safety precautions led in part
                  to the occurrence of a traffic accident and related personal
                  injuries on the public thoroughfare adjacent to the Company
                  Hotel. The lawsuit is being defended on behalf of CrossHost,
                  Inc. by the insurance carrier of RPD. The Company was
                  dismissed from the litigation in December 2000.

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

                  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


                                       63
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999


NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)

                  Advisory Agreement (continued)

                  Company were relocated to Moraga,  California in January 2000.
                  Mr. C. E.  Patterson, Chief  Executive Officer of the Company,
                  and Mr. Glen  Fuller,  Chief Operating Officer of the Company,
                  are also  executive officers and directors of MPI. MPI is also
                  the direct or indirect  beneficial  owner of 621,838  shares
                  of the Class "A" Common Stock and 788,556 shares of the Series
                  "A" Convertible Preferred Stock of the Company.

NOTE 8 - INCOME TAXES

                  The primary components of the Company's deferred income tax
                  liabilities and assets are as follows:
<TABLE>
<CAPTION>

                                                              2000             1999              1998
                                                         -------------     -------------     ------------
                    <S>                                   <C>                <C>              <C>
                    Deferred Tax Liabilities:
                      Depreciation                        $   140,000        $  250,000       $  360,000
                                                          ------------       -----------      -----------
                    Total Deferred Tax Liabilities        $   140,000        $  250,000       $  360,000
                                                          ============       ===========      ===========

                    Deferred Tax Assets:
                      Accrued Expenses                    $         -        $   67,000       $   67,000
                      Net Operating Loss                    2,184,000         1,677,000          825,000
                      Impairment Loss                               -                 -          173,000
                                                          ------------       -----------     ------------
                    Total Deferred Tax Assets             $ 2,184,000        $1,744,000       $1,065,000
                                                          ============       ===========      ===========

                    Net Deferred Tax Assets               $ 2,044,000        $1,494,000      $   705,000
                    Valuation Allowance                    (2,044,000)       (1,494,000)        (705,000)
                                                          ------------       -----------     ------------
                                                          $         -        $        -      $         -
                                                          ============       ===========     ============
</TABLE>
                  At December 31, 2000, the Company had approximately $5,600,000
                  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.

                                            64
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999


NOTE 8 - INCOME TAXES (Continued)

                  The Company and its subsidiaries file a consolidated federal
                  income tax return. Due to the Company's net operating loss
                  position and the valuation allowance on the net deferred tax
                  assets, the Company will not recognize a current or deferred
                  tax expense/benefit.

                  The Company, as a requirement under the Internal Revenue Code
                  (the "Code") to elect REIT status, must have no more than five
                  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, 2000, 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 2000 tax year.

NOTE 9 -          DEBT RESTRUCTURING

                  The Company recorded an extraordinary gain of $101,916 as a
                  result of settlement of a previous judgment against them with
                  respect to the Auburn litigation (see Note 4). The amount
                  ultimately negotiated with Auburn was $825,000, whereas the
                  Company had originally recorded a liability of $929,000 based
                  on the original judgment. If the Company does not make payment
                  of the negotiated amount in accordance with the payment
                  schedule per the settlement contract, the Company will be
                  liable for the full amount of the original settlement. In
                  December 2000, the Company made two scheduled payments
                  totaling $500,000 and the Company believes that it will remain
                  in compliance with the remainder of the payment schedule.

NOTE 10 -         RELATED PARTY TRANSACTIONS

                  The Company has recorded amounts due to related parties of
                  $269,245 at December 31, 2000. The amount primarily relates to
                  amounts owed to MPI for advisory services and a working
                  capital advance owed to an affiliate of MPI. The Company has
                  recorded an amount due from related parties of $20,611, which
                  primarily represents funds committed to be advanced from MPI
                  for working capital.

                                       65
<PAGE>


                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999


NOTE 11 -         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 is pending 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 (see Note 4),
                  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
                  h)  several other performance criteria as may be 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. A Guarantee Agreement and a Stock Pledge agreement
                  secure the promissory note from Carnegie.

                  The Company contemplates that the proposed merger will close
                  during the second quarter of 2001. In the event that the
                  closing does not occur prior to May 31, 2001, either party
                  shall have the election to terminate the merger by providing
                  written notice of such termination to the other party.

NOTE 12 -         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.

                                       66
<PAGE>

                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999


NOTE 12 -         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.

                  Management plans to take the following steps that it believes
                  will be sufficient to provide the Company with the ability to
                  continue in existence:

NOTE 13 -         SUBSEQUENT EVENTS

                  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 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 restructure the
                  loans. The Company does not expect to incur any material
                  liabilities as a result of the lease transfers, however there
                  may be a significant charge as a result of the tranfer of the
                  properties.

                  On January 4, 2001, the Company received notice from the
                  American Stock Exchange ("Exchange") Staff indicating that the
                  Company no longer complies with the Exchange's continued
                  listing guidelines and that, as a result, the Exchange intends
                  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 are in response to the following
                  circumstances.

                  The Company has 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
                  does 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.


                                       67
<PAGE>

                       HOST FUNDING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999


NOTE 13 -         SUBSEQUENT EVENTS (Continued)

                  The Exchange also has 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 has fallen below the
                  continued listing guidelines. The Company appealed this
                  determination and requested a hearing before a committee of
                  the Exchange which was held. The Company is awaiting final
                  notice from the SEC on the delisting.

















                                       68

<PAGE>



            INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION



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

Under date of April 9, 2001, we reported on the consolidated balance sheet of
Host Funding Inc. and Subsidiaries as of December 31, 2000 and the related
consolidated statements of operations, shareholders' equity, and cash flows, as
contained in the annual report on the Form 10-K for the year 2000. In connection
with our audits of the aforementioned consolidated financial statements, we also
audited the related financial statement schedule as listed under Item 14(a)2.
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audit. In our opinion, the financial statement
schedule referred to above presents fairly, when considered in relation to the
basic consolidated financial statements taken as a whole, in all material
respects, the information set forth therein.



                                    MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
                                    Certified Public Accountants

Los Angeles, California
April 9, 2001







                                       69
<PAGE>

<TABLE>

                                                  HOST FUNDING, INC. AND SUBSIDIARIES
                                               REAL ESTATE AND ACCUMULATED DEPRECIATION
                                                            DECEMBER 31, 2000
<CAPTION>
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, Ocean Springs, MS            (B)      924,162      2,402,821           -       13,247           924,162         2,416,068
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
Super 8, Flagstaff, AZ                  (B)    1,321,800      3,436,680           -       29,941         1,321,800         3,466,621
Country Hearth Inn, Auburn, IN     1,667,205     229,896      2,287,655      10,327      208,820           240,223         2,496,475
                                 -----------  ----------    -----------     -------   ----------        ----------       -----------
                                 $22,603,521  $6,359,743    $18,168,574     $10,327   $1,409,081        $6,370,070       $19,577,655
                                 ===========  ==========    ===========     =======   ==========        ==========       ===========

                                                                            Land                                         $ 6,370,070
                                                                            Furniture & equipment                          3,699,069
                                                                                                                         -----------
                                                                                                                         $29,646,794
                                                                                                                         ===========
</TABLE>




                                                                 70
<PAGE>

<TABLE>
                                      HOST FUNDING, INC. AND SUBSIDIARIES
                                   REAL ESTATE AND ACCUMULATED DEPRECIATION
                                                DECEMBER 31, 2000
<CAPTION>

SCHEDULE III (Continued)

                                           Accumulated
                                           Depreciation &           Year of       Date
     Description (cont.)                   Amortization           Construction    Acquired      Life
     -------------------                   --------------         ------------  ----------      ----
     <S>                                     <C>                    <C>           <C>           <C>
Super 8, Rock Falls, IL                    $  105,824              1985         04/01/1995       35
Super 8, Somerset, KY                         103,634              1985         04/01/1995       35
Super 8, Miner, MO                            109,367              1985         04/01/1995       35
Super 8, Poplar Bluff, MO                      97,731              1985         04/01/1995       35
Vagabond Inn, San Diego, CA                   189,786              1987         04/22/1995       35
Sleep Inn, Ocean Springs, MS                  331,350              1995         09/13/1996       35
Sleep Inn, Destin, FL                         361,360              1992         09/13/1996       35
Sleep Inn, Sarasota, FL                       303,839              1993         09/13/1996       35
Sleep Inn, Tallahassee, FL                    262,414              1994         09/13/1996       35
Super 8, Flagstaff, AZ                        372,730              1985         03/14/1997       35
Country Hearth Inn, Auburn, IN                214,815              1987         10/21/1997       35
                                        -------------
Buildings and Improvements                  2,452,850
Furniture and Equipment                     1,589,992
                                         ------------
                                          $ 4,042,842
<FN>
(A)  CrossHost hotel assets are cross collateralized and encumbered by the CrossHost Loan facility with an outstanding principal
     balance of $12,117,744 at December 31, 2000.

(B)  Host Ventures hotel assets are cross collateralized and encumbered by the Host Ventures Loan facility with an outstanding
     principal balance of $8,818,572 at December 31, 2000.
</FN>
</TABLE>










                                                                 71