** **

**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

**FORM 10-Q**
| **(Mark One)** | ** **                                                                                         |
|----------------|----------------------------------------------------------------------------------------------------|
|           | ** **                                                                                         |
| x              | **Quarterly report pursuant to section 13 or  15(d) of the Securities Exchange Act of 1934**  |
| ** **     | **for the  quarterly period ended: September 30, 2006**                                       |
| o              | **Transition report pursuant to section 13 or  15(d) of the Securities Exchange Act of 1934** |

** **

**for thetransition periodfrom              to              **

 

**Commission File Number000-22091**

----

 

**GOLF TRUST OF AMERICA, INC.**

(Exact name of registrant as specified in itscharter)

 

| **Maryland**                                                     |   | **33-0724736**                           |
|------------------------------------------------------------------|--------|------------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification Number) |
| ** **                                                       |   | ** **                               |
| **10  North Adger’s Wharf, Charleston, South Carolina**     |   | **29401**                                |
| (Address of  principal executive offices)                        |   | (Zip Code)                               |

 

**(843) 723-4653**

(Registrant’s telephone number, including area code)

 

----

 

Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such report(s) and (2) has been subject to such filingrequirements for the past 90 days. Yes x  No o.

Indicate by check mark whetherthe registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Act.

Large accelerated filer  o  Accelerated filer  o  Non-accelerated filer x

Indicate by check mark whetherthe registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

Yes o No x

On November 11, 2006, there were 7,317,163 common shares outstanding ofthe registrant’s only class of common stock. On November 11, 2006, there were800,000 shares outstanding of the registrant’s 9.25% Series A CumulativeConvertible Preferred Stock, which is the registrant’s only class ofoutstanding preferred stock.

 

The Exhibit Index begins onpage 50.

 

 

----

**GOLF TRUST OFAMERICA, INC.**

**Form 10-Q QuarterlyReport****For the Three and Nine MonthsEnded September 30, 2006**

**INDEX**
| **PART I. FINANCIAL INFORMATION** |       |                                                                                                                            |
|-----------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------|
| **Item 1.**                       | ** ** | **Liquidation Basis Financial Statements**                                                                                      |   |   |
|                              |       | Condensed  Consolidated Statements of Net Assets as of September 30, 2006 (unaudited)  and December 31, 2005                    |   |   |
|                              |       | Condensed  Consolidated Statements of Changes in Net Assets (unaudited) for the Three  Months Ended September 30, 2006 and 2005 |   |   |
|                              |       | Condensed  Consolidated Statements of Changes in Net Assets (unaudited) for the Nine  Months Ended September 30, 2006 and 2005  |   |   |
|                              |       | Condensed  Consolidated Statements of Cash Flows (unaudited) for the Nine Months ended  September 30, 2006 and 2005             |   |   |
|                              |       | Notes to  Condensed Consolidated Financial Statements (unaudited)                                                               |   |   |
| **Item 2.**                       | ** ** | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations**                                 |   |   |
| **Item 3.**                       | ** ** | **Quantitative  and Qualitative Disclosures About Market Risk**                                                                 |   |   |
| **Item 4.**                       | ** ** | **Controls and  Procedures**                                                                                                    |   |   |
| **PART II. OTHER  INFORMATION**   |       |                                                                                                                            |
| **Item 1.**                       | ** ** | **Legal Proceedings**                                                                                                           |   |   |
| **Item 1A.**                      | ** ** | **Risk Factors**                                                                                                                |   |   |
| **Item 2.**                       | ** ** | **Unregistered  Sales of Equity Securities and Use of Proceeds**                                                                |   |   |
| **Item 3.**                       | ** ** | **Defaults upon  Senior Securities**                                                                                            |   |   |
| **Item 4.**                       | ** ** | **Submission of  Matters to a Vote of Security Holders**                                                                        |   |   |
| **Item 5.**                       | ** ** | **Other Information**                                                                                                           |   |   |
| **Item 6.**                       | ** ** | **Exhibits  and Reports on Form 8-K**                                                                                           |   |   |
| **Signatures**                    |       |                                                                                                                            |
| **Exhibit  Index**                |       |                                                                                                                            |
|                                   |            |                                                                                                                                 |  |  |  |

**Cautionary Note Regarding Forward-LookingStatements**

Thefollowing report contains forward-looking statements within the meaning ofSection 27A of the Securities Act of 1933, as amended, or the SecuritiesAct, and Section 21E of the Securities Exchange Act of 1934, as amended,or the Exchange Act. Forward-looking statements are statements that predict ordescribe future events or trends and that do not relate solely to historicalmatters. All of our projections in this Quarterly Report are forward-lookingstatements, including our projections regarding the amount and timing ofliquidating distributions. You can generally identify forward-lookingstatements as statements containing the words “believe,” “expect,” “will,” “anticipate,”“intend,” “estimate,” “project,” “assume” or other similar expressions. Youshould not place undue reliance on our forward-looking statements because thematters they describe are subject to known (and unknown) risks, uncertaintiesand other unpredictable factors, many of which are beyond our control. Ourforward-looking statements are based on the limited information currentlyavailable to us and speak only as of the date on which this Quarterly Reportwas filed with the Securities and Exchange Commission, or the SEC. Ourcontinued internet posting or subsequent distribution of this dated report doesnot imply continued affirmation of the forward-looking statements included init. We undertake no obligation, and we expressly disclaim any obligation, toissue any updates to our forward-looking statements, even if subsequent eventscause our expectations to change regarding the matters discussed in thosestatements. Future events are inherently uncertain. Moreover, it isparticularly difficult to predict, with any certainty, (i) business activitylevels at the Innisbrook Resort and Golf Club, or the Resort, (ii) when a saleof the Resort will occur, (iii)  if thesale price will be approximately equivalent to the Resort’s carrying value,(iv) whether we can manage the Resort without Westin, and (v) what theconsequences of our default under the terms of the Series A Preferred Stockwill be.  Accordingly, our projections inthis Quarterly Report are subject to particularly high uncertainty. Ourprojections should not be regarded as legal promises, representations orwarranties of any kind whatsoever. Over time, our actual results, performanceor achievements will likely differ from the anticipated results, performance orachievements that are expressed or implied by our forward-looking statements,and such differences might be significant and harmful to our stockholders’interests. Many important factors that could cause such a difference aredescribed under the caption “Risk Factors,” in our Annual Report on Form 10-Kfor the year ended December 31, 2005, in subsequent reports on Form 10-Q and inPart II, Item 1A of this Quarterly Report, each of which you should reviewcarefully.

----

** **

**GOLF TRUST OF AMERICA, INC.**

**CONDENSED CONSOLIDATED STATEMENTSOF NET ASSETS (LIQUIDATION BASIS)**

**AS OF SEPTEMBER 30, 2006(unaudited) AND DECEMBER 31, 2005**
| ** **                                                                                             | ** ** | **September 30,  2006** | ** ** | **December 31, 2005** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                                                                                             | ** ** | **(in thousands)**      | ** ** |
| **ASSETS**                                                                                             |       |                         |       |                            |       |
| Real estate—held for  sale                                                                        |       | $                            | 55,268     |                            | $          | 56,506 |   |
| Cash and cash  equivalents                                                                             |       | 3,790                        |       | 2,822                           |       |
| Receivables—net                                                                                   |       | 1,942                        |       | 5,806                           |       |
| Other assets                                                                                           |       | 4,809                        |       | 4,597                           |       |
| Total assets                                                                                           |       | 65,809                       |       | 69,731                          |       |
| **LIABILITIES**                                                                                        |       |                         |       |                            |       |
| Debt                                                                                                   |       | 5,777                        |       | 5,830                           |       |
| Accounts payable and  other liabilities                                                                |       | 11,919                       |       | 13,080                          |       |
| Other obligations                                                                                      |       | 10,762                       |       | 11,120                          |       |
| Reserve for estimated  costs during the period of liquidation                                          |       | 4,858                        |       | 5,919                           |       |
| **Total liabilities**                                                                                  |       | 33,316                       |       | 35,949                          |       |
| Commitments and  contingencies                                                                         |       |                         |       |                            |       |
| Preferred stock, $.01  par value, 10,000,000 shares authorized, 800,000 shares issued and  outstanding |       | 20,000                       |       | 20,000                          |       |
| Total liabilities and  preferred stock                                                                 |       | 53,316                       |       | 55,949                          |       |
| **NET ASSETS IN LIQUIDATION**(available  to holders of common stock and OP units)                      |       | $                            | 12,493     |                            | $          | 13,782 |   |

 

See accompanying notes tocondensed consolidated financial statements.

3

----

 

**GOLF TRUST OF AMERICA, INC.**

**CONDENSED CONSOLIDATED STATEMENTSOF CHANGES IN NET ASSETS (LIQUIDATION BASIS)**

**FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005**

 
| ** **                                                                    | ** ** | **Three Months Ended  September 30, 2006** | ** ** | **Three Months Ended  September 30, 2005** | ** ** |
|-------------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                                    | ** ** | **(in thousands, unaudited)**                        | ** ** |
| Net assets in  liquidation, beginning of period                               |       | $                                                              | 13,432     |                                                           | $          | 14,532 |   |
| **Changes in net assets in  liquidation:**                                    |       |                                                           |       |                                                           |       |
| Adjustments to  liquidation reserve:                                          |       |                                                           |       |                                                           |       |
| Operating loss                                                                |       | (2,966                                                         | )          | (2,464                                                         | )          |
| Net interest  expense                                                         |       | (376                                                           | )          | (361                                                           | )          |
| Decrease in  reserve for estimated liquidation costs and capital expenditures |       | 2,342                                                          |       | 1,947                                                          |       |
| Subtotal of  adjustments to liquidation reserve                               |       | (1,000                                                         | )          | (878                                                           | )          |
| Decrease in the fair  value of other obligations                              |       | 79                                                             |       | —                                                         |       |
| Value of common stock  and operating partnership units redeemed               |       | (18                                                            | )          | —                                                         |       |
| **Changes in net assets in  liquidation**                                     |       | (939                                                           | )          | (878                                                           | )          |
| **Net assets in liquidation, end of period**                                  |       | $                                                              | 12,493     |                                                           | $          | 13,654 |   |

 

See accompanying notes to condensed consolidated financial statements.

4

----

 

**GOLF TRUST OF AMERICA, INC.**

**CONDENSED CONSOLIDATED STATEMENTSOF CHANGES IN NET ASSETS (LIQUIDATION BASIS)**

**FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005**

 
| ** **                                                                    | ** ** | **Nine Months Ended  September 30, 2006** | ** ** | **Nine Months Ended  September 30, 2005** | ** ** |
|-------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                    | ** ** | **(in thousands, unaudited)**                       | ** ** |
| Net assets in  liquidation, beginning of period                               |       | $                                                             | 13,782     |                                                          | $          | 15,045 |   |
| **Changes  in net assets in liquidation:**                                    |       |                                                          |       |                                                          |       |
| Adjustments to  liquidation reserve:                                          |       |                                                          |       |                                                          |       |
| Operating income                                                              |       | 554                                                           |       | 1,155                                                         |       |
| Net interest expense                                                          |       | (1,024                                                        | )          | (988                                                          | )          |
| Increase in fair value of real estate                                         |       | 374                                                           |       | —                                                        |       |
| Increase in reserve for estimated liquidation costs  and capital expenditures |       | (1,254                                                        | )          | (1,454                                                        | )          |
| Subtotal of adjustments to liquidation reserve                                |       | (1,350                                                        | )          | (1,287                                                        | )          |
| Decrease in the  fair value of other obligations                              |       | 79                                                            |       | —                                                        |       |
| Value of common  stock and operating partnership units redeemed               |       | (18                                                           | )          | (104                                                          | )          |
| **Changes  in net assets in liquidation**                                     |       | (1,289                                                        | )          | (1,391                                                        | )          |
| **Net assets in liquidation, end  of period**                                 |       | $                                                             | 12,493     |                                                          | $          | 13,654 |   |

 

See accompanying notes tocondensed consolidated financial statements.

5

----

 

**GOLF TRUST OF AMERICA, INC.**

**CONDENSED CONSOLIDATED STATEMENTSOF CASH FLOWS (LIQUIDATION BASIS)**

**FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005**

 
| ** **                                                                                              | ** ** | **Nine Months  Ended  September 30,  2006**                                                                       | ** ** | **Nine Months  Ended  September 30,  2005** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                                                                              | ** ** | **       (in thousands, unaudited)       ** | ** ** |
| **Cash  flows from changes in net assets in liquidation and operating activities:**                     |       |                                                                                                                        |       |                                                  |       |
| Changes in net  assets in liquidation                                                                   |       | $                                                                                                                           | (1,289     | )                                                     | $          | (1,391 | ) |
| Adjustments to reconcile change in net assets in  liquidation to net cash used in operating activities: |       |                                                                                                                        |       |                                                  |       |
| Increase in liquidation reserve and changes in fair  value of real estate and non-real estate assets    |       | 835                                                                                                                         |       | 1,454                                                 |       |
| Cancellation of common shares                                                                           |       | 18                                                                                                                          |       | 104                                                   |       |
| Provision for bad debts                                                                                 |       | 349                                                                                                                         |       | 33                                                    |       |
| Non-cash interest                                                                                       |       | 587                                                                                                                         |       | 591                                                   |       |
| Other changes in operating assets and liabilities                                                       |       | (449                                                                                                                        | )          | 197                                                   |       |
| Decrease in liquidation liabilities                                                                     |       | (1,945                                                                                                                      | )          | (1,867                                                | )          |
| Net cash used in operating activities                                                                   |       | (1,894                                                                                                                      | )          | (879                                                  | )          |
| **Cash  flows from investing activities:**                                                              |       |                                                                                                                        |       |                                                  |       |
| Resort and golf course improvements                                                                     |       | (199                                                                                                                        | )          | (686                                                  | )          |
| Proceeds from asset sales                                                                               |       | 1,037                                                                                                                       |       | —                                                |       |
| Decrease in notes receivable                                                                            |       | 3,067                                                                                                                       |       | 272                                                   |       |
| Net cash  provided by (used in) investing activities                                                    |       | 3,905                                                                                                                       |       | (414                                                  | )          |
| **Cash  flows from financing activities:**                                                              |       |                                                                                                                        |       |                                                  |       |
| Borrowings under revolving line of credit and  proceeds from loan                                       |       | —                                                                                                                      |       | 1,000                                                 |       |
| Repayments on debt and capital lease obligations                                                        |       | (1,043                                                                                                                      | )          | (802                                                  | )          |
| Net cash (used  in) provided by financing activities                                                    |       | (1,043                                                                                                                      | )          | 198                                                   |       |
| Net increase  (decrease) in cash                                                                        |       | 968                                                                                                                         |       | (1,095                                                | )          |
| Cash and cash  equivalents, beginning of period                                                         |       | 2,822                                                                                                                       |       | 3,919                                                 |       |
| Cash and cash  equivalents, end of period                                                               |       | $                                                                                                                           | 3,790      |                                                  | $          | 2,824 |   |
| **Supplemental  Disclosure of Cash Flow Information:**                                                  |       |                                                                                                                        |       |                                                  |       |
| Interest paid during the period                                                                         |       | $                                                                                                                           | 593        |                                                  | $          | 467 |   |
| **Non-cash transactions:**                                                                              |       |                                                                                                                        |       |                                                  |       |
| Cancellation of note receivable                                                                         |       | $                                                                                                                           | —     |                                                  | $          | 99 |   |
| Assets acquired  through capital leases                                                                 |       | $                                                                                                                           | 181        |                                                  | $          | 416 |   |

 

See accompanying notes tocondensed consolidated financial statements.

6

----

**GOLF TRUST OFAMERICA, INC.Form 10-Q Quarterly ReportFor the Three and Nine Months Ended September 30, 2006 and 2005NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)**

**1.  Plan of Liquidation and the Resort**

OnFebruary 25, 2001, the Company’s board of directors adopted, and on May 22,2001 the Company’s common and preferred stockholders approved, a plan ofliquidation for the Company. The plan of liquidation contemplates the sale ofall of the Company’s assets and the payment of, or provision for, the Company’sliabilities and expenses, and authorizes the Company to establish a reserve tofund the Company’s contingent liabilities. As of November 11, 2006, the Companyhad sold 41 of the 47 (eighteen-hole equivalent) golf courses in which the Companyonce held interests pursuant to the plan of liquidation.

OnJuly 15, 2004, the Company entered into a settlement agreement, or theSettlement Agreement, with GTA-IB LLC, or GTA-IB, and Golf Host Resorts, Inc.,or our former unaffiliated borrower, Golf Hosts, Inc., Golf Host Management,Inc., Golf Host Condominium, Inc. and Golf Host Condominium, LLC and tookcontrol of the Westin Innisbrook Golf Resort, or the Resort. The settlement wasaccounted for using methods consistent with purchase accounting in accordancewith Statement of Financial Accounting Standards, or SFAS, No. 141 “BusinessCombinations”. As a result of the settlement, the financial results of GTA-IB,the Company’s wholly owned subsidiary that now holds title to the Resort, areconsolidated in the Company’s financial statements commencing July 16, 2004.

OnJanuary 21, 2005, in the interest of seeking to accelerate the completionof the Company’s liquidation, the Company engaged Houlihan Lokey Howard andZukin Capital, Inc., or Houlihan Lokey, as its then exclusive financialadvisor to provide financial advisory services to it in furtherance of theCompany’s stockholder-approved plan of liquidation. The Company’s liquidationmay occur through the sale of its assets, a merger or otherwise in orderto allow it to maximize value to its stockholders. In addition,  the Company may pursue financing orequity investment in furtherance of the plan of liquidation. In this QuarterlyReport, the Company refers to the type of transaction discussed in the priortwo sentences as an exit transaction. The initial term of Houlihan Lokey’sengagement was nine months which was subsequently extended on a month-to-monthbasis before its termination by us on June 29, 2006. Certain terms of thisengagement provided that in the event of a sale of the Resort with net proceedsto us of up to $38.0 million, Houlihan Lokey would receive a transactionfee of $1.0 million of which the Company has paid $100,000. If the Companyreceived net proceeds from $38 million up to $50 million, thetransaction fee would be $1.0 million plus 3.0% of such incremental value.If the Company received net proceeds in excess of $50.0 million, thetransaction fee would be the sum of $1.0 million, plus 3.0% of the value between$38 million up to $50 million, plus 5.0% of the valueover $50 million.  Since anexit transaction has not occurred to date, the Company terminated itsmonth-to-month engagement with Houlihan Lokey on June 29, 2006.  However, subject to certain terms andconditions of the engagement letter with Houlihan Lokey, the transaction feemay still be due to Houlihan Lokey if a closing of an exit transaction were tooccur under certain circumstances.

TheCompany’s board of directors also formed a Special Committee comprised of allthree of its independent directors to consider certain matters relating to theliquidation and financial advisor services in evaluating an exit transaction.The Company continues to negotiate with prospective buyers of the Resort andrelated business. As of the filing date of this quarterly report, the Companyhas not entered into a definitive agreement for the sale of the Resort.

**2.  Organization and Basis of Presentation**

TheCompany was incorporated in Maryland on November 8, 1996 as a real estateinvestment trust, or REIT. As of fiscal year 2002 the Company no longer has itsREIT status as a result of its repossession and operation of golf coursesfollowing the default of its original third-party lessees. As of November 11,2006, the Company owned two properties which represent six golf courses.  One of these properties (2.0 golf courses) isowned and managed by the Company, while the Resort was managed by Westin fromthe inception date of the Company’s ownership, July 15, 2004, until October 31,2006. Subsequent to October 31, 2006, it will be managed directly by theCompany without the assistance of any third-party manager and is no longer aWestin managed resort.  The four golfcourses at the Resort are currently managed by Troon Golf, L.L.C., or Troon.  See Note 4 for further discussion.  Prior to July 15, 2004, the Resortserved as collateral for a 30-year participating mortgage wherein the Companywas the lender to an unaffiliated borrower. Upon the execution of the 

 

7

----

Settlement Agreement with its former borrower onJuly 15, 2004, the Company obtained ownership of the Resort. The Companypresently holds its two properties (6.0 golf courses) in fee simple. Four ofthe Company’s golf courses are located in Florida and two are in SouthCarolina. The title to the Company’s two golf courses in South Carolina is heldby Golf Trust of America, L.P., a Delaware limited partnership and the Company’soperating partnership. The Company refers to Golf Trust of America, L.P. as its“operating partnership” or “OP” and the Company refers to the operatingpartnership and itself (together with all subsidiaries) collectively as “we”, “us”or our “Company.” The title to the Resort is held by GTA-IB, LLC, a whollyowned subsidiary of GTA-IB Golf Resort, LLC, which in turn is 100% owned byGolf Trust of America, L.P. Through its wholly owned subsidiaries GTAGP, Inc., or GTA GP, and GTA LP, Inc., or GTA LP, the Company holds100 percent of the interest in Golf Trust of America, L.P. as of November11, 2006. GTA GP is the sole general partner of Golf Trust of America, L.P. andowns a 0.2 percent interest therein. GTA LP is a limited partner in GolfTrust of America, L.P. and owns a 99.8 percent interest therein. Thesepercentages give effect to all outstanding preferred OP units on anas-converted basis.

*Principlesof Consolidation*

Theaccompanying condensed consolidated financial statements include the accountsof GTA GP, GTA LP, Golf Trust of America, L.P. and their wholly-ownedsubsidiaries. All significant intercompany transactions and balances have beeneliminated in consolidation.

*Adjustmentsto Liquidation Basis of Accounting*

As aresult of the adoption by the Company’s board of directors of a plan ofliquidation of the Company and approval of that plan by the Company’s stockholders,the Company adopted the liquidation basis of accounting for all periodssubsequent to May 22, 2001. Accordingly, on May 22, 2001, the Company’sassets were adjusted to their estimated fair value and the Company’sliabilities, including estimated costs associated with implementing the plan ofliquidation, were adjusted to their estimated settlement amounts. The valuationof real estate held for sale as of September 30, 2006 relies on estimates ofsales values based on indications of interest from the marketplace, certainassumptions by management specifically applicable to each property, and on theproperty value ranges. The valuation of the Company’s other assets andliabilities under the liquidation basis of accounting is based on management’sestimates as of September 30, 2006.

On August 23, 2006, pursuant to amutually negotiated termination of a pledge and security agreement, the Companyaccepted a discounted payoff of $2.0 million for a note receivable originallyreceived by the Company from its buyer/borrower in connection with the sale ofEagle Ridge on January 30, 2003.  Inconnection with the termination of the pledge and security agreement, theCompany redeemed 35,794 shares of the Company’s common stock that were pledgedto the Company by the borrower to secure the borrower’s note receivable to theCompany.  The shares were redeemed at theten day trailing average price of $0.493 for a total redemption value ofapproximately $18,000.  See Note 5 forfurther discussion.

For the nine months ended September 30, 2006, netassets in liquidation decreased by approximately $1,289,000.  This decrease resulted from (a) an increasein the carrying value of Tierra Del Sol to reflect the estimated gain on the saleof Tierra Del Sol of approximately $340,000 plus (b) the additional gainrealized upon the actual closing of the sale of Tierra Del Sol of approximately$34,000, (c) the decrease in the estimated settlement amount of the Westintermination fee liability of approximately $79,000 offset by (d) the redemptionof the 35,794 operating partnership units discussed above for approximately$18,000, (e) an increase in the provision for capital expenditures ofapproximately $69,000, (f) accounting fees of approximately $115,000, (g) legalfees of approximately $915,000 and (h) corporate operating costs ofapproximately $625,000 to be incurred in (A) the negotiation of an assetpurchase agreement and attempted consummation of the sale of the Resort, (B)litigating the proceedings to which the Company is currently a party and (C)the administrative conclusion of the Company’s plan of liquidation.  Of these changes to the Company’s net assetsin liquidation during the nine months ended September 30, 2006, $939,000represents changes that occurred during the three months ended September 30,2006.  The changes in the current quarterwere made up of (a) the decrease in the estimated settlement amount of theWestin termination fee liability of approximately $79,000 offset by (b) theredemption of the 35,794 operating partnership units discussed above forapproximately $18,000, (c) an increase in the provision for capitalexpenditures of approximately $25,000, (d) accounting fees of approximately$115,000, (e) legal fees of approximately $500,000 and (f) corporate operatingcosts of approximately $360,000.

Thenet assets of approximately $12,493,000 at September 30, 2006 would result in aliquidation distribution per share of approximately $1.73. This $1.73 estimatefor liquidation distribution per share includes projections of costs andexpenses expected to be incurred during the period required to complete theplan of liquidation, that is, until the Company sells its remaining two assets,including the Resort. These actual per share distributions that we make to theholders of the Company’s 

8

----

 

common stock could be materially lower than the amountthe Company currently estimates of $1.73 due to factors such as (i) the timingof any sale of the properties and the corresponding transaction costs, (ii) theperformance of the underlying assets, and (iii) a change in the underlyingassumptions of the cash flow amount projected. The $1.73 estimate is derived bydividing the net assets in liquidation by the number of shares of common stockand common operating partnership units outstanding (7,317,000 less 85,000)after consideration of those shares that will be canceled prior to thedistribution of the net assets.  The85,000 shares of common stock were pledged to the Company as security for thepayment and performance of the obligations and liabilities of the pledgor undera common stock redemption agreement executed concurrently with a 2001 assetsale. Because this redemption agreement provides in part that these shareswill be tendered to us if and when the total amount of liquidatingdistributions paid to its holders of common stock pursuant to the plan ofliquidation is less than $10.74 per share, we expect these shares to becanceled.

*Reservefor Estimated Costs During the Period of Liquidation*

Under the liquidation basis of accounting, the Companyis required to estimate and accrue the costs associated with implementing andcompleting the plan of liquidation. These amounts can vary significantly dueto, among other things, the timing and realized proceeds from golf coursesales, the costs of retaining personnel and others to oversee the liquidation,including the costs of insurance, the timing and amounts associated withdischarging known and contingent liabilities, transaction costs related to anysales, and the costs associated with cessation of the Company’s operations.These costs are estimates only and are expected to be paid out over theliquidation period which contemplates an anticipated sale of the Resort by April 30, 2007 and, if the Company deemsappropriate, the transfer of our remaining assets to a liquidating trust withina reasonable period thereafter. The Company can provide no assurance that thosedates will be met.  As a result, theCompany has accrued the projected costs, including corporate overhead andspecific liquidation costs of severance, financial advisors and otherprofessional fees, and other miscellaneous wind-down costs, expected to beincurred during the projected period required to complete the liquidation ofthe Company’s remaining assets. The Company has also accrued the projectedoperating results of the Resort and the other property that the Company ownsand manages through the projected remaining holding period of April 30, 2007.These projections could change materially based on the timing of anyanticipated sale, the performance of the underlying assets, the conclusion ofthe Company’s negotiations with AEW (discussed below), transaction costsrelated to any sales, and any change in the underlying assumptions of the cashflow amount projected. These accruals will be adjusted from time to time asprojections and assumptions change.

Based upon the Company’s current negotiations withAEW, the holder of all of the Company’s series A preferred stock, regarding theterms of an amendment of an existing agreement or a new agreement which willallow the Company to repurchase all of AEW’s series A preferred stock for aprice of $20 million or less.  As aresult of the Company’s assumption that these negotiations will lead to an executed agreement, the Company has notrecorded in its net assets a liability for the accrual of preferred dividendspayable for the quarter beginning July 1, 2001 or for subsequent quarters.  Further, the carrying amount of the preferredstock remains at $20 million on the Company’s statement of net assets,consistent with the redemption amount in the prior letter agreement with AEW.In the event that either the Company is unable to reach an agreement with AEW,or the Company is unable to exercise any repurchase right and close therepurchase under any agreement the Company may reach with AEW, the Company maybe required to pay AEW all or a portion of the preferred dividends for whichthe Company has not recorded a liability, reducing its liquidatingdistributions to holders of its common stock. These preferred dividends would reduce the net assets available tostockholders in liquidation, and, correspondingly, the estimated liquidationdistribution per share.  See Note 9 forfurther discussion

The following is a summary of the changes in theReserve for Estimated Costs During the Period of Liquidation (LiquidationReserve) (unaudited):
| ** **              | ** ** | ** **                    | ** ** | ** **                       | ** ** | **Increases in the  Liquidation Reserve** | ** ** | ** **      | ** ** |
|-------------------------|------------|-------------------------------|------------|----------------------------------|------------|----------------------------------------------------------|------------|-----------------|------------|
| ** **              | ** ** | ** **                    | ** ** | ** **                       | ** ** | **Operating**                                            | ** ** | ** **      | ** ** | ** ** | ** ** |
| ** **              | ** ** | **January 1, 2006** | ** ** | **Transfers  and Payments** | ** ** | **Income  and Interest**                            | ** ** | **Adjustments** | ** ** | **September 30, 2006** | ** ** |
| ** **              | ** ** | ** **                    | ** ** | ** **                       | ** ** | ** **                                               | ** ** | ** **      | ** ** | ** ** | ** ** |
| Severance               |       | $                             | 1,847,000  |                             | $          | (93,000                                                  | )          | $               | —     |   | $ | — |   | $ | 1,754,000 |   |
| Professional  fees      |       | 1,565,000                     |       | (1,551,000                       | )          | —                                                   |       | 1,030,000       |       | 1,044,000 |   |
| Financial  advisor fees |       | 911,000                       |       | (14,000                          | )          | —                                                   |       | —          |       | 897,000 |   |
| Capital  expenditures   |       | 26,000                        |       | (71,000                          | )          | —                                                   |       | 89,000          |       | 44,000 |   |
| Other                   |       | 1,570,000                     |       | (585,000                         | )          | (470,000                                                 | )          | 605,000         |       | 1,120,000 |   |
| Total                   |       | $                             | 5,919,000  |                             | $          | (2,314,000                                               | )          | $               | (470,000   | ) | $ | 1,724,000 |   | $ | 4,859,000 |   |

 

9

----

 

Included in the accrued severance amounts above areperformance milestone payments due, but not yet paid, to the Company’sexecutives pursuant to their amended and restated employment agreements. TheCompany expects that the performance milestone payments aggregatingapproximately $1,317,000, plus accrued interest, will be paid in due course;however, there are no remaining conditions to such payment. Any severancepayments otherwise payable by the Company under the amended and restatedemployment agreements will be reduced by the amount of all earlier performancemilestone payments made. The increase in the adjustments to the LiquidationReserve is to provide a provision for legal fees and corporate operating coststo be incurred in (i) the negotiation of an asset purchase agreementthrough and including the consummation of a sale of the Resort,(ii) litigating the proceedings to which the Company is currently a partyand (iii) the administrative conclusion of the Company’s plan ofliquidation.

Since the Company is presentingliquidation basis financial statements that only reflect the changes in netassets in liquidation, the operating results of the Company are summarized andreflected in the table below:
| ** **                                                      | ** ** | **For the three months ended   September 30,** | ** ** |
|-----------------------------------------------------------------|------------|------------------------------------------------------------------------------|------------|
| ** **                                                      | ** ** | **2006**                                                                     | ** ** | **2005** | ** ** |
| Revenues                                                        | ** ** | ** **                                                                   | ** ** | ** ** | ** ** |
| Revenue from  Resort and managed golf course operations         |       | $                                                                            | 5,136,000  |   | $ | 7,329,000 |   |
| Expenses                                                        |       |                                                                         |       |   |   |
| General and  administrative                                     |       | 235,000                                                                      |       | 261,000 |   |
| Direct expenses  from Resort and managed golf course operations |       | 7,867,000                                                                    |       | 9,532,000 |   |
| Total operating  expenses                                       |       | 8,102,000                                                                    |       | 9,793,000 |   |
| Operating loss                                                  |       | (2,966,000                                                                   | )          | (2,464,000 | ) |
| Interest  expense—net                                      |       | (376,000                                                                     | )          | (361,000 | ) |
| Operating loss and  interest expense—net                   |       | $                                                                            | (3,342,000 | ) | $ | (2,825,000 | ) |

 
| ** **                                                      | ** ** | **For the nine months ended  September 30,** | ** ** |
|-----------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                      | ** ** | **2006**                                                              | ** ** | **2005** | ** ** |
| Revenues                                                        |       |                                                                  |       |   |   |
| Revenue from  Resort and managed golf course operations         |       | $                                                                     | 36,297,000 |   | $ | 35,837,000 |   |
| Expenses                                                        |       |                                                                  |       |   |   |
| General and  administrative                                     |       | 735,000                                                               |       | 792,000 |   |
| Direct expenses  from Resort and managed golf course operations |       | 35,008,000                                                            |       | 33,890,000 |   |
| Total operating  expenses                                       |       | 35,743,000                                                            |       | 34,682,000 |   |
| Operating income                                                |       | 554,000                                                               |       | 1,155,000 |   |
| Interest  expense—net                                      |       | (1,024,000                                                            | )          | (988,000 | ) |
| Operating (loss) income  and interest expense—net          |       | $                                                                     | (470,000   | ) | $ | 167,000 |   |

 

**3.  Summary of Significant Accounting Policies**

*Interim Statements*

The accompanying condensedconsolidated financial statements for the three and nine months ended September30, 2006 have been prepared in accordance with (i) accounting principlesgenerally accepted in the United States of America, or GAAP, and under theliquidation basis of accounting following our stockholders’ approval of theplan of liquidation on May 22, 2001, and (ii) the instructions toForm 10-Q and Article 10 of Regulation S-X. These financialstatements have not been audited by a registered independent public accountingfirm; however, they include adjustments (consisting of normal recurringadjustments) which are, in the judgment of management, necessary for a fairpresentation of the net assets, financial condition, results of operations andcash flows for such periods. However, these results are not necessarilyindicative of results for any other interim period or for the full year. Inparticular, revenues from golf course operations are seasonal.

Certain information and footnotedisclosures normally included in financial statements in accordance with GAAPhave been omitted as allowed in quarterly reports by the rules of the SEC. TheCompany’s management believes that the disclosures included in the accompanyinginterim financial statements and footnotes are adequate to make the informationnot misleading, but also believes that these statements should be read inconjunction with the summary of significant accounting policies and notes tofinancial statements included in the Company’s annual report on Form 10-Kfor the year ended December 31, 2005.

10

----

 

**4.  Commitments and Contingencies**

***Young Complaints***

OnMarch 22, 2004, a lawsuit was filed (and was served on the Company’s agentfor service of process on March 25, 2004) in the U.S. District Court forthe District of South Carolina, Florence Division, by one of the Company’sprior directors, Larry D. Young (together with Danny L. Young, Kyle N. Young,the Young Family Irrevocable Trust and The Legends Group, Ltd.), againstthe Company’s independent auditors, BDO Seidman, LLP (together with threeformer BDO partners), or the BDO Defendants, and the Company (together with theCompany’s executive officers).

Thecomplaint alleges that the BDO Defendants engaged in professional malpractice,misrepresentation, breach of fiduciary duty and fraud by counseling plaintiffsto participate in a type of tax shelter transaction, allegedly held illegal bythe Internal Revenue Service. The complaint has seven counts, the last of whichapplies to all defendants (the first six apply only to BDO and its partners).The seventh count alleges that the Company conspired with BDO to convinceMr. Young that he would realize a large projected tax gain in order toinduce Mr. Young (and the other plaintiffs) to enter into the failed taxshelter transaction. The plaintiffs are seeking damages of at least$3.7 million, together with legal expenses and other costs.

DefendantsBDO Seidman, LLP (together with three former BDO partners) filed a motion tocompel arbitration and dismiss the complaint, and the Company filed a motion onbehalf of the Company (together with the Company’s executive officers, the GTADefendants) to stay, and for extension of time in which to answer or otherwiserespond to plaintiffs’ complaint.  Theplaintiffs’ filed memoranda opposing the aforementioned motions. A hearing onthese motions was held in Florence, South Carolina on October 19, 2004. Atthe conclusion of that hearing, the judge indicated that the former motionwould be taken under advisement, while the GTA Defendants’ motion would begranted in part and denied in part. As a result, the court declined tostay the litigation pending the outcome of the arbitration, but granted themotion extending time and giving the GTA Defendants additional time to servetheir answer. On November 4, 2004, the Company filed its answer andcounterclaims (nine counterclaims against some or all of the plaintiffparties). On January 21, 2005, the magistrate judge issued a report andrecommendation, recommending that the BDO Defendant’s Motion to CompelArbitration be granted, and that the claims pending against the BDO Defendantsbe stayed pending arbitration. On February 14, 2005, the District Judgeaccepted the magistrate’s report and recommendation, and granted the BDODefendants’ Motion to Compel Arbitration, staying the claims pending againstthe BDO Defendants. The plaintiffs and the GTA Defendants have since agreedupon a proposed schedule for their part of the litigation, which wasjointly submitted to the court on March 11, 2005, and thereafter acceptedand entered as an Order on or about April 19, 2005. The scheduling Orderwas entered, and the parties conducted discovery until on or aboutAugust 2, 2005 when the parties agreed to informally stay all activity inthis litigation to pursue the possibility of settlement. As of November 11,2006, no settlement has been reached. While the Company remains open to thepossibility of settlement on the basis of mutual dismissals, the Company alsointends on meeting its deadlines and litigating this case vigorously. To thatend, before the deadline for doing so, the Company filed and served its motionfor summary judgment as to the plaintiffs’ claims on December 23, 2005.The plaintiffs did not file any dispositive motion within the time permitted todo so, either with respect to their own claims or to the Company’scounterclaims, nor did the plaintiffs timely file any written response to themotion for summary judgment. On March 21, 2006, at a hearing held on theplaintiffs’ motion, the court denied the plaintiffs’ motion to re-open discovery,with the exception that limited discovery was allowed until June 19, 2006only on the question of the damages sought by the GTA Defendants in theircounterclaims against the plaintiffs. The court allowed the plaintiffs to filea late response to the motion for summary judgment, which the plaintiffs did onMarch 31, 2006. The GTA Defendants filed a reply thereto.  On July 7, 2006, the plaintiff moved forsummary judgment on the GTA Defendants’ counterclaims, to which the GTADefendants responded with a motion to strike on grounds of grossuntimeliness.  The Court decided not todismiss the complaint on Rule 12 grounds, but has requested that the December22, 2005 motions be refiled, and has granted the plaintiffs leave to refile byDecember 31, 2005, as a motion on the Rule 56 summary judgment grounds tofacilitate the Court’s consideration of the motion.  The GTA Defendants filed an amended motionfor summary judgment on August 10, 2006, the plaintiffs filed a response onAugust 28, 2006, and the GTA Defendants filed a response thereto.  The motion to strike was heard by theMagistrate Judge on October 12, 2006.  OnNovember 6, 2006, the judge entered an Order granting the GTA Defendants’motion to strike the plaintiffs’ late motion for summary judgment.  A hearing on the GTA Defendants’ motion forsummary judgment to attempt to eliminate the plaintiffs’ civil conspiracy claimagainst the GTA Defendants was held on November 8, 2006.  The judge took the matter under advisementand, as of November 11, 2006, had not yet ruled on the motion for summaryjudgment.  The trial date for the GTADefendants’ counterclaims against the plaintiffs will not be before January2007.  At this time, the Company isunable to assess the likely outcome of this litigation**.**

11

----

 

***Land Use Lawsuits***

OnMarch 10, 2005 in the Circuit Court of the Sixth Judicial Circuit, in andfor Pinellas County, Florida, Civil Division, the Company filed a Motion toIntervene in the lawsuit titled Innisbrook Condominium Association, Inc.,C. Frank Wreath, Meredith P. Sauer, and Mark Banning, as the Plaintiffs vs.Pinellas County, Florida, Golf Host Resorts, Inc. and Innisbrook F LLC, asthe Defendants, Case No. 043388CI-15. The Company refers to this lawsuitas the Initial Land Use Lawsuit.

Theplaintiffs have filed a multi-count complaint, or the Complaint, seekinginjunctive and declaratory relief with respect to the land use and developmentrights of a tract of land commonly known as Parcel F. Parcel F is a parcel ofland located within the Resort. The Plaintiffs allege that there are noremaining development units (residential units) available to be developedwithin the Resort property and owned by an unaffiliated third-party, GHR. OnMarch 29, 2005, the Company filed a Motion to Intervene as a defendant inthe Initial Land Use Lawsuit in order to protect its property and its land useand development rights with respect to Parcel F and our property.  A hearing on the Motion to Intervene was heldon April 4, 2005, after which the court granted the Company’s Motion toIntervene. On April 5, 2005, the Company joined in the filing of a Motionto Dismiss and Motion to Strike three of the seven counts of the Complaint. Thecourt granted the Motion to Dismiss on April 26, 2005. On that same date,four individuals (Joseph E. Colwell, Marcia G. Colwell, Kirk E. Covert, DeborahA. Covert) and Autumn Woods Homeowner’s Association, Inc. moved tointervene in the Initial Land Use Lawsuit which the court subsequently allowed.

OnApril 8, 2005, a separate suit, or the Subsequent Land Use Lawsuit, wasfiled by James M. and Mary H. Luckey and Andrew J. and Aphrodite B. McAdams.That suit seeks injunctive and declaratory relief in six separate counts, allrelating to the land use and development rights of Parcel F. This suit wasconsolidated with the Initial Land Use Lawsuit on May 3, 2005. AfterMay 6, 2005, the Company filed a Motion to Dismiss the Subsequent Land UseLawsuit.

TheCompany refers to the Initial Land Use Lawsuit and the Subsequent Land useLawsuit as the “Land Use Lawsuits.” The motion was heard by the court onMay 31, 2005. Since that hearing, the Company has filed our Answer andAffirmative Defenses to both complaints that have been filed in theconsolidated action. On August 3, 2005, a case management conference washeld before the judge who is now presiding over this case. At that hearing, thecourt scheduled a hearing on the defense motions for summary judgment forAugust 30, 2005, and a trial starting December 12, 2005. OnAugust 30, 2005, the judge heard extensive argument on the defense motionsfor summary judgment and entered a number of rulings in the defendants’ favor.In summary, the court dismissed those claims in the Initial Land Use Lawsuitand the Subsequent Land Use Lawsuit which are founded upon the theory that theproposed development is inconsistent with the Pinellas Countywide Plan andRules adopted pursuant to Chapter 73-594, Laws of Florida. The courtfurther dismissed for lack of jurisdiction those claims of the plaintiffs inthe Subsequent Land Use Lawsuit that are based on the theory that the proposeddevelopment is inconsistent with the Pinellas Comprehensive Plan. The courtentered a similar ruling on Counts I, II, VIII-XV of the Third AmendedComplaint as to some (but not all) of the plaintiffs in the Initial Land UseLawsuit.

Thedefendants in the Initial Land Use Lawsuit also filed a Motion to Strike thePlaintiffs’ Demand for Jury Trial. In the face of that motion, the plaintiffsdropped their jury trial demand and the court confirmed by order datedSeptember 21, 2005 that this case will not be tried by a jury. The courtthen entered an order scheduling the remaining claims for non-jury trial duringDecember 2005.

Inaddition, the plaintiffs in the Initial Land Use Lawsuit have filed a motionfor summary judgment. The court set the hearing date for the summary judgmentreview for December 7, 2005. From December 19 throughDecember 23, 2005, the court tried these consolidated cases in a non-jurytrial. At the conclusion of the evidentiary portion of the trial, the courtdeferred final argument until Friday, January 6, 2006. On that date, finalargument took place before the court at the conclusion of which the courtrendered its decision. The court ruled in favor of all defendants and againstall plaintiffs as to each count in both cases. Subsequent to the court’s oralrulings, defense counsel prepared a proposed final judgment which reflects thecourt’s factual findings and legal conclusions. On March 8, 2006, the courtformally entered its final judgment on the record ruling in favor of thedefendants on all counts and denying all claims asserted by the plaintiffs inboth Land Use Lawsuits. On March 31, 2006, the plaintiffs in the consolidatedcases filed a notice of appeal.  Sincethe filing of that notice, the plaintiffs/appellants have filed their initialappellate brief and the defendants/appellees, including GTA-IB, LLC have filedtheir answer brief.  Theplaintiffs/appellants will have an opportunity to file a reply brief to defendants/appellees’answer brief.  As of November 11, 2006,no such reply brief has been filed.

As anintervenor in the Initial Land Use Lawsuit, the Company will seek to obtain aruling from the court which preserves and protects our property, the land useand development rights with respect to Parcel F and our property in order tomaximize the value of those rights as they relate both to Parcel F and theResort in general.

12

----

In theevent that the defendants in the Land Use Lawsuits do not prevail in theappeal, the owner of Parcel F may lose all or substantially all of itsland use and development rights with respect to Parcel F. As a result, theCompany may experience reduced club memberships at the Resort, and itsability to realize the benefits from proposed development of Parcel F would beadversely impacted. In addition, failure by the defendants to prevail in theLand Use Lawsuits could jeopardize the Company’s land use and developmentrights in the remaining units that the Company may have the opportunity todevelop at the Resort if a court subsequently applied a similar interpretationof the Company’s rights with respect to those units. In that instance, theCompany might lose all or substantially all of those rights with respect to theremaining units. As a result of a successful challenge to the Company’s landuse and development rights relating to the remaining units at the Resort, theCompany’s ability to develop the Resort would be adversely affected.

***Lake Ozark Industries, Inc. and Everett HoldingCompany, Inc. v. Golf Trust of America, et al.***

Thisis an action initiated in the Circuit Court of Miller County, Missouri, by acontractor, Lake Ozark Construction Industries, Inc., or LOCI, and itsasserted assignee of lien and account rights, Everett HoldingCompany, Inc., in the Fall of 1999 against numerous defendants, includingGolf Trust of America, L.P. Plaintiffs assert LOCI performed constructionservices on, or that benefited, the property of various defendants, includingGolf Trust of America, L.P. So far as the action concerns Golf Trust ofAmerica, L.P., plaintiffs seek to foreclose a mechanic’s lien upon propertyformerly owned by Golf Trust of America, L.P. The lien is for the principalamount of approximately $1,276,000, plus interest at 10% per annum and attorneyfees. Plaintiffs calculate interest to May 20, 1999, just prior to thelien filing, to be approximately $151,000 and interest thereafter to be $354 perday. In March 2002 the Court orally granted a motion for summary judgmentfiled by Golf Trust of America, L.P., ruling that plaintiffs’ claimed lien doesnot comply with requirements of the Missouri mechanic’s lien statute and isinvalid. The court entered its written order granting Golf Trust of America,L.P.’s motion for summary judgment in April 2002. Since not all claimsinvolved in this lawsuit were disposed of by that ruling, Plaintiffs’ time toappeal this ruling did not begin to run. In November 2003 the courtentered a final judgment, and plaintiffs appealed the ruling in favor of GolfTrust of America, L.P. to the Missouri Court of Appeals. The briefs in theappeal were filed and the case was argued to the court of appeals on October 19,2004. On November 9, 2004, the Company filed with the Court of Appeals aMotion to File Supplemental Brief, along with a copy of a Supplemental Brief.Following briefing and oral argument, the Court of Appeals on April 5,2005 reversed the Circuit Court judgment in favor of the Company and remandedthe case to the Circuit Court for further proceedings. On April 20, 2005,the Company filed with the Court of Appeals a motion for rehearing and analternative application to transfer the case to the Missouri Supreme Court. TheCourt of Appeals denied this motion and the transfer application onMay 31, 2005. On May 31, 2005, the Court of Appeals also filedmodified Opinion, which again reversed the Circuit Court judgment in favor ofthe Company and remanded the case to the Circuit Court for further proceedings.On June 15, 2005, the Company filed with the Missouri Supreme Court anapplication to transfer the case to that court. On August 30, 2005, theMissouri Supreme Court denied the application for transfer. The case wasreturned to the Circuit Court for trial on plaintiffs’ claim that LOCIperformed construction services on, or that benefited, the property of variousdefendants, including the Company. A trial date has not yet been set. At thistime, the Company is unable to assess the likely outcome of this litigation.

***Ordinary Course Litigation***

Ownersand operators of golf courses are subject to a variety of legal proceedingsarising in the ordinary course of operating a golf course, includingproceedings relating to personal injury and property damage. Since the Companyis now either the owner and/or the operator of all of its remaining golfcourses, the Company maintains insurance for these purposes, subject todeductibles and exclusions deemed reasonable by the Company. The Company is notcurrently subject to any material claims of this type.

***Westin and Troon Management Fees***

The July 15,2004 Management Agreement between the Company’s subsidiary, GTA-IB, LLC, or “GTA-IB,”and Westin provides that Westin will manage the Resort for a fee equal to 2.2%of gross revenue of the Resort. Contemporaneously with the signing of this newManagement Agreement, Westin, and GTA-IB for the limited purposes described inthe Management Agreement, entered into a separate agreement with Troon whichprovides that Troon shall manage the golf facilities of the Resort for a fee,payable by GTA-IB, equal to 2% of gross golf revenue. These agreements alsoprovide for the opportunity for Westin and Troon to earn supplemental feesbased on financial performance metrics. The Management Agreement with Westinhas a termination date of December 31, 2017, however, by mutual agreement,on September 28, 2006, the Company, Westin and GTA-IB, entered a Terminationand Release Agreement (the “Termination Agreement”), pursuant to which theCompany, GTA-IB, and Westin agreed to terminate the Management Agreement as ofOctober 31, 2006 (the “Termination Date”).  In addition to the terminationof the Management Agreement, the Termination 

13

----

Agreement provides that(i) on or prior to October 3, 2006, the Company will deposit $600,000 in theResort’s operating account to be used in part to pay to Westin certain unpaidfees and charges which have accrued under the Management Agreement and whichare expected to approximate this amount, (ii) on or prior to the earlier ofMarch 31, 2008, or any sale of the Resort by the Company, the Company will payto Westin the termination fee provided under Section 4.4.2 of the ManagementAgreement calculated as of the Termination Date, approximately $5,594,000, and(iii) Westin will permit the Company and GTA-IB to continue to access Westin’s “SAP”accounting system for the operation of the Resort for a period of three monthsafter the Termination Date for a total charge of $6,000.  The Company andGTA-IB plan to independently manage the Resort as of the Termination Date.   The Company and GTA-IB have until November30, 2006 to decide whether to assume or terminate the management agreement withTroon for Troon to continue to manage the golf facilities of the Resort.

***Refundable Initiation Fees***

Certainmembership initiation fees at the Country Club at Wildewood and Woodcreek(collectively known as Stonehenge) are refundable based on specific conditions.The estimated present value of the potential refunds over the thirty-yearrequired membership term, as defined in the Club Membership Manual, is recordedas an accrued liability on the Company’s books at September 30, 2006 and isvalued at $125,000. Additionally, certain initiation fees may berefundable prior to the expiration of the thirty-year term under specificmembership replacement conditions. There is no liability recorded to considerthe refundability of refunds issued under these conditions due to the fact thatfour new members have to join in the specific membership category for aresigned member to receive a refund. A refund issued under these specificcircumstances would be considered a reduction of membership revenue for thatperiod. All new initiation fees received are initially recorded as deferredrevenue and amortized over the average life of a membership which, based onhistorical information, is deemed to be nine years.

**5.  Receivables—net**

Receivables—netconsists of the following:

|                                                    | ** ** | **September 30, 2006** | ** ** | **December 31, 2005** | ** ** |
|----------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                         | ** ** | **(Liquidation Basis)**     | ** ** |
| Notes receivable  taken in sale of asset           |       | $                                | —     |                            | $          | 2,326,000 |   |
| Member, trade  and other miscellaneous receivables |       | 1,942,000                        |       | 3,480,000                       |       |
| Total                                              |       | $                                | 1,942,000  |                            | $          | 5,806,000 |   |

 

At the end of the prior quarter, the notes receivablerepresent (a) the $2.5 million note the Company received from the buyer ofthe Eagle Ridge Inn & Resort and any accrued interest on that note,less a discount reserve of $200,000 (i.e., in the event that theborrower has not caused any uncured event of default to occur under the note upto its maturity date of February 1, 2007, the borrower shall have theright to reduce its payment obligations under the note by $200,000 plus anyinterest paid on that sum during the term of the note upon borrower’s paymentof the balance of the note, subject to certain prepayment prohibitions) and (b)the $1.063 million note the Company received from the buyer of the Tierra DelSol Country Club, plus accrued interest. On July 31, 2006, the purchaser ofthe Tierra Del Sol Country Club repaid to the Company the principal andinterest due from the purchaser under the terms of the $1.063 million notereceivable issued to the Company in connection with the sale.   On August 2, 2006, upon receipt of thesefunds, the Company paid approximately $183,000 to satisfy in full the Company’sfinal obligation under the Agreement for Marketing and Joint Sale of Tierra DelSol.  On August 23, 2006, pursuant to amutually negotiated termination of pledge and security agreement, the Companyaccepted a discounted payoff of $2.0 million for the note receivable originallytaken in connection with the sale of Eagle Ridge on January 30, 2003.  Pursuant to the terms of the termination ofpledge and security agreement, the Company redeemed 35,794 shares of theCompany’s common stock that were pledged to the Company by the borrowerpursuant to the note receivable.  Theshares were redeemed at the ten day trailing average price of $0.493 for atotal redemption value of approximately $18,000.  The remaining discount of approximately$236,000 ($300,000 net of deferred interest income of approximately $64,000)was recorded against the reserve for estimated costs during liquidation.

14

----

 

**6.  Debt**

|                            | ** ** | **September 30, 2006** | ** ** | **December 31, 2005** | ** ** |
|----------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| Revolving line  of credit  |       | $                                | 4,100,000  |                            | $          | 4,100,000 |   |
| Note payable               |       | 816,000                          |       | 769,000                         |       |
| Capital lease  obligations |       | 861,000                          |       | 961,000                         |       |
| Total                      |       | $                                | 5,777,000  |                            | $          | 5,830,000 |   |

 

*Revolving Line of Credit*

OnMarch 18, 2004, the Company entered into a loan agreement and relatedmortgage with Textron Financial Corporation, or Textron, for a revolving lineof credit with a maximum permissible outstanding loan amount of $2,100,000. OnAugust 4, 2005, the line was increased to $4,200,000 and the term was extendedto March 18, 2009. This loan is collateralized by a security interest inthe Company’s golf courses in Columbia, South Carolina, located at the CountryClub at Wildewood and the Country Club at Woodcreek, collectively known asStonehenge. The interest rate is the prime rate plus 1.75% per annum paidmonthly. This loan requires that the operations at Stonehenge for theimmediately preceding twelve month period be sufficient to meet a debt servicecoverage ratio, as defined in the mortgage of at least 1.20, as measuredmonthly. At September 30, 2006, the Company did not meet the debt servicecoverage ratio (in part due to the start-up costs of a new full-service finedining restaurant that opened at Stonehenge on September 15, 2006); however,due to the fact that, as of November 11, 2006, the Company has beenconsistently current in paying our interest obligations throughout the term ofthe loan, Textron waived the covenant violation and will re-evaluate atDecember 31, 2006.

Incertain instances, the loan may be assumed by a buyer of Stonehengepursuant to assumption provisions in this loan amendment. The interest ratecontinues to be the prime rate (8.25% per annum at September 30, 2006) plus1.75% per annum, paid monthly. The Company paid a one-time commitment fee toTextron of $42,000 to obtain the increase in this credit line.  In addition, the Company will pay to Textrona fee of 0.25% per annum of the unused balance of this line of credit.

Inconnection with the execution of the Textron loan amendment, the Company,through its subsidiaries Stonehenge LLC and Golf Trust of America, L.P.,collectively the Borrower, entered into a Notice of Future Advance, Note,Mortgage and Loan Modification Agreement with Textron, or the Amended Mortgage,modifying the March 2004 Mortgage, Security Agreement and Fixture Filing(as modified by the Amended Mortgage, the “Security Agreement”). The SecurityAgreement contains events of default provisions that include, among others,non-payment of principal, interest or fees, violation of covenants, inaccuracyof representations and warranties, cross defaults, bankruptcy and insolvencyproceedings, termination, dissolution or liquidation of Stonehenge LLC of GolfTrust of America, L.P., failure to cure the loss of certain licenses, permitsor contracts, curtailment of utilities or services at Stonehenge, and materialjudgments. In the event of the occurrence of an event of default, Textron isentitled to, among other things, accelerate all obligations of the Borrowerunder the aforesaid loan documents and sell certain of the Borrower’s assets,namely the Wildewood and Woodcreek golf courses and related assets, to satisfythe Borrower’s obligations.

SeeNote 10 for further discussion regarding debt.

*Note Payable*

Inconnection with the Settlement Agreement, Elk Funding, L.L.C., or Elk Funding,provided a $2,000,000 loan to the Company in the form of two promissorynotes, known as Promissory Note A and Promissory Note B.  Promissory Note B was repaid pursuant to itterms in September 2004, but Promissory Note A remains outstanding.Pursuant to the Company’s agreement with Elk Funding, these loans were to fundthe Resort’s current working capital needs. Promissory Note A is anon-recourse loan in the original principal amount of $700,000, and the Company’sobligations under that note are collateralized by a security interest in theCompany’s portion of the net proceeds from the ultimate sale of Parcel F.Interest accrues on the unpaid balance of Promissory Note A at a rate of primeplus 1% until the closing of the sale of Parcel F, at which time the principaland accrued interest under Promissory Note A will be immediately due andpayable. There are no specific financial reporting covenants in PromissoryNote A or the related loan documents.

*Capital Lease Obligations*

AtSeptember 30, 2006, the Company had capital lease agreements for certain golfcourse and other equipment at the Resort. These lease agreements expire atvarious dates through 2009.

15

----

 

**7.  Accounts payable and other liabilities**

Accountspayable and other liabilities consist of the following:

|                                | ** ** | **September 30, 2006** | ** ** | **December 31, 2005** | ** ** |
|--------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| Accounts payable               |       | $                                | 5,168,000  |                            | $          | 5,208,000 |   |
| Accrued payroll                |       | 1,211,000                        |       | 1,701,000                       |       |
| Accrued expenses               |       | 1,707,000                        |       | 2,201,000                       |       |
| Deferred revenue  and deposits |       | 3,833,000                        |       | 3,970,000                       |       |
| Total                          |       | $                                | 11,919,000 |                            | $          | 13,080,000 |   |

 

**8.  Investment in Resort and related obligations**

Certaincondensed balance sheet information regarding the Resort, adjusted for theliquidation basis of accounting, is provided below:
| ** **                                                                                           | ** ** | **September 30, 2006** | ** ** | **December 31, 2005** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| Assets                                                                                               |       |                             |       |                            |       |
| Current assets                                                                                       |       | $                                | 4,846,000  |                            | $          | 6,491,000 |   |
| Real estate and Resort assets                                                                        |       | 50,888,000                       |       | 50,626,000                      |       |
| Other assets                                                                                         |       | 2,453,000                        |       | 2,647,000                       |       |
| Total assets                                                                                         |       | 58,187,000                       |       | 59,764,000                      |       |
| Liabilities                                                                                          |       |                             |       |                            |       |
| Accounts payable and accrued expenses                                                                |       | 7,574,000                        |       | 8,862,000                       |       |
| Long term refurbishment                                                                              |       | 4,368,000                        |       | 4,647,000                       |       |
| Capital lease obligations                                                                            |       | 861,000                          |       | 961,000                         |       |
| Westin Termination Fee                                                                               |       | 5,594,000                        |       | 5,673,000                       |       |
| Troon Supplemental Fee                                                                               |       | 800,000                          |       | 800,000                         |       |
| Note Payable collateralized by Resort assets (Note  6)                                               |       | 816,000                          |       | 769,000                         |       |
| Reserve/adjustment for projected operating results  through the contemplated holding period (Note 2) |       | (669,000                         | )          | (824,000                        | )          |
| Total  liabilities                                                                                   |       | 19,344,000                       |       | 20,888,000                      |       |
| Net investment  in subsidiary                                                                        |       | 38,843,000                       |       | 38,876,000                      |       |
| Write-down to  estimated value                                                                       |       | (2,421,000                       | )          | (2,421,000                      | )          |
| Net investment in  subsidiary adjusted for write-down                                                |       | $                                | 36,422,000 |                            | $          | 36,455,000 |   |

 

Thedecrease in the Company’s net investment in its subsidiary fromDecember 31, 2005 to September 30, 2006 is due to the operatingperformance of the Resort for the nine months ended September 30, 2006.  The first quarter of the year is typicallythe most profitable quarter of the Resort’s fiscal year, so typically thereserve created by the performance in the first quarter is absorbed by the endof the third quarter.  As more fullydescribed in Note 2, at September 30, 2006, the Company has recorded a reserveof $669,000 to reflect the estimated operating results during the remainingcontemplated holding period (until April 30,2007).

*Master LeaseRefurbishment Obligation*

Inconnection with the Company taking control of the Resort from its unaffiliatedborrower effective July 16, 2004, the Company recorded a liability torecognize its obligations under the Master Lease Agreement, or MLA,refurbishment program.  This programentitles condominium owners who participate in the Rental Pool to 50%reimbursement of the refurbishment costs of their unit subject to the terms andconditions of the MLA. Interest on this liability is accrued at a rate of 5%and is paid quarterly. Principal payments began in the first quarter of 2005and will be paid quarterly through the fourth quarter of 2009.  In addition, the Company’s subsidiary, GTAIB, LLC, agreed to provide refurbishment reimbursement for units placed intothe rental pool during 2005 at a level of 25% of the applicable condominiumowner’s investment in the refurbishment. The Company refers to this program asPhase 5. Interest on the Phase 5 liability is accrued at a rate of 2.5% perannum and paid quarterly. Principal payments for Phase 5 begin in the firstquarter of 2008 and will be paid quarterly through the fourth quarter of 2012.As of September 30, 2006, the Company estimates the settlement value of thisliability upon sale of the Resort to be $4,463,000.

16

----

 

Minimum principal payments on the refurbishmentprogram at the Resort are as follows: 

| Year                                                        | ** ** | **Amount  (in thousands)** | ** ** |
|-------------------------------------------------------------|------------|---------------------------------|------------|
| October 1 – December 31, 2006 |       | $                               | 266        |   |
| 2007                                                        |       | 1,417                           |       |
| 2008                                                        |       | 1,781                           |       |
| 2009                                                        |       | 2,140                           |       |
| 2010                                                        |       | 19                              |       |
| Thereafter                                                  |       | 50                              |       |
| **Total**                                                   |       | $                               | 5,673      |   |

* *

*Westin Termination Fee*

TheManagement Agreement that the Company executed with Westin on July 15,2004 provides that the Company shall pay to Westin, subject to the terms andconditions set forth in that agreement, a termination fee of not less than$5,500,000. The estimated settlement value of this liability upon sale of theResort is approximately $5,594,000 as of September 30, 2006.  The termination fee is due the earlier of asale of the Resort or March 31, 2008. See Note 4 regarding the termination of the Management Agreement.

*Troon Supplemental Fee*

Thefacility management agreement that Westin executed with Troon was effective asof July 15, 2004. That agreement provides that the Company shall pay toTroon, subject to the terms and conditions set forth in that agreement, asupplemental fee of $800,000 for outstanding management fees originally payableto Troon prior to July 15, 2004. See Note 4 for further discussionregarding the facility management agreement.

**9.  Preferred Stock**

*Series A CumulativeConvertible Redeemable Preferred Stock*

OnApril 2, 1999, the Company completed a registered offering of 800,000shares of 9.25% Series A Cumulative Convertible Preferred Stock, par value$0.01 per share, or series A preferred stock, at a price of $25.00 pershare.  All shares of this series Apreferred stock were sold to AEW Targeted Securities Fund, L.P., or AEW. Theseries A preferred stock is convertible, in whole or in part, at theoption of the holder at any time into the Company’s common stock at an implicitconversion price of $26.25 per share of common stock, subject to adjustment incertain circumstances. The Company contributed the net proceeds to the Company’soperating partnership in exchange for 800,000 series A preferred OP unitswith analogous terms.

Aggregateseries A preferred stock dividends accrued until July 20, 2003 at arate of $462,500 per quarter. Effective July 21, 2003, the rate increasedto $625,000 per quarter (see further discussion of this increase below). As ofSeptember 30, 2006, the Company had not paid twenty quarters of series Apreferred stock dividends (including the dividend otherwise payable in respectof the quarter ended December 31, 2005). Under the Company’s series Acharter document, because the Company has at least six quarters of unpaidSeries A preferred stock dividends, the holder of the series Apreferred stock, AEW or its transferee, had the right to elect two additionaldirectors to the Company’s board of directors at its annual meeting that washeld on November 17, 2003, whose terms as directors would continue untilthe Company fully pays all accrued but unpaid series A dividends. AlthoughAEW did not exercise this right, it may do so in the future in accordancewith the terms of the Company’s series A charter and the voting agreement.

OnFebruary 22, 2001, the Company entered into a voting agreement with AEW,which continues to hold all shares of the series A preferred stock. Thatagreement required AEW to vote in favor of the plan of liquidation and requiredthe Company to redeem all of the shares of series A preferred stock (for$25 per share plus dividends accrued and unpaid thereon through the date of thefinal redemption payment) promptly after the Company determines in good faiththat it has received sufficient net proceeds from the disposition of theCompany’s assets and/or operations to redeem all of the series A preferredstock without violating any legal or contractual obligations.

17

----

 

Moreover,under the Company’s voting agreement with AEW, since the Company did not fullyredeem the series A preferred stock by May 22, 2003, AEW or itstransferee had the right to require the Company to redeem the series Apreferred stock in full within 60 days thereafter, which right AEWexercised. Since the Company defaulted on that obligation, from July 21,2003 until the series A preferred stock is redeemed, the stated dividendrate of the series A preferred stock increased from 9.25% to 12.50% perannum (equivalent to a quarterly dividend of $625,000). Although the Company ispermitted to continue to accrue such dividends without paying the same on acurrent basis, the dividends must be paid in full prior to any distribution tothe Company’s common stockholders (but after payment of all obligations to theCompany’s creditors), which will reduce the Company’s cash available forliquidating distributions to common stockholders.

OnMay 6, 2005, the Company executed an option agreement with AEW whichgranted the Company the right to repurchase all 800,000 shares of the Company’sseries A preferred stock held by AEW at a fixed price.   AEW and the Company have entered into aseries of agreements granting the Company the right to repurchase AEW’s seriesA preferred stock, each of which has expired by its terms.  In particular, on April 12, 2006, theCompany entered into a new option agreement with AEW.  In this option agreement (now expired), AEWgranted the Company the option, exercisable by the Company in its solediscretion, to purchase, on or before June 30, 2006, all 800,000 shares ofthe Company’s series A preferred stock held by AEW, including, withoutlimitation, all of AEW’s rights to Liquidation Preferences (as defined in theCompany’s Articles Supplementary, including, without limitation, LiquidationPreferences in respect of any accrued and unpaid dividends) payable in respectof such shares as of the Company’s exercise of the option for a price of$20,000,000. The option to repurchase AEW’s series A preferred stock was onlyexercisable in the event that the business of the Resort is purchased for cashconsideration of no more than $35 million. This option agreement expired onJune 30, 2006 pursuant to its terms.

The conclusionof the Company’s negotiations with AEW which will allow the Company torepurchase all of AEW’s series A preferred stock plus accrued dividends for aprice of $20 million or less is pending evidence or confirmation that theCompany has secured adequate financing to demonstrate its ability to close onthe transaction to repurchase all of the series A preferred stock.

As aresult of the Company’s assumption that these negotiations will lead to anexecuted agreement, the Company has not recorded in its net assets for thequarter ended September 30, 2006 either (i) a liability of $11,164,000 for theaccrual of quarterly preferred dividends for the period July 1, 2001 toSeptember 30, 2006 or (ii) additional dividend accruals of $625,000 for eachsubsequent quarter through the date that the exit transaction is ultimatelyconsummated and liquidation payments are made to AEW.   Further, thecarrying amount of the preferred shares remains at $20 million on theaccompanying statement of net assets; however, absent either an agreement by athird party to assume all or a portion of the Company’s accrued preferreddividend obligation or an agreement by AEW to forgive all or a portion of theCompany’s preferred dividend obligations, (neither of which have occurred), theCompany will be required to accrue, and ultimately pay in liquidatingdistributions to AEW, these preferred dividends.  Any preferred dividends which the Company isrequired to pay to AEW ultimately would reduce the net assets available tostockholders in liquidation and correspondingly the estimated liquidationdistribution per common share.  If theCompany were required to pay to AEW dividends accrued through September 30,2006, the Company’s liquidating distributions would be reduced by $1.52 per commonshare or OP unit of the Operating Partnership outstanding on that date.

At thepresent time, the Company has not executed a binding agreement with AEW.  There can be no assurances that the Companywill successfully execute such an agreement with AEW, or that the terms of anyagreement that the Company may execute with AEW will not be more onerous to theCompany than management currently anticipates.  Further, even if theCompany is able to execute an agreement with AEW which permits the Company torepurchase the series A preferred stock at $20 million or less, the Company maybe unable to negotiate a financing arrangement through its existing lenderrelationships or otherwise procure sufficient funding to permit it to exercisethat repurchase right and close the repurchase prior to its expiration. In the event that the Company executes an agreement with AEW and it is unableto repurchase AEW’s series A preferred stock in accordance with the terms ofthat agreement, in addition to the requirement that the Company pay accrueddividends to AEW, the Company expects that the agreement also would subject theCompany to penalties or grant AEW additional rights with respect to the Companyand its remaining assets which will be prejudicial to the Company and itsassets.

**10.  Subsequent Events**

In October 2006, theCompany funded its subsidiary, GTA-IB, LLC, $600,000 for working capital needsat the Resort in connection with the terms of the Termination Agreement withWestin.  See note 4 for further discussion.Also, in October 2006, the Company funded GTA-IB, LLC a total of $200,000 forthe capital project of upgrading the Resort’s technological infrastructure.

On October 30, 2006, the Company received and agreedto the terms of a non-binding confirmation of interest letter from an industrylender in which the lender proposes to provide a loan on the Resort with ananticipated closing date on or about December 15, 2006.  The proposed use of these funds would be to,among other things, (i) repay the Company’s Preferred Shareholder, (ii) fundcertain capital projects at the Resort, and (iii) cover certain working capitalneeds at the Resort.  Advancing thisconfirmation of interest to the next step which would be in the form of acommitment letter is subject to certain requirements that must be to the lender’ssatisfaction which include but are not limited to title insurance, propertyinsurance, survey, appraisal and market studies, water supply review andengineering and environmental reports.

18

----

**GOLF TRUST OFAMERICA, INC.Form 10-Q Quarterly ReportFor the Three and Nine Months Ended September 30, 2006 and 2005**

**ITEM 2. MANAGEMENT’S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

Wewere incorporated in Maryland on November 8, 1996. We are currentlyengaged in a liquidation of our assets pursuant to a plan of liquidationapproved by our stockholders. We were originally formed to be a real estateinvestment trust, or REIT; however, as of fiscal year 2002 we no longer have ourREIT status as a result of our repossession and operation of certain golfcourses following the default of their original third-party lessees. As ofNovember 11, 2006, we own two properties, held by us in fee simple.  These two properties represent six golfcourses. Two of the six golf courses are managed by us and four (namely, thegolf courses at the Resort) were managed by Westin pursuant to our ManagementAgreement with Westin, or the Management Agreement, from the inception of ourownership, July 15, 2004, to October 31, 2006 upon the termination of theManagement Agreement.  See furtherdiscussion in Note 4 to the Condensed Consolidated Financial Statementsreferred to in Item 1 of this quarterly report. Four of our golf courses are located in Florida and two are located inSouth Carolina. Golf Trust of America, L.P., a Delaware limited partnershipholds title to the golf courses which are located in South Carolina. Title tothe Resort is held by GTA-IB, LLC, a wholly-owned subsidiary of GTA-IB Golf Resort,LLC. GTA-IB Golf Resort, LLC is 100% owned by our operating partnership, GolfTrust of America, L.P. In this Quarterly Report, we refer to Golf Trust ofAmerica, L.P. as “our operating partnership” or “OP,” and we refer to theoperating partnership and ourselves (together with all subsidiaries)collectively as “we,” “us” or “our Company”. Through our wholly ownedsubsidiaries, GTA GP, Inc. and GTA LP, Inc., we held 100 percentof the interests in our operating partnership as of November 11, 2006. GTA GPis the sole general partner of our operating partnership and owns a0.2 percent interest therein. GTA LP is a limited partner in the operatingpartnership and owns a 99.8 percent interest therein. These percentagesgive effect to all outstanding preferred OP units on an as-converted basis asof November 11, 2006.

**Significant Events since thefiling of our Quarterly Report on Form 10-Q on August 21, 2006**

Significant events occurringsince August  21, 2006 (the filing dateof our quarterly report on Form 10-Q) include:

·                                          OnAugust 23, 2006, pursuant to a mutuallynegotiated termination of a pledge and security agreement, we accepted adiscounted payoff of $2.0 million for the note receivable originally given tous by the buyer of Eagle Ridge on January 30, 2003.  Pursuant to the terms of the termination ofpledge and security agreement, we redeemed 35,794 shares of our common stockthat were pledged to the Company by the borrower pursuant to the notereceivable.  The shares were redeemed atthe ten day trailing average price of $0.493 for a total redemption value ofapproximately $18,000.  The remainingdiscount of approximately $236,000 ($300,000 net of deferred interest income ofapproximately $64,000) was recorded against the reserve for estimated costs duringliquidation.

·                                          By mutualagreement, on September 28, 2006, we, as guarantor, our subsidiary, GTA-IB, LLCas owner, and Westin entered a Termination and Release Agreement (the “TerminationAgreement”), pursuant to which we and Westin agreed to terminate the ManagementAgreement as of October 31, 2006 (the “Termination Date”).  In addition tothe termination of the Management Agreement, the Termination Agreement providesthat (i) on or prior to October 3, 2006, we will deposit $600,000 in the Resort’soperating account to be used in part to pay to Westin certain fees and chargesaccrued under the Management Agreement which are expected to approximate thisamount, (ii) on or prior to the earlier of March 31, 2008, or any sale of theResort by us, we will pay to Westin the termination fee provided under Section4.4.2 of the Management Agreement calculated as of the Termination Date,estimated at $5,600,000, and (iii) Westin will permit the Company to continueto access Westin’s “SAP” accounting system for the operation of the Resort fora period of three months after the Termination Date for a total charge of$6,000.  We plan to independently manage the Resort as of the TerminationDate.   We have until November 30, 2006to decide whether to assume or terminate the facility management agreement withTroon for Troon to continue to manage the golf facilities of the Resort.

·                                          OnSeptember 29, 2006, we executed a letter amendment with Scott D. Peters, ourChief Financial Officer and Secretary, extending the fixed date of terminationof the modified schedule of Mr. Peter’s employment pursuant to the FourthAmended and Restated Employment Agreement between Mr. Peters and us fromSeptember 30, 2006 to April 30, 2007. As a result of the letter agreement, Mr.Peter’s employment will expire on April 30, 2007, unless earlier terminated byus or by Mr. Peters for Good Cause (as defined in the Employment Agreement).The employment agreement remains in full force and effect, except as expresslymodified or amended by the letter amendment. On September 29, 2006, we paid Mr.Peters one half of his remaining milestone payment, plus accrued interest, fora total payment of approximately $105,000. The letter agreement provides that we shall pay to Mr. Peters theremaining $82,615 balance of the performance milestone described in Section4.A.(a) of the Employment Agreement, plus accrued interest, no later than April30, 2007 or the earlier termination of his employment pursuant to Section 5.A.of the employment agreement as may be requested.

19

----

 

·                                          OnOctober 5, 2006, we entered into a letter agreement with Jan H. Loeb and NaumanS. Toor (collectively, the “Director Candidates”) under which, among otherthings, the Company agreed (i) to increase the number of members of its boardof directors to seven, and (ii) to include (and recommend the candidacy of) Mr.Loeb and Mr. Toor in the board of directors’ slate of nominees for potentialelection as  directors at the 2006 AnnualMeeting on November 17, 2006, and for purposes of our proxy solicitationprovide Messrs. Loeb and Toor substantially the same assistance that we providethe other board candidates in connection with such elections.   See further discussion in Part II, Item5 of this Quarterly Report.

·                                          Theconclusion of our negotiations with AEW which will allow us to repurchase allof AEW’s series A preferred stock plus accrued dividends for a price of $20million or less is pending evidence or confirmation that we have securedadequate financing to demonstrate our ability to close on the transaction torepurchase all of the series A preferred stock. As a result of our assumptionthat these negotiations will lead to an executed agreement, we have notrecorded in our net assets a liability for the accrual of preferred dividends payablefor the quarter beginning July 1, 2001 or for subsequent quarters.  In the event that either we are unable toreach an agreement with AEW, or we are unable to exercise any repurchase rightand close the repurchase under any agreement we may reach with AEW, we may berequired to pay AEW all or a portion of the preferred dividends for which wehave not recorded a liability, reducing our liquidating distributions toholders of our common stock.  See furtherdiscussion in Note 9 to the Condensed Consolidated Financial Statementsreferred to in Item 1 of this quarterly report and below in Part II, ItemIA of this Quarterly Report under the caption “*Risk Factors*.”

**Assetsheld for sale**

Thefollowing chart identifies each of our unsold properties as of November 11,2006:

 
| **Property**                                | ** ** | **Location**    | ** ** | **Number of  Golf Courses** | ** ** |
|---------------------------------------------|------------|-----------------|------------|---------------------------------------|------------|
| The Resort                                  |       | Palm Harbor, FL |       | 4                                     |       |
| Stonehenge  (Wildewood and Woodcreek Farms) |       | Columbia, SC    |       | 2                                     |       |
| Total                                       |       |            |       | 6                                     |       |

 

As of November 11, 2006, we have not entered into anybinding agreements with prospective purchasers of the foregoing assets.

**TheResort**

***Status of the Sale of the Resort***

Weterminated our month-to-month engagement with Houlihan Lokey, our thenfinancial advisor, on June 29, 2006 because an exit transaction had notoccurred.  Even though we terminated ourengagement letter with Houlihan Lokey, subject to certain terms and conditionsof that agreement, the transaction fee may still be due to Houlihan Lokey if aclosing of an exit transaction were to occur subject to certain terms of theengagement.  We continue to market theResort for sale on our own behalf. As of the date of this report, a definitiveagreement for the purchase of the Resort has not been executed.

Seefurther discussion below in Part II, Item IA of this Quarterly Reportunder the caption “*Risk Factors*.”

20

----

 

***Potential use of a Liquidating Trust***

As wecontemplate the sale of our remaining assets and the wind-up of our Company, ascontemplated by our plan of liquidation, we may elect to contribute ourremaining assets and liabilities to a liquidating trust. For a more completedescription of our potential use of a liquidating trust, please refer to “Potentialuse of a Liquidating Trust; Related Income Tax Risks to our Stockholders” inPart 1, Item 1 of our Form 10-K for the year ended December 31,2005 filed on April 17, 2006.

***Rental Pool***

Inconnection with the Settlement Agreement with the prior owner of the Resort, weassumed control and operation of the Resort Rental Pool Lease Operation at theResort. As of November 11, 2006, approximately half of the condominium ownersat the Resort provide their units as resort accommodations under rental poollease agreements. We refer to this arrangement as the Rental Pool.  We are the lessee under the lease operationagreements, which provide for the distribution of a percentage ofroom revenues to participating condominium owners. Accordingly, we do notbear the expense of certain operating and financing costs of the rental units.However, we do bear the expense of all other operating aspects of the Resort.

Thecondominium owners at the Resort have established an Association of CondominiumOwners, or the Association, to administer and maintain certain of the commonareas of the Resort and to conduct the business of the condominium owners, suchas maintaining insurance on the real property, upkeep of the structures,maintenance of the grounds, electricity for the common areas, water/sewer andsecurity services. In addition to the current rental pool agreement datedJanuary 1, 2002, the former owner of the Resort agreed with theAssociation that the former owner of the Resort would reimburse 50% of therefurbishment costs plus accrued interest (at 5% per annum) expended in therefurbishment of the condominium units by the condominium owners. As reflectedin the table below, this amount will be reimbursed to participating condominiumowners (or any parties to whom the participating condominium owners transfertheir condominium units) over the five-year period beginning in 2005. Inaddition, we, through GTA-IB, LLC, agreed to provide refurbishmentreimbursement for units placed into the Rental Pool after January 1, 2005 andbefore December 31, 2005 at a level of 25% of the condominium owner’sinvestment in the refurbishment. We refer to this program as Phase 5. Intereston the Phase 5 liability accrues at a rate of 2.5% per annum and is paidquarterly. Principal payments for Phase 5 begin in the first quarter of 2008and will be paid quarterly through December 31, 2012. As of September 30, 2006,the estimated settlement value of the refurbishment liability upon sale of theResort is $4,463,000.

Thereimbursement due to the owner of each unit is contingent on the unit remainingin the rental pool from the time of the refurbishment of such unit until theend of the reimbursement period (2009 or 2012, as applicable). If the unit doesnot remain in the pool during the applicable reimbursement period, the owner orsuccessor owner forfeits any unpaid installments at the time the unit isremoved from the pool.

As ofNovember 11, 2006, 612 units were participating in the Rental Pool at theResort. Minimum undiscounted principal and interest payments on therefurbishment program are as follows:
| **Year**                                 | ** ** | **Principal** | ** ** | **Interest** | ** ** |
|------------------------------------------|------------|---------------|------------|--------------|------------|
| October 1 –  December 31, 2006 |       | $             | 266,000    |         | $          | 69,000 |   |
| 2007                                     |       | 1,417,000     |       | 233,000      |       |
| 2008                                     |       | 1,781,000     |       | 153,000      |       |
| 2009                                     |       | 2,140,000     |       | 55,000       |       |
| 2010                                     |       | 19,000        |       | 1,000        |       |
| Thereafter                               |       | 50,000        |       | 1,000        |       |
| **Total**                                |       | $             | 5,673,000  |         | $          | 512,000 |   |

 

**Applicationof Critical Accounting Policies**

Uponapproval by our stockholders of the plan of liquidation on May 22, 2001,we adopted the liquidation basis of accounting for periods beginning afterMay 22, 2001. The changes in Net Assets in Liquidation for Golf Trust ofAmerica, Inc. excluding the Resort and Golf Host Securities, are discussedbelow. This discussion of changes in net assets, instead of a discussion ofoperating results, is consistent with the presentation of the liquidation basisfinancial statements in Item 1 of this Quarterly Report on From 10-Q. Theresults of operations for the Resort are discussed separately below under thecaption “Resort results of operations for the three and nine months endedSeptember 30, 2006 and 2005.” Please refer to “Management’s Discussion andAnalysis of Financial Condition and Results of Operations—Application ofCritical Accounting Policies” in our Form 10-K for the year endedDecember 31, 2005 filed on April 17, 2006 for a complete descriptionof our critical accounting policies.

21

----

 

***Reserve for Estimated Costs During the Period of Liquidation***

Thechange in our reserve for estimated liquidation costs for the three and ninemonths ended September 30, 2006 is summarized in Note 2 to our condensedconsolidated financial statements contained in Item 1 above.

**Changes in Net Assets inLiquidation**

***January 1, 2006 toSeptember 30, 2006***

On August 23, 2006, pursuant to amutually negotiated termination of a pledge and security agreement, we accepteda discounted payoff of $2.0 million for a note receivable originally receivedby us from the buyer of Eagle Ridge on January 30, 2003.  In connection with the termination of thepledge and security agreement, we redeemed 35,794 shares of our common stockthat were pledged to us by the borrower pursuant to the note receivable.  The shares were redeemed at the ten daytrailing average price of $0.493 for a total redemption value of approximately$18,000.  See further discussionin Note 5 to the Condensed Consolidated Financial Statements referred to inItem 1 of this quarterly report.

For the nine months ended September 30, 2006, netassets in liquidation decreased by approximately $1,289,000.  This decrease resulted from (a) an increasein the carrying value of Tierra Del Sol to reflect the estimated gain on thesale of Tierra Del Sol of approximately $340,000 plus (b) the additional gainrealized upon the actual closing of the sale of Tierra Del Sol of approximately$34,000, (c) the decrease in the estimated settlement amount of the Westintermination fee liability of approximately $79,000 offset by (d) the redemptionof the 35,794 operating partnership units discussed above for approximately$18,000, (e) an increase in the provision for capital expenditures ofapproximately $69,000, (f) accounting fees of approximately $115,000, (g) legalfees of approximately $915,000 and (h) corporate operating costs ofapproximately $625,000 to be incurred in (A) the negotiation of an assetpurchase agreement and contemplated consummation of the sale of the Resort, (B)litigating the proceedings to which we are currently a party and (C) theadministrative conclusion of our plan of liquidation.  Of these changes to our net assets inliquidation during the nine months ended September 30, 2006, $939,000represents changes that occurred during the three months ended September 30,2006.  The changes in the current quarterwere made up of (a) the decrease in the estimated settlement amount of theWestin termination fee liability of approximately $79,000 offset by (b) theredemption of the 35,794 operating partnership units discussed above forapproximately $18,000, (c) an increase in the provision for capitalexpenditures of approximately $25,000, (d) accounting fees of approximately$115,000, (e) legal fees of approximately $500,000 and (f) corporate operatingcosts of approximately $360,000.

Thenet assets of approximately $12,493,000 at September 30, 2006 would result in aliquidation distribution per share of approximately $1.73. This $1.73 estimatefor liquidation distribution per share includes projections of costs andexpenses expected to be incurred during the period required to complete theplan of liquidation, that is, until we sell our remaining two assets, includingthe Resort. These actual per share distributions that we make to the holders ofour common stock could be materially lower than we currently estimate due tofactors such as (i) the timing of any sale of the properties and thetransaction costs of consummating the same, (ii) the performance of theunderlying assets, and (iii) a change in the underlying assumptions of the cashflow amount projected. The $1.73 estimate is derived by dividing the net assetsin liquidation by the number of shares of common stock and common operatingpartnership units outstanding (7,317,000 less 85,000) after consideration ofthose shares that will be canceled prior to the distribution of the net assets.A total 85,000 shares of common stock pledged to us as security for the paymentand performance of the obligations and liabilities of the pledgor under acommon stock redemption agreement executed concurrently with a 2001 asset sale.Because this redemption agreement provides in part that these shares willbe tendered to us if and when the total amount of liquidating distributionspaid to its holders of common stock pursuant to the plan of liquidation is lessthan $10.74 per share, we expect these shares to be canceled.

Sincewe are presenting liquidation basis financial statements that only reflect thechanges in net assets in liquidation, the operating results of our company aresummarized and reflected in the table below.
| ** **                                                      | ** ** | **For the three months  ended September 30,** | ** ** | **For the nine months  ended September 30,** | ** ** |
|-----------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                      | ** ** | **2006**                                                               | ** ** | **2005**                                                              | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                      | ** ** | **(in thousands)**                                                | ** ** |
| Revenues                                                        |       |                                                                   |       |                                                                  |       |   |   |   |   |
| Revenue from Resort and managed golf course  operations         |       | $                                                                      | 5,136      |                                                                  | $          | 7,329 |   | $ | 36,297 |   | $ | 35,837 |   |
| Expenses                                                        |       |                                                                   |       |                                                                  |       |   |   |   |   |
| General and administrative                                      |       | 235                                                                    |       | 261                                                                   |       | 735 |   | 792 |   |
| Direct expenses from Resort and managed golf course  operations |       | 7,867                                                                  |       | 9,532                                                                 |       | 35,008 |   | 33,890 |   |
| Total operating  expenses                                       |       | 8,102                                                                  |       | 9,793                                                                 |       | 35,743 |   | 34,682 |   |
| Operating (loss)  income                                        |       | (2,966                                                                 | )          | (2,464                                                                | )          | 554 |   | 1,155 |   |
| Interest  expense—net                                      |       | (376                                                                   | )          | (361                                                                  | )          | (1,024 | ) | (988 | ) |
| Net (loss) income                                               |       | $                                                                      | (3,342     | )                                                                     | $          | (2,825 | ) | $ | (470 | ) | $ | 167 |   |

 

22

----

 

***Resort results of operations for the threeand nine months ended September 30, 2006 and 2005 (in thousands except forutilization statistics and percentages)***

Becausethe Resort is a destination golf resort, we believe it appeals to a differentmarket than the market to which stand-alone hotels located in downtownmetropolitan areas would appeal. The Resort provides recreation, food andbeverages to business meeting or group travelers, transient guests who playgolf, guests who purchase golf packages and guests who bring their families tothe Resort. As a destination golf resort, the Resort’s performance is sensitiveto weather conditions and seasonality. The Resort had higher realized revenueand fewer room nights during the nine months ended September 30, 2006 thanduring the corresponding period in 2005. We believe that the increase inrealized revenue is attributed to continuing sales and marketing effortsdirected towards attracting group and transient guests and the continued focuson sales of golf packages and golf memberships at the Resort.  The increase in the average daily raterealized from targeting a more profitable type of guest offset the revenue lostdue to the reduction in room nights and golf rounds.  During the nine months ended September 30,2006, each of these market segments at the Resort produced a greater aggregatespending level per room night as compared to the nine months ended September30, 2005.  While overall room nights andgolf rounds decreased 12.3% and 7.9%, respectively, during the first ninemonths of 2006 as compared to the same period of 2005, overall gross revenueper room night increased by $69.71 to $476.62 from $406.91 while gross golfrevenue per round played increased by $16.47 to $126.89 from $110.42.  The fluctuation in gross revenue is discussedin further detail below. 

The following table shows utilization of the Resortfacilities broken down by department, results of operations and selected RentalPool statistical data during the three and nine month period ended September30, 2006 and September 30, 2005:
| ** **                             | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|----------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                             | ** ** | **2006**                                                 | ** ** | **2005**                                                | ** ** | **Increase  (decrease)** | ** ** | **Percentage  Change** | ** ** | **2006** | ** ** | **2005** | ** ** | **Increase  (decrease)** | ** ** | **Percentage  Change** | ** ** |
| **Utilization  of Resort facilities:** |       |                                                     |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Available room  nights                 |       | 55,196                                                   |       | 55,343                                                  |       | (147 | ) | (0.3 | )% | 159,371 |   | 161,990 |   | (2,619 | ) | (1.6 | )% |
| Actual room  nights                    |       |                                                     |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Group                                  |       | 7,816                                                    |       | 9,156                                                   |       | (1,340 | ) | (14.6 | )% | 45,677 |   | 46,925 |   | (1,248 | ) | (2.7 | )% |
| Transient                              |       | 6,588                                                    |       | 8,328                                                   |       | (1,740 | ) | (20.9 | )% | 23,921 |   | 32,475 |   | (8,554 | ) | (26.3 | )% |
| Total room nights                      |       | 14,404                                                   |       | 17,484                                                  |       | (3,080 | ) | (17.6 | )% | 69,598 |   | 79,400 |   | (9,802 | ) | (12.3 | )% |
| Food and  beverage meals               |       | 66,687                                                   |       | 64,411                                                  |       | 2,276 |   | 3.5 | % | 321,944 |   | 315,058 |   | 6,886 |   | 2.2 | % |
| Golf rounds                            |       |                                                     |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Resort guests                          |       | 12,266                                                   |       | 13,585                                                  |       | (1,319 | ) | (9.7 | )% | 55,977 |   | 62,981 |   | (7,004 | ) | (11.1 | )% |
| Member/guests                          |       | 6,433                                                    |       | 7,250                                                   |       | (817 | ) | (11.3 | )% | 28,002 |   | 28,195 |   | (193 | ) | (0.3 | )% |
| Total golf  rounds                     |       | 18,699                                                   |       | 20,835                                                  |       | (2,136 | ) | (10.3 | )% | 83,979 |   | 91,176 |   | (7,197 | ) | (7.9 | )% |

 
| ** **                                  | ** ** | **Three Months Ended September 30** | ** ** | **Nine Months Ended September 30** | ** ** |
|---------------------------------------------|------------|---------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                  | ** ** | **2006**                                                | ** ** | **2005**                                               | ** ** | **Increase  (decrease)** | ** ** | **Percentage  Change** | ** ** | **2006** | ** ** | **2005** | ** ** | **Increase  (decrease)** | ** ** | **Percentage  Change** | ** ** |
| **Results  of operations (in thousands):**  |       |                                                    |       |                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues                                    |       |                                                    |       |                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Hotel                                       |       | $                                                       | 1,719      |                                                   | $          | 1,899 |   | $ | (180 | ) | (9.5 | )% | $ | 11,008 |   | $ | 10,632 |   | $ | 376 |   | 3.5 | % |
| Food and beverage                           |       | 1,554                                                   |       | 1,497                                                  |       | 57 |   | 3.8 | % | 9,372 |   | 8,557 |   | 815 |   | 9.5 | % |
| Golf                                        |       | 2,040                                                   |       | 2,009                                                  |       | 31 |   | 1.5 | % | 10,656 |   | 10,067 |   | 589 |   | 5.9 | % |
| Other                                       |       | 587                                                     |       | 689                                                    |       | (102 | ) | (14.8 | )% | 2,136 |   | 3,043 |   | (907 | ) | (29.8 | )% |
| Total revenues                              |       | 5,900                                                   |       | 6,094                                                  |       | (194 | ) | (3.2 | )% | 33,172 |   | 32,299 |   | 873 |   | 2.7 | % |
| Expenses                                    |       |                                                    |       |                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Hotel                                       |       | 1,979                                                   |       | 2,100                                                  |       | (121 | ) | (5.8 | )% | 8,929 |   | 9,015 |   | (86 | ) | (0.9 | )% |
| Food and beverage                           |       | 1,660                                                   |       | 1,476                                                  |       | 184 |   | 12.5 | % | 6,671 |   | 6,054 |   | 617 |   | 10.2 | % |
| Golf                                        |       | 1,775                                                   |       | 1,856                                                  |       | (81 | ) | (4.4 | )% | 5,542 |   | 5,518 |   | 24 |   | 0.4 | % |
| Other                                       |       | 2,562                                                   |       | 2,255                                                  |       | 307 |   | 13.7 | % | 7,939 |   | 7,393 |   | 546 |   | 7.4 | % |
| General and administrative                  |       | 1,017                                                   |       | 1,021                                                  |       | (4 | ) | 0.0 | % | 4,168 |   | 3,694 |   | 474 |   | 12.8 | % |
| Depreciation and amortization               |       | 505                                                     |       | 575                                                    |       | (70 | ) | (12.2 | )% | 1,529 |   | 1,910 |   | (381 | ) | (19.9 | )% |
| Total expenses                              |       | 9,498                                                   |       | 9,283                                                  |       | 215 |   | 2.4 | % | 34,778 |   | 33,584 |   | 1,194 |   | 3.6 | % |
| Operating loss                              |       | (3,598                                                  | )          | (3,189                                                 | )          | (409 | ) | (12.9 | )% | (1,606 | ) | (1,285 | ) | (321 | ) | (25.0 | )% |
| Interest  expense, net                      |       | 565                                                     |       | 438                                                    |       | (127 | ) | (29.0 | )% | 1,308 |   | 1,254 |   | (54 | ) | (4.3 | )% |
| Net loss                                    |       | $                                                       | (4,163     | )                                                      | $          | (3,627 | ) | $ | (536 | ) | (14.8 | )% | $ | (2,914 | ) | $ | (2,539 | ) | $ | (375 | ) | (14.8 | )% |
| ** **                                  | ** ** | ** **                                              | ** ** | ** **                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Selected  Rental Pool statistical data:** |       |                                                    |       |                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Average daily  distribution                 |       | $                                                       | 10.46      |                                                   | $          | 12.08 |   | $ | (1.62 | ) | (13.4 | )% | $ | 24.00 |   | $ | 23.48 |   | $ | .52 |   | 2.2 | % |
| Average room  rate                          |       | $                                                       | 119.33     |                                                   | $          | 108.64 |   | $ | 10.69 |   | 9.8 | % | $ | 158.16 |   | $ | 133.91 |   | $ | 24.25 |   | 18.1 | % |
| Occupancy  percentage                       |       | 26.1                                                    | %          | 31.6                                                   | %          | (5.5 | )% |   |   | 43.7 | % | 49.0 | % | (5.3 | )% |   |   |
| Average number of  available units          |       | 607                                                     |       | 602                                                    |       | (5 | ) | (.8 | )% | 584 |   | 591 |   | (7 | ) | (1.2 | )% |

 

23

----

 

***Three months ended September 30, 2006 and 2005.***

During the three months endedSeptember 30, 2006, there were 3,080, or 17.6%, fewer occupied room nights atthe Resort as compared to the three months ended September 30, 2005.  There were 1,740 fewer transient room nightsand 1,340 less group room nights during the three months ended September 30,2006 as compared to the three months ended September 30, 2005.  Group room nights consist of conference roomnights, or room nights which are booked and correlate to a meeting orconvention at the Resort, and transient room nights, which are room nightswhich are booked and do not correlate to a meeting or convention at theResort.  Transient room nights are oftenbooked 24 hours or less from the date of the visit, while group roomnights are typically booked no less than 120 days in advance of the dateof a visit.  Larger groups typically book16 to 18 months in advance of a stay. Transient room nights are often booked as part of golf packages andInternet bookings, among others, but during the first three months of September30, 2005, a significant number of transient rooms were attributable to theactualization of golf packages at the Resort. Management believes that transient room nights were lower in the threemonths ended September 30, 2006 than in the corresponding period in 2005 due toguests hesitancy to book rooms on the south east coast of Florida during thehurricane season based on the tropical activity during the hurricane seasonmonths of the past two years.

The effect of the decline inoccupied room nights on revenues during the three months ended September 30,2006 was mitigated by improved average room rates and ancillary spendingpatterns of the guests, coupled with increases in banquet and catering sales.Total revenue for the Resort was $194,000 less during the three months endedSeptember 30, 2006 than in the same period of 2005. An overall increase inspending by the Resort’s guests, both for rooms and by package guests for foodand beverages, helped to mitigate the reduction in gross revenue that resultedfrom the lower number of room nights in three months ended September 30, 2006as compared to same period of 2005. During the same periods, the average room rate increased from $108.64 in2005 to $119.33 in 2006.  Aggregatespending per room night during the three months ended September 30, 2006 was$409.61, as compared to $348.89 for the same period in 2005.   The most significant decrease in revenues atthe Resort during the three months ended September 30, 2006 occurred in theOther department. Revenues attributable to that category for the three monthsended September 30, 2006 decreased by approximately $102,000, or 14.8%, ascompared to the same period in 2005. Other Revenue decreased primarily becausethe Resort no longer charges a resort fee. Food and Beverage revenues increased by approximately $57,000, or 3.8%,as a result of 2,276, or 3.5%, greater meals served, or covers, as compared tothe three months ended September 30, 2005.  This aggregate increase in covers served was primarily attributable tothe Resort’s banquets, catering and room service, with a combined increase ofapproximately 1,590 covers. Covers attributed to the Resort’s casualrestaurants and pool service increased by approximately 686. While theaggregate number of covers increased, revenue per cover increased from $23.23to $23.31.  The combination of increasednumber of covers and increased revenue per cover produced the $57,000 positivevariance for the period ended September 30, 2006 versus September 30,2005.  Golf revenue increased byapproximately $31,000, primarily as a result of improved capture of revenue perround of golf.  Golf revenue for thequarter ended September 30, 2006 averaged $109.10 per round, as compared to$96.45 per round for the comparative period in 2005.  Although in the aggregate golf roundsdecreased by 2,136, golf revenues increased as a result of the capture ofincreased greens fees and ancillary spending in the pro shops. The net decreasein aggregate rounds played was attributed to 1,319 fewer rounds played by theResort’s transient guests, including packages, coupled with an aggregatedecrease of 817 rounds played by Resort members.  The number of total golf rounds played in thethree months ended September 30, 2006 was 18,699, compared to 20,835 roundsplayed in the same period of 2005. Golf revenue does not necessarily increaseor decrease exactly in proportion to occupied room nights because golf revenuealso includes member dues and fees and day golf group fees, neither of which isdirectly related to occupied room nights.

Consistent with past periods, we continued to monitortotal operating expenses in an attempt to insure that Westin controlledexpenses and that the expenses bore a direct correlation to the room nights,food and beverage covers and golf round demand. Aggregate total operatingexpenses do not generally increase or decrease on a one-to-one basis with totaloperating revenue because the Resort must carry a minimum fixed operating staffand other support expenses at all times. In those operating departments wherethe variable costs can best be managed, we manage these costs consistent withroom, food and beverage and golf demand. Total Resort operating expenses,before depreciation and amortization and excluding the Rental Pool amortizationin hotel operations, increased by approximately $285,000, or 3.3%, for thethree months ended September 30, 2006 as compared to the corresponding periodin the prior year.  This increase, inpart, can be attributed to an increase of approximately $593,000, or 286%, inthe Resort’s annual property insurance premiums, which renewed July 15, 2006,due to the tropical activity impacting Florida in the past two years althoughthe Resort has been fortunate and not suffered any significant losses due tothis activity.  We were told by ourbrokers that increases of this magnitude were dictated by the insuranceindustry due to the catastrophic losses experienced in coastal areas in therecent past and were not property specific so our premiums increase could notbe mitigated by the Resort’s lack of losses in prior periods.  Property and general insurance expense forthe three months ended September 30, 2006 increased $197,000 when compared tothe same period of the prior year.

24

----

 

Depreciation and amortization expense, excluding theRental Pool amortization included in hotel expenses, was approximately $505,000and $575,000 for the three months ended September 30, 2006 and 2005,respectively.

Interest expense, net of interestincome, was approximately $565,000 and $438,000 for the three months endedSeptember 30, 2006 and 2005, respectively, and reflects amortization of thediscount of (i) our Rental Pool refurbishment liability in the amount of$179,000, (ii) our short-term liability to Westin in the amount of $271,000 and(iii) our long-term liability to Troon in the amount of $12,000. The defaultedparticipating mortgage loan that was assumed by us from GHR, our unaffiliatedborrower, and has a balance at September 30, 2006 of $39,240,000,  became non-interest bearing upon our assumptionon July 15, 2004.

The net loss for the three monthsended September 30, 2006 was approximately $4,163,000, compared to a net lossfor the three months ended September 30, 2005 of approximately $3,627,000.

During the three months endedSeptember 30, 2006, approximately $240,000 of the capital reserve funds weredisbursed. Of those disbursed funds, $208,000 was used to pay lease payments onexisting and additional equipment consisting of bellman vehicles, golf cartleases, golf course equipment leases, telephone equipment leases and cable leasesand the balance was for various capital improvement projects and replacementsthroughout the Resort.

***Nine months ended September 30,2006 and 2005.***

During the nine months endedSeptember 30, 2006, there were 9,802, or 12.3%, fewer occupied room nights thanthere were for the nine months ended September 30, 2005.  During the nine months ended September 30,2006, there were 8,554 fewer transient room nights and 1,248 fewer group roomnights, resulting in a combined 9,802 fewer occupied room nights as compared tothe same period of the prior year. We believe the decrease in transient roomnights could be attributed to the mild weather in the winter and spring monthsexperienced during 2006 in the northern states. Because the winter and spring months were much warmer in the northernstates during 2006 than in 2005, we believe that transient guests and golfpackage guests were less inclined to visit the southern states.  As described above, we also believe thattransient room nights decreased in the late summer/early Fall months due toguest hesitancy to book rooms on the southeast coast of Florida during thehurricane season.    We believe thedecrease in group room nights was a result of our decision to target higherrevenue producing group type as opposed to certain types of groups that bookedin the prior year and were not as profitable. We also believe that the drop in group room nights was due to the factthat our sales and marketing department had four vacant positions for varyingperiods of time between February and June 2006 which hindered the sales andmarketing staff’s ability to book to the same levels as in prior periods.  The sales team is now fully staffed and webelieve that the sales productivity has begun to increase.

The decrease in the occupied roomnights during the nine months ended September 30, 2006 was offset by improvedaverage room rates and ancillary spending patterns of the Resort’s guests,coupled with increases in banquet and catering sales. Total revenue for theResort increased by $873,000 during the nine months ended September 30, 2006than in the nine months ended September 30, 2005. An overall increase inspending by the Resort’s guests, both for rooms and by package guests for foodand beverages, offset the reduction in gross revenue that resulted from thelower number of room night in the nine months ended September 30, 2006 ascompared to the same period of 2005.  Theaverage room rate increased from $133.91 in 2005 to $158.16 in 2006.  Aggregate spending per room night during thenine months ended September 30, 2006 was $476.62, as compared to $406.91 duringthe same period in 2005.   The mostsignificant increase in revenues at the Resort during the nine months endedSeptember 30, 2006 occurred in the Food and Beverage department. Revenues ofthat department increased by approximately $815,000, or 9.5%, for the ninemonths ended September 30, 2006, as compared to the same period in 2005.  Overall food and beverage revenues increased asthe food and beverage total covers (meals) increased by 6,886.  This net increase in covers served wasprimarily attributed to the Resort’s banquets, catering, room service and poolservice with a combined increase of approximately 12,513 covers. Coversattributed to the Resort’s casual restaurants decreased by approximately 5,627covers. This reduction of restaurant covers is reflective of the reducedtransient room nights noted above.  Foodand Beverage revenue per cover increased from $27.16 during the nine monthsended September 30, 2005 to $29.11 for the nine months ended September 30,2006, or 7.2% per cover.  Golf revenueincreased by approximately $589,000, primarily as a result of improved captureof revenue per round of golf.  Golfrevenue for the nine months ended September 30, 2006 averaged $126.89 perround, as compared to $110.42 per round for the comparative period in 2005,while the number of rounds played decreased for the period.   In the aggregate, while there were 7,197, or7.9%, fewer golf rounds, revenues increased as a result of the capture ofhigher greens fees and ancillary spending in the pro shops. The net decrease inaggregate rounds played was attributable to 7,004 fewer rounds played by theResort’s transient guests, including packages, coupled with a decrease of 193rounds played by Resort members.  Thenumber of total golf rounds played in the nine months ended September 30, 2006was 83,979, as compared to 91,176 in the same period of 2005. Golf revenue doesnot necessarily increase or decrease exactly in proportion to occupied roomnights because golf revenue also includes member dues and fees and day golfgroup fees, neither of which is directly related to occupied room nights.Increases in total revenue due to improved spending of the Resort’s guests inthe nine months ended September 30, 2006 as compared to the same period in 2005were offset by a decrease in Other Revenue of approximately $907,000.  Other Revenue decreased primarily because theResort no longer charges a resort fee.

25

----

 

Consistent with past periods, we continued to monitortotal operating expenses in an attempt to insure that Westin controlledexpenses and that expenses bore a direct correlation to the room nights, foodand beverage covers and golf round demand. Aggregate total operating expenses do not generally increase or decreaseon a one-to-one basis with total operating revenue because the Resort mustcarry a minimum fixed operating staff and other support expenses at all times.In those operating departments where the variable costs can best be managed, weseek to manage these costs consistent with room, food and beverage and golfdemand. Total Resort operating expenses, before depreciation and amortizationand excluding the Rental Pool amortization in hotel operations, increased byapproximately $1,575,000, or 5.0%, for the nine month period ended September30, 2006 as compared to the corresponding period in the prior year. Thisincrease of 5.0% is correlated to the increase in total operating revenue ofapproximately 2.7% as certain direct expenses increase/decrease based on thebusiness levels at the Resort and are not fixed.  Also, as discussed above in the three monthcomparison, insurance expense increased significantly upon renewal of ourannual policies on July 15, 2006 resulting in an increase for the nine monthsended September 30, 2006 of $210,000 when compared to the same period of theprior year.

Depreciation and amortizationexpense, excluding the Rental Pool amortization included in hotel expenses, wasapproximately $1,529,000 and $1,910,000 for the nine months ended September 30,2006 and 2005, respectively.

Interest expense, net of interestincome, was approximately $1,308,000, and $1,254,000 for the nine months endedSeptember 30, 2006 and 2005, respectively, and reflect amortization of thediscount on (i) our Rental Pool refurbishment liability in the amount of$536,000, (ii) our short-term liability to Westin in the amount of $447,000 and(iii) our long-term liability to Troon in the amount of $36,000. As previouslydiscussed, the defaulted participating mortgage loan that was assumed by usfrom GHR, our unaffiliated borrower,  andhas a balance at September 30, 2006 of $39,240,000 became non-interest bearingupon our assumption on July 15, 2004.

The net loss for the nine monthsended September 30, 2006 was approximately $2,914,000, compared to a net lossfor the nine months ended September 30, 2005 of approximately $2,539,000.

During the nine months endedSeptember 30, 2006, approximately $758,000 of the capital reserve funds weredisbursed. Of those disbursed funds, $626,000 was used to pay lease payments onexisting and additional equipment consisting of bellman vehicles, golf carts,golf course equipment, telephone and cable equipment and the balance was forvarious capital improvement projects and replacements throughout the Resort.

The preceding information may contain forward-lookingstatements within the meaning of Section 27A of the Securities Act, andSection 21E of the Exchange Act. Such statements may be identified by theinclusion of terms such as “suggests,” “believe,” “expect,” “hope” or “may” orother similar words. Although we believe that such forward-lookingstatements are based upon sound and reasonable assumptions, given thecircumstances in which the statements are made, the actual results could differsignificantly from those described in the forward-looking statements.

Certain factors that might causesuch a difference include, among others, the following: changes in generaleconomic conditions that may influence group conferences and guests’ vacationsplans; changes in travel patterns; changes in consumer tastes in destinationsor accommodations for group conferences and vacations; changes in rental poolparticipation by the current condominium owners; settlement of the class actionlawsuit involving the rental pool agreements; our ability to continue tooperate the Resort without the Westin Management Agreement or brand; and theresale of condominiums to owners who elect neither to participate in the RentalPool nor to become Club members. Given these uncertainties, readers arecautioned not to put undue reliance on such statements.

**Liquidity and Capital Resources**

Ouronly source of cash flow is a distribution of net operating income from the oneremaining golf property that we own and manage and cash flow from theoperations of the Resort, if any. We discuss the Resort’s cash position below.As a result of our need for liquidity, on March 18, 2004 we entered into aloan agreement and related mortgage with Textron Financial Corporation, orTextron, for a revolving line of credit. On August 4, 2005, we executedloan documents with Textron to amend the terms of the existing revolving loan.Pursuant to this amendment, the maximum permissible outstanding loan amount wasincreased from $2,100,000 to $4,200,000. The interest rate pursuant to theamended Textron loan documents continues to be the prime rate plus 1.75% perannum, paid monthly. The amendment extended the term of 

26

----

 

the loan from March 18, 2006 to March 18,2009. This loan is collateralized by a security interest in our golf coursescollectively known as Stonehenge. The loan requires that the operations atStonehenge for the immediately preceding twelve month period must be sufficientto meet a monthly debt service coverage ratio, as defined in the mortgage, ofat least 1.20.   At September 30, 2006,the Company did not meet the debt service coverage ratio (in part due to thestart-up costs of a new full-service fine dining restaurant that opened atStonehenge on September 15, 2006; however, due to the fact that, as of November11, 2006, the Company has been consistently current in paying our interestobligations throughout the term of the loan, Textron waived the covenantviolation and will re-evaluate at December 31, 2006.

Subjectto certain conditions, a buyer of Stonehenge may assume this loan pursuantto the loan assumption provisions in the amendment. We paid a one-timecommitment fee to Textron of $42,000, which represents 2% of the new fundsapproved to obtain the increase in this credit line.  In addition, we will pay to Textron a fee of0.25% per annum of the unused balance of the available line. As of the date ofthis report, we have drawn down a total of $4,100,000 on the line ofcredit.  Subject to our satisfaction ofthe applicable terms, conditions and covenants of this loan, there is $100,000available that could be drawn under this loan.

As ofSeptember 30, 2006, the Resort has a working capital deficit of approximately $8,958,000.  This working capital deficit resultedprimarily from the reclassification of the Westin termination fee and relateddeferred management fees from long term to short term obligations.  The reclassified termination fee and deferredmanagement fees total approximately $5,919,000 in the aggregate as of September30, 2006*. * See further discussion in Note 4 to theCondensed Consolidated Financial Statements referred to in Item 1 of thisquarterly report.  Before thisreclassification, the Resort had a working deficit of approximately$3,039,000.  The Resort’s member deficitat September 30, 2006 is $11,403,000. The Resort reported a net loss ofapproximately $2,914,000 for the nine months ended September 30, 2006.* *The Resort continuesto experience seasonal fluctuations in its net working capital position due tothe seasonality of the golf industry in Florida. This seasonality impacts ourliquidity. In particular, there is generally more available cash during thewinter months, specifically in the first quarter. Cash generally becomes verylimited in the late summer months. Revenues generally decline at the Resortduring the summer months because the hot Florida weather makes the Resort lessappealing for group golf outings and vacation destination golfers.Additionally, unusual weather patterns, such as the hurricanes experienced inFlorida in 2004 and those that affected the southeast coast in 2005, negativelyimpacted revenues for the Resort in the late summer-early fall season of 2005and 2006 as groups and guests were hesitant to book reservations on thesoutheast coast during the hurricane season. Weather-related concernsmay continue to negatively impact reservations in comparable periods(July through September) of subsequent years. The Resort uses seasonalpricing (peak, shoulder and off-peak) to maximize revenues. Generally, theResort’s only source of cash is from its profitable operations, if any. Whilethe financial performance of the Resort has shown signs of recovery since weassumed title to the Resort on July 15, 2004, current projections indicate anoperational cash flow shortfall of approximately $100,000 in the aggregate islikely to occur by December 31, 2006. Further, now that the Westin Management Agreement is terminated, we havebegun the capital improvement project of upgrading the technologicalinfrastructure of the Resort and replacing certain components which areproprietary to Westin.  Our projectionsindicate that the replacement of these components could require us to make aninvestment in the range of $1.0 to $2.0 million.  We continue to work diligently with theResort’s management team to identify opportunities to improve the cash flowsituation at the Resort. Further, we continue to seek a buyer for the Resort.We made intercompany advances to the Resort to support working capital needs inthe amounts of $2,000,000, $400,000, $650,000 and $600,000 in July 2004,September 2005, November 2005 and October 2006, respectively.Further, we funded approximately $200,000 for the beginning phase of thetechnological infrastructure capital investment in October 2006. In the eventthat we must advance additional capital to fund operations at the Resort or ourother operations, we may experience severe liquidity problems.

Until August 23, 2006, we held a note receivable fromthe sale of one of our golf properties. The amount outstanding under this noteat December 31, 2005 was approximately $2,326,000, which represented$2,500,000 principal on the note, plus accrued interest, less a $200,000discount reserve. On January 30, 2006, the borrower exercised its secondoption for a one-year extension on the maturity of the note. As a result of theextension of the term of this note,the maturity date was February 1, 2007. The borrower paid an extension feeof 50 basis points on the principal amount of the note, $2,500,000. This noteaccrued interest at prime plus 5% (13.25% at August 23, 2006) until the newmaturity date of February 1, 2007. This note was repaid at a discounted principal amount of $2.0 million onAugust 23, 2006.  See further discussionof this and other notes receivable in Note 5 to the Condensed ConsolidatedFinancial Statements referred to in Item 1.

In the event that we are unable to sell our remainingassets as contemplated, we may be unable to pay our obligations as theybecome due. In addition, our ability to pay our obligations as they become duewould be compromised if our chief executive officer requires payment ofoutstanding performance milestone payments owed by us to him before we are ableto realize net cash proceeds from asset sales sufficientto repay him. As of November 11, 2006, we owed our two most senior executiveofficers a total of approximately $1,714,000 in milestone payments and accruedinterest on such milestone

27

----

payments.We also owed approximately $2,861,000 in legal fees which are included in ourestimate of the costs to be incurred prior to our liquidation. We expect toincur additional fees and costs in connection with closing the sales of our tworemaining golf properties. Our ability to pay our obligations as they becomedue will depend on cash flow from the Resort, and forbearance by our seniorexecutive officers and our counsel with respect to sums that we owe to them. Inthe event that we experience lower revenues, or higher costs, with respect tothe Resort, we may need to seek to find alternative funding in order topay our obligations. Further, should our senior executive officers or ourcounsel require payment of funds owed to them, we may need to find alternativefunding in order to pay our obligations. This funding, if available,may not be offered on reasonable terms.

See discussion of our obligation to the holder of ourpreferred stock in Note 9 to the Condensed Consolidated FinancialStatements referred to in Item 1 and also in Item 1A under the caption “RiskFactors” in this Quarterly Report on this Form 10-Q.

 At the presenttime, we only have $100,000 available in our line of credit with Textron, andthis available amount may only be drawn upon our satisfaction of the applicable terms, conditions and covenants inthe loan documents regarding revolver advances. We expect that the cash flow that we receive from the net operatingincome of the Stonehenge golf courses, if any, will not be substantial.

On October 30, 2006, we received and agreed to theterms of a non-binding confirmation of interest letter from an industry lenderin which the lender proposes to provide a loan on the Resort with ananticipated closing date on or about December 15, 2006.  The proposed use of these funds would be to,among other things, (i) repay our Preferred Shareholder, (ii) fund certaincapital projects at the Resort, and (iii) cover certain working capital needsat the Resort.  Advancing thisconfirmation of interest to the next step which would be in the form of acommitment letter is subject to certain requirements that must be to the lender’ssatisfaction which include but are not limited to title insurance, propertyinsurance, survey, appraisal and market studies, water supply review andengineering and environmental reports.

*Nine months ended June30, 2006 and 2005*

Cash flow used in operating activities for the ninemonths ended September 30, 2006 was $1,894,000, compared to cash flow used inoperating activities for the nine months ended September 30, 2005 of $879,000.The primary components of the cash fluctuations in operating activities wereliquidation liability payments and adjustments and working capitalchanges.  Liquidation liability paymentsincreased for the nine months ended September 30, 2006 as compared to the ninemonths ended June 30, 2005, primarily due to an increase in legal fees incurredin connection with negotiations with potential purchasers of the Resort, amongother matters.

We made $129,000 in capital expenditures at the Resortand $70,000 at the other golf courses that we owned and managed during the ninemonths ended September 30, 2006, as compared to $589,000 at the Resort and$97,000 at the other golf courses in the ninemonths ended September 30, 2005.   In addition our investing activities for thenine months ended September 30, 2006 provided approximately $1,037,000 from thesale of one of our golf courses and we collected $3,067,000 in repayments onoutstanding notes receivable.

During the nine months ended September 30, 2006, theResort paid approximately $236,000 to satisfy its capital lease obligations and approximately $807,000against its refurbishment obligation to certain Rental Pool participants. During the nine months ended September 30,2005, the Resort paid approximately $802,000 to satisfy its capital leaseobligations.

**TaxConsideration**

We donot currently project any income tax liability for the remainder of ourliquidation as a result of our net operating loss carryforwards, which wecurrently expect to be sufficient to offset any taxable income for theremainder of our liquidation.

**OffBalance Sheet Arrangements**

As of September 30, 2006, we have no unconsolidatedsubsidiaries.

We donot have any relationships with unconsolidated entities or unconsolidatedfinancial partnerships of the type often referred to as structured finance orspecial purpose entities, i.e., unconsolidated entities established forthe purpose of facilitating off-balance sheet arrangements or other contractuallynarrow or limited purposes. Further, we have not guaranteed any obligations ofunconsolidated entities nor do we have any commitment or intent to provideadditional funding to any such entities (except potentially in connection withthe Resort as discussed previously). Accordingly, we believe we are notmaterially exposed to any market, credit, liquidity or financing risk thatcould arise if we had engaged in such relationships.

28

----

 

**ContractualObligations, Contingent Liabilities and Commitments**

The followingtable summarizes our contractual obligations at September 30, 2006, and theeffect such obligations are expected to have on our liquidity and cash flow (orupon our successors in interest under the applicable contracts, if thecontracts are not terminated) in future periods:
| ** **                                                                                                                           | ** ** | **Payments Due by Period** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| **Contractual Obligation**                                                                                                      | ** ** | **Total**                                 | ** ** | **Less than  1 year** | ** ** | **1-3 years** | ** ** | **4-5 years** | ** ** | **More than 5  Years** | ** ** |
| ** **                                                                                                                           | ** ** | **(in thousands)**                   | ** ** |
| Employment  Agreements and Employment Security Agreements                                                                            |       | $                                         | 2,170      |   | $ | 1,733 |   | $ | 437 |   | $ | — |   | $ | — |   |
| Series A  preferred stock and accrued dividends(1)                                                                                   |       | 20,000                                    |       | 20,000 |   | — |   | — |   | — |   |
| Elk Funding Loan                                                                                                                     |       | 816                                       |       | 816 |   | — |   | — |   | — |   |
| Textron  revolving line of credit                                                                                                    |       | 5,228                                     |       | 410 |   | 4,818 |   | — |   | — |   |
| Operating lease  agreements at the managed golf courses                                                                              |       | 227                                       |       | 158 |   | 69 |   | — |   | — |   |
| Advertising,  service, equipment maintenance and other contracts and software license and  support agreements at the managed courses |       | 2                                         |       | 2 |   | — |   | — |   | — |   |
| Lease agreements  for GTA corporate office                                                                                           |       | 5                                         |       | 5 |   | — |   | — |   | — |   |
| Subtotal of our  obligations excluding those of the Resort                                                                           |       | 28,448                                    |       | 23,124 |   | 5,324 |   | — |   | — |   |
| Master lease  agreement (with the condominium owners)                                                                                |       | 5,673                                     |       | 1,329 |   | 3,740 |   | 549 |   | 55 |   |
| Management  agreements(2)                                                                                                            |       | 6,362                                     |       | 5,914 |   | 414 |   | 34 |   | — |   |
| Troon  supplemental fee                                                                                                              |       | 800                                       |       | — |   | — |   | — |   | 800 |   |
| Operating and  capital leases                                                                                                        |       | 1,447                                     |       | 667 |   | 763 |   | 17 |   | — |   |
| Service  agreements and other                                                                                                        |       | 5,954                                     |       | 1,739 |   | 2,889 |   | 721 |   | 605 |   |
| Subtotal of the  Resort’s obligations                                                                                           |       | 20,236                                    |       | 9,649 |   | 7,806 |   | 1,321 |   | 1,460 |   |
| Total of our  consolidated obligations                                                                                               |       | $                                         | 48,684     |   | $ | 32,773 |   | $ | 13,130 |   | $ | 1,321 |   | $ | 1,460 |   |

----

(1)             The series Apreferred stock is reflected in the “Less than 1 year” column of this tableabove due to the fact that this obligation is expected to be paid upon the saleof the Resort. See further discussion below under the caption “Series APreferred Stock.”

(2)             Pursuant to the termsof the Termination Agreement, the Westin termination fee of approximately$5,594,000 is due at the earlier of the date of a sale of the Resort or March31, 2008.   This amount is included in the “Lessthan 1 year” column due to the fact that we are currently seeking a buyer forthe Resort and although as of November 11, 2006, no binding contract for thesale of the Resort has been executed.

Interestis reflected, as applicable, in the commitments and obligations listed above.The above table does not give effect to the anticipated sale of the Resort.

Pleaserefer to “Management’s Discussion and Analysis of Financial Condition andResults of Operations—Contractual Obligations, Contingent Liabilities andCommitments” in our Form 10-K for the year ended December 31, 2005filed on April 17, 2006 for a description of our contractual obligations.

29

----

 

**Commitments**

***Series APreferred Stock.***See discussion of our obligations to ourholder of the series A preferred stock in Item 1, note 9 above to ourcondensed consolidated financial statements herein and also in Part II,Item 1A of this Quarterly Report under the caption “Risk Factors”.

**Inflation**

Webelieve that inflation does not pose a material risk to us. Our main source ofcash flow is golf course dispositions which are not particularly vulnerable toinflation because we can adjust our asking prices if supply/demand factorssupport an interest in the particular golf course. Although some of ourobligations (such as the salary of our chief executive officer) automaticallyadjust for inflation, some of our rights are similarly indexed. Ourroom rates at the Resort and our golf course fees at the Resort and at theother properties that we own and manage are relatively flexible and can be increased,subject to constraints imposed by competition and, in some cases, patrons’yearly membership privileges.

**Seasonality**

Thegolf industry is seasonal in nature. Revenues generally decline at the Resortduring the summer months because the hot Florida weather makes the Resort lessappealing for group golf outings and vacation destination golfers.Additionally, we believe that unusual weather patterns, such as the tropicalstorm weather and hurricanes experienced in Florida in 2004 and 2005, reduced revenues for the Resort in the period from late summer throughearly fall in 2006 and future years by negatively impacting reservations incomparable periods.

TheResort hosted in October 2003, October 2004, October 2005, and October 2006, anationally televised PGA event, the Chrysler Championship, that brings some ofthe highest profile golfers to the Resort for several days for the tournament,as well as high profile golf industry sponsors and vendors.  We do not expect to host the ChryslerChampionship after this year.  On April25, 2006, we entered into an agreement with Suncoast Charities, Inc., orSuncoast, which provides that Suncoast will lease the Copperhead golf course atthe Resort for seven and one half days during the month of March for a PGA TOURevent.  Our agreement with Suncoastprovides that the tournament will occur each year in March beginning in March2007 and ending in March 2012.  Theagreement also provides, among other things, that we will receive a base feeand that we may receive a participation fee in the event the aggregate ticketsales during any tournament year exceed 115% of the greater of the 2005tournament ticket sales or the 2006 tournament ticket sales.

Historically,revenues increase in the fourth quarter; however, revenues are generally thegreatest during the first quarter as guests arrive from the northeast and otherregions to enjoy the warm weather at the Resort. The Resort uses seasonalpricing (peak, shoulder and off-peak) to maximize revenues. The effects ofseasonality at our golf courses can be partially offset at daily-fee golfcourses by varying greens fees based on changes in demand.

**ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

Wehave not entered into any transactions using derivative financial instruments.We are subject to market risk associated with changes in interest ratesapplicable to the revolving line of credit that we obtained on March 18,2004 and amended on August 4, 2005 and the promissory note payable to ElkFunding. At November 11, 2006, the total outstanding debt subject to interestrate exposure is $4,800,000. A 25 basis point movement in the interest rate onthe floating rate debt would result in an approximate $12,000 annualizedincrease or decrease in interest expense and cash flows. We have not enteredinto any transactions using derivative commodity instruments.

Referenceis made to Note 6 to the Condensed Consolidated Financial Statements of Item 1for additional debt information.

**ITEM 4.CONTROLS AND PROCEDURES**

Wemaintain disclosure controls and procedures that are designed to ensure thatinformation required to be disclosed in our Exchange Act reports is recorded,processed, summarized and reported within the time periods specified in the SEC’srules and forms, and that such information is accumulated and communicatedto our management, including our chief executive officer and our chieffinancial officer, as appropriate, to allow timely decisions regarding requireddisclosure. Our management assesses the costs and benefits of such controls andprocedures based upon the prevailing facts and circumstances, includingmanagement’s reasonable judgment of such facts. As we neither controlled normanaged the Resort prior to July 16, 2004, our disclosure controls andprocedures with respect to the manager and the Resort were necessarily morelimited than those we maintained with respect to our own corporate operations.At the close of business on July 15, 

 

30

----

2004, we tooktitle to the Resort; however, despite the fact that our Management Agreementwith Westin provides us with heightened control and access to information, wedo not directly assemble the financial information for the Resort although wehave taken steps that we deem to be reasonable under the circumstances to seekto verify such financial information. Consequently, our disclosure controls andprocedures with respect to the Resort, while strengthened as a relative matter,remain necessarily more limited than those we maintain with respect to our owncorporate operations. Since taking title to the Resort, we have focused uponintegrating operations at the Resort into our disclosure controls andprocedures and internal control procedures. In particular, those controls andprocedures have been updated to account for the challenges presented by theincreased size and scope of our operations now that we own the Resort.

Theintegration of a business much larger in size and scope of operations increasesthe risk that conditions may have been introduced that we did notanticipate in our design of our systems of control. Any pre-existingdeficiencies in the predecessor owner’s financial systems, processes andrelated internal controls increase the risk that the historical unauditedfinancial statements of the Resort’s operations and cash flows which thepredecessor owner has provided to us may not be accurate. We have ofnecessity placed a certain amount reliance on the historical financialinformation and reports of the Resort’s predecessor owner for the periods priorto July 16, 2004 and continue to rely on the information provided byWestin as manager of the Resort.

As ofSeptember 30, 2006, we carried out an evaluation, under the supervision andwith the participation of our management, including our chief executive officerand our chief financial officer, of the effectiveness of the design andoperation of our disclosure controls and procedures pursuant to Exchange ActRule 13a-15. Subject to the limitations mentioned above, our chiefexecutive officer and our chief financial officer concluded that as ofSeptember 30, 2006, our disclosure controls and procedures are effective intimely alerting them to material information relating to us (including ourconsolidated subsidiaries) required to be included in our Exchange Act reports.

Therehas been no change in our internal control over financial reporting during ourmost recent fiscal quarter that has materially affected, or is reasonablylikely to materially affect, our internal control over financial reporting.

**PART II. OTHER INFORMATION**

**ITEM 1:Legal Proceedings.**

We arecurrently involved in (or affected by) the following legal proceedings:

***Young Complaints***

OnMarch 22, 2004, a lawsuit was filed (and was served on our agent forservice of process on March 25, 2004) in the U.S. District Court for theDistrict of South Carolina, Florence Division, by one of our prior directors,Larry D. Young (together with Danny L. Young, Kyle N. Young, the Young FamilyIrrevocable Trust and The Legends Group, Ltd.), against our independentauditors, BDO Seidman, LLP (together with three former BDO partners), or theBDO Defendants,  and us (together withour executive officers).

Thecomplaint alleges that the BDO Defendants engaged in professional malpractice,misrepresentation, breach of fiduciary duty and fraud by counseling plaintiffsto participate in a type of tax shelter transaction, allegedly held illegal bythe Internal Revenue Service. The complaint has seven counts, the last of whichapplies to all defendants (the first six apply only to BDO and its partners).The seventh count alleges that we conspired with BDO to convince Mr. Youngthat he would realize a large projected tax gain in order to induceMr. Young (and the other plaintiffs) to enter into the failed tax sheltertransaction. The plaintiffs are seeking damages of at least $3.7 million,together with legal expenses and other costs.

DefendantsBDO Seidman, LLP (together with three former BDO partners) filed a motion tocompel arbitration and dismiss the complaint, and we and our executive officers,as defendants, filed a motion to stay, and for extension of time in which toanswer or otherwise respond to plaintiffs’ complaint. The plaintiffs’ filedmemoranda opposing the aforementioned motions. A hearing on these motions washeld in Florence, South Carolina on October 19, 2004. At the conclusion ofthat hearing, the judge indicated that the former motion would be taken underadvisement, while the GTA Defendants’ motion would be granted in part anddenied in part. As a result, the court declined to stay the litigation pendingthe outcome of the arbitration, but granted the motion extending time andgiving the GTA Defendants additional time to serve their answer. OnNovember 4, 2004, we filed our answer and counterclaims (nine counterclaimsagainst some or all of the plaintiff parties). On January 21, 2005, themagistrate judge issued a report and recommendation, recommending that the BDODefendant’s Motion to Compel Arbitration be granted, and that the claimspending against the BDO Defendants be stayed pending 

31

----

 

arbitration. On February 14, 2005, the DistrictJudge accepted the magistrate’s report and recommendation, and granted the BDODefendants’ Motion to Compel Arbitration, staying the claims pending againstthe BDO Defendants. The plaintiffs and the GTA Defendants have since agreedupon a proposed schedule for their part of the litigation, which wasjointly submitted to the court on March 11, 2005, and thereafter acceptedand entered as an Order on or about April 19, 2005. The scheduling Orderwas entered, and the parties conducted discovery until on or aboutAugust 2, 2005 when the parties agreed to informally stay all activity inthis litigation to pursue the possibility of settlement. As of November 11,2006, no settlement has been reached. While we may be willing to enterinto a settlement with the plaintiffs in which the plaintiffs dismiss theirclaims in exchange for our dismissal of our counterclaims, we intend to meetour deadlines and litigate this case vigorously. To that end, before thedeadline for doing so, we filed and served our motion for summary judgment asto the plaintiffs’ claims on December 23, 2005. The plaintiffs did notfile any dispositive motion within the time permitted, either with respect totheir own claims or to our counterclaims, nor did the plaintiffs timely fileany written response to the motion for summary judgment. Instead they filed amotion to re-open discovery and for leave to file a late response to the motionfor summary judgment by the GTA defendants. On March 21, 2006, at ahearing held on the plaintiffs’ motion, the court denied the plaintiffs’ motionto re-open discovery, with the exception that limited discovery was alloweduntil June 19, 2006 only on the question of the damages sought by the GTAdefendants in their counterclaims against the plaintiffs. The court allowed theplaintiffs to file a late response to the motion for summary judgment, whichthe plaintiffs did on March 31, 2006. The GTA Defendants filed a reply thereto.  On July 7, 2006, the plaintiff moved forsummary judgment on the GTA Defendants’ counterclaims, to which the GTADefendants responded with a motion to strike on grounds of grossuntimeliness.  The Court decided not todismiss the complaint on Rule 12 grounds, but requested that the December 22,2005 motions be refiled, and granted the plaintiffs leave to refile by December31, 2005, as a motion on the Rule 56 summary judgment grounds to facilitate theCourt’s consideration of the motion.  TheGTA Defendants filed an amended motion for summary judgment on August 10, 2006;the plaintiffs filed a response on August 28, 2006; and the GTA Defendantsfiled a response thereto.  The motion tostrike was heard by the Magistrate Judge on October 12, 2006.  On November 6, 2006, the judge entered anOrder granting the GTA Defendants’ motion to strike the plaintiffs’ late motionfor summary judgment.  A hearing on theGTA Defendants’ motion for summary judgment to attempt to eliminate theplaintiffs’ civil conspiracy claim against the GTA Defendants was held onNovember 8, 2006.  The judge took thematter under advisement and, as of November 11, 2006, had not yet ruled on themotion for summary judgment.  The trial datefor the GTA Defendants’ counterclaims against the plaintiffs will not be beforeJanuary 2007.  At this time, the Companyis unable to assess the likely outcome of this litigation**.**

***BlackBear Golf Course***

Theaction entitled *Ashley Fields, L.L.C. v. Golf Trust ofAmerica, L.P. and GTA-Black Bear, LLC,* Case No. 05-CA-207, wasfiled on January 24, 2005, in the Circuit Court of the Fifth JudicialCircuit in Lake County, Florida. The plaintiff is seeking damages against usbased upon alleged breach of contract, fraudulent concealment, fraudulentinducement and tortuous interference by the defendants. The plaintiff hasalleged that we have breached certain representations related to the stormwater permit issued at the property and that we have failed to pay certainaccounts payable at the property arising out of the sale of the Black Bear GolfClub to them on September 25, 2004. The plaintiff has not stated theamount of its demand for damages related to the storm water retention andconstruction deficiencies. Our counsel estimates the plaintiffs’ claims if trueto be approximately $250,000. Plaintiff’s claim for post-closing adjustmentshas not been stated in detail but appears to be less than $5,000. Theprevailing party in the litigation will recover attorney’s fees and costs. OnFebruary 22, 2005, the defendants filed a motion to dismiss the lawsuit. Ahearing was scheduled for March 29, 2005 but prior to the hearing, theparties resolved the issues in the motion to dismiss by stipulation that theplaintiff would amend the exhibits to its complaint so the hearing wascancelled. Plaintiff amended its complaint in June 2005. InJanuary 2006, we filed a motion for partial summary judgment. OnMarch 31, 2006, we received a memorandum in opposition to the motion forpartial summary judgment. The plaintiff objected to proceeding to summary judgmentbased upon the fact that the plaintiff had not taken certain depositions. Thecourt ordered that such depositions must be taken by the plaintiff within thenext 30 days. A hearing was expected to be scheduled in May 2006 on thismotion for partial summary judgment. The Company asked the Court to entersummary judgment on the alleged fraud and tortuous interference claims.Subsequently, a settlement, effective June 8, 2006, was reached at mediation,which provides, among other things, that the defendants pay the plaintiff$62,500.  This settlement agreement wasexecuted and the settlement amount paid on August 11, 2006.  The stipulation for joint notice of voluntarydismissal was filed on August 16, 2006 and the court file is closed.

32

----

 

***Stonehenge(Country Club at Wildewood and Country Club at Woodcreek Farms)***

OnApril 22, 2002, we filed an action entitled *Golf Trustof America, L.P. and GTA Stonehenge, LLC v. Lyndell Lewis Young and StonehengeGolf Development, LLC* in the Court of Common Pleas for RichlandCounty. We had asserted causes of action against the defendant for breach ofcontract, fraud and unfair trade practices. We were seeking damages ofapproximately $172,000, which represents prepaid dues that were not disclosedby the defendants. A counterclaim for payment under a consulting agreement,along with claims for payment of operating/maintenance and insurance expenseswas filed by the defendant against us on June 20, 2002; our reply wasfiled on July 22, 2002 denying the claims and, alternatively, seeking aset-off or recoupment against the defendant’s alleged claim for the amount ofour claim against the defendant. The Court dismissed the case on May 28,2003. On March 15, 2005, we took action to restore the case. The Court ofCommon Pleas for Richland County has ordered the case restored to theroster.  A written order will be issued once it is agreed betweencounsels.  As of November 11, 2006, the trial date has not yet been set.

***Land Use Lawsuits***

OnMarch 10, 2005 in the Circuit Court of the Sixth Judicial Circuit, in andfor Pinellas County, Florida, Civil Division, we filed a Motion to Intervene inthe lawsuit titled Innisbrook Condominium Association, Inc., C. FrankWreath, Meredith P. Sauer, and Mark Banning, as the Plaintiffs vs. PinellasCounty, Florida, Golf Host Resorts, Inc. and Innisbrook F LLC, as theDefendants, Case No. 043388CI-15. We refer to this lawsuit as the InitialLand Use Lawsuit.

Theplaintiffs have filed a multi-count complaint, or the Complaint, seekinginjunctive and declaratory relief with respect to the land use and developmentrights of a tract of land commonly known as Parcel F. Parcel F is a parcel ofland located within the Resort. The Plaintiffs allege that there are noremaining development units (residential units) available to be developedwithin the Resort property and owned by an unaffiliated third-party, GHR. OnMarch 29, 2005, we filed a Motion to Intervene as a defendant in theInitial Land Use Lawsuit in order to protect our property and our land use anddevelopment rights with respect to Parcel F and our property. A hearing on theMotion to Intervene was held on April 4, 2005, after which the courtgranted our Motion to Intervene. On April 5, 2005, we joined in the filingof a Motion to Dismiss and Motion to Strike three of the seven counts of theComplaint. The court granted the Motion to Dismiss on April 26, 2005. Onthat same date, four individuals (Joseph E. Colwell, Marcia G. Colwell, Kirk E.Covert, Deborah A. Covert) and Autumn Woods Homeowner’s Association, Inc.moved to intervene in the Initial Land Use Lawsuit which the court subsequentlyallowed.

OnApril 8, 2005, a separate suit, or the Subsequent Land Use Lawsuit, wasfiled by James M. and Mary H. Luckey and Andrew J. and Aphrodite B. McAdams.That suit seeks injunctive and declaratory relief in six separate counts, allrelating to the land use and development rights of Parcel F. This suit wasconsolidated with the Initial Land Use Lawsuit on May 3, 2005. AfterMay 6, 2005 we filed a Motion to Dismiss the Subsequent Land Use Lawsuit.

TheCompany refers to the Initial Land Use Lawsuit and the Subsequent Land useLawsuit as the “Land Use Lawsuits.” The motion was heard by the court onMay 31, 2005. Since that hearing, we have filed our Answer and AffirmativeDefenses to both complaints that have been filed in the consolidated action. OnAugust 3, 2005, a case management conference was held before the judge whois now presiding over this case. At that hearing, the court scheduled a hearingon the defense motions for summary judgment for August 30, 2005, and atrial starting December 12, 2005. On August 30, 2005, the judge heardextensive argument on the defense motions for summary judgment and entered anumber of rulings in the defendants’ favor. In summary, the court dismissedthose claims in the Initial Land Use Lawsuit and the Subsequent Land UseLawsuit which are founded upon the theory that the proposed development isinconsistent with the Pinellas Countywide Plan and Rules adopted pursuantto Chapter 73-594, Laws of Florida. The court further dismissed for lack ofjurisdiction those claims of the plaintiffs in the Subsequent Land Use Lawsuitthat are based on the theory that the proposed development is inconsistent withthe Pinellas Comprehensive Plan. The court entered a similar ruling on CountsI, II, VIII-XV of the Third Amended Complaint as to some (but not all) ofthe plaintiffs in the Initial Land Use Lawsuit.

Thedefendants in the Initial Land Use Lawsuit also filed a Motion to Strike the Plaintiffs’Demand for Jury Trial. In the face of that motion, the plaintiffs dropped theirjury trial demand and the court confirmed by order dated September 21,2005 that this case will not be tried by a jury. The court then entered anorder scheduling the remaining claims for non-jury trial duringDecember 2005.

Inaddition, the plaintiffs in the Initial Land Use Lawsuit have filed a motionfor summary judgment. The court set the hearing date for the summary judgmentreview for December 7, 2005. From December 19 throughDecember 23, 2005, the court tried these consolidated cases in a non-jurytrial. At the conclusion of the evidentiary portion of the trial, the courtdeferred final argument until Friday, January 6, 2006. On that date, finalargument took place before the court at the conclusion of which the courtrendered its decision. The court ruled in favor of all defendants and againstall plaintiffs as to each count in both cases. Subsequent to the court’s oralrulings, defense counsel prepared a proposed final judgment which reflects thecourt’s factual findings and legal conclusions. On March 8, 2006, the courtformally entered its final judgment on the record ruling in favor of thedefendants on all counts and denying all claims asserted by the plaintiffs inboth Land Use Lawsuits. On March 31, 2006, the plaintiffs in the consolidatedcases filed a notice of appeal.  Sincethe filing of that notice, 

 

33

----

the plaintiffs/appellants have filed their initialappellate brief and the defendants/appellees, including GTA-IB, LLC have filedtheir answer brief.  Theplaintiffs/appellants will have an opportunity to file a reply brief todefendants/appellees’ answer brief.  Asof November 11, 2006, no such reply brief was filed.

As anintervenor in the Initial Land Use Lawsuit, we will seek to obtain a rulingfrom the court which preserves and protects our property, the land use anddevelopment rights with respect to Parcel F and our property in order tomaximize the value of those rights as they relate both to Parcel F and theResort in general. We refer to these two matters as the Land Use Lawsuits. Seefurther discussion of the Land Use Lawsuits under the heading “Risk Factors” inPart I, Item 1A of this report.

In theevent that the defendants in the Land Use Lawsuits do not prevail in theappeal, the owner of Parcel F may lose all or substantially all of itsland use and development rights with respect to Parcel F. As a result, wemay experience reduced club memberships at the Resort, and our ability torealize the benefits from proposed development of Parcel F would be adverselyimpacted. In addition, failure by the defendants to prevail in the Land UseLawsuits could jeopardize our land use and development rights in the remainingunits that we may have the opportunity to develop at the Resort if a courtsubsequently applied a similar interpretation of our rights with respect tothose units. In that instance, we might lose all or substantially all of thoserights with respect to the remaining units. As a result of a successfulchallenge to our land use and development rights relating to the remainingunits at the Resort, our ability to develop the Resort would be adverselyaffected.

***Property Tax Lawsuit***

OnDecember 10, 2004, our indirect subsidiary, GTA-IB, LLC filed a lawsuitagainst the property appraiser of Pinellas County Florida, or Pinellas County,to challenge the 2004 and 2005 real estate assessment of the Resort property.Pinellas County filed a motion to dismiss the Company’s action, which wasdenied by the court. As of November 11, 2006, no trial date has been set. IfPinellas County were to prevail, there would be no material adverse effect uponour financial statements, as the assessment is fully accrued and accounted forin our books and records.

***Lake Ozark Industries, Inc. and Everett HoldingCompany, Inc. v. Golf Trust of America, et al.***

Thisis an action initiated in the Circuit Court of Miller County, Missouri, by acontractor, Lake Ozark Construction Industries, Inc., or LOCI, and itsasserted assignee of lien and account rights, Everett HoldingCompany, Inc., in the Fall of 1999 against numerous defendants, includingGolf Trust of America, L.P. Plaintiffs assert LOCI performed constructionservices on, or that benefited, the property of various defendants, includingGolf Trust of America, L.P. So far as the action concerns Golf Trust ofAmerica, L.P., plaintiffs seek to foreclose a mechanic’s lien upon propertyformerly owned by Golf Trust of America, L.P. The lien is for the principalamount of approximately $1,276,000, plus interest at 10% per annum and attorneyfees. Plaintiffs calculate interest to May 20, 1999, just prior to thelien filing, to be approximately $151,000 and interest thereafter to be $354per day. In March 2002 the Court orally granted a motion for summaryjudgment filed by Golf Trust of America, L.P., ruling that plaintiffs’ claimedlien does not comply with requirements of the Missouri mechanic’s lien statuteand is invalid. The court entered its written order granting Golf Trust ofAmerica, L.P.’s motion for summary judgment in April 2002. Since not allclaims involved in this lawsuit were disposed of by that ruling, Plaintiffs’time to appeal this ruling did not begin to run. In November 2003 thecourt entered a final judgment, and plaintiffs appealed the ruling in favor ofGolf Trust of America, L.P. to the Missouri Court of Appeals. The briefs in theappeal were filed and the case was argued to the court of appeals onOctober 19, 2004. On November 9, 2004, we filed with the Court ofAppeals a Motion to File Supplemental Brief, along with a copy of aSupplemental Brief. Following briefing and oral argument, the Court of Appealson April 5, 2005 reversed the Circuit Court judgment in favor of us andremanded the case to the Circuit Court for further proceedings. OnApril 20, 2005, we filed with the Court of Appeals a motion for rehearingand an alternative application to transfer the case to the Missouri SupremeCourt. The Court of Appeals denied this motion and the transfer application onMay 31, 2005. On May 31, 2005, the Court of Appeals also filed a modifiedOpinion, which again reversed the Circuit Court judgment in favor of us andremanded the case to the Circuit Court for further proceedings. OnJune 15, 2005, we filed with the Missouri Supreme Court an application totransfer the case to that court. On August 30, 2005, the Missouri SupremeCourt denied the application for transfer. The case was returned to the CircuitCourt for trial on plaintiffs’ claim that LOCI performed construction serviceson, or that benefited, the property of various defendants, including us. Thetrial date has not yet been set. At this time, we are unable to assess thelikely outcome of this litigation.

34

----

 

***Agreement for Marketing and Joint Sale of Tierra DelSol***

On September 20, 2000, Terence Mulvihill, aprincipal in the lessee and in the entity which previously owned the Tierra DelSol Country Club, attempted to terminate our water rights lease agreement atthe Tierra Del Sol Country Club. The termination was allegedly based upon(a) the existence of an unauthorized assignment, which Mr. Mulvihillclaimed was the result of allowing GTA Tierra Del Sol, LLC to operate the golfcourse; (b) use of the water on the golf course in a manner which wascontrary to the purposes authorized under the water rights lease agreement;(c) use of the water in amounts in excess of the amounts permitted underthe terms of the water rights lease agreement; and (d) non-payment of 1999taxes under the water rights lease agreement. We responded in writing toMr. Mulvihill disputing the termination of the water rights leaseagreement. We also filed a complaint on January 15, 2002 in the ThirteenthJudicial District Court, County of Valencia, State of New Mexico, against theMulvihill Estate (Mr. Mulvihill died in December 2000) and GolfClassic Resorts, LLC. Our complaint sought various forms of relief in relationto the water rights lease agreement and the underlying purchase of Tierra DelSol, including, but not limited to, requesting a determination that:(1) the water rights lease agreement has not been terminated and remainsin effect; (2) the lease, in essence, constitutes a transfer of a feeinterest in the water rights; or (3) alternatively requesting a rescissionof the 1998 contribution and leaseback agreement pursuant to which the waterrights were assigned to Mr. Mulvihill, based upon the fraud andmisrepresentation of the seller and Mr. Mulvihill. On February 21,2003, we entered into an agreement for marketing and joint sale of the propertywith Mary Louise Mulvihill Skalkos, the executor of the Mulvihill Estate andGolf Classic Resorts, LLC. In that agreement, the parties agreed jointly tomarket the assets at the Tierra Del Sol Golf & Country Club in Belen,New Mexico, which assets include a 9-hole executive golf course, water rights,and tennis courts, in addition to the country club. Since we closed on the saleof Tierra Del Sol on May 8, 2006, we applied the terms of this agreementto this transaction. On July 31, 2006, the buyer of the Tierra Del Sol CountryClub paid the Company’s $1.063 million note receivable taken in connection withthe sale.  In connection with thecollection of this note, on August 2, 2006, the Company paid from theseproceeds its final obligation under the Joint Marketing Agreement for the Saleof Tierra Del Sol of approximately $183,000.

**Routine Litigation**

Inaddition to litigation between a lessor (such as our operating partnership) andour former lessees (and their affiliates), owners and operators of golf coursesare subject to a variety of legal proceedings arising in the ordinary course ofoperating a golf course, including proceedings relating to personal injury andproperty damage. We have in the past been, and expect to continue in the futureto be, subject to proceedings relating to personal injury and property damage.Such proceedings are generally brought against the operator of a golf course,but may also be brought against the owner of the golf course. Since we arenow either the operator or owner of our remaining golf courses, we maintaininsurance to defend against certain of these actions

**ITEM 1A.RISK FACTORS**

**Risks that might Delay orReduce our Liquidating Distributions**

Wehave recorded the value of the Resort and our remaining golf courses andliabilities at our best estimates of fair value as of November 11, 2006;however, we can provide no assurance that these estimates reflect the actualcurrent market value for the applicable courses. As a result of our inabilityto provide any assurance regarding the estimates of the fair value of ourassets, including the probability of negotiating and closing a sale of theResort, at the present time, we do not believe that we are able to reliablyproject the amount of the total liquidating distributions we will make to theholders of our common stock over the remainder of the liquidation period andthe amounts may be significantly less than our earlier projections.Further, while we have provided in this report estimated adjustments to netassets in liquidation based upon the sale of the Resort and our interest inParcel F for aggregate consideration of approximately $36.4 million, there can beno assurances that we will be able to close a sale of the Resort for a pricethat will allow us to realize the estimated proceeds for the Resort, if at all.Further, in the event that we are unsuccessful in negotiating the terms of anew agreement which will allow us to repurchase all of AEW’s series A preferredstock for a price of $20,000,000 or less, or if we negotiate such an agreementand are unable to repurchase AEW’s preferred stock for any reason, the assetsavailable for distribution to the holders of our common stock, and the ultimateliquidating distributions to the holders of our common stock, will be reducedby the amount of any accrued dividends through the date that we redeem AEW’sshares. Even if we are able to successfully negotiate an agreement with AEWwhich would allow us to repurchase AEW’s preferred stock at a price thatexcludes dividends on the preferred stock, we may either be unable to sell theResort at a time or under conditions which do not permit us to exercise ouroption.  As a result of these factors,the estimated adjustments to net assets in liquidation provided in this reportmay prove incorrect and the amounts, if any, that we ultimately distributeas liquidating distributions may be significantly less than estimated.

35

----

 

***Now that our Management Agreementwith Westin is terminated, in addition to our obligation to pay terminationfees to Westin, we were required to find a third party to manage the Resort ormanage the Resort ourselves.  We havedecided to manage the Resort ourselves.***

TheManagement Agreement provides that we shall pay to Westin, subject to the termsof the Management Agreement termination fee of at least $5,500,000.   As of October 31, 2006, the termination dateof our Management Agreement with Westin, the termination fee is approximately$5,594,000.  See disclosure of this obligation as accrued at September 30,2006 in note 4 to our condensed consolidated financial statements contained inPart 1, Item 1 of this Quarterly Report.  This fee must be paid to Westin upon the earlier of (i) a sale of theResort or (ii) March 31, 2008.  In theevent that we are unable to sell the Resort by March 31, 2008 before thisobligation becomes due, the payment of this fee could cause us severe liquidityproblems.

Wehave retained substantially all of the former Westin executive management teamat the Resort, with the exception of the positions of general manager andcontroller, although we have a contract arrangement with Westin that allows usto retain the former Resort general manager, a Westin employee, at ourdiscretion through January 31, 2007. Even with the experienced former Westin executive management team, wecannot guarantee that we will be as successful in managing the Resort as Westinhas been because we do not have the Westin brand on the hotel and the synergiesavailable to a global hotel chain. Further, the successor Resort general manager, whenever that individualis named, may not be as successful at managing the Resort as the former Westingeneral manager.  In the event that weprove less successful than Westin or if we are unable to hire a general managerthat is as skilled and qualified as the former Westin general manager, ourresults of operations and financial condition could be adversely affected.

***If we are not able to sell the Resort and our otherremaining golf property in a timely manner, obtain liquidity with respect tocertain other non-real estate assets such as our note receivable, or obtainsome form of additional financing, we may experience severe liquidityproblems, not be able to meet the demands of our creditors, and ultimatelybecome subject to involuntary bankruptcy proceedings.***

In theevent that we are unable to sell the Resort and our other remaining golfproperty as planned, obtain liquidity with respect to certain other non-realestates assets such as our note receivable, or obtain some form ofadditional financing, we may be unable to pay our obligations as theybecome due or upon demand. In addition, our ability to pay our obligations may becompromised if either of (i) our chief executive officer requires payment ofoutstanding performance milestone payments owed by us to him or (ii) ourcounsel demands payment before we are able to realize net cash proceeds fromasset sales or financing sufficient to discharge those obligations. As ofNovember 11, 2006, we owed our two most senior executive officers a total ofapproximately $1,317,000 in milestone payments and accrued interest on suchmilestone payments. We also owe a substantial sum in legal fees (approximately$2,861,000), including fees incurred in connection with the negotiation ofagreements providing for the sale of the Resort.

Further,given that the Resort’s only source of cash is from any profitable operationsof the Resort, and that the operational cash flow capacity of the Resort willlikely not permit the Resort to maintain positive cash flow through out 2006,we may be required to seek to provide additional capital to the Resort. Wemade intercompany advances to the Resort to support working capital needs inthe amounts of $2,000,000, $400,000, $650,000, and $600,000 in July 2004,September 2005, November 2005, and October 2006, respectively. Wealso funded approximately $200,000 for the beginning phase of the technologicalinfrastructure capital investment in October 2006.  While the financial performance of the Resorthas shown signs of recovery since the Company assumed title to the Resort onJuly 15, 2004, current projections indicate that an operational cash flowshortfall of approximately $100,000 in the aggregate is likely to occur inNovember 2006.   Further, the Resort’scredit capacity is limited. There are no assurances that additionalintercompany advances will not be necessary prior to the consummation of a saleof the Resort. In the event that we must advance additional capital to fundoperations at the Resort or our other operations, we may be required toseek financing or raise further capital in order to meet our obligations whenthey come due. Further, we may also be required to use proceeds from thesale of our other assets to fund our operations and the operations of theResort. There is no assurance that we will be able to obtain liquidity withrespect to certain other non-real estate assets, obtain additional financing,raise further capital or that we will have sufficient proceeds from assetssales from which to draw, or that any funding that we receive will not containrestrictive covenants or other onerous terms. Additionally, we expect that thecash flow that we receive from the net operating income of the Stonehenge golfcourses, if any, will not be substantial.

In theevent we are not able to sell our remaining assets within a reasonable periodof time and for reasonable amounts, obtain liquidity with respect to certainother non-real estate assets, or obtain additional financing, or if ourexpenses exceed our estimates, we may experience severe liquidity problemsand not be able to meet our financial obligations of our creditors. If wecannot meet our obligations to our creditors, we could ultimately becomesubject to bankruptcy proceedings.

36

----

 

***Our estimate of the Resort’s fair value, as recordedon our books for accounting purposes, is based on forward-looking estimateswhich are subject to change. We might sell the Resort for an amount less thanour current estimate of its fair value, which could significantly reduce ourliquidating distributions to holders of our common stock.***

We donot believe we are able at this time to project the amount of the total liquidatingdistributions we will make to the holders of our common stock over theremainder of the liquidating period. The factors giving rise to thisuncertainty include, without limitation, the following:

·       improvementin the financial performance of the Resort that we have observed since we tooktitle in July 2004 may not continue;

·       despiteour execution of a new Management Agreement with Westin at the Resort providingfor increased control by us over accounting and marketing and improvedprovisions governing Westin’s reporting to us, prior to October 31, 2006, wedid not directly manage the Resort;

·       ourSettlement Agreement with our former borrower and related agreements that weentered with Westin may prove less successful than anticipated, and theperformance of the parties to the Settlement Agreement may fall short ofour expectations;

·       historicaluncertainty surrounding the future of the Resort and as of October 31, 2006,the absence of Westin as manager of the Resort may create uncertainty forcorporate meeting planners contracting for large corporate groups, and any suchuncertainty may be used as a competitive advantage against us by ourcompetitors when marketing their hotels against the Resort; and

·       uncertaintyabout our ability to close the transactions contemplated in any asset purchaseagreement we may execute and the transactions costs therewith.

As aresult of the foregoing, at the present time we will refrain from either makingany adjustments (positive or negative) to any earlier reported range ofdistributions or proposing a new range. We may, however, be able to do so infuture periods in the event that the quality and reliability of all informationnecessary to make estimates of cash flow and, correspondingly, value becomemore reliable. You should not assume that the liquidating distributions havenot declined, perhaps in material amounts, from the historical projections weprovided in earlier filings.

Ourefforts to preserve the value of the Resort until we are able to consummate itssale may be unsuccessful, and we might ultimately sell our interest in theResort for significantly less than our last estimate of its fair value.Accordingly, our assessment of the Resort’s fair value may change at somefuture date, perhaps in a material adverse manner, based on facts andcircumstances at that time, and the Resort’s value may again bewritten-down.

***The conclusion of the Company’s negotiations with AEWwhich will allow us to repurchase all of AEW’s series A preferred stock plusaccrued dividends for a price of $20 million or less is pending evidence orconfirmation that we have secured adequate financing to demonstrate its abilityto close on the transaction to repurchase all of the series A preferredstock.  As a result of our assumptionthat these negotiations will lead to an executed agreement, we have notrecorded in our net assets a liability for the accrual of preferred dividendspayable for the quarter beginning July 1, 2001 or for  subsequent quarters. We can provide noassurance, however, that a final agreement will be executed with AEW.  Further, even if we successfully execute suchan agreement with AEW, we may be unable to negotiate a financing arrangementthrough our existing lender relationships or otherwise procure sufficientfunding to permit us to exercise that repurchase right and close the repurchaseprior to its expiration.  In the event that either we are unable to reachan agreement with AEW, or we are unable to exercise any repurchase right andclose the repurchase under any agreement we may reach with AEW, we may berequired to pay AEW all or a portion of the preferred dividends for which wehave not recorded a liability, reducing our liquidating distributions toholders of our common stock.***

OnApril 12, 2006, we executed an Option Agreement with AEW, the holder of all ofour series A preferred stock, in which AEW granted us an option to purchase, onor before June 30, 2006, the 800,000 shares of our series A preferred stockheld by AEW, including, without limitation, all of AEW’s rights to due andunpaid principal, accrued and unpaid dividends and liquidation preferences. Theexercise price of this option was approximately $20 million, and excludeddividends that would accrue to the series A preferred stock pursuant toexisting contractual obligations. As previously reported, this option expiredby its terms on June 30, 2006.

37

----

Theconclusion of our negotiations with AEW which will allow us to repurchase allof AEW’s series A preferred stock plus accrued dividends for a price of $20million or less is pending evidence or confirmation that we have securedadequate financing to demonstrate its ability to close on the transaction torepurchase all of the series A preferred stock.

As aresult of our assumption that these negotiations will lead to an executedagreement, we have not recorded in our net assets for the quarter ended September30, 2006 either (i) a liability of $11,789,000 for the accrual of quarterlypreferred dividends for the period July 1, 2001 to September 30, 2006 or (ii)additional dividend accruals of $625,000 for each subsequent quarter throughthe date that the exit transaction is ultimately consummated and liquidationpayments are made to AEW.   Absent either an agreement by a thirdparty to assume all or a portion of our accrued preferred dividend obligationor an agreement by AEW to forgive all or a portion of our preferred dividendobligations, (neither of which have occurred), we will be required toaccrue, and ultimately pay in liquidating distributions to AEW, these preferreddividends.  Any preferred dividends whichwe are required to pay to AEW ultimately would reduce the net assets availableto stockholders in liquidation and correspondingly the estimated liquidationdistribution per common share.  As ofSeptember 30, 2006, if we were required to pay AEW accrued dividends throughthat date, our liquidating distributions would be reduced by $1.63 per commonshare or OP unit of the Operating Partnership outstanding on that date.

At thepresent time, we have not executed a binding agreement with AEW.  There are no assurances that we willsuccessfully execute such an agreement with AEW, or that the terms of anyagreement that we may execute with AEW will not be more onerous to us than wecurrently anticipate.  Further, even if we are able to execute anagreement with AEW which permits us to repurchase the series A preferred stockat $20 million or less, we may be unable to negotiate a financing arrangementthrough our existing lender relationships or otherwise procure sufficientfunding to permit us to exercise that repurchase right and close the repurchaseprior to its expiration.  In the event that we execute an agreement withAEW and we are unable to repurchase AEW’s series A preferred stock inaccordance with the terms of that agreement, in addition to the requirementthat we pay accrued dividends to AEW, we expect that agreement also wouldsubject us to penalties or grant AEW additional rights with respect to us andour remaining assets which will be prejudicial to us and our assets.

***We cannotguarantee that we will be able to enter into a binding agreement for the saleor other disposition of the Resort.***

Inconnection with our efforts to sell the Resort, we intend to negotiate andexecute a binding asset purchase agreement. Thereafter, any closing pursuant to an executed asset purchase agreementwill be conditioned upon, among other things, consideration and approval of thetransaction by the Special Committee of our Board and the receipt of asatisfactory fairness opinion. We cannot assure you that we will enter into anasset purchase agreement for the Resort or, if we do so, that all conditions toclosing will be satisfied and the Resort will be sold. Further, the price thatwe receive if we sell the Resort might be less than the then applicablecarrying value of the Resort on our financial statements. Significant legal andother costs and expenses will be incurred in connection with the negotiation ofany sale of the Resort, and these costs and expenses will further reduce theliquidating distributions that we make to the holders of our common stock.

***We took ownership of the Resort on July 16, 2004pursuant to a global Settlement Agreement providing for the assumption ofcertain existing or modified financial obligations of our former borrower. Weare now responsible for any negative cash flow of the Resort. If the amount ofassumed liabilities and expenditures with respect to the Resort exceed ourexpectations, our liquidating distributions to common stockholders could bereduced.***

OnJuly 15, 2004, we entered a Settlement Agreement with our former borrowerrelating to our June 1997 $79.0 million loan to our former borrower.This loan was secured by a mortgage on the Resort we made to an unaffiliatedborrower. As part of the Settlement Agreement, we assumed certainfinancial obligations of the borrower, such as refurbishment expenses paid bythe condominium owners, a modified termination rights fee and outstanding golffacility management fees payable to Troon. As the owner of the Resort, we areresponsible for any negative cash flow associated with its ownership andoperation of the Resort. As a result of the assumption of these liabilities andour responsibility for any negative cash flow, we face the risk that ourultimate liabilities and expenditures might be greater than expected. In thatcase, our cash available for distribution and the ultimate amount of ourliquidating distributions to the holders of our common stock could be less thanour expectations. In 2005, we funded $1,050,000 and in 2006, we funded $600,000to address seasonal cash flow shortfalls plus we funded approximately $200,000for the beginning phase of the technological infrastructure capital investmentin October 2006.. We expect that additional intercompany advances totalingapproximately $100,000 in the aggregate may be necessary by December 31, 2006to fund projected operating cash shortfalls.

38

----

 

Althoughthe revenues of the Resort have begun to increase since we took title to it, wecan provide no assurance that the Resort’s future performance will continue toshow improvement. If we do not continue to improve the Resort’s financialperformance, our recovery with respect to this asset might be significantlydelayed or fail. A delay in our recovery of the Resort might reduce the netproceeds that we ultimately receive upon a sale of the Resort to less than ourcurrent estimate of the Resort’s fair value (approximately $36.4 millionincluding our interest in certain real estate), and we may be forced to usefunds that otherwise might be distributed to our stockholders, if any, to fundcash shortages of the Resort, causing our liquidating distributions to holdersof our common stock to be substantially reduced. Our estimate of the Resort’sfair value, as recorded on our books for accounting purposes, is based onforward-looking estimates which may be materially optimistic and subject toadverse change. We can provide no assurance of success under the SettlementAgreement, or the future success of the Resort.

***Stockholderlitigation related to the plan of liquidation could result in substantial costsand distract our management.***

Extraordinarycorporate actions, such as our plan of liquidation, often lead to securitiesclass action lawsuits and derivative litigation being filed againstcompanies such as ours. We became involved in this type of litigation inconnection with our plan of liquidation (and the transactions associated withit) in a legal action we refer to as the *Crossley*litigation. During the second quarter of 2003, the *Crossley*claim was dismissed with prejudice on our motion for summary judgment.Accordingly, the lawsuit was dismissed and the plaintiff will not be allowed torefile the claim, although the plaintiff could appeal the dismissal. Wesubsequently entered into a non-monetary settlement with the plaintiff wherebythe plaintiff agreed not to appeal the dismissal and we agreed not to seekreimbursement of our legal costs from the plaintiff. Even though the *Crossley* litigation has been dismissed, we face the riskthat other claims might be brought against us. Any such litigation would likelybe expensive and, even if we ultimately prevail, the process would divertmanagement’s attention from implementing the plan of liquidation and otherwiseoperating our business. If we do not prevail in any such litigation, we mightbe liable for damages. It is not possible to predict the amount of suchpotential damages, if any, but they might be significant. Any damage liabilitywould reduce our cash available for distribution and the ultimate amount of ourliquidating distributions to holders of our common stock.

***If we are unable to retain at least one of our keyexecutives and sufficient staff members to complete the plan of liquidation ina reasonably expeditious manner, our liquidating distributions might be delayedor reduced.***

Ourability to consummate sales transactions for our other interests in golfcourses depend to a large extent upon the experience and abilities of our twomost senior executives, W. Bradley Blair, II, our chief executive officerand president, and Scott D. Peters, our senior vice president and chieffinancial officer, and their experience and familiarity with our assets, ourcounter-parties and the market for golf course sales. Mr. Blair andMr. Peters are currently serving us on a reduced schedule basis. Webelieve our liquidation has progressed to the point that the resignation ofone, but not both, of our executives would not likely cause significant adverseconsequences to the Company and the amount of liquidating distributions to theholders of our common stock. However, a loss of the services of both of theseindividuals could materially harm our ability to complete the plan ofliquidation in a reasonably expeditious manner and our prospects of selling ourassets at the best potential prices.

Thepotential resignation of Mr. Blair poses a relatively greater risk at thistime in light of the fact that the amount of time that Mr. Peters isrequired to commit to us is less than the amount of time that Mr. Blair isrequired to commit to us. If Mr. Blair were to resign, we would likelyseek to hire a replacement for Mr. Blair. The cost that we incur toreplace Mr. Blair would likely depend upon our determination of theexperience and skills that must be possessed by his replacement in light of ourfinancial condition, our assets remaining to be liquidated, and the complexityof any issues bearing on us and the liquidation at that time.

Ourability to complete the plan of liquidation in a timely manner as soon asreasonably practicable also depends on our ability to retain our keynon-executive employees, in particular our controller. Those employeesmay seek other employment rather than remaining with us throughout theprocess of liquidation, even though they generally would lose their eligibilityfor severance payments by resigning. If we are unable to retain enoughqualified staff to complete our plan of liquidation in a reasonably expeditiousmanner, liquidating distributions might be delayed or reduced.

***If we are unable to consummate a sale of the Resort orour other remaining golf courses at our revised estimates of their respectivevalues, our liquidating distributions might be delayed or reduced.***

Inaddition to the four golf courses at the Resort, we have one other property (ortwo eighteen-hole equivalent golf courses). In calculating our projectedliquidating distributions, we assumed that we would be able to find buyers forthe Resort and our other remaining property at purchase prices equal to ourestimates of their respective fair market values. However, our estimates of thesales prices of the Resort and our other remaining property may exceed theprices we eventually receive. At December 31, 2005, we recorded a $2.421million write-down in the value of the Resort to $36.4 

39

----

million (including our interest in certain realestate) based on market indications of interest. Should we not be able to finda buyer at our current carrying value, in order to find a buyer in a reasonablyexpeditious manner, we might be required to lower our asking price for theResort and our other remaining property below our estimate of their fair value.If we are not able to find new buyers for these assets in a reasonablyexpeditious manner, or if we have overestimated the sales prices we willultimately receive, our liquidating distributions to the holders of our commonstock will be significantly delayed or reduced.

At thepresent time, we do not believe we are able to reliably project the amount ofthe total liquidating distributions we will make to the holders of our commonstock over the remainder of the liquidation period. Accordingly, you should notrely on the valuations or ranges earlier provided as representative of ourcurrent views on the subject.

***If we are unable to realize the value of a promissorynote taken as part of any purchase price, our liquidating distributionsmight be reduced.***

Insome golf course sales, we may agree to receive promissory notes from thebuyer as a portion of the purchase price. Promissory notes are often illiquid.If we are not able to sell the promissory note without a great discount, or inthe case of a short-term note, if we hold it to maturity and the makerultimately defaults, our liquidating distributions might be reduced.  We currently do not have any outstandingnotes receivable.

***Decreases in golf course values caused by economicrecession and/or additional terrorist activity might reduce the amount forwhich we can sell our assets.***

Thevalue of our interests in golf courses might be reduced, and substantially so,by a number of factors that are beyond our control, including the following:

·       adverse changes in the economy, prolongedrecession and/or additional terrorist activity against the United States or ourallies, or other war-time activities might increase public pessimism anddecrease travel and leisure spending, thereby reducing golf course operators’revenues (particularly destination-resort golf course revenues) and diminishingthe resale value of the affected golf courses;

·       increased competition, including, withoutlimitation, increasing numbers of golf courses being offered for sale in ourmarkets or nationwide;

·       continuing imbalance in supply and demand in thegolf course industry; and

·       changes in real estate tax rates and otheroperating expenses.

Anyreduction in the value of our golf courses would make it more difficult for usto sell our assets for the amounts and within the time-frames that we haveestimated. Reductions in the amounts that we receive when we sell our assetscould decrease or delay our payment of liquidating distributions to ourstockholders, perhaps in substantial ways.

***If our liquidation costs or unpaid liabilities aregreater than we expect, our liquidating distributions might be delayed orreduced, potentially in a substantial manner.***

Beforemaking the final liquidating distribution to the holders of our common stock,we will need to pay all of our transaction costs pertaining to the liquidationand all valid claims of our creditors, which we expect will be substantial. Ourboard may also decide to acquire one or more additional insurance policiescovering unknown or contingent claims against us, including, withoutlimitation, additional directors’ and officers’ liability insurance, for whichwe would pay an additional premium based upon market prices prevailing at thetime of any such purchase. In addition, if we form a liquidating trust, weexpect to have additional expenses in connection with the formationthereof and for such for items such as insurance for the trustees. We haveestimated such transaction costs in calculating the amount of our projected liquidatingdistributions. To the extent that we have underestimated costs and expenses incalculating our historical projections, our actual aggregate liquidatingdistributions will be lower than we have historically projected, and perhaps bysubstantial amounts.

40

----

 

***The holder of our series A preferred stock mightexercise its right to appoint two directors to our board of directors, whichmight result in decisions that prejudice the economic interests of our commonstockholders in favor of our preferred stockholders.***

Weentered into a voting agreement with the holder of our series A preferredstock, AEW, pursuant to which the holder agreed to vote in favor of our plan ofliquidation. The voting agreement provided that if we failed to redeem ourseries A preferred stock by May 22, 2003, the holder of the series Apreferred stock would be entitled to require us to redeem the series Apreferred stock. We received such a demand from the holder of our series Apreferred stock on May 23, 2003; however, we do not have cash available toredeem the holder of our series A preferred stock. Our default in making atimely redemption payment gives the holder of our series A preferred stock theright under the voting agreement to appoint two new directors to our board. Ourseries A preferred stock charter also gives the holder of our series Apreferred stock the right to elect two new directors if and when dividends onits series A preferred stock are in arrears for more than six quarters. Wehave not paid a quarterly dividend since the dividend paid for the secondquarter of 2001. These director election rights are not cumulative, which meansthat the holder of our series A preferred stock may elect two, but notfour, new directors. The current holder of our series A preferred stock, AEW,informed us previously that it does not currently intend to exercise itsdirector election rights. However, it might decide to exercise such right atany time in the future. The appointment of such directors to our board mightreduce the efficiency of our board’s decision-making or result in decisionsthat prejudice the economic interests of the holders of our common stock infavor of the holder of our series A preferred stock.

***Distributinginterests in a liquidating trust may cause you to recognize gain prior tothe receipt of cash.***

As wecontemplate the sale of our remaining assets and the wind-up of the Company, ascontemplated by our plan of liquidation, we may elect to contribute ourremaining assets and liabilities to a liquidating trust. Our stockholders wouldreceive interests in the liquidating trust, our corporate existence wouldterminate and our shares would no longer trade publicly. The plan ofliquidation prohibits us from contributing our assets to a liquidating trustunless and until our series A preferred stock has been redeemed in full oruntil such time as it consents to such a contribution.

Fortax purposes, the creation of the liquidating trust should be treated as adistribution of our remaining assets to our stockholders, followed by acontribution of the same assets to the liquidating trust by our stockholders.As a result, we will recognize gain or loss inherent in any such assets, withany gains offset by available net operating loss carry-overs (discussed above).In addition, a stockholder would recognize gain to the extent his share of thecash and the fair market value of any assets received by the liquidating trustwas greater than the stockholder’s basis in his stock, notwithstanding that thestockholder would not contemporaneously receive a distribution of cash or anyother assets with which to satisfy the resulting tax liability, and would notbe able to transfer its interests in the liquidating trust.

Inaddition, it is possible that the fair market value of the assets received bythe liquidating trust, as estimated for purposes of determining the extent ofthe stockholder’s gain at the time interests in the liquidating trust aredistributed to the stockholders, will exceed the cash or fair market value ofproperty ultimately received by the liquidating trust upon its sale of theassets, in which case the stockholder may not receive a distribution ofcash or other assets with which to satisfy any tax liability resulting from thecontribution of the assets to the liquidating trust. In this case, thestockholder would recognize a loss in a taxable year subsequent to the taxableyear in which the gain was recognized, which loss might be limited under thetax code.

If wedo not distribute our assets to a liquidating trust and, instead, continue tooperate as a regular corporation until all of our assets are sold, we wouldrecognize gains or losses upon the sale of assets for federal income taxpurposes. Since we are no longer a REIT, we could be subject to income tax on anyrecognized gains. If we were to recognize taxable gains in a year beforeconsideration of net operating loss carryovers, we could be subject toalternative minimum tax. Generally, for tax years ending afterDecember 31, 2002, the use of net operating loss carryovers to reducealternative minimum taxable income is limited to 90% of alternative minimumtaxable income. Therefore, tax at a rate of 20% could be imposed on ouralternative minimum taxable income that cannot be reduced by net operating losscarryovers. If a liquidating trust is formed, our net operating loss carryoverswill not be available to reduce any gains recognized within the trust. However,the trust will have a tax basis equal to the fair market value of its assets atthe date the liquidating trust is formed. Any gain recognized by the trustwould thus be the result of either appreciation in the value of the assetsduring the time that they are owned by the trust, or an initial underestimationof the fair market value of the assets at the time the trust is formed.

***Our common stock may be de-listed from AmericanStock Exchange, which would make it more difficult for investors to sell theirshares.***

Currently,our common stock trades on the American Stock Exchange, or Amex. We cannotassure you that we will be able to maintain our listing on Amex or any otherestablished trading market. Among other things, Amex has considerablediscretion with respect to listing standards, which include qualitative andquantitative criteria, some of which are beyond our control. Further, in theevent that we form a liquidating trust, we expect that we would de-listfrom the Amex.

41

----

 

Wecannot assure you that we will be able to maintain our listing on Amex, orpredict the degree to which an involuntary delisting would harm our businessand the value of your investment. If our common stock were to be de-listed fromAmex, either as a result of voluntarily action by us or by Amex because we nolonger meet the Amex listing standards, it could severely limit the liquidityof the common stock and your ability to sell our securities in the secondarymarket.

***We and our subsidiary, GTA-IB LLC, expect to incursignificant compliance costs relating to the Exchange Act and Sarbanes-OxleyAct.***

We andour subsidiary, GTA-IB, LLC, are required to comply with the reportingrequirements of the Exchange Act as they apply to non-accelerated filers. Assuch, both entities must timely file Quarterly Reports on Form 10-Q,Annual Reports on Form 10-K and Current Reports on Form 8-K, among otheractions. Further, recently enacted and proposed laws, regulations and standardsrelating to corporate governance and disclosure requirements applicable topublic companies, including the Sarbanes-Oxley Act and new SEC regulations haveincreased the costs of corporate governance, reporting and disclosure practiceswhich are now required of us and of GTA-IB. We were formed prior to theenactment of these new corporate governance standards, and as a result, we didnot have all necessary procedures and policies in place at the time of theirenactment. Our efforts to comply with applicable laws and regulations,including requirements of the Exchange Act and the Sarbanes-Oxley Act, areexpected to involve significant, and potentially increasing, costs. Costs incurredin complying with these regulations may reduce the amount of cashavailable for liquidating distributions.

TheSarbanes-Oxley Act and related laws, rules and regulations create legalbases for administrative enforcement, civil and criminal proceedings against usin case of non-compliance, thereby increasing our risk of liability andpotential sanctions. Costs incurred in defending against any such actions orproceedings, and any liability or sanctions incurred in connection with suchactions or proceedings, could negatively affect the amount of cash availablefor liquidating distributions.

**Risks Relating to theResort**

***In the event that the Resort does not providesufficient cash flow to us, we may be forced to reduce capitalexpenditures and improvements at the Resort, diminishing the value of theResort.***

As theowner of the Resort, we are responsible for any negative cash flow associatedwith its operation. As a result of our assumption of these liabilities and ourresponsibility for any negative cash flow of the Resort, we may be exposedto liabilities and expenditures exceeding our expectations or ability to pay.In the event cash flow is insufficient to fund planned improvements, ourability to rent the units in the Rental Pool may decline. A decline in therental rates that can be charged for the units or related vacancies resultingfrom our inability to make necessary capital expenditures may cause thevalue of the Rental Pool units, and the Resort, to decline.

***The Resort’s performance may not provide adequateresources to fund the refurbishment reimbursement to the Rental Poolparticipants.***

Pursuantto GHR’s arrangement with many of the persons who own condominium units at theResort, the condominiums owned by these participating persons are placed in asecuritized pool and rented as hotel rooms to guests of the Resort. We refer tothis securitized pool of participating condominiums as the Rental Pool. Inaddition to the current Rental Pool agreement, GHR agreed with the Associationthat GHR would reimburse 50% of the refurbishment costs, plus accrued interestat 5% per annum on the unpaid balance of that portion of the unpaidrefurbishment costs which we are required to reimburse. This amount will bereimbursed to participating condominium owners (or transferees of theircondominium unit(s)) over the five-year period beginning in 2005. Thereimbursement is contingent on the units remaining in the Rental Pool from thetime of their refurbishment through 2009. If the unit does not remain in theRental Pool during the reimbursement period from 2005 through 2009, the owneror successor owner forfeits any unpaid installments at the time the unit isremoved from the Rental Pool.

Accordingly,maintaining condominium owner participation in the Rental Pool is veryimportant to the continued economic success of the Resort. We assumed certainexisting or modified financial obligations of GHR, including itsresponsibilities regarding the administration of the condominium unit RentalPool, when we took ownership of the Resort pursuant to the SettlementAgreement. Also as part of the Settlement Agreement, we assumed GHR’sobligation to reimburse the refurbishment expenses paid by the condominiumowners.

42

----

 

Asowner of the Resort, we are responsible for any negative cash flow associatedwith the ownership and operation of the Resort. As a result of the assumptionof these liabilities and our responsibility for any negative cash flow, we facethe risk that our ultimate liabilities and expenditures might be greater thanwe expected. In that case, we may not have sufficient cash available forthe payment of the refurbishment expenses relating to the Rental Pool units, orwe may otherwise decide not to use our funds in this manner. If thisoccurs, a disagreement involving the funding for the Rental Poolmay arise, and this disagreement could both divert our management’sattention from the operation of the Resort and prove costly to the parties toany such dispute.

***The number of Rental Pool units may decline ifcurrent owners find alternative uses of the units more attractive thanparticipating in the Rental Pool, reducing the number of available Rental Poolunits and diminishing the value of the remaining units.***

Participantsin the Rental Pool may decide that alternative uses of their condominiumunits are more attractive than participating in the Rental Pool. In particular,condominium owners may determine that it is more financially advantageousto rent their units to longer term tenants, or to live in their units rather thanpaying to live elsewhere and allowing their units to participate in the RentalPool. Any such reduction in the number of participants in the Rental Poolmay result in increased pro-rata costs and reduced revenues for theremaining Rental Pool participants. In particular, a decrease in the number ofparticipants in the Rental Pool will result in higher per capita costs relatingto fixed costs that are incurred in connection with the administration of theRental Pool. In the event that the number of units in the Rental Pool declinesbelow 575, our obligation to reimburse refurbishment expenses for the unitswill be abated until the number of units in the Rental Pool is restored to 575or higher. As of August 16, 2006, the number of units participating in theRental Pool is 612.

***Severe weather patterns experienced by Florida during2004 and the southeastern portion of the United States during 2005 could resultin depressed bookings, adversely affecting the Resort’s results of operationsand reducing proceeds to the participants in the Rental Pool.***

Weexpect that bookings at the Resort during the late summer and early fall offuture years may be adversely affected as a result of a series ofhurricanes that affected Florida during 2004 and the southeastern portion ofthe United States during 2005. Our management detected such an adverse effectin 2005. In particular, the hurricanes that occurred during 2005 may haveincreased the awareness of potential guests, particularly those not residing inthe southeastern portion of the United States, to the danger that hurricanesand tropical storms present. We expect that potential guests may be morereluctant to book rooms in regions subject to such weather patterns. Inparticular, it is possible that groups will choose alternative destinations fortravel during the hurricane season. In the event that potential guests andgroups choose alternative destinations as a result of these weather-relatedconcerns, the Resort may experience lower bookings and reduced revenues,which in turn will result in reduced distributions to the Rental Poolparticipants.

***Recent severeweather patterns could further intensify the seasonal nature of the results ofthe Resort.***

Thehotel industry is cyclical in nature. Our business has historically been weakerduring the third quarter of each year. In the event that we suffer from reducedbookings as a result of hurricane-related concerns of potential guests, thiseffect could reduce the revenues to the Resort in the third quarter of eachyear, increasing the disparity between our results in the third quarter ascompared to other quarters. This increased cyclicality could make it moredifficult for us to project the results of the Resort, and may result in alower than expected percentage of the Resort’s fixed costs being offset byrevenue during the third quarter.

***We are subject to all the operating risks common tothe hotel industry which could adversely affect our results of operations.***

Operatingrisks common to the Resort include:

·       changes in general economicconditions, including the timing and robustness of the apparent recovery in theUnited States from the recent economic downturn and the prospects for improvedperformance in other parts of the world;

·       the impact of war andterrorist activity (including threatened terrorist activity) and heightenedtravel security measures instituted in response thereto;

·       domestic and internationalpolitical and geopolitical conditions;

43

----

 

·       decreases in the demand fortransient rooms and related lodging services, including a reduction in businesstravel as a result of general economic conditions;

·       the impact of internetintermediaries on pricing and our increasing reliance on technology;

·       cyclical over-building inthe hotel industry which increases the supply of hotel rooms;

·       changes in travel patterns;

·       changes in operating costs,including, but not limited to, energy, labor costs (including the impact ofunionization), workers’ compensation and health-care related costs, insuranceand unanticipated costs such as acts of nature and their consequences;

·       disputes with the managersand former managers of the Resort which may result in litigation;

·       the availability of capitalto allow us to fund renovations and investments at the Resort; and

·       the financial condition ofthe airline industry and the impact on air travel.

***General economic downturns, or an increase in labor orinsurance costs, may negatively impact our results.***

Moderateor severe economic downturns or adverse conditions may negatively affectthe operations of the Resort. These conditions may be widespread orisolated to one or more geographic regions. A tightening of the labor marketsin Florida may result in fewer and/or less qualified applicants for jobopenings at the Resort. Higher wages, related labor costs and the increasingcost trends in the insurance markets may negatively impact our results asthese costs increase. A general economic downturn, or increase in expenditureson insurance and labor costs, would adversely impact the operations of theResort, potentially reducing funding that we provide to the Rental Pool andnegatively impacting our results.

***If we are unableto successfully compete for customers, it may adversely affect ouroperating results.***

Thehotel industry is highly competitive. The Resort competes for customers withother hotel and resort properties. Some of our competitors may havesubstantially greater marketing and financial resources than we do, and theymay improve their facilities, reduce their prices, or expand or improvetheir marketing programs in ways that adversely affect the Resort and ouroperating results.

***Internetreservation channels may negatively impact our bookings and results ofoperations.***

Internettravel intermediaries such as Travelocity.com®, Expedia.com® andPriceline.com® are attempting to commoditize hotel rooms byincreasing the importance of price and general indicators of quality at theexpense of brand or property-specific identification. These travelintermediaries hope that consumers will eventually develop brand loyalties totheir reservations system rather than to lodging brands. Although we expect toderive most of our business from traditional channels, if the amount of salesmade through internet intermediaries increases significantly, our business andprofitability may be significantly harmed.

***The Resort placessignificant reliance on technology.***

The hospitality industry continues to demand the useof sophisticated technology and systems including technology utilized forproperty management, procurement, reservation systems, operation of customerloyalty programs, distribution and guest amenities. These technologies can beexpected to require refinements and there is the risk that advanced newtechnologies will be introduced. There can be no assurance that as varioussystems and technologies become outdated or new technology is required we willbe able to replace or introduce them as quickly as our competition or withinbudgeted costs for such technology. Further, there can be no assurance that wewill achieve the benefits that may have been anticipated from any newtechnology or system.  Now that theWestin Management Agreement is terminated, we have begun the capitalimprovement project of upgrading the technological infrastructure of the Resortand replacing certain components which are proprietary to Westin.   Our projections indicate that thereplacement of these components could require us to make an investment in therange of $1.0 to $2.0 million of which we funded $200,000 in October 2006.  Additionally, there are risks associated withtransferring the data and ensuring that there are no interruptions in theoperations of the Resort.  There are noassurances that such technological components can be identified, purchased andimplemented in a cost effective and efficient manner.

44

----

 

***The Resort iscapital intensive, and may become uncompetitive in the event thatsufficient financing is not available.***

Forthe Resort to remain attractive and competitive, we must spend moneyperiodically to keep the properties well maintained, modernized andrefurbished. These expenditures result in an ongoing need for cash. From timeto time, it may also be necessary to undertake material capitalexpenditure projects at the Resort such as the upgrading of the technologicalinfrastructure at the Resort. To the extent we cannot fund expenditures fromcash generated by the Resort’s operations, we must seek to obtain funds byborrowing or otherwise. We may be unable to find such financing onfavorable terms, if at all. To the extent that we are unsuccessful in obtainingsuch financing, it could adversely impact the Resort’s results from operations.

***Our investment inthe Resort is subject to numerous risks, which could adversely affect ourincome.***

As aresult of our ownership of the Resort, we are subject to the risks thatgenerally relate to investments in real property. The investment returnsavailable from equity investments in real estate such as the Resort depends inlarge part on the amount of income earned and capital appreciationgenerated by the Resort, reduced by the expenses incurred to operate it. Inaddition, a variety of other factors affect both income from the Resort and theResort’s real estate value, including governmental regulations, real estate,insurance, zoning, tax and eminent domain laws, interest rate levels and theavailability of financing. When interest rates increase, the cost ofdeveloping, expanding or renovating real property increases and real propertyvalues may decrease as the number of potential buyers decreases. Any ofthese factors could have a material adverse impact on our results of operationsor financial condition. If the Resort does not generate revenue sufficient tomeet operating expenses, including debt service and capital expenditures, ourincome will be adversely affected.

***Environmentalregulations may increase the Resort’s costs, or limit our ability todevelop, use or sell the Resort.***

Environmentallaws, ordinances and regulations of various federal, state, local and foreigngovernments impact our properties and could make us liable for the costs ofremoving or cleaning up hazardous or toxic substances on, under, or in propertywe currently own or operate. These laws could impose liability without regardto whether we knew of, or were responsible for, the presence of hazardous ortoxic substances. The presence of hazardous or toxic substances, or the failureto properly clean up such substances when present, could jeopardize our abilityto develop, use, sell or rent the real property or to borrow using the realproperty as collateral. If we arrange for the disposal or treatment ofhazardous or toxic wastes, we could be liable for the costs of removing orcleaning up wastes at the disposal or treatment facility, even if we neverowned or operated that facility. Other laws, ordinances and regulations couldrequire us to manage, abate or remove lead or asbestos containing materials.Certain laws, ordinances and regulations, particularly those governing themanagement or preservation of wetlands, coastal zones and threatened orendangered species, could limit our ability to develop, use, or sell theResort. Further, in the event that environmental obligations prevent us fromdeveloping, using or selling the Resort, distributions that we are able to payto the holders of our stock could be reduced.

***Although the courts have recently delivered favorablerulings in the Land Use Lawsuits to which we are a party, in the event that theultimate rulings in these matters are unfavorable to us, the value of Parcel Fand the Resort would be adversely effected.***

Asdiscussed in further detail under the heading “Legal Matters” in Part IIItem 1 of this report, on March 10, 2005 we filed a motion to intervene asa defendant in the lawsuit styled Innisbrook CondominiumAssociation, Inc., C. Frank Wreath, Meredith P. Sauer, and Mark Banning(as plaintiffs) vs. Pinellas County, Florida, Golf Host Resorts, Inc. andInnisbrook F LLC (as defendants), Case No. 043388CI-15. This matter relatesto a tract of land within the Resort known as Parcel F. In April 2005, asubsequent lawsuit relating to this matter was filed. We are also a defendantin this subsequent lawsuit. In this report, we refer to the March 2005 andthe April 2005 lawsuits collectively as the Land Use Lawsuits.

OnJanuary 6, 2006, the court ruled in favor of all defendants and againstall plaintiffs as to each count in both cases. While we believe that theJanuary 6, 2006 ruling is a favorable result for us and for the otherdefendants, the plaintiffs in the Land Use Lawsuits have the right to appeal orotherwise challenge that ruling. On March 8, 2006, the court formallyentered its final judgment on the record ruling in favor of the defendants onall counts and denying all claims asserted by the plaintiffs in both cases. OnMarch 31, 2006, the plaintiffs in the consolidated cases filed a notice ofappeal. Since the filing of that notice, the plaintiffs/appellants have filedtheir initial appellate brief and the defendants/appellees, including GTA-IB,LLC have filed their answer brief.  Theplaintiffs/appellants will have an opportunity to file a reply brief todefendants/appellees’ answer brief.  Asof November 11, 2006, no such reply brief was filed.

45

----

 

In theevent that the plaintiffs convince a court to overturn the January 6, 2006ruling, we could lose all or substantially all of our land use and developmentrights with respect to Parcel F. Such an unfavorable result could also cause usto experience reduced club memberships at the Resort and could adversely impactour ability to realize the benefits from the proposed development of Parcel F.In addition, if the defendants do not ultimately prevail in the Land UseLawsuits and a court subsequently applies a similar interpretation of our rightswith respect to the remaining developable units at the Resort, our land use anddevelopment rights in those remaining units could be jeopardized, adverselyeffecting both our ability to develop the Resort and the value of the RentalPool units.

***So-called acts ofGod, terrorist activity and war could adversely affect the Resort.***

TheResort’s financial and operating performance may be adversely affected byso-called acts of God, such as natural disasters, in Florida and in areas ofthe world from which we draw a large number of guests. Similarly, wars(including the potential for war), terrorist activity (including threats ofterrorist activity), political unrest and other forms of civil strife andgeopolitical uncertainty have caused in the past, and may cause in thefuture, our results to differ materially from anticipated results. The returnsto participants in the Rental Pool could be adversely impacted in the eventthat acts of God, war or terrorism impact the Resort’s ability to attractguests.

***Some potentiallosses of the Resort are not covered by insurance.***

Wecarry comprehensive insurance coverage for general liability, property,business interruption and other risks with respect to the Resort. Our policiesoffer coverage features and insured limits that we believe are customary forsimilar types of property. Generally, our “all-risk” property policies providethat coverage is available on a per occurrence basis and that, for eachoccurrence, there is a limit as well as various sub-limits on the amount ofinsurance proceeds we can receive. In addition, there may be overalllimits under the policies. Sub-limits exist for certain types of claims such asservice interruption, abatement, expediting costs or landscaping replacement,and the dollar amounts of these sub-limits are significantly lower than thedollar amounts of the overall coverage limit.

Inaddition, there are also other risks such as war, certain forms of terrorismsuch as nuclear, biological or chemical terrorism, acts of God such as hurricanesand earthquakes and some environmental hazards that may be deemed to fallcompletely outside the general coverage limits of our policies ormay either be uninsurable or too expensive to justify insuring against.

***Our golf course operations at the Resort are currentlydependent upon an outside manager, and if this manager is less successful thanexpected, the Resort’s results of operations could be adversely affected,potentially in a material way.  We haveuntil November 30, 2006 to decide whether to assume or terminate the managementagreement with Troon for Troon to continue to manage the golf facilities of theResort.   If we elect to terminate thisoutside manager, the Resort’s results of operations could be adverselyaffected.***

Troon continues tomanage the golf facilities at the Resort pursuant to a facility managementagreement with us. In the event that this third party manager fails toperform under its facility management agreement as expected, or in theevent it defaults on its obligations to us, the Resort’s results of operationscould be adversely affected, potentially in a material way.  We have until November 30, 2006 to decidewhether to assume or terminate the management agreement with Troon for Troon tocontinue to manage the golf facilities of the Resort.  If we elect to terminate this outsidemanager, the Resort’s results of operations could be adversely affected.

***A sustained increase in energy costsmay negatively impact the Resort’s results by increasing itsenergy-related costs and by discouraging potential guests from traveling andtaking part in recreational activities.***

Duringthe past year, energy costs in the United States have increased substantially.Energy costs represent an increasingly larger percentage of the costs of theResort, and we expect energy costs to increase in both absolute and relativeterms in future periods. In addition, we expect that higher energy costs willnegatively affect the Resort by discouraging travel and recreationalactivities. In particular, potential guests of the Resort are less likely totravel as they bear the affects of higher energy costs as either higher airlinefares or in an increased cost per gallon of gasoline. In addition, higherenergy costs may reduce the disposable income of potential guests, makingthem less likely to spend money for travel and recreational activities. As aresult of these factors, a sustained increase in energy costsmay negatively impact the Resort’s results by increasing itsenergy-related costs and by discouraging traveling and taking part inrecreational activities.

46

----

 

**ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

None.

**ITEM 3.DEFAULTS UPON SENIOR SECURITIES**

Aspreviously reported, on July 21, 2003 we defaulted on our obligation underour voting agreement with the holder of our series A preferred stock toredeem the series A preferred stock within 60 days of the holder’sMay 23, 2003 demand. As a result, the aggregate series A preferredstock dividend rate increased from $462,500 per quarter to $625,000 per quarterand the series A preferred stock holder has a right to appoint two directors toour board of directors. The series A preferred stock holder has that same rightunder our charter document relating to the series A preferred stock because wehave not paid a series A preferred stock dividend since the third quarter of2001 and such right arises when the series A preferred stock dividends are inarrears for six or more quarters. The holder of our series A preferred stockhas informed us that it does not currently intend to exercise that right.However, it remains free to do so at any time (pursuant to the proceduresspecified in our charter and the voting agreement).

OnApril 12, 2006, we entered into a new option agreement with AEW in whichAEW (now expired) grants us the option, exercisable by us in our solediscretion, to purchase on or before June 30, 2006, all 800,000 shares ofthe our series A preferred stock held by AEW, including, withoutlimitation, all of AEW’s rights to Liquidation Preferences (as defined in theseries A preferred stock charter document, including, without limitation,Liquidation Preferences in respect of any accrued and unpaid dividends) payablein respect of the series A preferred stock as of our exercise of the option fora price of $20,000,000. The option to repurchase AEW’s preferred stock is onlyexercisable in the event that the business of the Resort is purchased for cashconsideration of no more than $35 million. This option agreement expiredpursuant to its terms on June 30, 2006. The conclusion of our current negotiations with AEW which will allow usto repurchase all of AEW’s series A preferred stock plus accrued dividends fora price of $20 million or less is pending evidence or confirmation that we havesecured adequate financing to demonstrate its ability to close on thetransaction to repurchase all of the series A preferred stock.  At the present time, we have not executed abinding agreement with AEW.

**ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

Nomatters were submitted to a vote of security holders during the three monthsended September 30, 2006.

**ITEM 5.OTHER INFORMATION**

*Terminationof Westin Management Agreement*

On July 29, 2004,the Company’s subsidiary GTA-IB, LLC (the “owner”) entered in to a newManagement Agreement (the “Management Agreement”) with Westin Hotel ManagementL.P., successor in interest to Westin Management Company South (the “Westin”). The Management Agreement provides, among other things, that Westin shall managethe resort known as “The Westin Innisbrook Golf Resort” located near Tampa,Florida (the “Resort”).  By mutual agreement, on September 28, 2006, theowner, Westin and the Company, as guarantor, entered a Termination and ReleaseAgreement (the “Termination Agreement”), pursuant to which the owner and Westinagreed to terminate the Management Agreement as of October 31, 2006 (the “TerminationDate”).  In addition to the termination of the Management Agreement, theTermination Agreement provides that (i) on or prior to October 3, 2006, theowner will deposit $600,000 in the Resort’s operating account to be used inpart to pay to Westin certain fees and charges accrued under the ManagementAgreement and which are expected to approximate this amount; (ii) on or priorto the earlier of March 31, 2008, or sale of the Resort by the owner, the ownerwill pay to Westin the termination fee provided under Section 4.4.2 of theManagement Agreement calculated as of the Termination Date, estimated at$5,600,000; and (iii) Westin will permit the owner to continue to access Westin’s“SAP” accounting system for the operation of the Resort for a period of threemonths after the Termination Date for a total charge of $6,000.  The ownerplans to independently manage the Resort as of the Termination Date and nolonger use the Westin brand or their reservation system.

The foregoingsummary of the material terms of the terminated Management Agreement does notpurport to be complete and is qualified in its entirety by reference to the ManagementAgreement, which is filed as Exhibit 10.4 to the Company’s Current Report onForm 8-K filed on July 29, 2004, and the Termination Agreement, which is filedas Exhibit 10.39 to our Current Report on Form 8-K filed on October 3,2006.

47

----

 

*Amendment of Scott Peters’Employment Agreement*

On September 29,2006, Golf Trust of America, Inc. (the “Company”) executed a letter (the “LetterAmendment”) with Scott D. Peters, the Company’s Chief Financial Officer andSecretary, extending the fixed Date of Termination of the Modified Schedule ofMr. Peter’s employment pursuant to the Fourth Amended and Restated EmploymentAgreement between Mr. Peters and the Company (the “Employment Agreement”) fromSeptember 30, 2006 to April 30, 2007. As a result of the Letter Agreement, Mr.Peter’s employment will be terminated at April 30, 2007, unless earlierterminated by the Company or by Mr. Peters for Good Cause (as defined in theEmployment Agreement) as applicable. The Employment Agreement remains in fullforce and effect, except as expressly modified or amended by the LetterAmendment.

The LetterAgreement also provides that the Company shall pay to Mr. Peters the remaining$82,615 balance of the performance milestone described in Section 4.A.(a) ofthe Employment Agreement, plus accrued interest, no later than April 30, 2007or the earlier termination of his employment pursuant to Section 5.A. of theEmployment Agreement.

A copy of theLetter Amendment is included as Exhibit 10.33.3 to our Current Report on Form8-K, filed on October 2, 2006, and is incorporated herein by reference. The foregoing description of the Letter Amendment is qualified in its entiretyby the contents of the Letter Amendment.

***Nomination of Messrs. Loeb and Toor***

On October 9,2006, Golf Trust of America, Inc. (the “Company”) issued a press releaseannouncing that on October 5, 2006, the Company had entered into a LetterAgreement (‘the “Letter Agreement”) with Jan H. Loeb and Nauman S. Toor(collectively, the “Director Candidates”) under which, among other things, theCompany agreed (i) to increase the number of members of its board of directorsto seven, consisting of three Class I directors, the term of which expires atthe 2006 Annual Meeting, two Class II directors, the term of which expires at the2008 Annual Meeting and two Class III directors, the term of which expires atthe 2007 Annual Meeting; (ii) to include (and recommend the candidacy of) Mr.Loeb in the board of directors’ slate of three nominees for potential electionas Class I directors at the 2006 Annual Meeting and provide Mr. Loeb withsubstantially the same assistance that the Company provides the other boardcandidates, with respect to such election, and (iii) to nominate (and recommendthe candidacy of) Mr. Toor as the only candidate for potential election as anadditional Class III director of the Company at the 2006 Annual Meeting to fillthe vacancy created by the increase in the number of Class III directors fromone to two (and to serve for a term expiring at the 2007 Annual Meeting) and,for purposes of the Company’s proxy solicitation, provide Mr. Toor withsubstantially the same assistance that the Company provides the other boardcandidates.

Pursuant to theterms of  the Letter Agreement, the Board Candidates shall not, and eachwill not authorize or knowingly permit his affiliates and associates to, (i)solicit proxies or engage in a proxy contest with respect to the election ofdirectors or any other proposal to be considered at the 2006 Annual Meeting onNovember 17, 2006 or present any proposal for consideration at such annualmeeting of stockholders, or (ii) encourage any other person or entity tosolicit proxies or engage in a proxy contest with respect to the election ofdirectors or any other proposal to be considered at the 2006 Annual Meeting orpresent any other proposal for consideration at the 2006 Annual Meeting. In the Letter Agreement, Mr. Loeb also withdrew in its entirety his letterdated August 23, 2006 which provided notice to the Company of Mr. Loeb’s intentionto nominate Messrs. Loeb and Toor for election as directors at the 2006 AnnualMeeting (in lieu of Messrs. Ream and Wax) and to introduce at the 2006 AnnualMeeting certain other matters pertaining to declassifying our board ofdirectors.  The Board Candidates also agreed in the Letter Agreement thatthey and their affiliates would immediately cease all efforts, direct orindirect, in furtherance of Mr. Loeb’s proposals and any related solicitation,and any other action to obtain or influence control of us, and shall not vote,deliver or otherwise use any proxies heretofore obtained in connection with Mr.Loeb’s proposals.

In addition, theBoard Candidates each acknowledged in the Letter Agreement that the Company’sstockholders have previously approved and adopted  the Plan ofLiquidation, and that the Company’s board of directors intends to conduct theCompany’s operations in a manner consistent with the Plan of Liquidation,unless or until its board of directors and its stockholders approve otherwise. The Board Candidates also agreed to act in a manner consistent with and infurtherance of the Plan of Liquidation as approved by the Company’s stockholders, unless or until the Company’s board of directors and itsstockholders approve otherwise.  The Letter Agreement provides thatdespite the restrictions described above, any of the Company’s directors maypropose to the Company’s board of directors for its preliminary consideration(subject to approval by the Company’s stockholders) a modification to the Planof Liquidation.

48

----

 

**ITEM 6.EXHIBITS**

***Exhibits***

Theexhibits listed on the Exhibit Index, which appears after the signaturepage, are included or incorporated by reference in this Quarterly Report.

**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.
|                               |     | **GOLF TRUST OF AMERICA, INC., registrant**    |
|-------------------------------|----------|-----------------------------------------------------|
| Date:  November 14, 2006 | By:      | /s/ W. Bradley Blair, II                  |
|                          |     | W. Bradley Blair, II                           |
|                          | * * | *President and Chief Executive Officer*             |
|                          | * * | * *                                            |
| Date:  November 14, 2006 | By:      | /s/ Scott D. Peters                            |
|                          |     | Scott D. Peters                                     |
|                          | * * | *Senior Vice President and Chief Financial Officer* |

 

49

----

**EXHIBIT INDEX**

Pursuant to Item 601(a)(2) ofRegulation S-K, this exhibit index immediately precedes the exhibits.

Thefollowing exhibits are part of this Quarterly Report on Form 10-Q(and are numbered in accordance with Item 601 of Regulation S-K). Items markedwith an asterisk (*) are filed with this quarterly report.
| No.    | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                           |
|--------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1    |       | Plan of Liquidation and Dissolution of Golf Trust of  America, Inc., as approved by stockholders on May 22, 2001 and as  currently in effect (previously filed as Exhibit 2.1 to our company’s  Current Report on Form 8-K, filed May 30, 2001, and incorporated  herein by reference).                                                                                                     |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 3.1.1  |       | Articles of Amendment and Restatement of Golf Trust  of America, Inc., as filed with the State Department of Assessments and  Taxation of Maryland on January 31, 1997, (previously filed as  Exhibit 3.1A to our company’s Registration Statement on Form S-11  (Commission File No. 333-15965) Amendment No. 2 (filed  January 30, 1997) and incorporated herein by reference). |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 3.1.2  |       | Articles of Amendment of Golf Trust of  America, Inc., as filed with the State Department of Assessments and  Taxation of Maryland on June 9, 1998 (previously filed as  Exhibit 3.2B to our company’s Quarterly Report on Form 10-Q, filed  August 14, 1998 and incorporated herein by reference).                                                                                         |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 3.1.3  |       | Articles of Amendment of Golf Trust of  America, Inc. dated May 22, 2001, as filed with the State  Department of Assessments and Taxation of Maryland on May 25, 2001  (previously filed as Exhibit 3.1 to our company’s Current Report on  Form 8-K, filed May 30, 2001, and incorporated herein by  reference).                                                                      |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 3.2.1  |       | Articles Supplementary of Golf Trust of  America, Inc. relating to the Series A Preferred Stock, as filed  with the State Department of Assessments and Taxation of the State of  Maryland on April 2, 1999 (previously filed as Exhibit 3.1 to our  company’s Current Report on Form 8-K, filed April 13, 1999, and  incorporated herein by reference).                               |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 3.2.2  |       | Articles Supplementary of Golf Trust of America, Inc.  relating to the Series B Junior Participating Preferred Stock, as filed  with the State Department of Assessments and Taxation of the State of  Maryland on August 27, 1999 (previously filed as Exhibit 3.1 to our  company’s Current Report on Form 8-K, filed August 30, 1999, and  incorporated herein by reference).       |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 3.3.1  |       | Bylaws of Golf Trust of America, Inc., as  amended and restated by the Board of Directors on February 16, 1998  (previously filed as Exhibit 3.2 to our company’s Quarterly Report on  Form 10-Q, filed May 15, 1998 and incorporated herein by  reference).                                                                                                                                |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 3.3.2  |       | Bylaws of Golf Trust of America, Inc., as  amended and restated by the Board of Directors on March 27, 2001  (previously filed as Exhibit 3.3 to our company’s Quarterly Report on Form 10-Q,  filed May 15, 2001 and incorporated herein by reference).                                                                                                                                    |
|   |       |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 3.3.3  |       | Bylaws of Golf Trust of America, Inc., as  amended and restated by the Board of Directors on August 20, 2001 and as  currently in effect (except for the provision amended by the following  exhibit 3.3.4) (previously filed as Exhibit 3.3 to our company’s  Current Report on Form 8-K, filed August 30, 2001 and incorporated  herein by reference).                               |

 

50

----

 
| 3.3.4      |   | Bylaws Amendment of Golf Trust of  America, Inc., as adopted by the Board of Directors on February 9,  2004 (previously filed as Exhibit 3.3.4 to our company’s Annual Report  on Form 10-K, filed March 30, 2004 and incorporated herein by  reference).                                                                                              |
|------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 3.3.5      |   | Bylaws Amendment of Golf Trust of  America, Inc., as adopted by the Board of Directors on January 5,  2005 and as currently in effect (previously filed as Exhibit 3.3.4 to  our company’s Current Report on Form 8-K, filed January 10, 2005  and incorporated herein by reference).                                                                  |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 3.3.6      |   | Bylaws Amendment of Golf Trust of  America, Inc., as adopted by the Board of Directors on March 8,  2006 and as currently in effect (previously filed as Exhibit 3.2 to our  company’s Current Report on Form 8-K, filed March 13, 2006 and  incorporated herein by reference).                                                                        |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.1        |   | Form of Share Certificate for Golf Trust of  America, Inc. Common Stock (previously filed as Exhibit 4.3 to our  company’s Current Report on Form 8-K, filed August 30, 1999, and  incorporated herein by reference).                                                                                                                                  |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.2        |   | Form of Share Certificate for Golf Trust of  America, Inc. Series A Preferred Stock (previously filed as  Exhibit 3.2 to our company’s Current Report on Form 8-K, filed  April 13, 1999, and incorporated herein by reference).                                                                                                                  |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.3        |   | Shareholder Rights Agreement, by and between Golf  Trust of America, Inc. and ChaseMellon Shareholder Services, L.L.C., as  rights agent, dated August 24, 1999 (previously filed as  Exhibit 4.1 to our company’s Current Report on Form 8-K, filed  August 30, 1999, and incorporated herein by reference).                                          |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.4†  |   | Voting Agreement, between Golf Trust of  America, Inc. and the holder of all of its outstanding shares of  Series A Preferred Stock, AEW Targeted Securities Fund, L.P., dated  February 22, 2001 (previously filed as Exhibit 4.2 to our company’s  Current Report on Form 8-K, filed March 12, 2001, and incorporated  herein by reference).    |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.5        |   | Voting Agreement, by and among Golf Trust of  America, Inc., Golf Trust of America, L.P., GTA GP, Inc. and the  holders of operating partnership units named therein, dated as of February 14,  2001 (previously filed as Exhibit 4.3 to our company’s Current Report on  Form 8-K, filed March 12, 2001, and incorporated herein by  reference). |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.1.1     |   | First Amended and Restated Agreement of Limited  Partnership (the “Partnership Agreement”) of Golf Trust of America, L.P.,  dated February 12, 1997 (previously filed as Exhibit 10.1 to our  company’s Annual Report on Form 10-K, filed March 31, 1997, and  incorporated herein by reference).                                                 |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.1.2     |   | First Amendment to the Partnership Agreement of Golf  Trust of America, L.P., dated as of February 1, 1998 (previously filed  as Exhibit 10.1.2 to our company’s Annual Report on Form 10-K,  filed March 31, 1998, and incorporated herein by reference).                                                                                                  |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.1.3     |   | Second Amendment and Consent to the Partnership  Agreement of Golf Trust of America, L.P., as amended, dated as of  February 14, 2001 (previously filed as Exhibit 10.3 to our  company’s Current Report on Form 8-K, filed March 12, 2001, and  incorporated herein by reference).                                                                         |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.1.4**** |   | Exhibit A to the Partnership Agreement  (Schedule of Partnership Interests) of Golf Trust of America, L.P., as  revised through November 11, 2006.                                                                                                                                                                                                                         |

 

51

----

 
| 10.1.5 |   | Designation of Class B Common OP units of Golf  Trust of America, L.P., dated February 1, 1998, which has been added as  the first entry in Exhibit D to the Partnership Agreement (included  within the First Amendment to the Partnership Agreement, which was previously  filed as Exhibit 10.1.2 to our company’s Annual Report on Form 10-K,  filed March 31, 1998, and incorporated herein by reference).                                                                                                                                                                                                                 |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.1.6 |   | Designation of Series A Preferred OP units of  Golf Trust of America, L.P., dated April 2, 1999, which has been added  to Exhibit D to the Partnership Agreement (previously filed as  Exhibit 10.3 to our company’s Current Report on Form 8-K, filed  April 13, 1999, and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.1.7 |   | Designation of Series B Preferred OP units of  Golf Trust of America, L.P., dated May 11, 1999, which has been added to  Exhibit D to the Partnership Agreement (previously filed as  Exhibit 10.1.6 to our company’s Annual Report on Form 10-K, filed  March 30, 2000, and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.1.8 |   | Designation of Series C Preferred OP units of  Golf Trust of America, L.P., dated July 28, 1999, which has been added  to Exhibit D to the Partnership Agreement (previously filed as  Exhibit 10.1.7 to our company’s Annual Report on Form 10-K, filed  March 30, 2000, and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.2.1 |   | Credit Agreement, dated as of June 20, 1997, by  and among Golf Trust of America, L.P., as Borrower, Golf Trust of  America, Inc., GTA GP, Inc. and GTA LP, Inc., as Guarantors,  the Lenders referred to therein, and NationsBank N.A., as Agent (previously filed  as Exhibit 10.1 to our company’s Current Report on Form 8-K, dated  June 20, 1997 and filed August 12, 1997, and incorporated herein by  reference).                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.2.2 |   | Amended and Restated Credit Agreement, dated as of  July 8, 1998, by and among Golf Trust of America, L.P., as Borrower,  Golf Trust of America, Inc., GTA GP, Inc. and GTA LP, Inc., as  Guarantors, the Lenders referred to therein, and NationsBank N.A., as Agent  (previously filed as Exhibit 10.2.2 to our company’s Amended Annual  Report on Form 10-K/A, filed April 1, 1999, and incorporated herein  by reference).                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.2.3 |   | Amended and Restated Credit Agreement, dated as of  March 31, 1999, by and among Golf Trust of America, L.P., as Borrower,  Golf Trust of America, Inc., GTA GP, Inc. and GTA LP, Inc., as  Guarantors, the Lenders referred to therein, NationsBank, N.A., as  Administrative Agent, First Union National Bank as Syndication Agent, and  BankBoston, N.A., as Documentation Agent (previously filed as  Exhibit 10.2.3 to our company’s Annual Report on Form 10-K, filed  March 30, 2000, and incorporated herein by reference).                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.2.4 |   | Second Amended and Restated Credit Agreement, dated  as of July 25, 2001, by and among Golf Trust of America, L.P., as  Borrower, Golf Trust of America, Inc., GTA GP, Inc., GTA  LP, Inc., Sandpiper-Golf Trust, LLC, GTA Tierra Del Sol, LLC, and GTA  Osage, LLC, as Guarantors, the Lenders referred to therein, and Bank of  America, N.A., as Administrative Agent, First Union National Bank, as  Syndication Agent, and Fleet National Bank, as Documentation Agent  (previously filed as Exhibit 10.1 to our company’s Current Report on  Form 8-K, filed August 1, 2001, and incorporated herein by  reference). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.3   |   | Credit Agreement, dated as of March 31, 1999,  by and among Golf Trust of America, L.P., as Borrower, Golf Trust of  America, Inc., GTA GP, Inc. and GTA LP, Inc., as Guarantors,  the Lenders referred to therein, and NationsBank, N.A., as Administrative  Agent for the Lenders (previously filed as Exhibit 10.3 to our company’s  Annual Report on Form 10-K, filed March 30, 2000, and incorporated  herein by reference).                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.4   |   | Loan Agreement (the “participating mortgage”), dated  as of June 20, 1997, by and between Golf Host Resorts, Inc., as  Borrower, and Golf Trust of America, L.P., as Lender (previously filed as  Exhibit 10.2 to our company’s Current Report on Form 8-K, dated  June 20, 1997 and filed August 12, 1997, and incorporated herein by  reference).                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.5   |   | Form of Participating Lease Agreement  (previously filed as Exhibit 10.2 to our company’s Registration  Statement on Form S-11, filed January 15, 1997, and incorporated  herein by reference).                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.6+  |   | 1997 Non-Employee Directors’ Plan of Golf Trust of  America, Inc. (previously filed as Exhibit 10.7 to our company’s  Registration Statement on Form S-11 (Commission File No. 333-15965)  Amendment No. 1 (filed January 15, 1997) and incorporated herein by  reference).                                                                                                                                                                                                                                                                                                                                                |

 

52

----

 
|          |   |                                                                                                                                                                                                                                                                                                                                                            |
|----------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.7+    |   | 1997 Stock Incentive Plan (the “Original 1997 Plan”)  of Golf Trust of America, Inc. (previously filed as Exhibit 10.6 to  our company’s Registration Statement on Form S-11 (Commission File  No. 333-15965) Amendment No. 1 (filed January 15, 1997) and  incorporated herein by reference).                     |
|     |   |                                                                                                                                                                                                                                                                                                                                                            |
| 10.8+    |   | 1997 Stock-Based Incentive Plan of Golf Trust of  America, Inc. (the “New 1997 Plan”) (previously filed as  Exhibit 10.3 to our company’s Quarterly Report on Form 10-Q  (Commission File No. 000-22091), filed August 15, 1997, and  incorporated herein by reference).                                                |
|     |   |                                                                                                                                                                                                                                                                                                                                                            |
| 10.9+    |   | Form of Nonqualified Stock Option Agreement for  use under the New 1997 Plan (previously filed as Exhibit 10.4 to our  company’s Quarterly Report on Form 10-Q (Commission File  No. 000-22091), filed August 15, 1997, and incorporated herein by  reference).                                                                   |
|     |   |                                                                                                                                                                                                                                                                                                                                                            |
| 10.10+   |   | Form of Employee Incentive Stock Option  Agreement for use under the New 1997 Plan (previously filed as  Exhibit 10.5 to our company’s Quarterly Report on Form 10-Q  (Commission File No. 000-22091), filed August 15, 1997, and  incorporated herein by reference).                                                             |
|     |   |                                                                                                                                                                                                                                                                                                                                                            |
| 10.11+   |   | General Provisions Applicable to Restricted Stock  Awards Granted Under the New 1997 Plan (previously filed as  Exhibit 10.14 to our company’s Registration Statement on Form S-11  (Commission File No. 333-36847), dated September 30, 1997 and filed  as of October 1, 1997, and incorporated herein by reference).            |
|     |   |                                                                                                                                                                                                                                                                                                                                                            |
| 10.12+   |   | Form of Restricted Stock Award Agreement for  use under the New 1997 Plan (previously filed as Exhibit 10.15 to our  company’s Registration Statement on Form S-11 (Commission File  No. 333-36847), dated September 30, 1997 and filed as of  October 1, 1997, and incorporated herein by reference).                       |
|     |   |                                                                                                                                                                                                                                                                                                                                                            |
| 10.13+   |   | 1998 Stock-Based Incentive Plan of Golf Trust of  America, Inc. (previously filed as Exhibit A to our company’s  definitive proxy statement, dated April 1, 1999 and filed March 29,  1999, and incorporated herein by reference).                                                                                                     |
|     |   |                                                                                                                                                                                                                                                                                                                                                            |
| 10.14+   |   | Employee Stock Purchase Plan of Golf Trust of  America, Inc. (previously filed as Exhibit 4.1 to our company’s  Registration Statement on Form S-8 (Commission File No. 333-46659),  filed February 20, 1998, and incorporated herein by reference).                                                                              |
|     |   |                                                                                                                                                                                                                                                                                                                                                            |
| 10.15+   |   | Subscription Agreement for use with the Employee  Stock Purchase Plan (previously filed as Exhibit 4.2 to our company’s  Registration Statement on Form S-8 (Commission File No. 333-46659),  filed February 20, 1998, and incorporated herein by reference).                                                                          |
|     |   |                                                                                                                                                                                                                                                                                                                                                            |
| 10.16.1+ |   | First Amended and Restated Employment Agreement  between Golf Trust of America, Inc. and W. Bradley Blair, II,  dated November 7, 1999 (previously filed as Exhibit 10.15 to our  company’s Annual Report on Form 10-K, filed March 30, 2000, and  incorporated herein by reference).                                   |
|     |   |                                                                                                                                                                                                                                                                                                                                                            |
| 10.16.2+ |   | Second Amended and Restated Employment Agreement  between Golf Trust of America, Inc. and W. Bradley Blair, II,  dated as of February 25, 2001 (previously filed as Exhibit 10.4 to  our company’s Current Report on Form 8-K, filed March 12, 2001, and  incorporated herein by reference).                            |
|     |   |                                                                                                                                                                                                                                                                                                                                                            |
| 10.16.3+ |   | Letter Agreement to the Second Amended and Restated  Employment Agreement between Golf Trust of America, Inc. and  W. Bradley Blair, II, dated as of March 22, 2004 (previously  filed as Exhibit 10.16.3 to our company’s Annual Report on Form 10-K filed  March 30, 2004, and incorporated herein by reference).                    |
|     |   |                                                                                                                                                                                                                                                                                                                                                            |
| 10.17.1+ |   | Second Amended and Restated Employment Agreement  between Golf Trust of America, Inc. and Scott D. Peters, dated  November 7, 1999 (previously filed as Exhibit 10.16 to our  company’s Annual Report on Form 10-K, filed March 30, 2000, and  incorporated herein by reference).                                            |
|     |   |                                                                                                                                                                                                                                                                                                                                                            |
| 10.17.2+ |   | Third Amended and Restated Employment Agreement  between Golf Trust of America, Inc. and Scott D. Peters, dated as  of February 25, 2001 (previously filed as Exhibit 10.5 to our  company’s Current Report on Form 8-K, filed March 12, 2001, and  incorporated herein by reference).                                       |
|     |   |                                                                                                                                                                                                                                                                                                                                                            |
| 10.17.3+ |   | Fourth Amended and Restated Employment Agreement and  related General Release between Golf Trust of America, Inc. and  Scott D. Peters, dated as of August 29, 2003 (previously filed as  Exhibits 10.1 and 10.2 to our company’s Current Report on Form 8-K,  filed October 9, 2003, and incorporated herein by reference). |

 

53

----

 
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.18   |   | Stock Purchase Agreement, dated April 2, 1999,  by and among Golf Trust of America, Inc., Golf Trust of America, L.P.,  GTA GP, Inc., GTA LP, Inc. and AEW Targeted Securities Fund, L.P.  (previously filed as Exhibit 10.1 to our company’s Current Report on  Form 8-K, filed April 13, 1999, and incorporated herein by  reference).                                                                                      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.19   |   | Registration Rights Agreement, dated April 2,  1999, by and between Golf Trust of America, Inc. and AEW Targeted  Securities Fund, L.P. (previously filed as Exhibit 10.2 to our company’s  Current Report on Form 8-K, filed April 13, 1999, and incorporated  herein by reference).                                                                                                                                                   |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.20.1 |   | Purchase and Sale Agreement, between Golf Trust of  America, L.P., as seller, and Legends Golf Holding, LLC, as buyer, dated as  of February 14, 2001 (previously filed as Exhibit 10.1 to our  company’s Current Report on Form 8-K, filed August 14, 2001, and  incorporated herein by reference).                                                                                                                                         |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.20.2 |   | First Amendment to Purchase Agreement, Fifth  Amendment to Lease Agreement (Bonaventure Golf Club) and Settlement Agreement  by and among Golf Trust of America, L.P., Legends Golf Holding, LLC, Legends  at Bonaventure, Inc., Larry Young and Danny Young, dated as of  July 30, 2001 (previously filed as Exhibit 10.2 to our company’s  Current Report on Form 8-K, filed August 14, 2001, and incorporated  herein by reference). |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.21   |   | Confidentiality and Standstill Letter Agreement  between Golf Trust of America, Inc. and The Legends Group, dated as of  February 14, 2001 (previously filed as Exhibit 10.2 to our  company’s Current Report on Form 8-K, filed March 12, 2001, and  incorporated herein by reference).                                                                                                                                                |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.22.1 |   | Loan Agreement, dated as of March 18, 2004, by  and among GTA—Stonehenge, LLC, as Borrower, Golf Trust of America, L.P., as  Guarantor, and Textron Financial Corporation as the Lender (previously filed  as Exhibit 10.22.1 to our company’s Annual Report on Form 10-K filed March 30,  2004, and incorporated herein by reference).                                                                                                                |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.22.2 |   | Mortgage Security Agreement and Fixture Filing,  dated as of March 18, 2004, from Golf Trust of America, L.P. in favor of  Textron Financial Corporation (previously filed as Exhibit 10.22.2 to our  company’s Annual Report on Form 10-K filed March 30, 2004, and incorporated  herein by reference).                                                                                                                                                    |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.22.3 |   | Amended and Restated Loan Agreement, dated as of  August 4, 2005, by and among GTA—Stonehenge, LLC, as Borrower, Golf  Trust of America, L.P., as Guarantor, and Textron Financial Corporation as  the Lender (previously filed as Exhibit 10.22.3 to our company’s Current  Report on Form 8-K, filed August 9, 2005, and incorporated herein  by reference).                                                                          |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.22.4 |   | Notice of Future Advances, Note Mortgage, Security  Agreement, and Fixture Filing, dated as of August 4, 2005, from Golf  Trust of America, L.P. in favor of Textron Financial Corporation (previously  filed as Exhibit 10.22.4 to our company’s Current Report on  Form 8-K, filed August 9, 2005, and incorporated herein by  reference).                                                                                                 |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.23   |   | Settlement Agreement dated July 15, 2004 by and  among Golf Trust of America, L.P., GTA-IB, LLC, Golf Host Resorts, Inc.,  Golf Hosts, Inc., Golf Host Management, Inc., Golf Host  Condominium, Inc. and Golf Host Condominium, LLC (previously filed as  Exhibit 10.1 to our company’s Current Report on Form 8-K, filed  July 29, 2004, and incorporated herein by reference).                                        |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.24   |   | Defense and Escrow Agreement dated July 15,  2004 by and among Golf Host Resorts, Inc., GTA-IB, LLC, Golf Trust of  America, L.P., Golf Trust of America, Inc. and Chicago Title Insurance  Company (previously filed as Exhibit 10.2 to our company’s Current  Report on Form 8-K, filed July 29, 2004, and incorporated herein by  reference).                                                                                   |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.25   |   | Operational Benefits Agreement dated July 15,  2004 by and among Golf Host Resorts, Inc., Golf Hosts, Inc.,  GTA-IB, LLC, and Golf Trust of America, L.P. (previously filed as  Exhibit 10.3 to our company’s Current Report on Form 8-K, filed July 29,  2004, and incorporated herein by reference).                                                                                                                             |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.26   |   | Management Agreement dated July 15, 2004 by and  between Westin Management Company South and GTA-IB, LLC (previously filed as  Exhibit 10.4 to our company’s Current Report on Form 8-K, filed  July 29, 2004, and incorporated herein by reference).                                                                                                                                                                                        |

 

54

----

 
| 10.27    |   | Assignment, Consent, Subordination and  Nondisturbance Agreement dated July 15, 2004 by and among GTA-IB, LLC,  Golf Trust of America, L.P. and Westin Management Company South (previously  filed as Exhibit 10.5 to our company’s Current Report on Form 8-K,  filed July 29, 2004, and incorporated herein by reference).                                                                       |
|----------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.28    |   | Facility Management Agreement dated July 15,  2004 by and among Troon Golf L.L.C., Westin Management Company South and  GTA-IB, LLC (previously filed as Exhibit 10.6 to our company’s Current  Report on Form 8-K, filed July 29, 2004, and incorporated herein by  reference).                                                                                                                   |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.29    |   | Loan Agreement dated July 15, 2004 by and  between Golf Trust of America, L.P. and Elk Funding, L.L.C. and related Notes  A and B (previously filed as Exhibit 10.7 to our company’s Current  Report on Form 8-K, filed July 29, 2004, and incorporated herein by  reference).                                                                                                                     |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.30.1  |   | Parcel F Development Agreement dated  March 29, 2004 by and among Golf Hosts Resorts, Inc., Golf Trust of  America, L.P. and Parcel F, LLC, formerly known as Innisbrook F, LLC,  formerly known as Bayfair Innisbrook, L.L.C. (previously filed as  Exhibit 10.1 to our company’s Current Report on Form 8-K, filed  July 29, 2004, and incorporated herein by reference).         |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.30.2  |   | First Amendment to Parcel F Development  Agreement by and among Golf Hosts Resorts, Inc., Golf Trust of America,  L.P. and Parcel F, LLC (formerly known as Innisbrook F, LLC) (previously  filed as Exhibit 10.30.2 to our company’s Quarterly Report on  Form 10-Q, filed August 15, 2005, and incorporated herein by  reference).                                                          |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.30.3  |   | Second Amendment to Parcel F Development  Agreement by and among Golf Hosts Resorts, LLC (formerly known as Golf Host  Resorts, Inc.), Golf Trust of America, L.P., GTA-IB, LLC and Parcel F,  LLC (formerly known as Innisbrook F, LLC) (previously filed as  Exhibit 10.30.3 to our company’s Quarterly Report on Form 10-Q,  filed August 15, 2005, and incorporated herein by reference). |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.31    |   | Amendment to Loan Agreement between GTA-IB, LLC and  Golf Trust of America, L.P. (previously filed as Exhibit 10.31 to our  company’s Quarterly Report on Form 10-Q, filed November 22, 2004,  and incorporated herein by reference).                                                                                                                                                                   |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.32    |   | Promissory Note issued by GTA-IB, LLC to Golf Trust  of America, L.P. (previously filed as Exhibit 10.32 to our company’s  Quarterly Report on Form 10-Q, filed November 22, 2004, and  incorporated herein by reference).                                                                                                                                                                              |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.33.1+ |   | Letter Agreement, dated as of March 30, 2005,  amending the fourth amended and restated employment agreement of Scott Peters  (previously filed as Exhibit 10.33 to our company’s Annual Report on  Form 10-K, filed March 30, 2005, and incorporated herein by  reference.                                                                                                                        |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.33.2+ |   | Letter Agreement, dated as of March 31, 2006,  amending the fourth amended and restated employment agreement of  Scott Peters (previously filed as Exhibit 10.35 to our company’s  Current Report on Form 8-K, filed April 6, 2006, and incorporated  herein by reference).                                                                                                                   |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.33.3+ |   | Letter Agreement, dated as of September 29, 2006,  amending the fourth amended and restated employment agreement of  Scott Peters (previously filed as Exhibit 10.33.3 to our company’s  Current Report on Form 8-K, filed October 2, 2006, and incorporated  herein by reference).                                                                                                                     |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.34*   |   | Letter Agreement, dated March 24, 2005, between  our company and AEW Targeted Securities Fund, L.P. (previously filed as  Exhibit 10.34 to our company’s Annual Report on Form 10-K filed  March 30, 2005, and incorporated herein by reference).                                                                                                                                                  |
| 10.35*   |   |                                                                                                                                                                                                                                                                                                                                                                                                                        |
|     |   | Option Agreement, dated May 6, 2005, between  our company and AEW Targeted Securities Fund, L.P. (previously filed as  Exhibit 10.35 to our company’s Current Report on Form 8-K filed  May 9, 2005).                                                                                                                                                                                              |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.36*   |   | Letter Agreement, dated November 11, 2005,  between our company and AEW Targeted Securities Fund, L.P. (previously filed  as Exhibit 10.37 to our company’s Quarterly Report on Form 10-Q  filed November 14, 2005, and incorporated herein by reference).                                                                                                                                         |

 

55

----

 
|          |   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
|----------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.37**  |   | Option Agreement, dated April 12, 2006, between  our company and AEW Targeted Securities Fund, L.P. (previously filed as  Exhibit 10.37 to our company’s Annual Report on Form 10-K filed April 17,  2006, and incorporated herein by reference).                                                                                                                                                                        |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.38*** |   | Asset Purchase Agreement by and between Golf Trust  of America, Inc., Golf Trust of America, L.P., GTA-IB, LLC, GTA-IB Golf  Resort, LLC, GTA-IB Condominium, LLC, GTA-IB Management, LLC and CMI  Financial Network, LLC dated October 27, 2005 (previously filed as  Exhibit 10.36 to our company’s Quarterly Report on Form 10-Q filed  November 14, 2005, and incorporated herein by reference). |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.39    |   | Termination and Release Agreement by and between  Golf Trust of America, Inc., GTA-IB, LLC, and Westin Hotel Management  L.P., as successor in interest to Westin Management Company South, dated  September 28, 2006 (previously filed as Exhibit 10.39 to our company’s  Current Report on Form 8-K filed October 3, 2006 and incorporated herein  by reference).                                            |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.40    |   | Letter Agreement by and between Golf Trust of  America, Inc. and Messers. Jan H. Loeb and Nauman S. Toor, collectively,  the “Director Candidates,” dated October 5, 2006 (previously filed as  Exhibit 10.40 to our company’s Current Report on Form 8-K filed October  3, 2006 and incorporated herein by reference).                                                                              |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 14.1     |   | Code of Ethics, adopted by the Board of Directors of  Golf Trust of America, Inc. on February 9, 2004 (previously filed  as Exhibit 14.1 to our company’s Annual Report on Form 10-K, filed  March 30, 2004, and incorporated herein by reference).                                                                                                                                                  |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 21.1**** |   | List of Subsidiaries of Golf Trust of  America, Inc.                                                                                                                                                                                                                                                                                                                                                                          |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 24.1**** |   | Powers of Attorney (included under the caption  “Signatures”)                                                                                                                                                                                                                                                                                                                                                            |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 31.1**** |   | Certification of W. Bradley Blair II  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                    |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 31.2**** |   | Certification of Scott D. Peters pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                             |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 32.1**** |   | Certifications under Section 906 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                          |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 99.1     |   | Charter of the Audit Committee of the Board of  Directors of Golf Trust of America, Inc. (previously filed as  Appendix A to our company’s definitive proxy statement on  Schedule 14A, filed October 15, 2001, and incorporated herein by  reference).                                                                                                                                                   |

----

| *      |   | This agreement expired pursuant to its terms on  November 30, 2005.                           |
|--------|--------|----------------------------------------------------------------------------------------------------|
| **     |   | This agreement was terminated pursuant to its terms  on June 30, 2006.                             |
| ***    |   | This agreement was terminated pursuant to its terms  on November 23, 2005.                    |
| ****   |   | Filed herewith                                                                                     |
| † |   | Portions of this exhibit have been omitted  pursuant to a request for confidential treatment. |
| +      |   | Denotes a management contract or compensatory plan.                                                |

 

 

56

----