**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.20549**

 

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**FORM 10-Q**

 

| **(Mark One)** |
|----------------|
| **ý**     |   | **Quarterly  report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934** |
|           |   |   |
|           |   | **for the quarterly period ended:****March 31,  2003** |
|           |   |   |
| **o**          |   | **Transition  report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934** |
|           |   |   |
|           |   | **for the transition period  from                     to                     ** |

 

**Commission FileNumber 000-22091**

 

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**GOLF TRUST OF AMERICA, INC.**

(Exact name of registrant as specified in its charter)

 

| **Maryland**                                                      |   | **33-0724736**                          |
|-------------------------------------------------------------------|--------|-----------------------------------------|
| (State or other jurisdiction of incorporation or organization)    |   | (I.R.S. Employer Identification Number) |
|                                                              |   |                                    |
| **14 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)        |
|                                                              |   |                                    |

 

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Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such report(s)and (2) has been subject to such filing requirements for the past90 days. Yes o  No o.

 

Indicate by check mark whether the registrantis an accelerated filer (as defined in Rule 12b-2 of the ExchangeAct). Yes o  No o

 

On May 7, 2003, there were 7,884,943 commonshares outstanding of the registrant’s only class of common stock. On May 7,2003, there were 800,000 shares outstanding of the registrant’s 9.25%Series A Cumulative Convertible Preferred Stock, which is the registrant’sonly class of outstanding preferred stock.

 

The Exhibit Index begins on page 50.

 

 

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**GOLF TRUST OFAMERICA, INC.Form 10-Q Quarterly ReportFor the Three Months Ended March 31, 2003INDEX**

 
| **PART I. FINANCIAL INFORMATION** |
|-----------------------------------|
|                              | **Item 1.** | **Liquidation Basis Financial Statements** |
|                              |   | Condensed Consolidated Statements of Net  Assets as of March 31, 2003 (unaudited) and December 31, 2002 |
|                              |   | Condensed Consolidated Statements of Changes in Net Assets  (unaudited) for the Three Months Ended March 31, 2003 and 2002 |
|                              |   | Condensed Consolidated Statements of Cash Flows (unaudited) for the  Three Months Ended March 31, 2003 and 2002 |
|                              |   | 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 2.** | **Changes in Securities** |
|                              | **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** |
|                              | **Certifications** |
|                              | **Exhibit Index** |

 

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**GOLFTRUST OF AMERICA, INC.CONDENSED CONSOLIDATED STATEMENTS OFNET ASSETS (LIQUIDATION BASIS)AS OF MARCH 31, 2003 (unaudited) AND DECEMBER 31, 2002(in thousands, except per share amounts)**

 
|                                                                                                  |   | **March 31,  2003** |       | **December 31,  2002** |       |
|-------------------------------------------------------------------------------------------------------|--------|---------------------|------------|-----------------------------|------------|
|                                                                                                  |   | **(unaudited)**     |       |                        |       |
|                                                                                                  |   |                |       |                        |       |
| **ASSETS**                                                                                            |   |                | ** ** |                        | ** ** |
| Real estate and mortgage note receivable —  held for sale                                        |   | $                   | 101,807    |                        | $          | 143,963 |   |
| Cash and cash equivalents                                                                             |   | 6,806               |       | 7,990                       |       |
| Restricted cash                                                                                       |   | 1,554               |       | 1,551                       |       |
| Receivables — net                                                                                |   | 4,514               |       | 2,754                       |       |
| Other assets                                                                                          |   | 508                 |       | 498                         |       |
| Total assets                                                                                          |   | 115,189             |       | 156,756                     |       |
|                                                                                                  |   |                |       |                        |       |
| **LIABILITIES**                                                                                       |   |                | ** ** |                        | ** ** |
| Debt                                                                                                  |   | 29,564              |       | 69,003                      |       |
| Accounts payable and other liabilities                                                                |   | 4,161               |       | 3,927                       |       |
| Dividends payable                                                                                     |   | 3,238               |       | 2,775                       |       |
| Reserve for estimated costs during the  period of liquidation                                         |   | 10,701              |       | 12,148                      |       |
| Total liabilities                                                                                     |   | 47,664              |       | 87,853                      |       |
|                                                                                                  |   |                |       |                        |       |
| 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                                                                 |   | 67,664              |       | 107,853                     |       |
|                                                                                                  |   |                |       |                        |       |
| **NET ASSETS IN LIQUIDATION**(available to  holders of common stock and OP units)                     |   | $                   | 47,525     |                        | $          | 48,903 |   |

 

See accompanying notes to condensed consolidated financial statements.

 

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**GOLFTRUST OF AMERICA, INC.CONDENSED CONSOLIDATED STATEMENTS OFCHANGES IN NET ASSETS (LIQUIDATION BASIS)FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002(in thousands, except per share data) (unaudited)**

 
|                                                                        |   | **Three  Months Ended  March 31, 2003** |   | **Three  Months Ended  March 31, 2002** |   |
|-----------------------------------------------------------------------------|--------|-----------------------------------------|--------|-----------------------------------------|--------|
|                                                                        |   |                                    |   |                                    |   |
| Revenues                                                                    |   |                                    |   |                                    |   |
| Rent                                                                        |   | $                                       | 452    |                                    | $      | 1,961 |   |
| Revenue from managed golf course operations                                 |   | 2,434                                   |   | 2,771                                   |   |
| Total revenues                                                              |   | 2,886                                   |   | 4,732                                   |   |
|                                                                        |   |                                    |   |                                    |   |
| Expenses:                                                                   |   |                                    |   |                                    |   |
| General & administrative                                                |   | 731                                     |   | 1,128                                   |   |
| Direct expenses from managed golf course  operations                        |   | 2,305                                   |   | 2,563                                   |   |
| Total expenses                                                              |   | 3,036                                   |   | 3,691                                   |   |
|                                                                        |   |                                    |   |                                    |   |
| Operating (loss) income                                                     |   | (150                                    | )      | 1,041                                   |   |
|                                                                        |   |                                    |   |                                    |   |
| Other income (expense):                                                     |   |                                    |   |                                    |   |
| Interest income                                                             |   | 56                                      |   | 157                                     |   |
| Interest expense                                                            |   | (821                                    | )      | (1,424                                  | )      |
| Total other income (expense)                                                |   | (765                                    | )      | (1,267                                  | )      |
|                                                                        |   |                                    |   |                                    |   |
| Loss before adjustment for liquidation  basis                               |   | (915                                    | )      | (226                                    | )      |
| Adjustment for liquidation basis of  accounting                             |   | —                                  |   | (860                                    | )      |
| Net loss                                                                    |   | (915                                    | )      | (1,086                                  | )      |
|                                                                        |   |                                    |   |                                    |   |
| Dividends and Distributions:                                                |   |                                    |   |                                    |   |
| Preferred dividends                                                         |   | (463                                    | )      | (462                                    | )      |
| Value of OP units redeemed in sale of golf  courses and other settlements   |   | —                                  |   | (535                                    | )      |
| Total dividends and distributions                                           |   | (463                                    | )      | (997                                    | )      |
|                                                                        |   |                                    |   |                                    |   |
| Net change in net assets available to  holders of common stock and OP units |   | $                                       | (1,378 | )                                       | $      | (2,083 | ) |

 

See accompanying notes to condensed consolidated financial statements.

 

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**GOLFTRUST OF AMERICA, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(LIQUIDATION BASIS)FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002(in thousands, unaudited)**

 
|                                                                               |   | **Three  Months Ended  March 31, 2003** |       | **Three  Months Ended  March 31, 2002** |       |
|------------------------------------------------------------------------------------|--------|-----------------------------------------|------------|-----------------------------------------|------------|
|                                                                               |   |                                    |       |                                    |       |
| **Cash flows from operating activities:**                                          |   |                                    | ** ** |                                    | ** ** |
| Net loss                                                                           |   | $                                       | (915       | )                                       | $          | (1,086 | ) |
| Adjustments to reconcile net income to net  cash provided by operating activities: |   |                                    |       |                                    |       |
| Adjustment to liquidation basis of  accounting                                     |   | —                                  |       | 860                                     |       |
| Straight-line interest, rent and other                                             |   | —                                  |       | (21                                     | )          |
| Decrease (increase) in other assets                                                |   | 485                                     |       | (741                                    | )          |
| Increase   in restricted cash                                                 |   | (3                                      | )          | (3                                      | )          |
| Increase (decrease) in accounts payable and  other liabilities                     |   | 319                                     |       | (526                                    | )          |
| Decrease in liquidation liabilities                                                |   | (1,154                                  | )          | (1,552                                  | )          |
| Net cash used in operating activities                                              |   | (1,268                                  | )          | (3,069                                  | )          |
|                                                                               |   |                                    |       |                                    |       |
| **Cash flows used in investing activities:**                                       |   |                                    | ** ** |                                    | ** ** |
| Golf course improvements                                                           |   | (61                                     | )          | (810                                    | )          |
| Net proceeds from golf course dispositions                                         |   | 39,564                                  |       | —                                  |       |
| Decrease in notes receivable                                                       |   | 20                                      |       | 6                                       |       |
| Net cash provided by investing activities                                          |   | 39,523                                  |       | (804                                    | )          |
|                                                                               |   |                                    |       |                                    |       |
| **Cash flows from financing activities:**                                          |   |                                    | ** ** |                                    | ** ** |
| Net repayments on debt                                                             |   | (39,439                                 | )          | —                                  |       |
| Net cash used in financing activities                                              |   | (39,439                                 | )          | —                                  |       |
|                                                                               |   |                                    |       |                                    |       |
| Net (decrease) increase in cash                                                    |   | (1,184                                  | )          | (3,873                                  | )          |
| Cash and cash equivalents, beginning of  period                                    |   | 7,990                                   |       | 14,762                                  |       |
| Cash and cash equivalents, end of period                                           |   | $                                       | 6,806      |                                    | $          | 10,889 |   |
| **Supplemental Disclosure of Cash Flow Information**                               |   |                                    | ** ** |                                    | ** ** |
| Interest paid during the period                                                    |   | $                                       | 774        |                                    | $          | 1,424 |   |
| Note receivable from sale of asset                                                 |   | $                                       | 2,300      |                                    | —     |   |
| OP units redeemed as a non-refundable  deposit in the sale of golf courses         |   | —                                  |       | $                                       | 535        |   |

 

See accompanying notes to condensed consolidated financial statements.

 

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**GOLFTRUST OF AMERICA, INC.Form 10-Q Quarterly ReportFor the Three Months Ended March 31, 2003NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS(unaudited)**

 

**1. Plan of Liquidation Overview**

 

*Plan of liquidation background*

 

On February 25, 2001 our board ofdirectors adopted, and on May 22, 2001 our common and preferredstockholders approved, a plan of liquidation for our Company. The plan ofliquidation contemplates the sale of all of our assets and the payment of, orprovision for, our liabilities and expenses, and authorizes us to establish areserve to fund our contingent liabilities. The plan of liquidation gives ourboard of directors the power to sell any and all of our assets without furtherapproval by our stockholders. However, the plan of liquidation constrains ourability to enter into sale agreements that provide for gross proceeds below thelow end of the range of gross proceeds that our management initially estimatedwould be received from the sale of such assets absent a fairness opinion, anappraisal or other evidence satisfactory to our board of directors that theproposed sale is in the best interest of our Company and our stockholders.

 

At the time we prepared our proxy statementsoliciting stockholders’ approval for the plan of liquidation, we expected thatour liquidation would be completed within 12 to 24 months from the date ofstockholders’ approval on May 22, 2001. While we have made significantprogress in meeting the expectation we had at the time that the proxy wasprepared, the completion of the plan of liquidation within the time-frameset-out in the proxy has not occurred, and we now know that, as describedbelow, realizing the range of liquidating distributions per share set forth inthe applicable proxy statement is not likely, particularly insofar as thedisposition of our interest in the Innisbrook Resort is concerned.

 

Since late 1999, the golf industry hasexperienced declining performance and increased competition. Two of theeconomic sectors most affected by the economic recession in the United Stateshave been the leisure and travel sectors of the economy. Golf courses and, in particular,destination-resort golf courses, are at the intersection of these sectors. Weretained Houlihan Lokey to advise us on strategic alternatives available to usin furtherance of our efforts to seek to enhance stockholder value under ourplan of liquidation. In connection with this engagement, Houlihan Lokeyreviewed: (i) our corporate strategy; (ii) various possible strategicalternatives available to us with a view towards determining the best approachof maximizing stockholder value in the context of our existing plan ofliquidation; and (iii) other strategic alternatives independent of theplan of liquidation. Houlihan Lokey evaluated our lender’s mortgage interest inthe Innisbrook Resort under two different scenarios, both of which assumed thatwe would obtain a fee simple interest in the asset by either successfullycompleting a negotiated settlement with our borrower or foreclosing on ourborrower’s interest in the mortgage encumbering the asset. Under the firstscenario, Houlihan Lokey analyzed immediate liquidation of the asset, and underthe second scenario Houlihan Lokey analyzed holding the asset until no laterthan December 31, 2005 to seek to realize a recovery in the financialperformance levels based on historical financial results. Following receipt ofHoulihan Lokey’s report on March 15, 2002, and after consideration ofother relevant facts and circumstances then available to us, our board ofdirectors unanimously determined to proceed with our plan of liquidationwithout modification.  In February 2003,we, at the direction of our board, again engaged Houlihan Lokey to assist us inupdating our projected range of liquidating distributions in light of theactual sale prices we had obtained during the prior year and other relevantfactors.   Following receipt of HoulihanLokey’s updated report on March 18, 2003, and after consideration of otherrelevant facts and circumstances then available to us, our board of directorsunanimously reaffirmed their decision to proceed with our plan of liquidationwithout modification.

 

We are in negotiations with the owner of theInnisbrook Resort regarding a possible consensual foreclosure or a possibleconveyance in lieu of foreclosure (see further discussion of the status of thenegotiations in Note 4 to the Condensed Consolidated FinancialStatements). However, we can provide no assurance as to whether we will be ableto reach any consensual resolution or settlement with the owner. If noconsensus resolution is reached, judicial action may ensue and the litigationmight be protracted and expensive, and even in the event that we prevail in anysuch litigation, the 

 

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owner might not meet its obligations to us as might be ordered by thecourt or it might declare bankruptcy. If this occurs and we decide to pursuejudicial foreclosure, it would likely be expensive and time-consuming and thereis a risk to us that the owner might seek to obtain bankruptcy and/or otherjudicial protection. Even if we obtain ownership of the Innisbrook Resort, weexpect to face the difficult task of seeking to realize a recovery in thefinancial performance levels.

 

*Credit Agreement*

 

On December 31, 2002, our lendersextended the maturity of our credit agreement to June 30, 2003. As of May7, 2003, we owed approximately $25.1 million to our lenders (afterdeducting the balance of $1.5 million in our restricted-cash escrowaccount which is reserved for future payment of interest if necessary) underour credit agreement. Due to the impact of the depressed economy on theoperating performance of our golf courses, we face an increased risk that wemay not be able to pay off our debt under our credit agreement when it comesdue. An uncured event of default would give our lenders the right to demandthat we immediately repay all of our outstanding debt under our creditagreement. If we were unable to pay our debt as required, the lenders couldforeclose upon and seek to sell our remaining golf courses. There is a riskthat the lenders would not be motivated to market, and would not market, thegolf courses as effectively as we would and, therefore, would achieverelatively less attractive sales prices for our assets. To the extent that thenet proceeds from sales of our assets conducted by our lenders would be lowerthan the net proceeds from sales conducted by us, the amount available for ourliquidating distributions to stockholders would be lower. At the present time,we are seeking to repay our credit agreement by its maturity on June 30,2003 through the sales of our golf courses. Concurrently, we have initiateddiscussions with our lenders to seek to obtain a further extension to the termof our credit agreement before it matures. If our lenders do not consent to ourrequest for an extension if it becomes necessary and we are not able to securerefinancing through another source, we might be compelled to sell, or seek tosell, assets at further reduced prices in order to repay our debt in a timelymanner.

 

**2. Organization and Basis of Presentation**

 

Golf Trust of America, Inc., or GTA, wasincorporated in Maryland on November 8, 1996. We were originally formed tobe a real estate investment trust, or REIT, but through the repossession of ourcourses formerly encumbered by our participating leases we now own and operategolf courses. In our SEC filings, we often state golf course quantities interms of 18-hole equivalents. Therefore, one 27-hole golf course property wouldbe counted as 1.5 golf courses. As of May 7, 2003, we have interests insix properties which represent ten golf courses. We hold participatinginterests in four golf courses and direct, controlling interests in sixadditional golf courses. Six of these ten golf courses are owned by us and four(i.e., the Innisbrook Resort golf courses) are collateral for a 30-yearparticipating mortgage wherein we are the lender. The six golf courses that weown are held by us in fee simple. The ten golf courses are located in Florida(6), South Carolina (2), New Mexico and California. Title to our golf coursesis generally held by Golf Trust of America, L.P., a Delaware limitedpartnership and, in the case of the Sandpiper Golf Course, through a whollyowned subsidiary of Golf Trust of America, L.P. We refer to Golf Trust ofAmerica, L.P. as our “operating partnership” or “OP” and we refer to theoperating partnership and GTA (together with all of their subsidiaries)collectively as “we”, “us” or our “Company.” Golf Trust of America, Inc.,through its wholly owned subsidiaries GTA GP, Inc. (“GTA GP”) and GTALP, Inc. (GTA LP) holds a 99.5 percent interest in our operatingpartnership as of May 7, 2003. GTA GP is the sole general partner of ouroperating partnership and owns a 0.2 percent interest therein. GTA LP is alimited partner in the operating partnership and owns a 99.3 percentinterest therein. These percentages give effect to all outstanding preferred OPunits on an as-converted basis. Operators of the golf courses, their affiliatesand one of our officers hold the minority interests in our operatingpartnership.

 

**Adjustment to Liquidation Basis of Accounting**

 

As a result of our board of directors’adoption of our plan of liquidation and its approval by our stockholders, asrequired we adopted the liquidation basis of accounting for all periodssubsequent to May 22, 2001. Accordingly, on May 22, 2001, our assetswere adjusted to their estimated fair value and our liabilities, includingestimated costs associated with implementing the plan of liquidation, wereadjusted to their estimated settlement amounts. The minority interest in ouroperating partnership was reclassified to net assets because the common OP unitholders do not have preferential distribution rights over the commonstockholders. The valuation of real estate held for sale as of March 31, 2003is based 

 

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on current contracts and estimates of sales values. The valuation ofour other assets and liabilities under the liquidation basis of accounting arebased on management’s estimates as of March 31, 2003. There were no liquidationbasis of accounting adjustments for the three months ended March 31, 2003.

 

The net assets represent the assets availableto our common stockholders and the remaining OP unit holder. The actual valuesrealized for assets and settlement of liabilities may differ materially fromthe amounts estimated. The actual number of shares of common stock and OP units(excluding intra-company holdings) outstanding at May 7, 2003 is 7,920,737(which includes 35,794 OP units). Of this amount, 365,380 shares of commonstock owned by an affiliate of the borrower under the participating mortgage atthe Innisbrook Resort are pledged to us as collateral under a participatingmortgage wherein our counter-parties are in default.

 

**Reserve for Estimated Costs During the Periodof Liquidation**

 

                                                Underthe liquidation basis of accounting, we are required as an accounting matter toestimate and accrue the costs associated with implementing the plan ofliquidation. These amounts can vary significantly due to, among other things,the timing and realized proceeds from golf course sales, the costs of retainingpersonnel and others to oversee the liquidation, including the costs ofinsurance, the timing and amounts associated with discharging known andcontingent liabilities and the costs associated with cessation of ouroperations. These costs are estimated and are expected to be paid out over theliquidation period.

 

The following is a summary of the changes inthe Reserve for Estimated Costs During the Period of Liquidation:

 
|                   |   | **December  31,  2002** |       | **Payments** |       | **Adjustments** |   | **March 31,  2003** |   |
|------------------------|--------|-------------------------|------------|--------------|------------|-----------------|--------|---------------------|--------|
|                   |   |                    |       |         |       |            |   |                |   |
| Severance              |   | $                       | 5,075,000  |         | $          | (15,000         | )      | $                   | — |   | $ | 5,060,000 |   |
| Professional fees      |   | 3,025,000               |       | (921,000     | )          | —          |   | 2,104,000           |   |
| Financial advisor fees |   | 594,000                 |       | (37,000      | )          | —          |   | 557,000             |   |
| Capital expenditures   |   | 386,000                 |       | (293,000     | )          | —          |   | 93,000              |   |
| Other                  |   | 3,068,000               |       | (181,000     | )          | (74,000         | )      | 2,887,000           |   |
| Total                  |   | $                       | 12,148,000 |         | (1,447,000 | )               | — |                | $      | 10,701,000 |   |
|                        |        |                         |            |              |            |                 |        |                     |        |  |  |  |  |

 

Included in the accrued severance amountsabove are payments due to our executives pursuant to their amended and restatedemployment agreements. Payments aggregating approximately $4,421,000 arepayable upon our repayment of our obligations under our secured credit facilityled by Bank of America, N.A.  Anyseverance payments otherwise payable by us under the amended and restatedemployment agreements will be reduced by the amount of any of the abovepayments earlier made.

 

Included in the total payments under theOther category above is a $105,000 payment representing the premium paid by usbased upon an extension of the term of our original directors and officersinsurance policy which expired on February 7, 2003 and was replaced by ourcurrent directors and officers insurance policy which expires on February 7,2004.

 

**3. Summary of Significant Accounting Policies**

 

*Interim Statements*

The accompanying condensed consolidatedfinancial statements for the three months ended March 31, 2003 and 2002 havebeen prepared in accordance with (i) generally accepted accounting principles(“GAAP”), and under the liquidation basis of accounting following stockholders’approval of the plan of liquidation on May 22, 2001, and (ii) the 

 

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instructions to Form 10-Q and Article 10 ofRegulation S-X. These financial statements have not been audited byindependent public accountants, however, they include adjustments (consistingof normal recurring adjustments) which are, in the judgment of management,necessary for a fair presentation of the net assets, financial condition,results of operations and cash flows for such periods. However, these resultsare not necessarily indicative of results for any other interim period or forthe full year. In particular, revenues from golf course operations areseasonal.

 

Certain information and footnote disclosuresnormally included in financial statements in accordance with GAAP have beenomitted as allowed in quarterly reports by the rules of the Securities andExchange Commission, or the SEC. Management believes that the disclosuresincluded in the accompanying interim financial statements and footnotes areadequate to make the information not misleading, but also believes that suchinformation should be read in conjunction with the consolidated financialstatements and notes thereto included in our annual report on Form 10-K,as amended, for the year ended December 31, 2002.

 

**4. Mortgage Note Receivable**

 

In June 1997, our operating partnershipclosed and funded, as lender, an initial $69.975 million participatingmortgage to Golf Host Resorts, Inc., an entity affiliated with StarwoodCapital Group LLC. The participating loan is secured by the Innisbrook Resort,a 72-hole destination golf and conference facility located near Tampa, Florida.There is also additional collateral of excess land at the Innisbrook Resort.The operator of the resort, Westin Hotel Company, guaranteed up to$2.5 million of debt service at the Innisbrook Resort for each of thefirst five years of the term of the participating mortgage; this guarantee hasbeen substantially funded. The initial loan of $69.975 million wasincreased by us by an additional $9 million loan to the borrower (creatinga total principal loan amount of $78.975 million), which was used by theborrower for a nine-hole expansion and other improvements to the InnisbrookResort facilities.

 

Pursuant to the terms of the participatingmortgage, the loan term of the participating mortgage is 30 years frominception, with an initial base interest rate of 9.6% per annum, annualincreases (of at least 5% but no more than 7%) in the interest payment for thefirst five years, and a participating interest feature throughout the termbased upon the growth in revenues, if any, over the base year.

 

Golf Host Resorts, the borrower, used$8,975,000 of the proceeds of the loan to purchase 274,039 of our OP units,159,326 shares of our common stock and was granted an option to purchase anadditional 150,000 shares of our common stock which expired (unexercised) onDecember 31, 1999. The 274,039 OP units were converted to shares of ourcommon stock at the request of Golf Host Resorts on March 3, 2000. These274,039 shares of our common stock, plus 79,663 of the shares of our commonstock that they purchased at the time we made the loan to them, plus 11,678 ofthe shares of our common stock formerly pledged by the borrower under the LostOaks participating lease (for a total of 365,380 shares) continue to be pledgedas security for the borrower’s performance under the participating mortgage.Prior to the borrower’s default under the participating mortgage discussedbelow, we recognized interest income on a straight-line basis.

 

Following September 11, 2001, theborrower informed us that due to the significant impact of the events ofSeptember 11th on the Resort’s operating performance, the borrower mightdefault on its mortgage payments to us. Shortly thereafter, the borrower’saffiliate, Lost Oaks, L.P. (the lessee of our Lost Oaks Golf Club), failed topay us monthly rent when due, for September 2001. The borrower then failedto pay us interest when due for the month of October 2001. OnNovember 6, 2001, we notified Lost Oaks, L.P. that its failure to pay rent(as well as late charges and interest) for the month of September 2001constituted an event of default under its participating lease. OnNovember 14, 2001, we sent a notice to the borrower that its interestpayment was overdue. On that same day, we sent a notice of default to theborrower based upon the cross-default of its affiliate, Lost Oaks, L.P., underits participating lease. (Subsequently, on June 30, 2002, the Lost Oaksparticipating lease was terminated and, on January 13, 2003, this golfcourse was sold). On November 29, 2001, we notified the borrower that itsfailure to cure its non-payment of the October 2001 interest paymentwithin ten days of our previous notice constituted an event of default of theborrower under our participating mortgage.

 

On March 8, 2002, we sent a notice toWestin Hotel Company alleging that Westin breached the subordination agreementby failing to remit payments directly to us on behalf of the borrower. Westinhas contested our claim that it breached the subordination agreement.

 

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Additionally, on March 8, 2002, wedelivered a legal notice to the borrower accelerating the entire amount of itsindebtedness to us as a result of its continuing default under theparticipating mortgage. The participating mortgage is a non-recourse loan.Accordingly, following an event of default thereunder, we cannot bring a legalaction directly against the borrower to compel payment. Rather, our recourse isto proceed against the guarantors and/or to foreclose upon the InnisbrookResort (other than the condominium units which are owned by third parties) andany other property of the borrower that has been pledged to us as collateral tosecure our loan to the borrower. Since early 2002, we have been seeking anegotiated foreclosure or settlement with the borrower as described in moredetail below. Pursuant thereto we have been negotiating a global resolution ofall aspects impacting the past, present and future performance of InnisbrookResort in the process of obtaining title. We are targeting the formal documentationof the global resolution by the end of the second quarter of 2003; however, wecan provide no assurances as to the terms, timing or likelihood of any suchglobal settlement.

 

**5. Commitments and Contingencies**

 

 

*Plan of Liquidation Action*

 

On January 28, 2002, we received a copyof a complaint titled *Mary Ella Crossley v. W. Bradley Blair, II et al.*This legal action was filed in the Circuit Court for Baltimore City, Maryland,against us and our directors and officers, Mr. Young and Banc of America SecuritiesLLC. The complaint purports to be a derivative action brought by Mary EllaCrossley, who claims to be one of our stockholders. The plaintiff alleges:

 

•                                          thatpayments to certain of our officers under their employment agreements and anagreement to sell golf courses to Legends resulted from a breach of thedefendants’ fiduciary duties to stockholders;

 

•                                          thatour officers defrauded the company in the renegotiation of their employmentagreements; and

 

•                                          thatthe actions of the defendants in approving the payments under the employmentagreements and the Legends transaction constituted a breach of our charterresulting in the unjust enrichment of certain individual defendants.

 

The complaint’s prayer section does notspecify the damages plaintiff is seeking. All of the defendants moved todismiss the complaint. In response to the motion filed by defendant Banc ofAmerica Securities LLC, the plaintiff agreed to voluntarily dismiss Banc ofAmerica Securities LLC without prejudice from the case. The plaintiff opposedthe motion to dismiss filed by us and the directors, and on May 20, 2002,the court denied that motion. On June 19, 2002, we and the directorsresponded to the complaint by filing a general denial of liability.  The parties have concluded the discoveryphase of the case.  Before discoveryclosed, plaintiff moved for an order to extend the discovery deadline by twoweeks, which the defendants opposed. The court denied the motion. Prior to the close of discovery, plaintiff moved to compel production ofcertain documents.  A hearing on thatmotion was held on April 9, 2003 and, on April 21, 2003 the court denied theplaintiff’s motion to compel.  Also, onApril 9, 2003, we filed a motion for summary judgment based on plaintiff’s lackof standing to bring this derivative action and on the merits.  A hearing on that motion, which plaintiffhas opposed, is scheduled for May 21, 2003. The plaintiff did not move for summary judgment, but filed a motion forentry of judgment in plaintiff’s favor, or in the alternative, for an orderstriking defendant’s summary judgment motion based on allegations of discoveryabuse, concealment of evidence and spoilation. Defendants opposed that motion. Trial is currently scheduled to begin June 23, 2003.  The matter has been tendered to ourdirectors and officers insurance carrier. We are unable to provide an assessment as to the likely outcome of thislitigation at this time.

 

*Palm Desert Country Club*

 

We operated this golf course through ourwholly owned subsidiary, GTA—Palm Desert, LLC, from September 5, 2000,when the lessee agreed to deliver possession to us, until April 20, 2001,when we completed the sale of Palm Desert Country Club to Dahoon InvestmentCompany, for total consideration of $4.075 million. Dahoon InvestmentCompany commenced a judicial action against us and GTA-Palm Desert LLC onNovember 20, 2001 in the Riverside County 

 

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Superior Court, alleging (1) breach of a purchase and saleagreement involving the Palm Desert Country Club in Palm Desert, California,(2) negligence, (3) breach of the covenant of good faith and fair dealing,and (4) intentional and negligent misrepresentation in connection with thesale of the golf course. We have contested their claims, however, we cannotpredict the outcome of the litigation at this time. Mediation is set for June4, 2003.  The court set a trial date ofOctober 20, 2003, and a Mandatory Settlement Conference for September 19, 2003.Discovery is currently ongoing.  We areunable at this time to give an assessment as to a likely outcome of thislitigation.

* *

*Stonehenge (Country Club at Wildewood and Country Club at WoodcreekFarms)*

 

On April 22, 2002, we filed an action *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 have asserted causes of action for breach of contract accompanied byfraudulent act, fraud and unfair trade practices. We are seeking damages ofapproximately $172,000, which represents prepaid dues which were not disclosedby the defendants. A counterclaim for payment under a consulting agreement,along with claims for payment of operating/maintenance and insurance expenseswas received on June 20, 2002. Our reply was filed on July 22, 2002denying the claims and, alternatively, seeking a set-off or recoupment againsttheir alleged claim for the amount of our claim. Discovery is ongoing, and notrial date has been set. We are currently negotiating with the defendant'sattorney for a possible settlement of these claims. However, at this time weare unable to assess the likely outcome of this litigation.

 

*Pete Dye Golf Club*

 

On March 18, 2003, we filed a judicialaction in the Circuit Court for the Ninth Judicial District, the State of SouthCarolina, against Burning Embers Corporation, Golf and Fairway, L.L.C., GolfCourse Leasing, LLC, James D. LaRosa, James J. LaRosa and Leigh Ann LaRosa, asjoint and several co-borrowers, for collection of all sums due and owing to us,approximately $220,000 plus accrued interest at March 24, 2003, under thepromissory note that matured on December 19, 2002. One payment of $10,000has been received since the maturity date and has been applied to the outstandingprincipal and interest.  We are nowattempting to serve the defendants. The promissory note was executed by thebuyer in favor of us in connection with the sale of the Pete Dye Golf Club onDecember 19, 2001 to an affiliate of the borrowers.

 

 

*Osage National Golf Club.*

 

The lawsuit, *Osage National Golf Club, Inc. etal. v. Golf Trust of America, Inc., et al.*, United StatesDistrict Court Eastern District of Missouri was filed against us on or aboutApril 5, 2000. This lawsuit involves a sale and lease transaction betweenplaintiffs and Golf Trust of America L.P. of a golf course located in MillerCounty, Missouri. Part of the consideration for this transaction at the time ofour purchase of the golf course was the transfer of OP Units as purchase considerationto Osage National Golf Club. Plaintiffs allege that we misrepresented thenature of these OP Units. Plaintiffs assert that because of thismisrepresentation the OP Units were substantially less valuable than had beenrepresented by us and, therefore, they have suffered actual damages in theamount of not less than $3,500,000. In addition, plaintiffs’ claim that theyare entitled to unspecific punitive damages. A scheduling conference was heldwith the court in late February 2002, and the case was tentatively set fortrial on October 28, 2002. The parties agreed to submit the case onstipulated facts and have submitted such a stipulation to the court. Theparties met with the court on October 29, 2002 and an order was enteredscheduling memoranda of law and other procedures to present the case. OnDecember 30, 2002, plaintiffs filed their memorandum of law. OnJanuary 6, 2003, we filed a responsive memorandum. This matter is now in aposition for ruling by the court and we would anticipate the ruling within afew months. In order to preserve potential unmatured claims against OsageNational Golf Club, we filed, and on February 21, 2003 the court granted,a motion to dismiss without prejudice the counterclaim that had been filedagainst Osage National Golf Club. A dismissal without prejudice allows theplaintiff to re-file its claim at a later time. We are unable to assess thelikely outcome of this case at this time.

 

*Other Litigation*

 

*Hillcrest Bank v. Golf Trust of America LP,United States District Court Western District of Missouri.*  This action was filed on or aboutDecember 26, 2001. This lawsuit involves a claim by Hillcrest Bank that ithas a perfected security interest in the OP Units of Osage National Golf Clubacquired by Osage National Golf Club in connection with the sale and leasetransaction of the golf course located in Miller County, Missouri. HillcrestBank alleges that it acquired this security interest in April 1999. Weredeemed the OP Units at issue in June 1999 as part of a settlement ofvarious claims owing to the company. The Bank did not receive any proceeds ofour redemption of the OP Units and asserts that because of this redemption ithas suffered actual damages in the amount of not less than $1,500,000. Theparties have not commenced discovery. The court issued a scheduling order, andthe case was scheduled for trial on October 6, 2003. We have now reached asettlement of this case that includes a payment by us to the plaintiff for$19,000.  The parties have agreed on the

 

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form of the settlementagreement and that agreement is being circulated for signatures.  We anticipate that this matter will beconcluded within approximately thirty days.

 

*Lake Ozark Industries, Inc. and EverettHolding Company, Inc. v. Golf Trust of America, et al.*  This is an action initiated in the CircuitCourt of Miller County, Missouri, by a contractor, Lake Ozark ConstructionIndustries, Inc., or LOCI, against numerous defendants including us. LOCIasserts that it performed construction services on, or which benefited theproperty of, the various defendants, including us and seeks to foreclose amechanic’s lien upon our property. Plaintiffs’ amended petition is in sixcounts. Counts I, II and III seek recovery of payment for LOCI’s work fromM & M Contractors, Inc., which plaintiffs’ claim was the primecontractor and the party who hired LOCI as a subcontractor. Counts IV, V and VIname us and other defendants. Count IV seeks to foreclose a mechanic’s lienupon the property of various defendants, including us. The lien is for theprincipal amount of $1,276,123, plus interest at 10% per year and attorneys’fees. Plaintiffs calculate interest to May 20, 1999, just prior to thelien filing, to be $151,180, and interest thereafter to be $354 per day. CountV of the amended petition, directed at various defendants, including us, seeksa determination of the priority of plaintiffs’ claimed mechanic’s lien overvarious deeds of trust and property interests, including our interest. Theoutcome of count V will be determined by the resolution on the merits of countIV. Finally, count VI seeks foreclosure of a deed of trust from one of theother defendants, Osage Land Company, apparently given to Everett to forestallplaintiffs’ filing of the mechanic’s lien. The deed of trust was recordedsubsequent to the recordation of the deed from Ozark Land Company to us for itsproperty. The court ruled in June 2001 on cross-motions for summaryjudgment filed by plaintiffs, us, and defendant Central Bank of Lake of theOzarks, a beneficiary of deed of trust on some of the property covered by themechanic’s lien and by the deed of trust from Osage Land Company to Everett.The court denied all the motions with one exception—it granted Everett summaryjudgment on count VI (foreclosure of the deed of trust to Everett from OsageLand Company) but ruled that the deed to us and the deeds of trust to CentralBank of Lake of the Ozarks are prior to the deed of trust to Everett. The courtdid not explain its rulings on the remainder of plaintiffs’ motion or on ourCentral Bank of Lake of the Ozarks motions, except that “there remainsubstantial and genuine issues of material fact.” We filed two motions forsummary judgment on counts IV and V. The grounds for the motions are thatplaintiffs’ claimed lien does not comply with requirements of the Missourimechanic’s lien statute and thus is invalid. On March 25, 2002, the courtorally granted our requested relief and ruled that plaintiffs’ claimed liendoes not comply with requirements of the Missouri mechanic’s lien statute andis invalid. The court entered its written order granting our motions forsummary judgment on April 20, 2002. As we have previously reported, sincenot all claims involved in this lawsuit have been resolved, plaintiffs’ time toappeal the April 20, 2002 order granting our motions for summary judgment hasnot yet begun to run.  Although theplaintiffs’ attorneys informed us that they were making efforts to resolve theremaining claims in this lawsuit, this has apparently not come to pass.  Accordingly, on April 15, 2003, we filed amotion with the court asking that it make final the judgment granted to GolfTrust of America, L.P.  We anticipatethat this motion will be granted, but do not expect a ruling on it for up tosixty days.  If this motion is granted,plaintiffs time to appeal will begin to run. We do not know whether an appeal will be filed.  Because of the uncertainty of an appeal byplaintiffs, we are unable to provide at this time an assessment as to the  likely outcome of this litigation.

 

*Mystic Creek Golf Course*

 

*Golf Trust of America v. Township of Milfordand Oakland County. * On April 17, 2003, in connection with thesale of the Mystic Creek Golf Club to Mystic Creek Acquisition, L.L.C., aMichigan limited liability company, we paid $400,000 to the Charter Township ofMilford, Michigan in order to settle our obligations related to real and/orpersonal property taxes and lessee user taxes which had accrued from the timewe purchased the property through December 31, 2001.  These taxes had accrued because we asserted that such property(in which we held a long-term ground lease interest as ground lessee) was notsubject to ad valorem property tax because it is owned by a municipality (theCity of Dearborn) and is operated as a concession for public purpose.  GTA, the purchaser, the Charter Township ofMilford, Michigan, and Oakland County, Michigan entered into the Release andSettlement Agreement dated as of April 17, 2003, to memorialize the payment byGTA to settle the tax issues and the parties release of each other.  Additionally, GTA assigned all of its claimsof exemption from payment of taxes to the purchaser in the transaction and thepurchaser and the relevant taxing authorities agreed to enter into astipulation to dismiss all relevant lawsuits with prejudice and without costsrelated to the 1998, 1999, 2000 and 2001 tax claims.  This settlement reduced our tax obligation from $509,403 to$400,000. We had previously paid all 2002 taxes.

 

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*Ordinary Course Litigation*

 

In addition to litigation between lessor 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. Such proceedings are generally brought against the operator ofa golf course, but may also be brought against the owner. Our participatingleases provided that each lessee was responsible for claims based on personalinjury and property damage at the golf courses which were leased and requiredeach lessee to maintain insurance for such purposes. Since we are now theoperator of our remaining golf courses, except Innisbrook, we maintaininsurance for these purposes. We are not currently subject to any claims ofthis sort that we deem to be material.

 

*Events of Default under the ParticipatingLease and Participating Mortgage.*

 

In 2002, to facilitate our golf course saleseffort, we assumed operations of the following golf courses (some of which weresubsequently sold) either pursuant to lease termination and transitionagreements under which the lessees vacated the property or, in the case ofSandpiper, following the favorable conclusion of the arbitration proceedingsrelated to the lease default: Stonehenge; Lost Oaks; and Sandpiper.

 

During the first quarter of 2003, wecontinued to manage Black Bear, Sandpiper, Stonehenge (Wildewood andWoodcreek), Wekiva, Tierra Del Sol and Mystic Creek (which was sold on April14, 2003).

 

*Defaults at Properties Currently Held forSale*

 

*Innisbrook Resort.*  The borrower under the participating mortgage remained in paymentdefault to us throughout 2002 and the first quarter of 2003. See the earlierdescription under “Note 4 to these consolidated financial statements”above.

 

*Refundable Initiation Fees*

 

Certain membership initiation fees at thesegolf courses are refundable based on specific conditions. The estimated presentvalue of the potential refunds over the thirty-year required membership term,as defined in the Club Membership Manual, recorded as an accrued liability onour books at June 30, 2002 is valued at $125,000. Additionally, certaininitiation fees may be refundable prior to the expiration of the thirty-yearterm under specific membership replacement conditions. There is no liabilityrecorded to consider the refundability of refunds issued under these conditionsdue to the fact that four new members have to join in the specific membershipcategory for a resigned member to receive a refund. A refund issued under thesespecific circumstances would be considered a reduction of membership revenuefor that period.  All initiation feesreceived are initially recorded as deferred revenue and amortized over theaverage life of a membership which, based on historical information, is deemedto be nine years.

 

**6. Other Assets**

 

Receivables—net consists of the following:

 
|                                     |   | **(Liquidation  Basis)** |      |
|------------------------------------------|--------|--------------------------|-----------|
|                                     |   | **March 31,  2003**      |      | **December 31,  2002** |   |
|                                     |   | **(unaudited)**          |      |   |   |
|                                     |   |                     |      |   |   |
| Rent receivable                          |   | $                        | —    |   | $ | 553,000 |   |
| Note receivable taken in sale of asset   |   | 2,313,000                |      | — |   |
| Loans to officers                        |   | 1,255,000                |      | 1,255,000 |   |
| Other miscellaneous receivables—net |   | 946,000                  |      | 946,000 |   |
| Receivables—net                     |   | $                        | 4,514,000 |   | $ | 2,754,000 |   |

 

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The rent receivable represented the rent dueon the golf courses at the Eagle Ridge Inn & Resort atDecember 31, 2002 which was subsequently received.  This property was sold on January 30, 2003.

 

The note receivable received by us inconnection with our sale of the asset represents the $2.5 million note taken byus from the buyer of the Eagle Ridge Inn & Resort, plus accrued interestless a discount reserve of $200,000 (i.e., in the event that the borrower hasnot caused any uncured event of default to occur under the note up to itsmaturity, the borrower shall have the right to reduce its payment obligationsunder the note by $200,000 plus any interest paid on that sum during the termof the note upon borrower’s payment of the balance of the note, subject tocertain prepayment prohibitions).

* *

*Loans to Officers*

 

Historically, the compensation committee ofthe board authorized us from time to time to make loans to our officers topurchase shares of our common stock and to assist in their payment of theirpersonal income tax liability arising in connection with their non-cashcompensation and benefit arrangements. Pursuant to the terms of our officers’ amended and restated employmentagreements, dated as of February 25, 2001, we made loans of $1,595,000 toour executive officers on February 25, 2001 for the payment of personalincome taxes arising from the acceleration of their restricted stock grants andthe forgiveness of their outstanding debt to us that occurred on such date.These loans were evidenced by promissory notes from the executives and securedby their holdings of 199,415 shares of our common stock valued at $8 per shareat the time of the issuance of these loans. Interest accrues on these loans at5.06% per annum (the applicable federal rate on the date of the loan) and isdue at maturity. The outstanding balance of these loans at June 30, 2002,principal and interest, was $1,655,000. Effective July 1, 2002, wediscontinued accruing interest on these loans for financial reporting purposesdue to the current computed value of the security based on the current netassets available to common shareholders. The loans to officers includes a$400,000 reserve to reflect the difference between the computed value of ourofficers’ pledged shares of their common stock that serve as collateral forthese loans compared to the value at the time that the shares were pledgedwhich was $8 per share.   These loansmature at the earliest of the following: (i) February 25, 2006;(ii) three years following termination of the executive/borrower’semployment; or (iii) the date of the final distribution under the plan ofliquidation. At any time when the loan is over-secured, the executive/borrowerhas the right to sell the common stock securing the loan, provided that allproceeds of the sale are first applied to the then outstanding balance of theloan. All distributions (including any liquidating distributions) on the commonstock securing the loan are applied against the loan. The related promissorynotes are non-recourse to the executive/borrower.

 

The other miscellaneous receivables includesapproximately $620,000 of member, trade and other miscellaneous receivables ofour managed golf courses, $317,000 in notes receivable, including accruedinterest, taken in participating lease terminations, and $9,000 in insurancereceivables. In estimating the fair value of receivables, management considersthe term, security, interest rates, and collectability of the receivable.

 

**7. Debt**

 

Debt consists of the following at theapplicable dates:

 
|                                                                                                                                                              |   | **March 31,  2003** |   | **December  31, 2002** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|--------|------------------------|--------|
|                                                                                                                                                              |   | **(in  thousands)** |   |
|                                                                                                                                                              |   |                |   |                   |   |
| Secured credit agreement, with an interest  rate of prime plus 3% for a current effective rate of 7.25% per annum at  March 31, 2003, which matures June 30, 2003 |   | $                   | 29,564 |                   | $      | 69,003 |   |
|                                                                                                                                                                   |        |                     |        |                        |        |  |  |

 

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*Credit Agreement*

 

On July 25, 2001, we entered into asecond amended and restated credit agreement with the lenders under our creditfacility and related line of credit. We are required to make minimum cumulativequarterly principal payments in the amount of $10,000,000 (if and whenquarterly payments are made in excess of $10,000,000, the excess amount iscredited against the requirement for the next quarter. We are also required touse the net proceeds from the sale of our golf course properties and relatedassets to repay the loan. Such payments will offset the quarterly scheduledprincipal payments. The loan to us under the second amended and restated creditagreement is secured by mortgages on all of our golf courses and certain otherassets.

 

The second amended and restated creditagreement limits our ability to sell golf courses unless we receive net cashproceeds in excess of minimum amounts set forth in our credit agreement. Thereare no longer any applicable financial covenants.  Non-financial covenants include maintenance of golf courses,requirements to insure the golf courses, restrictions on debt, restrictions onliens, restrictions on contingent obligations, limitations on loans to officersand investments in third parties, restrictions on payment of dividends,restrictions on transactions with affiliates, and restrictions on adverseamendments to our participating leases and participating mortgage, amongothers.

 

On June 28, 2002, we entered into thefirst amendment to our second amended and restated credit agreement with ourlenders to extend the term of our second amended and restated credit agreementto December 31, 2002. On December 31, 2002, we entered into thesecond amendment to our second amended and restated credit agreement with ourlenders to extend the term of our second amended and restated credit agreementto June 30, 2003. We paid a fee of 0.0833% on the outstanding balance atDecember 31, 2002 and we must pay a fee of 0.0833% on the outstandingbalance on the first of each month until maturity on June 30, 2003. Theinterest rate is the base rate (defined as the higher of (a) the primerate or (b) the federal funds rate plus 0.5% for such day) plus 3% untilmaturity.

 

All of the other terms and conditions aresubstantially unchanged from the first amendment to our second amended andrestated credit agreement. If we are unable to pay our outstanding debt underour credit agreement when it matures on June 30, 2003 and the lenders donot consent to our request for a further extension, we might be compelled tosell, or seek to sell, assets at further reduced prices in order to attempt torepay our debt by the maturity date. If we fail to pay the debt by the maturitydate, our lenders could initiate foreclosure proceedings or exercise otherremedies against us. In that event, we may be forced to file a bankruptcypetition in order to complete our liquidation. Even if we succeed in obtaininga favorable response from our lenders to any request we may make for a furthermaturity date extension, if needed, the amendment of our credit agreement mightbe on terms less favorable than the terms of our current credit agreement.

 

*Restricted Cash*

 

The balance in restricted cash of $1,554,000is comprised of $1,500,000, plus accrued interest of $33,000 that is being heldin an interest-bearing escrow account pursuant to our terms of the creditagreement. These escrowed funds may be used to pay interest to our lendersarising under our credit agreement when the owner of the Innisbrook Resort (ourborrower under the participating mortgage) has defaulted in the payment ofinterest due under the Innisbrook participating mortgage, which occurred inNovember 2001, and provided the aggregate principal amount outstanding onthe credit agreement is $60,000,000 or less, which occurred as ofJanuary 31, 2003, at the time such default occurs or during itscontinuance. Also, this account contains $21,000 that is being held in aninterest-bearing account pursuant to the terms of a purchase and sale agreementfor two golf courses that we sold in June 2001.

 

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**8. Preferred Stock**

 

*Series A Preferred Stock*

 

On April 2, 1999, we completed aregistered offering of 800,000 shares of 9.25% Series A CumulativeConvertible Preferred Stock, par value $0.01 per share, or Series Apreferred stock, at a price of $25.00 per share to a single purchaser, AEWTargeted Securities Fund, L.P. The Series A preferred stock isconvertible, in whole or in part, at the option of the holder at any time intoour common stock at an implicit conversion price of $26.25 per share of commonstock, subject to adjustment in certain circumstances. We contributed the netproceeds to our operating partnership in exchange for 800,000 Series Apreferred OP units with analogous terms.

 

Dividends on the Series A preferred stockare cumulative from the date of original issue and are payable quarterly inarrears, when, and if declared by the board of directors, on the 15th day ofJanuary, April, July and October, commencing on July 15, 1999. Thedividends were contemplated to be an amount per share equal to the greater of:

 

•                                          $0.578125per quarter (or $2.3125 per annum)(equal to an annual rate of 9.25% of the $25price per share), or

 

•                                          thecash dividend paid or payable on the number of shares of common stock intowhich a Series A preferred stock is then convertible (determined on eachof the quarterly dividend payment dates referred to above).

 

The Series A preferred stock dividendscurrently accrue at a rate of $462,500 per quarter and as of March 31,2003 we have accrued and not paid seven quarters of Series A preferredstock dividends (including the dividend otherwise payable in respect of thequarter ended March 31, 2003). Under our Series A charter document,because we now have at least six quarters of accrued and unpaid Series Apreferred stock dividends, the holder of the Series A preferred stock, AEWTargeted Securities Fund, L.P. (or its transferee), will have the right toelect two additional directors to our board of directors at our next annualmeeting, whose terms as directors will continue until we fully pay all accruedbut unpaid Series A dividends.

 

On February 22, 2001, we entered into avoting agreement with the holder of all of the shares of the Series Apreferred stock. That agreement provides that in the event that the requisitenumber of our common stockholders approved the plan of liquidation and thevoting agreement is not otherwise terminated, we will redeem all of the sharesof Series A preferred stock for $25 per share plus dividends accrued andunpaid thereon through the date of the final redemption payment. We agreed toso redeem the Series A preferred stock promptly after we have determinedin good faith that we have received sufficient net proceeds from thedisposition of our assets and/or operations to redeem all of the shares withoutviolating any legal or contractual obligations.

 

Moreover, under our voting agreement withAEW, if we have not fully redeemed the Series A preferred stock byMay 22, 2003 (which is the second anniversary of our shareholders’adoption of the plan of liquidation), AEW Targeted Securities Fund (or itstransferee) will have the right to require us to redeem the Series Apreferred stock in full within 60 days, and if we default on thatobligation, the stated dividend rate of the Series A preferred stock willincrease from 9.25% to 12.50% per annum (equivalent to a quarterly dividend of$625,000) until the Series A preferred stock is redeemed. Although wewould be permitted to continue to accrue such dividends without paying them ona current basis, they must be paid in full prior to any distribution to ourcommon stockholders, which would reduce our cash available for liquidatingdistributions to common stockholders**. **Weintend to continue to accrue such dividends and the preferred shares shallremain outstanding until such time as we have repaid our credit facility and/or otherwise have cash availableto redeem the Series A preferred stock, at which time we intend to redeem theSeries A preferred stock.

 

**9. Subsequent Events**

 

On April 17, 2003, we closed on the sale ofMystic Creek Golf Course for total consideration of $3.5.   The Mystic Creek Golf Course has 1.5 golfcourses (27-holes of golf) and is located in Dearborn, Michigan.

 

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**GOLF TRUST OFAMERICA, INC.Form 10-Q Quarterly ReportFor the Three Months Ended March 31, 2003**

 

**ITEM2****. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

 

Golf Trust of America, Inc., or GTA, wasincorporated in Maryland on November 8, 1996. We were originally formed tobe a real estate investment trust, or REIT, but through the repossession of ourcourses formerly encumbered by our participating leases we now own and operategolf courses. In our SEC filings, we often state golf course quantities interms of 18-hole equivalents; therefore, one 27-hole golf course property wouldbe counted as 1.5 golf courses. As of May 7, 2003, we have interests insix properties which represent ten golf courses. We hold participatinginterests in four golf courses and direct, controlling interests in sixadditional golf courses. Six of these ten golf courses are owned by us and four(i.e., the Innisbrook Resort golf courses) are collateral for a 30-yearparticipating mortgage wherein we are the lender. The six golf courses that weown are held by us in fee simple. The ten golf courses are located in Florida(6), South Carolina (2), New Mexico and California. Title to our golf coursesis generally held by Golf Trust of America, L.P., a Delaware limitedpartnership and, in the case of the Sandpiper Golf Course, through a whollyowned subsidiary of Golf Trust of America, L.P. We refer to Golf Trust ofAmerica, L.P. as our “operating partnership” or “OP” and we refer to theoperating partnership and GTA (together with all of their subsidiaries)collectively as “we”, “us” or our “Company.” Golf Trust of America, Inc.,through its wholly owned subsidiaries GTA GP, Inc. (“GTA GP”) and GTALP, Inc. (GTA LP) holds a 99.5 percent interest in our operatingpartnership as of May 7, 2003. GTA GP is the sole general partner of ouroperating partnership and owns a 0.2 percent interest therein. GTA LP is alimited partner in the operating partnership and owns a 99.3 percentinterest therein. These percentages give effect to all outstanding preferred OPunits on an as-converted basis. Operators of the golf courses, their affiliatesand one of our officers hold the minority interests in our operatingpartnership.

 

**Significant Events since the filing of ourannual report on Form 10-K on March 31, 2003**

 

Significant events occurring since March 31,2003 (the filing date of our Form 10-K for  the year 2002) include the following:

 

•                                          onApril 17, 2003, we closed on the sale of Mystic Creek Golf Course for totalconsideration of $3.5 million;

 

•                                          contemporaneouswith the closing of Mystic Creek, the related property tax litigation wassettled (see Item 3. Legal Proceedings for further details);

 

•                                          wedismissed our action in the matter styled *Golf Trust of America, L.P. v. DPC Wekiva, L.C., etal.,* due to the fact that this judgment was fully satisfied on April17, 2003 (see Part II, Item 1 Legal Proceedings for further details);

 

•                                          wecontinued in our efforts to consummate the sale of the Sandpiper Golf Course,which remains under contract;

 

•                                          wehave initiated discussions with our lenders to seek to obtain a furtherextension to the maturity date under our credit agreement; and,

 

•                                          wecontinued to negotiate for a potential settlement of claims resulting from theborrower’s default under the participating mortgage at the Innisbrook Resortwhile Innisbrook fell short of budget expectations for the first quarter of2003 and no signs of a recovery in the golf industry were evident.

 

Each of these developments isdescribed in more detail herein.

 

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**Our Participating Mortgage secured by theInnisbrook Resort**

 

*Recent Innisbrook Developments*

 

During the first quarter of 2003 we continuedto negotiate for a potential settlement of claims resulting from the borrower’sdefault under the participating mortgage wherein we are the lender. We areseeking to resolve this matter by the end of the second quarter of 2003,  however, we can provide no assurances as tothe terms, timing or likelihood of any resolution.

 

*Innisbrook Background*

 

We are the lender under a $79 millionnon-recourse loan, secured by a first mortgage on the Innisbrook Resort (otherthan the Resort’s condominium units). The Innisbrook Resort, located nearTampa, Florida, is a destination golf resort that includes four high-end golfcourses and adjacent condominium and conference facilities. We originated thisloan in June 1997. The borrower, Golf Host Resorts, Inc., owns theInnisbrook Resort (other than the condominium units). The borrower entered intoan arrangement with many of the persons who own condominium units at theResort. Under this arrangement, when the condominiums are not being used bytheir owners, they are placed in a pool and rented as hotel rooms to guests ofthe Innisbrook Resort. There are no separate hotel rooms. Accordingly, webelieve maintaining condominium owner participation in the rental pool isimportant to the economic success of the Innisbrook Resort. The borrower alsoentered into an agreement with Troon Golf, LLC to manage the golf courses, anda separate management agreement with Westin Hotel Company to manage thecondominium unit rental-pool and the conference facilities. Troon Golf, WestinHotel Company and the borrower are all affiliates.

 

Pursuant to the terms of the participatingmortgage, the loan term of the participating mortgage is 30 years frominception, with an initial base interest rate of 9.6% per annum, annualincreases (of at least 5% but no more than 7%) in the interest payment for thefirst five years, and a participating interest feature throughout the termbased upon the growth in revenues, if any, over the base year. However,operations at the Resort have not resulted in any participating interestpayments (as distinct from base interest payments) since 1999 (see Note 4to our condensed consolidated financial statements).

 

In addition to the Innisbrook Resort itself,the collateral securing the borrower’s performance under the participatingmortgage currently includes 365,380 shares of GTA common stock owned by theborrower (and held by GTA as the secured party) and three condominium unitsowned by the borrower at the Innisbrook Resort. The borrower’s parent, GolfHosts, Inc., guaranteed all of the borrower’s loan payment obligations,however, Golf Hosts, Inc. has few significant assets other than itsinterest in the borrower. In June 1997, Westin and the borrower entered into anagreement pursuant to which Westin agreed to advance, in specifiedcircumstances, up to $2.5 million per year to the borrower for five yearsin the event that the Resort did not generate the levels of cash flow specifiedin that agreement. Westin, the borrower and GTA entered into a subordinationagreement whereby Westin agreed to make such payments directly to GTA inspecified circumstances, and GTA agreed that in the event of foreclosure,Westin would continue to manage the resort pursuant to the existing managementagreement.

 

In addition to the current rental poolagreement dated January 1, 2002, the current owner of the InnisbrookResort agreed with the condominium owners association that the owner of theInnisbrook Resort would reimburse 50% of the refurbishment costs (approximately$7.6 million plus accrued interest thereon, assuming 610 units arerefurbished) invested in the condominium units by the condominium owners. Thisamount will be amortized and reimbursed to participating condominium owners (ortransferees of their condominium unit) over the five-year period beginning in2005. The reimbursement is contingent on the units remaining in the rental poolfrom the time of the refurbishment of their unit throughout the reimbursementperiod (2005 to 2009). If the unit does not remain in the pool during thereimbursement period of 2005 - 2009, the owner or successor ownerforfeits any unpaid installments at the time the unit is removed from the pool.We understand that the refurbishment of approximately 500 units of the totalrental pool units of approximately 

 

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610 has been completed to date.

 

Certain of the condominium owners (asplaintiffs) initiated legal action against the borrower, Golf HostResorts, Inc., and its corporate parent, Golf Hosts, Inc. (asdefendants), regarding various aspects of the prior rental pool arrangement. Weare not a party to the lawsuit. It is our understanding, however, that thecondominium owners/plaintiffs allege breaches of contract, including breachesin connection with the prior rental pool arrangement. The plaintiffs areseeking unspecified damages and declaratory judgment stating that theplaintiffs are entitled to participate in the rental pool and requiring thatgolf course access be limited to persons who are either condominium owners,members, their accompanied guests, or guests of the Resort.

 

Neither GTA nor any of our affiliates is aparty to that lawsuit, however, it affects us insofar as any costs imposed onthe borrower by the lawsuit might reduce the borrower’s willingness and abilityto (a) commence to make any participating mortgage payments to us in thefuture or to cure its default thereunder, or (b) enter into a settlementagreement with us regarding its current participating mortgage default(described below) on terms we believe are acceptable. Moreover, we believe thelawsuit clouds the value of the Innisbrook Resort in the near-term and therebyimpairs the value of the collateral which secures our participating loan.

 

Following September 11, 2001, theborrower informed us that due to the economic erosion in the lodging industryperformance resulting from the decline in the economy and the significantimpact of the events of September 11th on the Resort’s operatingperformance, the borrower might default on its mortgage payments to us. Shortlythereafter, the borrower’s affiliate, Lost Oaks, L.P. (the lessee of our LostOaks Golf Club), failed to pay us monthly rent when due forSeptember 2001. The borrower then failed to pay us interest when due forthe month of October 2001. On November 6, 2001, we notified LostOaks, L.P. that its failure to pay rent (as well as late charges and interest)for the month of September 2001 constituted an event of default under itsparticipating lease. On November 14, 2001 we sent a notice to the borrowerthat its interest payment was overdue. On that same day, we sent a notice ofdefault to the borrower based upon the cross-default of its affiliate, LostOaks, L.P., under its participating lease. (The participating lease at LostOaks golf course was terminated on June 30, 2002 and the golf course wassubsequently sold on January 13, 2003.) On November 29, 2001, wenotified the borrower that its failure to cure its non-payment of theOctober 2001 interest payment within ten days of our previous noticeconstituted an event of default of the borrower under our participatingmortgage.

 

On March 8, 2002, we sent a notice toWestin Hotel Company alleging that Westin breached the subordination agreementby failing to remit payments directly to us, on behalf of the borrower. Westinhas contested our claim that it breached the subordination agreement. Nolitigation has been filed in this regard. We are seeking a resolution of thisdispute with Westin as part of the proposed global settlement at Innisbrookdiscussed below.

 

In addition, on March 8, 2002, wedelivered a notice to the borrower accelerating the entire amount of itsindebtedness to us as a result of its continuing default under theparticipating mortgage. The participating mortgage loan is a non-recourse loan.Accordingly, following an event of default thereunder, we cannot bring a legalaction directly against the borrower to compel payment. Rather, our recourse isto proceed against the guarantors and/or to foreclose upon the InnisbrookResort (other than the condominium units which are owned by third parties) andany other property of the borrower that has been pledged as collateral to us tosecure our loan to the borrower. Since early 2002, we have been seeking anegotiated foreclosure or settlement with the borrower as described in moredetail below.

 

*Innisbrook Strategy*

 

In general, we face a potential trade-offbetween (a) seeking to sell the participating mortgage on the InnisbrookResort at the present time, as a distressed loan, which would likely result ina significant loss on our investment, but would hasten the completion of ourliquidation, and (b) seeking to resolve the problems with our borrower andothers associated with the Resort through a negotiated settlement orforeclosure of the Innisbrook Resort loan, after which we, in conjunction withthe Resort operators (Westin and Troon), would seek to realize a potentiallybetter recovery, based on past historical results. The latter alternative mightallow us to recoup more of our investment, but would take considerably moretime and expense.

 

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When our financial advisor, Houlihan Lokey,evaluated our interest in Innisbrook in March 2002 and again inMarch 2003, they valued this asset under two different scenarios: a“forced liquidation” and an “orderly liquidation.” Both scenarios assume thatwe will obtain a fee simple interest in the asset, either by completing anegotiated settlement or by foreclosing on our mortgage interest, by the end ofthe second quarter of 2003. Under the “forced liquidation” scenario, HoulihanLokey projected the range of total value we could reasonably expect to receiveupon an immediate sale of the Innisbrook Resort. Under the “orderlyliquidation” scenario, Houlihan Lokey projected the range of total value wecould reasonably expect to receive if we were to hold the asset for a period ofapproximately 30-months (ending on or about December 31, 2005) and duringthat time we and the Resort’s operators (namely Westin and Troon) were tosuccessfully realize a modest recovery based on past historical results. In aletter dated March 15, 2002, subject to various limiting assumptions,Houlihan Lokey’s analysis projected that we would receive between $45 and$50 million under the forced liquidation scenario, and between $60 and$70 million under the orderly liquidation scenario.

 

Houlihan Lokey updated its analysis of theInnisbrook Resort in March 2003. In a report we received on March 18,2003, subject to various limiting assumptions, Houlihan Lokey’s analysisprojected that we would receive between $40 and $47 million under the forcedliquidation scenario, and between $58 and $70 million under the orderlyliquidation scenario.

 

Houlihan Lokey’s projections regarding theInnisbrook Resort are forward-looking statements, subject to this report’sintroductory cautionary note and the risk factors listed herein. The actualvalue we may obtain from our participating mortgage interest might be muchlower. Houlihan Lokey’s estimates are based on several assumptions about futureevents, including assumptions that we will successfully obtain fee simple titleto the Innisbrook Resort and then successfully realize a  recovery in the financial performance of theResort (which is dependent on the success of the Resort operators and arecovery in the travel and leisure sectors of the U.S. economy) and anassumption that we will not be subject to any material liability under any ofthe lawsuits we are currently defending. Any or all of these assumptions mightprove to be incorrect. Moreover, Houlihan Lokey’s projections are not based onany appraisals of the Innisbrook asset or any independent litigation riskassessments. Accordingly, we have not, and you should not, place undue relianceupon these projections.

 

In March 2002, following receipt ofHoulihan Lokey’s 2002 report, our board determined that an immediateliquidation of the Innisbrook Resort did not then appear to be the mostfavorable option to our stockholders. After consideration of that report andother relevant facts, circumstances and assumptions and a review of thealternatives then available to us, our board determined that it would be in ourstockholders’ interest to seek a negotiated resolution to the borrower’sdefault in order to allow us to best preserve the value of our collateral. Inview of the potentially advantageous result for our stockholders vis-a-vis theother alternatives, our board approved a strategy of seeking to obtain feesimple title to the Innisbrook Resort and thereafter hold the asset until nolater than December 31, 2005 to seek to realize a recovery in itsfinancial performance levels, based on historical financial results, prior todisposing of the asset.

 

Following review of Houlihan Lokey’sMarch 2003 report and consideration of other relevant facts, circumstancesand analyses, management and the board of directors continue to believe thatseeking a recovery in the Resort’s financial performance and a resolution ofissues with the borrower (as opposed to actively marketing for sale ourinterest in Innisbrook at a distressed price), is in our stockholders’ bestinterest vis-a-vis other alternatives. To that end, we have been negotiatingwith our borrower, as well as with Westin and Troon Golf, in an effort to seek aglobal resolution of all contractual defaults at the Innisbrook Resort. Becausethe borrower is insolvent, it cannot generally make distributions to its equityowners. We have also received confirmations from the Innisbrook Resort’smanagement that all cash generated by the business is retained in the operatingentity. (These confirmations are consistent with the unaudited financialstatements which we received from the borrower.) We are attempting to enterinto a settlement agreement with our borrower and take control of theInnisbrook Resort (and all other assets of the operating entity) by the end ofthe second quarter of 2003. As part of any such global settlement, we expect(but cannot assure) the following:

 

•                                          toobtain fee simple title to the Innisbrook Resort real property and personalproperty (including all financial accounts) and take-over all operations at theResort through a number of companies under common ownership by ournewly-formed, wholly-owned subsidiary, GTA-IB, LLC;

 

•                                          toenter into a settlement agreement with the borrower, Golf Hosts Resorts,providing for an orderly 

 

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transition ofownership of the Resort to us and limiting our liability for pre-transitionevents;

 

•                                          toenter, through one of our subsidiary LLCs, into new management agreements withWestin and Troon Golf, respectively, which we expect will contain a broad rangeof new revenue enhancement possibilities, accountability and reportingprovisions;

 

•                                          toenter, through one of our subsidiary LLCs, into a new agreement regarding asenior-party’s ownership and development of a residential project at anadjacent parcel of land, commonly called Parcel F;

 

•                                          toassume, through one of our subsidiary LLCs, the responsibilities of the currentResort owner regarding the administration of the condominium unit rental pool(the day-to-day operation of which shall be subject to a contract with Westin)and, as part of this transition, we expect that our subsidiary LLC will becomea successor SEC filer to Golf Host Resorts under Exchange Act rule 15d-5;

 

•                                          tocontinue to improve the Resort’s relationship with the Innisbrook condominiumassociation; and

 

•                                          tosupport a near-term settlement of the lawsuit brought by certain condominiumowners against the Resort owner, which settlement we believe would be in thebest interest of the Resort.

 

We are seeking to finalize legal agreementson all of the above by the end of the second quarter of 2003, however, we canprovide no assurances as to the terms, timing or likelihood of any possibleglobal settlement. If we decide to pursue judicial foreclosure of the Resort,we expect that it would be expensive and time-consuming and there is a risk tous that the borrower might pursue and obtain bankruptcy and/or other judicialprotection. We also face the risk that our negotiations with Westin might notbe successful. If our settlement negotiations with Westin do not succeed, butwe nonetheless become the owner of the Innisbrook Resort, we may become involvedin potentially costly litigation with Westin regarding the effect of thesubordination agreement. Any such litigation would likely focus on the extent,if any, to which we, as successor owner of the Innisbrook Resort, must assumethe borrower’s outstanding liabilities to Westin under the original managementagreement, among other issues. Even if we successfully obtain ownership of theInnisbrook Resort, we, along with the Resort’s operators, Westin and TroonGolf, expect to face the difficult task of seeking to realize a recovery in theResort’s performance, which is currently hindered by the delay in and/or lackof any meaningful economic recovery in the relevant sectors of the U.S.economy.

 

Our estimate of the fair value of ourparticipating mortgage interest as lender in the Innisbrook Resort, as recordedon our books at March 31, 2003, is $60 million, which is near the low endof the valuation range for the Innisbrook asset under the “orderly liquidation”scenario, as estimated by Houlihan Lokey in both their March 2002 andMarch 2003 analyses. We have identified our valuation of the participatingmortgage as a critical accounting estimate, as discussed below, under thecaption “Application of Critical Accounting Policies.” We do not rule out thepossibility that we might decide to sell our interest in the Innisbrook Resortprior to the end of the anticipated holding period (i.e., December 31,2005) in response to any reasonable offer, even if the amount is for less than$60 million if, after consideration of the facts and circumstances at thattime, our board determines that the sale would be in the best interest of ourstockholders. However, we cannot presently predict what events, signals,factors or outcomes might cause our board to abandon the orderly liquidationstrategy in favor of an immediate sale. We face the risk that our efforts topreserve the value of the Innisbrook Resort might be unsuccessful and,therefore, that we might ultimately sell our interest in the Innisbrook Resortfor less than our current estimates of its fair value. Accordingly, at somefuture date, our assessment of the asset’s fair value may change, based onfacts and circumstances applicable at that time, and the asset may bewritten-down.

 

At this time, no settlement of our disputeswith the borrower at Innisbrook has been reached. We face the risk that wemight be unable to reach any consensual resolution or settlement with theborrower or the other parties. In such event, litigation may ensue, which mightbe protracted and expensive, and even in the event that we prevail in thelitigation, the other parties might not meet their respective obligations tous. Because of the complexity of the issues surrounding the Innisbrook Resort,our efforts to recoup our investment in that asset could take many monthsand/or years. Our board of directors will continue to monitor and evaluate ouroptions from time to time in its efforts to preserve stockholder value and tofurther implement the plan of liquidation.

 

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*Innisbrook Resort Financial Performance*

 

One of our most valuable assets is ourinterest as the lender in the participating mortgage secured by the InnisbrookResort. The borrower is in default under the participating mortgage. Aspreviously indicated, we are engaged in discussions to acquire ownership of theInnisbrook Resort, together with the business and assets of the Resort’s owner,Golf Hosts Resorts (and its various related parties associated with operationsat the Innisbrook Resort). The consolidated financial results of these entitiesare discussed below. Upon the closing of such an acquisition, we expect toinclude these newly-acquired assets of these entities within our consolidatedfinancial reporting group.

 

Even though we have not yet acquiredownership of the Innisbrook Resort, we have based our calculation of theparticipating mortgage’s liquidation value on an estimate of the futuregoing-concern value of the Resort’s operations, on the assumption that we willassume operations, hold and operate the property until operating revenuesrealize a modest recovery based on historical results and then sell the Resortas a going concern. We have identified our valuation of the participatingmortgage as a critical accounting estimate. This topic is discussed below. See “Application of Critical AccountingPolicies.”

 

We are seeking to assume operations at theInnisbrook Resort by the end of the second quarter of 2003. The InnisbrookResort continues to suffer from the decline in the performance in the travelsector of the economy. With reported reductions in corporate travel budgets andthe lingering disruption to travel patterns initially caused by terroristactivities in the United States, including fewer flight choices, increasedtravel times and time-consuming airport safety procedures, as well as theresidual impact of the war in the Middle East and the development of the SARSepidemic, Innisbrook bookings have been below anticipated levels for 2003.  Based on these circumstances and thecontinuing protracted delay in the economic recovery of the national economy,we currently do not expect to see any marked improvement until early 2004.Based upon the financial results submitted to us by Golf Hosts Resorts, Inc.,the net operating income of the property for the three months ended March 31,2003 was $1,599,000, which is a decrease from the same period in the prior yearof approximately $1,039,000, or 39.4%. During the three months ended March 31,2003, gross revenues declined by $1,908,000, or 13.2%, from the same period inthe prior year. Room nights for the period were down by 15.7% and room nightspending levels were up $14.96 per room night, or 3.0%. The combined reductionin room nights and increase in average spending resulted in the reduction ofgross revenues noted above. Total operating expenses before depreciation andamortization were down by $743,000, or 6.8%, for the three months ended March31, 2003 compared to the same period for the prior year. In addition, depreciationand amortization were down in the aggregate amount of $126,000.  This performance was significantly belowbudget expectations for the first quarter of 2003.

 

For the trailing twelve months ended March31, 2003, net operating income, before write-down of impaired intangibleassets, is down approximately $502,000, or 81.6%, when compared to the trailingtwelve months ended March 31, 2002. Total revenues are down approximately$3,102,000, or 7.5%. REVPAR, which is a standard financial metric within thehotel industry, is in our judgement not a useful analytical tool at thisproperty due to the rental pool arrangement. Revenue per room night, whichrecognizes the actual gross revenue as it relates to occupied rooms, was up by$105.93, or approximately 31.4% while rooms occupied were down by 36,349 roomnights, or 29.6%. The decrease in revenues was offset by reductions inoperating expenses totaling approximately $2,490,000, or 6.5%. Other expenses,which include participating interest, straight-line interest, losses on assetsleased and held for sale, income tax benefits and non-cash charges fordepreciation and amortization are down approximately $5,226,000. This reductionin non-cash items is primarily the result of the write-down of intangibles due tointangible impairment in the amount of $3,000,000 and the recognition of leasedasset losses in the amount of approximately $209,000 during the trailing twelvemonths ended March 31, 2002. These fluctuations culminated in a reduction of$2,124,000, or 16.9%, in a loss for the trailing twelve months ended March 31,2003, when compared to the same period in the prior year. Because these resultsare unaudited and are provided by our borrower and not prepared by us, we canprovide no assurances as to the correctness or accuracy of these financialresults.

 

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**Planof Liquidation**

 

***Recent Dispositions***

 

As previously noted, since the filing of ourannual report on Form 10-K on March 31, 2003, we closed on the sale of theMystic Creek Golf Course.

 

***Background regardingthe Plan of Liquidation***

 

On February 25, 2001 our board ofdirectors adopted, and on May 22, 2001 our common and preferredstockholders approved, a plan of liquidation for our Company. The events and considerationsleading our board to adopt the plan of liquidation are summarized in our proxystatement dated April 6, 2001, and in our most recent annual report onForm 10-K. The plan of liquidation contemplates the sale of all of ourassets and the payment of (or provision for) our liabilities and expenses, andauthorizes us to establish a reserve to fund our contingent liabilities. Theplan of liquidation gives our board of directors the power to sell any and allof our assets without further approval by our stockholders. However, the planof liquidation constrains our ability to enter into sale agreements thatprovide for gross proceeds below the low end of the range of gross proceedsthat our management initially estimated would be received from the sale of suchassets absent a fairness opinion, an appraisal or other evidence satisfactoryto our board of directors that the proposed sale is in the best interest of ourCompany and our stockholders.

 

At the time we prepared our proxy statementsoliciting stockholder approval for the plan of liquidation, we expected thatour liquidation would be completed within 12 to 24 months from the date ofstockholder approval on May 22, 2001. While we have made significantprogress towards that goal, our ability to complete the plan of liquidationwithin this time-frame and within the range of liquidating distributions pershare set forth in our proxy statement is now far less likely, particularlyinsofar as the disposition of our lender’s interest in the Innisbrook Resort isconcerned. With respect to our dispositions, as of May 7, 2003,  we have sold 28 of our 34 properties.(Stated in 18-hole equivalents, we have sold 37.0 of our 47.0 golf courses).Any equity redemption component of each sale price is valued as agreed upon bythe parties at the time of sale. In the aggregate, our gross sales proceeds of$276.4 million are within the combined per-course ranges for the sold golfcourses, as estimated during the preparation of Houlihan Lokey’s 2001 Range.However, our gross sales proceeds are $13.6 million, or 4.7%, below thelow end of their combined Original 2001 Range. Of the eleven assets that havebeen sold below the low end of the Original 2001 Range, all but two were soldafter September 11, 2001 (three in late 2001, three in 2002 and three in2003). The events of September 11th as well as the continuing decline inthe economy after that date negatively impacted our ability to close salestransactions within the originally contemplated range of prices. Although nofairness opinions or appraisals were obtained, based on the board’sobservations of the environment in which we and the nation were operating in atthe time of each sale and other evidence regarding each sale below the low endof the range, our board determined that each of these eleven transactions atprices below the Original 2001 Range was fair to, and in the best interest of,the Company and our stockholders.

 

For the period January 1, 2002 throughMarch 18, 2003, we have disclosed comparisons of asset sale pricesprimarily against the Updated 2002 Range. Of the five assets (or 9.5 golfcourses) that we sold since January 1, 2002 but before March 18, 2003, oneasset (or 1.5 golf courses), was sold at a price below the low end of itsrespective Updated 2002 Range; this property was sold for 4.3%, or $150,000,less than the low end of its Updated 2002 Range. For the remainder of 2003, weintend to disclose price comparisons (if applicable) for the propertiesremaining in our portfolio primarily against the Updated 2003 Range discussedbelow.  The one asset that was soldsince March 18, 2003 was sold within the Updated 2003 Range.

 

In February 2003, our board againengaged Houlihan Lokey to assist us in updating our projected range ofliquidating distributions, in light of the actual sale prices we obtainedduring the prior year and other relevant factors. Based in part on HoulihanLokey’s report dated March 18, 2003, and subject to many limitingassumptions and estimates, we currently project that total liquidatingdistributions to our common stockholders over the remainder of our orderlyliquidation will be within the range of $4.75 to $7.21 per share. We refer tothis projection as the “Updated 2003 Range”. This projection is a forward-looking statement, subject to this report’sintroductory cautionary note and the risk factors listed below. This projectionis based on several assumptions about future events, including (among manyothers) the following:

 

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•                                          anassumption that we will successfully obtain ownership of the Innisbrook Resort;

 

•                                          anassumption that we, in conjunction with the Resort’s operators, Westin andTroon Golf, will be able to realize a modest recovery, based on historicalfinancial results, in the financial performance of the Innisbrook Resort byyear-end 2005 (which implicitly assumes that relevant economic recovery willbegin sufficiently in advance of that date to support regular business andgroup leisure activity at the Innisbrook Resort by late 2005); and

 

•                                          anassumption that we will not be subject to any material liability under any ofthe lawsuits we are currently defending.

 

Any of these assumptions mightprove to be incorrect, which might cause our actual liquidating distributions tobe lower than our projections. Moreover, our projections are based on severalestimates, including (among many others)

 

•                                          estimatedsale prices and sale dates not only for the Innisbrook Resort, but also for ourother remaining golf courses, many of which are not subject to any purchase andsale agreements or letters of intent;

 

•                                          estimatedcash inflows or working capital shortfalls from the other golf courses that weown and manage up to the estimated date of sale;

 

•                                          estimatedrepayment dates for our outstanding indebtedness and redemption dates for ouroutstanding preferred stock (after which interest and preferred dividends,respectively, will cease to accrue); and

 

•                                          estimatedlegal and accounting fees, management compensation expenses and other operatingexpenses over the course of our liquidation.

 

As of May 7, 2003, we owed approximately$25.1 million to our lenders (after deducting the balance of$1.5 million in our restricted-cash escrow account which is reserved forfuture payment of interest if necessary) under our credit agreement, whichmatures on June 30, 2003. We are currently seeking to obtain our lenders’consent to further extend the term of our credit agreement before it matures.If our lenders do not consent to our request for a further extension and we arenot able to secure refinancing through another source, we might be compelled tosell, or seek to sell, assets at further reduced prices in order to seek torepay our debt in a timely manner.

 

**Assets Held for Sale**

 

The following chart identifies each of ourunsold properties:

 

**Properties Held forSale as of May 7,  2003**

 
| **Property**                               |   | **Location**       |   | **18-Hole  Equivalent** |   |
|--------------------------------------------|--------|--------------------|--------|-------------------------|--------|
|                                       |   |               |   |                    |   |
| Black Bear                                 |   | Orlando, FL        |   | 1.0                     |   |
| Wekiva                                     |   | Orlando, FL        |   | 1.0                     |   |
| Innisbrook Participating Mortgage          |   | Palm Harbor,  FL   |   | 4.0                     |   |
| Sandpiper                                  |   | Santa  Barbara, CA |   | 1.0                     |   |
| Tierra Del Sol                             |   | Albuquerque,  NM   |   | 1.0                     |   |
| Stonehenge (Wildewood and Woodcreek Farms) |   | Columbia, SC       |   | 2.0                     |   |
| Total                                      |   |               |   | 10.0                    |   |

 

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*Letters of Intent and Purchase Agreements*

 

As of May 7, 2003 we have entered intothe following arrangement for the disposition of the Sandpiper Golf Course.This disposition is pending and we face the risk that it might not occur in thetime and manner anticipated. Our letters of intent are non-binding, and,therefore, at this time, we can provide no assurance that purchase agreementson assets subject to letters of intent will be executed. Even after we enterinto purchase agreements, the buyer’s obligation to close is often subject toconditions, some of which might be within the buyer’s control. Accordingly,this proposed sale of the Sandpiper Golf Course could fail to close, in whichcase we would attempt to locate an alternate buyer and enter a new purchaseagreement or seek to renegotiate the sale with the original buyer. Any suchalternate or renegotiated transaction might be on terms less favorable thandescribed below.

 

*Sandpiper Purchase and Sale Agreement.*On October 21, 2002, our wholly-owned subsidiary, SGT, entered into anagreement for the disposition of the Sandpiper Golf Course for a price of$26.0 million. The purchaser has paid a $2.0 million deposit into anindependent escrow, of which $350,000 is generally non-refundable to the buyer.Pursuant to the agreement, the purchase price will be paid to us in cash atclosing, subject to closing conditions. The closing was originally scheduledfor December 5, 2002, however, at the present time, we expect thetransaction to close before the end of the second quarter with the expectationof reaching an agreement with the buyer within the near term on a mutuallyacceptable reduction to the purchase price, which is currently the subject ofnegotiations between the parties, and other closing conditions. We can provideno assurances regarding the results of these negotiations.  SGT is the beneficiary of an environmentalindemnity from the Atlantic Richfield Company regarding certain environmentalconditions at the golf course. Inasmuch as the indemnitor has not consented toan assignment of the indemnity to the buyer, the buyer may elect to acquire SGTin an entity transaction rather than a direct acquisition of the golf course.

 

**Overview of Liquidation Basis of Accounting**

 

We adopted the liquidation basis ofaccounting for all periods subsequent to May 22, 2001, the date on whichour stockholders approved our plan of liquidation. Accordingly, on May 22,2001, our assets were adjusted to their estimated fair value and ourliabilities, including estimated costs associated with implementing the plan ofliquidation, were adjusted to their estimated settlement amounts. The minorityinterest in our operating partnership was reclassified to net assets becausethe holders of common limited partnership units, which we call OP units, do nothave preferential distribution rights over the common stockholders.

 

The valuation of our real estate held forsale as of March 31, 2003 is based on current contracts and estimates of salesvalues. The valuation of our other assets and liabilities under the liquidationbasis of accounting is based on management’s estimates as of March 31,2003.  There were no liquidation basisof accounting adjustments for the three months ended March 31, 2003.

 

The net assets represent the assets availableto our common stockholders and the remaining OP unit holders. The actual valuesrealized for assets and settlement of liabilities may differ materially fromthe amounts estimated. The actual number of shares of common stock and OP units(excluding intra-company holdings) outstanding at May 7, 2003 is 7,920,737(which includes 35,794 OP units). Of this amount, 365,380 shares of commonstock owned by an affiliate of the borrower under the participating mortgage atthe Innisbrook Resort are pledged as collateral to us under a participatingmortgage wherein our counter-parties are in default.

 

**Application of Critical Accounting Policies**

 

Our discussion and analysis of our financialcondition and results of operations is based on our financial statements 

 

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which have been prepared in accordance with accounting principlesgenerally accepted in the United States of America. The preparation of thesefinancial statements requires us to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period. We base ourestimates on historical experience and other various assumptions that webelieve to be reasonable under the circumstances. Actual results may differfrom these estimates. our most critical accounting policies and estimates areas follows:

 

*Liquidation Basis of Accounting*

 

As a result of our board of directors’adoption of a plan of liquidation and its approval by our stockholders, weadopted the liquidation basis of accounting as required. Our discussion andanalysis of our financial condition and results of operations is based on ourfinancial statements which have been prepared in accordance with generallyaccepted accounting principles in the United States of America. The preparationof these financial statements requires us to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period. Webase our estimates on historical experience and other various assumptions thatwe believe to be reasonable under the circumstances. Actual results may differfrom these estimates. Our most significant estimate is the fair value of ourinterest in the Innisbrook Resort and its expected net free cash flow prior to itsdisposition.

 

*Real Estate—Held for Sale*

 

 *Generally.*  Prior tothe adoption of the liquidation basis of accounting on May 23, 2001, wecarried property and equipment at the lower of cost or fair value (except forthe golf courses acquired from Legends Golf, which were carried at the priorbasis of Legends Golf). Cost included purchase price, closing costs and otherdirect costs associated with the purchase.

 

The valuation of real estate held for sale asof March 31, 2003 is based on current contracts and estimates of sales valuesbased on indications of interest from the marketplace, certain assumptions bymanagement specifically applicable to each property, and on the property valueranges.

 

*Estimated Liquidation Value of ourParticipating Mortgage Note Receivable on the Innisbrook Resort.*

 

We hold a participating mortgage, as thefirst lender, secured by the Innisbrook Resort. The borrower is in defaultunder the mortgage. Our estimate of the fair value of our interest, as lender,in the participating mortgage, as recorded on our books at March 31, 2003, is$60 million. This value is toward the low end of the valuation rangeestimated by Houlihan Lokey in its March 2003 valuation report (the lowend of Houlihan Lokey’s orderly liquidation range for this asset was$58.0 million and the high end of this range was $70.4 million). Ourvaluation assumes, among other things, that we will acquire direct ownership ofthe Resort by June 30, 2003 and that the Resort will successfully realizea recovery in financial performance levels, based on historical results, withinthe following 30-month period ending on or about December 31, 2005. Aspart of its valuation process, Houlihan Lokey also analyzed the immediateliquidation value of our lender’s mortgage interest in the Innisbrook Resort,which its March 2003 report estimated to be between $40.5 and$47.3 million (compared to an estimate of between $45 and $50 millionin the March 2002 report). If we were to value the Innisbrook Resort atthe low end of the immediate liquidation range (i.e., $40.5 million)rather than our current estimate of $60 million, our Net Assets inLiquidation (available to holders of common stock and OP units) would decreasefrom $47,525,000 to $28,025,000, which is equivalent to a decrease of $2.46 peroutstanding share and OP unit.

 

*Reserve for Estimated Costs During the Periodof Liquidation*

 

Under the liquidation basis of accounting weare required to estimate and accrue the costs associated with implementing theplan of liquidation. These amounts can vary significantly due to, among otherfactors, the timing and actual receipt of proceeds from golf course sales, thecosts of retaining personnel and others to oversee the liquidation, includingthe costs of insurance, the timing and amounts associated with dischargingknown and contingent liabilities and 

 

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the costs associated with cessation of our operations. These costs areestimated and are expected to be paid over the liquidation period.

 

*Revenue Recognition*

 

As of January 30, 2003, when we sold theEagle Ridge Inn & Resort, we do not have any remaining performingparticipating leases.  Prior to thattime, under the performing participating leases, we recognized rental revenueon an accrual basis over the term of the lease.  Prior to our borrower’s default under the participating mortgage,we recognized interest income ratably over the term of the loan.

 

With respect to the golf courses that we arecurrently managing, revenue from green fees, cart rentals, food and beveragesales, merchandise sales, and range income are generally recognized at the timeof sale. Membership dues are recognized ratably over the applicable period.

 

Certain membership initiation fees at thesegolf courses are refundable based on specific conditions. The estimated presentvalue of the potential refunds at Wildewood and Woodcreek Farms over theoriginal 30-year required membership term, as defined in the Club MembershipManual, recorded as an accrued liability on our books at June 30, 2002 isvalued at $125,000. Additionally, certain initiation fees may be refundableprior to the expiration of the 30-year term under specific membershipreplacement conditions. There is no liability recorded to consider the refundabilityof refunds issued under these conditions due to the fact that four new membershave to join in the specific membership category for a resigned member toreceive a refund. A refund issued under these specific circumstances would beconsidered a reduction of membership revenue for that period.  All initiation fees received are initiallyrecorded as deferred revenue and amortized over the average life of amembership which, based on historical information, is deemed to be nine years.

 

**Results of Operations**

 

As of the time of the shareholders’ approvalof the plan of liquidation on May 22, 2001, we adopted the liquidationbasis of accounting in accordance with the requirement that we do so. Thisbasis of accounting is very different from the going concern basis ofaccounting.

 

*Results of operations for the three monthsended March 31, 2003 and 2002*

 

For the three months ended March 31, 2003 and2002, we recognized $2,886,000 and $4,732,000, respectively, in revenue fromthe participating leases and from the operations of the golf courses that wemanage. The decrease in revenues of $1,846,000, or 39%, is primarily due tolost rental revenue of approximately $1,509,000 from 1.5 of the 5.0 golfcourses that were sold in 2002 and the 3.5 of the 4.5 golf courses that weresold in January 2003. This lost rental revenue was offset by revenue from theoperations of 8.5 golf courses totaling $2,434,000 during the three monthsended March 31, 2003. For the same period in 2002, we managed 10.0 golf courses(6.5 of which were also managed during this period in 2003 and 3.5 of whichwere sold prior to the first quarter of 2003) and recorded $2,771,000 inrevenue from managed golf course operations.

 

Expenses totaled $3,036,000 and $3,691,000for the three months ended March 31, 2003 and 2002, respectively. The periodover period decrease was $655,000 of which $258,000 represents the differencebetween the direct operating expenses of $2,305,000, in the aggregate, from the8.5 golf courses that we managed during the three months ended March 31, 2003compared to $2,563,000 in direct operating expenses of the 10.0 golf coursesthat we managed during the three months ended March 31, 2002. The net operatingincome for the managed courses for the three months ended March 31, 2003 and 2002was $129,000 and $208,000, respectively. Subsequent to the period endedMay 22, 2001 (the date of our shareholders’ approval of our plan ofliquidation), we adopted the liquidation basis of accounting in accordance withthe requirement that we do so which requires that we accrue all anticipatedexpenses associated with our execution of the plan of liquidation.  Therefore, the majority of our expensesincurred in the three months ended March 31, 2003 and 2002, respectively, werespecifically related to items that we provided for in our liquidation accrual.The general and 

 

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administrative expenses incurred during the three months ended March31, 2003 and not specifically related to the plan of liquidation and accruedfor in our liquidation accrual were approximately $731,000. Of this amount,approximately $358,000, or 54%, was salaries and benefits.

 

For the three months ended March 31, 2003,interest expense was $821,000 compared to $1,424,000 for the three months endedMarch 31, 2002. The decrease of $603,000 is due to the decrease of$52,749,000  in the average balance ofour outstanding debt for the first quarter of 2003 versus the average balanceof outstanding debt for the first quarter of 2002.  This effect of the decrease in the average balance was offset byan increase of approximately 1.5% in the average interest rate period overperiod.

 

We accrued a quarterly preferred dividend of$462,500 in the three months ended March 31, 2003.

 

Primarily due to the lost rental revenue fromthe participating leases, we recorded a net change in net assets available toholders of common stock and OP unit holders of ($1,378,000) compared to($2,083,000) recorded for the three months ended March 31, 2002.

 

**Tax Consideration**

 

As expected, income from our direct golfcourse operations during fiscal year 2002 comprised over 5% of our grossincome, which caused us to fail to qualify as a REIT. Accordingly, we lost ourREIT status for the 2002 tax year. Although we will now be subject to federalincome tax as a regular corporation, we do not currently project any income taxliability for the remainder of our liquidation as a result of our net lossesfor 2002 and our net operating loss carryforwards, which we currently expect tobe sufficient to offset any taxable income for the remainder of ourliquidation.

 

**Credit Facility Extension**

 

Our credit facility from a syndicate oflenders led by Bank of America, N.A., is scheduled to mature on June 30, 2003.We paid a fee of 0.0833% on the outstanding balance at February 1, 2003, March1, 2003, March 31, 2003 and May 1, 2003. The interest rate is the base rate (defined as the higher of(a) the prime rate or (b) the federal funds rate plus 0.5% for suchday) plus 3% from January 1, 2003 until maturity. As of  May 7, 2003, we owe approximately$25.1 million (after deducting the balance of $1.5 million in ourrestricted-cash escrow account which is reserved for future payment of interestif necessary) under our credit facility. We are currently seeking to obtain our lenders’ consent to furtherextend the term of our credit facility before it matures on June 30, 2003.

 

If we are unable to sell enough assets by thenew maturity date of the credit facility to fully repay our indebtedness to ourlenders, and we don’t currently expect to be able to do so, we might need ourlenders’ cooperation to further extend the maturity date, for which they wouldlikely charge additional fees. We face the risk that our lenders might refuseto extend the maturity of our credit facility.

 

 

**Liquidity and Capital Resources**

 

As previously discussed, our ability to meetour obligations in the near term is contingent upon our ability to pay ouroutstanding debt under our credit agreement by its maturity on June 30, 2003 orto refinance any outstanding balance at maturity. We have initiated discussionswith our lenders in furtherance of seeking to obtain an extension of thematurity date under our credit agreement. We can provide no assurances that wewill obtain an extension.

 

Our Series A preferred stock dividendsaccrue at a rate of $462,500 per quarter and as of the date of this report wehave accrued and unpaid seven quarters of Series A preferred stockdividends (including the dividend otherwise payable in respect of the quarterended March 31, 2003). Under our Series A charter document, if and when wehave at least six quarters of accrued and unpaid Series A preferred stockdividends, the holder of the Series A preferred stock, AEW TargetedSecurities Fund, L.P. (or its transferee), will have the right to elect twoadditional directors to our board of directors whose 

 

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terms as directors will continue until we fully pay all accrued butunpaid Series A preferred stock dividends.

 

Moreover, under our voting agreement withAEW, if we have not fully redeemed the Series A preferred stock byMay 22, 2003 (which is the second anniversary of our shareholders’adoption of the plan of liquidation), AEW Targeted Securities Fund (or itstransferee) will have the right to require us to redeem the Series Apreferred stock in full within 60 days, and if we default on thatobligation, the stated dividend rate of the Series A preferred stock willincrease from 9.25% to 12.50% per annum (equivalent to a quarterly dividend of$625,000) until the Series A preferred stock is redeemed. Although wewould be permitted to continue to accrue such dividends without paying them ona current basis, they must be paid in full prior to any distribution to ourcommon stockholders, which would reduce our cash available for liquidatingdistributions to common stockholders.

 

*Cash flows for the three months ended March31, 2003 and 2002*

 

Cash flow used in operating activities forthe three months ended March 31, 2003 was $1,268,000 compared to cash flowsprovided by operating activities for the three months ended March 31, 2002of $3,069,000. This reflects the net loss for both periods plus non-cashcharges to income for the adjustment to the liquidation basis of accounting. Inaddition, the cash fluctuations related to operating activities includedpayments paid from and interest received on restricted cash, liquidationliability payments and adjustments, and working capital changes. The decreasein cash flows from operating activities was primarily due to the lost revenue,either from rents or direct revenue from operations, from the 5.0 golf coursessold in 2002, and 4.5 golf course sold in January of 2003, namely Eagle Ridge.Also effecting cash flow from operations was changes in other assets andliquidation liabilities. The liquidation liabilities were accrued as of theapproval of our plan of liquidation on May 22, 2001 and subsequentlyadjusted based on payments and updated estimates of future liabilities. Thedecrease in the liquidation liabilities from December 31, 2002 isprimarily due to professional fees incurred in connection with our plan ofliquidation and directors and officers insurance premiums paid.

 

We invested approximately $61,000 in golfcourse capital expenditures at the golf courses that we managed during thethree months ended March 31, 2003 compared to $810,000 in the three monthsended March 31, 2002, which was primarily at Eagle Ridge. In addition, ourinvesting activities for the first three months of 2003 provided $39,564,000 incash flow from the sale of 4.5 golf courses while there were no sales of golfcourses during the same period in 2002. Additionally, we received $20,000 inpayments on two notes receivable originally taken in connection with thetermination of participating leases.

 

During the three months ended March 31, 2003,we used $39,439,000 to pay down our outstanding debt under our creditagreement. During the same period in 2002, we did not realize any cash flowsfrom financing activities.

 

**Off Balance Sheet Arrangements**

 

*Generally*

 

As of March 31, 2003, we have nounconsolidated subsidiaries.

 

Subsequent to January 1, 2003 we did nothave any relationships with unconsolidated entities or unconsolidated financialpartnerships of the type often referred to as structured finance or specialpurpose entities, i.e., unconsolidated entities established for the purpose offacilitating off-balance sheet arrangements or other contractually narrow orlimited 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 Innisbrook Resort, as discussed previously). Accordingly, we believe we arenot materially exposed to any market, credit, liquidity or financing risk thatcould arise if we had engaged in such relationships.

 

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**Contractual Obligations, Contingent Liabilitiesand Commitments**

 

*Contractual Obligation Table*

 

The following table summarizes ourcontractual obligations at March 31, 2003, and the effect such obligations areexpected to have on the liquidity and cash flows of our company (or oursuccessors in interest under the applicable contracts, if the contracts are notterminated) in future periods:

 
|                                                                                                                                 |   | **Payments  Due by Period** |   |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|--------|
| **Contractual  Obligation**                                                                                                          |   | **Total**                   |   | **Less than  1  year** |   | **1-3  years** |   | **4-5  years** |   | **More than  5  years** |   |
|                                                                                                                                 |   |                        |   |   |   |   |   |   |   |   |   |
| Borrowings under credit agreement                                                                                                    |   | $                           | 29,564 |   | 29,564 |   | — |   | — |   | — |   |
| Liquor license note payable (applies to a  certain managed golf course)                                                              |   | 135                         |   | 10 |   |   |   | 125 |   | — |   |
| Operating lease agreements at the managed  golf courses                                                                              |   | 1,157                       |   | 404 |   | 592 |   | 161 |   | — |   |
| Advertising, service, equipment maintenance  and other contracts and software license and support agreements at the  managed courses |   | 31                          |   | 24 |   | 7 |   | — |   | — |   |
| Lease agreements for corporate office                                                                                                |   | 96                          |   | 89 |   | 7 |   | — |   | — |   |
| Total                                                                                                                                |   | $                           | 30,983 |   | 30,091 |   | 606 |   | 286 |   | — |   |

 

Each type of contractual obligation listed inthe table is discussed in more detail below.

 

*Credit Agreement.*  On June 28, 2002, we entered into the first amendment to oursecond amended and restated credit agreement with our lenders to extend theterm of our second amended and restated credit agreement to December 31,2002. We paid a fee of 0.25% on the outstanding balance at June 30, 2002and again at September 30, 2002. The interest rate was the base rate(defined as the higher of (a) the prime rate or (b) the federal fundsrate plus 0.5% for such day) plus 2% from July 1, 2002 untilSeptember 30, 2002 after which point the rate increased to the base rateplus 3% for the period October 1, 2002 until maturity.

 

On December 31, 2002, we entered intothe second amendment to our second amended and restated credit agreement withour lenders to extend the term of our second amended and restated creditagreement to June 30, 2003. We paid a fee of 0.0833% on the outstandingbalance at December 31, 2002, February 1, 2003, March 1, 2003, and onMarch 31, 2003 and we will owe a fee of 0.0833% on the outstanding balance atMay 1, 2003 and June 1, 2003 due on those dates, respectively.   The interest rate is the base rate (definedas the higher of (a) the prime rate or (b) the federal funds rateplus 0.5% for such day) plus 3% until maturity on June 30, 2003.

 

All of the other terms and conditions aresubstantially unchanged from the first amendment to our second amended andrestated credit agreement. Due to the fact that after the sale of Eagle Ridgeon January 30, 2003, we no longer have any golf courses operating underparticipating leases, the operating income financial covenant in our creditagreement is no longer applicable. However, if we are unable to pay ouroutstanding debt under our credit agreement when it matures on June 30,2003 and the lenders do not consent to our request for a further extension, wemight be compelled to sell, or seek to sell, assets at further reduced pricesin order to better position ourselves to repay our debt by the maturity date.If we do not pay the debt by the maturity date, our lenders could initiateforeclosure proceedings or exercise other remedies against us. In that event,we may be forced to file a bankruptcy petition in order to complete ourliquidation. Even if we succeed in obtaining a favorable response from ourlender to our request for a further maturity date extension, if needed, theamendment of our credit agreement might be on terms less favorable than theterms of our current credit agreement.

 

*Liquor License Note Payable.*  On November 9, 2000, we entered into aliquor license purchase agreement with The Marr Company Incorporated to obtaina liquor license for Tierra Del Sol Country Club. The principal amount of thispurchase agreement is $150,000, of which $25,000 was paid at the time of theexecution of the purchase agreement and 

 

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$125,000 is represented by an installment promissory note whichrequires that we pay accrued interest only each month at a rate of 8% per annum($833.33 per month). The promissory note specifically restricts prepayment inwhole or in part prior to April 1, 2004. The promissory note matures onDecember 1, 2007.  In the tableabove, we have noted the obligation of the required interest payments throughApril 1, 2004, the expiration date of the prepayment restriction.

 

*Operating Lease Agreements.*  In the normal course of operating the golfcourses that we manage, we have entered into operating lease agreements tolease golf course maintenance equipment, golf course vehicles, golf carts, andoffice equipment at the managed courses. The terms of these leases range fromtwelve to sixty months.

 

*Advertising, service, equipment maintenance and other contracts andsoftware license and support agreements at the managed courses.*  In the normal course of operating the golfcourses that we manage, we have entered into contracts for services such asadvertising, waste management, equipment maintenance, software support, etc. Theterms of these contracts range from 12 to 24 months, and in certain cases withrenewal options annually.

 

*Lease agreements for GTA corporate office.*  This represents the office space lease andthe office equipment leases for our corporate office.

 

*Contingent Obligations*

 

*Employment Agreements.*  Under the existing amended and restatedemployment agreements, our senior executives are entitled to paymentsaggregating approximately $2,526,000 upon the later to occur of thestockholders’ approval of the plan of liquidation (which has occurred) and therepayment of our credit facility (which has not occurred). The executives areentitled to additional payments aggregating approximately $1,895,000, plusaccrued interest, upon the later of our repayment of outstanding balance underour credit facility and the one-year anniversary of our board’s adoption of theplan of liquidation. Any severance payments otherwise payable under the amendedand restated employment agreements will be reduced by the amount of the abovepayments that we may make.

 

The payments to our executives describedabove might constitute parachute payments under the Internal Revenue Code andcould be subject to excise tax. Such excise taxes could be triggered if achange in control were to occur after February 25, 2006, as defined by theInternal Revenue Code, and all payments due the executives under their amendedand restated employment agreements were determined to be parachute payments.The amended and restated employment agreements require us to reimburse ourexecutives for any such excise taxes. The amount of gross-up excise taxpayments due could be significant. We do not anticipate that these excise taxeswill be triggered and, therefore, have not recorded a reserve for such amount.

 

Pursuant to the terms of our executiveofficers’ amended and restated employment agreements dated as ofFebruary 25, 2001, we made loans of $1,595,000 to our executive officers($1,150,000 to Mr. Blair and $445,000 to Mr. Peters) on February 25,2001 for the payment of personal income taxes arising from the acceleration oftheir restricted stock grants and the forgiveness of their outstanding debt tous that occurred on such date. These new loans were evidenced by promissorynotes from the executives and secured by their total holdings of 199,415(143,790 of Mr. Blair’s and 55,625 of Mr. Peters’) shares of ourcommon stock valued at $8 per share at the time of the issuance of these loans.Interest accrues on these loans at 5.06% per annum (the applicable federal rateon the date of the loan) and is due at maturity. Effective July 1, 2002,we discontinued accruing interest on these loans due to the current computedvalue of the security based on the current net assets available to commonstockholders. The outstanding balance of these loans at June 30, 2002,principal and interest, was $1,655,000. In 2002, we recorded an allowance fordoubtful accounts against this receivable in the aggregate amount of $400,000,which approximated the difference in the pledged value of $8 per share and thecomputed value based on the net assets in liquidation at December 31,2002.

 

These loans mature at the earliest of thefollowing times: (i) February 25, 2006; (ii) three yearsfollowing termination of the borrower’s employment with us; or (iii) thedate of the final distribution under the plan of liquidation. At any time whenthe loan is over-secured, the borrower has the right to sell such common stocksecuring the loan, provided 

 

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that all proceeds of the sale are first applied to the then outstandingbalance of the loan. All distributions (including any liquidatingdistributions) on the stock securing the loan are applied against the loan. Therelated promissory notes are non-recourse to the respective borrowers.

 

Since July 30, 2002, the Sarbanes-OxleyAct of 2002 has generally prohibited us from making further loans, or modifyingthe terms of pre-existing loans, to our officers.

 

*Commitments*

 

*Series A Preferred Stock.*  On April 2, 1999, we completed aregistered offering of 800,000 shares of 9.25% Series A CumulativeConvertible Preferred Stock, par value $0.01 per share, or Series Apreferred stock, at a price of $25.00 per share to a single purchaser, AEWTargeted Securities Fund, L.P. The Series A preferred stock isconvertible, in whole or in part, at the option of the holder at any time intoour common stock at an implicit conversion price of $26.25 per share of commonstock, subject to adjustment in certain circumstances. We contributed the netproceeds to our operating partnership in exchange for 800,000 Series Apreferred OP units with analogous terms.

 

Dividends on the Series A preferredstock are cumulative from the date of original issue and are payable quarterlyin arrears, when, as and if declared by the board of directors, on the 15th dayof January, April, July and October, commencing on July 15, 1999. Suchdividends will be in an amount per share equal to the greater of:

 

•                                          $0.578125per quarter (or $2.3125 per annum)(equal to an annual rate of 9.25% of the $25price per share), or

 

•                                          thecash dividend paid or payable on the number of shares of common stock intowhich a Series A preferred stock is then convertible (determined on eachof the quarterly dividend payment dates referred to above).

 

The Series A preferred stock dividendscurrently accrue at a rate of $462,500 per quarter and as of March 31,2003 we have accrued and not paid seven quarters of Series A Preferreddividends (including the dividend otherwise payable in respect of the quarterended March 31, 2003). Under our Series A charter document, becausewe have at least six quarters of accrued and unpaid Series A preferreddividends, the holder of the Series A preferred stock, AEW TargetedSecurities Fund, L.P. (or its transferee), will have the right to elect twoadditional directors to our board of directors at our next annual meeting,whose terms as directors will continue until we fully pay all accrued butunpaid dividends on the Series A preferred stock.

 

On February 22, 2001, we entered into avoting agreement with the holder of all of the shares of the Series Apreferred stock. In that agreement we agreed, in the event that the requisitenumber of our common stockholders approved the plan of liquidation and thevoting agreement is not otherwise terminated, to redeem all of the shares ofSeries A preferred stock for $25 per share plus dividends accrued andunpaid thereon through the date of the final redemption payment. We agreed toso redeem the Series A preferred stock promptly after we have determinedin good faith that we have received sufficient net proceeds from thedisposition of our assets and/or operations to redeem all of the shares withoutviolating any legal or contractual obligations.

 

Moreover, under our voting agreement withAEW, if we have not fully redeemed the Series A preferred stock byMay 22, 2003 (which is the second anniversary of our stockholders’adoption of the plan of liquidation), AEW Targeted Securities Fund (or its transferee)will have the right to require us to redeem the Series A preferred stockin full within 60 days, and if we default on that obligation, the stateddividend rate of the Series A preferred stock will increase from 9.25% to12.50% per annum (equivalent to a quarterly dividend of $625,000) until theSeries A preferred stock is redeemed. Although we would be permitted tocontinue to accrue such dividends without paying them on a current basis, theymust be paid in full prior to any distribution to our common stockholders,which would reduce our cash available for liquidating distributions to commonstockholders.

 

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**Inflation**

 

We believe that inflation does not pose amaterial risk to us. Our main source of cash flow, golf course dispositions, isnot particularly vulnerable to inflation because we can adjust our askingprices if supply/demand factors support an interest in the particular golfcourse. Although some of our obligations (such as our executives’ salaries andborrowing interest rates) automatically adjust for inflation, most of ourrights are similarly indexed. For example, our participating lease provides forautomatic base rent increases tied to inflation (however, we no longer have anyperforming participating leases as of January 30, 2003).  Our participating mortgage interest aslender at the Innisbrook Resort provides for automatic annual interestincreases (however, our borrower thereunder is currently in payment default andnot meeting any of its obligations as they accrue) and our golf course fees atthe properties we operate are relatively flexible and can be increased, subjectto constraints imposed by competition and, in some cases, patrons’ yearlymembership privileges.

 

**Seasonality**

 

The golf industry is seasonal in naturebecause of weather conditions, with fewer available tee times in the rainyseason and the winter months. Conversely, revenues fall at the InnisbrookResort during the summer months as a result of the hot Florida weather being lessappealing for group golf outings and vacation destination golfers along withthe fact that business conventions and meetings are typically held Octoberthrough April, when business persons are relatively less likely to be on familyvacations. Innisbrook Resort revenues are generally greatest during the firstquarter, with a strong fourth quarter as well due to a PGA event that is to beheld there each October from 2003 through 2006. The effects of seasonality canbe partially offset at daily-fee golf courses by varying greens fees based onchanges in demand. Under our prior (now defunct) participating lease structure,we expected to be insulated from the effects of seasonality in that theparticipating leases required our lessees to pay us base rent ratablythroughout the year. Now that we manage most of our golf courses directly, weare experiencing some seasonal variability in our operating results, whichseasonality is expected to increase in the event that we assume operations atthe Innisbrook Resort.

 

**Risks that might Delay or Reduce ourLiquidating Distributions**

 

Our expectations about the amount ofliquidating distributions we will make and when we will make them are based onmany estimates and assumptions, one or more of which might prove to be lessfavorable than assumed, and substantially so. As a result, the actual amount ofliquidating distributions we pay to our common stockholders might be below ourUpdated 2003 Range. In addition, the liquidating distributions might be paidlater than we predict. Although we have attempted to account for these risks inour projected range of liquidating distributions, we might have underestimatedtheir effects, and perhaps substantially so, and the projections which weprepared in March 2003 with input from our financial advisors might exceedactual results. Factors that could cause actual payments to be later or lowerthan we expect include the matters discussed in more detail below.

 

***We are seeking ourlenders’ consent to further extend the term of our credit agreement before itmatures on June 30, 2003. If the extension becomes necessary and we areunable to obtain any further extension to the maturity date from our lender,our liquidating distributions might be substantially reduced or delayed.***

 

As of May 7, 2003, we owed approximately$25.1 million (after deducting the balance of $1.5 million in ourrestricted-cash escrow account which is reserved for future payment of interestif necessary) under our credit agreement, which matures on June 30, 2003.We are seeking to obtain our lenders’ consent to further extend the term of ourcredit agreement before it matures. If our lenders do not consent to ourrequest for a further extension, we might be compelled to sell, or seek tosell, assets at substantially reduced prices in order to seek to repay our debtby the maturity date. If we fail to pay the debt by the maturity date, ourlenders could initiate foreclosure proceedings against us, among other remediesavailable to them. In that event, we may be forced to file a bankruptcypetition in order to complete our liquidation. Even if we succeed in obtainingour lenders’ consent to any further maturity date extension, if needed, theamendment of our credit agreement might be on terms less favorable to us than theterms of our current credit agreement.

 

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

 

Extraordinary corporate actions, such as our planof liquidation, often lead to securities class action lawsuits and otherlitigation being filed against companies such as ours. We have become involvedin this type of litigation as a result of our plan of liquidation and thetransactions associated with it. (See “Part II, Item 1—Legal Proceedings,”in this annual report.) The litigation has been, and will likely continue tobe, expensive and, even if we ultimately prevail, the process will divertmanagement’s attention from implementing the plan of liquidation and otherwiseoperating our business. If we do not prevail in such litigation, we might beliable for damages. We cannot predict the amount of such damages, if any, butthey might be significant and would reduce our cash available for distributionin such event.

 

***The borrower, GolfHost Resorts, Inc., under our $79 million participating mortgage onthe Innisbrook Resort has failed to make required payments to us sinceNovember 1, 2001 and our collateral is the subject of litigation amongothers. Consequently the current resale value of the participating mortgage isimpaired. If we are unable to resolve the borrower’s continuing default bynegotiation, we intend to foreclose upon the collateral, which could betime-consuming and expensive and our ultimate recovery might be reduced,delayed or prevented by court order and/or diminished by the pendinglitigation.***

 

Currently, the borrower on our$79 million participating mortgage loan is in monetary default due to itsfailure, commencing on November 1, 2001, to make base interest payments tous. We may in the future determine that additional non-monetary defaults exist.We have delivered a legal notice to the borrower accelerating the entire amountof the participating mortgage as a result of the borrower’s default. We havealso sent a legal notice to Westin regarding Westin’s failure to comply withthe terms of the subordination agreement, which Westin has contested, and weare attempting to negotiate a resolution with such parties. We might become involvedin litigation with Westin if we and Westin are unable to agree on ourrespective rights and obligations pursuant to Westin’s management agreementwith the borrower and our subordination agreement with Westin. This litigationmight be expensive and time-consuming. We are in negotiations with the borrowerregarding a possible consensual foreclosure or a possible conveyance in lieu offoreclosure. In a negotiated resolution, we might agree to assume certaincontingent liabilities of the borrower, potentially including liabilities andcosts of the borrower related to the pending condominium owners’ legal actionagainst the borrower and the advances under the Westin guarantee. If we agreeto assume some of the borrower’s liabilities, if any, to the homeowners (orother contingent liabilities), we will face the risk that our ultimateliability might be greater than we expected. In that case, a large verdictagainst us (or other contingent payout) would significantly reduce our cashavailable for distribution and the ultimate amount of our liquidatingdistributions to common stockholders.

 

The participating mortgage loan is anon-recourse loan, which means that following an event of default by theborrower we cannot bring a legal action directly against the borrower to compelpayment, but instead our recourse is to proceed against the guarantors and/orto foreclose upon the Innisbrook Resort (other than the condominium units) andany other property of the borrower that has been pledged by the borrower tosecure our loan to it. If we decide to pursue judicial foreclosure against theborrower, it would be expensive and time-consuming and there is a risk that theborrower might obtain judicial protection. Even if we obtain ownership of theInnisbrook Resort, we would face the difficult task of revitalizing itsrevenues. The terms of the management agreement with Westin require that Westinbe retained as the operator of the resort after a foreclosure.

 

As a result of these problems, the currentresale value of our participating mortgage is impaired, our recovery withrespect to this asset might be significantly delayed, and the aggregate amountwe ultimately receive, either (a) as repayment from the borrower, or(b) upon a sale of our lender’s interest in the participating mortgage, or(c) upon a sale of the Innisbrook Resort following foreclosure, might besubstantially less than the amount we are currently owed.

 

Although we are seeking to conclude anegotiated resolution with the borrower by the end of the second quarter of2003 whereby the borrower’s interest in the Innisbrook Resort is transferred tous or one of our affiliates, we can provide no assurance of a resolution or thetiming thereof.

 

***If the borrowerunder our participating mortgage declares bankruptcy, our efforts to forecloseupon the***

 

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***mortgage collateral(the Innisbrook Resort) could be substantially delayed and our recoveriesreduced, which could delay and reduce our liquidating distributions.***

 

Under the federal bankruptcy code, the filingof a bankruptcy petition by or against the borrower under our participatingmortgage would stay (i.e., temporarily suspend) our efforts to collect past duepayments owed to us. In the case of our participating mortgage, a bankruptcyfiling would also temporarily prevent our ability to commence or continue ajudicial foreclosure action. Additionally, the bankruptcy trustee (or theborrower as debtor-in-possession) would have special powers to avoid,subordinate or disallow debts. In some circumstances, it is possible that ourclaims may be subordinated to financing obtained by the borrower subsequent toits bankruptcy.

 

Further, in the case of our participatingmortgage, if the bankruptcy court were to determine that the value of theInnisbrook Resort is less than the principal balance of the participatingmortgage, the court may reduce our amount of secured indebtedness to thethen-current value of the resort. Such an action would make us a generalunsecured creditor for the difference between the then-current value of theresort and the amount of the outstanding indebtedness. Unsecured creditors areless likely than secured creditors to recover all of the amounts owed to themby a bankrupt borrower. A bankruptcy court also may:

 

•                                          grantthe borrower time to cure a payment default on the loan;

 

•                                          reducemonthly payments due under the loan;

 

•                                          changethe rate of interest due on the loan;

 

•                                          otherwisealter the loan’s repayment schedule; or

 

•                                          changeother terms of the loan.

 

The filing of a bankruptcypetition by the borrower might also prevent us from enforcing our borrower’sassignment of rents under the participating mortgage.

 

The legal proceedings necessary to resolvethese issues would likely be time-consuming and expensive and mightsignificantly delay our receipt of revenue from the affected asset.

 

***If we are unable toretain at least one of our key executives and sufficient staff members tocomplete the plan of liquidation in a reasonably expeditious manner, our liquidatingdistributions might be delayed or reduced.***

 

Our ability to complete the golf course salescurrently under contract, or subject to letters of intent, and to locate buyersfor our other interests in golf courses and negotiate and complete those salesdepend to a large extent upon the experience and abilities of W. Bradley Blair,II, who serves as our Chief Executive Officer and President, and Scott D.Peters, who serves as our Senior Vice President and Chief Financial Officer,and their experience and familiarity with our assets, our counter-parties andthe market for golf course sales. It is important that we retain at least oneof these key executives in order to potentially achieve relatively favorableoutcomes in our pending litigation and negotiations regarding the settlement ofour borrower’s default under the participating mortgage. We believe ourliquidation has progressed to the point that the resignation of one (but notboth) of our executives would not likely cause significant adverse consequences.However, a loss of the services of both of these individuals could materiallyharm our ability to complete the plan of liquidation in a reasonablyexpeditious manner and our prospects of selling our assets within the Updated2003 Range. We face the risk that both of our key executives might resign. Inparticular, after the credit facility is paid-off, our executives may no longerhave meaningful financial incentives to remain with our company.

 

If either executive resigns, we wouldconsider hiring a replacement or replacements, which will likely delay anypending sales, and diminish the process of maximizing value in view of thereplacement’s or replacements’ unfamiliarity with the assets and ourcounter-parties, and the material facts relevant thereto.

 

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Our ability to complete the plan ofliquidation in a timely manner also depends on our ability to retain our keynon-executive employees. Our employees may seek other employment rather thanremain with us throughout the process of liquidation, even though theygenerally would lose their eligibility for severance payments by resigning. Ifwe are unable to retain enough qualified staff to complete our plan ofliquidation in a reasonably expeditious manner, the liquidating distributionsmay be delayed and might be reduced, perhaps in substantial ways.

 

***If the buyer underour current sale agreement defaults, or if the sale does not otherwise close,our liquidating distributions might be delayed or reduced.***

 

As of May 7, 2003, we have entered acontract for the sale of one of our properties, or 1.0 of the golf courses (in18-hole equivalents), we own or have interests in as described previously. Thesales agreement is subject to closing conditions. If the transaction subject toa sales agreement fails to close because of buyer defaults, failure of aclosing condition or other reasons, we will have to identify and negotiate withnew potential buyers for the asset, which we might be unable to do promptly orfor the same purchase price. We will also incur additional costs identifying abuyer and negotiating a new sale agreement for this asset that is not includedin our projections. In that event, our liquidating payments to our stockholdersmight be delayed or reduced, perhaps in substantial ways.

 

***If we are unable tofind buyers for our other golf courses at our expected sales prices, ourliquidating distributions might be delayed or reduced.***

 

Five of our properties, or 9.0 of the golfcourses (including Innisbrook) (in 18-hole equivalents), we have interests inare not currently subject to sale agreements or letters of intent. Incalculating our projected liquidating distribution, we assumed that we will beable to find buyers for these golf courses at amounts based on our estimates oftheir fair market values. However, we have not obtained any independentappraisals or any independent litigation risk assessments and we may haveoverestimated the sales prices that we will ultimately be able to obtain in thesale of these golf courses. The analysis performed by Houlihan Lokey as ofMarch 18, 2003 (*i.e.*, the Updated 2003 Range) is neitheran appraisal nor an opinion. Assumptions underlying that analysis may prove tobe incorrect and, therefore, may overstate the ultimate net proceeds we willreceive. For example, in order to find buyers in a reasonably expeditiousmanner, we might be required to lower our asking price below our estimate of agolf course’s fair value. If we are not able to find buyers for these golf coursesin a reasonably expeditious manner or if we have overestimated the sales priceswe will ultimately receive, our liquidating payments to our common stockholderswill be delayed or reduced, perhaps in substantial ways.

 

***If we are unable torealize the value of a promissory note taken as part of any purchase price, ourliquidating distributions might be reduced.***

 

In some golf course sales, we may agree toreceive promissory notes from the applicable buyer as a portion of the purchaseprice to be paid to us. Promissory notes can be illiquid. If we are not able tosell the promissory note without a great discount, or in the case of ashort-term note, if we hold it to maturity and the purchaser ultimatelydefaults, our liquidating distributions might be reduced.

 

***Decreases in golfcourse values caused by prolonged economic recession and/or additionalterrorist activity might reduce the amount for which we can sell our assets.***

 

The underlying value of our interests in golfcourses might be reduced, and substantially so, by a number of factors that arebeyond our control, including the following:

 

•                                          adversechanges in the economy, prolonged recession and/or additional terroristactivity against the United States or our allies or other war-time activitiesmight increase public pessimism and decrease travel and leisure spending,thereby reducing golf course operators’ revenues (particularly destinationresort golf course revenues) and diminishing the resale value of the affectedgolf courses;

 

•                                          increasedcompetition, such as increasing numbers of golf courses being offered for salein our markets or nationwide; and

 

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•                                          changesin real estate tax rates and other operating expenses.

 

Any reduction in the value of our golfcourses would make it more difficult for us to sell our assets for the amountsand within the time-frames that we have estimated. Reductions in the amountsthat we receive when we sell our assets could substantially decrease or delaythe payment of distributions to stockholders, perhaps in substantial ways.

 

***If our liquidationcosts or unpaid liabilities are greater than we expect, our liquidatingdistributions might be delayed or reduced, potentially in a substantial manner.***

 

Before making the final liquidatingdistribution, we will need to pay all of our transactions costs pertaining tothe liquidation and all valid claims of our creditors. Our board may alsodecide to acquire one or more additional insurance policies covering unknown orcontingent claims against us, including, without limitation, additionaldirectors’ and officers’ liability insurance, for which we would pay anadditional premium based upon then market prices. We have used estimates incalculating the amount of our projected liquidating distributions. To theextent that we have underestimated costs and expenses in calculating ourprojections, our actual aggregate liquidating distributions will be lower thanwe have projected, and perhaps in substantial amounts.

 

***Our recent loss of REITstatus will expose us to potential income tax liability in the future, whichcould lower the amount of our liquidating distributions.***

 

In order to maintain our historicalqualification as a REIT, at least 95% of our annual gross income was requiredto be derived from real property rents, mortgage interest and a few othercategories of income specified in the tax code, which importantly do notinclude income from golf course operations. Although we did not affirmativelyintend to revoke our REIT status, business conditions required us to beginoperating golf courses in 2000 and the percentage of our gross income suppliedby such operations increased in 2001 and surpassed the 5% ceiling in 2002.Consequently, we did not meet the 95% gross income test in 2002. Failure tomeet this test caused us to fail to qualify as a REIT for the year 2002, whichwill prevent us from re-qualifying for at least four years. Accordingly, we arecurrently subject to federal income tax as a regular corporation.

 

However, our operations resulted in a netoperating loss for income tax purposes during 2002. Therefore, no income taxwill be due on our operating income/loss or proceeds from the sale ofproperties that occurred during 2002. Based on our current projections and theavailability of our net operating loss carry-forwards, we do not anticipatethat we will incur a tax liability throughout our liquidation period. However,our actual results and tax liability could vary materially. As a result, wecould generate positive taxable income in future taxable years, which wouldlikely cause us to incur federal and state income tax liabilities. These taxliabilities would reduce the amount of cash available for liquidatingdistributions.

 

***The holder of ourSeries A preferred stock might become entitled to demand that we redeemthe preferred stock. If we are unable to comply with that demand, the dividendon the preferred stock may increase, which would reduce the amount of ourliquidating distributions.***

 

We entered into a voting agreement with theholder of our preferred stock, AEW Targeted Securities Fund, L.P., pursuant towhich the holder agreed to vote in favor of the plan of liquidation. Pursuantto the voting agreement, the holder of the preferred stock is entitled torequire us to redeem the preferred stock in the following circumstances, amongothers:

 

•                                          ifwe default on our credit facility and the lenders accelerate our debt anddeclare it to be immediately due and payable;

 

•                                          ifwe fail to redeem the Series A preferred stock by May 22, 2003 (whichwe expect will not be financially feasible at that time);

 

•                                          ifa legal judgment of at least $15 million is imposed by a court against us(or at least $10 million after we 

 

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have fullyrepaid our credit facility);

 

•                                          ifwe make any further distributions to common stockholders or OP unit holders,except in limited specified circumstances;

 

•                                          ifwe fail to redeem the Series A preferred stock after we have sufficientsales proceeds to do so (as quantified in the voting agreement);

 

•                                          ifwe abandon the plan of liquidation without the affirmative vote of the holdersof at least two-thirds of the common shares;

 

•                                          ifwe, without the consent of AEW, amend the plan of liquidation in any way that,individually or in the aggregate, materially and adversely affects the holdersof the Series A preferred stock or our ability to redeem the Series Apreferred stock; or

 

•                                          ifwe otherwise materially breach the voting agreement with AEW.

 

If we fail to redeem thepreferred stock when required to do so, the holder of the preferred stock willbe entitled to appoint two directors to our board. In addition, the dividend onthe preferred stock will in most cases increase from 9.25% to 12.50%. (Adefault and acceleration under our credit facility, however, will not cause thedividend to increase). Since the liquidation preference on the preferred stockis currently $20.0 million, this would increase the quarterly dividend onthe preferred stock from $462,500 to $625,000. The increase in the dividendpayable to the holders of the preferred stock will reduce the funds availablefor distribution to our common stockholders.

 

***Distributinginterests in a liquidating trust may cause you to recognize gain prior to the receiptof cash.***

 

At some point during our liquidation, asexpressly permitted 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 and our corporate existence wouldterminate. The SEC has historically allowed liquidating trusts to stop filingquarterly reports on Form 10-Q and to file unaudited annual financialstatements on Form 10-K. Accordingly, if the SEC were to grant similarrelief to our successor liquidating trust we might realize substantial legaland auditing cost savings over the remainder of our liquidation, as well asgeneral and administrative cost savings such as personnel costs, certaininsurance costs, and printing and reporting costs of a publicly traded company,among others. However, the plan of liquidation prohibits us from contributingour assets to a liquidating trust unless and until our preferred stock has beenredeemed in full.

 

For tax purposes, the creation of theliquidating trust should be treated as a distribution of our remaining assetsto our stockholders, followed by a contribution of the same assets to theliquidating trust by our stockholders. As a result, we will recognize gain orloss inherent in any such assets, with any gains offset by available netoperating loss carry-overs (discussed below). In addition, a stockholder wouldrecognize gain to the extent his share of the cash and the fair market value ofany assets received by the liquidating trust was greater than the stockholder’sbasis in his stock, notwithstanding that the stockholder would notcontemporaneously receive a distribution of cash or any other assets with whichto satisfy the resulting tax liability.

 

In addition, it is possible that the fairmarket value of Innisbrook and the other assets received by the liquidatingtrust, as estimated for purposes of determining the extent of the stockholder’sgain at the time interests in the liquidating trust are distributed to thestockholders, will exceed the cash or fair market value of property ultimatelyreceived by the liquidating trust upon its sale of the assets, in which casethe stockholder may not receive a distribution of cash or other assets withwhich to satisfy any tax liability resulting from the contribution of theassets to the liquidating trust. In this case, the stockholder would recognizea loss in a taxable year subsequent to the taxable year in which the gain wasrecognized, which loss might be limited under the tax code.

 

If we do not distribute our assets to aliquidating trust and, instead, continue to operate as a regular corporation 

 

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until all of our assets are sold, we would recognize gains or lossesupon the sale of assets for federal income tax purposes. Since we are no longera REIT, we could be subject to income tax on any recognized gains. However, asof December 31, 2002, we believe we have sufficient net operating losscarryovers to offset any recognized gains. If we were to recognize taxablegains in a year before consideration of net operating loss carryovers, we couldbe subject to alternative 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.

 

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**ITEM3****.  QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

We have not entered into any transactionsusing derivative commodity instruments. We are subject to market riskassociated with changes in interest rates. Our total outstanding debt, as ofMay 7, 2003, subject to interest rate exposure was $26.6 million. A 25basis point movement in the interest rate on the floating rate debt wouldresult in an approximate $66,000 annualized increase or decrease in interestexpense and cash flows. Reference is made to Note 7 to the CondensedConsolidated Financial Statements of Item 1 for additional debt information.

 

**ITEM4****.  CONTROLS ANDPROCEDURES**

 

We maintain disclosure controls and proceduresthat are designed to ensure that information required to be disclosed in ourExchange Act reports is recorded, processed, summarized and reported within thetime periods specified in the SEC’s rules and forms, and that such informationis accumulated and communicated to our management, including our ChiefExecutive Officer and our Chief Financial Officer, as appropriate, to allowtimely decisions regarding required disclosure. Management necessarily appliedits judgment in assessing the costs and benefits of such controls andprocedures which, by their nature, can provide only reasonable assuranceregarding management’s control objectives. We manage six of our ten remaininggolf courses through wholly-owned subsidiaries, staffed by employees who areleased from an employee leasing company.  As we neither directly employ such staff nor control or manage theInnisbrook Resort at this time, our disclosure controls and procedures withrespect to such persons and entities are necessarily more limited than those wemaintain with respect to our own corporate operations.

 

Within 90 days prior to the date of thisreport, we carried out an evaluation, under the supervision and with theparticipation of our management, including our Chief Executive Officer and ourChief Financial Officer, of the effectiveness of the design and operation ofour disclosure controls and procedures pursuant to Exchange ActRule 13a-14. Because our Company only has ten employees, excluding golfcourse employees, two of the ten which are officers, all matters of adisclosable nature are typically addressed and handled by these twoindividuals. Based upon the foregoing, our Chief Executive Officer and ourChief Financial Officer concluded that our disclosure controls and proceduresare effective in timely alerting them to material information relating to ourCompany (including our consolidated subsidiaries) required to be included inour Exchange Act reports. There have been no significant changes in ourinternal controls or in other factors which could significantly affect internalcontrols subsequent to the date we carried out our evaluation.

 

**PARTII****.  OTHERINFORMATION**

 

**ITEM1:  Legal Procee****dings.**

 

We are currently involved in the followingmaterial legal proceedings:

 

*Pete Dye Golf Club*

 

On March 18, 2003, we filed a judicialaction in the Circuit Court for the Ninth Judicial District, the State of SouthCarolina, against Burning Embers Corporation, Golf and Fairway, L.L.C., GolfCourse Leasing, LLC, James D. LaRosa, James J. LaRosa and Leigh Ann LaRosa, asjoint and several co-borrowers, for collection of all sums due and owing to us,approximately $220,000 plus accrued interest at March 24, 2003, under thepromissory note that matured on December 19, 2002. One payment of $10,000has been received since the maturity date and has been applied to theoutstanding principal and interest. We are now attempting to serve thedefendants. The promissory note was executed by the buyer in favor of us inconnection with the sale of the Pete Dye Golf Club on December 19, 2001 toan affiliate of the borrowers.

 

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*Mystic Creek Golf Course*

 

*Golf Trust of America v. Township of Milford and Oakland County.*  On April 17, 2003, in connection with thesale of the Mystic Creek Golf Club to Mystic Creek Acquisition, L.L.C., aMichigan limited liability company, we paid $400,000 to the Charter Township ofMilford, Michigan in order to settle our obligations related to real and/orpersonal property taxes and lessee user taxes which had accrued from the timewe purchased the property through December 31, 2001.  These taxes had accrued because we asserted that such property(in which we held a long-term ground lease interest as ground lessee) was notsubject to ad valorem property tax because it is owned by a municipality (theCity of Dearborn) and is operated as a concession for public purpose.  GTA, the purchaser , the Charter Township ofMilford, Michigan, and Oakland County, Michigan entered into the Release andSettlement Agreement dated as of April 17, 2003, to memorialize the payment byGTA to settle the tax issues and the parties release of each other.  Additionally, GTA assigned all of its claimsof exemption from payment of taxes to the purchaser in the transaction and thepurchaser and the relevant taxing authorities agreed to enter into astipulation to dismiss all relevant lawsuits with prejudice and without costsrelated to the 1998, 1999, 2000 and 2001 tax claims.  This settlement reduced our tax obligation from $509,403 to$400,000. We had previously paid all 2002 taxes.

 

*Osage National Golf Club*

 

The lawsuit, *Osage National Golf Club, Inc. etal. v. Golf Trust of America, Inc., et al.*, United StatesDistrict Court Eastern District of Missouri was filed against us on or aboutApril 5, 2000. This lawsuit involves a sale and lease transaction betweenplaintiffs and Golf Trust of America L.P. of a golf course located in MillerCounty, Missouri. Part of the consideration for this transaction at the time ofour purchase of the golf course was the transfer of OP Units as purchaseconsideration to Osage National Golf Club. Plaintiffs allege that wemisrepresented the nature of these OP Units. Plaintiffs assert that because ofthis misrepresentation the OP Units were substantially less valuable than hadbeen represented by us and, therefore, they have suffered actual damages in theamount of not less than $3,500,000. In addition, plaintiffs’ claim that theyare entitled to unspecific punitive damages. A scheduling conference was heldwith the court in late February 2002, and the case was tentatively set fortrial on October 28, 2002. The parties agreed to submit the case onstipulated facts and have submitted such a stipulation to the court. Theparties met with the court on October 29, 2002 and an order was enteredscheduling memoranda of law and other procedures to present the case. OnDecember 30, 2002, plaintiffs filed their memorandum of law. OnJanuary 6, 2003, we filed a responsive memorandum. This matter is now in aposition for ruling by the court and we would anticipate the ruling within afew months. In order to preserve potential unmatured claims against OsageNational Golf Club, we filed, and on February 21, 2003 the court granted,a motion to dismiss without prejudice the counterclaim that had been filedagainst Osage National Golf Club. A dismissal without prejudice allows theplaintiff to re-file its claim at a later time. We are unable to assess thelikely outcome of this case at this time.

 

*Tierra Del Sol Country Club*

 

We have been operating this golf coursethrough our wholly owned subsidiary, GTA Tierra Del Sol, LLC, sinceFebruary 7, 2000. All of the legal proceedings relating to the Tierra DelSol golf course have been contractually resolved by the parties involved,pending the expiration of the applicable agreement.

 

On September 20, 2000, TerenceMulvihill, a principal in the lessee and in the entity which previously ownedthe golf course, attempted to terminate our water rights lease Agreement at thegolf course for (a) the existence of an unauthorized assignment, whichMr. Mulvihill claimed was the result of allowing GTA Tierra Del Sol, LLCto operate the golf course; (b) utilizing the water on the golf course ina manner which was contrary to the purposes authorized under the water rightslease agreement; (c) using the water in amounts in excess of what waspermitted under the terms of the water rights lease agreement; and(d) non-payment of taxes under the water rights lease agreement for fiscalyear 1999. We have responded in writing to Mr. Mulvihill disputing thetermination of the water rights lease agreement. We also filed a complaint onJanuary 15, 2002, in the Thirteenth Judicial District Court, County ofValencia, State of New Mexico, against the Mulvihill Estate (Mr. Mulvihilldied in December 2000) and Golf Classic Resorts, LLC. Our complaint soughtvarious forms of relief in relation to the water rights lease agreement and theunderlying purchase of Tierra Del Sol, including, but 

 

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not limited, to requesting a determination that: (1) the waterrights lease agreement has not been terminated and remains in effect;(2) the lease, in essence, constitutes a transfer of a fee interest in thewater rights; or (3) alternatively requesting a rescission of the 1998contribution and leaseback agreement pursuant to which the water rights wereassigned to Mr. Mulvihill, based upon the fraud and misrepresentation ofthe seller and Mr. Mulvihill.

 

On February 21, 2003, we entered into anagreement for marketing and joint sale of property with Mary Louise MulvihillSkalkos, the executor of the Estate of Terence J. Mulvihill and Golf ClassicResorts, LLC in which the parties agreed jointly to market the assets at theTierra Del Sol Golf & Country Club in Belen, New Mexico. The term ofthis agreement is six months and GTA shall have the option to extend the termof the agreement for three additional six month periods. As a result of theparties entering into this agreement, we agreed with the Estate and GolfClassic Resorts, LLC that all parties would forbear from taking further actionon the existing lawsuit during the term of the agreement.

 

*Palm Desert Country Club*

 

We operated this golf course through our whollyowned subsidiary, GTA—Palm Desert, LLC, from September 5, 2000, when thelessee agreed to deliver possession to us, until April 20, 2001, when wecompleted the sale of Palm Desert Country Club to Dahoon Investment Company,for total consideration of $4.075 million. Dahoon Investment Companycommenced a judicial action against us and GTA Palm Desert LLC onNovember 20, 2001 in the Riverside County Superior Court, alleging(1) breach of a purchase and sale agreement involving the Palm DesertCountry Club in Palm Desert, California, (2) negligence, (3) breach of thecovenant of good faith and fair dealing, and (4) intentional and negligentmisrepresentation in connection with the sale of the golf course. We havecontested their claims, however, we cannot predict the outcome of thelitigation at this time. Mediation is set for June 4, 2003.  The court set a trial date of October 20,2003, and a Mandatory Settlement Conference for September 19, 2003. Discoveryis currently ongoing.  We are unable atthis time to give an assessment as to a likely outcome of this litigation.

 

*Wekiva Golf Club/Sweetwater Country Club*

 

On July 12, 2001, we entered intotransition documentation with the lessees to take possession of Wekiva andSweetwater, which included the receipt of a promissory a note from theguarantors of the participating leases; and, the former lessees, as joint andseveral co-borrowers, in the amount of approximately $84,000.  The promissory note matured on December 31,2001.  The co-borrowers failed to pay theobligations under the promissory note at maturity and on January 16, 2002we filed a lawsuit in the Circuit Court for the Ninth Judicial Circuit, theState of South Carolina against the former lessees and the guarantors, forcollection of all sums due and owing under the promissory note. The defendantswere served on February 19, 2002. On August 29, 2002, the courtgranted our motion for summary judgment and on September 9, 2002 awardedjudgment against the defendants, jointly and severally, in the amount of$99,899 with post-judgment interest accruing at a rate of 13.5% per annum. OnMarch 6, 2003, we filed a claim titled *Golf Trust of America, L.P. v. DPC Wekiva, L.C.; etal* in the Superior Court of the State of Arizona, Maricopa County,for enforcement of the judgment entered by the South Carolina Ninth JudicialCircuit Court. On March 21, 2003 we received an initial payment of $10,000from Mr. Stottlemyre and, on April 17, 2003, we received the balance dueunder this judgment, plus accrued interest, of $99,887.  The amount under thejudgment have now been fully satisfied. The documents are being prepared to indicate that the judgment has beensatisfied and the judgment lien has been released.

 

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

 

On April 22, 2002, we filed an action *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 have asserted causes of action for breach of contract accompanied byfraudulent act, fraud and unfair trade practices. We are seeking damages ofapproximately $172,000, which represents prepaid dues which were not disclosedby the defendants. A counterclaim for payment under a consulting agreement,along with claims for payment of operating/maintenance and insurance expenseswas received on June 20, 2002. Our reply was filed on July 22, 2002denying the claims and, alternatively, seeking a set-off or recoupment againsttheir alleged claim for the amount of our claim. Discovery is ongoing, 

 

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and no trial date has been set. We are currently negotiating with thedefendant's attorney for a possible settlement of these claims.  However, at this time we are unable toassess the likely outcome of this litigation.

 

*Plan of Liquidation Action*

 

On January 28, 2002, we received a copyof a complaint titled *Mary Ella Crossley v. W. Bradley Blair, II et al.*This legal action was filed in the Circuit Court for Baltimore City, Maryland,against us and our directors and officers, Mr. Young and Banc of AmericaSecurities LLC. The complaint purports to be a derivative action brought byMary Ella Crossley, who claims to be one of our stockholders. The plaintiffalleges:

 

•                                          thatpayments to certain of our officers under their employment agreements and anagreement to sell golf courses to Legends resulted from a breach of thedefendants’ fiduciary duties to stockholders;

 

•                                          thatour officers defrauded the company in the renegotiation of their employmentagreements; and

 

•                                          thatthe actions of the defendants in approving the payments under the employmentagreements and the Legends transaction constituted a breach of our charterresulting in the unjust enrichment of certain individual defendants.

 

The complaint’s prayer section does notspecify the damages plaintiff is seeking. All of the defendants moved todismiss the complaint. In response to the motion filed by Banc of AmericaSecurities LLC, the plaintiff agreed to voluntarily dismiss Banc of AmericaSecurities LLC without prejudice from the case. The plaintiff opposed themotion to dismiss filed by us and the directors, and on May 20, 2002, thecourt denied that motion. On June 19, 2002, we and the directors respondedto the complaint by filing a general denial of liability.  The parties have concluded the discoveryphase of the case. Before discovery closed, plaintiff moved for an order toextend the discovery deadline by two weeks, which the defendants opposed.  The court denied the motion.  Prior to the close of discovery, plaintiffmoved to compel production of certain documents.  A hearing on that motion was held on April 9, 2003 and, on April21, 2003, the court denied the plaintiff’s motion to compel.  Also, on April 9, 2003, we filed a motionfor summary judgment based on plaintiff’s lack of standing to bring thisderivative action and on the merits.  Ahearing on that motion, which plaintiff has opposed, is scheduled for May 21,2003.  The plaintiff did not move forsummary judgment, but filed a motion for entry of judgment in plaintiff’sfavor, or in the alternative, for an order striking defendant’s summaryjudgment motion based on allegations of discovery abuse, concealment ofevidence and spoliation.  Defendantsopposed that motion.  Trial is currentlyscheduled to begin June 23, 2003.  Thematter has been tendered to our directors and officers insurance carrier.  We are unable to provide an assessment as toa likely outcome of the litigation at this time.

 

*Innisbrook Resort Condominium OwnerLitigation*

 

The Innisbrook Resort serves as collateralfor a $79 million non-recourse loan we made to the Resort’s owner, GolfHost Resorts, Inc., in 1997. The owner/borrower has entered into anarrangement with many of the persons who own condominium units at the Resort.Under this arrangement, when the condominiums are not being used by theirowners, they are placed in a pool and rented as hotel rooms to guests of theInnisbrook Resort. Certain of the condominium owners (as plaintiffs) haveinitiated a legal action against our borrower, Golf Host Resorts, Inc.,and its corporate parent, Golf Hosts, Inc., regarding various aspects ofthis arrangement. We are not a party to the lawsuit. It is our understanding,however, that the condominium owners/plaintiffs are seeking to resolve thefollowing issues, among others:

 

•                                          whetherevery condominium owner who is also a member of the Innisbrook Golf and CountryClub has the right to participate in the lessor’s rental pool, so long as thereis a rental pool, by virtue of defendant’s alleged marketing promises to allpurchasers of condominiums at the project;

 

•                                          whetherthe condominium unit owners were coerced by economic pressure and duress toenter into the guaranteed distribution master lease agreement, or guaranteedlease agreement;

 

•                                          whetherthe guaranteed lease agreement is invalid by reason of such alleged coercionand economic duress and, if so, whether the condominium owners who entered intothe guaranteed lease agreement are entitled to 

 

43

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be reimbursedfor the difference between the amount of income that was distributed to themunder the guaranteed lease agreement and the amount of income that would havebeen distributed to them had they remained subject to the master leaseagreement;

 

•                                          whetherthe unit owners who signed the guaranteed lease agreement have the right toreturn to the master lease agreement without penalty and thereby be entitled tobe reimbursed for the difference between the income that they received underthe guaranteed lease agreement and the income they would have received underthe master lease agreement; and

 

•                                          whetherthe defendant breached its contract with the unit owners by allowing members ofthe public upon the golf courses and thereby adversely affecting the “privategolf course” concept of Innisbrook.

 

Neither GTA nor any of our affiliates is aparty to this lawsuit, however, it affects us insofar as any costs imposed onthe borrower by the lawsuit might reduce the borrower’s willingness and abilityto (i) make any future participating mortgage payments to us (the borrowerhas not made any such payments to us since October 1, 2001), or(ii) enter into a settlement agreement with us regarding its participatingmortgage default on terms we believe are acceptable. Moreover, we believe thelawsuit clouds the value of the Innisbrook Resort and thereby impairs the valueof the collateral which secures our participating loan.

 

**Other Litigation**

 

*Hillcrest Bank v. Golf Trust of America LP, United States DistrictCourt Western District of Missouri.*  This action was filed on or aboutDecember 26, 2001. This lawsuit involves a claim by Hillcrest Bank that ithas a perfected security interest in the OP Units of Osage National Golf Clubacquired by Osage National Golf Club in connection with the sale and leasetransaction of the golf course located in Miller County, Missouri. HillcrestBank alleges that it acquired this security interest in April 1999. Weredeemed the OP Units at issue in June 1999 as part of a settlement ofvarious claims owing to the company. The Bank did not receive any proceeds ofour redemption of the OP Units and asserts that because of this redemption ithas suffered actual damages in the amount of not less than $1,500,000. Theparties have not commenced discovery. The court issued a scheduling order, andthe case was scheduled for trial on October 6, 2003. We have now reached asettlement of this case that includes a payment by us to the plaintiff for$19,000.  The parties have agreed on theform of the settlement agreement and that agreement is being circulated forsignatures.  We anticipate that this matterwill be concluded within approximately thirty days.

 

*Lake Ozark Industries, Inc. and Everett Holding Company, Inc.v. Golf Trust of America, et al.*  This is an action initiated in the CircuitCourt of Miller County, Missouri, by a contractor, Lake Ozark ConstructionIndustries, Inc., or LOCI, against numerous defendants including us. LOCIasserts that it performed construction services on, or which benefited theproperty of, the various defendants, including us and seeks to foreclose amechanic’s lien upon our property. Plaintiffs’ amended petition is in sixcounts. Counts I, II and III seek recovery of payment for LOCI’s work fromM & M Contractors, Inc., which plaintiffs’ claim was the primecontractor and the party who hired LOCI as a subcontractor. Counts IV, V and VIname us and other defendants. Count IV seeks to foreclose a mechanic’s lienupon the property of various defendants, including us. The lien is for theprincipal amount of $1,276,123, plus interest at 10% per year and attorneys’fees. Plaintiffs calculate interest to May 20, 1999, just prior to thelien filing, to be $151,180, and interest thereafter to be $354 per day. CountV of the amended petition, directed at various defendants, including us, seeksa determination of the priority of plaintiffs’ claimed mechanic’s lien overvarious deeds of trust and property interests, including our interest. Theoutcome of count V will be determined by the resolution on the merits of countIV. Finally, count VI seeks foreclosure of a deed of trust from one of theother defendants, Osage Land Company, apparently given to Everett to forestallplaintiffs’ filing of the mechanic’s lien. The deed of trust was recordedsubsequent to the recordation of the deed from Ozark Land Company to us for itsproperty. The court ruled in June 2001 on cross-motions for summaryjudgment filed by plaintiffs, us, and defendant Central Bank of Lake of theOzarks, a beneficiary of deed of trust on some of the property covered by themechanic’s lien and by the deed of trust from Osage Land Company to Everett.The court denied all the motions with one exception—it granted Everett summaryjudgment on count VI (foreclosure of the deed of trust to Everett from OsageLand Company) but ruled that the deed to us and the deeds of trust to CentralBank of Lake of the 

 

44

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Ozarks are prior to the deed of trust to Everett. The court did notexplain its rulings on the remainder of plaintiffs’ motion or on our CentralBank of Lake of the Ozarks motions, except that “there remain substantial andgenuine issues of material fact.” We filed two motions for summary judgment oncounts IV and V. The grounds for the motions are that plaintiffs’ claimed liendoes not comply with requirements of the Missouri mechanic’s lien statute andthus is invalid. On March 25, 2002, the court orally granted our requestedrelief and ruled that plaintiffs’ claimed lien does not comply withrequirements of the Missouri mechanic’s lien statute and is invalid. The courtentered its written order granting our motions for summary judgment on April 20,2002. As we have previously reported, since not all claims involved in thislawsuit have been resolved, plaintiffs’ time to appeal the April 20, 2002 ordergranting our motions for summary judgment has not yet begun to run.  Although the plaintiffs’ attorneys informedus that they were making efforts to resolve the remaining claims in thislawsuit, this has apparently not come to pass. Accordingly, on April 15, 2003, we filed a motion with the court askingthat it make final the judgement granted to Golf Trust of America, L.P.  We anticipate that this motion will begranted, but do not expect a ruling on it for up to sixty days.  If this motion is granted, plaintiffs timeto appeal will begin to run.  We stilldo not know whether an appeal will be filed. Because of the uncertainty of an appeal by plaintiffs, we are unable toprovide at this time an assessment as to the likely outcome of this litigation.

 

*Golf Trust of America, L.P. v. Osage Land Company, LLC., et al.,Circuit Court Of Miller County, Missouri. *We brought this action on July 11, 2002 todetermine our rights to a road easement leading to a golf course we then ownedin Miller County Missouri.  On thatdate, we obtained a temporary restraining order enjoining the defendants frominterfering with their claimed rights in the road easement.  In connection with granting that order thecourt required that a $5,000 cash bond be posted by us.  The temporary restraining order expired byits terms on July 21, 2002.  Wesubsequently sold the golf course and the purchasers assumed the risk as towhether there were any rights to the road easement.  On April 4, 2003, we filed a Motion to Dismiss Without Prejudicethe above action. We also requested the return of the $5,000 cash bond.  Some of the defendants objected to adismissal without prejudice and in addition sought an award of $14,769 inattorney fees and costs.  On April 24,2003, the judge orally granted our motion and stated that she would enter anorder allowing dismissal of the action without prejudice and the return of the$5,000 cash bond.  A proposed order hasbeen sent to the judge for signature. Until the judge signs the order this matter is not final.  The defendants have stated that they intendto appeal this order when it is entered. We do not know whether an appeal will, in fact, be filed.  Because of the uncertainty of an appeal bythe defendants, we are unable at this time to give an assessment as to a likelyoutcome of this litigation.  In anyevent, however, it is not anticipated that any loss would be material.

 

**Routine Litigation**

 

In addition to litigation between a lessorand our former lessees (and their affiliates), owners and operators of golfcourses are subject to a variety of legal proceedings arising in the ordinarycourse of operating a golf course, including proceedings relating to personalinjury and property damage. Such proceedings are generally brought against theoperator of a golf course, but may also be brought against the owner. Ourparticipating leases provided that each lessee is responsible for claims basedon personal injury and property damage at the golf courses which are leased andrequire each lessee to maintain insurance for such purposes. Since we are nowthe operator of our remaining golf courses, except Innisbrook, we maintaininsurance for these purposes. We are not currently subject to any claims ofthis sort that we deem to be material.

 

**ITEM2.  CHANGES IN SE****CURITIES**

 

Not Applicable.

 

**ITEM3.  DEFAULTS UPON SENI****ORSECURITIES**

 

Not Applicable.

 

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

 

No matters were submitted to a vote ofsecurity holders during the three months ended March 31, 2003.

 

45

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**ITEM5.  OTHER INFORMATI****ON**

 

Not Applicable.

 

**ITEM 6. EXHIBITS AND REPORTS****ON FORM 8-K**

 

*Exhibits*

 

The exhibits listed on the Exhibit Index,which appears below following the signature page, are included or incorporatedby referent in this Quarterly Report.

 

*Form 8-K Filings*

 

                                                Duringthe quarter ended March 31, 2003, we filed a report on Form 8-K datedJanuary 30, 2003, describing under Item 5 that we closed on the sale of theEagle Ridge Inn & Resort to Eagle Ridge Resort, LLC .

 

46

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**SIGNATURES**

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the Registrant has duly caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized.

 
|                | **GOLF TRUST OF AMERICA, INC.,**registrant                      |
|---------------------|----------------------------------------------------------------------|
| Date: May  14, 2003 | By:  /s/   W. Bradley Blair, II                            |   |
|                |                                                                 |
|                |                                                                 | W. Bradley  Blair, II*President  and Chief Executive Officer* |
|                |                                                                 |
|                | /s/  Scott D. Peters                                            |   |
| Date: May  14, 2003 | Scott D.  Peters*Senior  Vice President and Chief Financial Officer* |
|                     |                                                                      |  |  |

 

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**CERTIFICATIONS**

 

I, W. Bradley Blair, II, certify that:

 

1.                                       Ihave reviewed this quarterly report on Form 10-Q of Golf Trust ofAmerica, Inc.;

 

2.                                       Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.                                       Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

 

4.                                       Theregistrant’s other certifying officer and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a)                                      Designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

 

b)                                     Evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report(the “Evaluation Date”); and

 

c)                                      Presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

 

5.                                       Theregistrant’s other certifying officer and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

a)                                      Allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)                                     Anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

6.                                       Theregistrant’s other certifying officer and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 
| Date: May  14, 2003 |                                                          |
|---------------------|---------------------------------------------------------------|
|                |                                                          |
|                | /s/  W. Bradley Blair, II                                |   |
|                | W. Bradley  Blair, II*President  and Chief Executive Officer* |

 

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I, Scott D.Peters, certify that:

 

1.                                       Ihave reviewed this quarterly report on Form 10-Q of Golf Trust ofAmerica, Inc.;

 

2.                                       Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.                                       Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

 

4.                                       Theregistrant’s other certifying officer and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a)                                      Designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

 

b)                                     Evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report(the “Evaluation Date”); and

 

c)                                      Presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

 

5.                                       Theregistrant’s other certifying officer and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

a)                                      Allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)                                     Anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

6.                                       Theregistrant’s other certifying officer and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 
| Date: May  14, 2003 |                                                                |
|---------------------|---------------------------------------------------------------------|
|                |                                                                |
|                | /s/  Scott D. Peters                                           |   |
|                | Scott D. Peters*Senior  Vice President and Chief Financial Officer* |

 

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**EXHIBIT INDEX**

 

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

 

The following exhibits are part of thisQuarterly Report on Form 10-Q (and are numbered in accordance with Item601 of Regulation S-K). Items marked with an asterisk (*) are filedherewith.

 
| **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).                          |
| 3.3.4   |   | Bylaws  Amendment of Golf Trust of America, Inc., as adopted by the Board of  Directors on March 15, 2002 and as currently in effect (previously filed as  Exhibit 3.3.4 to our Company’s Annual Report on form 10-K, filed April 1,  2002, 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).                                                                     |

 

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| 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 May 7, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 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                                                                                                                                                                                                                                                                                                                                                                                                        |

 

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|    |   | 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).                                                                              |
| 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).                                                                  |
| 10.17.1 |   | 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).                                                                        |
| 10.18   |   | 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                                  |

 

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|    |   | 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).                                                                                                                                                |
| 21.1*   |   | List of  Subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 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).                                                                                                                                                                                 |
| 99.2*   |   | Certifications  under Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                         |

 

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*                                         Filedherewith

 

†                                          Portionsof this exhibit have been omitted pursuant to a request for confidentialtreatment.

 

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