**UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549**

 

**FORM 10-Q**

 
| **(Mark One)**                                          |                                                                                                |
|---------------------------------------------------------|-----------------------------------------------------------------------------------------------------|
|                                                    |                                                                                                |
| **x**                                                   | **Quarterly  report pursuant to section 13 or 15(d) of the Securities Exchange Act of  1934**  |
|                                                    | ** **                                                                                          |
| **for the quarterly period ended: September 30,  2007** |
| ** **                                              | ** **                                                                                          |
| **o**                                                   | **Transition  report pursuant to section 13 or 15(d) of the Securities Exchange Act of  1934** |

 

**for thetransition periodfrom              to              **

 

**Commission File Number 001-14494**

 

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

 

**(843) 723-4653**(Registrant’s telephone number, including area code)

 

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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 x  No o.

 

Indicate by check mark whether the registrantis a large accelerated filer, an accelerated filer, or a non-accelerated filer.See definition of “accelerated filer and large accelerated filer” in Rule 12b-2of the Exchange Act.

 

Large accelerated filer  o  Acceleratedfiler  o  Non-accelerated filer x

 

Indicate by check mark whether the registrantis a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes oNo x

 

On November 2, 2007, there were 7,317,163shares outstanding of the registrant’s common stock.

 

 

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**GOLF TRUSTOF AMERICA, INC.**

**QuarterlyReport on Form 10-Q****For the Three and Nine Months Ended September 30,2007**

 

**INDEX**

 
| **PART I. FINANCIAL INFORMATION** |                                                                                                                            |
|-----------------------------------|---------------------------------------------------------------------------------------------------------------------------------|
|                              |                                                                                                                            |   |
| **Item 1.**                       | **Liquidation Basis Financial  Statements**                                                                                     | ** ** |
|                              |                                                                                                                            |   |
|                              | Condensed  Consolidated Statements of Net Assets as of September 30, 2007 (unaudited)  and December 31, 2006                    |   |
|                              |                                                                                                                            |   |
|                              | Condensed  Consolidated Statements of Changes in Net Assets (unaudited) for the Three  Months Ended September 30, 2007 and 2006 |   |
|                              |                                                                                                                            |   |
|                              | Condensed  Consolidated Statements of Changes in Net Assets (unaudited) for the Nine  Months Ended September 30, 2007 and 2006  |   |
|                              |                                                                                                                            |   |
|                              | Condensed  Consolidated Statements of Cash Flows (unaudited) for the Nine Months ended  September 30, 2007 and 2006             |   |
|                              |                                                                                                                            |   |
|                              | Notes to Condensed Consolidated Financial Statements  (unaudited)                                                               |   |
|                              |                                                                                                                            |   |
| **Item 2.**                       | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations**                                 |   |
|                              |                                                                                                                            |   |
| **Item 3.**                       | **Quantitative  and Qualitative Disclosures About Market Risk**                                                                 |   |
|                              |                                                                                                                            |   |
| **Item 4.**                       | **Controls and  Procedures**                                                                                                    |   |
|                              |                                                                                                                            |   |
| **PART  II. OTHER INFORMATION**   |                                                                                                                            |
|                              |                                                                                                                            |   |
| **Item 1.**                       | **Legal Proceedings**                                                                                                           |   |
|                              |                                                                                                                            |   |
| **Item 1A.**                      | **Risk Factors**                                                                                                                |   |
|                              |                                                                                                                            |   |
| **Item 2.**                       | **Unregistered  Sales of Equity Securities and Use of Proceeds**                                                                |   |
|                              |                                                                                                                            |   |
| **Item 3.**                       | **Defaults  upon Senior Securities**                                                                                            |   |
|                              |                                                                                                                            |   |
| **Item 4.**                       | **Submission  of Matters to a Vote of Security Holders**                                                                        |   |
|                              |                                                                                                                            |   |
| **Item 5.**                       | **Other Information**                                                                                                           |   |
|                              |                                                                                                                            |   |
| **Item 6.**                       | **Exhibits**                                                                                                                    |   |
|                              |                                                                                                                            |   |
| **Signatures**                    |                                                                                                                            |   |

 

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**CautionaryNote Regarding Forward-Looking Statements**

 

The following report contains forward-lookingstatements within the meaning of Section 27A of the Securities Act of1933, as amended (the “Securities Act”), and Section 21E of the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”). Forward-lookingstatements are statements that predict or describe future events or trends andthat do not relate solely to historical matters. All of our projections in thisQuarterly Report on Form 10-Q are forward-looking statements, including ourprojections regarding the amount and timing of liquidating distributions. Youcan generally identify forward-looking statements as statements containing thewords “believe”, “expect”, “will”, “anticipate”, “intend”, “estimate”, “project”,“assume” or other similar expressions. You should not place undue reliance onour forward-looking statements because the matters they describe are subject toknown (and unknown) risks, uncertainties and other unpredictable factors, manyof which are beyond our control. Our forward-looking statements are based on thelimited information currently available to us and speak only as of the date onwhich this Quarterly Report on Form 10-Q was filed with the Securities andExchange Commission (the “SEC”). Our continued internet posting or subsequentdistribution of this dated report does not imply continued affirmation of theforward-looking statements included in it. We undertake no obligation, and weexpressly disclaim any obligation, to issue any updates to our forward-lookingstatements, even if subsequent events cause our expectations to changeregarding the matters discussed in those statements. Future events areinherently uncertain. Accordingly, our projections in this Quarterly Report onForm 10-Q are subject to particularly high uncertainty. Our projections shouldnot be regarded as legal promises, representations or warranties of any kindwhatsoever. Over time, our actual results, performance or achievements willlikely differ from the anticipated results, performance or achievements thatare expressed or implied by our forward-looking statements, and suchdifferences might be significant and harmful to our stockholders’ interests. Manyimportant factors that could cause such a difference are described under thecaption “Risk Factors” in Part II, Item 1A of this Quarterly Report onForm 10-Q, each of which you should review carefully.

 

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**GOLF TRUSTOF AMERICA, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF NET ASSETS (LIQUIDATION BASIS)**

**AS OFSEPTEMBER 30, 2007 (unaudited) AND DECEMBER 31, 2006**

 
| ** **                                                                                            | ** ** | **September 30,  2007** | ** ** | **December 31,  2006*** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                                                                            | ** ** | **(in thousands)**      | ** ** |
| **ASSETS**                                                                                            | ** ** | ** **                   | ** ** | ** **                   | ** ** |
| Real estate—held for sale                                                                        |       | $                            | 6,801      |                         | $          | 55,592 |   |
| Cash and cash equivalents                                                                             |       | 7,219                        |       | 2,224                        |       |
| Cash in escrow                                                                                        |       | 2,000                        |       | —                       |       |
| Receivables—net                                                                                  |       | 413                          |       | 2,892                        |       |
| Due from Salamander                                                                                   |       | 1,387                        |       | —                       |       |
| Other assets                                                                                          |       | 293                          |       | 5,370                        |       |
| Total assets                                                                                          |       | 18,113                       |       | 66,078                       |       |
| **LIABILITIES**                                                                                       | ** ** | ** **                   | ** ** | ** **                   | ** ** |
| Debt                                                                                                  |       | 4,100                        |       | 4,872                        |       |
| Accounts payable and other liabilities                                                                |       | 1,553                        |       | 13,408                       |       |
| Other obligations                                                                                     |       | —                       |       | 10,648                       |       |
| Reserve for estimated costs during the  period of liquidation                                         |       | 1,258                        |       | 3,285                        |       |
| **Total liabilities**                                                                                 |       | 6,911                        |       | 32,213                       |       |
| Commitments and contingencies                                                                         |       |                         |       |                         |       |
| Preferred stock, $.01 par value, 10,000,000  shares authorized, 800,000 shares issued and outstanding |       | —                       |       | 20,000                       |       |
| Total liabilities and preferred stock                                                                 |       | 6,911                        |       | 52,213                       |       |
| **NET ASSETS IN LIQUIDATION**  (available to holders of common stock and OP units)                    |       | $                            | 11,202     |                         | $          | 13,865 |   |

 

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*** Derivedfrom audited condensed consolidated financial statements**

 

See accompanying notes tocondensed consolidated financial statements.

 

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**GOLF TRUSTOF AMERICA, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (LIQUIDATION BASIS)**

**FOR THETHREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006**

 
| ** **                                                                    | ** ** | **Three Months Ended  September 30, 2007** | ** ** | **Three Months Ended  September 30, 2006** | ** ** |
|-------------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                                    | ** ** | **(in thousands, unaudited)**                        | ** ** |
| Net assets in liquidation, beginning of  period                               |       | $                                                              | 11,470     |                                                           | $          | 13,432 |   |
| **Changes in net assets in liquidation:**                                     | ** ** | ** **                                                     | ** ** | ** **                                                     | ** ** |
| Adjustments to liquidation reserve:                                           |       |                                                           |       |                                                           |       |
| Operating loss                                                                |       | (1,286                                                         | )          | (2,966                                                         | )          |
| Net interest expense                                                          |       | (132                                                           | )          | (376                                                           | )          |
| Decrease in reserve for estimated  liquidation costs and capital expenditures |       | 1,102                                                          |       | 2,342                                                          |       |
| Subtotal of adjustments to liquidation  reserve                               |       | (316                                                           | )          | (1,000                                                         | )          |
| Increase in fair value of real estate and  other assets                       |       | 448                                                            |       | —                                                         |       |
| Decrease in fair value of other assets                                        |       | (400                                                           | )          | —                                                         |       |
| Decrease in fair value of other obligations                                   |       | —                                                         |       | 79                                                             |       |
| Value of common stock and operating  partnership units redeemed               |       | —                                                         |       | (18                                                            | )          |
| **Changes in net assets in liquidation**                                      |       | (268                                                           | )          | (939                                                           | )          |
| **Net assets in liquidation, end of period**                                  |       | $                                                              | 11,202     |                                                           | $          | 12,493 |   |

 

See accompanying notes tocondensed consolidated financial statements.

 

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**GOLF TRUSTOF AMERICA, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (LIQUIDATION BASIS)**

**FOR THENINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006**

 
| ** **                                                                    | ** ** | **Nine Months  Ended  September 30, 2007** | ** ** | **Nine Months  Ended  September 30, 2006** | ** ** |
|-------------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                                                    | ** ** | **(in thousands, unaudited)**                   | ** ** |
| Net assets in liquidation, beginning of  period                               |       | $                                                         | 13,865     |                                                      | $          | 13,782 |   |
| **Changes in net assets in liquidation:**                                     | ** ** | ** **                                                | ** ** | ** **                                                | ** ** |
| Adjustments to liquidation reserve:                                           |       |                                                      |       |                                                      |       |
| Operating income                                                              |       | 810                                                       |       | 554                                                       |       |
| Net interest expense                                                          |       | (934                                                      | )          | (1,024                                                    | )          |
| Increase in reserve for estimated  liquidation costs and capital expenditures |       | (1,577                                                    | )          | (1,254                                                    | )          |
| Subtotal of adjustments to liquidation  reserve                               |       | (1,701                                                    | )          | (1,724                                                    | )          |
| (Decrease) increase in fair value of real  estate                             |       | (3,062                                                    | )          | 374                                                       |       |
| Decrease in fair value of other assets                                        |       | (400                                                      | )          | —                                                    |       |
| Decrease in fair value of other obligations                                   |       | —                                                    |       | 79                                                        |       |
| Value of common stock and operating  partnership units redeemed               |       | —                                                    |       | (18                                                       | )          |
| Forgiveness of preferred stock obligation                                     |       | 2,500                                                     |       | —                                                    |       |
| **Changes in net assets in liquidation**                                      |       | (2,663                                                    | )          | (1,289                                                    | )          |
| **Net assets in liquidation, end of period**                                  |       | $                                                         | 11,202     |                                                      | $          | 12,493 |   |

 

See accompanying notes tocondensed consolidated financial statements.

 

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**GOLF TRUSTOF AMERICA, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS (LIQUIDATION BASIS)**

**FOR THENINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006**

 
| ** **                                                                                                                                          | ** ** | **Nine Months  Ended  September 30,  2007** | ** ** | **Nine Months  Ended  September 30,  2006** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                                                                                                                          | ** ** | **(in thousands, unaudited)**               | ** ** |
| **Cash flows from changes in net assets in  liquidation and operating activities:**                                                                 | ** ** | ** **                                            | ** ** | ** **                                            | ** ** |
| Changes in net assets in liquidation                                                                                                                |       | $                                                     | (2,663     | )                                                     | $          | (1,289 | ) |
| Adjustments to reconcile change in net  assets in liquidation to net cash provided by operating activities:                                         |       |                                                  |       |                                                  |       |
| Increase in liquidation reserve and changes  in fair value of real estate and non-real estate assets and forgiveness of  preferred stock obligation |       | 2,624                                                 |       | 835                                                   |       |
| Cancellation of common shares                                                                                                                       |       | —                                                |       | 18                                                    |       |
| Provision for bad debts                                                                                                                             |       | 7                                                     |       | 349                                                   |       |
| Non-cash interest                                                                                                                                   |       | 337                                                   |       | 587                                                   |       |
| Other changes in operating assets and  liabilities                                                                                                  |       | (13,108                                               | )          | (449                                                  | )          |
| Decrease in liquidation liabilities                                                                                                                 |       | (3,505                                                | )          | (1,945                                                | )          |
| Net cash used in operating activities                                                                                                               |       | (16,308                                               | )          | (1,894                                                | )          |
| **Cash flows from investing activities:**                                                                                                           | ** ** | ** **                                            | ** ** | ** **                                            | ** ** |
| Resort and golf course improvements                                                                                                                 |       | (426                                                  | )          | (199                                                  | )          |
| Restricted cash                                                                                                                                     |       | (2,000                                                | )          | —                                                |       |
| Proceeds from asset sales                                                                                                                           |       | 41,852                                                |       | 1,037                                                 |       |
| Decrease in notes receivable                                                                                                                        |       | —                                                |       | 3,067                                                 |       |
| Net cash provided by investing activities                                                                                                           |       | 39,426                                                |       | 3,905                                                 |       |
| **Cash flows from financing activities:**                                                                                                           | ** ** | ** **                                            | ** ** | ** **                                            | ** ** |
| Proceeds from debt                                                                                                                                  |       | 320                                                   |       | —                                                |       |
| Redemption of outstanding preferred stock                                                                                                           |       | (17,500                                               | )          | —                                                |       |
| Repayments on debt and capital lease  obligations                                                                                                   |       | (943                                                  | )          | (1,043                                                | )          |
| Net cash used in financing activities                                                                                                               |       | (18,123                                               | )          | (1,043                                                | )          |
| Net increase in cash                                                                                                                                |       | 4,995                                                 |       | 968                                                   |       |
| Cash and cash equivalents, beginning of  period                                                                                                     |       | 2,224                                                 |       | 2,822                                                 |       |
| Cash and cash equivalents, end of period                                                                                                            |       | $                                                     | 7,219      |                                                  | $          | 3,790 |   |
| **Supplemental Disclosure of Cash Flow  Information:**                                                                                              | ** ** | ** **                                            | ** ** | ** **                                            | ** ** |
| Interest paid during the period                                                                                                                     |       | $                                                     | 889        |                                                  | $          | 593 |   |
| **Non-cash transactions:**                                                                                                                          | ** ** | ** **                                            | ** ** | ** **                                            | ** ** |
| Discount on Westin long-term obligation                                                                                                             |       | $                                                     | 191        |                                                  | $          | — |   |
| Discount on preferred stock obligation                                                                                                              |       | $                                                     | 2,500      |                                                  | $          | — |   |
| Assets acquired through capital leases                                                                                                              |       | $                                                     | 498        |                                                  | $          | 181 |   |
|                                                                                                                                                     |            |                                                       |            |                                                       |            |  |  |  |  |

 

See accompanying notes tocondensed consolidated financial statements.

 

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**GOLF TRUSTOF AMERICA, INC.**

**QuarterlyReport on Form 10-Q**

**For theThree and Nine Months Ended September 30, 2007**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(unaudited)**

 

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

 

On February 25, 2001, theCompany’s board of directors (the “Board”) adopted, and, on May 22, 2001, theCompany’s common and preferred stockholders approved, a plan of liquidation forthe Company. The plan of liquidation contemplated the sale of all of theCompany’s assets and the payment of, or provision for, the Company’sliabilities and expenses, and authorized the Company to establish a reserve tofund the Company’s contingent liabilities. As of November 2, 2007, the Companyhad sold 45 of the 47 (eighteen-hole equivalent) golf courses in which theCompany once held interests pursuant to the plan of liquidation.

 

On July 15, 2004, theCompany entered into a settlement agreement (the “Settlement Agreement”) withGolf Trust of America, L.P. and GTA-IB, LLC (“GTA-IB”), and Golf Host Resorts,Inc., our former unaffiliated borrower (“GHR”), Golf Hosts, Inc., Golf HostManagement, Inc., Golf Host Condominium, Inc. and Golf Host Condominium, LLC,and took control of the Innisbrook Resort and Golf Club (the “Resort”). Thesettlement was accounted for using methods consistent with purchase accountingin accordance with Statement of Financial Accounting Standards, or SFAS, No.141 “Business Combinations”. As a result of the settlement, the financialresults of GTA-IB, the Company’s wholly owned subsidiary that held title to theResort, are consolidated in the Company’s financial statements commencing July16, 2004.

 

On January 21, 2005, we engaged Houlihan Lokey asour then financial advisor for an initial term of nine months to providefinancial advisory services to us in furtherance of our stockholder-approvedplan of liquidation. The Company’s liquidation could have occurred through thesale of our assets, merger or otherwise in order to allow us to maximize valueto our stockholders. In addition, subject to appropriate approvals, we couldpursue a recapitalization. The engagement was extended on a month-to-monthbasis until June 29, 2006. Since an exit transaction had not occurred byJune 29, 2006, the Company terminated the engagement with Houlihan Lokey. Atail period following the termination of the engagement during which HoulihanLokey might still have been due a transaction fee expired on February 28,2007; therefore, no obligation for financial advisor fees to them existed afterthat date. Following this termination of Houlihan Lokey, the Company continuedto market the Resort for sale.

 

As a result of this effort, the Company announced on June 25, 2007,that the Company and certain of its affiliated entities entered into an AssetPurchase Agreement with Salamander Innisbrook Securities, LLC, SalamanderInnisbrook Condominium, LLC and Salamander Innisbrook, LLC (collectively, “Salamander”),providing for the acquisition by Salamander of the business of the Resort (the “Business”),certain related assets and liabilities and the Company’s equity interest inGolf Host Securities, Inc.

 

On July 16, 2007, the Company and its affiliates completed the sale ofthe Business of the Resort and all of GTA-IB Golf Resort, LLC’s equity interestin Golf Host Securities, Inc. to Salamander pursuant to the Asset PurchaseAgreement. The purchase price received by the Company was approximately$35,000,000 in cash less a working capital purchase price adjustment of$2,221,000 plus (a) $4,000,000 to be used to settle certain obligations, (b)$844,000 for reimbursement of certain rental pool payments discussed in moredetail below, (c) $317,000 for reimbursement of certain agreed upon capitalexpenditures, (d) $25,000 for reimbursement of expenses related to Parcel G and(e) the assumption of certain liabilities. The final post-closing working capital settlement amount, as set forthin the Asset Purchase Agreement, is currently being negotiated.  The Company has recorded a receivable of$1,387,000 on the books of GTA-IB (consolidated into the financial statementsof GTA).  At this time, based on thefacts available to the Company, management believes that this amount is areasonable representation of the receivable that will be collected by theCompany when the post-closing working capital adjustment is settled withSalamander. The Asset Purchase Agreement provides for a $2,000,000 escrow forGTA-IB’s and the Company’s indemnification liabilities to be held, pursuant toits terms, until at least March 31, 2008.

 

As part of thesale of the Business, Salamander assumed operation and control of the RentalPool.  The Rental Pool obligated the Company to make quarterlydistributions of a percentage of room revenues to participating owners underthe Amended and Restated Innisbrook Rental Pool Master Lease Agreement, datedJanuary 1, 2004 (the “MLA”).  The MLA also entitled participating ownersto 50% reimbursement of the refurbishment costs of their units. In addition toreimbursement by Salamander of such obligations since January 1, 2007 in theamount of approximately $844,000, obligations in connection with theRefurbishment Program, along with all other obligations under the MLA, wereassumed by Salamander upon the closing of the Asset Purchase Agreement. Also,all capital and operating lease obligations of the Resort were assumed bySalamander upon the closing of the Asset Purchase Agreement.

 

On July 13, 2007, the Company and certain of itsaffiliated entities and Troon Golf, L.L.C. (“Troon”) entered into a FacilitiesManagement Agreement Termination Agreement (the “Troon Termination Agreement”)pursuant to which the Troon Management Agreement was terminated. The TroonTermination Agreement also provided for the payment to Troon 

 

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of $177,000 in accrued and unpaid fees andreimbursable expenses and the supplemental fee of $800,000 contemporaneous withthe sale of the Resort.

 

Contemporaneously with the closing of the sale of the Resort, (a) theCompany exercised the Option and repurchased the outstanding Series A PreferredStock at the Exercise Price of $17,500,000 (see Note 8, *PreferredStock*, for further discussion); (b) all outstanding accrued andunpaid amounts were paid to Pinellas County for property taxes, in the approximateamount of $343,000; (c) a termination fee of $5,403,000 was paid to Westin; (d)the supplemental fee and management fees totaling $977,000 were paid to Troon;and (e) the Patriot Bank loan was repaid and cancelled. With regard to theproperty taxes, the Company intends to continue to pursue the respectivelawsuits to recover the  contestedamounts from  Pinellas County.

 

Subsequent to the closing of the sale of the Resort,the Company paid outstanding accrued and unpaid (a) legal fees totalingapproximately $3,261,000, (b) Board fees and expenses totaling approximately$263,000, and (c) milestone payments due to our current/former executiveofficers totaling approximately $1,317,000 plus accrued interest. See Note 2, *Organization and Basis for Presentation*, for furtherdiscussion regarding the milestone payments.

 

Although the Company has operated under the plan of liquidation sinceMay 22, 2001, pursuant to which it has successfully sold 33 of the 34properties owned by the Company on that date, the Board now believes that it isin the best interests of the stockholders of the Company to actively considerand pursue alternative business strategies in order to maximize stockholdervalue. The Board and management currently are working together to develop arecommended alternative strategy (an “Alternative Strategy”). The AlternativeStrategy could include, among other things, the pursuit of acquisitions, a saleof the Company or certain of its assets, mergers, joint ventures or otherbusiness combinations and partnerships. ****It is expected that the Alternative Strategy wouldfocus on ways to extract value by capitalizing on existing strengths, such asthe existing public platform, potential tax benefits from the Company’s netoperating loss carryforwards, as permitted by applicable law, and its currentliquidity which, combined with the public platform, could make it an attractivecandidate for a business combination. The Board is also actively developing aproposal to restructure both the existing management team and the compositionof the Board itself to align respective skills to ensure optimum********considerationand implementation of an Alternative Strategy.****

 

The implementation of an Alternative Strategy by the Company isinconsistent with the plan of liquidation and would require that the plan ofliquidation be terminated. These financial statements, notes thereto and theassumptions therein are based on the current stockholder approved plan ofliquidation until such time as the stockholders have approved a new strategy. SeeNote  9, *SubsequentEvents*, for the most recent update on the Company’s pursuit of anAlternative Strategy.

 

**2. Organization and Basis of Presentation**

 

The Company wasincorporated in Maryland on November 8, 1996 as a real estate investmenttrust (“REIT”). As of fiscal year 2002, the Company no longer has its REITstatus as a result of its repossession and operation of golf courses followingthe default of its original third-party lessees. At September 30, 2007, theCompany’s only remaining real estate asset, for which the estimated fair valueis currently approximately 6,801,000, is the Country Clubs of Wildewood andWoodcreek Farms, or Stonehenge, which represents two private golf courses operating under one club structurelocated in South Carolina. Stonehenge is owned and managed by the Company andis presently held in fee simple. The title to Stonehenge is held by Golf Trustof America, L.P., a Delaware limited partnership and the Company’s operatingpartnership. The Company refers to Golf Trust of America, L.P. as the “OperatingPartnership”, and the Company refers to the Operating Partnership and itself(together with all subsidiaries) collectively as “we”, “us” or the “Company”. Thetitle to the Resort, prior to its sale, was held by GTA-IB, a wholly ownedsubsidiary of GTA-IB Golf Resort, LLC, which in turn is 100% owned by theOperating Partnership. Through its wholly owned subsidiaries GTA GP, Inc.and GTA LP, Inc., the Company holds 100 percent of the interest inthe Operating Partnership at September 30, 2007. GTA GP, Inc. is the solegeneral partner of the Operating Partnership and owns a 0.2 percentinterest therein. GTA LP, Inc. is the sole limited partner in the OperatingPartnership and owns a 99.8 percent interest therein.

 

*Principles of Consolidation*

 

The accompanyingcondensed consolidated financial statements include the accounts of GTA GP,Inc., GTA LP, Inc., the Operating Partnership and their wholly-ownedsubsidiaries. All significant intercompany transactions and balances have beeneliminated in consolidation.

 

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*Adjustmentsto Liquidation Basis of Accounting*

 

As a result of theadoption by the Board of the plan of liquidation and approval of the plan ofliquidation by the Company’s stockholders, the Company adopted the liquidationbasis of accounting for all periods subsequent to May 22, 2001. Accordingly,on May 22, 2001, the Company’s assets were adjusted to their estimatedfair value and the Company’s liabilities, including estimated costs associatedwith implementing the plan of liquidation, were adjusted to their estimatedsettlement amounts. The valuation of real estate held for sale as of September30, 2007 relies on estimates of sales values based on indications of interestfrom the marketplace and/or executed asset purchase agreements, as applicable,certain assumptions by management specifically applicable to each property, andon the property value ranges. The valuation of the Company’s other assets andliabilities under the liquidation basis of accounting is based on management’sestimates as of September 30, 2007.

 

For the three months ended September 30,2007, net assets in liquidation decreased by approximately $268,000. Thisdecrease resulted from (a) a decrease of approximately $274,000 in the forecastof the Company’s cumulative net operating results, which includes its golfcourse assets and the overhead and interest expense of the Company’s corporateoperations, (b) an increase of $35,000 in the accrual for capital expendituresat Stonehenge, (c) a loss of $400,000 on the net proceeds received from theCompany’s interest in Parcel F, (d) an estimated recovery of approximately$448,000 on the estimated loss recorded at June 30, 2007 on the Resort saletransaction which continues to be subject to certain post-closing settlementadjustments, and (e) certain other miscellaneous adjustments of approximately$7,000. The forecast of the Company’s cumulative net operating results isimpacted by, among other things, changes in the anticipated sale date ofStonehenge, the final results of the post-closing settlement of the workingcapital adjustment for the Resort and the estimated time and expense requiredto wind-down the operations of the Company.

 

For the nine months ended September 30, 2007,net assets in liquidation decreased by approximately $2,663,000. This decreasewas a result of the changes described above that were recorded in the threemonths ended September 30, 2007 plus the changes recorded in the six months endedJune 30, 2007 which were (a) a decrease of approximately $900,000 in theforecast of the Company’s cumulative net operating results, which included theResort and golf course assets, the Resort condominium sales operations and theoverhead and interest expense of the Company’s corporate operations, (b) anincrease of $30,000 in the accrual for capital expenditures at Stonehenge, (c)an increase of $180,000 for other incurred liquidation expenses, (d) anincrease of $250,000 in the accrual for legal fees primarily for fees incurredin preparation for, and during the trial related to, the Young complaints, (e)an increase of $25,000 in the accrual for professional fees for accountingservices, (f) a decrease in the carrying value of the debt to our preferredstockholder of $2,500,000 (see Note 8, *Preferred Stock*,for further discussion), and (g) a decrease of $3,510,000 in the carrying valueof the business of the Resort based on the estimated net loss on the saletransaction. Also, approximately $97,000 was reallocated from the accrual forfinancial advisor fees to (i) a $50,000 increase in the accrual for legal feesand (ii) a $47,000 increase in the accrual for other liquidation expenses. Theforecast of the Company’s cumulative net operating results is impacted by,among other things, changes in an anticipated sale date of Stonehenge, thefinal results of the post-closing settlement of the working capital adjustmentfor the Resort which is currently being negotiated and the estimated time andexpense required to wind-down the operations of the Company.

 

The net assets of approximately $11,202,000at September 30, 2007 would result in a liquidation distribution per share ofapproximately $1.55. This $1.55 estimate for liquidation distribution per shareincludes projections of costs and expenses as described below under the heading*Reserve for Estimated Costs During the Period ofLiquidation*. The actual per share distributions that the Companymakes to the holders of the Company’s common stock could be materially lowerthan the amount the Company currently estimates of $1.55 due to factors such as(a) the sale price and  timing of anysale of Stonehenge and the corresponding transaction costs, (b) the performanceof Stonehenge and Corporate overhead, and (c) a change in the underlyingassumptions of the cash flow amount projected. The $1.55 estimate is derived bydividing the net assets in liquidation by the number of shares of common stockand common Operating Partnership units outstanding (7,317,000 less 85,000)after consideration of those shares that will be canceled prior to thedistribution of the net assets. The 85,000 shares of common stock were pledgedto the Company as security for the payment and performance of the obligationsand liabilities of the pledgor under a common stock redemption agreementexecuted concurrently with a 2001 asset sale. Because this redemption agreementprovides in part that these shares will be tendered to us if and when thetotal amount of liquidating distributions paid to the holders of common stockpursuant to the plan of liquidation is less than $10.74 per share, we expectthese shares to be tendered to us and canceled.

 

*Reserve for Estimated Costs During the Periodof Liquidation*

 

Under the liquidation basis of accounting, theCompany is required to estimate and accrue the costs associated withimplementing and completing the plan of liquidation. These amounts can varysignificantly due to, among other things, the timing and realized proceeds fromgolf course sales, the costs of retaining personnel and others to oversee theliquidation, including the costs of insurance, the timing and amountsassociated with discharging known and contingent liabilities, 

 

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transaction costs related toany sales and the costs associated with cessation of the Company’s operations. Thesecosts are estimates only and are expected to be paid out for expenses incurredduring the period up to the date of the special meeting of the Company’sstockholders on November 8, 2007 at which they will vote on, among otherthings,  a proposal to terminate theCompany’s Plan of Liquidation and Dissolution which was originally approved onMay 22, 2001. If this proposal is approved, the Company would no longer presenttheir financial statements on a liquidation basis and, therefore, any remainingliquidation reserve accrual balances would be reversed. In light of theupcoming stockholder vote and the probability that the Plan of Liquidation andDissolution will be terminated, the liquidation reserve has not been adjustedto contemplate operations of the Company for a future period, subsequent to thedate of the Special Meeting, and leading to its cessation and wind-up. Further,the current liquidation reserve does not contemplate the impact on the Company’soperating results of a sale of Stonehenge since no asset purchase agreement hasbeen executed for Stonehenge as of November 2, 2007. Should the proposal berejected by the stockholders, the Company’s management will seek to sellStonehenge and wind-up its corporate operations as soon as feasibly possible. TheCompany can provide no assurance as to the timeline by which this could occur. TheCompany has accrued the projected costs and operating results, including corporateoverhead and specific liquidation costs of severance,  professional fees and other miscellaneouscosts, expected to be incurred during the period described above. Theseprojections could change materially based on the outcome of the stockholdervote, the timing of any sale of Stonehenge, the performance of Stonehenge,  transaction costs related to the sale ofStonehenge, corporate operating expenses including public company costs and anychange in the underlying assumptions of the cash flow amount projected. Theseaccruals will be adjusted as projections and assumptions change. See Note 9*, Subsequent Events*, for further discussion.

 

The following is a summary of the changes in theReserve for Estimated Costs During the Period of Liquidation (LiquidationReserve) (unaudited): 

 
| ** **             | ** ** | **December 31,  2006** | ** ** | **Transfers and  Payments** | ** ** | **Operating  Income(Loss) and  Interest** | ** ** | **Adjustments** | ** ** | **September 30,  2007** | ** ** |
|------------------------|------------|-----------------------------|------------|----------------------------------|------------|------------------------------------------------|------------|-----------------|------------|------------------------------|------------|
| Severance              |       | $                           | 1,748,000  |                             | $          | (1,317,000                                     | )          | $               | —     |                         | $          | — |   | $ | 431,000 |   |
| Professional fees      |       | 1,250,000                   |       | (1,380,000                       | )          | —                                         |       | 325,000         |       | 195,000                      |       |
| Financial advisor fees |       | 297,000                     |       | (200,000                         | )          | —                                         |       | (97,000         | )          | —                       |       |
| Capital expenditures   |       | 47,000                      |       | (99,000                          | )          | —                                         |       | 65,000          |       | 13,000                       |       |
| Other                  |       | (57,000                     | )          | (607,000                         | )          | (118,000                                       | )          | 1,401,000       |       | 619,000                      |       |
| Total                  |       | $                           | 3,285,000  |                             | $          | (3,603,000                                     | )          | $               | (118,000   | )                            | $          | 1,694,000 |   | $ | 1,258,000 |   |

 

Included in the accrued severance amountsabove are performance milestone payments aggregating approximately $1,317,000(the accrued interest on these amounts is included in Accounts Payable andOther Liabilities) due to the Company’s executives pursuant to their amendedand restated employment agreements. The conditions to these payments weresatisfied on June 19, 2003; therefore, these milestone payments plus accruedinterest were paid to the Company’s executives on July 16, 2007 following theclosing of the sale of the Resort. The adjustment to the other liquidationreserve for the nine months ended September 30, 2007 of approximately$1,401,000 is the provision for the Company’s past cumulative net operatingresults and future forecasts, which included the Resort  and its condominium sales operations (untilthe closing of the sale of these assets on July 16, 2007) certain incurred butunbilled liquidation expenses, and an estimate of the overhead and interestexpense of the Company’s corporate operations through the date of thestockholder vote on the termination of the plan of liquidation. The increase inthe professional fee accrual of $325,000 was primarily for fees incurred inpreparation for, during and after the trial on the Young complaints. Theincrease of $65,000 in the accrual for capital expenditures is for capitalimprovement projects at Stonehenge. As described above, these projections couldchange materially and will be adjusted from time to time as projections andassumptions change. See Note 9, *Subsequent Events*,for further discussion.

 

**3. Summary of Significant Accounting Policies**

 

*Interim Statements*

 

The accompanying condensed consolidatedfinancial statements for the three and nine months ended September 30, 2007have been prepared in accordance with (a) accounting principles generallyaccepted in the United States of America (“GAAP”), and under the liquidationbasis of accounting following our stockholders’ approval of the plan ofliquidation on May 22, 2001, and (b) the instructions toForm 10-Q and Article 10 of Regulation S-X. These financialstatements have not been audited by a registered independent public accountingfirm; however, they include adjustments (consisting of normal recurringadjustments) which are, in the judgment of management, necessary for a fairpresentation of the net assets, financial condition, results of operations andcash flows for such periods. However, these results are not necessarilyindicative of results for any other interim period or for the full year. Inparticular, revenues from golf course operations are seasonal.

 

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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 SEC. The Company’smanagement believes that the disclosures included in the accompanying interimfinancial statements and footnotes are adequate to make the information notmisleading, but also believes that these statements should be read inconjunction with the summary of significant accounting policies and notes tofinancial statements included in our Form 10-K for the year endedDecember 31, 2006, filed on April 2, 2007.

 

*Recent Accounting Pronouncements*

 

In July 2006, the FASB issued FASBInterpretation No. 48, “Accounting for Uncertainty in Income Taxes-anInterpretation of FASB Statement No. 109” (“FIN 48”), which clarifies theaccounting for uncertainty in income taxes recognized in an enterprise’sfinancial statements. FIN 48 prescribes a recognition threshold and measurementattribute for the recognition and measurement of a tax position taken, orexpected to be taken, in a tax return. The provisions of FIN 48 were effective forthe Company as of January 1, 2007 and required application of FIN 48 toall existing tax positions upon initial adoption. The adoption of the standardhad no effect on the Company’s financial condition or results of operations.

 

***4. Commitments and Contingencies***

*** ***

***Young Complaints***

*** ***

On March 22, 2004, a lawsuit was filed in the U.S. District Courtfor the District of South Carolina, Florence Division, by one of our priordirectors, Larry D. Young (together with Danny L. Young, Kyle N. Young, theYoung Family Irrevocable Trust and The Legends Group, Ltd.), against ourindependent auditors, BDO Seidman, LLP, and three former BDO partners (the “BDODefendants”), and the Company and our executive officers (the “GTA Defendants”).

 

The complaint alleges that the BDO Defendants engaged in professionalmalpractice, misrepresentation, breach of fiduciary duty and fraud bycounseling plaintiffs to participate in a type of tax shelter transactionallegedly held illegal by the Internal Revenue Service, and that the GTA Defendantsconspired with the BDO Defendants to convince Mr. Young that he wouldrealize a large projected tax gain in order to induce Mr. Young (and theother plaintiffs) to enter into the failed tax shelter transaction. Theplaintiffs are seeking damages of at least $3.7 million, together withlegal expenses and other costs. On November 4, 2004, we filed an answerand counterclaims. On February 14, 2005, the court granted the motion to compelarbitration of the BDO Defendants as to claims against them, and it appearsthat the plaintiffs and the BDO Defendants have resolved their differences. OnOctober 18, 2006, the plaintiffs filed a notice of dismissal of their claimsagainst the BDO Defendants. On March 1, 2007, the U.S. District Courtgranted the GTA Defendants’ Motion for Summary Judgment. As of March 26,2007, the plaintiffs have no remaining claims against any of the GTA Defendants.All of GTA Defendants’ counterclaims against the plaintiffs remain. Mediationand settlement efforts by the parties were unsuccessful. The trial for the GTADefendants’ counterclaims against the plaintiffs began on August 6, 2007 andconcluded on August 10, 2007. The plaintiffs made a motion for a directedverdict during trial that was granted with respect to one of the GTA Defendants’claims, and denied for the remaining three claims. The jury returned a verdictfor the GTA Defendants on their claims for breach of contract and breach offiduciary duty, and awarded the GTA Defendants actual damages in the amount of$3,726,856. In addition, the GTA Defendants were awarded $150,000 in attorneys’fees in connection with the breach of contract claim. On August 20, 2007, theplaintiffs moved for judgment notwithstanding the verdict, or, alternatively, anew trial. On September 7, 2007, the GTA Defendants filed a response inopposition to plaintiffs’ motion, and plaintiffs filed a reply on September 14,2007. Any appeal rights are stayed pending the determination of this post-trialmotion. On August 27, 2007, the GTA Defendants filed a motion to amend orcorrect certain minor language in the text of the judgment, and the plaintiffsresponded in opposition to this motion on September 14, 2007. On August 31,2007, the GTA Defendants filed a motion seeking attorneys’ fees in connectionwith the GTA Defendants’ successful defense against the plaintiffs’ originalclaims, along with a motion to seal the invoices attached as exhibits to themotion for attorneys’ fees. The plaintiffs responded in opposition to themotion on October 10, 2007, and the GTA Defendants filed a reply on October22,2007. All of the aforementioned post-trial motions remain pending before theCourt. At this time, the Company is unable to assess the ultimate outcome ofthis litigation and has not recorded a receivable for the potential recovery ofthe award.

 

*Property Tax Lawsuit*

 

GTA-IB has filed lawsuits against the property appraiser of PinellasCounty, Florida to challenge the 2004, 2005 and 2006 real estate assessment onthe Resort property. Pinellas County filed a motion to dismiss, which wasdenied by the court. Discovery is in process and no trial date has been set. IfPinellas County were to prevail, management believes that there would be nomaterial adverse effect upon our financial statements, as the entire PinellasCounty assessment was fully accrued at June 30, 2007 and was paid concurrentwith the sale of the Resort on July 16, 2007. See Note 1, *Plan ofLiquidation and*

 

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*the Resort*,for further discussion. If the Company were to prevail, the Company couldpossibly be awarded a reimbursement of a portion of these contested propertytaxes but the Company is unable to assess the outcome of this claim at thistime.

 

***Wall SpringsConservatory, Inc. Complaint***

*** ***

On July 13, 2006, Wall SpringsConservatory, Inc. (“Wall Springs”) filed suit against GTA-IB, assuccessor in interest to GHR, in the circuit court of Pinellas County fordeclaratory relief regarding the allocation of certain full golf memberships atthe Resort. On July 14, 2006, Wall Springs also filed suit against us inthe small claims division of the Pinellas County Court in connection with aneasement agreement. We answered both claims, also asserting affirmativedefenses and counterclaims in each action. We then filed a motion to transferthe small claims matter to Circuit Court, which was granted onSeptember 27, 2006. We then moved to consolidate these two cases. Ourmotion to consolidate was granted by the Circuit Court on March 1, 2007. TheCompany is currently evaluating its alternatives regarding these claims giventhe fact that it no longer owns the Resort. At this time, the Company is unableto assess the likely outcome of this litigation.

 

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

*** ***

The titled action was brought in the Circuit Court of Miller County,Missouri, by a contractor, Lake Ozark Construction Industries, Inc. (“LOCI”)and its asserted assignee of lien and account rights, Everett Holding Company, Inc.,in the fall of 1999 against numerous defendants, including the OperatingPartnership. Plaintiffs assert LOCI performed construction services on, or thatLOCI benefited, the property of various defendants, including the OperatingPartnership. With respect to the Operating Partnership, plaintiffs seek toforeclose a mechanic’s lien upon property formerly owned by it. The lien is forthe principal amount of approximately $1,276,000, plus interest at 10% perannum and attorney fees. Plaintiffs calculate interest to May 20, 1999,just prior to the lien filing, to be approximately $151,000 and interestthereafter to be $354 per day. The Court entered a written order granting theOperating Partnership’s Motion for Summary Judgment in April 2002 and a finaljudgment in November 2003. Plaintiffs appealed the ruling to the Missouri Courtof Appeals. The Court of Appeals on April 5, 2005 reversed the CircuitCourt judgment in favor of us and remanded the case to the Circuit Court forfurther proceedings. On May 31, 2005, the Court of Appeals filed amodified Opinion, which again reversed the Circuit Court judgment in favor ofus and remanded the case to the Circuit Court for further proceedings. As ofNovember 2, 2007, the trial date has not yet been set. At this time, theCompany is unable to assess the likely outcome of this litigation.

 

***Ordinary Course Litigation***

*** ***

Owners and operators of golf courses are subject to avariety of legal proceedings arising in the ordinary course of operating a golfcourse, including proceedings relating to personal injury and property damage. TheCompany maintains insurance for these purposes, subject to deductibles andexclusions deemed reasonable by the Company. The Company is not currentlysubject to any material claims of this type.

 

***Refundable Initiation Fees***

*** ***

Certain membership initiation fees at Stonehenge arerefundable based on specific conditions. The estimated present value of thepotential refunds over the thirty-year required membership term, as defined inthe Club Membership Manual, is recorded as an accrued liability on our books atSeptember 30, 2007 and is valued at $125,000. Additionally, certain initiationfees may be refundable prior to the expiration of the thirty-year term underspecific membership replacement conditions. There is no liability recorded toconsider the refundability of refunds issued under these conditions due to thefact that four new members have to join in the specific membership category fora resigned member to receive a refund. A refund issued under these specificcircumstances would be considered a reduction of membership revenue for thatperiod. All new initiation fees received are initially recorded as deferredrevenue and amortized over the average life of a membership which, based onhistorical information, is deemed to be nine years.

 

**5. Receivables and Due from Salamander**

 

Receivables consists of approximately 1,387,000, which represents the estimatedamount due from the buyer of the Resort in the final post closing workingcapital settlement which is currently being negotiated and is subject to changebased on the final outcome of these negotiations, and approximately $413,000 inmember, trade and other miscellaneous receivables of Stonehenge at September30, 2007, as compared to the receivables at December 31, 2006, whichinclude approximately $2,892,000 of member, trade and other miscellaneousreceivables of our managed golf courses, the Resort and its related entity GolfHost Securities, Inc.

 

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**6. Debt**

** **
| ** **                | ** ** | **September 30,  2007** | ** ** | **December 31, 2006** | ** ** |
|---------------------------|------------|------------------------------|------------|---------------------------------|------------|
| Revolving line of credit  |       | $                            | 4,100,000  |                            | $          | 4,100,000 |   |
| Capital lease obligations |       | —                       |       | 772,000                         |       |
| Non-revolving loan        |       | —                       |       | —                          |       |
| Total                     |       | $                            | 4,100,000  |                            | $          | 4,872,000 |   |

 

*Revolving Line of Credit*

* *

On March 18, 2004, the Company entered into aloan agreement and related mortgage with Textron Financial Corporation (“Textron”)for a revolving line of credit with a maximum permissible outstanding loanamount of $2,100,000. On August 4, 2005, the line was increased to$4,200,000 and the term was extended to March 18, 2009. This loan iscollateralized by a security interest in the Company’s golf courses inStonehenge. The interest rate is the prime rate plus 1.75% per annum paidmonthly. This loan requires that the operations at Stonehenge for theimmediately preceding twelve month period be sufficient to meet a debt servicecoverage ratio, as defined in the mortgage, of at least 1.20, as measuredmonthly. At September 30, 2007, the Company did not meet the debt servicecoverage ratio (in part due to the ramped up efforts to improve the playingquality of the golf courses by spending a significant sum on additionalmaintenance labor, beautification efforts and repair and maintenance projectson the golf courses that do not qualify for capitalization); however, due tothe fact that the Company has consistently paid our interest obligationsthroughout the term of the loan, Textron waived the covenant violation subjectto re-evaluation at December 31, 2007.

 

In certain instances, the loan may be assumed bya buyer of Stonehenge pursuant to assumption provisions in the loan amendment. Theinterest rate continues to be the prime rate (7.75% per annum at September 30,2007) plus 1.75% per annum, paid monthly. The Company paid a one-timecommitment fee to Textron of $42,000 to obtain the increase in this credit line.In addition, the Company will pay to Textron a fee of 0.25% per annum of theunused balance of this line of credit.

 

In connection with the execution of the Textron loanamendment, the Company, through its subsidiaries Stonehenge LLC and theOperating Partnership (collectively, the “Borrower”), entered into a Notice ofFuture Advance, Note, Mortgage and Loan Modification Agreement with Textron(the “Amended Mortgage”) modifying the March 2004 Mortgage, SecurityAgreement and Fixture Filing (as modified by the Amended Mortgage, the “SecurityAgreement”). The Security Agreement contains events of default provisions thatinclude, among others, non-payment of principal, interest or fees, violation ofcovenants, inaccuracy of representations and warranties, cross defaults,bankruptcy and insolvency proceedings, termination, dissolution or liquidationof Stonehenge LLC or the Operating Partnership, failure to cure the loss ofcertain licenses, permits or contracts, curtailment of utilities or services atStonehenge and material judgments. In the event of the occurrence of an eventof default, Textron is entitled to, among other things, accelerate allobligations of the Borrower under the aforesaid loan documents and sell certainof the Borrower’s assets, namely Stonehenge and related assets, to satisfy theBorrower’s obligations.

 

**7. Accounts Payable and Otherliabilities**

 

Accounts payable and other liabilities consist of thefollowing:

 
| ** **                    | ** ** | **September 30, 2007** | ** ** | **December 31, 2006** | ** ** |
|-------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| Accounts payable              |       | $                                | 658,000    |                            | $          | 5,904,000 |   |
| Accrued payroll               |       | 115,000                          |       | 1,250,000                       |       |
| Accrued expenses              |       | 27,000                           |       | 2,151,000                       |       |
| Deferred revenue and deposits |       | 753,000                          |       | 4,103,000                       |       |
| Total                         |       | $                                | 1,553,000  |                            | $          | 13,408,000 |   |

 

See Note 1, *Plan of Liquidation andthe Resort*, for discussion regarding the payment of accounts payablefollowing the closing of the sale of the Resort on July 16, 2007.

 

**8. Preferred Stock**

 

*Series A Cumulative Convertible RedeemablePreferred Stock*

* *

On April 2, 1999, the Company completed aregistered offering of 800,000 shares of the Company’s 9.25% Series ACumulative Convertible Preferred Stock, par value $0.01 per share, at a priceof $25.00 per share. All shares of the Series A 

 

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Preferred Stock were sold to AEW Targeted SecuritiesFund, L.P. ("AEW"). The Series A Preferred Stock was convertible, inwhole or in part, at the option of the holder at any time into the Company’scommon stock at an implicit conversion price of $26.25 per share of commonstock, subject to adjustment in certain circumstances. The Company contributedthe net proceeds to the Operating Partnership in exchange for 800,000Series A Preferred Operating Partnership units with analogous terms.

 

Aggregate Series A Preferred Stock dividends accrueduntil July 20, 2003 at a rate of $462,500 per quarter. EffectiveJuly 21, 2003, the rate increased to $625,000 per quarter (see furtherdiscussion of this increase below). As of March 31, 2007, the Company had notpaid 22 quarters of Series A Preferred Stock dividends (including the dividendotherwise payable in respect of the quarter ended March 31, 2007). Under theCompany’s Series A Preferred Stock charter document, because the Company had atleast six quarters of unpaid Series A Preferred Stock dividends, the holder ofthe Series A Preferred Stock, AEW or its transferee, had the right toelect two additional directors to the Board whose terms as directors would continueuntil the Company fully paid all accrued but unpaid Series A Preferred Stockdividends. This right went into effect at the Company’s annual meeting that washeld on November 17, 2003 and AEW did not exercise that right.

 

On February 22, 2001, the Company entered into avoting agreement with AEW. That agreement required AEW to vote in favor of theplan of liquidation and required the Company to redeem all of the shares ofSeries A Preferred Stock (for $25 per share plus dividends accrued and unpaid thereonthrough the date of the final redemption payment) promptly after the Companydetermined in good faith that it has received sufficient net proceeds from thedisposition of the Company’s assets and/or operations to redeem all of theSeries A Preferred Stock without violating any legal or contractualobligations.

 

Moreover, under the Company’s voting agreement withAEW, since the Company did not fully redeem the Series A Preferred Stock byMay 22, 2003, AEW or its transferee had the right to require the Companyto redeem the Series A Preferred Stock in full within 60 days thereafter,which right AEW exercised. Since the Company defaulted on that obligation, fromJuly 21, 2003 until the Series A Preferred Stock was redeemed, the stateddividend rate of the Series A Preferred Stock increased from 9.25% to 12.50%per annum (equivalent to a quarterly dividend of $625,000). Although theCompany was permitted to continue to accrue such dividends without paying thesame on a current basis, the dividends would have been required to be paid infull prior to any distribution to the Company’s common stockholders (but afterpayment of all obligations to the Company’s creditors), which would havereduced the Company’s cash available for liquidating distributions to commonstockholders.

 

On June 25, 2007, the Company and AEW entered into theAEW Option Agreement, which, among other things:

 

•                  granted theCompany the Option, exercisable by the Company in its sole discretion, topurchase, on or before August 1, 2007, all 800,000 shares of the Series APreferred Stock held by AEW including, without limitation, all of AEW’s rightsto Liquidation Preferences (as defined in the Company’s Articles Supplementary,including, without limitation, Liquidation Preferences in respect of anyaccrued and unpaid dividends) payable in respect of such shares as of theCompany’s exercise of the Option for a price of $17,500,000 (the “ExercisePrice”), subject to upward adjustment; provided, however, that the Option couldonly be exercised by the Company in the event that the Business of the Resortwas purchased pursuant to the essential terms and conditions, includingpurchase price, of the Asset Purchase Agreement; and

 

•                  provided that atsuch time as the Company exercised the Option and paid the Exercise Price inaccordance with the provisions of the AEW Option Agreement, all rights of AEWpursuant to any agreements between AEW and the Company, the Company’s ArticlesSupplementary or otherwise would terminate, and the Series A Preferred Stockpurchased would be authorized and unissued shares of Series A Preferred Stockto which AEW would no longer have any ownership rights.

 

As described in Note 1, *Plan of Liquidation andthe Resort*, above, the Company exercised the Option and redeemed theSeries A Preferred Stock for the Exercise Price in connection with the closingof the sale of the Resort.

 

**9.****              Subsequent Events**

 

On October 9, 2007, the Company filed adefinitive proxy statement for its Special Meeting of Stockholders to be heldon November 8, 2007 in Charleston, South Carolina. At the special meeting,stockholders will vote on a proposal to terminate the Company’s Plan ofLiquidation and Dissolution originally approved on May 22, 2001. Stockholderswill also vote on a proposal to declassify the Company’s Board of Directors andmake certain changes to the Company’s Amended and Restated Articles ofIncorporation to remove provisions related to our former status as a REIT aswell as a proposal to approve the adoption of the Golf Trust of America, Inc.2007 Stock Option Plan. See Note 2, *Organization and Basis of*

 

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*Presentation*,under the heading *Reserve for Estimated Costs During thePeriod of Liquidation,*for discussion regarding the Company’s considerationof the pending stockholder vote and the impact of such consideration onManagement’s estimate of  the reserve forestimated costs during the period of liquidation as of September 30, 2007.

 

In the event that the stockholders do notapprove the termination of the plan of liquidation, the plan of liquidation andthe Company’s current management would remain in place, and the Company wouldcontinue to implement the plan of liquidation.

 

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**GOLF TRUST OF AMERICA, INC.Quarterly Report on Form 10-QFor the Three and Nine Months Ended September 30, 2007**

 

**ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

We were incorporated in Maryland on November 8, 1996. We have beenengaged in a liquidation of our assets pursuant to a plan of liquidationapproved by our stockholders. However, as previously announced and describedmore fully below, we are currently considering additional strategic options tomaximize stockholder value. We were originally formed to be a REIT; however, asof fiscal year 2002 we no longer have our REIT status as a result of ourrepossession and operation of certain golf courses following the default oftheir original third-party lessees. As of November 2, 2007, our only remaining assetis the Country Clubs of Wildewood and Woodcreek Farms, or Stonehenge, held byus in fee simple, representing two private golf courses operating under oneclub structure located in South Carolina. The Operating Partnership holds titleto Stonehenge. Through our wholly owned subsidiaries, GTA GP, Inc. and GTALP, Inc., we held 100 percent of the interests in the OperatingPartnership as of November 2, 2007. GTA GP, Inc. is the sole generalpartner of the Operating Partnership and owns a 0.2 percent interesttherein. GTA LP, Inc. is the sole limited partner in the operatingpartnership and owns a 99.8 percent interest therein.

 

**Significant Events**

 

Significant events that have had or will have a material impact on ourfinancial condition and results of operations include:

 

•                                          On July 16,2007, the Company, the Operating Partnership and GTA-IB, GTA-IB Golf Resort,LLC, GTA-IB Condominium, LLC and GTA-IB Management, LLC (the OperatingPartnership’s subsidiaries) completed the sale of the Resort and all of GTA-IBGolf Resort, LLC’s equity interest in Golf Host Securities, Inc. to Salamanderpursuant to the Asset Purchase Agreement dated June 25, 2007. The purchaseprice received by the Company was approximately $35,000,000 in cash less aworking capital purchase price adjustment of $2,221,000 plus (a) $4,000,000 tobe used to settle certain obligations, (b) $844,000 for reimbursement ofcertain rental pool payments discussed in more detail below, (c) $317,000 forreimbursement of certain agreed upon capital expenditures, (d) $25,000 forreimbursement of expenses related to Parcel G and (e) the assumption of certainliabilities.  The final post-closingworking capital settlement amount, as set forth in the Asset Purchase Agreement,is currently being negotiated.  TheCompany has recorded a receivable of $1,387,000 on the books of GTA-IB(consolidated into the financial statements of GTA).  At this time, based on the facts available tothe Company, management believes that this amount is a reasonablerepresentation of the receivable that will be collected by the Company when thepost-closing working capital adjustment is settled with Salamander. As part ofthe sale of the Business, Salamander assumed operation and control of the RentalPool, which is a securitized pool of condominiums owned by participatingpersons and rented as hotel rooms to guests of the Resort. The Rental Poolobligated GTA-IB to make quarterly distributions of a percentage of roomrevenues to participating owners under the MLA. The MLA also entitledparticipating owners to 50% reimbursement of the refurbishment costs of theirunits. In addition to reimbursement by Salamander of such obligations sinceJanuary 1, 2007 in the amount of approximately $844,000, obligations inconnection with the Refurbishment Program, along with all other obligationsunder the MLA, were assumed by Salamander upon the closing of the sale of theResort.

 

•                                     Upon the closingof the sale of the Resort, the Company exercised the Option and purchased all800,000 shares of the Series A Preferred Stock held by AEW pursuant to the AEWOption Agreement, dated June 25, 2007. The Option was exercised at the ExercisePrice of $17,500,000, subject to certain post-closing adjustments, as set forthin the AEW Option Agreement.

 

•                                     As a result of thesale of the Resort, the Company’s liquidity improved significantly. Net cashproceeds from the sale after all the payouts required at closing wereapproximately $10,501,000, subject to an escrow for the Company’sindemnification liability of approximately $2,000,000 that will be held,pursuant to its terms, until at least March 31, 2008 and the final post-closingworking capital adjustment settlement which is currently anticipated to resultin additional cash proceeds to the Company from Salamander of approximately$1,387,000. The Company’s obligations under the Refurbishment Program under theMLA were assumed by Salamander and eliminated from the Company’s balance sheet.As described above, the Company used a portion of the sale proceeds to satisfyits obligations to Westin, Troon, Patriot Bank and with respect to certainaccounts payable, including payments to executives and former executives forearned and unpaid milestone payments and to its former legal counsel. Inaddition, the redemption of the Series A Preferred Stock eliminated from itsbalance sheet $17,500,000 of accrued liabilities for the liquidation value andaccrued and unpaid dividends on the Series A Preferred Stock.

 

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•                                          On October 9,2007, we filed a definitive proxy statement for our Special Meeting ofStockholders to be held on November 8, 2007 in Charleston, South Carolina. Atthe special meeting, stockholders will vote on a proposal to terminate theCompany’s Plan of Liquidation and Dissolution originally approved on May 22,2001. Stockholders will also vote on a proposal to declassify the Company’sBoard of Directors and make certain changes to the Company’s Amended andRestated Articles of Incorporation to remove provisions related to our formerstatus as a REIT as well as a proposal to approve the adoption of the GolfTrust of America, Inc. 2007 Stock Option Plan. See further discussion belowunder the heading *Possible Change in Business Strategy*.

 

**Possible Change in Business Strategy**

 

Following the sale of the Resort and the redemption of the Series APreferred Stock, the only remaining assets of the Company are (a) cash, (b)certain holdbacks and escrowed funds related to the sale of the Resort, (c)contingent assets related to litigation, and (d) Stonehenge.

 

Although the Company has operated under the plan of liquidation sinceMay 22, 2001, pursuant to which it has successfully sold 33 of the 34properties owned by the Company on that date, the Board now believes that it isin the best interests of the stockholders of the Company to actively considerand pursue alternative business strategies in order to maximize stockholdervalue. The Board and management currently are working together to develop arecommended Alternative Strategy. The Alternative Strategy could include, amongother things, the pursuit of acquisitions, a sale of the Company or certain ofits assets, mergers, joint ventures or other business combinations andpartnerships. ****It is expected that the Alternative Strategy would focus on ways toextract value by capitalizing on existing strengths, such as the existingpublic platform, potential tax benefits from the Company’s net operating losscarryforwards, as permitted by applicable law, and its current liquidity which,combined with the public platform, could make it an attractive candidate for abusiness combination. The Board is also actively developing a proposal torestructure both the existing management team and the composition of the Boarditself to align respective skills to ensure optimum********considerationand implementation of an Alternative Strategy.****

 

The implementation of an Alternative Strategy by the Company would beinconsistent with the plan of liquidation and would require that the plan ofliquidation be terminated. On October 9, 2007, we filed a definitive proxystatement for our Special Meeting of Stockholders to be held on November 8,2007 in Charleston, South Carolina. At the special meeting, stockholders willvote on a proposal to terminate the Company’s Plan of Liquidation andDissolution originally approved on May 22, 2001. In the event that thestockholders approve the termination of the plan of liquidation, the Boardexpects that any potential transactions would be presented subsequently to thestockholders for consideration and approval as they may be identified and asmay be appropriate under applicable law.

 

In the event that the stockholders do not approve the termination ofthe plan of liquidation, it would remain in place and the Company wouldcontinue to implement the plan of liquidation.

 

**Assets Held for Sale**

 

On August 23, 2007, the sale of Parcel F, which is a parcel of landadjacent to the Resort, closed. On September 6, 2007, we received sales proceedsof $2,500,000 from the seller of Parcel F, GHR, pursuant to a contractual rightrelated to such a sale of Parcel F.

 

As noted above, as of November 2, 2007, our only remaining asset isStonehenge for which the current estimated fair value is $6,801,000. Also, asof November 2, 2007, we have not entered into any binding agreements withprospective purchasers for the sale of Stonehenge.

 

**Current Strategic Choices**

 

As described above, the Company is exploring a full range of StrategicAlternatives, and presented the Board’s recommendation to its stockholders inthe definitive proxy statement for the special meeting mailed to stockholderson October 9, 2007. Since we adopted the plan of liquidation in May 2001,we believe we have made significant progress in liquidating our assets. We havesuccessfully closed on the sale of 33 of the 34 properties that we owned,leaving Stonehenge still remaining in our portfolio. If the Company ultimatelycontinues the liquidation of its assets pursuant to the plan of liquidation, weanticipate making one or more liquidating distributions to the holders of ourcommon stock. If the plan of liquidation is terminated, we will pursueStrategic Alternatives, as determined by the Board and stockholder approval of 

 

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certain specific transactionswill be sought as required by law. We will continue to pursue the sale ofStonehenge pursuant to terms and conditions that our Board deems to be in thebest interests of our stockholders, including the timing of such sale.

 

**Potential Use of a Liquidating Trust**

 

If the termination of the plan of liquidation is not approved by thestockholders and the Company continues to pursue the sale of our remainingassets and the wind-up of the Company, as contemplated by our plan ofliquidation, we may elect to contribute our remaining assets andliabilities to a liquidating trust. For a more complete description of ourpotential use of a liquidating trust, please refer to “Potential use of aLiquidating Trust; Related Income Tax Risks to our Stockholders” inPart 1, Item 1 of our Form 10-K for the year ended December 31,2006, filed on April 2, 2007.

 

**Application of Critical Accounting Policies**

 

Upon approval by our stockholders of the plan of liquidation onMay 22, 2001, we adopted the liquidation basis of accounting for periodsbeginning after May 22, 2001. Pending any change in the Company’sstrategic direction, as discussed above, the Company will continue to presentits financial statements under the liquidation basis of accounting. The changesin Net Assets in Liquidation for Golf Trust of America, Inc., excludingthe Resort and Golf Host Securities, Inc., are discussed below. This discussionof changes in net assets, instead of a discussion of operating results, isconsistent with the presentation of the liquidation basis financial statementsin Item 1 of this Quarterly Report on Form 10-Q. The results of operations forthe Resort are discussed separately below under the caption “Results ofOperations for the Three and Nine Months Ended September 30, 2007”. Pleaserefer to “Management’s Discussion and Analysis of Financial Condition andResults of Operations—Application of Critical Accounting Policies” in ourForm 10-K for the year ended December 31, 2006, filed onApril 2, 2007, for a complete description of our critical accountingpolicies.

 

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

 

The change in our reserve for estimated liquidation costs for the threeand nine months ended September 30, 2007 is summarized in Note 2, *Organization and Basis of Presentation*, under the heading,*Reserve for Estimated Costs During the Period of Liquidation,*to our Condensed Consolidated Financial Statements contained in Item 1 above.

 

**Results of Operations for the Three and Nine Months Ended September 30,2007**

 

***Results of Operations***

 

Following the sale of the Resort, the redemption of our Series APreferred Stock and the receipt of our portion of the proceeds from the sale ofParcel F, the only remaining assets of the Company are (a) cash, (b) certainholdbacks, amounts due related to the working capital adjustment settlement,and escrowed funds related to the sale of the Resort, (c) contingent assetsrelated to litigation, and (d) Stonehenge. Other than the two-week periodbefore the closing of the sale of the Resort, our only substantive operationswere those of Stonehenge, which are significantly less than those of theResort.

 

The discussion and analysis that follows focuses on the Company’sresults of operations in the quarter ended September 30, 2007 and materialfactors that could impact future liquidity and results of operations. Giventhat the significant majority of our operations were sold at the beginning ofthe third quarter, results of operations and cash flow comparisons with priorperiods are not meaningful and, thus, are not provided.

 

**Changes in Net Assets in Liquidation**

 

***January 1, 2007 to September  30, 2007***

 

The change in our netassets for the three and nine months ended September 30, 2007 is summarized inNote 2, *Organization and Basis of Presentation*,**under the heading *Adjustments to LiquidationBasis of Accounting,* to our Condensed Consolidated FinancialStatements contained in Item 1 above.

 

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**Liquidity and Capital Resources**

 

As a result of our need for liquidity at that time, onMarch 18, 2004, we entered into a loan agreement and related mortgage withTextron for a revolving line of credit. On August 4, 2005, we executedloan documents with Textron to amend the terms of the existing revolving loan.Pursuant to this amendment, the maximum permissible outstanding loan amount wasincreased from $2,100,000 to $4,200,000. The interest rate pursuant to theamended Textron loan documents continues to be the prime rate plus 1.75% perannum, paid monthly. The amendment extended the term of the loan fromMarch 18, 2006 to March 18, 2009. This loan is collateralized by asecurity interest in Stonehenge. The loan requires that the operations at Stonehengefor the immediately preceding twelve month period must be sufficient to meet amonthly debt service coverage ratio, as defined in the mortgage, of at least1.20. At September 30, 2007, the Company did not meet the debt service coverageratio (in part due to the ramped up efforts to improve the playing quality ofthe golf courses by spending a significant sum on additional maintenance labor,beautification efforts and repair and maintenance projects on the golf coursesthat do not qualify for capitalization); however, due to the fact that theCompany has consistently paid our interest obligations throughout the term ofthe loan, Textron waived the covenant violation subject to re-evaluation atDecember 31, 2007.

 

Subject to certain conditions, a buyer of Stonehengemay assume this loan pursuant to the loan assumption provisions in theamendment. We paid a one-time commitment fee to Textron of $42,000, whichrepresents 2% of the new funds approved to obtain the increase in this creditline. In addition, we will pay to Textron a fee of 0.25% per annum of theunused balance of the available line. As of the date of this report, we havedrawn down a total of $4,100,000 on the line of credit. Subject to oursatisfaction of the applicable terms, conditions and covenants of this loan,there is $100,000 available that could be drawn under this loan.

 

As described above, the sale of the Resort and thereceipt of sales proceeds for Parcel F significantly improved the Company’sliquidity. We anticipate that cash on hand, combined with cash flow fromStonehenge’s operations, will be sufficient to meet the Company’s operatingneeds in the near term.

 

**Tax Consideration**

 

We do not currently project any income tax liability for the remainderof our liquidation as a result of our net operating loss carryforwards, whichwe currently expect to be sufficient to offset any taxable income for theremainder of our liquidation. Should the Company pursue alternative strategicoptions, management will assess the income tax impact of such options at thattime.

 

**Off Balance Sheet Arrangements**

 

As of September 30, 2007, we have no off balance sheet arrangementsthat have or are reasonably likely to have a current or future material effecton our financial condition, revenues, expenses, results of operations,liquidity, capital expenditures or capital resources.

 

**Contractual Obligations, Contingent Liabilities and Commitments**

 

The following table summarizes our contractualobligations at September 30, 2007, and the effect such obligations are expectedto have on our liquidity and cash flow (or upon our successors in interestunder the applicable contracts, if the contracts are not terminated) in futureperiods: 

 
| ** **                                                                                                                           | ** ** | **Payments Due by Period (in thousands)** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| **Contractual Obligation**                                                                                                      | ** ** | **Total**                                                          | ** ** | **Less than  1 year** | ** ** | **1-3 years** | ** ** | **4-5 years** | ** ** | **More than  5 years** | ** ** |
| Employment Agreements and Employment  Security Agreements                                                                            |       | $                                                                  | 431        |   | $ | 431 |   | $ | — |   | $ | — |   | $ | — |   |
| Textron revolving line of credit                                                                                                     |       | 4,714                                                              |       | 410 |   | 4,304 |   | — |   | — |   |
| Operating lease agreements at the managed golf courses                                                                          |       | 161                                                                |       | 98 |   | 56 |   | 7 |   | — |   |
| Advertising, service, equipment maintenance  and other contracts and software license and support agreements at the  managed courses |       | 1                                                                  |       | 1 |   | — |   | — |   |   |   |
| Lease agreements for GTA corporate office                                                                                            |       | 7                                                                  |       | 5 |   | 2 |   | — |   | — |   |
| Total of our consolidated obligations                                                                                                |       | $                                                                  | 5,314      |   | $ | 945 |   | $ | 4,362 |   | $ | 7 |   | $ | — |   |

 

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Interest is reflected, as applicable, in the commitments andobligations listed above.

 

Please refer to “Management’s Discussion and Analysis of FinancialCondition and Results of Operations—Contractual Obligations, ContingentLiabilities and Commitments” in our Form 10-K for the year endedDecember 31, 2006, filed on April 2, 2007, for a description of ourcontractual obligations.

 

**Inflation**

 

We believe that inflation does not pose a material risk to us. Our mainsource of cash flow is golf course dispositions which are not particularlyvulnerable to inflation because we can adjust our asking prices ifsupply/demand factors support an interest in the particular golf course. Althoughsome of our obligations (such as the salary of our chief executive officer)automatically adjust for inflation, some of our rights are similarly indexed. Ourgolf course fees at Stonehenge are relatively flexible and can be increased,subject to constraints imposed by competition and, in some cases, patrons’yearly membership privileges.

 

**Seasonality**

 

Since Stonehenge is a private membership club, the monthly member duesare the same throughout the year; however, swim and tennis revenues andexpenses are higher in the summer months.

 

**ITEM 3. QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

We have not entered into any transactions usingderivative financial instruments. We are subject to market risk associated withchanges in interest rates applicable to the revolving line of credit that weobtained on March 18, 2004, and amended on August 4, 2005. AtSeptember 30, 2007, the outstanding debt under this line of credit subject tointerest rate exposure is $4,100,000. As of September 30, 2007, a 25 basispoint movement would have resulted in a $10,000 annualized increase or decreasein interest expense and cash flows.

 

We were also subject to market risk associated with changes in interestrates applicable to the non-revolving line of credit for $1,200,000 that GTA-IBobtained on April 10, 2007. This loan was repaid upon the closing of the saleof the Resort.

 

We have not entered into any transactions usingforeign currency or derivative commodity instruments; therefore, we do not faceany foreign currency exchange rate risk or commodity price risk.

 

Reference is made to Note 6, *Debt*, to theCondensed Consolidated Financial Statements in Item 1 for additional debtinformation.

 

**ITEM 4. CONTROLS AND PROCEDURES**

 

We maintain disclosure controls and procedures that are designed toensure that information required to be disclosed in our Exchange Act reports isrecorded, processed, summarized and reported within the time periods specifiedin the SEC’s rules and forms, and that such information is accumulated andcommunicated to our management, including our Chief Executive Officer and ourPrincipal Accounting Officer, as appropriate, to allow timely decisionsregarding required disclosure. Our management assesses the costs and benefitsof such controls and procedures based upon the prevailing facts andcircumstances, including management’s reasonable judgment of such facts. Ouramended management agreement with Westin provided us with heightened controland access to information; however, prior to October 31, 2006 when weterminated the Westin Management Agreement, we did not directly assemble thefinancial information for the Resort (although we have taken steps that we deemto be reasonable under the circumstances to seek to verify such financialinformation) and consequently, our disclosure controls and procedures withrespect to the Resort, while strengthened, were necessarily more limited thanthose we maintain with respect to our own corporate operations.

 

As of September 30, 2007, we carried out an evaluation, under thesupervision and with the participation of our management, including our ChiefExecutive Officer and Principal Accounting Officer, of the effectiveness of thedesign and operation of our disclosure controls and procedures (as defined inExchange Act Rule 13a-15(e)). Management concluded that as of September30, 2007, our disclosure controls and procedures are effective in timelyalerting them to material information relating to us (including ourconsolidated subsidiaries) required to be included in our Exchange Act reports.

 

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There has been no change in our internal control over financialreporting during our most recent fiscal quarter that has materially affected,or is reasonably likely to materially affect, our internal control overfinancial reporting.

 

**PART II.OTHER INFORMATION**

 

**ITEM 1. LEGAL PROCEEDINGS**

 

We are currently involved in (or affected by) the following legalproceedings:

 

***Young Complaints***

 

On March 22, 2004, a lawsuit was filed in the U.S. District Courtfor the District of South Carolina, Florence Division, by one of our priordirectors, Larry D. Young (together with Danny L. Young, Kyle N. Young, theYoung Family Irrevocable Trust and The Legends Group, Ltd.), against ourindependent auditors, BDO Seidman, LLP, and three former BDO partners (the “BDODefendants”), and the Company and our executive officers (the “GTA Defendants”).

 

The complaint alleges that the BDO Defendants engaged in professionalmalpractice, misrepresentation, breach of fiduciary duty and fraud bycounseling plaintiffs to participate in a type of tax shelter transactionallegedly held illegal by the Internal Revenue Service, and that the GTADefendants conspired with the BDO Defendants to convince Mr. Young that hewould realize a large projected tax gain in order to induce Mr. Young (andthe other plaintiffs) to enter into the failed tax shelter transaction. Theplaintiffs are seeking damages of at least $3.7 million, together withlegal expenses and other costs. On November 4, 2004, we filed an answerand counterclaims. On February 14, 2005, the court granted the motion to compelarbitration of the BDO Defendants as to claims against them, and it appearsthat the plaintiffs and the BDO Defendants have resolved their differences. OnOctober 18, 2006, the plaintiffs filed a notice of dismissal of their claimsagainst the BDO Defendants. On March 1, 2007, the U.S. District Courtgranted the GTA Defendants’ Motion for Summary Judgment. As of March 26,2007, the plaintiffs have no remaining claims against any of the GTA Defendants.All of GTA Defendants’ counterclaims against the plaintiffs remain. Mediationand settlement efforts by the parties were unsuccessful. The trial for the GTADefendants’ counterclaims against the plaintiffs began on August 6, 2007 andconcluded on August 10, 2007. The plaintiffs made a motion for a directedverdict during trial that was granted with respect to one of the GTA Defendants’claims, and denied for the remaining three claims. The jury returned a verdictfor the GTA Defendants on their claims for breach of contract and breach offiduciary duty, and awarded the GTA Defendants actual damages in the amount of$3,726,856. In addition, the GTA Defendants were awarded $150,000 in attorneys’fees in connection with the breach of contract claim. On August 20, 2007, the plaintiffsmoved for judgment notwithstanding the verdict, or, alternatively, a new trial.On September 7, 2007, the GTA Defendants filed a response in opposition toplaintiffs’ motion, and plaintiffs filed a reply on September 14, 2007. Anyappeal rights are stayed pending the determination of this post-trial motion. OnAugust 27, 2007, the GTA Defendants filed a motion to amend or correct certainminor language in the text of the judgment, and the plaintiffs responded inopposition to this motion on September 14, 2007. On August 31, 2007, the GTADefendants filed a motion seeking attorneys’ fees in connection with the GTADefendants’ successful defense against the plaintiffs’ original claims, alongwith a motion to seal the invoices attached as exhibits to the motion forattorneys’ fees. The plaintiffs responded in opposition to the motion onOctober 10, 2007, and the GTA Defendants filed a reply on October 22, 2007. Allof the aforementioned post-trial motions remain pending before the Court. Atthis time, the Company is unable to assess the ultimate outcome of thislitigation and has not recorded a receivable for the potential recovery of theaward.

 

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

*** ***

On April 22, 2002, we filed an action entitled *Golf Trust of America, L.P. and GTA Stonehenge, LLC v. Lyndell LewisYoung and Stonehenge Golf Development, LLC* in the Court of CommonPleas for Richland County. We asserted causes of action against the defendantfor breach of contract, fraud and unfair trade practices. We were seekingdamages of approximately $172,000, which represents prepaid dues that were notdisclosed by the defendants. A counterclaim for payment under a consultingagreement, along with claims for payment of operating/maintenance and insuranceexpenses was filed by the defendant against us on June 20, 2002. The Courtdismissed the case on May 28, 2003. On March 15, 2005, we took actionto restore the case. The Court of Common Pleas for Richland County has orderedthe case restored to the roster. As of November 2, 2007 the trial date has notyet been set. At this time, the Company is unable to assess the likely outcomeof this litigation.

 

***Land Use Lawsuits***

*** ***

On March 10, 2005, the Company filed a Motion to Intervene in the suittitled *Innisbrook Condominium Association, Inc., C.Frank Wreath, Meredith P. Sauer, and Mark Banning, Plaintiffs vs. PinellasCounty, Florida, Golf Host Resorts, Inc. and Innisbrook F LLC, Defendants*,Case No. 043388CI-15. This motion was filed in the Circuit Court of the 

 

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Sixth Judicial Circuit, in andfor Pinellas County, Florida, Civil Division and was granted by the CircuitCourt. In this report, the Company refers to this matter as the “Initial LandUse Lawsuit”. The plaintiffs in the Initial Land Use Lawsuit have filed amulti-count complaint seeking injunctive and declaratory relief with respect tothe land use and development rights of Parcel F, which is owned by GHR. TheCompany filed the Motion to Intervene as a defendant in the Initial Land UseLawsuit in order to protect its property and its land use and developmentrights with respect to Parcel F. On April 26, 2005, Joseph E.Colwell, Marcia G. Colwell, Kirk E. Covert, Deborah A. Covertand the Autumn Woods Homeowner’s Association, Inc. moved to intervene inthe Initial Land Use Lawsuit, which the Court subsequently allowed. OnApril 8, 2005, a separate suit was filed by James M. and Mary H.Luckey, and Andrew J. and Aphrodite B. McAdams, against PinellasCounty, GHR and Bayfair Innisbrook, LLC seeking injunctive and declaratoryrelief relating to the land use and development rights of Parcel F. Thissuit was consolidated with the Initial Land Use Lawsuit. In this report, theCompany refers to this matter as the “Subsequent Land Use Lawsuit” and to theInitial Land Use Lawsuit and the Subsequent Land Use Lawsuit as the “Land UseLawsuits”.

 

From December 19 through December 23, 2005, the Court triedthese consolidated cases in a non-jury trial. On March 8, 2006, the Court ruledin favor of the defendants on all counts and denied all claims asserted by theplaintiffs in both Land Use Lawsuits. On March 31, 2006, the plaintiffs in theconsolidated cases filed a notice of appeal to the Second District Court ofAppeal. The Appeal Court affirmed per curium the Circuit Court judgment infavor of the defendants on February 28, 2007 and denied theplaintiffs-appellants’ motion for attorney fees. On March 13, 2007, theplaintiffs filed a motion for the Appeal Court to rehear their claims. On June12, 2007, the Second District Court of Appeal denied the plaintiffs motion forrehearing. On September 11, 2007, Plaintiffs/Petitioners James M. Luckey, MaryLuckey, Marc Banning, Andrew McAdams, Aphrodite McAdams, Kirk Covert, DeborahCovert, Marcia Colwell and Joseph Colwell filed a Petition for Writ ofCertiorari in the Supreme Court of the United States. On September 19, 2007,all of the respondents, including GTA-IB, LLC, filed a Waiver with the SupremeCourt of the United States informing the Court that the respondents did notintend to file a response to the Petition for Writ of Certiorari unless one isrequested by the Court. The respondents’ decision to file a waiver was based onthe collective judgment of all defense counsel of record that the Petitioners’Petition for Writ of Certiorari is meritless and has virtually no chance ofsuccess in their collective opinion. A further reason was the fact that if theSupreme Court of the United States does indicate that it may entertain thePetition, it will request a response at which time GTA-IB, LLC and the otherrespondents will have an opportunity to file our responses. At this time, theCompany is unable to assess the likely outcome of this litigation.

 

***WallSprings Conservatory, Inc. Complaint***

*** ***

On July 13, 2006, Wall Springs filed suit againstGTA-IB, as successor in interest to GHR, in the circuit court of PinellasCounty for declaratory relief regarding the allocation of certain full golfmemberships at the Resort. On July 14, 2006, Wall Springs also filed suitagainst us in the small claims division of the Pinellas County Court inconnection with an easement agreement. We answered both claims, also assertingaffirmative defenses and counterclaims in each action. We then filed a motionto transfer the small claims matter to Circuit Court, which was granted onSeptember 27, 2006. We then moved to consolidate these two cases. Ourmotion to consolidate was granted by the Circuit Court on March 1, 2007. TheCompany is currently evaluating its alternatives regarding these claims giventhe fact that it no longer owns the Resort. At this time, the Company is unableto assess the likely outcome of this litigation.

 

***Property TaxLawsuit***

*** ***

We filed lawsuits against the property appraiser of Pinellas County,Florida to challenge the 2004, 2005 and 2006 real estate assessment on theResort property. Pinellas County filed a motion to dismiss, which was denied bythe court. No trial date has been set. If Pinellas County were to prevail,management believes that there would be no material adverse effect upon ourfinancial statements, as the entire Pinellas County assessment was fullyaccrued at June 30, 2007 and was paid concurrent with the sale of the Resort onJuly 16, 2007. If the Company were to prevail, the Company could possibly beawarded a reimbursement of a portion of these property taxes but the Company isunable to assess the outcome of this claim at this time.

 

***Lake Ozark Industries, Inc. and EverettHolding Company, Inc. v. Golf Trust of America, et al.***

 

The titled action was brought in the Circuit Court of Miller County,Missouri by LOCI, and its asserted assignee of lien and account rights, EverettHolding Company, Inc., in the fall of 1999 against numerous defendants,including the Operating Partnership. Plaintiffs assert LOCI performedconstruction services on, or that benefited, the property of variousdefendants, including the Operating Partnership. With respect to the OperatingPartnership, plaintiffs seek to foreclose a mechanic’s lien upon propertyformerly owned by the Operating Partnership. The lien is for the principalamount of approximately $1,276,000, plus interest at 10% per annum and attorneyfees. Plaintiffs calculate interest to May 20, 1999, just prior to thelien filing, to be approximately $151,000 and interest thereafter to be $354per day. The Court entered a 

 

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written order granting theOperating Partnership’s Motion for Summary Judgment in April 2002 and afinal judgment in November 2003. Plaintiffs appealed the ruling to the MissouriCourt of Appeals. The Court of Appeals on April 5, 2005 reversed theCircuit Court judgment in favor of us and remanded the case to the CircuitCourt for further proceedings. On May 31, 2005, the Court of Appeals fileda modified Opinion, which again reversed the Circuit Court judgment in favor ofus and remanded the case to the Circuit Court for further proceedings. As ofNovember 2, 2007, the trial date has not yet been set. At this time, theCompany is unable to assess the likely outcome of this litigation.

 

***Routine Litigation***

** **

Owners and operators of golf courses are subject to avariety of legal proceedings arising in the ordinary course of operating a golfcourse, including proceedings relating to personal injury and property damage. Wehave in the past been, and expect to continue in the future to be, subject toproceedings relating to personal injury and property damage. Such proceedingsare generally brought against the operator of a golf course, but may alsobe brought against the owner of the golf course. Since we are now either theoperator or owner of our remaining golf courses, we maintain insurance todefend against certain of these actions.

 

**ITEM 1A. RISK FACTORS**

 

**Risks Related to the Plan of Liquidation**

 

As described in Part I, Item 2, *Management’s Discussion  andAnalysis of Financial Condition and Results of Operations*, above, aproposal to terminate the plan of liquidation will be presented at the specialmeeting on November 8, 2007. If our plan of liquidation is not terminated atthe November 8, 2007 special meeting, we will continue moving forward with theorderly liquidation of our remaining assets and the distribution of netproceeds to our stockholders. Risks associated with the pursuit of the plan ofliquidation include:

 

***The delayed sale or liquidation of our remaining assets, or ourinability to sell or liquidate them, may reduce or delay liquidatingdistributions.***

 

Although we have reported the estimated fair value of our remainingassets, including Stonehenge, in this Quarterly Report on Form 10-Q, we canprovide no assurance that these estimates reflect its actual current marketvalue. Potential unknown factors such as our inability to sell Stonehenge at anacceptable price and pursuant to acceptable terms may adversely effect the fairvalue of these assets or delay the liquidation of these assets. Accordingly,the amount of total liquidating distributions we make to holders of our commonstock over the remainder of the liquidation period may be significantlyless than we project or the timing of those distributions may be later thananticipated.

 

***Decreases in the value of Stonehenge caused by economic recession,terrorist activity and other factors beyond our control might reduce the amountfor which we can sell our assets.***

 

The value of our interests in Stonehenge mightbe reduced, and substantially so, by a number of factors that are beyond ourcontrol, including the following:

 

•                  adverse changesin the economy or prolonged recession;

 

•                  terroristactivity against the United States or our allies or other war-time activities,which could increase public pessimism and decrease leisure spending, therebyreducing revenues of Stonehenge and diminishing the resale value of Stonehenge;

 

•                  increasedcompetition, including an increase in the amount of golf courses being offeredfor sale in our markets or nationwide;

 

•                  continuingimbalance in supply and demand in the golf course industry; and

 

•                  changes in realestate tax rates and other operating expenses.

 

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Any reduction in the value of Stonehenge wouldmake it more difficult for us to sell our assets for the amounts and within thetime frames that we have estimated. Reductions in the amounts that we receivecould substantially decrease or delay our payment of liquidating distributionsto our stockholders.

 

***If our liquidation costs or unpaid liabilities are greater than weexpect, our liquidating distributions might be substantially reduced ordelayed.***

 

Before making the final liquidating distributionto the holders of our common stock, we will need to pay all of our transactioncosts pertaining to the liquidation and all valid claims of our creditors,which we expect will be substantial. Our Board or Directors 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 on market prices prevailing at the time of any suchpurchase. In addition, if we form a liquidating trust, we expectto have additional expenses in connection with the formation thereof andfor items such as insurance for the trustees. We have estimated suchtransaction costs in calculating the amount of projected liquidatingdistributions previously reported. To the extent that we have underestimatedcosts and expenses in calculating our historical projections, our actualaggregate liquidating distributions may be substantially lower than we havehistorically projected.

 

***We expect to incur significant compliance costs relating to theExchange Act and Sarbanes-Oxley Act.***

 

We and our subsidiary, GTA-IB, are required tocomply with the reporting requirements of the Exchange Act as they apply tonon-accelerated filers. As such, both entities must timely file QuarterlyReports on Form 10-Q, Annual Reports on Form 10-K and Current Reportson Form 8-K, among other actions. Further, recently enacted and proposedlaws, regulations and standards relating to corporate governance and disclosurerequirements applicable to public companies, including the Sarbanes-Oxley Actand new SEC regulations, have increased the costs of corporate governance,reporting and disclosure practices that are now required of us and of GTA-IB.We were formed prior to the enactment of these new corporate governancestandards, and as a result, we did not have all necessary procedures andpolicies in place at the time of their enactment. Our efforts to comply withapplicable laws and regulations, including requirements of the Exchange Act andthe Sarbanes-Oxley Act, are expected to involve significant, and potentiallyincreasing, costs. Costs incurred in complying with these regulationsmay reduce the amount of cash available for liquidating distributions.

 

The Sarbanes-Oxley Act and related laws,rules and regulations create legal bases for administrative enforcement,civil and criminal proceedings against us in case of non-compliance, therebyincreasing our risk of liability and potential sanctions. Costs incurred indefending against any such actions or proceedings, and any liability orsanctions incurred in connection with such actions or proceedings, couldnegatively affect the amount of cash available for liquidating distributions.

 

 

***We are currently unable to reliably project the amount of the totalliquidating distributions we will make to the holders of our common stock overthe remainder of the liquidation period and such holders should not rely on thevaluations or ranges earlier provided as representative of our currentestimation.***

 

As a result of the foregoing uncertainties, atthe present time we will refrain from either making any adjustments (positiveor negative) to any earlier reported range of distributions or proposing a newrange. We may, however, be able to do so in future periods in the event thatthe quality and reliability of all information necessary to make estimates ofcash flow and, correspondingly, value become more reliable. You should not relyon the valuations or ranges provided in previous reports as representative ofour current estimations.

 

***Distributing interests in a liquidating trust may cause you torecognize gain prior to the receipt of cash.***

 

As we contemplate the sale of our remainingassets and our wind-up as contemplated by our plan of liquidation, wemay elect to contribute our remaining assets and liabilities to aliquidating trust. Our stockholders would receive interests in the liquidatingtrust, our corporate existence would terminate and our shares would no longertrade publicly.

 

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 carryovers. In addition, a stockholder would recognize gain tothe extent his share of the cash and the fair market value of any assetsreceived by the liquidating trust was greater than the stockholder’s basis inhis stock, notwithstanding that the stockholder would not contemporaneouslyreceive a distribution of cash or any other assets with which to satisfy theresulting tax liability, and would not be able to transfer its interests in theliquidating trust.

 

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Furthermore, it is possible that the fair marketvalue of the assets received by the liquidating trust, as estimated forpurposes of determining the extent of the stockholder’s gain at the timeinterests in the liquidating trust are distributed to the stockholders, willexceed the cash or fair market value of property ultimately received by theliquidating trust upon its sale of the assets, in which case the stockholdermay not receive a distribution of cash or other assets with which tosatisfy any tax liability resulting from the contribution of the assets to theliquidating trust. In this case, the stockholder would recognize a loss in ataxable year subsequent to the taxable year in which the gain was recognized,which loss might be limited under the tax code.

 

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

 

***If we are unable to retain certain key executives and staff members tocomplete the plan of liquidation in a reasonably expeditious manner, ourliquidating distributions might be reduced or delayed.***

 

Our ability to consummate a transactionfavorable to us for Stonehenge will depend to a large extent on the experienceand ability of our president and chief executive officer, W. BradleyBlair, II, and his experience and familiarity with our assets,counter-parties and the market for golf course sales. We believe that a loss ofMr. Blair’s services could materially harm our ability to complete the plan ofliquidation in a reasonably expeditious manner and the prospects of selling ourassets at the best potential prices.

 

The resignation of Mr. Blair would pose an evengreater risk to us at this time in light of the February 5, 2007 resignation of****Scott D. Peters, our former chief financial officer. If Mr.Blair were to resign, we would likely seek to hire a replacement for him, thecost of which would depend on our determination of the experience and skillsthat must be possessed by his replacement in light of our financial condition,our assets remaining to be liquidated and the complexity of any issues bearingon us and the liquidation at that time.

 

Our ability to complete the plan of liquidationin a timely manner also depends on our ability to retain key non-executiveemployees. Those employees may seek other employment rather than remainingwith us throughout the process of liquidation.

 

If we are unable to retain certain keyexecutives and staff members to complete our plan of liquidation in areasonably expeditious manner, liquidating distributions might be reduced or delayed.

 

***If we are unable to realize the value of a promissory note taken aspart of the purchase price for any of our remaining properties, ourliquidating distributions might be reduced.***

 

In the sale of Stonehenge, we may agree to receive promissory notesfrom the buyer as a portion of the purchase price. Promissory notes are oftenilliquid. If we are unable to sell the promissory note without a greatdiscount, or in the case of a short-term note, if we hold it to maturity andthe maker ultimately defaults, our liquidating distributions may be reduced. Wecurrently do not have any outstanding notes receivable.

 

***Our common stock may be delisted fromthe Amex, which would make it more difficult for stockholders to sell theirshares.***

 

Currently, our common stock trades on the Amex.We cannot assure you that we will be able to maintain our listing on the Amexor any other established trading market. Among other things, the Amex hasconsiderable discretion with respect to listing standards, which include qualitativeand quantitative criteria, some of which are beyond our control. Further, inthe event that we form a liquidating trust, we expect that we would delistfrom the Amex.

 

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We cannot predict the degree to which delistingwould harm our business and the value of your investment. If our common stockwere to be delisted from the Amex, either as a result of voluntarily action byus or by the Amex because we no longer meet Amex listing standards, it could severelylimit the liquidity of our common stock and your ability to sell our securitiesin the secondary market.

 

***Stockholder litigation related to the plan of liquidation could resultin substantial costs and distract our management.***

 

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

 

**Risks Associated with the Termination of thePlan of Liquidation and the Pursuit of Alternative Business Strategies**

 

As described in Part I, Item 2, *Management’s Discussion  andAnalysis of Financial Condition and Results of Operations*, above, aproposal to terminate the plan of liquidation will be presented at the specialmeeting on November 8, 2007. There are significant risks associated withterminating the plan of liquidation and pursuing alternative businessstrategies. These risks include, but are not limited to, the following:

 

***We willincur significant expenses operating our existing properties and pursuing ournew business strategy, which will reduce the amount of cash available to us fora business combination.***

 

We will continue to incur costsand expenses to operate our remaining golf course properties, maintain ourpublic company status and pursue potential business combinations, includingbusiness evaluation and due diligence costs, professional fees and othertransaction costs. These ongoing costs and expenses will reduce the cashavailable for business combinations and possibly limit the number of targetbusinesses we can reasonably pursue.

 

***Because of our limited resources and the significant competition forbusiness combination opportunities, we may not be able to consummate a suitablebusiness combination.***

 

We expect to encountercompetition from other entities having a business objective similar to ours,including venture capital funds, leveraged buyout funds and operatingbusinesses competing for business combinations. Many of these entities are wellestablished and have extensive experience in identifying and effecting businesscombinations directly or through affiliates. Many of these competitors possessgreater financial and other resources than we do. While we believe that thereare numerous potential target businesses that we could evaluate and pursue, ourability to compete may be limited by our available financial resources.

 

If we cannot complete a suitablebusiness combination, the ultimate liquidation value of Golf Trust, if any,could be less than the current net asset value or the value that would bereceived if Golf Trust completed its liquidation under the plan of liquidation.

 

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***We may be unable to obtain additional financing, if required, to completea business combination or to fund the operations and growth of the targetbusiness, which could compel us to restructure or abandon a particular businesscombination.***

 

We have not identified anyprospective targets and therefore cannot ascertain the capital requirements forany particular transaction. If our cash liquidity proves to be insufficient,either because of the size of the business combination or the depletion ofavailable cash due to operating costs, we will be required to seek additional financing.We cannot assure you that such financing would be available on acceptableterms, if at all. To the extent that additional financing proves to beunavailable when needed to consummate a particular business combination, wewould be compelled to restructure the transaction or abandon that particularbusiness combination and seek an alternative target business. In addition, ifwe consummate a business combination, we may require additional financing tofund the operations or growth of the new business. The failure to secureadditional financing could have a material adverse effect on the continueddevelopment or growth of the new business.

 

***Since we have not yet selected a particular industry or target businesswith which to complete a business combination, we are unable to currentlyascertain the merits or risks of the industry or business in which we mayultimately operate.***

 

We may consummate a businesscombination with a company in any industry we choose and are not limited to anyparticular industry or type of business. Accordingly, there is no current basisfor you to evaluate the possible merits or risks of the particular industry inwhich we may ultimately operate or the target business with which we mayultimately complete a transaction. To the extent we complete a businesscombination with a financially unstable company or an entity in its developmentstage, we may be affected by numerous risks inherent in the business operationsof those entities. If we complete a business combination with an entity in anindustry characterized by a high level of risk, we may be affected by thecurrently unascertainable risks of that industry. Although our management andBoard will endeavor to evaluate the risks inherent in a particular industry ortarget business, we cannot assure you that we will properly ascertain or assessall of the significant risk factors.

 

***Our ability to utilize NOLs to offset futuretaxable income could be reduced significantly, or eliminated, by our strategicplans following the termination of the Plan of Liquidation or events outside ofour control.***

 

Golf Trust currently has approximately $82 million in federal incometax NOLs. Our ability to preserve these NOLs for future use by Golf Trust orthe surviving corporation in a business combination is dependent on numerousrules and regulations. It is possible that the ownership shift that wouldaccompany some of the business combination opportunities Golf Trust couldpursue following the termination of the plan of liquidation would result in asubstantial reduction in available NOLs. The available NOLs could also bereduced substantially if some or all of our significant stockholders increasetheir proportional ownership in Golf Trust through open market purchases ofcommon stock.

 

Specifically, the availability of NOLs will be reduced if there is amore than 50% change in ownership over a three-year rolling period with respectto stockholders that own 5% or more of our outstanding common stock, whetherthey own 5% at the beginning of the period or cross that threshold during theperiod. Golf Trust estimates that there had been a 36% change in ownership forpurposes of that analysis as of September 18, 2007. Therefore, a further 14%change in ownership resulting from a business combination or open marketpurchase or otherwise could result in an NOL reduction. We cannot provide afirm estimate of a future NOL reduction at this time due to the variability ofseveral important analytical factors. However, for illustrative purposes, theamount of NOLs available assuming a hypothetical 14% change of ownership onSeptember 18, 2007 would have been approximately $13 million, subject to theannual utilization limitations set forth in Section 382 of the Internal RevenueCode. However, the amount of available NOLs resulting from a change inownership depends on factors such as the market price of our common stock,market capitalization, changes in ownership over time, prevailing interestrates and the nature and structure of any business combinations. Changes in anyof these variables between the date of our illustration and any future changein ownership could decrease the available NOLs to an amount substantially below$13 million. In addition, if the sale of our remaining golf course assetsoccurs within two years of a change of ownership, our available NOLs could beeliminated.

 

***The market price of our common stock has been, and is likely tocontinue to be, highly volatile.***

 

The averagedaily trading volume of our common stock has historically been relatively lowand is likely to continue to be low if the plan of liquidation is terminated. Asa result of this relatively low trading volume, our stock price can be highlyvolatile. Any large sales could have a negative effect on our stock price andits volatility.

 

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***If we fail to meet American Stock Exchange listing standards in thefuture as a result of our changing operations, the American Stock Exchangecould delist our securities from quotation on its exchange, which could limitinvestors’ ability to complete transactions in our securities and subject us toadditional trading restrictions.***

 

Golf Trust’s common stock islisted on the American Stock Exchange. We expect that the termination of theplan of liquidation will prompt an informal or formal notice from the AmericanStock Exchange regarding our continued listing. We cannot assure you that ourresponse to any such notice will be acceptable and that our common stock willcontinue to be listed on the American Stock Exchange in the future if we failto meet its listing standards as a result of our changing operations. Thedelisting of our common stock from trading on the American Stock Exchange couldhave adverse consequences, including a limited availability of marketquotations for our common stock, a limited amount of news and analyst coveragefor Golf Trust, a decreased ability to issue additional securities or obtainadditional financing in the future and reduced attractiveness as a businesscombination partner.

 

***If we effect a business combination with a company located outside ofthe United States, we would be subject to a variety of additional risks thatmay negatively impact our operations.***

 

We may effect a businesscombination with a company located outside of the United States. If we do, wewould be subject to any special considerations or risks associated withcompanies operating in the target business’ home jurisdiction, including any ofthe following:

 

• tariffs and trade barriers;

• regulations related to customs andimport/export matters;

• longer payment cycles;

• tax issues, such as tax law changes andvariations in tax laws as compared to the United States;

• currency fluctuations;

• challenges in collecting accountsreceivable;

• cultural and language differences;

• employment regulations; and

• foreign laws affecting enforceability ofcontracts and available legal remedies.

 

Wecannot assure you that we would be able to adequately address these additionalrisks. If we were unable to do so, our operations might suffer.

 

***Golf Trust may issue shares of common stock, preferred stock or debtsecurities to complete a business combination or options or other equity awardsto our new management or the management of a target business in a business combination,both of which would reduce the equity interest of our current stockholders andcould cause a change in control.***

 

Golf Trust may issue additionalshares of common stock or preferred stock to complete a business combination. Wemay also issue options or other equity awards to our new management or themanagement of a target business in a business combination. These issuancescould (i) significantly reduce the equity interest of our current stockholders,(ii) subordinate the rights of holders of common stock if preferred stock isissued with rights senior to those afforded to our common stock, (iii) cause achange in control, which may affect, among other things, our ability to use ourNOLs, and (iv) adversely affect the prevailing market prices for our commonstock. Similarly, if we issue debt securities, it could expose Golf Trust toevents of default and acceleration of our debt obligations as well as limit ourability to obtain additional financing on acceptable terms.

 

***Our ability to successfully effect a business combination and to besuccessful thereafter will be dependent upon the efforts of our key personnel,all of whom will join us following the termination of the plan of liquidation,or after a business combination.***

 

We intend to identify and hirenew management personnel if the plan of liquidation is terminated. Our successin effecting a business combination will, therefore, depend largely on ourability to find and retain the services of experienced senior management withskills applicable to our business plan. While we anticipate that Mr. Pearcewill assume the duties of Chief Executive Officer and Mr. Toor will become theChairman of the Board, these appointments are dependent on reaching a mutuallysatisfactory compensation arrangement with each of them. If we do not retainthe services of either of Messrs. Pearce and Toor, Golf Trust will continue toevaluate alternative management candidates.

 

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Following a businesscombination, it is likely that some or all of the management of the targetbusiness will remain in place, although it is possible that our new managementwould remain associated in senior management or advisory positions with thetarget business. The success of the company following a business combinationwill, therefore, depend largely on the skills and success of the management ofthe target company. The ability of our new management to remain with thecompany after the consummation of a business combination will not be the determiningfactor in our decision as to whether or not we will proceed with any potentialbusiness combination.

 

***It is likely that initially we will only be able to complete onebusiness combination, which will cause us to be dependent on a single businessand its products or services.***

 

Although any proceeds from thesale of our remaining assets, including Stonehenge, and the realization ofcertain contingent assets, such as the funds held in escrow in connection withthe sale of the Resort, could increase our cash liquidity, it is probable thatwe will have the ability to complete only one business combination with asingle operating business. Accordingly, the prospects for our success may besolely dependent upon the performance of a single business or upon thedevelopment or market acceptance of a single or limited number of products,processes or services. In this case, we will not be able to diversify ouroperations or benefit from the possible spreading of risks or offsetting oflosses, unlike other entities, which may have the resources to complete severalbusiness combinations in different industries or different areas of a singleindustry.

 

***The reporting requirements under SEC rules relating to shell companiesmay delay or prevent us from making certain acquisitions.***

 

Under SECrules, Golf Trust may be deemed to be a shell company once the bulk of itsremaining operating assets are sold. These rules are designed to ensure thatinvestors in shell companies that cease to be shell companies following a transactionhave timely access to material information regarding the transaction and thecompany’s resulting financial condition. The rules prohibit the use by shellcompanies of registration statements on Form S-8 and require a shell company toinclude extensive financial and other information in the Current Report on Form8-K filed to report the acquisition of a business. The information to beincluded is equivalent to that required for the registration of a class ofsecurities under the Securities Exchange Act of 1934, as amended.

 

The CurrentReport on Form 8-K would include a detailed description of the acquired company’sbusiness and properties, management, executive compensation, related partytransactions, legal proceedings and historical market price information, aswell as audited historical financial statements and management’s discussion andanalysis of results of operations. The Current Report on Form 8-K rules alsorequire a shell company to file pro forma financial statements giving effect tothe acquisition not later than four business days after the completion of theacquisition, instead of 75 days as required of non-shell companies.                  The time and additionalcosts that may be incurred by some acquisition prospects to prepare suchdetailed disclosures and obtain audited financial statements may significantlydelay or essentially preclude consummation of an otherwise desirableacquisition by Golf Trust, or deter potential targets from negotiating withGolf Trust. If Golf Trust were to be deemed a shell company, any increaseddifficulty in Golf Trust’s ability to identify and consummate an acquisitionwith an appropriate merger candidate could materially adversely affect GolfTrust’s ability to successfully implement its business combination strategy.

 

 

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**Risk Factors Relating to Stonehenge**

 

Risks related to the ongoing ownership andoperation of Stonehenge include:

 

***We face competition to acquire additional members to Stonehenge andmaintain existing memberships.***

 

Membership to Stonehenge is affected by competition from comparablecourses in the surrounding areas, including courses that have opened, reopenedor been significantly upgraded in recent years. Additional memberships, ifattained, will result in increased net operating revenues. However, preferencesregarding location, aesthetics and other factors affecting the desirability ormarketability of membership to private courses can, and often do, change fromtime to time. Accordingly, we cannot predict with any certainty whether or notStonehenge will undergo short-term or long-term growth in desirability forprospective members. Failure to maintain sufficient membership growth couldadversely affect the future financial performance of Stonehenge.

 

***The operations of Stonehenge are subject torisks that could have an adverse affect on their financial performance.***

 

The operations of Stonehenge are subject to operating risks such asadverse weather conditions (including heavy prolonged rains and hurricanes),employee-related issues (including labor shortages and disruptions), blight orother diseases affecting grass or other vegetation and costs of merchandise,equipment and supplies. If the operations of Stonehenge are impeded by any suchfactors beyond our control, the financial performance of Stonehenge could beadversely affected.

 

***The loss of the liquor licenses of theStonehenge golf courses could adversely affect their financial performance.***

 

A large portion of the revenues from Stonehenge come from their foodand beverage operations. In addition, such operations attract prospectivemembers to Stonehenge. The Stonehenge courses currently hold liquor licensesfor their respective facilities. If, for some reason, any one of thesefacilities were to lose their liquor license, revenues from food and beverageoperations would decrease, Stonehenge would be less marketable and thefinancial performance of the golf and related operations of Stonehenge would beadversely affected.

 

***The value of Stonehenge maydepreciate significantly.***

 

Improvementsto Stonehenge have a limited useful life that will, over time, depreciate invalue. Future private course developments in the area are also likely todecrease the useful life and economic value of Stonehenge and otherimprovements and could eventually make Stonehenge obsolete. If the value ofStonehenge depreciates considerably, our financial condition and results ofoperations could be adversely affected.

 

***Liability for uninsured lossescould adversely impact us.***

 

Although theactivities regularly conducted on the Stonehenge courses are generally notdangerous, conditions or activities could occur on the premises that causepersonal injury or property damage. We will maintain insurance policies thatprovide coverage within limits that are sufficient, in our business judgment,to protect us from material financial loss due to liability for personalinjuries or property damage sustained by persons on the premises. However,there are certain types of injury and property damage that are beyond the scopeof those insurance polices. In addition, future increases in the cost ofinsurance could make adequate insurance coverage difficult for us to obtain,increasing our potential liability. The costs of significant litigation and anyaccompanying liability that might arise out of injuries or damages and ofrelated claims in subsequent litigation could have a material adverse effect onour financial condition and results of operations.

 

In addition,types of losses generally catastrophic in nature, such as losses due to acts ofterrorism, earthquakes, floods, hurricanes, pollution or environmental matters,may be uninsurable, not economically insurable or insurable subject tolimitations, such as large deductibles or co-payments. In addition, insurancerisks associated with potential acts of terrorism have sharply increasedpremiums. Future uncovered damage to Stonehenge due to force majeure, and thecosts that may be incurred by us in connection with increased premiums, may alsohave a material adverse effect on our financial condition and results ofoperations.

 

***Ownership of Stonehenge couldresult in potential environmental liability.***

 

As owner ofStonehenge, we are subject to potential liability under federal and stateenvironmental laws for contamination that might exist on the property,regardless of whether we caused or were otherwise responsible for thecontamination. Accordingly, not only could substantial legal fees be requiredto defend against government or private party action, but we could also incursignificant remediation costs and the value of Stonehenge could besubstantially reduced. That increase in costs and decrease in value would havea material adverse effect on our financial condition and results of operations.

 

In addition, we cannot predict future changes inthe interpretation and administration of current environmental law and theenactment of new environmental legislation or regulations. Compliance with newor more stringent laws and the more strict interpretation of existing laws mayrequire material expenditures by us to ensure that the Stonehenge golf coursescomply with those laws. Those increased costs would also have a materialadverse effect on our financial condition and results of operations.

 

 

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**ITEM 2. UNREGISTERED SALES OF EQUITYSECURITIES AND USE OF PROCEEDS**

 

None.

 

**ITEM 3. DEFAULTS UPON SENIOR SECURITIES**

 

None.

 

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

 

No matters were submitted to a vote of security holders during thethree months ended September 30, 2007.

 

**ITEM 5. OTHER INFORMATION**

 

None.

 

**ITEM 6. EXHIBITS**

 

**EXHIBIT INDEX**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                   |
|-----------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |       |                                                                                                                                                              |
| 31.1            |       | Certification  of the registrant’s Chief Executive Officer pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.                                  |
|            |       |                                                                                                                                                              |
| 31.2            |       | Certification  of the registrant’s Principal Accounting Officer pursuant to Section 302  of the Sarbanes-Oxley Act of 2002.                             |
|            |       |                                                                                                                                                              |
| 32.1            |       | Certification  of the registrant’s Chief Executive Officer and Principal Accounting Officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |

 

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**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 
|                        | ** ** | **GOLF  TRUST OF AMERICA, INC.**         |
|------------------------|------------|-----------------------------------------------|
| ** **             | ** ** | ** **                                    |
| Date: November 7, 2007 | By:        | /s/ W.  Bradley Blair, II                |
|                   |       | W. Bradley  Blair, II                    |
| * *               | * *   | *Chief Executive  Officer and President*      |
| * *               | * *   | * *                                      |
| Date: November 7, 2007 | By:        | /s/ Tracy  S. Clifford                   |
|                   |       | Tracy S.  Clifford                            |
| * *               | * *   | *Principal  Accounting Officer and Secretary* |

 

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