**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, 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: March 31,  2008** |
| ** **                                               | ** **                                                                                              |
| **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 itscharter)

 

| **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’stelephone number, including area code)

 

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Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such report(s) and (2) has beensubject to such filing requirements for the past 90 days. Yes x  No o.

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company. See definitions of “large accelerated filer,”“accelerated filer,” and “smaller reporting company” in Rule 12b-2 of theExchange Act. (Check one):

 

| Large accelerated filer  o                     |   | Accelerated filer o          |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated filer o                        |   | Smaller reporting  company x |
| (Do not check if a  smaller reporting company) |   |                              |

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).

 

Yes o No x

 

On May 9,2008, there were 7,317,163 shares outstanding of the registrant’s common stock.

 

 

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**GOLF TRUST OF AMERICA, INC.Quarterly Report on Form 10-Q****For the Three Months Ended March 31, 2008**

 

**INDEX**

 
| **PART I. FINANCIAL INFORMATION** |                                                                                                                          |
|----------------------------------------|-------------------------------------------------------------------------------------------------------------------------------|
|                                   |                                                                                                                          |   |
| **Item 1.**                            | **Financial Statements**                                                                                                      | ** ** |
|                                   |                                                                                                                          |   |
|                                   | Condensed Consolidated Balance Sheets (Going Concern  Basis) as of March 31, 2008 and December  31, 2007            | 3 |
|                                   |                                                                                                                          |   |
|                                   | Condensed Consolidated Statement of Operations (Going  Concern Basis) for the Three Months Ended March 31, 2008     | 4 |
|                                   |                                                                                                                          |   |
|                                   | Condensed Consolidated Statement of Changes in Net  Assets (Liquidation Basis) for the Three Months Ended March 31, 2007 | 5 |
|                                   |                                                                                                                          |   |
|                                   | Condensed Consolidated Statements of Cash Flows for  the Three Months ended March 31, 2008 and 2007                      | 6 |
|                                   |                                                                                                                          |   |
|                                   | Notes to Condensed Consolidated Financial Statements                                                                          | 7 |
|                                   |                                                                                                                          |   |
| **Item 2.**                            | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations**                               | 14 |
|                                   |                                                                                                                          |   |
| **Item 3.**                            | **Quantitative and Qualitative Disclosures About Market  Risk**                                                               | 18 |
|                                   |                                                                                                                          |   |
| **Item 4.**                            | **Controls and Procedures**                                                                                                   | 18 |
|                                   |                                                                                                                          |   |
| **PART II.  OTHER INFORMATION**   | 20                                                                                                                            |
|                                   |                                                                                                                          |   |
| **Item  1.**                           | **Legal  Proceedings**                                                                                                        | 20 |
|                                   |                                                                                                                          |   |
| **Item  1A.**                          | **Risk  Factors**                                                                                                             | 21 |
|                                   |                                                                                                                          |   |
| **Item 2.**                            | **Unregistered Sales of Equity Securities and Use of  Proceeds**                                                              | 21 |
|                                   |                                                                                                                          |   |
| **Item 3.**                            | **Defaults upon Senior Securities**                                                                                           | 21 |
|                                   |                                                                                                                          |   |
| **Item 4.**                            | **Submission of Matters to a Vote of Security Holders**                                                                       | 21 |
|                                   |                                                                                                                          |   |
| **Item  5.**                           | **Other  Information**                                                                                                        | 21 |
|                                   |                                                                                                                          |   |
| **Item 6.**                            | **Exhibits**                                                                                                                  | 21 |
|                                   |                                                                                                                          |   |
| **Signatures**                         |                                                                                                                          | 22 |

 

1

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**CautionaryNote Regarding Forward-Looking Statements**

 

The following reportcontains forward-looking statements within the meaning of Section 27A ofthe Securities Act of 1933, as amended (the “Securities Act”), and Section 21Eof the Securities Exchange Act of 1934, as amended (the “Exchange Act”).Forward-looking statements are statements that predict or describe futureevents or trends and that do not relate solely to historical matters. All ofour projections in this Quarterly Report on Form 10-Q are forward-lookingstatements. You can generally identify forward-looking statements as statementscontaining the words “believe”, “expect”, “will”, “anticipate”, “intend”, “estimate”,“project”, “assume” or other similar expressions. You should not place unduereliance on our forward-looking statements because the matters they describeare subject to known (and unknown) risks, uncertainties and other unpredictablefactors, many of which are beyond our control. Our forward-looking statementsare based on the limited information currently available to us and speak onlyas of the date on which this Quarterly Report on Form 10-Q was filed withthe Securities and Exchange Commission (the “SEC”). Our continued internetposting or subsequent distribution of this dated report does not implycontinued affirmation of the forward-looking statements included in it. Weundertake no obligation, and we expressly disclaim any obligation, to issue anyupdates to our forward-looking statements, even if subsequent events cause our expectationsto change regarding the matters discussed in those statements. Future eventsare inherently uncertain. Accordingly, our projections in this Quarterly Reporton Form 10-Q are subject to particularly high uncertainty. Our projectionsshould not be regarded as legal promises, representations or warranties of anykind whatsoever. Over time, our actual results, performance or achievementswill likely differ from the anticipated results, performance or achievementsthat are expressed or implied by our forward-looking statements, and suchdifferences might be significant and harmful to our stockholders’ interests.Many important factors that could cause such a difference are described underthe caption “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K(incorporated by reference) which you should review carefully.

 

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**GOLFTRUST OF AMERICA, INC.**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**(Going Concern Basis)**

 
| ** **                                                                                                                                                   | ** ** | **March 31,  2008** | ** ** | **December 31,  2007*** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|------------------------------|------------|
| ** **                                                                                                                                                   | ** ** | **(unaudited)**          | ** ** | ** **                   | ** ** |
| **ASSETS**                                                                                                                                                   | ** ** | ** **               | ** ** | ** **                   | ** ** |
| Current assets: Cash and cash equivalents                                                                                                                    |       | $                        | 7,198,789  |                         | $          | 7,572,152 |   |
| Escrow receivable                                                                                                                                            |       | 2,000,000                |       | 2,000,000                    |       |
| Receivables—net                                                                                                                                         |       | 480,581                  |       | 534,591                      |       |
| Note receivable – current portion                                                                                                                       |       | 221,212                  |       | —                       |       |
| Other current assets                                                                                                                                         |       | 245,201                  |       | 148,899                      |       |
| Total current assets                                                                                                                                         |       | 10,145,783               |       | 10,255,642                   |       |
| Note receivable, net of current portion                                                                                                                      |       | 210,368                  |       | —                       |       |
| Property and equipment, net                                                                                                                                  |       | 5,314,612                |       | 4,393,641                    |       |
| Total assets                                                                                                                                                 |       | $                        | 15,670,763 |                         | $          | 14,649,283 |   |
| **LIABILITIES**                                                                                                                                              | ** ** | ** **               | ** ** | ** **                   | ** ** |
| Current liabilities:                                                                                                                                         |       |                     |       |                         |       |
| Accounts payable                                                                                                                                             |       | $                        | 294,291    |                         | $          | 266,226 |   |
| Accrued expenses and other liabilities                                                                                                                       |       | 467,551                  |       | 436,201                      |       |
| Long-term debt — current portion                                                                                                                        |       | 4,138,993                |       | 38,183                       |       |
| Member initiation fees and other deferred revenue – current portion                                                                                     |       | 403,591                  |       | 402,081                      |       |
| Total current liabilities                                                                                                                                    |       | 5,304,426                |       | 1,142,691                    |       |
| Long-term debt, net of current portion                                                                                                                       |       | 103,868                  |       | 4,213,926                    |       |
| Member initiation fees and other deferred revenue – net of current  portion                                                                             |       | 750,928                  |       | 744,878                      |       |
| **Total liabilities**                                                                                                                                        |       | 6,159,222                |       | 6,101,495                    |       |
| 9.25% Cumulative Convertible Redeemable Preferred stock, $.01 par  value, 10,000,000 shares authorized, no shares outstanding Commitments and  contingencies |       |                     |       |                         |       |
| **STOCKHOLDERS’ EQUITY**                                                                                                                                |       |                     |       |                         |       |
| Common stock, $.01 par value, 90,000,000 shares authorized, 7,317,163  issued and outstanding                                                                |       | 73,172                   |       | 73,172                       |       |
| Additional paid-in capital                                                                                                                                   |       | 8,693,360                |       | 8,658,171                    |       |
| Retained earnings (accumulated deficit)                                                                                                                      |       | 745,009                  |       | (183,555                     | )          |
| Total stockholders’ equity                                                                                                                              |       | 9,511,541                |       | 8,547,788                    |       |
| Total liabilities and stockholders’ equity                                                                                                              |       | $                        | 15,670,763 |                         | $          | 14,649,283 |   |

 

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*** Derivedfrom audited consolidated financial statements**

 

See accompanyingnotes to condensed consolidated financial statements.

 

3

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**GOLFTRUST OF AMERICA, INC.**

**CONDENSEDCONSOLIDATED STATEMENT OF OPERATIONS**

**(Going Concern Basis) (unaudited)**

** **
| ** **                                     | ** ** | **Three Months  Ended  March 31, 2008** | ** ** |
|------------------------------------------------|------------|--------------------------------------------------------|------------|
| **Revenues**                                   |       |                                                   |       |
| Golf operating revenue                         |       | $                                                      | 181,350    |   |
| Food and beverage revenue                      |       | 151,854                                                |       |
| Membership dues and fees                       |       | 514,314                                                |       |
| Other club revenue                             |       | 107,966                                                |       |
| Total revenues                                 |       | 955,484                                                |       |
| **Expenses**                                   |       |                                                   |       |
| Golf operating expenses                        |       | 139,621                                                |       |
| Food and beverage expenses                     |       | 142,038                                                |       |
| Other club expenses                            |       | 351,780                                                |       |
| Depreciation and amortization                  |       | 146,539                                                |       |
| General and administrative                     |       | 858,527                                                |       |
| Total expenses                                 |       | 1,638,505                                              |       |
| Operating loss                                 |       | (683,021                                               | )          |
| **Other income (expense)**                     |       |                                                   |       |
| Other income                                   |       | 1,641,176                                              |       |
| Other expenses                                 |       | (6,300                                                 | )          |
| Interest income                                |       | 70,416                                                 |       |
| Interest expense                               |       | (92,262                                                | )          |
| Other income, net                              |       | 1,613,030                                              |       |
| Income before income tax provision             |       | 930,009                                                |       |
| Income tax provision                           |       | —                                                 |       |
| **Net income**                                 |       | $                                                      | 930,009    |   |
| ** **                                     |       |                                                   |       |
| Earnings per share—basic                  |       | $                                                      | 0.13       |   |
| Weighted average number of shares—basic   |       | 7,317,163                                              |       |
|                                           |       |                                                   |       |
| Earnings per share—diluted                |       | $                                                      | 0.13       |   |
| Weighted average number of shares—diluted |       | 7,324,371                                              |       |

 

See accompanyingnotes to condensed consolidated financial statements.

 

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**GOLFTRUST OF AMERICA, INC.**

**CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN NETASSETS (LIQUIDATION BASIS)**

 
| ** **                                                                    | ** ** | **Three Months Ended  March 31, 2007** | ** ** |
|-------------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|
| ** **                                                                    | ** ** | **(unaudited)**                                            | ** ** |
| Net assets in liquidation, beginning of period                                |       | $                                                          | 13,865,000 |   |
| **Changes in net assets in liquidation:**                                     | ** ** | ** **                                                 | ** ** |
| Adjustments to liquidation reserve:                                           |       |                                                       |       |
| Operating income                                                              |       | 2,552,629                                                  |       |
| Net interest expense                                                          |       | (379,642                                                   | )          |
| Other expense                                                                 |       | (58,500                                                    | )          |
| Increase in reserve for estimated liquidation costs and capital  expenditures |       | (2,619,437                                                 | )          |
| **Changes in net assets in liquidation**                                      |       | (504,950                                                   | )          |
| **Net assets in liquidation, end of period**                                  |       | $                                                          | 13,360,050 |   |

 

See accompanyingnotes to condensed consolidated financial statements.

 

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**GOLFTRUST OF AMERICA, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

 
| ** **                                                                                                                       | ** ** | **Three Months  Ended  March 31, 2008** | ** ** | **Three Months  Ended  March 31, 2007** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                                                                                       | ** ** | **(****Going Concern Basis)**                | ** ** | **(Liquidation Basis)**                           | ** ** |
| ** **                                                                                                                       | ** ** | **(unaudited)**                                        | ** ** |
| **CASH FLOWS FROM OPERATING ACTIVITIES**                                                                                         | ** ** | ** **                                             | ** ** | ** **                                             | ** ** |
| Changes in net assets in liquidation                                                                                             |       |                                                   |       | $                                                      | (504,700   | ) |
| Net income (subsequent to liquidation accounting)                                                                                |       | $                                                      | 930,009    |                                                   |       |   |
| Adjustments to reconcile net income/change in net assets in  liquidation to net cash provided by (used in) operating activities: |       |                                                   |       |                                                   |       |
| Increase in liquidation reserve and changes in fair value of real  estate and non-real estate assets                             |       |                                                   |       | 2,620,437                                              |       |
| Stock based compensation                                                                                                         |       | 33,744                                                 |       | —                                                 |       |
| Gain on legal settlement                                                                                                         |       | (1,463,922                                             | )          | —                                                 |       |
| Depreciation                                                                                                                     |       | 146,539                                                |       | —                                                 |       |
| Amortization of deferred revenue                                                                                                 |       | (56,481                                                | )          | —                                                 |       |
| Provision for bad debts, net of recoveries                                                                                       |       | (2,993                                                 | )          | 38,000                                                 |       |
| Non-cash interest                                                                                                                |       | 4,700                                                  |       | 160,652                                                |       |
| Other changes in operating assets and liabilities                                                                                |       | 79,457                                                 |       | (540,262                                               | )          |
| Decrease in liquidation liabilities                                                                                              |       | —                                                 |       | (418,842                                               | )          |
| Net cash (used in) provided by operating activities                                                                              |       | (328,947                                               | )          | 1,355,285                                              |       |
| **Cash flows from investing activities:**                                                                                        | ** ** | ** **                                             | ** ** | ** **                                             | ** ** |
| Capital expenditures                                                                                                             |       | (35,168                                                | )          | (170,146                                               | )          |
| **Cash flows from financing activities:**                                                                                        | ** ** | ** **                                             | ** ** | ** **                                             | ** ** |
| Repayments on debt and capital lease obligations                                                                                 |       | (9,248                                                 | )          | (448,204                                               | )          |
| Net cash used in financing activities                                                                                            |       | (9,248                                                 | )          | (448,204                                               | )          |
| Net (decrease) increase in cash                                                                                                  |       | (373,363                                               | )          | 736,935                                                |       |
| Cash and cash equivalents, beginning of period                                                                                   |       | 7,572,152                                              |       | 2,223,359                                              |       |
| Cash and cash equivalents, end of period                                                                                         |       | $                                                      | 7,198,789  |                                                   | $          | 2,960,294 |   |
| **Supplemental Disclosure of Cash Flow  Information:**                                                                           | ** ** | ** **                                             | ** ** | ** **                                             | ** ** |
| Interest paid during the period                                                                                                  |       | $                                                      | 86,615     |                                                   | $          | 199,471 |   |
| **Non-cash transactions:**                                                                                                       | ** ** | ** **                                             | ** ** | ** **                                             | ** ** |
| Assets acquired through capital leases                                                                                           |       | $                                                      | —     |                                                   | $          | 497,842 |   |
| Gain on legal settlement:                                                                                                        |       |                                                   |       |                                                   |       |
| Note receivable                                                                                                                  |       | $                                                      | 431,580    |                                                   | $          | — |   |
| Land and value of timber                                                                                                         |       | $                                                      | 1,032,342  |                                                   | $          | — |   |

 

See accompanyingnotes to condensed consolidated financial statements.

 

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**GOLF TRUST OF AMERICA, INC.**

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS**

**FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007**

**(unaudited)**

 

**1. Organization, Termination of the Plan of Liquidation and AlternativeBusiness Strategies**

 

*Organization*

 

Golf Trust of America, Inc. (the Company) was incorporated inMaryland on November 8, 1996 as a real estate investment trust (“REIT”).  In May 2001, after consideration ofdifferent strategic alternatives, the Company approved a Plan of Liquidation,the POL. As a result, the Company adopted the liquidation basis ofaccounting.  Subsequent to adoption ofthe POL, the Company sold 45 of its 47 golf courses. After consideration of itscurrent strategic alternatives, the Board adopted a resolution declaring the terminationof the POL advisable and the Company’s stockholders approved such proposal toterminate the POL on November 8, 2007. Therefore, financial statementssubsequent to this date are presented under the going concern basis as anoperating company rather than under the liquidation basis of accounting.

 

The Board believes that the termination of the POL affords the Companyflexibility in maximizing value for its stockholders. Operating the Company asa going concern outside of the POL allows the Company to pursue alternativebusiness strategies, including a merger, capital stock exchange, assetacquisition or other growth initiative. The Board is still permitted to pursuethe sale of the Company’s final property and/or consider the liquidation of theCompany in the event that it is unable to identify and effect a viablealternative, but it would no longer be required to do so by the terms of thePOL.

 

At March 31, 2008, the Company’s only remaining real estate assetis the Country Clubs of Wildewood and Woodcreek Farms, or Stonehenge, whichrepresents two private golf courses operating under one club structure locatedin South Carolina. The title to Stonehenge is held by Golf Trust ofAmerica, L.P., a Delaware limited partnership and the Company’s operatingpartnership.

 

*Alternative Business Strategies*

 

The Board has not limited the types of alternative growth strategies itintends to consider. Emphasis is to be placed on areas of historical Companyexpertise, as well as that of our management and board of directors.  See Note 8, *Income Taxes*,regarding discussion of net operating loss carryforwards in a businesscombination.

 

To date, the Company has not entered into a definitive agreement withanother company regarding growth initiatives or a business combination.

 

**2.  Basis ofPresentation**

 

*InterimStatements*

 

Theaccompanying condensed consolidated financial statements for the three monthsended March 31, 2008 and 2007 have been prepared in accordance with (a) accountingprinciples generally accepted in the United States of America (“GAAP”) and (b) theinstructions to Form 10-Q and Article 10 of Regulation S-X forsmaller reporting companies. These condensed consolidated financial statementshave not been audited by a registered independent public accounting firm;however, they include adjustments (consisting of normal recurring adjustments)which are, in the judgment of management, necessary for a fair presentation ofthe financial information for such periods. However, these results are notnecessarily indicative of results for any other interim period or for the fullyear.

 

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Certaininformation and footnote disclosures normally included in financial statementsin accordance with GAAP have been omitted as allowed in quarterly reports bythe rules of the SEC. The Company’s management believes that thedisclosures included in the accompanying interim condensed consolidatedfinancial 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 tothe condensed consolidated financial statements included in our Form 10-Kfor the year ended December 31, 2007, filed on March 31, 2008.

 

*Consolidation*

 

The condensed consolidated financial statements include the accounts ofthe Company, its wholly owned subsidiaries GTA GP, Inc., andGTA LP, Inc., and Golf Trust of America, L.P., which holds title tothe golf course properties, and GTA-Stonehenge, LLC which manages the remaininggolf properties, and GTA-IB, LLC, which held the Company’s interest in theInnisbrook Resort and Golf Club, or the Resort, a four-golf course destinationresort which the Company sold in July 2007.

 

*Use ofEstimates*

 

Managementis required to make certain estimates and assumptions which affect the amountsof assets, liabilities, revenue and expenses reported.  Actualresults could differ from these estimates and assumptions.

 

*RevenueRecognition*

 

Revenues from golf operations, food and beverage and merchandise salesare recognized at the time of sale or when the service is provided. Revenuesfrom membership dues are billed monthly and recognized in the period earned.The monthly dues are expected to cover the cost of providing future membershipservices. Prepaid dues are recognized as income over the prepayment period.

 

*Membership Initiation Fees*

 

Certain memberships previously sold at Stonehenge have initiation feestotaling approximately $1,326,000 that are refundable (without interest) basedon specific conditions generally upon conclusion of a thirty-year requiredmembership term, as defined in the Club Membership Manual. These refundableinitiation fees may be refundable prior to the expiration of the thirty-yearterm under specific membership replacement conditions. The estimated presentvalue of these potential refunds is approximately $334,000, which is recordedas an accrued liability at March 31, 2008 and accretes over the members’remaining average contractual term using an interest rate of approximately10.5%. The accretion is included in interest expense.

 

An initiation fee is required to be paid on all memberships atStonehenge. The majority of our membership fees are not refundable and aredeferred and recognized over the average expected life of an active membership.Membership initiation fees are deferred and recognized as revenue on astraight-line basis over the average expected life of an active membership,which based on historical information is deemed to be an average nine years forthe all membership categories.

 

*Stock based compensation*

 

Compensation expense is determined by reference to the fair marketvalue of an award on the date of grant and is amortized on a straight-line basisover the vesting period in accordance with SFAS No. 123(R), *Share-Based Payment*.

 

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*Earnings per Share*

 

Earnings per common share are presented under two formats: basicearnings per common share and diluted earnings per common share. Earnings pershare are computed by dividing net income (after deducting any dividends onpreferred stock) by the weighted average number of common shares outstandingduring the year. Diluted earnings (loss) per common share are computedby dividing net earnings (loss) by the weighted-average number of common sharesoutstanding during the period, including potentially dilutive shares such asoptions and warrants to purchase shares of common stock at various amounts pershare. For the three months ended March 31, 2008, the diluted earnings pershare was the same as basic earnings per share since the effects of optionswould have been anti-dilutive.

 

*Liquidation Basis—For the three months ended March 31,2007*

 

The Company adopted the liquidation basis of accounting upon thestockholder approval of its POL on May 22, 2001. From that date forwardthrough and until November 8, 2007, all assets and liabilities had beenstated at their estimated fair value and estimated settlement amounts. Theestimated fair value had been determined using available market information andvaluation methodologies deemed appropriate; therefore, these estimates weresubject to revision with changes in market values. The Company was required toestimate and accrue the costs associated with implementing and completing theplan of liquidation. These amounts varied significantly due to, among otherthings, the timing and realized proceeds from golf course sales, the costs ofretaining personnel and others to oversee the liquidation, including the costsof insurance, the timing and amounts associated with discharging known andcontingent liabilities, transaction costs related to any sales and the costsassociated with cessation of the Company’s operations.

 

**3.  Property andEquipment**

 

Property and equipment consists of the following:

 
| ** **                    | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|-------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Land at Stonehenge            |       | $                        | 356,860    |                        | $          | 356,860 |   |
| Other land                    |       | 1,032,342                |       | —-                     |       |
| Buildings                     |       | 1,540,654                |       | 1,520,284                   |       |
| Golf course improvements      |       | 2,347,724                |       | 2,347,724                   |       |
| Machinery and equipment       |       | 269,083                  |       | 254,285                     |       |
|                          |       | 5,546,663                |       | 4,479,153                   |       |
| Less accumulated depreciation |       | (232,051                 | )          | (85,512                     | )          |
|                          |       | $                        | 5,314,612  |                        | $          | 4,393,641 |   |

 

At March 31, 2008, machinery and equipment includes certainequipment with a net book value of approximately $131,111 recorded under acapital lease or other financing arrangement. Depreciation expense amounted to$146,539 for the three months ended March 31, 2008.  Other land includes the appraised value 118.67 acres ofraw land in Charleston County, South Carolina (which the Company obtainedtitle to on March 5, 2008 in the final settlement of certain litigationwhich involved one of our former Board members and was known as the YoungComplaints) of approximately $930,000 and the value of the timber that could beharvested from this land of approximately $102,000.

 

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**4.  Receivables**

 

*Escrow receivable*

 

The escrow receivable of $2,000,000 is an amount due from the buyer ofthe Resort which was released on March 31, 2008 and received by theCompany on April 3, 2008 plus accrued interest of approximately $31,000.

 

*Receivables-net*

 

The Receivables—net consists of member receivables at Stonehenge andinterest receivable on the escrow discussed above.

 

*Note receivable*

 

The Note receivable of $431,580 ($221,212 current portion, $210, 368long term portion) represents the net present value of a note receivable from Mr. LarryD. Young and the other plaintiffs in the Young litigation received as a resultof a settlement agreement executed on January 31, 2008.  The promissory note is in theprincipal amount of $3,876,856, which outstanding balance will be consideredsatisfied in full upon timely remittance of the $500,000 in total scheduledpayments.  The scheduled payments are$100,000 due on May 31, 2008 followed by a payment of $133,333 due on January 1stof 2009, 2010 and 2011.

 

**5.  Debt andLease Obligations**

 
| ** **                   | ** ** | **March 31,  2008** | ** ** | **December 30,  2007** | ** ** |
|------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                   | ** ** | ** **               | ** ** | ** **                  | ** ** |
| Revolving line of credit     |       | $                        | 4,100,000  |                        | $          | 4,100,000 |   |
| Capital lease obligations    |       | 51,457                   |       | 55,197                      |       |
| Installment credit agreement |       | 81,623                   |       | 86,712                      |       |
| Non-revolving loan           |       | 9,781                    |       | 10,200                      |       |
| Total                        |       | 4,242,861                |       | 4,252,109                   |       |
| Less current portion         |       | (4,138,993               | )          | (38,183                     | )          |
| Long-term portion            |       | $                        | 103,868    |                        | $          | 4,213,926 |   |

 

*Revolving Line of Credit*

 

GTA-Stonehenge, LLC, or GTA-SH, has a $4,200,000 revolving creditline with Textron Financial Corporation (“Textron”), which matures on March 18,2009. This loan is collateralized by a security interest in Stonehenge. Theinterest rate is the prime rate in effect on the first business day of themonth plus 1.75% per annum paid monthly resulting in an effective rate of 7.75%at March 31, 2008. The related security agreement contains events ofdefault provisions that include, among others, non-payment of principal,interest or fees, violation of covenants, inaccuracy of representations andwarranties, cross defaults, bankruptcy and insolvency proceedings, termination,dissolution or liquidation of GTA-SH, or the Operating Partnership, failure tocure the loss of certain licenses, permits or contracts, curtailment ofutilities or services at Stonehenge and material judgments. In the event of theoccurrence of an event of default, Textron is entitled to, among other things, accelerateall obligations of the Borrower under the aforesaid loan documents and sellcertain of the Borrower’s assets, namely Stonehenge and related assets, tosatisfy the Borrower’s obligations. This loan requires that the operations atStonehenge for the immediately preceding twelve month period be sufficient tomeet a debt service coverage ratio, as defined in the mortgage, of at least1.20, as measured monthly. At March 31, 2008, GTA-SH did not meet the debtservice coverage ratio (in part due to increased efforts to improve the playingquality of the golf courses by investing significantly in additionalbeautification, repair and maintenance projects, as well as attendant laborcosts, related to the golf courses, but which do not qualify for capitalizationaccounting treatment). 

 

In light of the fact that the GTA-SH has consistently met its financialobligations throughout the term of the loan, Textron waived said covenantviolation as of December 31, 2007 and for 2008 subject to re-evaluation atDecember 31, 2008.

 

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*Other*

 

The Company entered in to various other loan and capital leaseobligations that have payment terms ranging from approximately $200 to $2,000per month and interest rates of 6.5% to 9.0%.

 

**6.  StockOptions and Awards**

 

*Employee Stock Options and Awards*

 

The compensation committee of the board of directors determinescompensation, including stock options and awards. Options are generally awardedwith the exercise price equal to the market price at the date of grant andbecame exercisable in three to five years. The Company has several stockoption/award plans as listed below.

 

The Company’s 2007 Stock Option Plan, which is stockholder approved,permits the grant of share options and shares to its employees for up to700,000 shares of common stock. The Company believes that such awards betteralign the interests of its employees with those of its stockholders. Optionawards are generally granted with an exercise price equal to the market priceof the Company’s stock at the date of grant; those option awards generally vestratably over three years and have three to five year contractual terms from thevesting date. Certain option and share awards provide for accelerated vestingif there is a change in control (as defined in the Plan).

 

*Stock Option Plan Transactions*

 

On January 18, 2008, 50,000 option shares were granted from the2007 Stock Option Plan to the Company’s CFO, Tracy S. Clifford and on January 23,2008, 160,000 option shares were granted from the 2007 Stock Option Plan to thefour independent members of the Company’s Board (40,000 to each member).  The estimated grant-date fair value of theseoptions was $0.84 and $0.80 per share, respectively. The exercise price is$1.90 and $1.82, respectively, the closing American Stock Exchange price on therespective grant date, as specified by the Compensation Committee. Stock optionexpense of $33,744 was recorded related to these issued options and the 275,000options shares issued to our CEO on December 14, 2007.

 

The fair value of each option award is estimated on the date of grantusing the Black Sholes option valuation model. Expected volatility is based onthe historical volatility of the Company’s stock and was estimated at 53.80%.The risk-free rate for periods within the contractual life of the option isbased on the U.S. Treasury bill rate in effect at the time of grant which wasapproximately 2.86% and 2.64%, respectively. The expected term in years is anaverage of four years. The total outstanding unvested options at March 31,2008 is 485,000. At March 31, 2008, there was approximately $408,000 oftotal unrecognized compensation expense related to nonvested-share-basedcompensation arrangements granted under the 2007 Stock Option Plan that will beamortized over the period ending January 23, 2011.  At March 31, 2008, these options had nointrinsic value.

 

Pursuant to the respective option plans, except the 1997 Non-EmployeeDirector’s Plan, any options issued to employees who are subsequentlyterminated expire ninety days following his/her termination if not exercised.The options issued under the 1997 Non-Employee Director’s Plan are exercisableuntil their original expiration date.

 

During the three months ended March 31, 2008, no options wereexercised and 260,000 options expired.

 

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**7.  Other Income**

 

Forthe three months ended March 31, 2008, the Company recognized  $1,641,176 in other income.  This other income was primarily due to therecognition of a gain from the settlement of certain litigation formerly knownas the Young Complaints.  In connectionwith the settlement, a note receivable that was recorded at its estimated netpresent value of $431,580 and raw land that was recorded at its appraised valueof  $930,000 coupled with the value ofthe timber that can be harvested from this land of approximately $102,000.  Further, the Company recognized approximately$177,000 in income from the resolution of the property tax lawsuit related tothe Resort.

 

**8.  Income Taxes**

 

As of March 31, 2008 and December 31, 2007, the Company hasapproximately $84.0 million and $84.8 million of federal income tax netoperating loss carryforwards (NOLs) which may be utilized to offset taxableincome generated in future years which are included in deferred income taxassets for the respective periods.  TheCompany recorded a valuation allowance for these carryforwards.  The Company had pre-tax income ofapproximately $930,000 for the three months ended March 31, 2008 and adecrease of approximately $505,000 in net assets in liquidation for the threemonths ended March 31, 2007.  Sincethe Company had net income for the three months ended March 31, 2008, thenet operating loss carryforward was reduced accordingly.    These net operating losses expire atvarious dates beginning with the 2021 tax year and ending with the 2026 taxyear.  It is possible that some or all ofthese NOLs could be utilized by the surviving corporation in a businesscombination and could make the Company a more attractive potential businesspartner. However, the use of NOLs is subject to numerous rules andregulations, including limitations resulting from a more than 50% change inownership or the sale of the remaining golf courses, which can substantiallyreduce the amount of NOLs that are ultimately available to offset income insubsequent years.  In addition, should anownership change of control be deemed to have occurred, the Company may belimited by industry or line of business in its ability to successfully utilizeexisting NOLs.

 

**9.  Commitmentsand Contingencies**

 

*Barter Transactions*

 

Included in the accompanyingcondensed consolidated statement of operations are non-monetary transactionsarising from the trading of the lease of the Woodcreek Farms clubhouse, cartstorage facility, tennis/swim building, and golf proshop facilities from thedeveloper of the Woodcreek subdivision in exchange for our daily management,operating and staffing of such facilities.  Barter revenues and expenses are recorded at the estimated fair marketvalue of the lease of such facilities. The Company recognizes barter revenuesand expenses on the first of each month. Barter revenue and expense for the three months ended March 31,2008, totaled approximately $80,000.

 

*Legal Proceedings*

 

*Lake Ozark Industries, Inc. and Everett HoldingCompany, 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 afinal judgment in November 2003. Plaintiffs appealed the ruling to theMissouri Court of Appeals. The Court of Appeals on April 5, 2005 reversedthe Circuit 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 

 

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reversedthe Circuit Court judgment in favor of us and remanded the case to the CircuitCourt for further proceedings. On March 12, 2008, a case managementconference was held. The presiding judge set September 30, 2008, asdeadline for completing discovery and scheduled another conference for October 8,2008, at which time it is anticipated that the case will be set for trial. Atthis time, the Company is unable to assess the likely outcome of thislitigation.

 

*Property Tax Lawsuit*

 

GTA-IB, LLC had filed lawsuits against the property appraiser ofPinellas County, Florida to challenge the 2004, 2005 and 2006 real estateassessment on the Resort property. Pinellas County filed a motion to dismiss,which was denied by the court. In January 2008, the Company settled thelawsuits with the Pinellas County Property Appraiser and Tax Collector for allyears. As a result of the settlement, the Company received reductions in the2004 and 2005 assessments and agreed to dismiss its 2006 lawsuit. Based on thereductions in assessed value, the Company expects to receive a total refund ofapproximately $177,000 of which $117,000 was received on or about February 25,2008 and $60,000 is recorded as a receivable. The case is now closed.

 

*Ordinary Course Litigation*

 

Owners and operators of golf courses are subject to a variety of legalproceedings arising in the ordinary course of operating a golf course,including proceedings relating to personal injury and property damage. TheCompany maintains insurance for these purposes, subject to deductibles and exclusionsdeemed reasonable by the Company. The Company is not currently subject to anymaterial claims of this type.

 

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**ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS**

 

**Overview**

 

Golf Trust of America, Inc. was incorporated inMaryland on November 8, 1996. We have been engaged in a liquidation of ourassets pursuant to a plan of liquidation approved by our stockholders. However,as previously announced and described more fully below, we are currentlyconsidering additional strategic options to maximize stockholder value. We wereoriginally formed to be a REIT; however, as of fiscal year 2002 we no longerhave our REIT status as a result of our repossession and operation of certaingolf courses following the default of their original third-party lessees. As ofMay 9, 2008, our only remaining asset is the Country Clubs of Wildewoodand Woodcreek Farms, or Stonehenge, held by us in fee simple, representing twoprivate golf courses operating under one club structure located in SouthCarolina. The Operating Partnership holds title to Stonehenge. Through ourwholly owned subsidiaries, GTA GP, Inc. and GTA LP, Inc., we held100 percent of the interests in the Operating Partnership as of may 9,2008. GTA GP, Inc. is the sole general partner of the OperatingPartnership and owns a 0.2 percent interest therein. GTA LP, Inc. isthe sole limited partner in the operating partnership and owns a99.8 percent interest therein.

 

**Termination of the Plan of Liquidation**

 

The Board adopted a resolution declaring thetermination of the Plan of Liquidation, or the “POL”, advisable and the Company’sstockholders approved such proposal to terminate the POL on November 8,2007. Therefore, financial statements subsequent to this date are presentedunder the going concern basis as an operating company rather than under theliquidation basis of accounting.

 

The Board believes that the termination ofthe POL affords the Company flexibility in maximizing value for itsstockholders. Operating the Company as a going concern outside of the POLallows the Company to pursue alternative business strategies, including a merger,capital stock exchange, asset acquisition or other growth initiative. The Boardis still permitted to pursue the sale of the Company’s final property and/orconsider the liquidation of the Company in the event that it is unable toidentify and affect a viable alternative, but it would no longer be required todo so by the terms of the POL.

 

Subsequent to the termination of the POL, wehave continued to own and operate Stonehenge which has approximately 960members. Concurrently, we have placed renewed emphasis on initiatives to resumecorporate growth in an effort to create value for stockholders. We are seekingto grow within areas of historical expertise and areas that managementconsiders to be of logical interest, but will also evaluate acquisitions orbusiness combinations in unallied industries.

 

There can be no assurance that the Companywill successfully consummate a viable alternative growth strategy. The Companyhas limited financial and management capacity, will be competing withorganizations possessing far greater resources, and is subject to specificindustry and macro economic factors, many of which may prove outside of theCompany’s control or sphere of influence.

 

**Executive Summary**

 

We reported net income of $930,009, or $0.13 perbasic share for the three months ended March 31, 2008.  Due to the fact that we were underliquidation basis of accounting for the three months ended March 31, 2007,the two periods are not meaningful for comparison purposes; however, acomparison of the operating results for just Stonehenge which is comparable forthese periods is provided below under the heading *Results ofOperations*.  The net incomefor the three months ended March 31, 2008 of $930,009 was primarily due tothe 

 

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recognition of a gain from the settlement ofcertain litigation formerly known as the Young Complaints.    In connection with the settlement, a notereceivable that was recorded at its estimated net present value of $431,580 andraw land that was recorded at its appraised value of $930,000 coupled with thevalue of the timber that can be harvested from this land of approximately$102,000.  Further, the Companyrecognized approximately $177,000 in income from the resolution of the propertytax lawsuit related to the Innisbrook Resort and Golf Club, or the Resort,which we owned until it was sold on July 16, 2007.

 

Operating expenses for the Company totaled$1,638,505 consisting of $146,539 in depreciation expense, $623,120 in operatingexpenses of the Corporate office and $788,345 in operating expenses ofStonehenge.  The Corporate officeexpenses primarily consisted of $170,435 in tax, audit and accountingconsulting fees, $147,523 in salary and benefits, $55,063 in legal fees, $53,170in insurance, $43,038 in settlement fees and expenses related certain claimsnow resolved, $33,744 in stock option expense and $120,147 in other fees andoperating expenses such as board fees and expenses, rent and utilities, annualAmerican Stock Exchange fees, certain annual taxes and fees and othermiscellaneous operating expenses.

 

**Results of Operations for the Three Months Ended March 31, 2008and 2007**

 

Stonehenge’s operating results which areincluded in our unaudited condensed consolidated financial results are providedin the table below.

 
| ** **                                          | ** ** | **For the three months ended  March 31,** | ** ** | **Change  Favorable /** | ** ** |
|-----------------------------------------------------|------------|---------------------------------------------------------------|------------|------------------------------|------------|
| **Stonehenge**                                      | ** ** | **2008**                                                      | ** ** | **2007**                     | ** ** | **(Unfavorable)** | ** ** |
| **Revenues**                                        | ** ** | ** **                                                    | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Golf operating revenue                              |       | $                                                             | 181,350    |                         | $          | 152,721 |   | $ | 28,629 |   | 19 | % |
| Food and beverage revenue                           |       | 151,854                                                       |       | 165,313                      |       | (13,459 | ) | (8 | )% |
| Membership dues and fees revenue                    |       | 514,314                                                       |       | 468,274                      |       | 46,040 |   | 10 | % |
| Other club revenue                                  |       | 107,966                                                       |       | 23,211                       |       | 84,754 |   | 365 | % |
| Operating revenue                                   |       | 955,484                                                       |       | 809,519                      |       | 145,965 |   | 18 | % |
| **Expenses**                                        |       |                                                          |       |                         |       |   |   |   |   |
| Golf operating expenses                             |       | 139,621                                                       |       | 146,357                      |       | 6,736 |   | (5 | )% |
| Food and beverage expenses                          |       | 142,038                                                       |       | 172,177                      |       | 30,139 |   | (17 | )% |
| Other club expenses                                 |       | 351,780                                                       |       | 345,024                      |       | 6,755 |   | (2 | )% |
| General and administrative expenses                 |       | 235,407                                                       |       | 211,846                      |       | (23,561 | ) | (6 | )% |
| Total expenses                                      |       | 868,846                                                       |       | 875,404                      |       | 6,558 |   | (1 | )% |
| Operating  income (loss)                            |       | 86,638                                                        |       | (65,885                      | )          | 152,523 |   | 231 | % |
| **Other  income (expense)**                         |       |                                                          |       |                         |       |   |   |   |   |
| Interest income                                     |       | 918                                                           |       | —                       |       | 918 |   | 100 | % |
| Interest expense                                    |       | (7,803                                                        | )          | —                       |       | (7,803 | ) | (100 | )% |
| Other income, net                                   |       | (6,885                                                        | )          | —                       |       | (6,885 | ) | (100 | )% |
| **Pre-tax income(loss) exclusive of  depreciation** |       | $                                                             | 79,753     |                         | $          | (65,885 | ) | $ | 145,638 |   | 221 | % |

 

Note: We operated under the liquidation basis of accounting for thethree months ended March 31, 2007; therefore, depreciation expense ofapproximately $146,300 for the three months ended March 31, 2008 wasexcluded from the analysis above for comparability purposes.

 

For the three months ended March 31,2008, operating revenue increased by $145,965 (18%) and expenses decreased by$6,558 (1%) resulting in an increase in pre-tax income of $145,638 (221%) overthe same period in the prior year. The revenue increase was due to an increasein member dues and fees of $46,040 and golf operating revenue which increased$28,629 (19%).  Included in other clubrevenue is $80,500 in barter transaction revenue which represents the fairmarket value related to the 

 

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managementservices we provide for the Woodcreek Farms amenities as contemplated in theuse and access agreement with the developer of the Woodcreek Farmssubdivision.  The cumulative net decreasein operating expenses in the other departments was $9,204 (5%).  The increase in member dues and fees revenuewas attributed to a 10% increase in dues that was implemented in August 2007and the implementation of a food minimum as part of the dues in October 2006.  The increase in golf operating revenue wasattributed to an increase of approximately 500 golf rounds, higher greens andcart fees and increased merchandise sales compared to the same period in theprior year.

 

Club operating expenses decreased $6,558(1%), over prior year. This decrease was the net of an increase in other clubexpenses of $80,500 in barter transaction expenses which offset the barter transactionrevenue described above and a decrease in operating expenses primarily in themaintenance department which decreased $67,086 (24%). This savings was realizeddue to a revised winter agronomic plan that was implemented in the firstquarter which reduced labor costs, fertilizer and chemical cost. Food andbeverage expenses decreased $30,139 (17%) compared to the same period in theprior year due to the decrease in food and beverage revenue as well as morefocus on controlling labor costs and improving margins on cost of goodssold.   Other departments had a combineddecrease in operating expenses of $13,394 (6%). General and administrativeexpenses increased $23,561 (11%) primarily due to an increase in property taxesof $9,750 (28%) coupled with an increase in the utilities, health insurance,employer taxes and other overhead expenses from the increased number ofemployees for the Woodcreek Farms Clubhouse and restaurant that opened in September 2006.

 

*Employee Stock Options and Awards*

 

On January 18, 2008, 50,000 option shares were granted from the2007 Stock Option Plan to the Company’s CFO, Tracy S. Clifford and on January 23,2008, 160,000 option shares were granted from the 2007 Stock Option Plan to thefour independent members of the Company’s Board (40,000 to each member).  The estimated grant-date fair value of theseoptions was $0.84 and $0.80 per share, respectively. The exercise price is$1.90 and $1.82, respectively, the closing American Stock Exchange price on therespective grant date, as specified by the Compensation Committee. Stock optionexpense of $33,744 was recorded related to these issued options and the 275,000options shares issued to our CEO on December 14, 2007.

 

The fair value of each option award is estimated on the date of grantusing the Black Sholes option valuation model. Expected volatility is based onthe historical volatility of the Company’s stock and was estimated at 53.80%.The risk-free rate for periods within the contractual life of the option isbased on the U.S. Treasury bill rate in effect at the time of grant which wasapproximately 2.86% and 2.64%, respectively. The expected term in years is anaverage of four years. The total outstanding unvested options at March 31,2008 is 485,000. At March 31, 2008, there was approximately $408,000 oftotal unrecognized compensation expense related to nonvested-share-basedcompensation arrangements granted under the 2007 Stock Option Plan that will beamortized over the period ending January 23, 2011.  At March 31, 2008, these options had nointrinsic value.

 

Pursuant to the respective option plans, except the 1997 Non-EmployeeDirector’s Plan, any options issued to employees who are subsequentlyterminated expire ninety days following his/her termination if not exercised.The options issued under the 1997 Non-Employee Director’s Plan are exercisableuntil their original expiration date. During the three months ended March 31, 2008, no options wereexercised and 260,000 options expired.

 

**Income Taxes**

 

The Company had pre-tax income of approximately $930,000 for the threemonths ended March 31, 2008 and a decrease of approximately $505,000 innet assets in liquidation for the three months ended March 31, 2007.  Included in deferred income tax assets as of March 31,2008 and December 31, 2007 are Federal and state operating losscarryforwards of approximately $84 million and $85 million, respectively.  The Company recorded a valuation allowancefor these carryforwards.  These netoperating losses expire at various dates beginning with the 2021 tax year andending with the 2026 tax year.

 

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**Liquidity and Capital Resources**

 

Currently, our only sources of cash flow arefrom the operations of Stonehenge and interest income from our invested cashbalances. GTA Stonehenge, LLC has a $4,200,000 revolving credit line withTextron Financial Corporation (“Textron”), which matures on March 18,2009. This loan is collateralized by a security interest in Stonehenge. Theinterest rate is the prime rate plus 1.75% per annum paid monthly. This loanrequires that the operations at Stonehenge for the immediately preceding twelvemonth period be sufficient to meet a debt service coverage ratio, as defined inthe mortgage, of at least 1.20, as measured monthly. At March 31, 2008,the Company did not meet the debt service coverage ratio (in part due toincreased efforts to improve the playing quality of the golf courses byinvesting significantly in additional beautification, repair and maintenanceprojects, as well as attendant labor costs, related to the golf courses, butwhich do not qualify for capitalization accounting treatment). In light of thefact that the Company has consistently met its financial obligations throughoutthe term of the loan, as of December 31, 2007 Textron waived the debtservice covenant violations for 2008 subject to re-evaluation at December 31,2008.

 

At March 31, 2008, our cash balance is$7,198,789. We are also expecting our liquidity to be improved in the near termthrough several means as described herein. We received the escrowed funds fromthe Resort sale in the amount of $2,000,000 plus accrued interest of $31,118 onApril 3, 2008. Additionally, the promissory note that was executed in thesettlement of the Young Complaints has scheduled payments as follows: (a) $100,000principal due on May 31, 2008; (b) $133,334 principal due on January 1,2009; (c) $133,333 principal due on January 1, 2010; (d) $133,333principal due on January 1, 2011. In the event these installments are notreceived timely, the note provides for an additional installment of $3,376,856principal, plus interest. Also, the Board is currently assessing future plansfor the land that we obtained title to in the settlement of the YoungComplaints (approximately 118 acres of undeveloped land in Charleston County,South Carolina), which could provide additional liquidity.

 

Stonehenge has historically possessedsufficient liquidity to cover its operations. Stonehenge has also covered theTextron debt service for the first quarter of 2008 and is expected to cover theTextron debt service for the fiscal year ended December 31, 2008.Management is focused on several membership initiatives to grow the membershipat Stonehenge, which it anticipates will increase revenues and enhance cashflow. Management is currently anticipating capital expenditures in 2008 atStonehenge of approximately $100,000 (of which approximately $25,000 wasexpended in the first quarter of 2008) which will be funded by cash flow fromStonehenge operations. The technological infrastructure at the Company’scorporate office is currently being updated at a cost of approximately $12,000which is being funded from existing cash balances. We currently intend to paycorporate overhead in 2008 from current cash balances. Several cost reductioninitiatives have been implemented at corporate headquarters to reduce operatingexpense including reduction of professional fees which are expected to decreaseas we are no longer under the POL, reduction of Board fees, consolidation ofoffice space, reduction of staff, and elimination of certain services. However,the corporate overhead expense for 2008 may be impacted if we are successful incompleting an acquisition or other growth initiative.

 

The Company believes that it possessesadequate liquidity and capital resources to conduct its operations. In theevent that the Company pursues an acquisition or other strategic alternativerequiring significant capital investment, it is anticipated that funding will beprovided by cash on hand, equity issuance, debt issuance, commercial creditfacilities, or a combination of the aforementioned.

 

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** **

**Off Balance Sheet Arrangements**

 

As of March 31, 2008, we have no off balancesheet arrangements that have or are reasonably likely to have a current orfuture material effect on our financial condition, revenues, expenses, resultsof operations, liquidity, capital expenditures or capital resources.

 

**Contractual Obligations, Contingent Liabilities and Commitments**

 

There have not been any material changes fromthe contractual obligations, contingent liabilities and commitments previouslydisclosed in our 2007 annual report for fiscal year ended December 31,2007.  Please refer to “Management’s Discussion andAnalysis of Financial Condition and Results of Operations—ContractualObligations, Contingent Liabilities and Commitments” in our Form 10-K forthe year ended December 31, 2007, filed on March 31, 2008, for adescription of our contractual obligations.

 

**Inflation**

 

Inflation has not had a significant impact onus. As operating costs and expenses increase, we generally attempt to offsetthe adverse effects of increased costs by increasing prices in line withindustry standards. However, we are subject to the risks that our costs ofoperations will increase and we will be unable to offset those increasesthrough increased dues and fees without adversely affecting demand. In additionto inflation, factors that could cause operating costs to rise include, amongother things, increased labor costs, lease payments at our leased facilities,energy costs and property taxes.

 

**Seasonality**

 

Since Stonehenge is a private membershipclub, the monthly member dues are the same throughout the year; however, swimand tennis revenues and expenses are higher in the summer months.

 

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

 

Wehave not entered into any transactions using derivative financial instruments.We are subject to market risk associated with changes in interest ratesapplicable to the $4,100,000 revolving line of credit.  As of March 31, 2008, a 25 basis pointmovement would have resulted in a $10,000 annualized increase or decrease ininterest expense and cash flows.

 

Wehave not entered into any transactions using foreign currency or derivativecommodity instruments; therefore, we do not face any foreign currency exchangerate risk or commodity price risk.

 

Reference is made to Note 6, *Debt*,to the Condensed Consolidated Financial Statements in Item 1 for additionaldebt information.

 

**ITEM 4. CONTROLS AND PROCEDURES**

 

We maintain disclosure controls and procedures thatare designed to ensure that information required to be disclosed in ourExchange Act reports is recorded, processed, summarized and reported within thetime periods specified in the SEC’s rules and forms, and that suchinformation is accumulated and communicated to our management, including ourChief Executive Officer and our Chief Financial Officer, as appropriate, toallow timely decisions regarding required disclosure. Our management assessesthe costs and benefits of such controls and procedures based upon theprevailing facts and circumstances, including management’s reasonable judgmentof such facts.

 

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As of March 31, 2008, we evaluated, under thesupervision and with the participation of our management, including our ChiefExecutive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controlsand procedures (as defined in Exchange Act Rule 13a-15(e)). Managementconcluded that as of March 31, 2008, our disclosure controls andprocedures are effective in timely alerting them to material informationrelating to us (including our consolidated subsidiaries) required to beincluded in our Exchange Act reports.

 

There has been no change in our internal controlover financial reporting during our most recent fiscal quarter that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

 

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**PART II. OTHERINFORMATION**

 

**ITEM 1. LEGAL PROCEEDINGS**

 

We are currently involved in, or prior to thefiling of this Annual Report we have concluded, the following legalproceedings:

 

***Young Complaints***

 

On March 22, 2004, a lawsuit was filedin the U.S. District Court for the District of South Carolina, FlorenceDivision, by one of our prior directors, Larry D. Young (together with Danny L.Young, Kyle N. Young, the Young Family Irrevocable Trust and The LegendsGroup, Ltd.) (collectively “the Youngs”), against our independentauditors, BDO Seidman, LLP, and three former BDO partners (the “BDODefendants”), and the Company and our executive officers (the “GTA Defendants”).

 

The complaint alleged that the BDO Defendantsengaged in professional malpractice, misrepresentation, breach of fiduciaryduty and fraud by counseling plaintiffs to participate in a type of tax sheltertransaction allegedly held illegal by the Internal Revenue Service, and thatthe GTA Defendants conspired with the BDO Defendants to convince Mr. Youngthat he would realize a large projected tax gain in order to induce Mr. Young(and the other plaintiffs) to enter into the failed tax shelter transaction.The plaintiffs sought damages of at least $3.7 million, together withlegal expenses and other costs. On February 1, 2008, the Company and theYoungs filed with the court an agreement to settle all disputes. Pursuant tothe settlement agreement, the plaintiffs have paid the Company $500,000 in theform of an installment note and transfer title to certain land in CharlestonCounty, South Carolina to the Company. The court found that the parties hadsettled this dispute and declared the post-trial motions moot on February 19,2008. The Youngs and BDO Seidman, LLP and its partners had previouslyresolved their differences. The case is now closed. The Settlement Agreement,Confession of Judgment and Promissory Note executed in this settlement werefiled as Exhibits 10.1, 10.2 and 10.3, respectively, to our Current Reporton Form 8-K filed on February 4, 2008.

 

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

 

The titled action was brought in the Circuit Courtof Miller County, Missouri by LOCI, and its asserted assignee of lien andaccount rights, Everett Holding Company, Inc., in the fall of 1999 againstnumerous defendants, including the Operating Partnership. Plaintiffs assertLOCI performed construction services on, or that benefited, the property ofvarious defendants, including the Operating Partnership. With respect to theOperating Partnership, plaintiffs seek to foreclose a mechanic’s lien uponproperty formerly owned by the Operating Partnership. The lien is for theprincipal amount of approximately $1,276,000, plus interest at 10% per annumand attorney fees. Plaintiffs calculate interest to May 20, 1999, justprior to the lien filing, to be approximately $151,000 and interest thereafterto be $354 per day. The Court entered a written order granting the OperatingPartnership’s Motion for Summary Judgment in April 2002 and a finaljudgment 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. OnMarch 12, 2008, a case management conference was held. The presiding judgeset September 30, 2008, as deadline for completing discovery and scheduledanother conference for October 8, 2008, at which time it is anticipatedthat the case will be set for trial. At this time, the Company is unable toassess the likely outcome of this litigation.

 

***Routine Litigation***

** **

Ownersand operators of golf courses are subject to a variety of legal proceedingsarising in the ordinary course of operating a golf course, includingproceedings relating to personal injury and property damage. We have in thepast been, and expect to continue in the future to be, subject to proceedingsrelating to personal injury and property damage. Such proceedings are generallybrought against the operator of a golf course, but may also be broughtagainst the owner of the golf course. We maintain insurance to defend againstcertain of these actions.

 

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**ITEM 1A. RISK FACTORS**

 

Not applicable.

 

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

 

None.

 

**ITEM 3. DEFAULTS UPON SENIOR SECURITIES**

 

None.

 

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

 

No matters were submitted to a vote of securityholders during the three months ended March 31, 2008.

 

**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 SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
|                          | ** ** | **GOLF  TRUST OF AMERICA, INC.**    |
|--------------------------|------------|------------------------------------------|
| ** **               | ** ** | ** **                               |
| Date:  May 12, 2008 | By:        | /s/ Michael  C. Pearce              |
|                     |       | Michael  C. Pearce                       |
| * *                 | * *   | *Chief  Executive Officer and President* |
| * *                 | * *   | * *                                 |
| Date:  May 12, 2008 | By:        | /s/ Tracy  S. Clifford              |
|                     |       | Tracy  S. Clifford                       |
| * *                 | * *   | *Chief  Financial Officer and Secretary* |

 

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