**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

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**FORM 10-Q**

 
| **(Mark One)**                                                                                                                   |                                                                                          |
|----------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------|
| **ý**                                                                                                                       | **Quarterly report pursuant to section 13 or 15(d) of the  Securities Exchange Act of 1934**  |
|                                                                                                                             |                                                                                          |
| **for the quarterly period ended: September 30, 2003**                                                                           |
|                                                                                                                             |
| **o**                                                                                                                            | **Transition report pursuant to section 13 or 15(d) of the  Securities Exchange Act of 1934** |
|                                                                                                                             |                                                                                          |
| **for the transition period from                 to** |

 

**CommissionFile Number 000-22091**

 

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**GOLF TRUSTOF AMERICA, INC.**

(Exact name of registrant as specified in itscharter)

 

| **Maryland**                                                      |   | **33-0724736**                          |
|-------------------------------------------------------------------|--------|-----------------------------------------|
| (State or other jurisdiction of  incorporation or organization)   |   | (I.R.S. Employer Identification Number) |
|                                                              |
| **14 North Adger’s Wharf, Charleston, South Carolina 29401** |
| (Address of principal executive offices)  (Zip Code)              |
|                                                              |
| **(843) 723-4653**                                           |
| (Registrant’s telephone number, including  area code)        |

 

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Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorterperiod that the registrant was required to file such report(s) and (2) hasbeen subject to such filing requirements for the past90 days. Yes ý  No o.

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Exchange Act). Yes o  No ý

 

On November 7, 2003, there were 7,884,943 common shares outstanding ofthe registrant’s only class of common stock. On November 7, 2003, there were800,000 shares outstanding of the registrant’s 9.25% Series A CumulativeConvertible Preferred Stock, which is the registrant’s only class ofoutstanding preferred stock.

 

The Exhibit Index begins on page 50.

 

 

**GOLFTRUST OF AMERICA, INC.Form 10-Q Quarterly ReportFor the Three and Nine Months Ended September 30, 2003**

 

**INDEX**

 
| **PART I. FINANCIAL  INFORMATION** |
|------------------------------------|
|                               | **Item 1.** | **Liquidation Basis  Financial Statements** |
|                               |   | Condensed Consolidated Statements of Net Assets  as of September 30, 2003 (unaudited) and December 31, 2002 |
|                               |   | Condensed Consolidated Statements of  Changes in Net Assets (unaudited) for the Three Months Ended September 30,  2003 and 2002 |
|                               |   | Condensed Consolidated Statements of  Changes in Net Assets (unaudited) for the Nine Months Ended September 30,  2003 and 2002 |
|                               |   | Condensed Consolidated Statements of Cash  Flows (unaudited) for the Nine Months ended September 30, 2003 and 2002 |
|                               |   | Notes to Condensed Consolidated Financial  Statements (unaudited) |
|                               | **Item 2.** | **Management’s Discussion and Analysis of  Financial Condition and Results of Operations** |
|                               | **Item 3.** | **Quantitative and Qualitative Disclosures  About Market Risk** |
|                               | **Item 4.** | **Controls and Procedures** |
| **PART II. OTHER INFORMATION**     |
|                               | **Item 1.** | **Legal Proceedings** |
|                               | **Item 2.** | **Changes in Securities** |
|                               | **Item 3.** | **Defaults upon Senior Securities** |
|                               | **Item 4.** | **Submission of Matters to a Vote of Security  Holders** |
|                               | **Item 5.** | **Other Information** |
|                               | **Item 6.** | **Exhibits and Reports on Form 8-K** |
|                               | **Signatures** |
|                               | **Exhibit Index** |

 

**CautionaryNote Regarding Forward-Looking Statements**

 

The following report contains forward-looking statements within themeaning of Section 27A of the Securities Act and Section 21E of the ExchangeAct. 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 annual report are forward-looking statements, includingour projections regarding the amount and timing of liquidating distributions.You can generally identify forward-looking statements as statements containingthe 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 our company andspeak only as of the date on which this report was filed with the SEC. Ourcontinued internet posting or subsequent distribution of this dated report doesnot imply continued affirmation of the forward-looking statements included init. We undertake no obligation, and we expressly disclaim any obligation, toissue any updates to our forward-looking statements, even if subsequent eventscause our expectations to change regarding the matters discussed in thosestatements. Future events are inherently uncertain. Moreover, in the currenteconomy it is particularly difficult to predict business activity levels at theInnisbrook Resort (underlying our most significant asset) with any certaintymore than a few months in advance. Accordingly, our projections in this annualreport are subject to particularly high uncertainty. Our projections should notbe 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 such differencemight be significant and harmful to our stockholders interests. Many importantfactors that could cause such a difference are described under the caption“Risks that might Delay or Reduce our Liquidating Distributions,” in Item 2 ofthis quarterly report, which you should review carefully.

 

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**GOLFTRUST OF AMERICA, INC.**

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

**ASOF SEPTEMBER 30, 2003 (unaudited) AND DECEMBER 31, 2002(in thousands, except per share amounts)**

 
|                                                                                                  |   | **September  30,  2003** |       | **December 31,  2002** |       |
|-------------------------------------------------------------------------------------------------------|--------|--------------------------|------------|-----------------------------|------------|
|                                                                                                  |   | **(unaudited)**          |       |                        |       |
|                                                                                                  |   |                     |       |                        |       |
| **ASSETS**                                                                                            |   |                     | ** ** |                        | ** ** |
| Real estate and mortgage note receivable —  held for sale                                        |   | $                        | 57,042     |                        | $          | 143,963 |   |
| Cash and cash equivalents                                                                             |   | 1,090                    |       | 7,990                       |       |
| Restricted cash                                                                                       |   | —                   |       | 1,551                       |       |
| Receivables — net                                                                                |   | 3,701                    |       | 2,754                       |       |
| Other assets                                                                                          |   | 227                      |       | 498                         |       |
| Total assets                                                                                          |   | 62,060                   |       | 156,756                     |       |
|                                                                                                  |   |                     |       |                        |       |
| **LIABILITIES**                                                                                       |   |                     | ** ** |                        | ** ** |
| Debt                                                                                                  |   | —                   |       | 69,003                      |       |
| Accounts payable and other liabilities                                                                |   | 2,944                    |       | 3,927                       |       |
| Dividends payable                                                                                     |   | 4,289                    |       | 2,775                       |       |
| Reserve for estimated costs during the  period of liquidation                                         |   | 6,433                    |       | 12,148                      |       |
| Total liabilities                                                                                     |   | 13,666                   |       | 87,853                      |       |
|                                                                                                  |   |                     |       |                        |       |
| Commitments and contingencies                                                                         |   |                     |       |                        |       |
| Preferred stock, $.01 par value, 10,000,000  shares authorized, 800,000 shares issued and outstanding |   | 20,000                   |       | 20,000                      |       |
| Total liabilities and preferred stock                                                                 |   | 33,666                   |       | 107,853                     |       |
|                                                                                                  |   |                     |       |                        |       |
| **NET ASSETS IN LIQUIDATION**(available  to holders of common stock and OP units)                     |   | $                        | 28, 394    |                        | $          | 48,903 |   |

 

*See accompanying notes to condensed consolidated financial statements.*

 

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**GOLFTRUST OF AMERICA, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OFCHANGES IN NET ASSETS (LIQUIDATION BASIS)**

**FORTHE THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002**

**(inthousands) (unaudited)**

 
|                                                                        |   | **Three  Months Ended  September 30, 2003** |    | **Three  Months Ended  September 30, 2002** |   |
|-----------------------------------------------------------------------------|--------|---------------------------------------------|---------|---------------------------------------------|--------|
|                                                                        |   |                                        |    |                                        |   |
| Revenues                                                                    |   |                                        |    |                                        |   |
| Rent                                                                        |   | $                                           | —  |                                        | $      | 1,659 |   |
| Revenue from managed golf course operations                                 |   | 1,375                                       |    | 4,140                                       |   |
| Total revenues                                                              |   | 1,375                                       |    | 5,799                                       |   |
|                                                                        |   |                                        |    |                                        |   |
| Expenses:                                                                   |   |                                        |    |                                        |   |
| General & administrative                                                |   | 398                                         |    | 666                                         |   |
| Direct expenses from managed golf course  operations                        |   | 1,658                                       |    | 3,496                                       |   |
| Total expenses                                                              |   | 2,056                                       |    | 4,162                                       |   |
|                                                                        |   |                                        |    |                                        |   |
| Operating (loss) income                                                     |   | (681                                        | )       | 1,637                                       |   |
|                                                                        |   |                                        |    |                                        |   |
| Other income (expense):                                                     |   |                                        |    |                                        |   |
| Interest income                                                             |   | 50                                          |    | 87                                          |   |
| Interest expense                                                            |   | (19                                         | )       | (1,213                                      | )      |
| Total other income (expense)                                                |   | 31                                          |    | (1,126                                      | )      |
|                                                                        |   |                                        |    |                                        |   |
| (Loss) income before adjustment for  liquidation basis                      |   | (650                                        | )       | 511                                         |   |
| Adjustment for liquidation basis of  accounting                             |   | (16,757                                     | )       | (2,705                                      | )      |
| Net loss                                                                    |   | (17,407                                     | )       | (2,194                                      | )      |
|                                                                        |   |                                        |    |                                        |   |
| Preferred dividends                                                         |   | (589                                        | )       | (462                                        | )      |
| Value of OP units redeemed in sale of golf  courses and other settlements   |   | —                                      |    | (92                                         | )      |
|                                                                        |   |                                        |    |                                        |   |
| Total dividends and distributions                                           |   | (589                                        | )       | (554                                        | )      |
|                                                                        |   |                                        |    |                                        |   |
| Net change in net assets available to  holders of common stock and OP units |   | $                                           | (17,996 | )                                           | $      | (2,748 | ) |

 

*See accompanying notes to condensed consolidated financial statements.*

 

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**GOLFTRUST OF AMERICA, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OFCHANGES IN NET ASSETS (LIQUIDATION BASIS)**

**FORTHE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002**

**(inthousands) (unaudited)**

 
|                                                                        |   | **Nine  Months Ended  September 30, 2003** |    | **Nine  Months Ended  September 30, 2002** |   |
|-----------------------------------------------------------------------------|--------|--------------------------------------------|---------|--------------------------------------------|--------|
|                                                                        |   |                                       |    |                                       |   |
| Revenues                                                                    |   |                                       |    |                                       |   |
| Rent                                                                        |   | $                                          | 452     |                                       | $      | 5,409 |   |
| Revenue from managed golf course operations                                 |   | 6,624                                      |    | 10,524                                     |   |
| Total revenues                                                              |   | 7,076                                      |    | 15,933                                     |   |
|                                                                        |   |                                       |    |                                       |   |
| Expenses:                                                                   |   |                                       |    |                                       |   |
| General & administrative                                                |   | 1,782                                      |    | 2,720                                      |   |
| Direct expenses from managed golf course  operations                        |   | 6,477                                      |    | 9,790                                      |   |
| Total expenses                                                              |   | 8,259                                      |    | 12,510                                     |   |
|                                                                        |   |                                       |    |                                       |   |
| Operating (loss) income                                                     |   | (1,183                                     | )       | 3,423                                      |   |
|                                                                        |   |                                       |    |                                       |   |
| Other income (expense):                                                     |   |                                       |    |                                       |   |
| Interest income                                                             |   | 165                                        |    | 380                                        |   |
| Interest expense                                                            |   | (1,308                                     | )       | (3,995                                     | )      |
| Total other income (expense)                                                |   | (1,143                                     | )       | (3,615                                     | )      |
|                                                                        |   |                                       |    |                                       |   |
| Loss before adjustment for liquidation  basis                               |   | (2,326                                     | )       | (192                                       | )      |
| Adjustment for liquidation basis of  accounting                             |   | (16,669                                    | )       | (3,966                                     | )      |
| Net loss                                                                    |   | (18,995                                    | )       | (4,158                                     | )      |
|                                                                        |   |                                       |    |                                       |   |
| Dividends and Distributions:                                                |   |                                       |    |                                       |   |
| Preferred dividends                                                         |   | (1,514                                     | )       | (1,387                                     | )      |
| Value of OP units redeemed in sale of golf  courses and other settlements   |   | —                                     |    | (627                                       | )      |
| Total dividends and distributions                                           |   | (1,514                                     | )       | (2,014                                     | )      |
|                                                                        |   |                                       |    |                                       |   |
| Net change in net assets available to  holders of common stock and OP units |   | $                                          | (20,509 | )                                          | $      | (6,172 | ) |

 

*See accompanying notes to condensed consolidated financial statements.*

 

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**GOLFTRUST OF AMERICA, INC.**

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

**FORTHE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002**

**(inthousands, unaudited)**

 
|                                                                         |   | **Nine  Months Ended September 30, 2003** |       | **Nine  Months Ended September 30, 2002** |       |
|------------------------------------------------------------------------------|--------|-------------------------------------------|------------|-------------------------------------------|------------|
|                                                                         |   |                                      |       |                                      |       |
| **Cash flows from operating activities:**                                    |   |                                      | ** ** |                                      | ** ** |
| Net loss                                                                     |   | $                                         | (18,995    | )                                         | $          | (4,158 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities: |   |                                      |       |                                      |       |
| Adjustment to liquidation basis of  accounting                               |   | 16,669                                    |       | 3,966                                     |       |
| Straight-line interest, rent and other                                       |   | —                                    |       | (42                                       | )          |
| Decrease (increase) in other assets                                          |   | 769                                       |       | 1,823                                     |       |
| Decrease in restricted cash                                                  |   | 1,529                                     |       | 577                                       |       |
| Decrease in accounts payable and other  liabilities                          |   | (265                                      | )          | (623                                      | )          |
| Decrease in liquidation liabilities                                          |   | (5,340                                    | )          | (4,645                                    | )          |
| Net cash used in operating activities                                        |   | (5,633                                    | )          | (3,102                                    | )          |
|                                                                         |   |                                      |       |                                      |       |
| **Cash flows from investing activities:**                                    |   |                                      | ** ** |                                      | ** ** |
| Golf course improvements                                                     |   | (143                                      | )          | (1,714                                    | )          |
| Net proceeds from golf course dispositions                                   |   | 67,767                                    |       | 22,144                                    |       |
| Decrease in notes receivable                                                 |   | 112                                       |       | 2,486                                     |       |
| Net cash provided by investing activities                                    |   | 67,736                                    |       | 22,916                                    |       |
|                                                                         |   |                                      |       |                                      |       |
| **Cash flows used in financing activities:**                                 |   |                                      | ** ** |                                      | ** ** |
| Net repayments on debt                                                       |   | (69,003                                   | )          | (24,724                                   | )          |
| Net cash used in financing activities                                        |   | (69,003                                   | )          | (24,724                                   | )          |
|                                                                         |   |                                      |       |                                      |       |
| Net decrease in cash                                                         |   | (6,900                                    | )          | (4,910                                    | )          |
| Cash and cash equivalents, beginning of  period                              |   | 7,990                                     |       | 14,762                                    |       |
| Cash and cash equivalents, end of period                                     |   | $                                         | 1,090      |                                      | $          | 9,852 |   |
| **Supplemental Disclosure of Cash Flow  Information**                        |   |                                      | ** ** |                                      | ** ** |
| Interest paid during the period                                              |   | $                                         | 1,483      |                                      | $          | 3,995 |   |
| Note receivable from sale of asset                                           |   | $                                         | 2,300      |                                      | $          | 1,750 |   |

 

*See accompanying notes to condensed consolidated financial statements.*

 

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**GOLFTRUST OF AMERICA, INC.Form 10-Q Quarterly ReportFor the Three and Nine Months Ended September 30, 2003**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(unaudited)**

 

**1.  Plan of Liquidation**

 

On February 25, 2001 our board of directors adopted, and onMay 22, 2001 our common and preferred stockholders approved, a plan ofliquidation for our Company. The plan of liquidation contemplates the sale ofall of our assets and the payment of, or provision for, our liabilities andexpenses, and authorizes us to establish a reserve to fund our contingentliabilities. The plan of liquidation gives our board of directors the power tosell any and all of our assets without further approval by our stockholders.However, the plan of liquidation constrains our ability to enter into saleagreements that provide for gross proceeds below the low end of the range ofgross proceeds that our management initially estimated would be received fromthe sale of such assets absent a fairness opinion, an appraisal or otherevidence satisfactory to our board of directors that the proposed sale is inthe best interest of our Company and our stockholders. Pursuant to the plan ofliquidation, as of November 7, 2003, we have sold 38 of the 47 (eighteen-holeequivalent) golf courses we once held interests in.

 

At the time we prepared our proxy statement soliciting stockholders’approval for the plan of liquidation, we expected that our liquidation would becompleted within 12 to 24 months from the date of stockholders’ approvalon May 22, 2001. While we have made significant progress in meeting theexpectation we had at the time that the proxy was prepared, the completion ofthe plan of liquidation within the time-frame set-out in the proxy has notoccurred, and we now know that, as described below, realizing the range ofliquidating distributions per share set forth in the applicable proxy statementis not likely, particularly insofar as the disposition of our interest in theInnisbrook Resort is concerned.

 

Since late 1999, the golf industry has experienced decliningperformance and increased competition. Two of the economic sectors mostaffected by the economic recession in the United States have been the leisureand travel sectors of the economy. Golf courses and, in particular,destination-resort golf courses, are at the intersection of these sectors. Weretained Houlihan Lokey to advise us on strategic alternatives available to usin furtherance of our efforts to seek to enhance stockholder value under ourplan of liquidation. In connection with this engagement, Houlihan Lokeyreviewed: (i) our corporate strategy; (ii) various possible strategicalternatives available to us with a view towards determining the best approachof maximizing stockholder value in the context of our existing plan ofliquidation; and (iii) other strategic alternatives independent of the planof liquidation. Houlihan Lokey evaluated our lender’s mortgage interest in theInnisbrook Resort under two different scenarios, both of which assumed that wewould obtain a fee simple interest in the asset by either successfullycompleting a negotiated settlement with our borrower or foreclosing on ourborrower’s interest in the mortgage encumbering the asset. Under the firstscenario, Houlihan Lokey analyzed immediate liquidation of the asset, and underthe second scenario Houlihan Lokey analyzed holding the asset until no laterthan December 31, 2005 to seek to realize a modest recovery in thefinancial performance levels based on historical financial results. Followingreceipt of Houlihan Lokey’s report on March 15, 2002, and afterconsideration of other relevant facts and circumstances then available to us,our board of directors unanimously determined to proceed with our plan ofliquidation without modification.  InFebruary 2003, we, at the direction of our board, again engaged Houlihan Lokeyto assist us in updating our projected range of liquidating distributions inlight of the actual sale prices we had obtained during the prior year and otherrelevant factors.   Following receipt ofHoulihan Lokey’s updated report on March 18, 2003, and after considerationof other relevant facts and circumstances then available to us, our board ofdirectors unanimously reaffirmed their decision to proceed with our plan ofliquidation without modification.  As aresult, we value the participating mortgage on our balance sheet based on ourestimate of the resale value of the Resort at the conclusion of the holdingperiod.  At June 30, 2003, we carriedthe participating mortgage on our books at $60.0 million, based on theassumptions that we would take ownership of the Resort, that the Resort’soperations would begin to recover in 2004 and that by the end of the 2005holding period the Resort would have realized a modest recovery in line withhistorical results (among other assumptions). We have identified our valuation of the participating mortgage as acritical accounting estimate, as discussed below under the caption “Applicationof Critical Accounting Policies.”

 

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During the third quarter of 2003, we continued to negotiate for aglobal settlement of claims resulting from the borrower’s default.  However, these negotiations stalled inOctober when we received from the Westin Hotel Company (which operates thehotel and conference facilities at the Resort) an updated Innisbrook forecastfor the fourth quarter of 2003 and the calendar year 2004.  As disclosed in our press release datedOctober 20, 2003, the updated forecast was materially less favorable thanforecasts we had received earlier from Westin regarding the same periods.  The revised forecast included a forecast forgolf operations at the Resort prepared by Troon Golf (which operates the golfcourses at the Resort and which is an affiliate of Westin).  Following our receipt of the revisedforecast and the corresponding 2004 budget, we reviewed the budget methodologyand economic assumptions underlying the 2004 budget in a series of meetingswith Westin and Troon.  The decline inthe revised forecast resulted primarily from fewer than anticipated groupbookings at the Resort in the fourth quarter of 2003, which leads Westin tobelieve that the adverse economic conditions of the past two years at theResort will continue throughout 2004.

 

In light of the revised forecast, some of the assumptions underlyingour estimate of the participating mortgage’s value, as recorded on our June 30,2003 balance sheet, are now in doubt. Specifically, we had assumed that the Resort’s recovery would begin in2004.  However, even if the lodgingindustry as a whole does begin to recover in 2004, Westin does not currentlyexpect any significant improvement in corporate group spending at theInnisbrook Resort (or other significant new Innisbrook Resort bookings) in2004, based on the limited information now available.  Thus, while it is too early to be certain, based on the asset’sdisappointing fourth quarter 2003 performance to date and the forecast of 2004performance which is below our expectations, we face the risk that any economicrecovery for this asset will be delayed by a year or more.  In our prior SEC filings we have consistentlystated that our assessment of the participating mortgage’s fair value maychange at some future date, based on facts and circumstances prevailing at thattime, and that the asset may be written-down in future periods.  After we received and reviewed the revisedforecast and the 2004 budget and attended the 2004 budget review meeting withWestin and Troon, we determined that our assessment of the participatingmortgage’s fair value had indeed changed based on the new facts andcircumstances described for us and that a write-down was necessary to reflectthe new information (see further discussion of such write-down in Note 2 to theCondensed Consolidated Financial Statements under the heading *Adjustmentto Liquidation Basis of Accounting*).

 

We are continuing to negotiate with the owner of the Innisbrook Resortregarding a possible consensual foreclosure or a possible conveyance in lieu offoreclosure (see further discussion of the status of the negotiations in Note 4to the Condensed Consolidated Financial Statements). However, we can provide noassurance as to whether we will be able to reach any consensual resolution orsettlement with the owner. If no consensus resolution is reached, judicialaction may ensue and the litigation might be protracted and expensive, and evenin the event that we prevail in any such litigation, the owner might not meetits obligations to us as might be ordered by the court or it might declarebankruptcy. If this occurs and we decide to pursue judicial foreclosure, itwould likely be expensive and time-consuming and there is a risk to us that theowner might seek to obtain bankruptcy and/or other judicial protection. Even ifwe obtain ownership of the Innisbrook Resort, we expect to face the difficulttask of seeking to realize a recovery in the financial performance levels.

 

**2.  Organization and Basis of Presentation**

 

Golf Trust of America, Inc., or GTA, was incorporated in Marylandon November 8, 1996. We were originally formed to be a real estateinvestment trust, or REIT, however, we no longer have our REIT status as aresult of our repossession and operation of golf courses following the defaultof their original third-party lessees. We now own and operate golf courses. Inour SEC filings, we often state golf course quantities in terms of 18-holeequivalents. Therefore, one 27-hole golf course property would be counted as1.5 golf courses. As of November 7, 2003, we have interests in five propertieswhich represent nine golf courses. Five of these nine golf courses are owned byus and four (namely, the Innisbrook Resort golf courses) are collateral for a30-year participating mortgage wherein we are the lender. The five golf coursesthat we own are held by us in fee simple. The nine golf courses are located inFlorida (6), South Carolina (2), and New Mexico. Title to our golf courses isgenerally held by Golf Trust

 

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of America, L.P., a Delaware limited partnership. We refer to Golf Trustof America, L.P. as our “operating partnership” or “OP” and we refer to theoperating partnership and GTA (together with all of their subsidiaries)collectively as “we”, “us” or our “Company.” Golf Trust of America, Inc.,through its wholly owned subsidiaries GTA GP, Inc. (“GTA GP”) and GTALP, Inc. (“GTA LP”) holds a 99.6 percent interest in our operatingpartnership as of November 7, 2003. GTA GP is the sole general partner of ouroperating partnership and owns a 0.2 percent interest therein. GTA LP is alimited partner in the operating partnership and owns a 99.4 percentinterest therein. These percentages give effect to all outstanding preferred OPunits on an as-converted basis. One of our former lessees holds the onlyremaining minority interest in our operating partnership.

 

**Adjustment toLiquidation Basis of Accounting**

 

As a result of our board of directors’ adoption of our plan ofliquidation and its approval by our stockholders, as required we adopted theliquidation basis of accounting for all periods subsequent to May 22,2001. Accordingly, on May 22, 2001, our assets were adjusted to theirestimated fair value and our liabilities, including estimated costs associatedwith implementing the plan of liquidation, were adjusted to their estimated settlementamounts. The valuation of real estate held for sale, including the real estatepledged as collateral under our participating mortgage note receivable, as ofSeptember 30, 2003 is based on current contracts and estimates of sales valuesbased on indications of interest from the marketplace, certain assumptions bymanagement specifically applicable to each property, and on the property valueranges. The valuation of our other assets and liabilities under the liquidationbasis of accounting are based on management’s estimates as of September 30,2003.   An adjustment of $16,669,000 isincluded in the September 30, 2003 consolidated statement of changes in netassets to reflect a $16,613,000 write-down of certain golf course assets,namely Innisbrook, offset by a net gain of $441,000 in the aggregate on thesales of certain golf course assets and a $497,000 reserve against the loans toofficers (to reflect the difference between the computed value of our officers’pledged shares of our common stock that serve as collateral under these loanscompared to the value at the time that the shares were pledged which was $8 pershare, prior to this quarter the reserve was $400,000).  There were no other liquidation basis ofaccounting adjustments for the three months and nine months ended September 30,2003.

 

The net assets at September 30, 2003 result in a liquidationdistribution per share of $3.80, which is below the low end of the Updated 2003Range of $4.74.  The $3.80 is based onthe net assets at a particular point in time (i.e., September 30, 2003)and does not take account of our corporate overhead expenses or the potentialResort overhead expenses which we expect will arise in the event that we assumeownership of the Resort during our anticipated holding period, but suchcorporate expenses will impact our ultimate liquidating distributions to ourholders of common stock.  The $3.80 alsodoes not take account of any positive operating cash flows that may be realizedfrom any of our golf course assets, including the potential positive cash flowsthat may be realized from the Resort in the event we assume ownership thereofwhich will also impact our liquidating distributions to our holders of commonstock.  The $3.80 is derived by dividingthe net assets of $28,394,000 less loans to officers of $758,000 by the numberof shares of common stock and common operating partnership units outstanding(7,921,000 less 650,000) after consideration of those shares that will becancelled prior to the distribution of the net assets, which total 649,795,described as follows (i) 365,380 shares of common stock owned by an affiliateof the borrower under the participating mortgage at the Resort and pledged tous as collateral under the participating mortgage, (ii) 199,415 shares ofcommon stock pledged to us as security for the payment of our executiveofficers’ promissory notes, and (iii) 85,000 shares of common stock pledged tous as security for the payment and performance of the obligations andliabilities of the pledgor under a common stock redemption agreement executedconcurrently with the sale of Royal New Kent and Stonehouse.  This redemption agreement provides in partthat this security will be tendered to us if and when the total amount ofliquidating distributions paid to our holders of common stock pursuant to theplan of liquidation is less than $10.74 per share.

 

**Reserve for EstimatedCosts During the Period of Liquidation**

 

Under the liquidation basis of accounting, we are required as anaccounting matter to estimate and accrue the costs associated with implementingthe plan of liquidation. These amounts can vary significantly due to, amongother things, the timing and realized proceeds from golf course sales, thecosts of retaining personnel and others to

 

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oversee the liquidation, including the costs of insurance, the timingand amounts associated with discharging known and contingent liabilities andthe costs associated with cessation of our operations.   These accruals do not provide for anyoperating cash shortfalls that may occur from assets that we own and/or managenow or in the future.  These costs areestimated and are expected to be paid out over the liquidation period.

 

The following table summarizes the changes in the Reserve for EstimatedCosts During the Period of Liquidation:

 
|                   |   | **December  31,  2002** |       | **Payments** |   | **Adjustments** |   | **September  30,  2003** |   |
|------------------------|--------|-------------------------|------------|--------------|--------|-----------------|--------|--------------------------|--------|
|                   |   |                    |       |         |   |            |   |                     |   |
| Severance              |   | $                       | 5,075,000  |         | $      | (2,805,000      | )      | $                        | — |   | $ | 2,270,000 |   |
| Professional fees      |   | 3,025,000               |       | (1,939,000   | )      | —          |   | 1,086,000                |   |
| Financial advisor fees |   | 594,000                 |       | (129,000     | )      | —          |   | 465,000                  |   |
| Capital expenditures   |   | 386,000                 |       | (375,000     | )      | —          |   | 11,000                   |   |
| Other                  |   | 3,068,000               |       | (467,000     | )      | —          |   | 2,601,000                |   |
| Total                  |   | $                       | 12,148,000 |         | $      | (5,715,000      | )      | $                        | — |   | $ | 6,433,000 |   |

 

Included in the accrued severance amounts above are performancemilestone payments due to our executives pursuant to their amended and restatedemployment agreements.  Performancemilestone payments aggregating approximately $2,526,000 were paid upon ourcomplete repayment of our obligations under our secured credit facility.  One fourth of the second milestone payment($165,230)  due to our chief financialofficer was paid on September 30, 2003 pursuant to his fourth amended andrestated employment agreement.  Performancemilestone payments aggregating approximately $1,895,000 will be paid in duecourse, however, there are no remaining conditions to such payment.   Any severance payments otherwise payable byus under the amended and restated employment agreements will be reduced by theamount of all earlier performance milestone payments.

 

Included in the total payments under the Other category above is a$105,000 extension fee payment under one of our directors and officersinsurance policies. Our original directors and officers insurance policyexpired on February 7, 2003 and was replaced by our current directors andofficers insurance policy which expires on February 7, 2004.   Also, included in the total payments underthe Other category above is $128,000 in fees paid to our lenders, $100,000sales bonus paid on the sale of Eagle Ridge, $63,000 in fees paid to obtain anupdated survey of the Innisbrook property, $30,000 in printing costs for the 2002 Annual Report, $19,000 in thesettlement of the Hillcrest Bank legal claim, plus miscellaneous fees andexpenses related to the sales effort for the disposition of our assets.

 

**3.  Summary of Significant Accounting Policies**

 

*Interim Statements*

 

The accompanying condensed consolidated financial statements for thethree months and nine months ended September 30, 2003 and 2002 have beenprepared in accordance with (i) generally accepted accounting principles(“GAAP”), and under the liquidation basis of accounting following stockholders’approval of the plan of liquidation on May 22, 2001, and (ii) theinstructions to Form 10-Q and Article 10 of Regulation S-X.These financial statements have not been audited by independent publicaccountants, however, they include adjustments (consisting of normal recurringadjustments) which are, in the judgment of management, necessary for a fairpresentation of the net assets, financial condition, results of operations andcash flows for such periods. However, these results are not necessarilyindicative of results for any other interim period or for the full year. Inparticular, revenues from golf course operations are seasonal.

 

Certain information and footnote disclosures normally included infinancial statements in accordance with GAAP have been omitted as allowed inquarterly reports by the rules of the Securities and Exchange Commission, orthe SEC. Management believes that the disclosures included in the accompanyinginterim financial statements and

 

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footnotes are adequate to makethe information not misleading, but also believes that such information shouldbe read in conjunction with the consolidated financial statements and notesthereto included in our annual report on Form 10-K, as amended, for theyear ended December 31, 2002.

 

*Recent AccountingPronouncements*

 

In January 2003, the FASB issued interpretation No. 46 (FIN 46),Consolidation of Variable Interest Entities. Interpretation No. 46 requires companies with a variable interest in avariable interest entity (VIE) to apply this guidance as of the beginning ofthe first interim period beginning after June 15, 2003, for existing interestsand immediately for new interests. However, FASB subsequently allowed a deferral of the implementation ofFIN 46 until periods ending after December 15, 2003.  The application of the guidance could result in the consolidationof a variable interest entity. Management is currently evaluating the applicability of thispronouncement.

 

**4.**  **Mortgage Note Receivable**

 

In June 1997, our operating partnership closed and funded, aslender, an initial $69.975 million participating mortgage to Golf HostResorts, Inc., an entity affiliated with Starwood Capital Group LLC. Theparticipating loan is secured by the Innisbrook Resort, a 72-hole destinationgolf and conference facility located near Tampa, Florida, and by someadditional collateral. The operator of the resort, Westin Hotel Company,guaranteed up to $2.5 million of debt service at the Innisbrook Resort foreach of the first five years of the term of the participating mortgage; thisguarantee has been substantially funded. The initial loan of$69.975 million was increased by us by an additional $9 million loanto the borrower (creating a total principal loan amount of $78.975 million),which was used by the borrower for a nine-hole expansion and other improvementsto the Innisbrook Resort facilities.

 

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

 

Golf Host Resorts, the borrower, used $8,975,000 of the proceeds of theloan to purchase 274,039 of our OP units, 159,326 shares of our common stockand was granted an option to purchase an additional 150,000 shares of ourcommon stock which expired (unexercised) on December 31, 1999. The 274,039OP units were converted to shares of our common stock at the request of GolfHost Resorts on March 3, 2000. These 274,039 shares of our common stock,plus 79,663 of the shares of our common stock that they purchased at the timewe made the loan to them, plus 11,678 of the shares of our common stockformerly pledged by the borrower under the Lost Oaks participating lease (for atotal of 365,380 shares) continue to be pledged as security for the borrower’sperformance under the participating mortgage. Prior to the borrower’s defaultunder the participating mortgage discussed below, we recognized interest incomeon a straight-line basis.

 

FollowingSeptember 11, 2001, the borrower informed us that due to the significantimpact of the events of September 11th on the Resort’s operatingperformance, the borrower might default on its mortgage payments to us. Theborrower then failed to pay us interest when due for the month ofOctober 2001.  On November 29,2001, we notified the borrower that its failure to cure its non-payment of theOctober 2001 interest payment within ten days of our previous noticeconstituted an event of default of the borrower under our participatingmortgage.

 

On March 8, 2002, we sent a notice to Westin Hotel Companyalleging that Westin breached the subordination agreement by failing to remitpayments directly to us on behalf of the borrower. Westin has contested ourclaim that it breached the subordination agreement. No litigation has beenfiled in this regard. We are seeking a resolution of this dispute with Westinas part of the proposed global settlement at Innisbrook discussed below.

 

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Additionally, on March 8, 2002, we delivered a legal notice to theborrower accelerating the entire amount of its indebtedness to us as a resultof its continuing default under the participating mortgage. The participatingmortgage is a non-recourse loan. Accordingly, following an event of default, wecannot bring a legal action directly against the borrower to compel payment.Rather, our recourse is to proceed against the guarantors and/or to forecloseupon the Innisbrook Resort (other than the condominium units which are owned bythird parties) and any other property of the borrower that has been pledged tous as collateral to secure our loan to the borrower. Since early 2002, we havebeen seeking a negotiated foreclosure or settlement with the borrower as wellas negotiating a global resolution of all issues impacting the InnisbrookResort .  Due to a number of issues thatneed to be resolved prior to the closing of the deed transfer, we now do notexpect to enter into formal documentation of the global resolution untilsometime in 2004; however, we can provide no assurances as to the terms, timingor likelihood of any such global settlement.

 

**5.  Commitments and Contingencies**

 

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

 

On April 22, 2002, we filed an action *Golf Trust of America, L.P. and GTAStonehenge, LLC v. Lyndell Lewis Young and Stonehenge Golf Development, LLC*in the Court of Common Pleas for Richland County. We have asserted causes ofaction for breach of contract accompanied by fraudulent act, fraud and unfairtrade practices. We are seeking damages of approximately $172,000, whichrepresents prepaid dues which were not disclosed by the defendants. Acounterclaim for payment under a consulting agreement, along with claims forpayment of operating/maintenance and insurance expenses was received onJune 20, 2002. Our reply was filed on July 22, 2002 denying theclaims and, alternatively, seeking a set-off or recoupment against theiralleged claim for the amount of our claim. No trial date has been set.  Atthis time we are unable to assess the likely outcome of this litigation.

 

*Other Litigation*

 

*Lake Ozark Industries, Inc. and Everett Holding Company, Inc.v. Golf Trust of America, et al.*  This is an action initiated in the CircuitCourt of Miller County, Missouri, by a contractor, Lake Ozark ConstructionIndustries, Inc., or LOCI, against numerous defendants including us. LOCIasserts that it performed construction services on, or which benefited theproperty of, the various defendants, including us and seeks to foreclose amechanic’s lien upon our property. Plaintiffs’ amended petition is in sixcounts. Counts I, II and III seek recovery of payment for LOCI’s work fromM & M Contractors, Inc., which plaintiffs’ claim was the primecontractor and the party who hired LOCI as a subcontractor. Counts IV, V and VIname us and other defendants. Count IV seeks to foreclose a mechanic’s lienupon the property of various defendants, including us. The lien is for theprincipal amount of $1,276,123, plus interest at 10% per year and attorneys’fees. Plaintiffs calculate interest to May 20, 1999, just prior to thelien filing, to be $151,180, and interest thereafter to be $354 per day. CountV of the amended petition, directed at various defendants, including us, seeksa determination of the priority of plaintiffs’ claimed mechanic’s lien over variousdeeds of trust and property interests, including our interest. The outcome ofcount V will be determined by the resolution on the merits of count IV.Finally, count VI seeks foreclosure of a deed of trust from one of the otherdefendants, Osage Land Company, apparently given to Everett to forestallplaintiffs’ filing of the mechanic’s lien. The deed of trust was recordedsubsequent to the recordation of the deed from Ozark Land Company to us for itsproperty. The court ruled in June 2001 on cross-motions for summaryjudgment filed by plaintiffs, us, and defendant Central Bank of Lake of theOzarks, a beneficiary of deed of trust on some of the property covered by themechanic’s lien and by the deed of trust from Osage Land Company to Everett.The court denied all the motions with one exception–it granted Everett summaryjudgment on count VI (foreclosure of the deed of trust to Everett from OsageLand Company) but ruled that the deed to us and the deeds of trust to CentralBank of Lake of the Ozarks are prior to the deed of trust to Everett. The courtdid not explain its rulings on the remainder of plaintiffs’ motion or on ourCentral Bank of Lake of the Ozarks motions, except that “there remainsubstantial and genuine issues of material fact.” We filed two motions forsummary judgment on counts IV and V. The grounds for the motions are thatplaintiffs’ claimed lien does not comply with requirements of the Missourimechanic’s lien statute and thus is invalid. On March 25, 2002, the courtorally granted our requested relief and ruled

 

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that plaintiffs’ claimed liendoes not comply with requirements of the Missouri mechanic’s lien statute andis invalid. The court entered its written order granting our motions forsummary judgment on April 20, 2002. As we have previously reported, sincenot all claims involved in this lawsuit have been resolved, plaintiffs’ time toappeal the April 20, 2002 order granting our motions for summary judgment hadnot yet begun to run.  Although theplaintiffs’ attorneys informed us that they were making efforts to resolve theremaining claims in this lawsuit, this had apparently not been concluded.  Accordingly, on April 15, 2003, we filed amotion with the court asking that it make final the judgment granted to GolfTrust of America, L.P.  On May 12, 2003,the Court entered a judgment that disposed of all outstanding claims in thelawsuit. On June 10, 2003 Plaintiffs filed a Notice of Appeal of the ruling infavor of Golf Trust of America, L.P. on its Motion for Summary Judgment.   In late September 2003 the court of appealsdetermined that the owners of one of the lots covered by LOCI and Everett’slien filed a counterclaim against LOCI that has never been disposed of.  Although the counterclaim was filed inNovember 1999, the owners did nothing further on the counterclaim.  Because this counterclaim has not beendisposed of, the counterclaim prevents the trial court’s decision in favor ofus from being final and appealable.  Asa result, the appeal was dismissed on October 7, 2003.  We have been told that the counterclaim willbe dismissed in the near future and that LOCI and Everett then will file a newappeal.  It is too early to know howmuch this will delay a final decision by the court of appeals.  Because of the uncertainty of an appeal byplaintiffs, at this time we are unable to assess the likely outcome of thislitigation.

 

*Ordinary CourseLitigation*

 

In addition to litigation between lessor and our former lessees (andtheir affiliates), 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.Such proceedings are generally brought against the operator of a golf course,but may also be brought against the owner. Our participating leases providedthat each lessee was responsible for claims based on personal injury andproperty damage at the golf courses which were leased and required each lesseeto maintain insurance for such purposes. Since we are now the operator of ourremaining golf courses, excepting Innisbrook, we maintain insurance for thesepurposes. We are not currently subject to any material claims of this type.

 

*RefundableInitiation Fees*

 

Certain membership initiation fees at these golf courses are refundablebased on specific conditions. The estimated present value of the potentialrefunds over the thirty-year required membership term, as defined in the ClubMembership Manual, recorded as an accrued liability on our books atSeptember 30, 2003 and is valued at $125,000. Additionally, certaininitiation fees may be refundable prior to the expiration of the thirty-yearterm under specific membership replacement conditions. There is no liabilityrecorded to consider the refundability of refunds issued under these conditionsdue to the fact that four new members have to join in the specific membershipcategory for a resigned member to receive a refund. A refund issued under thesespecific circumstances would be considered a reduction of membership revenuefor that period.  All initiation feesreceived are initially recorded as deferred revenue and amortized over theaverage life of a membership which, based on historical information, is deemedto be nine years.

 

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**6.  Other Assets**

 

Receivables—net consists of the following:

 
|                                     |   | **(Liquidation  Basis)** |      |
|------------------------------------------|--------|--------------------------|-----------|
|                                     |   | **September  30, 2003**  |      | **December 31,  2002** |   |
|                                     |   | **(unaudited)**          |      |   |   |
|                                     |   |                     |      |   |   |
| Rent receivable                          |   | $                        | —    |   | $ | 553,000 |   |
| Note receivable taken in sale of asset   |   | 2,312,000                |      | — |   |
| Loans to officers                        |   | 758,000                  |      | 1,255,000 |   |
| Other miscellaneous receivables—net |   | 631,000                  |      | 946,000 |   |
| Receivables—net                     |   | $                        | 3,701,000 |   | $ | 2,754,000 |   |

 

The rent receivable represented the rent due on the golf courses at theEagle Ridge Inn & Resort at December 31, 2002 which wassubsequently received.  This propertywas sold on January 30, 2003.

 

The note receivable taken in sale of this asset represents the $2.5million note we received from the buyer of the Eagle Ridge Inn & Resort,plus accrued interest less a discount reserve of $200,000 (i.e., in the eventthat the borrower has not caused any uncured event of default to occur underthe note up to its maturity, the borrower shall have the right to reduce itspayment obligations under the note by $200,000 plus any interest paid on thatsum during the term of the note upon borrower’s payment of the balance of thenote, subject to certain prepayment prohibitions).

 

*Loans to Officers*

 

Historically, the compensationcommittee of the board authorized us from time to time to make loans to ourofficers to purchase shares of our common stock and to assist in their paymentof their personal income tax liability arising in connection with theirnon-cash compensation and benefit arrangements.  Pursuant to the terms of our officers’ amended and restatedemployment agreements, dated as of February 25, 2001, we made non-recourseloans of $1,595,000 to our executive officers on February 25, 2001 for thepayment of personal income taxes arising from the acceleration of theirrestricted stock grants and the forgiveness of their outstanding debt to usthat occurred on such date. These loans were evidenced by promissory notes fromthe executives and secured by their holdings of 199,415 shares of our commonstock valued at $8 per share at the time of the issuance of these loans.Interest accrues on these loans at 5.06% per annum (the applicable federal rateon the date of the loan) and is due at maturity. The outstanding balance ofthese loans at June 30, 2002, principal and interest, was $1,655,000.Effective July 1, 2002, we discontinued accruing interest on these loansfor financial reporting purposes because the total outstanding balance exceededthe value of the collateral shares of common stock, computed based on the netassets available to common shareholders. Loans to officers are subject to an allowance for doubtful accounts of$897,000 to reflect the difference between the computed value of our officers’pledged shares of their common stock compared to their value at the time thatthe shares were pledged, which was $8 per share.   These loans mature at the earliest of the following:(i) February 25, 2006; (ii) three years following termination ofthe executive/borrower’s employment; or (iii) the date of the finaldistribution under the plan of liquidation. At any time when the loan isover-secured, the executive/borrower has the right to sell the common stocksecuring the loan, provided that all proceeds of the sale are first applied tothe then outstanding balance of the loan. All distributions (including anyliquidating distributions) on the common stock securing the loan are appliedagainst the loan. The related promissory notes are non-recourse to theexecutive/borrower.

 

The other miscellaneous receivables include approximately $390,000 ofmember, trade and other miscellaneous receivables of our managed golf coursesand $241,000 in notes receivable, including accrued interest, taken in participatinglease terminations.

 

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**7.  Credit Agreement**

 

Our obligations under our Second Amended and Restated Credit Agreementwith our senior bank lenders which was scheduled to mature on June 30, 2003 wererepaid in full as of June 19, 2003. Prior to repayment, the interest rate under the credit agreement wasprime plus 3% for an effective rate of 7.25% per annum at retirement.

 

**8.  Preferred Stock**

 

*Series APreferred Stock*

 

On April 2, 1999, we completed a registered offering of 800,000shares of 9.25% Series A Cumulative Convertible Preferred Stock, par value$0.01 per share, or Series A preferred stock, at a price of $25.00 pershare to a single purchaser, AEW Targeted Securities Fund, L.P., or AEW. TheSeries A preferred stock is convertible, in whole or in part, at theoption of the holder at any time into our common stock at an implicitconversion price of $26.25 per share of common stock, subject to adjustment incertain circumstances. We contributed the net proceeds to our operatingpartnership in exchange for 800,000 Series A preferred OP units withanalogous terms.

 

Aggregate Series A preferred stock dividends accrued, untilJuly 20, 2003, at a rate of $462,500 per quarter.  Effective July 21, 2003 the rate increasedto $625,000 per quarter (see further discussion of this increase) below.  As of September 30, 2003, we have accruedand not paid nine quarters of Series A preferred stock dividends (includingthe dividend otherwise payable in respect of the quarter ended September 30,2003). Under our Series A charter document, because we now have at leastsix quarters of accrued and unpaid Series A preferred stock dividends, theholder of the Series A preferred stock, AEW Targeted Securities Fund, L.P.(or its transferee), has the right to elect two additional directors to ourboard of directors at our next annual meeting, whose terms as directors willcontinue until we fully pay all accrued but unpaid Series A dividends.

 

On February 22, 2001, we entered into a voting agreement with AEW,which continues to hold all of the shares of the Series A preferred stock.That agreement required AEW to vote in favor of the plan of liquidation andrequired us to redeem all of the shares of Series A preferred stock (for$25 per share plus dividends accrued and unpaid thereon through the date of thefinal redemption payment) promptly after we determine in good faith that wehave received sufficient net proceeds from the disposition of our assets and/oroperations to redeem all of the preferred shares without violating any legal orcontractual obligations.

 

Moreover, under our voting agreement with AEW, since we did not fullyredeem the Series A preferred stock by May 22, 2003 (which was thesecond anniversary of our shareholders’ adoption of the plan of liquidation),AEW Targeted Securities Fund (or its transferee) had the right to require us toredeem the Series A preferred stock in full within 60 days, whichright they exercised on May 23, 2003. Since we defaulted on that obligation,from and after July 21, 2003 the stated dividend rate of the Series Apreferred stock increased from 9.25% to 12.50% per annum (equivalent to aquarterly dividend of $625,000) until the Series A preferred stock isredeemed. Although we are permitted to continue to accrue such dividendswithout paying them on a current basis, they must be paid in full prior to anydistribution to our common stockholders, which will reduce our cash availablefor liquidating distributions to common stockholders.  We intend to continue to accrue such dividends until such time aswe have cash available to redeem the Series A preferred stock, at which time weintend to redeem the Series A preferred stock.

 

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**GOLFTRUST OF AMERICA, INC.Form 10-Q Quarterly ReportFor the Three and Nine Months Ended September 30, 2003**

 

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

 

Golf Trust of America, Inc., or GTA, was incorporated in Marylandon November 8, 1996. We are engaged in a liquidation of our assetspursuant to a plan of liquidation approved by our stockholders.  We were originally formed to be a realestate investment trust, or REIT, however, we no longer have our REIT status as a result of ourrepossession and operation of golf courses following applicable tenants’defaults under their original third-party lessees.  We now own and operate golf courses, subject to our efforts tomarket the same for sale to third-parties. In our SEC filings, we often state golf course quantities in terms of18-hole equivalents. Therefore, one 27-hole golf course property would becounted as 1.5 golf courses. As of November 7, 2003, we have interests in fiveproperties which represent nine golf courses. Five of these nine golf coursesare owned by us and four (namely, the Innisbrook Resort golf courses) arecollateral for a 30-year participating mortgage wherein we are the lender. Thefive golf courses that we own are held by us in fee simple. The nine golfcourses are located in Florida (6), South Carolina (2), and New Mexico. Titleto our golf courses is generally held by Golf Trust of America, L.P., aDelaware limited partnership. We refer to Golf Trust of America, L.P. as our“operating partnership” or “OP” and we refer to the operating partnership andGTA (together with all of their subsidiaries) collectively as “we”, “us” or our“Company.” Golf Trust of America, Inc., through its wholly ownedsubsidiaries GTA GP, Inc. (“GTA GP”) and GTA LP, Inc. (“GTA LP”)holds a 99.6 percent interest in our operating partnership as of November7, 2003. GTA GP is the sole general partner of our operating partnership andowns a 0.2 percent interest therein. GTA LP is a limited partner in theoperating partnership and owns a 99.4 percent interest therein. Thesepercentages give effect to all outstanding preferred OP units on anas-converted basis. One of our former lessees holds the only remaining minorityinterest in our operating partnership.

 

**Significant Eventssince the filing of our quarterly report on Form 10-Q on August 14, 2003**

 

Significant events occurring since August 14, 2003 (the filing date ofour Form 10-Q for the quarter ended June 30, 2003) include the following:

 

•                  We reduced thevalue of the Innisbrook Resort on our balance sheet from $60 million to $44.2million, as described in more detail below.

 

•                  We continued tonegotiate for a potential settlement of claims resulting from the borrower’sdefault under the participating mortgage at the Innisbrook.  Operating performance at the Resort fellshort of budget expectations for the first nine months of 2003 and has beenforecast at levels below expectations for the fourth quarter of 2003 andcalendar year 2004.

 

•                  In July 2003,the judge in the litigation against our borrower at the Innisbrook Resort, GolfHost Resorts, Inc., reversed an earlier ruling and held that the case could notproceed as a class action. The judge also ruled that the plaintiffs could notseek recovery from the individuals that hold stock in Golf Host Resorts, Inc.and its affiliates (rejecting plaintiffs’ attempt to “pierce the corporateveil”).  In October 2003, the judgeruled that the claims of the former members of the class who were not named asplaintiffs in the lawsuit were barred by the statute of limitations.  These rulings leave approximately 80individual plaintiffs in the lawsuit. Plaintiffs have appealed the first and second rulings to the court ofappeals and have stated their intention to appeal the third issue.  The court of appeals has not yet ruled onany of these issues.

 

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**Our ParticipatingMortgage secured by the Innisbrook Resort**

 

***Recent InnisbrookDevelopments***

 

The Innisbrook Resort serves as collateral under a non-recoursemortgage loan we funded, as the lender, in 1997.  Following the events of September 11, 2001, the Resort’soperating performance has been below historical trends and the Resort’s owner,as borrower, has been in payment default on the loan since October 2001.  We have been negotiating to take possessionof the Resort in lieu of foreclosure and to reach a global settlement of avariety of related disputes (described below). Our goal since early 2002 has been to acquire ownership of the Resortfrom the borrower and then to hold the asset on an interim basis in order toallow the Resort’s operations to realize some recovery approaching historicalperformance trends before we sell the asset around the end of 2005.  We call this our “orderly liquidation”strategy, as distinct from a “forced liquidation” strategy of selling themortgage (or the Resort) for its current impaired value.

 

***Orderly LiquidationRemains Current Strategy for the Participating Mortgage***.  Based in part on projected cash-flows fromthe Resort, in the Spring of 2003 (as previously reported) our board affirmedthe “orderly liquidation” strategy for the participating mortgage.  As a result, we value the participatingmortgage on our balance sheet based on our estimate of the resale value of theResort at the conclusion of the holding period. At June 30, 2003, we carriedthe participating mortgage on our books at $60.0 million, based on theassumptions that we would take ownership of the Resort, that the Resort’soperations would begin to recover in 2004 and that by the end of the 2005holding period the Resort would have realized a modest recovery in line withhistorical results (among other assumptions). We have identified our valuation of the participating mortgage as acritical accounting estimate, as discussed below under the caption “Applicationof Critical Accounting Policies.”

 

***Updated InnisbrookResort 2004 Forecast***.  During the third quarter of 2003, we continued to negotiate for aglobal settlement of claims resulting from the borrower’s default.  However, these negotiations stalled inOctober when we received from the Westin Hotel Company (which operates thehotel and conference facilities at the Resort) an updated Innisbrook forecastfor the fourth quarter of 2003,  thecalendar year 2004, and annual performance estimates for years 2005 through2007.  As disclosed in our press releasedated October 20, 2003, the updated forecast was materially less favorable thanforecasts we had received earlier from Westin regarding the same periods.  The revised forecast included a forecast forgolf operations at the Resort prepared by Troon Golf (which operates the golfcourses at the Resort and which is an affiliate of Westin).  Following our receipt of the revisedforecast and the corresponding 2004 budget, we reviewed the budget methodologyand economic assumptions underlying the 2004 budget in a series of meetingswith Westin and Troon.  The decline inthe revised forecast resulted primarily from fewer than anticipated group bookingsat the Resort in the fourth quarter of 2003 and the decrease in the number ofbookings for 2004 currently on the books as compared to the same time lastyear, which leads Westin to believe that the adverse economic conditions of thepast two years at the Resort will continue throughout 2004.

 

***Decision to WriteDown the Value of the Participating Mortgage***.  In light of the revised forecast, some ofthe assumptions underlying our estimate of the participating mortgage’s value,as recorded on our June 30, 2003 balance sheet, are now in doubt.  Specifically, we had assumed that theResort’s recovery would begin in 2004. However, even if the lodging industry as a whole does begin to recoverin 2004, Westin does not currently expect any significant improvement in largecorporate group spending at the Innisbrook Resort (or other significant newInnisbrook Resort bookings) in 2004, based on the limited information nowavailable.  Thus, while it is too earlyto be certain, based on the asset’s disappointing fourth quarter 2003performance to date, we face the risk that any economic recovery for this assetwill be delayed by a year or more.  Inour prior SEC filings we have consistently stated that our assessment of theparticipating mortgage’s fair value may change at some future date, based onfacts and circumstances prevailing at that time, and that the asset may bewritten-down in future periods.  Afterwe received and reviewed the revised forecast and the 2004 budget and attendedthe 2004 budget review meeting with Westin and Troon, we determined that ourassessment of the participating mortgage’s fair value had indeed changed basedon the new facts and circumstances described for us and that a write-down wasnecessary to reflect the new information.

 

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***Factors Consideredin Preparing our Revised Estimate of the Resale Value of the Resort****. *In our effort to determine theproper extent of the write-down, we considered the following information, amongother factors.

 

•                  ***Booking Information for the FourthQuarter 2003***.  Asmentioned above, the Resort’s bookings for the fourth quarter 2003 aredisappointing and the lack of bookings is expected to result in a significantrevenue decline for the fourth quarter, as compared to the same quarter of theprior year.  As yet, it is too early todiscern whether this trend will continue into 2004, particularly inasmuch asWestin recently hired a new general manager for the Resort who will seekgreater performance and operating efficiencies. Based on the Resort’shistorical experience, we do not expect to be able to discern annual 2004booking trends for the Resort until mid-way through the first quarter, at theearliest.  To compound the problem,advance booking data is becoming less useful as a leading indicator of theResort’s performance because, in response to increased competition fromdiscount Internet travel sites and other factors, booking windows have narrowedresulting in Resort reservations increasingly being booked shorter time periodsin advance of the stay.

 

•                  ***Extended Westin Forecasts for theResort***.  We obtainedInnisbrook Resort earnings forecasts from Westin for years 2004 through 2007,which predicted relatively slow, steady growth from the forecast 2004 levels describedabove.  In general, these extendedprojections do not appear to assume a sharp recovery or rapid rebound from thedepressed performance that the Resort has experienced in 2003.  If the economy does recover strongly in2004, Westin is assuming only marginal positive impact due in part to theeffect on their 2003 performance of competition from two new resorts in theirmarket.   We continue to believe thatthe Resort may be able to return to reasonable performance levels as comparedto its historical trend level of operating performance if and when the resortand lodging sector of the economy rebounds.

 

•                  ***Discussions with Westin Management****.*  Following receipt of Westin’s extendedforecasts we, together with representatives of our financial advisor, met againwith Westin representatives to clarify any differences in our view of theasset.  The main difference seems to bethat we expect greater potential upside over the next few years for the Resort,particularly if the Resort broadens the scope of their marketing approach thatwould target relatively smaller business and personal groups, golf packages,transient stays and vacation bookings rather than focusing primarily on largecorporate group bookings.  Westin hasinformed us that they will attempt to broaden their marketing strategy for theResort.  As lender to the propertyowner, we have no contractual control over how Westin manages the propertypursuant to its operating agreement with the owner (borrower).

 

•                  ***Estimate of Fair Value.***  The single most important factor weconsidered in arriving at our revised estimate of the Resort’s fair value wasthe result of a study that we commissioned in July of 2003 in anticipation ofour taking ownership of the Resort by the end of 2003 and needing to allocate theimplicit purchase price among different asset categories on our balance sheetat that time.  This study included anestimate of the market value of the Resort’s real estate, an estimate of thefair market value in continued use of the Resort’s furniture, fixtures andequipment, or FF&E, inventory and an estimate of the fair value of theResort’s identified contractual intangible assets.  At our request, this study was expanded to include an estimate ofthe fair value of the Resort’s non-contractual but identifiable intangibleitems.  The estimate of the fair marketvalue of each of these asset groups are based on facts and circumstances knownto us as of the date of this filing. Accordingly, these estimates could change (and they could change inadverse ways) based on changes in events and circumstances.

 

***Estimated Value ofthe Participating Mortgage/Amount of Write-Down*.**  Based on the above considerations and theother limited information available to us at this time, for purposes of ourSeptember 30, 2003 balance sheet we estimated the fair value of theparticipating mortgage under the “orderly liquidation” strategy (i.e., based onour estimate of the Resort’s resale value as a going concern at the end of the2005 holding period) to be $44.2 million. Accordingly, for the quarter ended September 30, 2003, we recorded awrite-down of $15.8 million against the participating mortgage’s June 30, 2003value of $60 million.  In arriving atthis revised fair value estimate, we made several assumptions about futureevents, including the following:

 

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•                  we assumed thatwe will successfully obtain fee simple title to the Resort (with a concurrentsettlement of the condominium owners litigation) in 2004;

 

•                  we assumed thatthe Resort’s performance will begin to recover toward historical trend levelsbut that this operational recovery will not begin at the Resort until 2005 (atleast a year later than previously expected). We believe the timing of the Resort’s ultimate recovery (if any) dependsheavily upon:

 

•                  the marketingand management skills of the Resort’s operators; and

 

•                  a recovery inFlorida’s resort and lodging industry and general improvement in travel, resortand lodging spending nationwide.

 

•                  we assumed thatwe will have sufficient liquidity and capital resources to hold and operate theresort through the end of the anticipated holding period.  We face the risk that we might haveinsufficient liquidity and capital resources to hold the Resort for the currentor any extended holding period.  Duringthe holding period, we currently anticipate that our liquidity and capitalresources will come from:

 

•                  sales of ourremaining golf courses (for which we currently have no purchase agreements orletters of intent);

 

•                  a potentialdecision by our board to seek short-term financing on the Stonehenge GolfCourse; as our other remaining properties are currently not producing positivecash-flow;

 

•                  potentialpositive cash flows from the operations of Innisbrook and/or our otherremaining properties; and/or

 

•                  a potentialdecision by our board to seek short-term financing of the Innisbrook Resort orour other non-performing golf course assets.

 

•                  we assumed thatthe Resort will be operated by Westin and Troon in a manner that generallyapproaches the level of operating performance we believe can be generated bythe Resort during the anticipated holding period.  We face the risk that Westin and Troon might not manage theResort at the levels we believe are attainable.  We anticipate that such attainment will depend upon:

 

•                  the marketingand management skills of the Resort’s operators; and

 

•                  the successfulimplementation of the process to broaden the marketing focus from primarilylarge corporate group bookings to smaller business and personal groups, golfpackages, transient stays and vacation bookings.  (Although we expect to have influence over Westin’s operatingdecisions, we have no contractual right to manage the asset and we continue toexpect that the Resort will remain subject to a management agreement withWestin even after we take possession of the Resort.  Accordingly, our direct ability to oversee such a change inmarketing focus is quite limited).

 

Any or all of these assumptions might prove to be incorrect; accordingly,investors should not place undue reliance on our currently estimated value ofthe participating mortgage.

 

As discussed above, our write-down of the participating mortgageresulted primarily from the Resort’s weak performance in the fourth quarter of2003 and the new forecast for calendar year 2004 that reflects minimalimprovement over 2003.  In January of2004, we expect to receive the full-year 2003 performance data.  By mid-March of 2004, we will have asubstantially complete view of the Resort’s first quarter 2004 performance andmore-complete advance booking data for the remainder of 2004.  We will also have a better idea of thestrength of the recovery (if any) in Florida’s resort and lodging industry.  These data points may support more-reliableprojections of the Resort’s 2004 performance than do the current limited dataavailable to us.  Once these and otherrelevant data points are available, our board intends to re-evaluate thestrategic alternatives available to our company regarding the Resort.  Our board might determine that the prospectof a modest recovery at the Resort in 2006 is sufficiently real that extendingour expected holding period of the Resort for another year would be in the bestinterests of our

 

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stockholders.  In that case, our end-of-holding-periodvaluation of the Resort might increase. In contrast, our board may decide that an immediate sale would be in thebest interests of our stockholders.  Wecannot predict what such future data will show or what decision the board willtake at that time.

 

Since our press release regarding Westin’s new forecast for Innisbrook,which was issued on October 20, 2003, we have received third-party indicationsof interest regarding a potential acquisition of the Resort.   We do not rule out the possibility that ourboard might decide to sell our interest in the Resort prior to the end of thecurrently-anticipated holding period (i.e., prior to December 31, 2005) inresponse to a reasonable offer, if after consideration of the facts andcircumstances at that time our board determines that the sale would be in thebest interest of our stockholders. However, we cannot presently predict what events, signals, factors oroutcomes might cause our board to alter the orderly liquidation strategy infavor of an immediate sale.  We face therisk that our efforts to preserve the value of the Resort might be unsuccessfuland, therefore, that we might ultimately sell our interest in the Resort for lessthan our current estimates of its fair value. Finally, it is possible that at some future date our assessment of theasset’s fair value may change, and the asset may be again be written-down.

 

***InnisbrookBackground***

 

We are the lender under a $79 million non-recourse loan, securedby a first mortgage on the Innisbrook Resort (other than the Resort’scondominium units). The Resort, located near Tampa, Florida, is a destinationgolf resort that includes four high-end golf courses and adjacent condominiumand conference facilities. We originated this loan in June 1997. Theborrower, Golf Host Resorts, Inc., owns the Resort (other than thecondominium units). The borrower entered into an arrangement with many of thepersons who own condominium units at the Resort. Under this arrangement, whenthe condominiums are not being used by their owners, they are placed in a pooland rented as hotel rooms to guests of the Resort. There are no separate hotelrooms. Accordingly, we believe maintaining condominium owner participation inthe rental pool is important to the economic success of the Resort. Theborrower also entered into an agreement with Troon Golf, LLC to manage the golfcourses, and a separate management agreement with Westin Hotel Company tomanage the condominium unit rental-pool and the conference facilities. TroonGolf, Westin Hotel Company and the borrower are all affiliates.

 

Pursuant to the terms of the participating mortgage, the loan term ofthe participating mortgage is 30 years from inception, with an initialbase interest rate of 9.6% per annum, annual increases (of at least 5% but nomore than 7%) in the interest payment for the first five years, and aparticipating interest feature throughout the term based upon the growth inrevenues, if any, over the base year. However, operations at the Resort havenot resulted in any participating interest payments (as distinct from baseinterest payments) since 1999 (see Note 4 to our condensed consolidatedfinancial statements).

 

In addition to the Resort itself, the collateral securing theborrower’s performance under the participating mortgage currently includes365,380 shares of GTA common stock owned by the borrower (and held by GTA asthe secured party) and three condominium units owned by the borrower at theResort. The borrower’s parent, Golf Hosts, Inc., guaranteed all of theborrower’s loan payment obligations, however, Golf Hosts, Inc. has fewsignificant assets other than its interest in the borrower. In June 1997,Westin and the borrower entered into an agreement pursuant to which Westinagreed to advance, in specified circumstances, up to $2.5 million per yearto the borrower for five years in the event that the Resort did not generatethe levels of cash flow specified in that agreement. Westin, the borrower andGTA entered into a subordination agreement whereby Westin agreed to make suchpayments directly to GTA in specified circumstances, and GTA agreed that in theevent of foreclosure, Westin would continue to manage the resort pursuant to theexisting management agreement.

 

In addition to the current rental pool agreement dated January 1,2002, the current owner of the Resort agreed with the condominium ownersassociation that the owner of the Resort would reimburse 50% of therefurbishment costs (approximately $7.6 million plus accrued interestthereon, assuming 610 units are refurbished) invested in the condominium unitsby the condominium owners. This amount will be amortized and reimbursed toparticipating condominium owners (or transferees of their condominium unit)over the five-year period beginning in 2005. The reimbursement is contingent onthe units remaining in the rental pool from the time of their refurbishmentthroughout the reimbursement period (2005 to 2009). If the unit does not remainin the pool during the

 

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reimbursement period, the owneror successor owner forfeits any unpaid installments at the time the unit isremoved from the pool. We understand that the refurbishment of all of the totalrental pool units of approximately 619 has been completed to date.

 

Certain of the condominium owners (as plaintiffs) initiated legalaction against our borrower, Golf Host Resorts, Inc., and its corporateparent, Golf Hosts, Inc. (as defendants), regarding various aspects of theprior rental pool arrangement and asking that the case proceed as a classaction on behalf of all similarly situated condominium owners. We have beeninformed that by order dated April 3, 2003, Golf Host Resorts, Inc. wassubstituted in place of Golf Hosts, Inc. as the defendant in this lawsuit. Weare not a party to the lawsuit. It is our understanding, however, that thecondominium owners/plaintiffs allege breaches of contract, including breachesin connection with the prior rental pool arrangement. The plaintiffs areseeking unspecified damages and declaratory judgment stating that theplaintiffs are entitled to participate in the rental pool and requiring thatgolf course access be limited to persons who are either condominium owners,members, their accompanied guests, or guests of the Resort.  In July 2003, the judge in the litigationagainst Golf Host Resorts, Inc. reversed an earlier ruling and held that thecase could not proceed as a class action. The judge also ruled that theplaintiffs could not seek recovery from the individuals that hold stock in GolfHost Resorts, Inc. and its affiliates (rejecting plaintiffs’ attempt to “piercethe corporate veil”).  In October 2003,the judge ruled that the claims of the former members of the class who were notnamed as plaintiffs in the lawsuit were barred by the statute oflimitations.  These rulings leaveapproximately 80 individual plaintiffs in the lawsuit.  Plaintiffs have appealed the first andsecond rulings to the court of appeals, and have stated their intention toappeal the third issue.  The court ofappeals has not yet ruled on any of these issues.

 

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

 

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

 

On March 8, 2002, we sent a notice to Westin Hotel Companyalleging that Westin breached the subordination agreement by failing to remitpayments directly to us, on behalf of the borrower. Westin has contested ourclaim that it breached the subordination agreement. No litigation has beenfiled in this regard. We are seeking a resolution of this dispute with Westinas part of the proposed global settlement of matters at the Resort, asdiscussed below.

 

In addition, on March 8, 2002, we delivered a notice to theborrower accelerating the entire amount of its indebtedness to us as a resultof its continuing default under the participating mortgage. The participatingmortgage loan is a non-recourse loan. This means that following an event ofdefault thereunder, we cannot bring a legal action directly against theborrower to compel payment. Rather, our recourse is to proceed against theguarantors and/or to foreclose upon the Resort (other than the condominiumunits which are owned by third parties) and any other property of the borrowerthat has been pledged as collateral to us to secure our loan to the borrower.Since early

 

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2002, we have been seeking anegotiated foreclosure or settlement with the borrower as described in moredetail below.

 

***Innisbrook Strategy***

 

In general, we face a potential trade-off between (a) seeking tosell the participating mortgage at the present time, as a distressed loan,which would likely result in a significant loss on our investment, but wouldlikely hasten the completion of our liquidation, and (b) seeking to resolvethe problems with our borrower and others associated with the Resort through anegotiated settlement or foreclosure of the participating mortgage, after whichwe, in conjunction with the Resort operators (Westin and Troon), would seek torealize a potentially better recovery, based on historical results. The latteralternative might allow us to recoup more of our investment, but would takeconsiderably more time and expense.

 

When our financial advisor, Houlihan Lokey, evaluated our interest inthe Resort in March 2002 and again in March 2003, they valued thisasset under two different scenarios: a “forced liquidation” and an “orderlyliquidation.” Both scenarios assumed that we would obtain a fee simple interestin the asset, either by completing a negotiated settlement or by foreclosing onour mortgage interest, by the end of the second quarter of 2003. Under the“forced liquidation” scenario, Houlihan Lokey analyzed the range of total valuewe could reasonably expect to receive upon an immediate sale of the Resort.Under the “orderly liquidation” scenario, Houlihan Lokey analyzed the range oftotal value we could reasonably expect to receive if we were to hold the assetfor a period of approximately 30-months (ending on or about December 31,2005) and during that time we and the Resort’s operators (namely Westin andTroon) were to successfully realize a modest recovery based on past historicalresults. In a letter dated March 15, 2002, subject to various limitingassumptions, Houlihan Lokey’s analysis projected that we would receive between$45 and $50 million under the forced liquidation scenario, and between $60and $70 million under the orderly liquidation scenario.

 

Houlihan Lokey updated its analysis of the Resort in March 2003.In a report we received on March 18, 2003, subject to various limitingassumptions, Houlihan Lokey’s analysis projected that we would receive between$40 and $47 million under the forced liquidation scenario, and between $58 and$70 million under the orderly liquidation scenario.

 

Houlihan Lokey’s analysis regarding the Resort includes forward-lookingstatements, subject to this report’s introductory cautionary note and the riskfactors listed herein. The actual value we may obtain from our participatingmortgage interest might be much lower. Houlihan Lokey’s analysis is based onseveral assumptions about future events, including assumptions that we willsuccessfully obtain fee simple title to the Resort and then successfullyrealize a recovery in the financial performance of the Resort (which isdependent on the success of the Resort operators and a recovery in the traveland leisure sectors of the U.S. economy). Any or all of these assumptions mightprove to be incorrect. Moreover, Houlihan Lokey’s projections are not based onany appraisals of the Resort asset or any independent litigation riskassessments. Accordingly, we have not, and you should not, place undue relianceupon Houlihan Lokey’s analysis.

 

Following review of Houlihan Lokey’s March 2003 report andconsideration of other relevant facts, circumstances and analyses, managementand the board of directors continue to believe that seeking a recovery in theResort’s financial performance and a resolution of issues with the borrower (asopposed to actively marketing for sale our interest in the Resort at adistressed price), is in our stockholders’ best interest vis-à-vis otheralternatives. To that end, we have been negotiating with our borrower, as wellas with Westin and Troon Golf, in an effort to seek a global resolution of allcontractual defaults at the Resort and to take control of the Resort (and allother assets of the operating entity) in early 2004, but which may take longer.As part of any such global settlement, we expect (but cannot assure) that wewill:

 

•                  enter into asettlement agreement with the borrower, Golf Hosts Resorts, which will, amongother matters:

 

•                  grant us feesimple title to the Resort, including, without limitation:

 

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•                  all financialaccounts;

 

•                  three Innisbrookcondominiums;

 

•                  the borrower’sinterest in its Innisbrook real and personal property leases;

 

•                  interests of theborrower and some of its affiliates in their shares of common stock, limitedpartnership units and options to purchase common stock of our company and someof its affiliates;

 

•                  some additionalreal property rights of the borrower relating to adjacent land; and

 

•                  a direct orindirect ownership interest in an affiliate of the borrower responsible forbrokerage activities regarding the sale and re-sale of condominium units at theResort.

 

•                  enable us toassume ownership of the foregoing assets through a number of companies undercommon ownership by our newly-formed, wholly-owned subsidiary, GTA-IB, LLC; and

 

•                  provide for anorderly transition of ownership of the Resort to us and limiting our liabilityfor pre-transition events.

 

•                  enter, throughone of our subsidiary LLCs, into new management agreements with each of Westinand Troon Golf, respectively, which we expect will contain a broad range ofpotential revenue enhancement possibilities, accountability and reportingprovisions. For example, we are seeking to include in a new managementagreement with Westin the following, among other matters:

 

•                  a restructuringof the base management fee to include ultimate responsibility for all revenuelines of the Resort, including golf; and

 

•                  new financialreporting relationships and standards pertaining to compliance with theSarbanes-Oxley Act.

 

•                  contractualcoordination of Troon management with Westin personnel from an organizationaland reporting point of view; and

 

•                  improvement inthe performance measurement standards of Westin and Troon Golf.

 

 

•                  enter, throughone of our subsidiary LLCs, into a new agreement regarding an interest in thenet proceeds of the development of a residential project at an adjacent parcelof land, commonly called Parcel F;

 

•                  assume, throughone of our subsidiary LLCs, the responsibilities of the current Resort ownerregarding the administration of the condominium unit rental pool (theday-to-day operation of which will be subject to a contract with Westin) and,as part of this transition, we expect that our subsidiary LLC will become asuccessor SEC filer to Golf Host Resorts under Exchange Act rule 15d-5;

 

•                  continue toimprove the Resort’s relationship with the Innisbrook condominium association;and

 

•                  support asettlement of the lawsuit brought by certain condominium owners against theResort owner, which settlement we believe would be in the best interest of theResort.

 

As previously discussed, we are seeking to finalize open issues andlegal agreements on all of the above in

 

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early 2004, however, we canprovide no assurances as to the terms, timing or likelihood of any possibleglobal settlement. If we decide to pursue judicial foreclosure of the Resort,we expect that it would be expensive and time-consuming and there is a risk tous that the borrower might pursue and obtain bankruptcy and/or other judicialprotection. We also face the risk that our negotiations with Westin might notbe successful. If our settlement negotiations with Westin do not succeed, butwe nonetheless become the owner of the Resort, we may become involved inpotentially costly litigation with Westin regarding the effect of thesubordination agreement. Any such litigation would likely focus on the extent,if any, to which we, as successor owner of the Resort, must assume theborrower’s outstanding liabilities to Westin under the original managementagreement, among other issues. Nothing herein shall imply a view that we haveany such obligation or that we do not have defenses to any allegations that wehave such an obligation. Even if we successfully obtain ownership of theResort, we, along with the Resort’s operators, Westin and Troon Golf, expect toface the difficult task of seeking to realize a recovery in the Resort’sperformance, which is currently hindered by the delay in and/or lack of anymeaningful economic recovery in the relevant sectors of the U.S. economy.Because the borrower is insolvent, it cannot generally make distributions toits equity owners. We have also received confirmations (and correspondingunaudited financial statements) from the Resort’s management that all cashgenerated by the business is retained in the operating entity and is beingutilized to cover Resort financial obligations.

 

Our estimate of the fair value of our participating mortgage interestas lender in the Resort, as recorded on our books at September 30, 2003, is$44.2 million, as described above. We have identified our valuation of theparticipating mortgage as a critical accounting estimate, as discussed below,under the caption “Application of Critical Accounting Policies.”

 

We face a number of risks respecting the Resort, our attemptedresolution of the issues described above and the timing thereof.  These risks are described further belowunder the heading “Risks that might Delay or Reduce our LiquidatingDistributions.”

 

***Innisbrook ResortFinancial Performance***

 

If we acquire ownership of the Resort, together with the business andassets of the Resort’s owner, Golf Hosts Resorts (and its various relatedparties associated with operations at the Resort), we expect to include thesenewly-acquired assets of these entities within our consolidated financialreporting group. The consolidated financial results of these entities arediscussed below.

 

Even though we have not yet acquired ownership of the InnisbrookResort, we have based our calculation of the participating mortgage’sliquidation value on an estimate of the future going-concern value of theResort’s operations, on the assumption that we will assume operations, hold andoperate the property until operating revenues realize a modest recovery basedon historical results and then sell the Resort as a going concern. We haveidentified our valuation of the participating mortgage as a critical accountingestimate.  This topic is discussed below.See “Application of Critical Accounting Policies.”

 

As previously discussed, we are seeking to assume ownership of theResort by early 2004.  However, we donot anticipate any material adverse effect if the transfer is delayed untilsometime later in the first half of 2004. The Resort continues to suffer from weak performance in the travel andlodging sector of the economy.   As aresult, the Resort’s bookings for the first nine months of 2003 have been belowanticipated levels for 2003 and based on the forecasts we recently received wecurrently do not expect to see any marked improvement until early 2005.   Based on the current financial performanceof the Resort and its outstanding unpaid financial obligations from priorperiods (years), we can offer no assurances that we will not need to fundshort-term operating cash shortfalls at some level following the conclusion ofsettlement negotiations.

 

Based upon the financial results submitted to us by Golf Hosts Resorts,Inc., the net operating loss of the property for the nine months ended September30, 2003 was approximately ($2,046,000), which is a decrease in income from thesame period in the prior year of approximately $3,334,000, or 258.9%. Duringthe nine months ended September 30, 2003, gross revenues declined approximately$4,516,000, or 13.8%, from the same period in the prior year. Room nights forthe period were down by 12.9% and room night spending levels were down by $4.75per room

 

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night or 1.1%. The combinedreduction in room nights and average spending resulted in the reduction ofgross revenues noted above. Total operating expenses before depreciation andamortization were down by approximately $1,397,000, or 4.9%, for the ninemonths ended September 30, 2003 compared to the same period for the prior year.In addition, depreciation and amortization increased in the aggregate amount ofapproximately $215,000. This performance was significantly below budgetexpectations for the first nine months of 2003.

 

For the trailing twelve months ended September 30, 2003, net operatingincome, before write-down of impaired intangible assets, is down approximately$2,992,000 or 712.8%, when compared to the trailing twelve months endedSeptember 30, 2002. Total revenues are down approximately $5,161,000, or 12.6%.REVPAR (revenue per available room), which is a standard operating measurementtool within the hotel industry, is in our judgment not a useful analytical toolat the Resort due to the rental pool arrangement and other significant revenuesources at the Resort, namely golf operations. Revenue per room night, which recognizes the actual gross revenue as itrelates to occupied rooms, was up $00.69, or approximately 0.1 % while roomsoccupied were down by approximately 7,000 room nights or 12.7%. Operatingexpense for the trailing twelve month period ended September 30, 2003 increasedby approximately $919,000 or 2.7% over the twelve months ended September 30,2002. Other expenses, which include participating interest, straight-line interest,income tax benefits and non-cash charges for depreciation and amortization aredown by approximately $3,598,000. This reduction in other items is primarilythe result of a the write-down during the twelve months ended September 30,2002 of intangibles due to intangible impairment in the amount of $3,000,000,increases in the recognition of depreciation and amortization in the amount ofapproximately $97,000, a decrease in interest expense of $179,000 andreductions in income tax benefits of $515,000. These fluctuations culminated in an increase of approximately $3,328,000or 36.1%, in the loss for the trailing twelve months ended September 30, 2003,when compared to the same period in the prior year.   Because these results are unaudited and are provided by ourborrower and not prepared by us, we can provide no assurances as to thecompleteness or accuracy of these financial results.

 

**Plan of Liquidation**

 

***Background regardingthe Plan of Liquidation***

 

On February 25, 2001 our board of directors adopted, and onMay 22, 2001 our common and preferred stockholders approved, our  plan of liquidation. The events andconsiderations leading our board to adopt the plan of liquidation aresummarized in our proxy statement dated April 6, 2001, and in our mostrecent annual report on Form 10-K. The plan of liquidation contemplatesthe sale of all of our assets and the payment of (or provision for) ourliabilities and expenses, and authorizes us to establish a reserve to fund ourcontingent liabilities. The plan of liquidation gives our board of directorsthe power to sell any and all of our assets without further approval by ourstockholders. However, the plan of liquidation constrains our ability to enterinto sale agreements that provide for gross proceeds below the low end of therange of gross proceeds that our management initially estimated would bereceived from the sale of such assets absent a fairness opinion, an appraisalor other evidence satisfactory to our board of directors that the proposed saleis in the best interest of our stockholders.

 

At the time we prepared our proxy statement soliciting stockholderapproval for the plan of liquidation, we expected that our liquidation would becompleted within 12 to 24 months from the date of stockholder approval onMay 22, 2001 and would result in liquidating distributions to commonstockholders within a specified range. While we have made significant progresstoward that goal, our ability to complete the plan of liquidation within thistime-frame and within the range of liquidating distributions per share setforth in our proxy statement is now far less likely, particularly insofar asthe disposition of our lender’s interest in the participating mortgage at theInnisbrook Resort is concerned. We use the term “Original 2001 Range” to referto our 2001 projection of the range within which total liquidatingdistributions to common stockholder would likely occur. (As the contextrequires, the term “Original 2001 Range” also refers to the component estimateprices or price ranges for particular golf courses, all of which contributed tothe overall projected range of liquidating distributions.).  At the time management prepared the Original2001 Range, one of our financial advisors, Houlihan Lokey, estimated thatliquidating distributions to common stockholders would be lower. We refer tothis projection as “Houlihan Lokey’s 2001 Range,” which term also refers to itscomponent per-course estimated sale price ranges, as the context requires. Withrespect to our dispositions, as of November 7, 2003,  we have sold 29 of our 34 properties (stated in 18-holeequivalents, we have

 

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sold 38.0 of our 47.0 golfcourses) for gross sales proceeds of $301.4 million. In the calculation of thisamount, we valued all equity redemption components of sale prices as agreedupon by the parties at the time of sale. In the aggregate, our gross salesproceeds of $301.4 million are within the combined per-course ranges forthe sold golf courses, as estimated during the preparation of Houlihan Lokey’s2001 Range. However, our gross sales proceeds are $15.6 million, or 4.9%,below the low end of their combined Original 2001 Range. Of the twelve assetssold below the low end of the Original 2001 Range, all but two were sold afterSeptember 11, 2001 (three in late 2001, three in 2002 and four in 2003).The events of September 11th as well as the continuing decline in theeconomy after that date negatively impacted our ability to close sales transactionswithin the originally contemplated range of prices. Although no fairnessopinions or appraisals were obtained, based on our board’s assessment of theenvironment in which we and the nation were operating in at the time of eachsale and other evidence regarding each sale below the low end of the range, ourboard determined that each of these twelve transactions at prices below theOriginal 2001 Range was fair to, and in the best interest of, our stockholders.

 

In the spring of 2002, based in part on Houlihan Lokey’s report datedMarch 15, 2002, we disclosed a revised, lower, projection of our per shareliquidating distributions to common stockholders. We refer to this projectionas the “Updated 2002 Range.” For the period January 1, 2002 through March 18,2003, we disclosed comparisons of asset sale prices primarily against theUpdated 2002 Range. Of the five assets (or 9.5 golf courses) that we sold sinceJanuary 1, 2002 but before March 18, 2003, one asset (or 1.5 golfcourses), was sold at a price below the low end of its respective Updated 2002Range; this property was sold for 4.3%, or $150,000, less than the low end ofits Updated 2002 Range. For the remainder of 2003, we intend to disclose pricecomparisons (if applicable) for the properties remaining in our portfolioprimarily against the Updated 2003 Range discussed below.  The two assets that have been sold sinceMarch 18, 2003 were sold within the Updated 2003 Range (as defined below).

 

In February 2003, our board againengaged Houlihan Lokey to assist us in updating our projected range ofliquidating distributions, in light of the actual sale prices we obtainedduring the prior year and other relevant factors. Based in part on HoulihanLokey’s report dated March 18, 2003, and subject to many limiting assumptionsand estimates, in our Form 10-K dated March 31, 2003 we projected that totalliquidating distributions to our common stockholders over the remainder of ourorderly liquidation will be within the range of $4.75 to $7.21 per share. Werefer to this projection as the “Updated 2003 Range”.  This projection is a forward-looking statement, subject to thisreport’s introductory cautionary note and the risk factors listed below. Thisprojection was based on several assumptions about future events, including(among many others) the following:

 

•                  an assumptionthat we will successfully obtain ownership of the Innisbrook Resort;

 

•                  an assumptionthat we, in conjunction with the Resort’s operators, Westin and Troon Golf,will be able to realize a modest recovery, based on historical financialresults, in the financial performance of the Resort by year-end 2005 (whichimplicitly assumes that relevant economic recovery will begin sufficiently inadvance of that date to support regular business and group leisure activity atthe Resort by late 2005); and

 

•                  an assumptionthat we will not be subject to any material liability under any of the lawsuitswe were then defending (the two most important of which have subsequently beendismissed or settled).

 

Any of these assumptions might prove to be incorrect, which might causeour actual liquidating distributions to be lower than our projections.Moreover, our projections are based on several estimates, including (among manyothers)

 

•                  estimated saleprices and sale dates not only for the Innisbrook Resort, but also for ourother remaining golf courses, none of which are currently subject to purchaseand sale agreements or letters of intent;

 

•                  estimated cashinflows or working capital shortfalls from the other golf courses that we ownand manage up to the estimated date of sale;

 

•                  estimatedrepayment dates for our outstanding indebtedness (which was subsequently repaidin full on June 19, 2003) and redemption dates for our outstanding preferredstock (after which interest and preferred

 

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dividends, respectively, will cease to accrue); and

 

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

 

The net assets at September 30, 2003 result in a liquidationdistribution per share of $3.80, which is below the low end of the Updated 2003Range of $4.74.  The $3.80 is based onthe net assets at a particular point in time (i.e., September 30, 2003)and does not take account of our corporate overhead expenses or the potentialResort overhead expenses which we expect will arise in the event that we assumeownership of the Resort during our anticipated holding period, but suchcorporate expenses will impact our ultimate liquidating distributions to ourholders of common stock.  The $3.80 alsodoes not take account of any positive operating cash flows that may be realizedfrom any of our golf course assets, including the potential positive cash flowsthat may be realized from the Resort in the event we assume ownership thereof,which will also impact our liquidating distributions to our holders of commonstock.  The $3.80 is derived by dividingthe net assets of $28,394,000 less loans to officers of $758,000 by the numberof shares of common stock and common operating partnership units outstanding(7,921,000 less 650,000) after consideration of those shares that will becancelled prior to the distribution of the net assets, which total 649,795,derived as follows (i) 365,380 shares of common stock owned by an affiliate ofthe borrower under the participating mortgage at the Resort and pledged to usas collateral under the participating mortgage, (ii) 199,415 shares of commonstock pledged to us as security for the payment of our executive officers’promissory notes, and (iii) 85,000 shares of common stock pledged to us assecurity for the payment and performance of the obligations and liabilities ofthe pledgor under a common stock redemption agreement executed concurrentlywith the sale of Royal New Kent and Stonehouse.  This redemption agreement provides in part that this securitywill be tendered to us if and when the total amount of liquidatingdistributions paid to our holders of common stock pursuant to the plan ofliquidation is less than $10.74 per share.

 

***Assets Held for Sale***

 

The following chart identifies each of our unsold properties:

 

**PropertiesHeld for Sale as of November 7,  2003**

 

| **Property**                               |   | **Location**    |   | **18-Hole  Equivalent** |   |
|--------------------------------------------|--------|-----------------|--------|-------------------------|--------|
|                                       |   |            |   |                    |   |
| Black Bear                                 |   | Orlando, FL     |   | 1.0                     |   |
| Wekiva                                     |   | Orlando, FL     |   | 1.0                     |   |
| Innisbrook Participating Mortgage          |   | Palm Harbor, FL |   | 4.0                     |   |
| Tierra Del Sol                             |   | Belen, NM       |   | 1.0                     |   |
| Stonehenge (Wildewood and Woodcreek Farms) |   | Columbia, SC    |   | 2.0                     |   |
| Total                                      |   |            |   | 9.0                     |   |

 

While wecontinue to negotiate with various parties on potential sales of our remainingproperties, as of November 7, 2003, we do not have any binding or non-bindingarrangements for the disposition of our remaining assets.  From time to time, we may considermulti-asset letters of intent, however, at the present time, no suchnon-binding commitments have been executed.

 

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**Application of Critical Accounting Policies**

 

***Liquidation Basis ofAccounting***

 

As a result of our board of directors’ adoption of a plan ofliquidation and its approval by our stockholders, we adopted the liquidationbasis of accounting as required. Our discussion and analysis of our financialcondition and results of operations is based on our financial statements whichhave been prepared in accordance with generally accepted accounting principlesin the United States of America. The preparation of these financial statementsrequires us to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of revenuesand expenses during the reporting period. We base our estimates on historicalexperience and other various assumptions that we believe to be reasonable underthe circumstances. Actual results may differ from these estimates. Our mostsignificant estimate is the fair value of our interest in the InnisbrookResort, which was determined as previously described under the heading *FactorsConsidered in Preparing our Revised Estimate of the Resale Value of the Resort*.  The valuation of our real estate held forsale, our four other properties, is based on estimates of sales values based onindications of interest from the marketplace, certain assumptions by managementspecifically applicable to each property, and on the property value ranges.

 

 

***EstimatedLiquidation Value of our Participating Mortgage Note Receivable on theInnisbrook Resort.***

### ** **

We hold a participating mortgage, as the first lender, secured by theInnisbrook Resort. The borrower is in default under the mortgage. Our estimateof the fair value of our interest, as lender, in the participating mortgage, asrecorded on our books at September 30, 2003, is $60 million. This value istoward the low end of the valuation range estimated by Houlihan Lokey in itsMarch 2003 valuation report (the low end of Houlihan Lokey’s orderlyliquidation range for this asset was $58.0 million and the high end ofthis range was $70.4 million**).  **TheMarch 2003 valuation range assumes, among other things, that we will acquiredirect ownership of the Resort and that the Resort will successfully realize amodest recovery in financial performance levels, based on historical results,within the following 30-month period ending on or about December 31, 2005.As part of its valuation process, Houlihan Lokey also analyzed the immediateliquidation value of our lender’s mortgage interest in the Innisbrook Resort,which its March 2003 report estimated to be between $40.5 and$47.3 million (compared to an estimate of between $45 and $50 millionin the March 2002 report). As previously described, based on current factsand circumstances, we recorded a write-down to the Resort’s value of $15,760,000in the three months ended September 30, 2003 and the value of our lender’smortgage interest in the Innisbrook Resort is now recorded at $44.2 million onour balance sheet.

 

***Reserve forEstimated Costs During the Period of Liquidation***

 

Under the liquidation basis of accounting we are required to estimateand accrue the costs associated with implementing the plan of liquidation.These amounts can vary significantly due to, among other factors, the timingand actual receipt of proceeds from golf course sales, the costs of retainingpersonnel and others to oversee the liquidation, including the costs ofinsurance, the timing and amounts associated with discharging known andcontingent liabilities and the costs associated with cessation of ouroperations. These costs are estimated and are expected to be paid over theliquidation period.

 

***Revenue Recognition***

 

Subsequent to January 30, 2003, when we sold the Eagle Ridge Inn &Resort, we do not have any remaining performing participating leases.  Prior to that time, under the performingparticipating leases, we recognized rental revenue on an accrual basis over theterm of the lease.  Prior to ourborrower’s default under the participating mortgage, we recognized interestincome ratably over the term of the loan.

 

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With respect to the golf courses that we are currently managing,revenue from green fees, cart rentals, food and beverage sales, merchandisesales, and range income are generally recognized at the time of sale. Membershipdues are recognized ratably over the applicable period.

 

Certain membership initiation fees at these golf courses are refundablebased on specific conditions. The estimated present value of the potentialrefunds at Wildewood and Woodcreek Farms over the original 30-year requiredmembership term, as defined in the Club Membership Manual, recorded as anaccrued liability on our books at September 30, 2003 is valued at$125,000. Additionally, certain initiation fees may be refundable prior to theexpiration of the 30-year term under specific membership replacementconditions. There is no liability recorded to reflect our contingent refundobligation due to the fact that four new members have to join in the specificmembership category for a resigned member to receive a refund. A refund issuedunder these specific circumstances would be considered a reduction ofmembership revenue for that period.  Allinitiation fees received are initially recorded as deferred revenue andamortized over the average life of a membership which, based on historicalinformation, is deemed to be nine years.

 

**Results of Operations**

 

***Results ofoperations for the three months ended September 30, 2003 and 2002***

 

For the three months ended September 30, 2003 and 2002, we recognized $1,375,000and $5,799,000, respectively, in revenue from from the operations of the golfcourses that we manage and from the participating leases.  The decrease in revenues of $4,424,000, or76%, is due to lost rental revenue of approximately $1,659,000 from 3.5 of the4.5 golf courses that were sold in January 2003 together with the lostoperating revenue from golf courses that we managed and subsequently sold.  Revenue from the operations of the 5.0 golfcourses that we managed totaled $1,375,000 during the three months endedSeptember 30, 2003. For the same period in 2002, we managed 10.0 golf coursesfrom which we recorded $4,140,000 in revenue from managed golf courseoperations.  Of these 10.0 golf courses,5.0 were also managed during this period in 2003 and 5.0 were sold prior to thethird quarter of 2003.

 

Expensestotaled $2,056,000 and $4,162,000 for the three months ended September 30, 2003and 2002, respectively.  The period overperiod decrease was $2,106,000, or 50%, of which $1,838,000 represents thedifference between the direct operating expenses of $1,658,000, in theaggregate, from the 5.0 golf courses that we managed during the three monthsended September 30, 2003 compared to $3,496,000 in direct operating expenses ofthe 10.0 golf courses that we managed during the three months ended September30, 2002. The net operating (loss) income for the managed courses for the threemonths ended September 30, 2003 and 2002 was ($283,000) and $644,000,respectively.   Subsequent to the periodended May 22, 2001 (the date of our shareholders’ approval of our plan ofliquidation), we adopted the liquidation basis of accounting in accordance withthe requirement that we do so which requires that we accrue all anticipatedexpenses associated with our execution of the plan of liquidation.  Therefore, the majority of our expensesincurred in the three months ended September 30, 2003 and 2002, respectively,were specifically related to items that we provided for in our liquidationaccrual. The general and administrative expenses incurred during the threemonths ended September 30, 2003 and not specifically related to the plan ofliquidation and accrued for in our liquidation accrual were approximately$398,000. Of this amount, approximately $275,000, or 69%, was salaries andbenefits. Pursuant to our plan of liquidation we will be implementing furtherstaff reductions as we continue to liquidate our assets. This compares togeneral and administrative expenses of $666,000 incurred during the same periodin 2002.  Of this amount for the threemonths ended September 30, 2002, approximately $358,000, or 54%, was salariesand benefits.

 

For the three months ended September 30, 2003, interest expense was$19,000 compared to $1,213,000 for the three months ended September 30, 2002.The decrease of $1,194,000 is due to the fact that we paid in full theoutstanding balance under our credit facility on June 19, 2003.  The interest expense of $19,000 for thethree months ended September 30, 2003 represents interest accruing to ourexecutive officers on their remaining earned milestone payment.

 

We accrued a quarterly preferred dividend of $588,889 in the threemonths ended September 30, 2003.

 

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Due primarily to the adjustment to the liquidation basis of accountingdescribed below along with lost operating revenue from golf courses that wemanaged and subsequently sold, we recorded a net change in net assets availableto holders of common stock and OP unit holders of ($17,996,000) compared to($2,748,000) recorded for the three months ended September 30, 2002.

 

***Results ofoperations for the nine months ended September 30, 2003 and 2002***

 

For the nine months ended September 30, 2003 and 2002, we recognized$7,076,000 and $15,933,000, respectively, in revenue from the participatingleases and from the operations of the golf courses that we manage. The decreasein revenues of $8,857,000, or 56%, is due to lost rental revenue ofapproximately $3,900,000 from 1.5 of the 5.0 golf courses that were sold in2002 and the 3.5 of the 4.5 golf courses that were sold in January 2003 and thelost operating revenue from golf courses that we managed and subsequently sold.Revenue from the operations of the 8.5 golf courses that we managed (3.5 ofwhich were sold during this period) totaled $6,624,000 during the nine months ended September 30, 2003.  For the same period in 2002, we managed 12.0golf courses (8.5 of which were also managed for at least a portion of thisperiod in 2003 and 3.5 of which were sold in July 2002) and recorded$10,524,000 in revenue from managed golf course operations.

 

Expenses totaled $8,261,000 and $12,510,000 for the nine months endedSeptember 30, 2003 and 2002, respectively. The period over period decrease was $4,249,000, or 34%, of which$3,313,000 represents the difference between the direct operating expenses of$6,477,000, in the aggregate, from the 8.5 golf courses that we managed (forvarying periods of time) during the nine months ended September 30, 2003 comparedto $9,790,000 in direct operating expenses of the 12.0 golf courses that wemanaged (for varying periods of time) during the nine months ended September30, 2002. The net operating income for the managed courses for the nine monthsended September 30, 2003 and 2002 was $147,000 and $734,000, respectively.   Subsequent to the period ended May 22,2001 (the date of our shareholders’ approval of our plan of liquidation), weadopted the liquidation basis of accounting in accordance with the requirementthat we do so which requires that we accrue all anticipated expenses associatedwith our execution of the plan of liquidation. Therefore, the majority of our expenses incurred in the nine monthsended September 30, 2003 and 2002, respectively, were specifically related toitems that we provided for in our liquidation accrual. The general andadministrative expenses incurred during the nine months ended September 30,2003 and not specifically related to the plan of liquidation and accrued for inour liquidation accrual were approximately $1,784,000. Of this amount,approximately $1,007,000, or 56%, was salaries and benefits. Pursuant to ourplan of liquidation we will be implementing further staff reductions as wecontinue to liquidate our assets. This compares to general and administrativeexpenses of $2,720,000 incurred during the same period in 2002.  Of this amount for the nine months endedSeptember 30, 2002, approximately $1,078,000, or 40%, was salaries and benefits.

 

For the nine months ended September 30, 2003, interest expense was$1,308,000 compared to $3,995,000 for the nine months ended September 30, 2002.The decrease of $2,687,000 is primarily due to the fact that we paid in fullthe outstanding balance under our credit facility on June 19, 2003.

 

We accrued quarterly preferred dividends totaling $1,514,000 and$1,387,000 in the aggregate for the nine months ended September 30, 2003 and2002, respectively.

 

Primarily due to the adjustment to the liquidation basis of accountingdescribed below along with the lost rental revenue from the participatingleases and the lost operating revenue from golf courses that we managed andsubsequently sold, we recorded a net change in net assets available to holdersof common stock and OP unit holders of ($20,509,000) compared to ($6,172,000)recorded for the nine months ended September 30, 2002.

 

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**Adjustment toLiquidation Basis of Accounting**

 

We adopted the liquidation basis of accounting for all periods subsequentto May 22, 2001, the date on which our stockholders approved our plan ofliquidation. Accordingly, on May 22, 2001, our assets were adjusted totheir estimated fair value and our liabilities, including estimated costsassociated with implementing the plan of liquidation, were adjusted to theirestimated settlement amounts. The minority interest in our operatingpartnership was reclassified to net assets because the holders of commonlimited partnership units, which we call OP units, do not have preferentialdistribution rights over the common stockholders.

 

The valuation of real estate held for sale, including the real estatepledged as collateral under our participating mortgage note receivable, as ofSeptember 30, 2003 is based on current contracts and estimates of sales valuesbased on indications of interest from the marketplace, certain assumptions bymanagement specifically applicable to each property, and on the property valueranges.  The valuation of our otherassets and liabilities under the liquidation basis of accounting is based onmanagement’s estimates as of September 30, 2003.

 

For the three months ended September 30, 2003, an adjustment of$16,757,000 was included in the consolidated statement of changes in net assetsto reflect a $16,260,000 write-down of certain golf course assets, namelyInnisbrook, and a $497,000 reserve against the loans to officers (to reflectthe difference between the computed value of our officers’ pledged shares ofour common stock that serve as collateral under these loans compared to thevalue at the time that the shares were pledged which was $8 per share, prior tothis quarter the reserve was $400,000).

 

For the nine months ended September 30, 2003, an adjustment of$16,669,000 is included in the consolidated statement of changes in net assetsto reflect a $16,613,000 write-down of certain golf course assets offset by anet gain of $441,000 in the aggregate on the sales of certain golf courseassets and a $497,000 reserve against the loans to officers (to reflect thedifference between the computed value of our officers’ pledged shares of ourcommon stock that serve as collateral under these loans compared to the valueat the time that the shares were pledged which was $8 per share, prior to thisquarter the reserve was $400,000).  There were no other liquidation basis of accounting adjustments for thethree months and nine months ended September 30, 2003.

 

**Tax Consideration**

 

As expected, income from our direct golf course operations duringfiscal year 2002 comprised over 5% of our gross income, which caused us to loseour status as a REIT. Accordingly, we lost our REIT status for the 2002 taxyear. Although we will now be subject to federal income tax as a regularcorporation, we do not currently project any income tax liability for theremainder of our liquidation as a result of our net losses for 2002 and our netoperating loss carryforwards, which we currently expect to be sufficient tooffset any taxable income for the remainder of our liquidation.

 

**Credit Facility**

 

Our credit facility from a syndicate of lenders led by Bank of America,N.A., which was scheduled to mature on June 30, 2003 was paid in full on June19, 2003 concurrent with the sale of the Sandpiper Golf Course which occurredon June 17, 2003.

 

**Liquidity and CapitalResources**

 

Our ability to meet our obligations in the near term is contingent uponour ability to sell our remaining five golf courses (except Innisbrook), torealize consistent positive operating cash flow from the golf courses that wemanage, to realize consistent positive operating cash flows from Innisbrook(once we take control), or secure short-term financing.

 

Aggregate Series A preferred stock dividends accrued, until July21, 2003, at a rate of $462,500 per quarter. Subsequent to July 21, 2003 the rate increased to $625,000 per quarter(see further discussion of this increase below).  As of September 30, 2003, we have accrued and not paid ninequarters of Series A preferred stock

 

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dividends (including thedividend otherwise payable in respect of the quarter ended September 30, 2003).Under our Series A charter document, because we now have at least sixquarters of accrued and unpaid Series A preferred stock dividends, theholder of the Series A preferred stock, AEW Targeted Securities Fund, L.P.(or its transferee), has the right to elect two additional directors to ourboard of directors at our next annual meeting, whose terms as directors willcontinue until we fully pay all accrued but unpaid Series A dividends.

 

Moreover, under our voting agreement with AEW, since we did not fullyredeem the Series A preferred stock by May 22, 2003 (which was thesecond anniversary of our shareholders’ adoption of the plan of liquidation), AEWTargeted Securities Fund (or its transferee) had the right to require us toredeem the Series A preferred stock in full within 60 days whichright they exercised.  Since wedefaulted on that obligation, the stated dividend rate of the Series Apreferred stock increased from 9.25% to 12.50% per annum (equivalent to aquarterly dividend of $625,000) until the Series A preferred stock isredeemed. Although we are permitted to continue to accrue such dividendswithout paying them on a current basis, they must be paid in full prior to anydistribution to our common stockholders, which would reduce our cash availablefor liquidating distributions to common stockholders**. **We intend to continue to accrue such dividends and thepreferred shares shall remain outstanding until such time as we have cashavailable to redeem the Series A preferred stock, at which time we intend toredeem the Series A preferred stock.

 

***Cash flows for thenine months ended September 30, 2003 and 2002***

 

Cash flow used in operating activities for the nine months endedSeptember 30, 2003 was $5,633,000 compared to cash flows used in operatingactivities for the nine months ended September 30, 2002 of $3,102,000. Thisreflects the net loss for both periods plus non-cash charges to income for theadjustment to the liquidation basis of accounting. In addition, the cashfluctuations related to operating activities included payments paid from andinterest received on restricted cash, liquidation liability payments andadjustments, and working capital changes. Cash flow from operations decreasedin both periods ended September 30, 2003 and 2002 respectively. The decrease incash flows from operating activities for the nine months ended September 30,2003 was primarily due to the lost revenue, either from rents or direct revenuefrom operations, from the 5.0 golf courses sold in 2002, 4.5 golf course soldin January of 2003, namely Eagle Ridge, and the 1.0 golf course (Sandpiper)sold in June of 2003.  Also affectingcash flow from operations were changes in other assets and liquidationliabilities. The liquidation liabilities were accrued as of the approval of ourplan of liquidation on May 22, 2001 and subsequently adjusted based onpayments and updated estimates of future liabilities. The decrease in theliquidation liabilities from December 31, 2002 is primarily due tomilestone payments paid to our executive officers aggregating approximately$2,691,000 ($2,526,000 paid upon the repayment of our credit facility and$165,000 paid to our CFO pursuant to his fourth amended and restated employmentagreement) and due to professional fees incurred in connection with our plan ofliquidation.

 

We invested approximately $143,000 in golf course capital expendituresat the golf courses that we managed during the nine months ended September 30,2003 compared to $1,714,000 in the nine months ended September 30, 2002,  primarily at Eagle Ridge. In addition, ourinvesting activities for the first nine months of 2003 provided $67,767,000 incash flow from the sale of 7.0 golf courses compared to $22,144,000 in cashflow from the sale of 5.0 golf courses during the same period in 2002.Additionally, we received $112,000 in payments on two notes receivableoriginally taken in connection with the termination of participatingleases.  During the nine months endedSeptember 30, 2002, we received the pay-off of the note receivable by theborrower on the land parcel near the Sandpiper Golf Course that matured on June2, 2002.

 

During the nine months ended September 30, 2003, we used $69,003,000 topay down our outstanding debt under our credit agreement, which was paid infull and retired with our last payment on June 19, 2003.  During the same period in 2002, we used$24,724,000 to pay down our outstanding debt under our credit agreement..

 

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**Off Balance SheetArrangements**

 

***Generally***

 

As of September 30, 2003, we have no unconsolidated subsidiaries.

 

We do not have any relationships with unconsolidated entities orunconsolidated financial partnerships of the type often referred to asstructured finance or special purpose entities, i.e., unconsolidated entitiesestablished for the purpose of facilitating off-balance sheet arrangements orother contractually narrow or limited purposes. Further, we have not guaranteedany obligations of unconsolidated entities (except as described below) nor dowe have any commitment or intent to provide additional funding to any suchentities (except potentially in connection with the Innisbrook Resort, asdiscussed previously). Accordingly, we believe we are not materially exposed toany market, credit, liquidity or financing risk that could arise if we hadengaged in such relationships.

 

We have guaranteed an equipment operating lease (with a maximumexposure of $145,000).  This is anoperating lease with monthly payments of $3,033 per month which expires in2007.  We have also guaranteed a secondequipment operating lease (with a maximum exposure of $162,000).  This is an operating lease with monthlypayments of $3,246 which expires in 2007.

 

**ContractualObligations, Contingent Liabilities and Commitments**

 

***ContractualObligation Table***

 

The following table summarizes our contractual obligations at September30, 2003, and the effect such obligations are expected to have on the liquidityand cash flows of our company (or our successors in interest under theapplicable contracts, if the contracts are not terminated) in future periods:

 
|                                                                                                                                 |   | **Payments  Due by Period** |   |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|--------|
| **Contractual Obligation**                                                                                                           |   | **Total**                   |   | **Less than 1  year** |   | **1-3 years** |   | **4-5 years** |   | **More than  5  years** |   |
| Employment Agreements and Employment  Security Agreements                                                                            |   | $                           | 2,270  |   | $ | 1,982 |   | $ | 288 |   | $ | — |   | $ | — |   |
| Liquor license note payable (applies to a  certain managed golf course)                                                              |   | 130                         |   | 5 |   | — |   | 125 |   | — |   |
| Operating lease agreements at the managed  golf courses                                                                              |   | 1,067                       |   | 351 |   | 514 |   | 202 |   | — |   |
| Advertising, service, equipment maintenance  and other contracts and software license and support agreements at the  managed courses |   | 26                          |   | 15 |   | 8 |   | 3 |   | — |   |
| Lease agreements for corporate office                                                                                                |   | 51                          |   | 51 |   | — |   | — |   | — |   |
|                                                                                                                                 |   |                        |   |   |   |   |   |   |   |   |   |
| Total                                                                                                                                |   | $                           | 3,544  |   | $ | 2,404 |   | $ | 810 |   | $ | 330 |   | $ | — |   |

 

Each type of contractual obligation listed in the table is discussed inmore detail below.

 

***EmploymentAgreements****.* Under the existing amended and restated employment agreements,performance milestone payments aggregating approximately $2,526,000 were paidto our executives upon our repayment of our obligations under our securedcredit facility led by Bank of America, N.A. One fourth of the remaining earnedmilestone payment, $165,230 plus accrued interest, due to our chief financialofficer (CFO) was paid on September 30, 2003 pursuant to his fourth amended andrestated employment agreement and one fourth of the remaining earned milestonepayment plus accrued interest will be paid upon the sale of our golf courseassets whereby we receive more than $1,200,000 of net cash proceeds.  The remaining one half of the remainingearned milestone payment plus accrued interest shall be paid to our CFO uponthe sale of our golf course assets whereby we receive more than $2,500,000 ofnet cash proceeds and such receipts are not subject to holdback, claw-backs orany escrow or other

 

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limitations.   Commencing October 1, 2003, interest isaccruing on the unpaid portion of the CFO’s remaining earned milestone paymentat five percent (5%) per annum.  Ourchief executive officer is also entitled to an additional performance milestonepayment of approximately $1,234,000, plus accrued interest, due to therepayment of the outstanding balance under our credit facility. Such paymentwill be made in due course; no outstanding conditions to payment exist. Anyseverance payments otherwise payable under the amended and restated employmentagreements will be reduced by the amount of the above performance milestonepayments that we have made.  Inaddition, we have severance obligations to other employees aggregating $540,000which have been provided for in the liquidation accruals.

 

Pursuant to the terms of our executive officers’ amended and restatedemployment agreements dated as of February 25, 2001, we made non-recourseloans of $1,595,000 to our executive officers ($1,150,000 to Mr. Blair and$445,000 to Mr. Peters) on February 25, 2001 for the payment ofpersonal income taxes arising from the acceleration of their restricted stockgrants and the forgiveness of their outstanding debt to us that occurred onsuch date. These new loans were evidenced by promissory notes from the executivesand secured by their total holdings of 199,415 (143,790 of Mr. Blair’s and55,625 of Mr. Peters’) shares of our common stock valued at $8 per shareat the time of the issuance of these loans. Interest accrues on these loans at5.06% per annum (the applicable federal rate on the date of the loan) and isdue at maturity. Effective July 1, 2002, we discontinued accruing intereston these loans because the total outstanding balance of each loan exceeded thevalue of the collateral, common stock, computed based on the current net assetsavailable to common stockholders. The outstanding balance of these loans atJune 30, 2002, principal and interest, was $1,655,000. In 2002, werecorded an allowance for doubtful accounts against this receivable in the aggregateamount of $400,000, which approximated the difference in the pledged value of$8 per share and the computed value based on the net assets in liquidation atDecember 31, 2002.  For the ninemonths ended September 30, 2003, we recorded an additional allowance fordoubtful accounts against this receivable in the aggregate amount of $497,000,which approximated the difference in the pledged value of $8 per share and thecomputed value based on the net assets in liquidation at September 30, 2003.

 

These loans mature at the earliest of the following times:(i) February 25, 2006; (ii) three years following termination ofthe borrower’s employment with us; or (iii) the date of the finaldistribution under the plan of liquidation. At any time when the loan is over-secured,the borrower has the right to sell such common stock securing the loan,provided that all proceeds of the sale are first applied to the thenoutstanding balance of the loan. All distributions (including any liquidatingdistributions) on the stock securing the loan are applied against the loan. Therelated promissory notes are non-recourse to the respective borrowers.

 

Since July 30, 2002, the Sarbanes-Oxley Act of 2002 has generallyprohibited us from making further loans, or modifying the terms of pre-existingloans, to our officers.

 

***Liquor License NotePayable.*** On November 9, 2000, we entered into a liquor license purchaseagreement with The Marr Company Incorporated to obtain a liquor license forTierra Del Sol Country Club. The principal amount of this purchase agreement is$150,000, of which $25,000 was paid at the time of the execution of thepurchase agreement and $125,000 is represented by an installment promissorynote which requires that we pay accrued interest only each month at a rate of8% per annum ($833.33 per month). The promissory note specifically restrictsprepayment in whole or in part prior to April 1, 2004. The promissory notematures on December 1, 2007.  Inthe table above, we have noted the obligation of the required interest paymentsthrough April 1, 2004, the expiration date of the prepayment restriction.  This note will be assumed by the buyer whenTierra Del Sol is sold.

 

***Operating LeaseAgreements.*** In the normal course of operating the golf courses that we manage, we haveentered into operating lease agreements to lease golf course maintenanceequipment, golf course vehicles, golf carts, and office equipment at themanaged courses. The terms of these leases range from twelve to sixty months.

 

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

 

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***Lease agreements forGTA corporate office****.*  This represents the office space lease and the office equipmentleases for our corporate office.

 

***Commitments***

 

***Series APreferred Stock.**** *On April 2, 1999, we completed a registered offering of800,000 shares of 9.25% Series A Cumulative Convertible Preferred Stock,par value $0.01 per share, or Series A preferred stock, at a price of$25.00 per share to a single purchaser, AEW Targeted Securities Fund, L.P., orAEW. The Series A preferred stock is convertible, in whole or in part, atthe option of the holder at any time into our common stock at an implicitconversion price of $26.25 per share of common stock, subject to adjustment incertain circumstances. We contributed the net proceeds to our operatingpartnership in exchange for 800,000 Series A preferred OP units withanalogous terms.

 

Aggregate Series A preferred stock dividends accrued, untilJuly 20, 2003, at a rate of $462,500 per quarter.  Effective July 21, 2003 the rateincreased to $625,000 per quarter (see further discussion of this increasebelow).  As of September 30, 2003, wehave accrued and not paid nine quarters of Series A preferred stockdividends (including the dividend otherwise payable in respect of the quarterended September 30, 2003). Under our Series A charter document, because wenow have at least six quarters of accrued and unpaid Series A preferredstock dividends, the holder of the Series A preferred stock, AEW TargetedSecurities Fund, L.P. (or its transferee), will have the right to elect twoadditional directors to our board of directors at our next annual meeting,whose terms as directors will continue until we fully pay all accrued butunpaid Series A dividends.

 

On February 22, 2001, we entered into a voting agreement with AEW,which continues to hold all of the shares of the Series A preferred stock.That agreement required AEW to vote in favor of the plan of liquidation andrequired us to redeem all of the shares of Series A preferred stock (for$25 per share plus dividends accrued and unpaid thereon through the date of thefinal redemption payment) promptly after we determine in good faith that wehave received sufficient net proceeds from the disposition of our assets and/oroperations to redeem all of the preferred shares without violating any legal orcontractual obligations.

 

Moreover, under our voting agreement with AEW, since we did not fullyredeem the Series A preferred stock by May 22, 2003 (which was thesecond anniversary of our shareholders’ adoption of the plan of liquidation),AEW Targeted Securities Fund (or its transferee) had the right to require us toredeem the Series A preferred stock in full within 60 days whichright they exercised.  Since wedefaulted on that obligation, from and after July 21, 2003 the stated dividendrate of the Series A preferred stock increased from 9.25% to 12.50% perannum (equivalent to a quarterly dividend of $625,000) until the Series Apreferred stock is redeemed. Although we are permitted to continue to accruesuch dividends without paying them on a current basis, they must be paid infull prior to any distribution to our common stockholders, which will reduceour cash available for liquidating distributions to common stockholders;however, this reduction in available funds for liquidating distributions hasalready been taken into account in the Updated 2003 Range**. **We intend to continue to accrue such dividends until suchtime as we have cash available to redeem the Series A preferred stock, at whichtime we intend to redeem the Series A preferred stock.

 

**Inflation**

 

We believe that inflation does not pose a material risk to us. Our mainsource of cash flow, golf course dispositions, is not particularly vulnerableto inflation because we can adjust our asking prices if supply/demand factorssupport an interest in the particular golf course. Our main financialobligation, redemption of the Series A preferred stock, accrues at a fixedrate. Although some of our obligations (such as our executives’ salaries)automatically adjust for inflation, some of our rights are similarly indexed.  For example, our participating mortgageinterest as lender at the Innisbrook Resort provides for automatic annualinterest increases (however, our borrower thereunder is currently in paymentdefault and not meeting any of its obligations as they accrue) and our golfcourse fees at the properties we operate are relatively flexible and can beincreased, subject to constraints imposed by competition and, in some cases,patrons’ yearly membership privileges.

 

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**Seasonality**

 

The golf industry is seasonal in nature because of weather conditions,with fewer available tee times in the rainy season and the winter months.Conversely, revenues fall at the Innisbrook Resort during the summer months asa result of the hot Florida weather being less appealing for group golf outingsand vacation destination golfers along with the fact that business conventionsand meetings are typically held October through April, when business customersare relatively less likely to be on family vacations.  In October 2003, the Innisbrook Resort hosted, and will hostthereafter through 2006, a nationally televised PGA event, the ChryslerChampionship, that brings some of the highest profile golfers to the Resort forseveral days for the tournament, as well as high profile golf industry sponsorsand vendors.  Historically, revenuespick-up in the fourth quarter but are generally the greatest during the firstquarter with guests coming form the northeast and other regions to enjoy thewarm weather.  The effects ofseasonality can be partially offset at daily-fee golf courses by varying greensfees based on changes in demand. Under our prior (now defunct) participatinglease structure, we expected to be insulated from the effects of seasonality inthat the participating leases required our lessees to pay us base rent ratablythroughout the year. Now that we manage our golf courses directly (exceptInnisbrook), we are experiencing some seasonal variability in our operatingresults, which seasonality is expected to increase in the event that we assumeoperations at the Innisbrook Resort.

 

**Risks that mightDelay or Reduce our Liquidating Distributions**

 

In our most recent annual report on Form 10-K, we reported an updatedprojected range of liquidating distributions to common stockholders and anupdated projection as to when liquidating distributions to common stock holdersmight commence.  We refer to theseprojections as our Updated 2003 Range. Our expectations about the amount of liquidating distributions we willmake and when we will make them are based on many factors, including input fromour financial advisors and several estimates and assumptions.  We face the risk that actual events mightprove to be less favorable than our estimates and assumptions.  Several important factors that could causesuch a difference are described below. Although we have attempted to account for the following risks during thepreparation of the Updated 2003 Range, we might have underestimated theireffects, and perhaps substantially so. As a result, the actual amount of liquidating distributions we pay toour common stockholders might be substantially below our Updated 2003 Range ofprojected liquidating distributions. We also face the risk that theunderestimation of the effects of these risks could result in no liquidatingdistributions to shareholders.  Anyliquidating distributions that are available might be paid substantially laterthan projected. Factors that could cause actual payments to be later or lowerthan we expect include the matters discussed below.

 

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

 

Extraordinary corporate actions, such as our plan of liquidation, oftenlead to securities class action lawsuits and derivative litigation being filedagainst companies such as ours.  Webecame involved in this type of litigation in connection with our plan ofliquidation (and the transactions associated with it) in a legal action we referto as the *Crossley*litigation.  During the second quarter,the *Crossely*claim was dismissed with prejudice on our motion for summary judgment, whichmeans that the law suit was dismissed and the plaintiff will not be allowed torefile the claim, although the plaintiff could appeal the dismissal.  We subsequently entered into a non-monetarysettlement with the plaintiff whereby the plaintiff agreed not to appeal thedismissal and we agreed not to seek reimbursement of our legal costs from theplaintiff.  Even though the *Crossley*litigation has been dismissed, we face the risk that other claims might bebrought against us.  Any such litigationwould likely be expensive and, even if we ultimately prevail, the process woulddivert management’s attention from implementing the plan of liquidation andotherwise operating our business. If we do not prevail in any such litigation,we might be liable for damages. We cannot predict the amount of such damages,if any, but they might be significant and would reduce our cash available fordistribution.

 

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***Golf HostResorts, Inc., the borrower under our $79 million participatingmortgage on the Innisbrook Resort, has failed to make required payments to ussince November 1, 2001 and our collateral is the subject of litigationamong others. Consequently the current resale value of the participatingmortgage is impaired. If we are unable to resolve the borrower’s continuingdefault by negotiation, we intend to foreclose upon the collateral, which couldbe time-consuming and expensive and our ultimate recovery might be reduced,delayed or prevented by court order and/or diminished by the pendinglitigation.***

 

We are the lender under a $79 million participating loan secured by a mortgageon the Innisbrook Resort, near Tampa, Florida. The Innisbrook Resort consists of rental condominiums and conferencefacilities, currently managed by Westin Hotel Company, and four upscale golfcourses, currently managed by Troon Golf. Westin and Troon are affiliated with Starwood Hotels & Resorts.  The borrower, Golf Host Resorts, Inc.,owns the Resort, other than the separately-owned condominium units.  Our first priority mortgage extends to allreal property at the Innisbrook Resort, other than the separately ownedcondominium units.  A majority of thecondominium unit owners participate in a rental pool whereby their condominiumunits are made available as hotel rooms to guests of the resort.  Some of the condominium owners haveinitiated a legal action against the borrower regarding its management of therental pool.  Our most recent annualreport on Form 10-K includes a more detailed description of this litigation andthe other arrangements at the Innisbrook Resort.

 

Currently, the borrower is in monetary default due to its failure,commencing on November 1, 2001, to make base interest payments to us. Wemay in the future determine that additional non-monetary defaults exist. Wehave delivered a legal notice to the borrower accelerating the entire amount ofthe participating mortgage as a result of the borrower’s default. We have alsosent a legal notice to Westin Hotel Company asserting that Westin failed tocomply with the terms of a subordination agreement between us and Westin, whichWestin has contested, and we are attempting to negotiate a resolution**.**  We might become involved in litigation withWestin if we and Westin are unable to agree on our respective rights andobligations pursuant to Westin’s management agreement with the borrower and oursubordination agreement with Westin. Any litigation might be expensive andtime-consuming. We are negotiating with the borrower regarding a possibleconsensual foreclosure or a possible conveyance in lieu of foreclosure. In anegotiated resolution, we might agree to assume certain contingent liabilitiesof the borrower, potentially including liabilities and costs of the borrowerrelated to the pending condominium owners’ legal action against the borrowerand the advances under the Westin guarantee. If we agree to assume some of theborrower’s liabilities, if any, to the condominium owners (or other contingentliabilities), we will face the risk that our ultimate liability might begreater than we expected. In that case, a large verdict against us (or othercontingent payout) would significantly reduce our cash available fordistribution and the ultimate amount of our liquidating distributions to commonstockholders.

 

The participating mortgage loan is a non-recourse loan, which meansthat following an event of default by the borrower we cannot bring a legalaction directly against the borrower to compel payment, but instead ourrecourse is to proceed against the guarantors and/or to foreclose upon theInnisbrook Resort (other than the individually owned condominium units) and anyother property of the borrower that has been pledged by the borrower to secureour loan. If we decide to pursue judicial foreclosure against the borrower, itwould be expensive and time-consuming and there is a risk that the borrowermight obtain judicial protection. Even if we obtain ownership of the InnisbrookResort, we would face the difficult task of revitalizing its revenues. Theterms of the management agreement with Westin require that Westin be retainedas the operator of the resort after a foreclosure.

 

As a result of these problems, the current resale value of ourparticipating mortgage is impaired, our recovery with respect to this assetmight be significantly delayed, and the aggregate amount we ultimately receive,either (a) as repayment from the borrower, or (b) upon a sale of ourlender’s interest in the participating mortgage, or (c) upon a sale of theInnisbrook Resort following foreclosure, might be substantially less than theamount we are currently owed.

 

We are seeking to conclude a negotiated resolution with the borrower asearly as possible in 2004 whereby the borrower’s interest in the InnisbrookResort would be transferred to us or one of our affiliates.  However, we can provide no assurance of aresolution or the timing thereof.

 

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***Our estimate of theInnisbrook Resort’s fair value, as recorded on our books for accountingpurposes, is based on forward-looking estimates which are subject tochange.  We might sell the InnisbrookResort for an amount less than our current estimate of its fair value, whichwould reduce our liquidating distributions to common stock holders.***

 

Our estimateof the fair value of our participating mortgage interest in the Innisbrook Resort,as recorded on our books at September 30, 2003, is $44.2 million, which islower than the $60 million valuation recorded in prior periods.  If there were no other changes to the basisfor our Updated 2003 Range, this change in the valuation of Innisbrook wouldcause the Updated 2003 Range to shift lower by $1.90.  Although we have not yet acquired ownership of the InnisbrookResort, as previously disclosed we have based our calculation of the mortgage’sliquidation value on an estimate of the future going-concern value of theResort’s operations on the assumption that we will take possession of theResort (subject to an amended management contract with Westin) and hold theproperty until the Resort’s operating revenues realize a modest recovery.  The currently contemplated holding period,as determined by our board, extends to the end of 2005.  In October 2003, we received from theResort’s operator, Westin, an updated forecast of the net cash flow expected tobe generated by the Innisbrook Resort in the fourth quarter 2003 and for theyear 2004. The updated forecast was materially less favorable than earlierforecasts for the same periods, which were among the factors considered bymanagement when arriving at the prior valuation. The decline in the forecastresulted primarily from fewer than anticipated group bookings in the fourthquarter and the assumption that this trend would continue into 2004.  In response to the forecast and ourinquiries into Westin’s budget methodologies and the basis for Westin’sprojections, we revised our estimate of the Resort’s fair value at the end ofthe holding period to $44.2 million. This new valuation is above the low end of the valuation range for theInnisbrook asset under the “forced liquidation” scenario, as estimated byHoulihan Lokey in both their March 2002 and March 2003 analyses (as describedin more detail in our most recent annual report on Form 10-K).  We have identified our valuation of theparticipating mortgage as a critical accounting estimate, and it is discussedin Part I, Item 2 of this report, under the caption “Application of CriticalAccounting Policies.”

 

We do not ruleout the possibility that we might decide to sell our interest in the InnisbrookResort prior to the end of the anticipated holding period (i.e., December 31,2005) in response to any reasonable offer, even if for less than $44.2 millionif, after consideration of the facts and circumstances at that time, our boarddetermines that the sale would be in the best interest of our stockholders.  However, we cannot presently predict whatevents, signals, factors or outcomes might cause our board to abandon what wehave been calling the “orderly liquidation” strategy in favor of an immediatesale.  It is also possible that ourboard might decide to extend the currently contemplated holding period if ourboard determines that it would be in our stockholders’ best interest to delaypayment of liquidating distributions in hope of realizing a better recovery onthe asset.  In any case, we face therisk that our efforts to preserve the value of the Innisbrook Resort might beunsuccessful and we might ultimately sell our interest in the Innisbrook Resortfor less than our current estimates of its fair value.  Accordingly, at some future date, our assessmentof the asset’s fair value may change, based on facts and circumstances at thattime, and the asset may again be written-down.

 

***If the borrowerunder our participating mortgage declares bankruptcy, our efforts to forecloseupon the mortgage collateral (the Innisbrook Resort) could be substantiallydelayed and our recoveries reduced, which could delay and reduce ourliquidating distributions.***

 

Under the federal bankruptcy code, the filing of a bankruptcy petitionby or against the borrower under our participating mortgage would stay (i.e.,temporarily suspend) our efforts to collect past due payments owed to us. Inthe case of our participating mortgage, a bankruptcy filing would alsotemporarily prevent our ability to commence or continue a judicial foreclosureaction. Additionally, the bankruptcy trustee (or the borrower asdebtor-in-possession) would have special powers to avoid, subordinate ordisallow debts. In some circumstances, it is possible that our claims may besubordinated to financing obtained by the borrower subsequent to itsbankruptcy.

 

Further, in the case of our participating mortgage, if the bankruptcycourt were to determine that the value of the Innisbrook Resort is less thanthe principal balance of the participating mortgage, the court may reduce ouramount of secured indebtedness to the then-current value of the resort. Such anaction would make us a general unsecured creditor for the difference betweenthe then-current value of the resort and the amount of the outstanding indebtedness.Unsecured creditors are less likely than secured creditors to recover all ofthe amounts owed to them

 

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by a bankrupt borrower. Abankruptcy court also may:

 

•                  grant theborrower time to cure a payment default on the loan;

 

•                  reduce monthlypayments due under the loan;

 

•                  change the rateof interest due on the loan;

 

•                  otherwise alterthe loan’s repayment schedule;

 

•                  change otherterms of the loan;

 

•                  prevent us fromenforcing our borrower’s assignment of rents under the participating mortgage

 

The legal proceedings necessary to resolve these issues would likely betime-consuming and expensive and might significantly delay our receipt ofrevenue from the affected asset.

 

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

 

Our ability to complete any golf course sales currently under contract,or subject to letters of intent, and to locate buyers for our other interestsin golf courses and negotiate and complete those sales depend to a large extentupon the experience and abilities of W. Bradley Blair, II, who serves as ourChief Executive Officer and President, and Scott D. Peters, who serves as ourSenior Vice President and Chief Financial Officer, and their experience andfamiliarity with our assets, our counter-parties and the market for golf coursesales. We believe it is important that we retain at least one of these keyexecutives in order potentially to achieve a relatively favorable settlement ofour borrower’s default under the participating mortgage. We believe ourliquidation has progressed to the point that the resignation of one (but notboth) of our executives would not likely cause significant adverseconsequences. However, a loss of the services of both of these individualscould materially harm our ability to complete the plan of liquidation in areasonably expeditious manner and our prospects of selling our assets withinthe Updated 2003 Range.

 

We face the risk that both of our key executives might resign. Inparticular, our payment in full of our outstanding obligations under our creditfacility, which occurred in the second quarter, was the last remainingmilestone under our executives’ amended employment agreements, and theirperformance bonuses are now due and payable by us.  Accordingly, our executives might conclude that they no longerhave meaningful financial incentives to remain with our company.  Following the disposition of our Sandpiperproperty in mid-2003 and the corresponding reduction in demands on Mr. Peters’time, the compensation committee of our board of directors determined thatmanagement should seek to negotiate a reduced time commitment and a reducedsalary arrangement with Mr. Peters, and we entered into an amended and restatedemployment agreement with Mr. Peters on August 29, 2003.  Under this amended and restated employmentagreement, Mr. Peters is expected to devote a specified number of hours percalendar quarter to our company, representing a substantially reduced timecommitment from Mr. Peters.  Mr. Peterswill continue to serve as our Senior Vice President, Secretary and ChiefFinancial Officer, as well as continuing to serve on our board ofdirectors.  Under the amended agreement,we will pay Mr. Peters a salary of $12,000 per quarter.  To the extent that we require more of Mr.Peters’ time, we will pay him on an hourly basis, up to a capped amount perdiem.  Unless terminated earlier by usor Mr. Peters, this arrangement will terminate on June 30, 2004.

 

The resignation of Mr. Blair poses a relatively greater risk at thistime in light of Mr. Peter’s reduced time commitment to our company.  If Mr. Blair were to resign, we would likelyask Mr. Peter’s to increase his time commitment to our company or seek to hirea replacement.  We face the risk thatMr. Peters might have made other commitments by that time and might beunwilling or unable to return to full time employment with our company.  The cost to us of hiring a replacement wouldlikely depend upon the experience and skills required of such an

 

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individual in light of ourfinancial condition, our assets remaining to be liquidated, and the complexityof any issues bearing on our company and the liquidation at that time.  If and when the issues surroundingInnisbrook (our last significant asset in liquidation) are resolved, our needfor a full-time executive may be less significant.

 

Our ability to complete the plan of liquidation in a timely manner alsodepends on our ability to retain our key non-executive employees. Our employeesmay seek other employment rather than remain with us throughout the process ofliquidation, even though they generally would lose their eligibility forseverance payments by resigning. If we are unable to retain enough qualifiedstaff to complete our plan of liquidation in a reasonably expeditious manner,liquidating distributions might be delayed or reduced.

 

***If we are unable tofind buyers for the Innisbrook Resort or our other golf courses at our revisedestimates of value, our liquidating distributions might be delayed or reduced.***

 

In addition to the four golf courses at the Innisbrook Resort, we havefour other properties (or five eighteen-hole equivalent golf courses) which arenot currently subject to sale agreements or letters of intent. In calculatingour projected liquidating distribution, we assumed that we will be able to findbuyers for the Innisbrook Resort and these other golf courses at amounts basedon our estimates of their fair market values at the time we expect to sellthem. However, we may have overestimated the sales prices that we will ultimatelybe able to obtain in the sale of these golf courses. The analysis performed byHoulihan Lokey as of March 18, 2003 (on which our Updated 2003 Range wasbased in part) is neither an appraisal nor an opinion. Assumptions underlyingour Updated 2003 Range and the recent estimate of the fair value of Innisbrookmight prove to be incorrect and, therefore, our projections might overstate theultimate net proceeds we will receive. For example, in order to find buyers ina reasonably expeditious manner, we might be required to lower our asking pricebelow our estimate of a golf course’s fair value. If we are not able to findbuyers for these golf courses in a reasonably expeditious manner or if we haveoverestimated the sales prices we will ultimately receive, our liquidatingpayments to our common stockholders will be delayed or reduced, perhaps insubstantial ways.

 

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

 

In some golf course sales, we may agree to receive promissory notesfrom the buyer as a portion of the purchase price. Promissory notes can beilliquid. If we are not able to sell the promissory note without a greatdiscount, or in the case of a short-term note, if we hold it to maturity andthe purchaser ultimately defaults, our liquidating distributions might bereduced.

 

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

 

The value of our interests in golf courses might be reduced, andsubstantially so, by a number of factors that are beyond our control, includingthe following:

 

•                  adverse changesin the economy, prolonged recession and/or additional terrorist activityagainst the United States or our allies or other war-time activities mightincrease public pessimism and decrease travel and leisure spending, therebyreducing golf course operators’ revenues (particularly destination-resort golfcourse revenues) and diminishing the resale value of the affected golf courses;

 

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

 

•                  continuingplight of the golf course industry (over supply facing decreasing demand); and

 

•                  changes in realestate tax rates and other operating expenses.

 

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Any reduction in the value of our golf courses would make it moredifficult for us to sell our assets for the amounts and within the time-framesthat we have estimated. Reductions in the amounts that we receive when we sellour assets could decrease or delay our payment of liquidating distributions tostockholders, perhaps in substantial ways.

 

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

 

Before making the final liquidating distribution to commonstockholders, we will need to pay all of our transactions costs pertaining tothe liquidation and all valid claims of our creditors. Our board may alsodecide to acquire one or more additional insurance policies covering unknown orcontingent claims against us, including, without limitation, additionaldirectors’ and officers’ liability insurance, for which we would pay anadditional premium based upon market prices prevailing at the time of purchase.We have estimated such transactions costs in calculating the amount of ourprojected liquidating distributions. To the extent that we have underestimatedcosts and expenses in calculating our projections, our actual aggregateliquidating distributions will be lower than we have projected, and perhaps insubstantial amounts.

 

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

 

In order to maintain our historical qualification as a REIT, at least95% of our annual gross income was required to be derived from real propertyrents, mortgage interest and a few other categories of income specified in thetax code, which importantly do not include income from golf course operations.Although we did not affirmatively intend to revoke our REIT status, businessconditions required us to begin operating golf courses in 2000 and thepercentage of our gross income supplied by such operations increased in 2001and surpassed the 5% ceiling in 2002. Consequently, we did not meet the 95%gross income test in 2002. Failure to meet this test caused us to fail toqualify as a REIT for the year 2002, which will prevent us from re-qualifyingfor at least four years. Accordingly, we are currently subject to federalincome tax as a regular corporation.

 

However, ouroperations resulted in a net operating loss for income tax purposes during2002. Therefore, no income tax will be due on our operating income/loss orproceeds from the sale of properties that occurred during 2002. As ofDecember 31, 2002, we believe we have sufficient net operating losscarryovers to offset any gains we might recognize through our liquidation. Ifwe were to recognize taxable gains in a year before consideration of netoperating loss carryovers, we could be subject to alternative minimum tax. Generally,for tax years ending after December 31, 2002, the use of net operatingloss carryovers to reduce alternative minimum taxable income is limited to 90%of alternative minimum taxable income. Therefore, tax at a rate of 20% could beimposed on our alternative minimum taxable income that cannot be reduced by netoperating loss carryovers. The resulting tax liabilities would reduce theamount of cash available for liquidating distributions.

 

***The holder of ourSeries A preferred stock might exercise its right to appoint two directors toour board of directors, which might result in decisions that prejudice theeconomic interests of our common stockholders in favor of our preferredstockholders..***

 

We entered into a voting agreement with the holder of our preferredstock, AEW Targeted Securities Fund, L.P., pursuant to which the holder agreedto vote in favor of the plan of liquidation. The voting agreement provided thatif we failed to redeem the Series A preferred stock by May 22, 2003, the holderof the preferred stock would be entitled to require us to redeem it.  We received such a demand from the preferredstock holder on May 23, 2003, but we do not have enough cash available toredeem the preferred stock.  Our defaultin making a timely redemption payment gives the preferred stock holder theright under the voting agreement to appoint two new directors to ourboard.  Our charter also gives thepreferred stock holder the right to elect two new directors if and whendividends on the Series A shares are over six quarters in arrears.  Currently, dividends on the Series A sharesare nine quarters in arrears.  Thesedirector election rights are not cumulative, which means that the preferredstock holder may elect two, but not four, new directors.  The current holder of the preferred stock,AEW Targeted Securities Fund, L.P.,

 

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has informed us that it doesnot currently intend to exercise that right. However, we face the risk that it might decide to exercise such right inthe future.  The appointment of suchdirectors to our board might reduce the efficiency of our board’s decisionmaking or result in decisions that prejudice the economic interests of ourcommon stock holders in favor of our preferred stock holder.

 

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

 

At some point during our liquidation, as expressly permitted by ourplan of liquidation, we may elect to contribute our remaining assets andliabilities to a liquidating trust. Our stockholders would receive interests inthe liquidating trust and our corporate existence would terminate. The SEC hashistorically allowed liquidating trusts to stop filing quarterly reports onForm 10-Q and to file unaudited annual financial statements onForm 10-K. Accordingly, if the SEC were to grant similar relief to oursuccessor liquidating trust we might realize substantial legal and auditingcost savings over the remainder of our liquidation, as well as general andadministrative cost savings such as personnel costs, certain insurance costs,and printing and reporting costs of a publicly traded company, among others.However, the plan of liquidation prohibits us from contributing our assets to aliquidating trust unless and until our preferred stock has been redeemed infull.

 

For tax purposes, the creation of the liquidating trust should betreated as a distribution of our remaining assets to our stockholders, followedby a contribution of the same assets to the liquidating trust by ourstockholders. As a result, we will recognize gain or loss inherent in any suchassets, with any gains offset by available net operating loss carry-overs(discussed above). In addition, a stockholder would recognize gain to theextent his share of the cash and the fair market value of any assets receivedby the liquidating trust was greater than the stockholder’s basis in his stock,notwithstanding that the stockholder would not contemporaneously receive adistribution of cash or any other assets with which to satisfy the resultingtax liability.

 

In addition, it is possible that the fair market value of theInnisbrook Resort and the other assets received by the liquidating trust, asestimated for purposes of determining the extent of the stockholder’s gain atthe time interests in the liquidating trust are distributed to thestockholders, will exceed the cash or fair market value of property ultimatelyreceived by the liquidating trust upon its sale of the assets, in which case thestockholder may not receive a distribution of cash or other assets with whichto satisfy any tax liability resulting from the contribution of the assets tothe liquidating trust. In this case, the stockholder would recognize a loss ina taxable 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. However, as of December 31, 2002, we believe wehave sufficient net operating loss carryovers to offset any recognized gains.If we were to recognize taxable gains in a year before consideration of netoperating loss carryovers, we could be subject to alternative minimum tax.Generally, for tax years ending after December 31, 2002, the use of netoperating loss carryovers to reduce alternative minimum taxable income islimited to 90% of alternative minimum taxable income. Therefore, tax at a rateof 20% could be imposed on our alternative minimum taxable income that cannotbe reduced by net operating loss carryovers. If a liquidating trust is formed,our net operating loss carryovers will not be available to reduce any gainsrecognized within the trust. However, the trust will have a tax basis equal tothe fair market value of its assets at the date the liquidating trust isformed. Any gain recognized by the trust would thus be the result of eitherappreciation in the value of the assets during the time that they are owned bythe trust, or an initial underestimation of the fair market value of the assetsat the time the trust is formed.

 

**ITEM 3****.  QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

 

We have not entered into any transactions using derivative commodityinstruments. We are no longer subject to market risk associated with changes ininterest rates since we retired the outstanding obligations under our creditfacility.  Reference is made toNote 7 to the Condensed Consolidated Financial Statements of Item 1 for additionaldebt information.

 

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**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 ourChief Financial Officer, as appropriate, to allow timely decisions regardingrequired disclosure. Our management assesses the costs and benefits of suchcontrols and procedures based upon the prevailing facts and circumstances,including management’s reasonable judgment of such facts.  As we neither control nor manage theInnisbrook Resort at this time, our disclosure controls and procedures withrespect to such persons and entities are necessarily more limited than those wemaintain with respect to our own corporate operations.

 

As ofSeptember 30, 2003, we carried out an evaluation, under the supervision andwith the participation of our management, including our Chief Executive Officerand our Chief Financial Officer, of the effectiveness of the design andoperation of our disclosure controls and procedures pursuant to Exchange ActRule 13a-14. Because our Company only has eight employees, excluding golfcourse employees, two of the eight of which are the CEO and the CFO, allmatters of a disclosable nature are typically addressed and handled by thesetwo individuals. Based upon the foregoing, our Chief Executive Officer and ourChief Financial Officer concluded that as of September 30, 2003, our disclosurecontrols and procedures are effective in timely alerting them to materialinformation relating to our Company (including our consolidated subsidiaries)required to be included in our Exchange Act reports. There have been nosignificant changes in our internal controls or in other factors which couldsignificantly affect internal controls subsequent to the date we carried outour evaluation.

 

**PART II****.  OTHER INFORMATION**

 

**ITEM 1****:  Legal Proceedings.**

 

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

 

***Pete Dye Golf Club***

 

On March 18, 2003, we filed a judicial action in the Circuit Courtfor the Ninth Judicial District, the State of South Carolina, against BurningEmbers Corporation, Golf and Fairway, L.L.C., Golf Course Leasing, LLC, JamesD. LaRosa, James J. LaRosa and Leigh Ann LaRosa, as jointand several co-borrowers, for collection of all sums due and owing to us,approximately $220,000 plus accrued interest at March 24, 2003, under thepromissory note that matured on December 19, 2002. One payment of $10,000has been received since the maturity date and has been applied to the outstandingprincipal and interest. The promissory note was executed by the buyer in favorof us in connection with the sale of the Pete Dye Golf Club onDecember 19, 2001 to an affiliate of the borrowers.  The defendants were served on May 19, 2003,they answered the complaint, so we then filed a Motion for Summary Judgment onJune 30, 2003.  The summary judgmenthearing was held on October 22, 2003. The defendants failed to appear, and the judge granted summary judgmentin our favor against all defendants. The order was signed on October 24, 2003 and entered on October 28,2003.  We will now domesticate thejudgment in West Virginia, presumably where all the defendants' assets arelocated.

 

***Osage National GolfClub***

 

The lawsuit, *Osage National Golf Club, Inc. et al. v. GolfTrust of America, Inc., et al.*, United States District CourtEastern District of Missouri was filed against us on or about April 5,2000. This lawsuit involves a sale and lease transaction between plaintiffs andGolf Trust of America L.P. of a golf course located in Miller County, Missouri.Part of the consideration for this transaction at the time of our purchase ofthe golf course was the transfer of OP Units as purchase consideration to OsageNational Golf Club. Plaintiffs allege that we misrepresented the nature ofthese OP Units. Plaintiffs assert that because of this misrepresentation the OPUnits were substantially

 

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less valuable than had beenrepresented by us and, therefore, they have suffered actual damages in theamount of not less than $3,500,000. In addition, plaintiffs’ claim that theyare entitled to unspecific punitive damages. A scheduling conference was heldwith the court in late February 2002, and the case was tentatively set fortrial on October 28, 2002. The parties agreed to submit the case onstipulated facts and have submitted such a stipulation to the court. Theparties met with the court on October 29, 2002 and an order was enteredscheduling memoranda of law and other procedures to present the case. OnDecember 30, 2002, plaintiffs filed their memorandum of law in which theylimited their request for judgment to $1,465,886.80 plus interest at 9% fromJune 20, 2000. On January 6, 2003, we filed a responsive memorandum. OnJune 18, 2003, the parties filed their joint request for entry ofjudgment.  On September 20, 2003 thecourt entered a judgment in our favor and denied all of the plaintiffs’ causesof action.  The time for the plaintiffsto file an appeal of this judgment has passed and no appeal was filed.  The judgment is, therefore, final andnon-appealable and this matter is concluded.

 

***Tierra Del SolCountry Club***

 

On July 18, 2003, GTA and the Estate of Mulvihill, as sellers, andDavid L. Nelson, Trustee for entity to be formed, as purchaser, entered into apurchase and sale agreement for the sale of the Tierra Del Sol Golf &Country Club. The closing is scheduled to occur within the next 30 days. Wehave been operating this golf course through our wholly owned subsidiary, GTATierra Del Sol, LLC, since February 7, 2000. All of the legal proceedingsrelating to the Tierra Del Sol golf course have been contractually resolved bythe parties involved, pending the expiration of the applicable agreement.

 

On September 20, 2000, Terence Mulvihill, a principal in thelessee and in the entity which previously owned the golf course, attempted toterminate our water rights lease Agreement at the golf course for (a) theexistence of an unauthorized assignment, which Mr. Mulvihill claimed wasthe result of allowing GTA Tierra Del Sol, LLC to operate the golf course;(b) utilizing the water on the golf course in a manner which was contraryto the purposes authorized under the water rights lease agreement;(c) using the water in amounts in excess of what was permitted under theterms of the water rights lease agreement; and (d) non-payment of taxesunder the water rights lease agreement for fiscal year 1999. We have respondedin writing to Mr. Mulvihill disputing the termination of the water rightslease agreement. We also filed a complaint on January 15, 2002, in theThirteenth Judicial District Court, County of Valencia, State of New Mexico,against the Mulvihill Estate (Mr. Mulvihill died in December 2000) andGolf Classic Resorts, LLC. Our complaint sought various forms of relief inrelation to the water rights lease agreement and the underlying purchase ofTierra Del Sol, including, but not limited to, requesting a determination that:(1) the water rights lease agreement has not been terminated and remainsin effect; (2) the lease, in essence, constitutes a transfer of a feeinterest in the water rights; or (3) alternatively requesting a rescissionof the 1998 contribution and leaseback agreement pursuant to which the water rightswere assigned to Mr. Mulvihill, based upon the fraud and misrepresentationof the seller and Mr. Mulvihill.

 

On February 21, 2003, we entered into an agreement for marketingand joint sale of property with Mary Louise Mulvihill Skalkos, the executor ofthe Estate of Terence J. Mulvihill and Golf Classic Resorts, LLC in which theparties agreed jointly to market the assets at the Tierra Del SolGolf & Country Club in Belen, New Mexico. The term of this agreementis six months and we shall have the option to extend the term of the agreementfor three additional six-month periods. We recently exercised the first optionto extend for an additional six-month period. As a result of the parties entering into this agreement, we agreed withthe Estate and Golf Classic Resorts, LLC that all parties would forbear fromtaking further action on the existing lawsuit during the term of the agreement.

 

***Palm Desert CountryClub***

 

We operated this golf course through our wholly owned subsidiary,GTA—Palm Desert, LLC, from September 5, 2000, when the lessee agreed todeliver possession to us, until April 20, 2001, when we completed the saleof Palm Desert Country Club to Dahoon Investment Company, for totalconsideration of $4.075 million. Dahoon Investment Company commenced ajudicial action against us and GTA Palm Desert LLC on November 20, 2001 inthe Riverside County Superior Court, alleging (1) breach of a purchase andsale agreement involving the Palm Desert Country Club in Palm Desert,California, (2) negligence, (3) breach of the covenant of good faith andfair dealing, and (4) intentional and negligent misrepresentation inconnection with the sale of the golf course. This

 

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case has since been settled for$375,000.  Insurance companies for thedefendants (GTA-Palm Desert, LLC and us) funded the entire settlement paymentowed to the plaintiff, Dahoon.  Pursuantto the settlement agreement between the plaintiff and defendants, the plaintiffis obligated to file a dismissal of this case with prejudice.  This matter is now considered closed.

 

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

 

On April 22, 2002, we filed an action *Golf Trust of America, L.P. and GTAStonehenge, LLC v. Lyndell Lewis Young and Stonehenge Golf Development, LLC*in the Court of Common Pleas for Richland County. We have asserted causes ofaction for breach of contract accompanied by fraudulent act, fraud and unfairtrade practices. We are seeking damages of approximately $172,000, whichrepresents prepaid dues which were not disclosed by the defendants. Acounterclaim for payment under a consulting agreement, along with claims forpayment of operating/maintenance and insurance expenses was received onJune 20, 2002. Our reply was filed on July 22, 2002 denying theclaims and, alternatively, seeking a set-off or recoupment against theiralleged claim for the amount of our claim. No trial date has been set.  Atthis time we are unable to assess the likely outcome of this litigation.

 

***Plan of LiquidationAction***

 

On January 28, 2002, we received a copy of a complaint titled *Mary EllaCrossley v. W. Bradley Blair, II et al.* This legal action was filedin the Circuit Court for Baltimore City, Maryland, against us and our directorsand officers, Mr. Young and Banc of America Securities LLC. The complaintpurported to be a derivative action brought by Mary Ella Crossley, who claimsto be one of our stockholders. The plaintiff alleged:

 

•                  that payments tocertain of our officers under their employment agreements and an agreement tosell golf courses to Legends resulted from a breach of the defendants’fiduciary duties to stockholders;

 

•                  that ourofficers defrauded the company in the renegotiation of their employmentagreements; and

 

•                  that the actionsof the defendants in approving the payments under the employment agreements andthe Legends transaction constituted a breach of our charter resulting in theunjust enrichment of certain individual defendants.

 

As previously reported, on April 9, 2003, we filed a motion for summaryjudgment based on plaintiff’s lack of standing to bring this derivative actionand on the merits.  On May 21, 2003,following a hearing, the court granted our motion for summary judgment anddismissed the case in its entirety. Thereafter, Crossley, entered into anon-monetary settlement with all defendants under which Crossley agreed not toappeal the court’s ruling dismissing the case and we agreed not to seekreimbursement of attorneys’ fees and costs from Crossley.  The parties also released claims againsteach other and Crossley agreed to return documents produced during litigation.We are currently in negotiations with our directors and officers insurancecarrier regarding reimbursement of our attorneys’ fees and costs incurred inthe litigation.  At this time, we areunable to assess the likely outcome of that negotiation.

 

***Innisbrook ResortCondominium Owner Litigation***

 

The Innisbrook Resort serves as collateral for a $79 millionnon-recourse loan we made to the Resort’s owner, Golf Host Resorts, Inc.,in 1997. The owner/borrower has entered into an arrangement with many of thepersons who own condominium units at the Resort. Under this arrangement, whenthe condominiums are not being used by their owners, they are placed in a pooland rented as hotel rooms to guests of the Innisbrook Resort. Certain of thecondominium owners (as plaintiffs) initiated a legal action against theborrower, Golf Host Resorts, Inc., and its corporate parent, Golf Hosts, Inc.(as defendants), regarding various aspects of this arrangement. We are not aparty to the lawsuit. It is our understanding, however, that the condominiumowners/plaintiffs are seeking to resolve the following issues, among others:

 

•                  whether everycondominium owner who is also a member of the Innisbrook Golf and Country Clubhas the

 

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right to participate in the lessor’s rental pool, so long as there is arental pool, by virtue of defendant’s alleged marketing promises to allpurchasers of condominiums at the project;

 

•                  whether thecondominium unit owners were coerced by economic pressure and duress to enterinto the guaranteed distribution master lease agreement, or guaranteed leaseagreement;

 

•                  whether the guaranteedlease agreement is invalid by reason of such alleged coercion and economicduress and, if so, whether the condominium owners who entered into theguaranteed lease agreement are entitled to be reimbursed for the differencebetween the amount of income that was distributed to them under the guaranteedlease agreement and the amount of income that would have been distributed tothem had they remained subject to the master lease agreement;

 

•                  whether the unitowners who signed the guaranteed lease agreement have the right to return tothe master lease agreement without penalty and thereby be entitled to bereimbursed for the difference between the income that they received under theguaranteed lease agreement and the income they would have received under themaster lease agreement; and

 

•                  whether thedefendant breached its contract with the unit owners by allowing members of thepublic upon the golf courses and thereby adversely affecting the “private golfcourse” concept of Innisbrook.

 

Deposition of class members and others, including depositions of priorexecutives of Golf Host Resorts, Inc. have been taken and additional discoveryremains.  The previously scheduled trialdate of February 3, 2003 was postponed by the Court; a new trial date has not yetbeen set.  In July 2003, the judge inthe litigation against Golf Host Resorts, Inc. reversed an earlier ruling andheld that the the case could not proceed as a class action. The judge alsoruled that the plaintiffs could not seek recovery from the individuals thathold stock in Golf Host Resorts, Inc. and its affiliates (rejecting plaintiffs’attempt to “pierce the corporate veil”). In October 2003, the judge ruled that the claims of the former membersof the class who were not named as plaintiffs in the lawsuit were barred by thestatute of limitations.  These rulingsleave approximately 80 individual plaintiffs in the lawsuit.  Plaintiffs have appealed the first and secondrulings to the court of appeals, and have stated their intention to appeal thethird issue.  The court of appeals hasnot yet ruled on any of these issues.

 

Neither GTA nor any of our affiliates is a party to this lawsuit,however, it affects us insofar as any costs imposed on the borrower by thelawsuit might reduce the borrower’s willingness and ability to (i) makeany future participating mortgage payments to us (the borrower has not made anysuch payments to us since October 1, 2001), or (ii) enter into asettlement agreement with us regarding its participating mortgage default onterms we believe are acceptable. Moreover, we believe the lawsuit clouds thevalue of the Innisbrook Resort and thereby impairs the value of the collateralwhich secures our participating loan.

 

***Lake OzarkIndustries, Inc. and Everett Holding Company, Inc. v. Golf Trust ofAmerica, et al.***

 

This is an action initiated in the Circuit Court of Miller County,Missouri, by a contractor, Lake Ozark Construction Industries, Inc., orLOCI, against numerous defendants including us. LOCI asserts that it performedconstruction services on, or which benefited the property of, the variousdefendants, including us and seeks to foreclose a mechanic’s lien upon ourproperty. Plaintiffs’ amended petition is in six counts. Counts I, II and IIIseek recovery of payment for LOCI’s work from M & MContractors, Inc., which plaintiffs’ claim was the prime contractor andthe party who hired LOCI as a subcontractor. Counts IV, V and VI name us andother defendants. Count IV seeks to foreclose a mechanic’s lien upon theproperty of various defendants, including us. The lien is for the principalamount of $1,276,123, plus interest at 10% per year and attorneys’ fees.Plaintiffs calculate interest to May 20, 1999, just prior to the lienfiling, to be $151,180, and interest thereafter to be $354 per day. Count V ofthe amended petition, directed at various defendants, including us, seeks adetermination of the priority of plaintiffs’ claimed mechanic’s lien overvarious deeds of trust and property interests, including our interest. The outcomeof count V will be determined by the resolution on the merits of count IV.Finally, count VI seeks foreclosure of a deed of trust from one of the otherdefendants, Osage Land Company, apparently given to Everett to forestallplaintiffs’

 

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filing of the mechanic’s lien.The deed of trust was recorded subsequent to the recordation of the deed fromOzark Land Company to us for its property. The court ruled in June 2001 oncross-motions for summary judgment filed by plaintiffs, us, and defendantCentral Bank of Lake of the Ozarks, a beneficiary of deed of trust on some ofthe property covered by the mechanic’s lien and by the deed of trust from OsageLand Company to Everett. The court denied all the motions with one exception—itgranted Everett summary judgment on count VI (foreclosure of the deed of trustto Everett from Osage Land Company) but ruled that the deed to us and the deedsof trust to Central Bank of Lake of the Ozarks are prior to the deed of trustto Everett. The court did not explain its rulings on the remainder ofplaintiffs’ motion or on our Central Bank of Lake of the Ozarks motions, exceptthat “there remain substantial and genuine issues of material fact.” We filedtwo motions for summary judgment on counts IV and V. The grounds for themotions are that plaintiffs’ claimed lien does not comply with requirements ofthe Missouri mechanic’s lien statute and thus is invalid. On March 25,2002, the court orally granted our requested relief and ruled that plaintiffs’claimed lien does not comply with requirements of the Missouri mechanic’s lienstatute and is invalid. The court entered its written order granting ourmotions for summary judgment on April 20, 2002. As we have previously reported,since not all claims involved in this lawsuit have been resolved, plaintiffs’time to appeal the April 20, 2002 order granting our motions for summaryjudgment had not yet begun to run. Although the plaintiffs’ attorneys informed us that they were makingefforts to resolve the remaining claims in this lawsuit, this had apparentlynot come to pass.  Accordingly, on April15, 2003, we filed a motion with the court asking that it make final thejudgment granted to Golf Trust of America, L.P.  On May 12, 2003, the Court entered a judgment that disposed ofall outstanding claims in the lawsuit. On June 10, 2003 Plaintiffs filed aNotice of Appeal of the ruling in favor of Golf Trust of America, L.P. on itsMotion for Summary Judgment.   In lateSeptember 2003 the court of appeals determined that the owners of one of thelots covered by LOCI and Everett’s lien file a counterclaim against LOCI thatnever has been disposed of.  Althoughthe counterclaim was filed in November 1999, the owners did nothing further on thecounterclaim and it apparently was forgotten. Because this counterclaim has not been disposed of, the counterclaimprevents the trial court’s decision in favor of us from being final andappealable.  As a result, the appeal wasdismissed on October 7, 2003.  We havebeen told that the counterclaim will be dismissed in the near future and thatLOCI and Everett then will file a new appeal. It is too early to know how much this will delay a final decision by thecourt of appeals.  Because of theuncertainty of an appeal by plaintiffs, at this time we are unable to assessthe likely outcome of this litigation.

 

***Routine Litigation***

 

In addition to litigation between a lessor and our former lessees (andtheir affiliates), 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.Such proceedings are generally brought against the operator of a golf course, butmay also be brought against the owner. Our participating leases provided thateach lessee is responsible for claims based on personal injury and propertydamage at the golf courses which are leased and require each lessee to maintaininsurance for such purposes. Since we are now the operator of our remaininggolf courses, except Innisbrook, we maintain insurance for these purposes. Weare not currently subject to any claims of this sort that we deem to bematerial.

 

**ITEM 2****.  CHANGES IN SECURITIES**

 

Not Applicable.

 

**ITEM 3****.  DEFAULTS UPON SENIOR SECURITIES**

 

As previously reported, on July 21, 2003 we defaulted on ourobligation, under our voting agreement with the holder of our Series Apreferred stock, to redeem the Series A shares within 60 days of the holder’sMay 23, 2003 demand.  As a result, theaggregate Series A dividend rate increased from $462,500 per quarter to$625,000 per quarter and the preferred stock holder has a right to appoint twodirectors to our board of directors. The preferred stock holder has that same right under our the Series AArticles Supplementary (our charter document relating to the preferred stock)because we have not paid a preferred stock dividend since the third quarter of2001 and such right arises when preferred stock dividends are in arrears forsix or more quarters.  The preferredstock holder

 

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has informed us that it doesnot currently intend to exercise that right. However, it remains free to do so at any time (pursuant to theprocedures specified in our charter and the voting agreement).

 

**ITEM 4****.  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS**

 

No matters were submitted to a vote of security holders during thethree months ended September 30, 2003.

 

**ITEM 5****.  OTHER INFORMATION**

 

Not Applicable.

 

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

 

***Exhibits***

 

The exhibits listed on the Exhibit Index, which appears after thesignature page, are included or incorporated by reference in this QuarterlyReport.

 

***Form 8-KFilings***

 

On October 9,2003, we filed the following report on Form 8-K, dated August 29, 2003,describing under Item 2 that we entered into the Fourth Amended and RestatedEmployment Agreement with our chief financial officer, Scott D. Peters.  A copy of the Agreement and the relatedGeneral Release were filed as Exhibits 10.1 and 10.2, respectively, of that 8-Kand are incorporated herein by reference.

 

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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.,**registrant |
|-------------------------|--------------------------------------------------|
|                    |                                             |   |
| Date: November 13, 2003 | By:  /s/                                    | W. Bradley Blair, II |   |
|                    |                                             | W. Bradley Blair, II |
|                    |                                             | *President and  Chief Executive Officer* |
|                    |                                             |   |
| Date: November 13, 2003 | By:  /s/                                    | Scott D. Peters |   |
|                    |                                             | Scott D. Peters |
|                    |                                             | *Senior Vice  President and Chief Financial Officer* |

 

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**EXHIBIT INDEX**

 

Pursuant to Item 601(a)(2) of Regulation S-K, this exhibit indeximmediately precedes the exhibits.

 

The following exhibits are part of this Quarterly Report onForm 10-Q (and are numbered in accordance with Item 601 ofRegulation S-K). Items marked with an asterisk (*) are filed herewith.

 
| **No.** |   | **Description**                                                                                                                                                                                                                                                                                                                                                                       |
|---------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                                                                                                                  |
| 2.1     |   | Plan of Liquidation and Dissolution of Golf Trust of America, Inc.,  as approved by stockholders on May 22, 2001 and as currently in effect  (previously filed as Exhibit 2.1 to our Company’s Current Report on Form 8-K,  filed May 30, 2001, and incorporated herein by reference).                                                                                           |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                  |
| 3.1.1   |   | Articles of Amendment and Restatement of Golf Trust of America, Inc.,  as filed with the State Department of Assessments and Taxation of Maryland on  January 31, 1997, (previously filed as Exhibit 3.1A to our Company’s  Registration Statement on Form S-11 (Commission File No. 333-15965) Amendment  No. 2 (filed January 30, 1997) and incorporated herein by reference). |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                  |
| 3.1.2   |   | Articles of Amendment of Golf Trust of America, Inc., as filed with  the State Department of Assessments and Taxation of Maryland on June 9, 1998  (previously filed as Exhibit 3.2B to our Company’s Quarterly Report on Form  10-Q, filed August 14, 1998 and incorporated herein by reference).                                                                               |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                  |
| 3.1.3   |   | Articles of Amendment of Golf Trust of America, Inc. dated May 22,  2001, as filed with the State Department of Assessments and Taxation of  Maryland on May 25, 2001 (previously filed as Exhibit 3.1 to our Company’s  Current Report on Form 8-K, filed May 30, 2001, and incorporated herein by  reference).                                                                 |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                  |
| 3.2.1   |   | Articles Supplementary of Golf Trust of America, Inc. relating to the  Series A Preferred Stock, as filed with the State Department of Assessments  and Taxation of the State of Maryland on April 2, 1999 (previously filed as  Exhibit 3.1 to our Company’s Current Report on Form 8-K, filed April 13,  1999, and incorporated herein by reference).                          |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                  |
| 3.2.2   |   | Articles Supplementary of Golf Trust of America, Inc. relating to the  Series B Junior Participating Preferred Stock, as filed with the State  Department of Assessments and Taxation of the State of Maryland on August 27,  1999 (previously filed as Exhibit 3.1 to our Company’s Current Report on Form  8-K, filed August 30, 1999, and incorporated herein by reference).  |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                  |
| 3.3.1   |   | Bylaws of Golf Trust of America, Inc., as amended and restated by the  Board of Directors on February 16, 1998 (previously filed as Exhibit 3.2 to  our Company’s Quarterly Report on Form 10-Q, filed May 15, 1998 and  incorporated herein by reference).                                                                                                                      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                  |
| 3.3.2   |   | Bylaws of Golf Trust of America, Inc., as amended and restated by the  Board of Directors on March 27, 2001 (previously filed as Exhibit 3.3 to our  Company’s Quarterly Report on Form 10-Q, filed May 15, 2001 and incorporated  herein by reference).                                                                                                                         |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                  |
| 3.3.3   |   | Bylaws of Golf Trust of America, Inc., as amended and restated by the  Board of Directors on August 20, 2001 and as currently in effect (except for  the provision amended by the following exhibit 3.3.4) (previously filed as  Exhibit 3.3 to our Company’s Current Report on Form 8-K, filed August 30,  2001 and incorporated herein by reference).                          |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                  |
| 3.3.4   |   | Bylaws Amendment of Golf Trust of America, Inc., as adopted by the  Board of Directors on March 15, 2002 and as currently in effect (previously  filed as Exhibit 3.3.4 to our Company’s Annual Report on form 10-K, filed  April 1, 2002, and incorporated herein by reference).                                                                                                |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                  |
| 4.1     |   | Form of Share Certificate for Golf Trust of America, Inc. Common  Stock (previously filed as Exhibit 4.3 to our Company’s Current Report on  Form 8-K, filed August 30, 1999, and incorporated herein by reference).                                                                                                                                                             |

 

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| **No.**   |   | **Description**                                                                                                                                                                                                                                                                                                                                                                                                               |
|-----------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.2       |   | Form of Share Certificate for Golf Trust of America, Inc. Series A  Preferred Stock (previously filed as Exhibit 3.2 to our Company’s Current  Report on Form 8-K, filed April 13, 1999, and incorporated herein by  reference).                                                                                                                                                                                         |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.3       |   | Shareholder Rights Agreement, by and between Golf Trust of America,  Inc. and ChaseMellon Shareholder Services, L.L.C., as rights agent, dated  August 24, 1999 (previously filed as Exhibit 4.1 to our Company’s Current  Report on Form 8-K, filed August 30, 1999, and incorporated herein by  reference).                                                                                                            |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.4† |   | Voting Agreement, between Golf Trust of America, Inc. and the holder  of all of its outstanding shares of Series A Preferred Stock, AEW Targeted  Securities Fund, L.P., dated February 22, 2001 (previously filed as Exhibit  4.2 to our Company’s Current Report on Form 8-K, filed March 12, 2001, and  incorporated herein by reference).                                                                            |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.5       |   | Voting Agreement, by and among Golf Trust of America, Inc., Golf  Trust of America, L.P., GTA GP, Inc. and the holders of operating partnership  units named therein, dated as of February 14, 2001 (previously filed as  Exhibit 4.3 to our Company’s Current Report on Form 8-K, filed March 12,  2001, and incorporated herein by reference).                                                                         |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.1.1    |   | First Amended and Restated Agreement of Limited Partnership (the  “Partnership Agreement”) of Golf Trust of America, L.P., dated February 12,  1997 (previously filed as Exhibit 10.1 to our Company’s Annual Report on Form  10-K, filed March 31, 1997, and incorporated herein by reference).                                                                                                               |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.1.2    |   | First Amendment to the Partnership Agreement of Golf Trust of  America, L.P., dated as of February 1, 1998 (previously filed as Exhibit  10.1.2 to our Company’s Annual Report on Form 10-K, filed March 31, 1998, and  incorporated herein by reference).                                                                                                                                                               |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.1.3    |   | Second Amendment and Consent to the Partnership Agreement of Golf  Trust of America, L.P., as amended, dated as of February 14, 2001 (previously  filed as Exhibit 10.3 to our Company’s Current Report on Form 8-K, filed  March 12, 2001, and incorporated herein by reference).                                                                                                                                       |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.1.4*   |   | Exhibit A to the Partnership Agreement (Schedule of Partnership  Interests) of Golf Trust of America, L.P., as revised through November 7,  2003.                                                                                                                                                                                                                                                                             |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.1.5    |   | Designation of Class B Common OP units of Golf Trust of America,  L.P., dated February 1, 1998, which has been added as the first entry in  Exhibit D to the Partnership Agreement (included within the First Amendment  to the Partnership Agreement, which was previously filed as Exhibit 10.1.2 to  our Company’s Annual Report on Form 10-K, filed March 31, 1998, and  incorporated herein by reference).          |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.1.6    |   | Designation of Series A Preferred OP units of Golf Trust of America,  L.P., dated April 2, 1999, which has been added to Exhibit D to the  Partnership Agreement (previously filed as Exhibit 10.3 to our Company’s  Current Report on Form 8-K, filed April 13, 1999, and incorporated herein by  reference).                                                                                                           |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.1.7    |   | Designation of Series B Preferred OP units of Golf Trust of America,  L.P., dated May 11, 1999, which has been added to Exhibit D to the  Partnership Agreement (previously filed as Exhibit 10.1.6 to our Company’s  Annual Report on Form 10-K, filed March 30, 2000, and incorporated herein by  reference).                                                                                                          |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.1.8    |   | Designation of Series C Preferred OP units of Golf Trust of America,  L.P., dated July 28, 1999, which has been added to Exhibit D to the Partnership  Agreement (previously filed as Exhibit 10.1.7 to our Company’s Annual Report  on Form 10-K, filed March 30, 2000, and incorporated herein by reference).                                                                                                          |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.2.1    |   | Credit Agreement, dated as of June 20, 1997, by and among Golf Trust  of America, L.P., as Borrower, Golf Trust of America, Inc., GTA GP, Inc. and  GTA LP, Inc., as Guarantors, the Lenders referred to therein, and NationsBank  N.A., as Agent (previously filed as Exhibit 10.1 to our Company’s Current  Report on Form 8-K, dated June 20, 1997 and filed August 12, 1997, and  incorporated herein by reference). |

 

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| **No.** |   | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|---------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.2.2  |   | Amended and Restated Credit Agreement, dated as of July 8, 1998, by  and among Golf Trust of America, L.P., as Borrower, Golf Trust of America,  Inc., GTA GP, Inc. and GTA LP, Inc., as Guarantors, the Lenders referred to  therein, and NationsBank N.A., as Agent (previously filed as Exhibit 10.2.2  to our Company’s Amended Annual Report on Form 10-K/A, filed April 1, 1999,  and incorporated herein by reference).                                                                                                                                                                                           |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.2.3  |   | Amended and Restated Credit Agreement, dated as of March 31, 1999, by  and among Golf Trust of America, L.P., as Borrower, Golf Trust of America,  Inc., GTA GP, Inc. and GTA LP, Inc., as Guarantors, the Lenders referred to  therein, NationsBank, N.A., as Administrative Agent, First Union National  Bank as Syndication Agent, and BankBoston, N.A., as Documentation Agent  (previously filed as Exhibit 10.2.3 to our Company’s Annual Report on Form  10-K, filed March 30, 2000, and incorporated herein by reference).                                                                                       |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.2.4  |   | Second Amended and Restated Credit Agreement, dated as of July 25,  2001, by and among Golf Trust of America, L.P., as Borrower, Golf Trust of  America, Inc., GTA GP, Inc., GTA LP, Inc., Sandpiper-Golf Trust, LLC, GTA  Tierra Del Sol, LLC, and GTA Osage, LLC, as Guarantors, the Lenders referred  to therein, and Bank of America, N.A., as Administrative Agent, First Union  National Bank, as Syndication Agent, and Fleet National Bank, as Documentation  Agent (previously filed as Exhibit 10.1 to our Company’s Current Report on  Form 8-K, filed August 1, 2001, and incorporated herein by reference). |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.3    |   | Credit Agreement, dated as of March 31, 1999, by and among Golf Trust  of America, L.P., as Borrower, Golf Trust of America, Inc., GTA GP, Inc. and  GTA LP, Inc., as Guarantors, the Lenders referred to therein, and  NationsBank, N.A., as Administrative Agent for the Lenders (previously filed  as Exhibit 10.3 to our Company’s Annual Report on Form 10-K, filed March 30,  2000, and incorporated herein by reference).                                                                                                                                                                                         |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.4    |   | Loan Agreement (the “participating mortgage”), dated as of June 20,  1997, by and between Golf Host Resorts, Inc., as Borrower, and Golf Trust of  America, L.P., as Lender (previously filed as Exhibit 10.2 to our Company’s  Current Report on Form 8-K, dated June 20, 1997 and filed August 12, 1997,  and incorporated herein by reference).                                                                                                                                                                                                                                                             |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.5    |   | Form of Participating Lease Agreement (previously filed as Exhibit  10.2 to our Company’s Registration Statement on Form S-11, filed January 15,  1997, and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                                                                           |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.6    |   | 1997 Non-Employee Directors’ Plan of Golf Trust of America, Inc.  (previously filed as Exhibit 10.7 to our Company’s Registration Statement on  Form S-11 (Commission File No. 333-15965) Amendment No. 1 (filed January 15,  1997) and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                          |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.7    |   | 1997 Stock Incentive Plan (the “Original 1997 Plan”) of Golf Trust of  America, Inc. (previously filed as Exhibit 10.6 to our Company’s Registration  Statement on Form S-11 (Commission File No. 333-15965) Amendment No. 1 (filed  January 15, 1997) and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                  |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.8    |   | 1997 Stock-Based Incentive Plan of Golf Trust of America, Inc. (the  “New 1997 Plan”) (previously filed as Exhibit 10.3 to our Company’s Quarterly  Report on Form 10-Q (Commission File No. 000-22091), filed August 15, 1997,  and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                        |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.9    |   | Form of Nonqualified Stock Option Agreement for use under the New  1997 Plan (previously filed as Exhibit 10.4 to our Company’s Quarterly Report  on Form 10-Q (Commission File No. 000-22091), filed August 15, 1997, and  incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                           |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.10   |   | Form of Employee Incentive Stock Option Agreement for use under the  New 1997 Plan (previously filed as Exhibit 10.5 to our Company’s Quarterly  Report on Form 10-Q (Commission File No. 000-22091), filed August 15, 1997,  and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                     |

 

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| **No.** |   | **Description**                                                                                                                                                                                                                                                                                                                              |
|---------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                                                                         |
| 10.11   |   | General Provisions Applicable to Restricted Stock Awards Granted  Under the New 1997 Plan (previously filed as Exhibit 10.14 to our Company’s  Registration Statement on Form S-11 (Commission File No. 333-36847), dated  September 30, 1997 and filed as of October 1, 1997, and incorporated herein  by reference).                  |
|    |   |                                                                                                                                                                                                                                                                                                                                         |
| 10.12   |   | Form of Restricted Stock Award Agreement for use under the New 1997  Plan (previously filed as Exhibit 10.15 to our Company’s Registration  Statement on Form S-11 (Commission File No. 333-36847), dated September 30,  1997 and filed as of October 1, 1997, and incorporated herein by reference).                                   |
|    |   |                                                                                                                                                                                                                                                                                                                                         |
| 10.13   |   | 1998 Stock-Based Incentive Plan of Golf Trust of America, Inc.  (previously filed as Exhibit A to our Company’s definitive Proxy Statement,  dated April 1, 1999 and filed March 29, 1999, and incorporated herein by  reference).                                                                                                      |
|    |   |                                                                                                                                                                                                                                                                                                                                         |
| 10.14   |   | Employee Stock Purchase Plan of Golf Trust of America, Inc.  (previously filed as Exhibit 4.1 to our Company’s Registration Statement on  Form S-8 (Commission File No. 333-46659), filed February 20, 1998, and  incorporated herein by reference).                                                                                    |
|    |   |                                                                                                                                                                                                                                                                                                                                         |
| 10.15   |   | Subscription Agreement for use with the Employee Stock Purchase Plan  (previously filed as Exhibit 4.2 to our Company’s Registration Statement on  Form S-8 (Commission File No. 333-46659), filed February 20, 1998, and  incorporated herein by reference).                                                                           |
|    |   |                                                                                                                                                                                                                                                                                                                                         |
| 10.16.1 |   | First Amended and Restated Employment Agreement between Golf Trust of  America, Inc. and W. Bradley Blair, II, dated November 7, 1999 (previously  filed as Exhibit 10.15 to our Company’s Annual Report on Form 10-K, filed  March 30, 2000, and incorporated herein by reference).                                                    |
|    |   |                                                                                                                                                                                                                                                                                                                                         |
| 10.16.2 |   | Second Amended and Restated Employment Agreement between Golf Trust  of America, Inc. and W. Bradley Blair, II, dated as of February 25, 2001  (previously filed as Exhibit 10.4 to our Company’s Current Report on Form  8-K, filed March 12, 2001, and incorporated herein by reference).                                             |
|    |   |                                                                                                                                                                                                                                                                                                                                         |
| 10.17.1 |   | Second Amended and Restated Employment Agreement between Golf Trust  of America, Inc. and Scott D. Peters, dated November 7, 1999 (previously  filed as Exhibit 10.16 to our Company’s Annual Report on Form 10-K, filed  March 30, 2000, and incorporated herein by reference).                                                        |
|    |   |                                                                                                                                                                                                                                                                                                                                         |
| 10.17.2 |   | Third Amended and Restated Employment Agreement between Golf Trust of  America, Inc. and Scott D. Peters, dated as of February 25, 2001 (previously  filed as Exhibit 10.5 to our Company’s Current Report on Form 8-K, filed  March 12, 2001, and incorporated herein by reference).                                                   |
|    |   |                                                                                                                                                                                                                                                                                                                                         |
| 10.17.3 |   | Fourth Amended and Restated Employment Agreement between Golf Trust  of America, Inc. and Scott D. Peters, dated as of August 29, 2003 (previously  filed as Exhibit 10.1 to our Company’s Current Report on Form 8-K, filed  October 9, 2003, and incorporated herein by reference).                                                   |
|    |   |                                                                                                                                                                                                                                                                                                                                         |
| 10.17.4 |   | General Release related to the Fourth Amended and Restated Employment  Agreement between Golf Trust of America, Inc. and Scott D. Peters, dated as  of August 29, 2003 (previously filed as Exhibit 10.2 to our Company’s Current  Report on Form 8-K, filed October 9, 2003, and incorporated herein by  reference).                   |
|    |   |                                                                                                                                                                                                                                                                                                                                         |
| 10.18   |   | Stock Purchase Agreement, dated April 2, 1999, by and among Golf  Trust of America, Inc., Golf Trust of America, L.P., GTA GP, Inc., GTA LP,  Inc. and AEW Targeted Securities Fund, L.P. (previously filed as Exhibit 10.1  to our Company’s Current Report on Form 8-K, filed April 13, 1999, and  incorporated herein by reference). |
|    |   |                                                                                                                                                                                                                                                                                                                                         |
| 10.19   |   | Registration Rights Agreement, dated April 2, 1999, by and between  Golf Trust of America, Inc. and AEW Targeted Securities Fund, L.P.  (previously filed as Exhibit 10.2 to our Company’s Current Report on Form  8-K, filed April 13, 1999, and incorporated herein by reference).                                                    |

 

53

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| **No.** |   | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                             |
|---------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.20.1 |   | Purchase and Sale Agreement, between Golf Trust of America, L.P., as  seller, and Legends Golf Holding, LLC, as buyer, dated as of February 14,  2001 (previously filed as Exhibit 10.1 to our Company’s Current Report on  Form 8-K, filed August 14, 2001, and incorporated herein by reference).                                                                                                                                    |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.20.2 |   | First Amendment to Purchase Agreement, Fifth Amendment to Lease  Agreement (Bonaventure Golf Club) and Settlement Agreement by and among Golf  Trust of America, L.P., Legends Golf Holding, LLC, Legends at Bonaventure,  Inc., Larry Young and Danny Young, dated as of July 30, 2001 (previously  filed as Exhibit 10.2 to our Company’s Current Report on Form 8-K, filed  August 14, 2001, and incorporated herein by reference). |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.21   |   | Confidentiality and Standstill Letter Agreement between Golf Trust of  America, Inc. and The Legends Group, dated as of February 14, 2001  (previously filed as Exhibit 10.2 to our Company’s Current Report on Form  8-K, filed March 12, 2001, and incorporated herein by reference).                                                                                                                                                |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 21.1*   |   | List of Subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                       |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 31.1*   |   | Certification of W. Bradley Blair II under Section 302 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                  |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 31.2*   |   | Certification of Scott D. Peters under Section 302 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 32.1*   |   | Certifications under Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                         |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 99.1    |   | Charter of the Audit Committee of the Board of Directors of Golf  Trust of America, Inc. (previously filed as Appendix A to our Company’s  definitive proxy statement on Schedule 14A, filed October 15, 2001, and  incorporated herein by reference).                                                                                                                                                                                 |

 

----

*                                         Filed herewith

†                                          Portions ofthis exhibit have been omitted pursuant to a request for confidentialtreatment.

 

54

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