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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

 

**FORM 10-Q**

 
| **(Mark One)** | ** **                                                                                              | ** ** |
|----------------|---------------------------------------------------------------------------------------------------------|------------|
|           |                                                                                                    |       |
| **x**          | **Quarterly report pursuant to section 13 or  15(d) of the Securities Exchange Act of 1934**  |
|           |                                                                                                    |       |
| ** **     | **for the quarterly period ended:  September 30, 2008**                                            | ** ** |
| ** **     | ** **                                                                                              | ** ** |
| **o**          | **Transition report pursuant to section 13 or  15(d) of the Securities Exchange Act of 1934** |

 

**for the transition periodfrom              to**

 

**Commission File Number 001-14494**

 

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**GOLF TRUST OF AMERICA, INC.**

(Exact name of Registrant as specified in itscharter)

 

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

 

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

 

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Indicate by check mark whether the Registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that the Registrantwas required to file such report(s) and (2) has been subject to such filingrequirements for the past 90 days. Yes x  No o.

 

Indicate by check mark whether the Registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See definitions of “large accelerated filer,” “accelerated filer,” and“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Checkone):

 

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

 

Indicate by check mark whether the Registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act).

 

Yes o No x

 

On November 8, 2008, there were 7,317,163 shares outstanding of theRegistrant’s common stock.

 

 

 

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**GOLF TRUST OF AMERICA, INC.Quarterly Report on Form 10-Q****For the Three and Nine Months Ended September 30,2008**

 

**INDEX**

 
| **PART I. FINANCIAL INFORMATION** |                                                                                                                                              |
|-----------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------|
|                              |                                                                                                                                              |   |
| **Item 1.**                       | **Financial Statements**                                                                                                                          |   |
|                              |                                                                                                                                              |   |
|                              | Condensed Consolidated Balance Sheets  (Going Concern Basis) as of September 30, 2008 and December 31, 2007                                       | 4 |
|                              |                                                                                                                                              |   |
|                              | Condensed Consolidated Statement of  Operations (Going Concern Basis) for the Three and Nine Months Ended  September 30, 2008                     | 5 |
|                              |                                                                                                                                              |   |
|                              | Condensed  Consolidated Statement of Changes in Net Assets (Liquidation Basis) for the  Three and Nine Months Ended September 30, 2007            | 6 |
|                              |                                                                                                                                              |   |
|                              | Condensed  Consolidated Statements of Cash Flows for the Nine Months ended September 30,  2008 (Going Concern Basis) and 2007 (Liquidation Basis) | 7 |
|                              |                                                                                                                                              |   |
|                              | Notes to  Condensed Consolidated Financial Statements                                                                                             | 8 |
|                              |                                                                                                                                              |   |
| **Item 2.**                       | **Management’s Discussion and Analysis of  Financial Condition and Results of Operations**                                                   | 17 |
| ** **                        | ** **                                                                                                                                        |   |
| **Item 3.**                       | **Quantitative and Qualitative Disclosures  About Market Risk**                                                                                   | 23 |
| ** **                        | ** **                                                                                                                                        |   |
| **Item 4.**                       | **Controls and Procedures**                                                                                                                       | 23 |
| ** **                        | ** **                                                                                                                                        |   |
| **PART II. OTHER INFORMATION**    | 25                                                                                                                                                |
| ** **                        | ** **                                                                                                                                        |   |
| **Item 1.**                       | **Legal Proceedings**                                                                                                                             | 25 |
| ** **                        | ** **                                                                                                                                        |   |
| **Item 1A.**                      | **Risk Factors**                                                                                                                                  | 25 |
| ** **                        | ** **                                                                                                                                        |   |
| **Item 2.**                       | **Unregistered Sales of Equity Securities and  Use of Proceeds**                                                                                  | 25 |
| ** **                        | ** **                                                                                                                                        |   |
| **Item 3.**                       | **Defaults upon Senior Securities**                                                                                                               | 25 |
| ** **                        | ** **                                                                                                                                        |   |
| **Item 4.**                       | **Submission of Matters to a Vote of Security  Holders**                                                                                          | 25 |
| ** **                        | ** **                                                                                                                                        |   |
| **Item 5.**                       | **Other Information**                                                                                                                             | 25 |
| ** **                        | ** **                                                                                                                                        |   |
| **Item 6.**                       | **Exhibits**                                                                                                                                      | 26 |
| ** **                        | ** **                                                                                                                                        |   |
| **Signatures**                    | 27                                                                                                                                                |

 

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**Cautionary Note Regarding Forward-LookingStatements**

 

The following report contains forward-looking statements within themeaning of Section 27A of the Securities Act of 1933, as amended (the“Securities Act”), and Section 21E of the Securities Exchange Act of 1934,as amended (the “Exchange Act”). Forward-looking statements are statements thatpredict or describe future events or trends and that do not relate solely tohistorical matters. All of our forecasts in this Quarterly Report on Form 10-Qare forward-looking statements. You can generally identify forward-lookingstatements as statements containing the words “believe”, “expect”, “will”,“anticipate”, “intend”, “estimate”, “project”, “assume” or other similarexpressions. You should not place undue reliance on our forward-lookingstatements because the matters they describe are subject to known (and unknown)risks, uncertainties and other unpredictable factors, many of which are beyondour control. Our forward-looking statements are based on the limitedinformation currently available to us and speak only as of the date on whichthis Quarterly Report on Form 10-Q was filed with the Securities andExchange Commission (the “SEC”). Our continued internet posting or subsequentdistribution of this dated report does not imply continued affirmation of theforward-looking statements included in it. We undertake no obligation, and weexpressly disclaim any obligation, to issue any updates to our forward-lookingstatements, even if subsequent events cause our expectations to changeregarding the matters discussed in those statements. Future events areinherently uncertain. Accordingly, our projections in this Quarterly Report on Form 10-Qare subject to particularly high uncertainty. Our forecasts should not beregarded as legal promises, representations or warranties of any kindwhatsoever. Over time, our actual results, performance or achievements willlikely differ from the anticipated results, performance or achievements thatare expressed or implied by our forward-looking statements, and suchdifferences might be significant and harmful to our stockholders’ interests.Many important factors that could cause such a difference are described underthe caption “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K(incorporated by reference) which you should review carefully.

 

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**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**(GoingConcern Basis)**

 
| ** **                                                                                                                     | ** ** | **September 30,  2008** | ** ** | **December 31,  2007*** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                                                                                                     | ** ** | **(unaudited)**              | ** ** | ** **                   | ** ** |
| **ASSETS**                                                                                                                     | ** ** | ** **                   | ** ** | ** **                   | ** ** |
| Current assets:                                                                                                                |       |                         |       |                         |       |
| Cash and cash equivalents                                                                                                      |       | $                            | 8,238,838  |                         | $          | 7,398,555 |   |
| Escrow receivable                                                                                                              |       | —                       |       | 2,000,000                    |       |
| Receivables—net                                                                                                           |       | 26,696                       |       | 48,234                       |       |
| Note receivable – current portion                                                                                         |       | 133,334                      |       | —                       |       |
| Other current assets                                                                                                           |       | 71,806                       |       | 27,406                       |       |
| Current assets of discontinued operations                                                                                      |       | 593,834                      |       | 781,447                      |       |
| Total current assets                                                                                                           |       | 9,064,508                    |       | 10,255,642                   |       |
| Note receivable, net of current portion                                                                                        |       | 220,295                      |       | —                       |       |
| Property and equipment, net                                                                                                    |       | 1,048,208                    |       | —                       |       |
| Non-current assets of discontinued  operations                                                                                 |       | 4,054,551                    |       | 4,393,641                    |       |
| Total assets                                                                                                                   |       | $                            | 14,387,562 |                         | $          | 14,649,283 |   |
| **LIABILITIES**                                                                                                                | ** ** | ** **                   | ** ** | ** **                   | ** ** |
| Current liabilities:                                                                                                           |       |                         |       |                         |       |
| Accounts payable                                                                                                               |       | $                            | 66,091     |                         | $          | 147,771 |   |
| Accrued expenses and other liabilities                                                                                         |       | 180,246                      |       | 361,531                      |       |
| Current liabilities of discontinued  operations                                                                                |       | 4,771,701                    |       | 633,389                      |       |
| Total current liabilities                                                                                                      |       | 5,018,038                    |       | 1,142,691                    |       |
| Non-current liabilities of discontinued  operations                                                                            |       | 844,917                      |       | 4,958,804                    |       |
| **Total  liabilities**                                                                                                         |       | 5,862,955                    |       | 6,101,495                    |       |
| Commitments and contingencies                                                                                                  |       |                         |       |                         |       |
| 9.25% Cumulative Convertible Redeemable  Preferred stock, $.01 par value, 10,000,000 shares authorized, no shares  outstanding |       | —                       |       | —                       |       |
| **STOCKHOLDERS’  EQUITY**                                                                                                 |       |                         |       |                         |       |
| Common stock, $.01 par value, 90,000,000  shares authorized, 7,317,163 issued and outstanding                                  |       | 73,172                       |       | 73,172                       |       |
| Additional paid-in capital                                                                                                     |       | 8,766,250                    |       | 8,658,171                    |       |
| Accumulated deficit                                                                                                            |       | (314,815                     | )          | (183,555                     | )          |
| Total stockholders’ equity                                                                                                |       | 8,524,607                    |       | 8,547,788                    |       |
| Total liabilities and stockholders’ equity                                                                                |       | $                            | 14,387,562 |                         | $          | 14,649,283 |   |

 

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*** Derivedfrom audited consolidated financial statements.**

 

See accompanying notes to condensedconsolidated financial statements.

 

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**GOLF TRUST OF AMERICA, INC.**

**CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS**

**(GoingConcern Basis) (unaudited)**

 
| ** **                                                            | ** ** | **Three Months  Ended  September  30, 2008** | ** ** | **Nine Months  Ended  September  30, 2008** | ** ** |
|-----------------------------------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------|------------|
| **Revenues**                                                          |       |                                                   |       |                                                  |       |
|                                                                  |       |                                                   |       |                                                  |       |
| Total revenues                                                        |       | $                                                      | —     |                                                  | $          | — |   |
| **Expenses**                                                          |       |                                                   |       |                                                  |       |
| Depreciation and amortization                                         |       | 831                                                    |       | 1,808                                                 |       |
| General and administrative                                            |       | 411,409                                                |       | 1,342,209                                             |       |
| Total expenses                                                        |       | 412,240                                                |       | 1,344,017                                             |       |
| Operating loss                                                        |       | (412,240                                               | )          | (1,344,017                                            | )          |
| **Other  income (expense)**                                           |       |                                                   |       |                                                  |       |
| Other income                                                          |       | —                                                 |       | 1,641,176                                             |       |
| Other expenses                                                        |       | —                                                 |       | (6,300                                                | )          |
| Interest income                                                       |       | 38,525                                                 |       | 157,273                                               |       |
| Interest expense                                                      |       | (1,328                                                 | )          | (3,542                                                | )          |
| Other income (expense), net                                           |       | 37,197                                                 |       | 1,788,607                                             |       |
| Income (loss) from continuing operations  before income tax provision |       | (375,043                                               | )          | 444,590                                               |       |
| Income tax provision                                                  |       | —                                                 |       | —                                                |       |
| **Net  income (loss) from continuing operations**                     |       | (375,043                                               | )          | 444,590                                               |       |
|                                                                  |       |                                                   |       |                                                  |       |
| **Results  of discontinued operations**                               |       | (300,303                                               | )          | (575,850                                              | )          |
|                                                                  |       |                                                   |       |                                                  |       |
| **Net loss**                                                          |       | $                                                      | (675,346   | )                                                     | $          | (131,260 | ) |
|                                                                  |       |                                                   |       |                                                  |       |
| Basic and diluted earnings (loss) per share                           |       |                                                   |       |                                                  |       |
| From continuing operations                                            |       | (.05                                                   | )          | .06                                                   |       |
| From discontinued operations                                          |       | (.04                                                   | )          | (.08                                                  | )          |
| Net loss                                                              |       | $                                                      | (.09       | )                                                     | $          | (.02 | ) |
| Weighted average number of shares—basic and  diluted             |       | 7,317,163                                              |       | 7,317,163                                             |       |

 

See accompanying notes to condensedconsolidated financial statements.

 

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**GOLF TRUSTOF AMERICA, INC.**

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

**(unaudited)**

 
| ** **                                                                    | ** ** | **Three Months Ended  September 30, 2007** | ** ** | **Nine Months Ended  September 30, 2007** | ** ** |
|-------------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                    | ** ** | ** **                                                     | ** ** | ** **                                                    | ** ** |
| Net assets in liquidation, beginning of  period                               |       | $                                                              | 11,469,899 |                                                          | $          | 13,865,000 |   |
| **Changes in net assets in liquidation:**                                     | ** ** | ** **                                                     | ** ** | ** **                                                    | ** ** |
| Adjustments to liquidation reserve:                                           |       |                                                           |       |                                                          |       |
| Operating income (loss)                                                       |       | (1,284,742                                                     | )          | 810,645                                                       |       |
| Net interest expense                                                          |       | (131,467                                                       | )          | (874,553                                                      | )          |
| Other expense                                                                 |       | —                                                         |       | (58,500                                                       | )          |
| Increase in reserve for estimated  liquidation costs and capital expenditures |       | 1,101,878                                                      |       | (1,577,769                                                    | )          |
| **Subtotal of adjustments to liquidation  reserve**                           |       | (314,331                                                       | )          | (1,700,177                                                    | )          |
| Increase in fair value of real estate                                         |       | 446,654                                                        |       | (3,062,601                                                    | )          |
| Decrease in fair value of other assets                                        |       | (400,000                                                       | )          | (400,000                                                      | )          |
| Forgiveness of preferred stock obligation                                     |       | —                                                         |       | 2,500,000                                                     |       |
| **Changes in net assets in liquidation**                                      |       | (267,677                                                       | )          | (2,662,778                                                    | )          |
| **Net assets in liquidation, end of period**                                  |       | $                                                              | 11,202,222 |                                                          | $          | 11,202,222 |   |

 

See accompanying notes tocondensed consolidated financial statements.

 

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**GOLF TRUSTOF AMERICA, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(unaudited)**

 
| ** **                                                                                                                                          | ** ** | **Nine Months  Ended  September 30, 2008** | ** ** | **Nine Months  Ended  September 30, 2007** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                                                                                                                          | ** ** | **(Going Concern Basis)**                       | ** ** | **(Liquidation Basis)**                              | ** ** |
| ** **                                                                                                                                          | ** ** | ** **                                                | ** ** | ** **                                                | ** ** |
| **Cash flows from operating activities:**                                                                                                           | ** ** | ** **                                                | ** ** | ** **                                                | ** ** |
| Changes in net assets in liquidation                                                                                                                |       |                                                      |       |                                                      | $          | (2,662,778 | ) |
| Net income from continuing operations                                                                                                               |       | $                                                         | 444,590    |                                                      |       |   |
| Results of discontinued operations                                                                                                                  |       | (575,850                                                  | )          |                                                      |       |
| Adjustments to reconcile net income/change  in net assets in liquidation to net cash provided by (used in) operating  activities:                   |       |                                                      |       |                                                      |       |
| Increase in liquidation reserve and changes  in fair value of real estate and non-real estate assets and forgiveness of  preferred stock obligation |       |                                                      |       | 2,624,462                                                 |       |
| Stock based compensation                                                                                                                            |       | 108,079                                                   |       | —                                                    |       |
| Gain on legal settlement                                                                                                                            |       | (1,463,922                                                | )          | —                                                    |       |
| Depreciation                                                                                                                                        |       | 1,808                                                     |       | —                                                    |       |
| Provision for bad debts, net of recoveries                                                                                                          |       | —                                                    |       | 6,518                                                     |       |
| Non-cash interest expense                                                                                                                           |       | —                                                    |       | 336,315                                                   |       |
| Non-cash interest income                                                                                                                            |       | (22,048                                                   | )          | —                                                    |       |
| Other changes in operating assets and  liabilities                                                                                                  |       | (285,827                                                  | )          | (13,108,000                                               | )          |
| Decrease in liquidation liabilities                                                                                                                 |       | —                                                    |       | (3,504,517                                                | )          |
| Net cash used in continuing operating  activities                                                                                                   |       | (1,793,170                                                | )          | (16,308,000                                               | )          |
| Net cash provided by discontinued operating  activities                                                                                             |       | 679,546                                                   |       |                                                      |       |
| Net cash used in operating activities                                                                                                               |       | (1,113,624                                                | )          |                                                      |       |
|                                                                                                                                                |       |                                                      |       |                                                      |       |
| **Cash flows from investing activities:**                                                                                                           | ** ** | ** **                                                | ** ** | ** **                                                | ** ** |
| Decrease in notes receivable                                                                                                                        |       | 100,000                                                   |       | —                                                    |       |
| Proceeds from escrow/restricted cash                                                                                                                |       | 2,000,000                                                 |       | (2,000,000                                                | )          |
| Proceeds from asset sales                                                                                                                           |       | —                                                    |       | 41,852,000                                                |       |
| Capital expenditures                                                                                                                                |       | (15,995                                                   | )          | (426,402                                                  | )          |
| Net cash provided by continuing investing  activities                                                                                               |       | 2,084,005                                                 |       | 39,425,598                                                |       |
| Net cash used in discontinued investing  activities                                                                                                 |       | (101,763                                                  | )          | —                                                    |       |
| Net cash provided by investing activities                                                                                                           |       | 1,982,242                                                 |       | 39,425,598                                                |       |
| **Cash flows from financing activities:**                                                                                                           | ** ** | ** **                                                | ** ** | ** **                                                | ** ** |
| Proceeds from debt                                                                                                                                  |       | —                                                    |       | 320,280                                                   |       |
| Redemption of outstanding preferred stock                                                                                                           |       | —                                                    |       | (17,500,000                                               | )          |
| Repayments on debt and capital lease  obligations                                                                                                   |       | —                                                    |       | (942,923                                                  | )          |
| Net cash used in continuing financing  activities                                                                                                   |       | —                                                    |       | (18,122,643                                               | )          |
| Net cash used in discontinued financing  activities                                                                                                 |       | (28,335                                                   | )          |                                                      |       |
| Net cash used in financing activities                                                                                                               |       | (28,335                                                   | )          |                                                      |       |
| Net increase in cash and cash equivalents                                                                                                           |       | 840,283                                                   |       | 4,994,955                                                 |       |
| Cash and cash equivalents, beginning of  period                                                                                                     |       | 7,398,555                                                 |       | 2,223,359                                                 |       |
| Cash and cash equivalents, end of period                                                                                                            |       | $                                                         | 8,238,838  |                                                      | $          | 7,218,314 |   |
| **Supplemental Disclosure of Cash Flow  Information:**                                                                                              | ** ** | ** **                                                | ** ** | ** **                                                | ** ** |
| Interest paid during the period                                                                                                                     |       | $                                                         | 234,548    |                                                      | $          | 888,644 |   |
| **Non-cash transactions:**                                                                                                                          | ** ** | ** **                                                | ** ** | ** **                                                | ** ** |
| Discount on Westin long-term obligation                                                                                                             |       | $                                                         | —     |                                                      | $          | 191,000 |   |
| Discount on preferred stock obligation                                                                                                              |       | $                                                         | —     |                                                      | $          | 2,500,000 |   |
| Assets acquired through capital leases                                                                                                              |       | $                                                         | —     |                                                      | $          | 497,842 |   |
| Gain on legal settlement:                                                                                                                           |       |                                                      |       |                                                      |       |
| Note receivable                                                                                                                                     |       | $                                                         | 431,580    |                                                      | $          | — |   |
| Land and value of timber                                                                                                                            |       | $                                                         | 1,032,342  |                                                      | $          | — |   |
|                                                                                                                                                     |            |                                                           |            |                                                           |            |  |  |  |

 

See accompanying notes tocondensed consolidated financial statements.

 

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**GOLF TRUSTOF AMERICA, INC.**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**FOR THETHREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007**

**(unaudited)**

 

**1.  Organization, Termination of the Plan ofLiquidation and Alternative Business Strategies**

 

*Organization*

 

Golf Trust ofAmerica, Inc. (the “Company”) was incorporated in Maryland on November 8,1996 as a real estate investment trust (“REIT”).  In May 2001, after consideration ofvarious strategic alternatives, the Company approved a Plan of Liquidation (the“POL”). As a result, the Company adopted the liquidation basis ofaccounting.  Subsequent to adoption ofthe POL, the Company sold 45 of its 47 golf courses. After consideration of itscurrent strategic alternatives, the Board adopted a resolution declaring thetermination of the POL advisable and the Company’s stockholders approved suchproposal to terminate the POL on November 8, 2007. Therefore, financialstatements subsequent to this date are presented under the going concern basisas an operating company rather than under the liquidation basis of accounting.

 

The Boardbelieves that the termination of the POL affords the Company flexibility inmaximizing value for its stockholders. Operating the Company as a going concernoutside of the POL allows the Company to pursue alternative businessstrategies, including a merger, capital stock exchange, asset acquisition orother growth initiatives. The Board is still permitted to pursue the sale ofthe Company’s final property and/or consider the liquidation of the Company inthe event that it is unable to identify and effect a viable alternative, but itwould no longer be required to do so by the terms of the POL.

 

At September 30,2008, the Company’s only remaining real estate assets are the undeveloped landobtained in the settlement of the Young Complaints (see Note 3) and the CountryClubs of Wildewood and Woodcreek Farms, or “Stonehenge,” encompassing twoprivate golf courses operating under one club structure located in South Carolina.  However, the Company signed a purchase andsale agreement for the disposition of Stonehenge on September 26, 2008with an anticipated closing date on or before January 23, 2009; therefore,the operations of Stonehenge are accounted for as discontinued operations as ofthe signing of this agreement.  The titleto Stonehenge is held by Golf Trust of America, L.P., a Delaware limitedpartnership and the Company’s operating partnership.

 

*AlternativeBusiness Strategies*

 

The Board hasnot limited the types of alternative growth strategies it intends to consider.Emphasis is to be placed on areas of historical Company expertise, as well asthat of our management and board of directors. See Note 8, *Income Taxes*,regarding discussion of net operating loss carryforwards in a businesscombination.

 

To date, theCompany has not entered into a definitive agreement with another companyregarding growth initiatives or a business combination.

 

**2.  Basis of Presentation**

 

*Interim Statements*

 

The accompanying condensed consolidatedfinancial statements for the three and nine months ended September 30,2008 and 2007 have been prepared in accordance with (a) accountingprinciples generally accepted in the United States of America (“GAAP”) and (b) theinstructions to Form 10-Q and Article 10 of Regulation S-X forsmaller reporting companies. These condensed consolidated financial statementshave not been audited by a registered independent public accounting firm;however, they include adjustments (consisting of normal recurring adjustments)which are, in the judgment of management, necessary for a fair presentation ofthe financial information for such periods. These results are not necessarilyindicative of results for any other interim period or for the full year.

 

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Certain information and footnote disclosuresnormally included in financial statements in accordance with GAAP have beenomitted as allowed in quarterly reports by the rules of the SEC. TheCompany’s management believes that the disclosures included in the accompanyinginterim condensed consolidated financial statements and footnotes are adequateto make the information not misleading, but also believes that these statementsshould be read in conjunction with the summary of significant accountingpolicies and notes to the consolidated financial statements included in our Form 10-Kfor the year ended December 31, 2007, filed on March 31, 2008.

 

*Consolidation*

 

The condensedconsolidated financial statements include the accounts of the Company, itswholly owned subsidiaries GTA GP, Inc. and GTA LP, Inc., and Golf Trust ofAmerica, L.P., which holds title to the golf course properties, andGTA-Stonehenge, LLC which manages the remaining golf properties.

 

*Use of Estimates*

 

Management is required to make certainestimates and assumptions which affect the amounts of assets, liabilities,revenue and expenses reported.  Actual results could differ fromthese estimates and assumptions.

 

*Stock basedcompensation*

 

Compensationexpense is determined by reference to the fair market value of an award on thedate of grant and is amortized on a straight-line basis over the vesting periodin accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123(R),*Share-Based Payment*.

 

*Earningsper Share*

 

Earnings percommon share are presented under two formats: basic earnings per common shareand diluted earnings per common share. Earnings per share are computed bydividing net income (after deducting any dividends on preferred stock) by theweighted average number of common shares outstanding during the year. Dilutedearnings (loss) per common share are computed by dividing net earnings (loss)by the weighted-average number of common shares outstanding during the period,including potentially dilutive shares such as options and warrants to purchaseshares of common stock at various amounts per share. For the three and ninemonths ended September 30, 2008, the loss per share was the same for basicand diluted since the effect of the options would have been anti-dilutive dueto the fact that there was a loss for both of these periods. Since there wereno options in the money for that period, the effects of the options would havebeen anti-dilutive.

 

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*LiquidationBasis—For the three and nine months ended September 30, 2007*

 

The Companyadopted the liquidation basis of accounting upon the stockholder approval ofits POL on May 22, 2001. From that date forward through and until November 8,2007, all assets and liabilities had been stated at their estimated fair valueand estimated settlement amounts. The estimated fair value had been determinedusing available market information and valuation methodologies deemedappropriate; therefore, these estimates were subject to revision with changesin market values. The Company was required to estimate and accrue the costsassociated with implementing and completing the plan of liquidation. Theseamounts varied significantly due to, among other things, the timing andrealized proceeds from golf course sales, the costs of retaining personnel andothers to oversee the liquidation, including the costs of insurance, the timingand amounts associated with discharging known and contingent liabilities,transaction costs related to any sales and the costs associated with cessationof the Company’s operations.

 

*Discontinued Operations*

 

As discussedin Note 1 above, the Company signed a purchase and sale agreement for thedisposition of Stonehenge on September 26, 2008; therefore, pursuant to FAS 144, “Accounting for the Impairmentor Disposal of Long-Lived Assets,” the operations of Stonehenge are accountedfor as discontinued operations as of the signing of this agreement.  

 

Revenue Recognition - Revenues from golfoperations, food and beverage and merchandise sales are recognized at the timeof sale or when the service is provided. Revenues from membership dues arebilled monthly and recognized in the period earned. The monthly dues areexpected to cover the cost of providing future membership services. Prepaiddues are recognized as income over the prepayment period.

 

MembershipInitiation Fees - Certain memberships previously sold at Stonehenge haveinitiation fees totaling approximately $1,326,000 that are refundable (withoutinterest) based on specific conditions, generally upon conclusion of athirty-year required membership term, as defined in the Club Membership Manual.These refundable initiation fees may be refundable prior to the expiration ofthe thirty-year term under specific membership replacement conditions. Theestimated present value of these potential refunds is approximately $330,000,which is recorded as an accrued liability at September 30, 2008 andaccretes over the members’ remaining average contractual term using an interestrate of approximately 10.5%.

 

An initiationfee is required to be paid on all memberships at Stonehenge. The majority ofour membership fees are not refundable and are deferred and recognized over theaverage expected life of an active membership. Membership initiation fees aredeferred and recognized as revenue on a straight-line basis over the averageexpected life of an active membership, which based on historical information isdeemed to be an average nine years for all membership categories.

 

*Reclassifications*

 

Certain previously reported amounts in the interim condensedconsolidated financial statements have been reclassified to conform to thecurrent period’s presentation.

 

*Recent Accounting Pronouncements*

 

During February 2007, the FASB Boardissued SFAS No. 159, “The Fair Value Option for Financial Assets andFinancial Liabilities” (“SFAS 159”). This statement permits entities tochoose to measure many financial instruments and certain other items at fairvalue. SFAS 159 is effective for fiscal years beginning after November 15,2007. The Company has not elected the fair value option for any of its assetsor liabilities..

 

During December 2007, the FASB issuedSFAS No. 160, “Noncontrolling Interests in Consolidated FinancialStatements an amendment of ARB No. 51” (“SFAS 160”). This statementestablishes accounting and reporting standards for noncontrolling interests insubsidiaries and for the deconsolidation of subsidiaries and clarifies that anoncontrolling interest in a subsidiary is an ownership interest in theconsolidated entity that should be reported as equity in the consolidatedfinancial statements. This Statement also requires expanded disclosures thatclearly identify and distinguish between the interests of the parent owners andthe interests of the noncontrolling owners of a subsidiary. SFAS 160 iseffective for fiscal years beginning on or after December 15, 2008. Theadoption of this standard is expected to have no effect on the Company’sconsolidated financial condition or results of operations.

 

During December 2007, the FASB issuedSFAS No. 141 (Revised 2007), “Business Combinations” (“SFAS 141 (R)”).While this statement retains the fundamental requirement of SFAS 141 thatthe acquisition method of accounting (which SFAS 141 called the purchasemethod) be used for all business combinations, SFAS 141 (R) nowestablishes the principles and requirements for how an acquirer in a businesscombination: recognizes and measures in its financial statements theidentifiable assets acquired, the liabilities assumed, and any noncontrollinginterests in the acquiree; recognizes and measures the goodwill acquired in thebusiness combination or the gain from a bargain purchase; and determines whatinformation should be disclosed in the financial statements to enable the usersof the financial statements to evaluate the nature and financial effects of thebusiness combination. For the Company, SFAS 141 (R) is effective forbusiness combinations for which the acquisition date is after December 31,2008.

 

In September 2006, the FASB issued SFAS No. 157,“Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 providesguidance for using fair value to measure financial assets and liabilities. Thisstatement clarifies the principle that fair value should be based on theassumptions that market participants would use when pricing the asset orliability. SFAS No. 157 establishes a fair value hierarchy, giving thehighest priority to quoted prices in active markets and the lowest priority tounobservable data. SFAS No. 157 applies whenever other standards requireassets or liabilities to be measured at fair value. This statement is effectivein fiscal years beginning after November 15, 2007.  The Company implemented FASB Statement No. 157,*Fair Value*

 

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*Measurements*(FAS 157), as of January 1, 2008. FAS 157 was amended in February 2008by FASB Staff Position (FSP) FAS No. 157-1, *Applicationof FASB Statement No. 157 to FASB Statement No. 13 and Its RelatedInterpretive Accounting Pronouncements That Address Leasing Transactions,*andby FSP FAS 157-2, *Effective Date of FASBStatement No. 157*, which delayed the company’s application ofFAS 157 for nonrecurring nonfinancial assets and liabilities until January 1,2009. FAS 157 was further amended in October 2008 by FSP FAS 157-3, *Determining the Fair Value of a Financial Asset Whenthe Market for That Asset Is Not Active,*which clarifies theapplication of FAS 157 to assets participating in inactive markets.Implementation of FAS 157 did not have a material effect on the Company’sresults of operations or financial position and had no effect on the Company’sexisting fair-value measurement practices.

 

**3.  FairValue Measurement**

 

Effective January 1, 2008, the Company adopted SFAS157. SFAS No. 157 defines fair value, establishes a framework formeasuring fair value, and expands disclosures about fair valuemeasurements. SFAS No. 157 does not require any new fair valuemeasurements. The definition of fair value retains the exchange price notion inearlier definitions of fair value. SFAS No. 157 clarifies that theexchange price is the price in an orderly transaction between marketparticipants to sell the asset or transfer the liability in the market in whichthe reporting entity would transact for the asset or liability. The definitionfocuses on the price that would be received to sell the asset or paid totransfer the liability (an exit price), not the price that would be paid toacquire the asset or received to assume the liability (an entry price). SFAS No. 157emphasizes that fair value is a market-based measurement, not anentity-specific measurement.  FASB StaffPosition (“FSP”) No. 157-1, Application of FASB Statement No. 157 toFASB Statement No. 13 and Other Accounting Pronouncement That Address FairValue Measurements for Purposes of Lease Classification or Measurement underStatement 13, issued in February 2008, amends SFAS No. 157 to excludecertain leasing transactions accounted for under previously existing accountingguidance. However, this scope exception does not apply to assets acquired andliabilities assumed in a business combination, regardless of whether thoseassets and liabilities are related to leases. FASB Staff Position (“FSP”) No. 157-2,  Effective Date of FASB Statement No. 157, issued in February 2008, delays the effective date of SFAS No. 157for nonfinancial assets and nonfinancial liabilities, except for items that arerecognized or disclosed at fair value in an entity’s financial statements on arecurring basis (at least annually), to fiscal years beginning after November 15,2008.  SFAS 157 was further amended in October 2008by FSP FAS 157-3, Determining the Fair Value of a Financial Asset When theMarket for That Asset Is Not Active, which clarifies the application of FAS 157to assets participating in inactive markets.

 

SFAS No. 157 describes three levels of inputs that maybe used to measure fair value:

 

Level 1—Quoted prices in active markets for identical assetsor liabilities.

 

Level 2—Observable inputs other than Level 1 prices such asquoted prices for similar assets or liabilities; quoted prices in markets thatare not active; or other inputs that are observable or can be corroborated byobservable market data for substantially the full term of the assets orliabilities.

 

Level 3—Unobservable inputs that are supported by little orno market activity and that are significant to the fair value of the assets orliabilities. Level 3 assets and liabilities include financial instruments whosevalue is determined using pricing models, discounted cash flow methodologies,or similar techniques, as well as instruments for which the determination offair value requires significant management judgment or estimation.

 

In addition, SFAS No. 157 requires the Company todisclose the fair value for financial assets on both a recurring andnon-recurring basis.

 

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Those assets which will continue to be measured at fairvalue on a recurring basis as of September 30, 2008 are as follows:

 
| ** **                    | ** ** | **Category Used for Fair Value** | ** ** |
|-------------------------------|------------|------------------------------------------------------|------------|
| ** **                    | ** ** | **Level 1**                                     | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
| ** **                    | ** ** | **(unaudited)**                                      | ** ** |
| Assets:                       |       |                                                 |       |   |   |   |   |
|                          |       |                                                 |       |   |   |   |   |
| Cash and cash equivalents (1) |       | $                                                    | 4,153,717  |   | $ | 4,085,121 |   | $ | — |   |
|                          |       |                                                 |       |   |   |   |   |   |   |   |
| Note Receivable               |       | —                                               |       | — |   | 353,629 |   |
|                          |       |                                                 |       |   |   |   |   |
| Total                         |       | $                                                    | 4,153,717  |   | $ | 4,085,121 |   | $ | 353,629 |   |

 

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(1)  Cash and cash equivalents consist primarily ofmoney market funds and U.S. Treasury bills with original maturity dates ofthree months or less, for which management determined fair value through quotedmarket prices.  Fair values of cashequivalents that do not trade on a regular basis in active markets areclassified as Level 2.

 

4**.  Propertyand Equipment**

 

Property andequipment consists of the following:

 
| ** **                    | ** ** | **September 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|-------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Other land                    |       | 1,032,342                    |       | —                      |       |
| Equipment - general           |       | 17,734                       |       | —                      |       |
|                          |       | 1,050,076                    |       | —                      |       |
| Less accumulated depreciation |       | (1,868                       | )          | —                      |       |
|                          |       | $                            | 1,048,208  |                        | $          | — |   |
|                               |            |                              |            |                             |            |  |  |

 

Depreciationexpense amounted to approximately $1,000 and $2,000 for the three and ninemonths ended September 30, 2008, respectively.  Other land includes the estimated fair valueof 118.67 acres of undeveloped land in Charleston County, South Carolina (whichthe Company obtained title to on March 5, 2008 in the final settlement ofcertain litigation which involved one of our former Board members and was knownas the Young Complaints) of approximately $1,032,000.

 

**5.  Receivables**

 

*Escrowreceivable*

 

The escrowreceivable of $2,000,000 at December 31, 2007, is an amount due from thebuyer of the  Innisbrook Resort and GolfClub, or “the Resort,” which we owned until it was sold on July 16,2007.  The escrow amount of $2,000,000was received by the Company on April 3, 2008 plus accrued interest ofapproximately $31,000.

 

*Notereceivable*

 

The Notereceivable of approximately $353,000 ($133,000 current portion, $220,000 longterm portion) represents the estimated net present value of a note receivablefrom Mr. Larry D. Young and the other plaintiffs in the Young litigationreceived as a result of a settlement agreement executed on January 31,2008.  The promissory note is in theprincipal amount of approximately $3,877,000, which outstanding balance will beconsidered satisfied in full upon timely remittance of the $500,000 in totalscheduled payments.  The scheduledpayments are $100,000 due on May 31, 2008 (which was received asscheduled) followed by a payment of approximately $133,000 due on January 1stof 2009, 2010 and 2011. This balance accretes over the term of this note usingan interest rate of approximately 9.7%. The Accretion is recorded to interestincome.

 

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**6.  Discontinued Operations**

 

As previouslydisclosed in Note 1, the Company signed a purchase and sale agreement for thedisposition of Stonehenge on September 26, 2008 with an anticipatedclosing date on or before January 23, 2009; therefore, the operations ofStonehenge are accounted for as discontinued operations effective as of thesigning of this agreement.  The carryingvalues of the major classes of assets and liabilities of discontinuedoperations, included under the “Current and non-current assets of discontinuedoperations” and “Current and non-current liabilities of discontinuedoperations,” captions in the consolidated condensed balance sheet are as follows:

 
| ** **                                                                 | ** ** | **September 30,  2008** | ** ** | **December 30,  2007*** | ** ** |
|----------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                                                 | ** ** | **(unaudited)**              | ** ** | ** **                   | ** ** |
| Cash and cash equivalents                                   | ** ** | $                            | 71,465     |                         | $          | 173,597 | ** ** |
| Accounts receivable                                                        |       | 336,269                      |       | 486,357                      |       |
| Prepaid expenses                                                           |       | 44,427                       |       | 29,674                       |       |
| Inventory                                                                  |       | 141,673                      |       | 91,819                       |       |
| Current assets of discontinued operations                                  |       | 593,834                      |       | 781,447                      |       |
|                                                                       |       |                         |       |                         |       |
| Property and equipment                                                     |       | 4,579,117                    |       | 4,479,153                    |       |
| Accumulated depreciation                                                   |       | (524,566                     | )          | (85,512                      | )          |
| Non-current assets of discontinued  operations                             |       | 4,054,551                    |       | 4,393,641                    |       |
|                                                                       |       |                         |       |                         |       |
| Total assets of discontinued operations                                    |       | $                            | 4,648,385  |                         | $          | 4,875,088 |   |
|                                                                       |       |                         |       |                         |       |
| Accounts payable                                                           |       | $                            | 160,599    |                         | $          | 117,455 |   |
| Accrued expenses and other liabilities                                     |       | 118,626                      |       | 75,130                       |       |
| Long-term debt – current portion                                      |       | 4,140,668                    |       | 38,183                       |       |
| Member initiation fees and other deferred  revenue – current portion  |       | 351,808                      |       | 402,621                      |       |
| Current liabilities of discontinued  operations                            |       | 4,771,701                    |       | 633,389                      |       |
|                                                                       |       |                         |       |                         |       |
| Long-term  debt, net of current portion                                    |       | 83,106                       |       | 4,213,926                    |       |
| Member  initiation fees and other deferred revenue, net of current portion |       | 761,811                      |       | 744,878                      |       |
| Non-current  liabilities of discontinued operations                        |       | 844,917                      |       | 4,958,804                    |       |
|                                                                       |       |                         |       |                         |       |
| Total  liabilities of discontinued operations                              |       | $                            | 5,616,618  |                         | $          | 5,592,193 |   |

 

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*** Derivedfrom audited consolidated financial statements.**

 

**Notes tothe Table of Discontinued Operations Above:**

 

*Long-termdebt — current portion*

 

GTA-Stonehenge, LLC,or GTA-SH, has a $4,200,000 revolving credit line with Textron FinancialCorporation (“Textron”), which matures on March 18, 2009 and is includedin the “Long-term debt — current portion” in the table above. This loan is collateralized by a security interestin Stonehenge. The interest rate is the prime rate in effect on the firstbusiness day of the month plus 1.75% per annum paid monthly resulting in aneffective rate of 6.25% at September 30, 2008. The related securityagreement contains events of default provisions that include, among others,non-payment of principal, interest or fees, violation of covenants, inaccuracyof representations and warranties, cross defaults, bankruptcy and insolvencyproceedings, termination, dissolution or liquidation of GTA-SH, or theOperating Partnership, failure to cure the loss of certain licenses, permits orcontracts, curtailment of utilities or services at Stonehenge and materialjudgments. In the event of the occurrence of an event of default, Textron isentitled to, among other things, accelerate all obligations of the Borrowerunder the aforesaid loan documents and sell certain of the Borrower’s assets,namely Stonehenge and related assets, to satisfy the Borrower’s obligations.This loan requires that the operations at Stonehenge for the immediatelypreceding twelve month period be sufficient to meet a debt service coverageratio, as defined in the mortgage, of at least 1.20, as measured monthly. At September 30,2008, GTA-SH did not meet the debt service coverage ratio (in part due toincreased efforts to improve the playing quality of the golf courses byinvesting significantly in additional beautification, repair and maintenanceprojects, as well as attendant labor costs, related to the golf courses, butwhich do not qualify for capitalization accounting treatment).

 

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In light ofthe fact that the GTA-SH has consistently met its financial obligationsthroughout the term of the loan, Textron waived said covenant violation as of December 31,2007 and for 2008 subject to re-evaluation at December 31, 2008.

 

Also includedin “Long-term debt — current portion” are various other loan and capital leaseobligations that the Company entered into that have payment terms ranging fromapproximately $200 to $2,000 per month and interest rates of 6.5% to 9.0%.

 

**Summaryresults of discontinued operations for the three and nine months ended September 30,2008 and 2007.**

 
| ** **                                                     | ** ** | **Three months ended  September 30,  2008** | ** ** | **Nine months ended  September 30,  2008** | ** ** |
|----------------------------------------------------------------|------------|------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                                     | ** ** | **(unaudited)**                                            | ** ** |
| Revenues from discontinued operations                          |       | $                                                          | 994,280    |                                                      | $          | 3,122,665 |   |
|                                                           |       |                                                       |       |                                                      |       |
| Loss from discontinued operations before  income tax provision |       | (375,043                                                   | )          | (575,850                                                  | )          |
|                                                           |       |                                                       |       |                                                      |       |
| Loss from discontinued operations after  income tax provision  |       | (375,043                                                   | )          | (575,850                                                  | )          |
|                                                           |       |                                                       |       |                                                      |       |
| Results of discontinued operations                             |       | (375,043                                                   | )          | (575,850                                                  | )          |
|                                                                |            |                                                            |            |                                                           |            |  |  |

 

**7.  Stock Options and Awards**

 

*EmployeeStock Options and Awards*

 

Thecompensation committee of the board of directors determines compensation,including stock options and awards. Options are generally awarded with the exerciseprice equal to the market price at the date of grant and became exercisable inthree to five years. The Company has several stock option/award plans as listedbelow.

 

The Company’s2007 Stock Option Plan, which is stockholder approved, permits the grant ofshare options and shares to its employees for up to 700,000 shares of commonstock. The Company believes that such awards better align the interests of itsemployees with those of its stockholders. Option awards are generally grantedwith an exercise price equal to the market price of the Company’s stock at thedate of grant; those option awards generally vest ratably over three years andhave three to five year contractual terms from the vesting date.  Any options issued to employees who aresubsequently terminated do not expire early as a result of termination butexpire pursuant to their contractual terms at issuance. Certain option andshare awards provide for accelerated vesting if there is a change in control(as defined in the Stock Option Plan).

 

*Stock Option Plan Transactions*

 

On January 18,2008, 50,000 option shares were granted from the 2007 Stock Option Plan to theCompany’s CFO and on January 23, 2008, 160,000 option shares were grantedfrom the 2007 Stock Option Plan to the four independent members of the Company’sBoard (40,000 to each member).  Theestimated grant-date fair value of these options was $0.84 and $0.80 per share,respectively. The exercise price is $1.90 and $1.82, respectively, the closingAmerican Stock Exchange price on the respective grant date, as specified by theCompensation Committee. Stock option expense for the three and nine monthsended September 30, 2008, was approximately $37,000 and $108,000,respectively, related to these issued options and the 275,000 options sharesissued to our CEO on December 14, 2007.

 

The fair valueof each option award is estimated on the date of grant using the Black Sholesoption valuation model. Expected volatility is based on the historicalvolatility of the Company’s stock and was estimated at 53.80%. The risk-freerate for periods within the contractual life of the option is based on the U.S.Treasury bill 

 

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rate in effectat the time of grant which was approximately 2.86% on January 18, 2008 and2.64% on January 23, 2008. The expected term in years is an average offour years. The total outstanding unvested options at September 30, 2008 is485,000.  At September 30, 2008,there was approximately $333,000 of total unrecognized compensation expenserelated to nonvested-share-based compensation arrangements granted under the2007 Stock Option Plan that will be amortized over the period ending January 23,2011.

 

Pursuant tothe respective option plans, except the 1997 Non-Employee Director’s Plan andthe 2007 Stock Option Plan , any options issued to employees who aresubsequently terminated expire ninety days following his/her termination if notexercised. The options issued under the 1997 Non-Employee Director’s Plan areexercisable until their original expiration date.  As of September 30, 2008, there are60,000 options outstanding under the 1997 Non-Employee Director’s Plan and20,000 options outstanding under the 1997 General Plan.

 

During thethree months ended September 30, 2008, no options were exercised and10,000 options expired.   During the ninemonths ended September 30, 2008, no options were exercised and 270,000options expired.

 

**8. Other Income**

 

For the three months ended September 30,2008, the Company did not recognize any other income For the nine months ended September 30,2008, the Company recognized approximately $1,641,000 in other income.  This other income was primarily due to therecognition of a gain from the settlement of certain litigation formerly knownas the Young Complaints.  In connectionwith the settlement, a note receivable that was recorded at its estimated netpresent value at that time of approximately $432,000 (see Note 4) andundeveloped land that was recorded at its estimated fair value of  $1,032,000 (see Note 3).  Further, the Company recognized approximately$177,000 in income from the resolution of the property tax lawsuit related tothe Resort.

 

**9.  Income Taxes**

 

As of September 30,2008 and December 31, 2007, the Company has approximately $85 million offederal income tax net operating loss carryforwards (NOLs) which may beutilized to offset taxable income generated in future years which are includedin deferred income tax assets for the respective periods.  The Company recorded a valuation allowancefor these carryforwards.  The Company hada pre-tax loss of approximately $131,000 for the nine months ended September 30,2008 and a decrease of approximately $2,663,000 in net assets in liquidationfor the nine months ended September 30, 2007.  These net operating losses expire at variousdates beginning with the 2021 tax year and ending with the 2026 tax year.  It is possible that some or all of these NOLscould be utilized by the surviving corporation in a business combination andcould make the Company a more attractive potential business partner. However,the use of NOLs is subject to numerous rules and regulations, includinglimitations resulting from a more than 50% change in ownership, which cansubstantially reduce the amount of NOLs that are ultimately available to offsetincome in subsequent years. A change in ownership coupled with a sale of theremaining golf courses could result in an effective loss of the Company’sNOLs.  In addition, should an ownershipchange of control be deemed to have occurred, the Company may be limited byindustry or line of business in its ability to successfully utilize existingNOLs.

 

**10.  Commitments and Contingencies**

 

*Barter Transactions*

 

Included in the accompanying condensed consolidated statement ofoperations are non-monetary transactions arising from the trading of the leaseof the Woodcreek Farms clubhouse, cart storage facility, tennis/swim buildingand golf proshop facilities from the developer of the Woodcreek subdivision inexchange for our daily management, operating and staffing of suchfacilities.   Barter revenues andexpenses are recorded at the estimated fair market value of the lease of suchfacilities.  Barter revenue and expensefor the three and nine months ended September 30, 2008, totaledapproximately $80,000 and $241,000, respectively, from which the net impact onthe financial results was zero.

 

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*Legal Proceedings*

 

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

 

The titled action was brought in the Circuit Court of Miller County,Missouri, by a contractor, Lake Ozark Construction Industries, Inc. (“LOCI”)and its asserted assignee of lien and account rights, Everett Holding Company, Inc.,in the fall of 1999 against numerous defendants, including the OperatingPartnership. Plaintiffs asserted that LOCI performed construction services on,or that benefited, the property of various defendants, including the OperatingPartnership. With respect to the Operating Partnership, plaintiffs sought toforeclose a mechanic’s lien upon property formerly owned by it. The lien wasfor the principal amount of approximately $1,276,000, plus interest at 10% perannum and attorney fees. Plaintiffs calculated interest to May 20, 1999,just prior to the lien filing, to be approximately $151,000 and interestthereafter to be $354 per day. The Court entered a written order granting theOperating Partnership’s Motion for Summary Judgment in April 2002 and afinal judgment in November 2003. Plaintiffs appealed the ruling to theMissouri Court of Appeals. The Court of Appeals on April 5, 2005 reversedthe Circuit Court judgment in favor of the Company and remanded the case to theCircuit Court for further proceedings. On May 31, 2005, the Court ofAppeals filed a modified Opinion, which again reversed the Circuit Courtjudgment in favor of the Company and remanded the case to the Circuit Court forfurther proceedings. On March 12, 2008, a case management conference washeld. The presiding judge set September 30, 2008, as deadline for completingdiscovery and scheduled another conference for October 8, 2008, at whichtime it was anticipated that the case would be set for trial. On October 3,2008, the Company entered in to a Settlement Agreement (the “Agreement”) withthe plaintiffs.   The Agreementestablished the terms of the final resolution of the complaint Lake OzarkConstruction Industries, Inc. and Everett Holding Company, Inc. v.Osage Land Company, L.L.C., et al, Case No. CV599-366CC.   As a result of the Agreement, the Company paidthe plaintiffs $140,000 on October 6, 2008 and all claims of both partieswere dismissed.

 

*OrdinaryCourse Litigation*

 

Owners andoperators of golf courses are subject to a variety of legal proceedings arisingin the ordinary course of operating a golf course, including proceedingsrelating to personal injury and property damage. The Company maintainsinsurance for these purposes, subject to deductibles and exclusions deemedreasonable by the Company. The Company is not currently subject to any materialclaims of this type.

 

**11.          Subsequent Events**

 

Stock Repurchase Authorization

 

On November11, 2008, the Company’s Board of Directors authorized the repurchase of up to$500,000 in shares of the Company’s common stock.  Stock repurchases under this authorizationmay be made through open market and privately negotiated transactions at timesand in such amounts as management deems appropriate. The timing and actualnumber of shares repurchased will depend on a variety of factors, includingprice, cash balances, general business and market conditions, the dilutiveeffects of share-based incentive plans, alternative investment opportunitiesand working capital needs. The stock repurchase authorization does not have anexpiration date and may be limited or terminated at any time without priornotice. The purchases will be funded from available cash balances andrepurchased shares will be returned to the status of authorized but un-issuedshares of common stock.

 

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

 

**Overview**

 

Golf Trust of America, Inc. wasincorporated in Maryland on November 8, 1996. We have been engaged in aliquidation of our assets pursuant to a plan of liquidation approved by ourstockholders. However, as previously announced and described more fully below,we are currently considering additional strategic options to maximizestockholder value. We were originally formed to be a REIT; however, as offiscal year 2002 we no longer have our REIT status as a result of ourrepossession and operation of certain golf courses following the default oftheir original third-party lessees. As of November 8, 2008, our only remaining real estate assets are theundeveloped land obtained in the settlement of certain litigation formerlyknown as the Young Complaints and  theCountry Clubs of Wildewood and Woodcreek Farms, or Stonehenge,  representing two private golf coursesoperating under one club structure located in South Carolina. The OperatingPartnership holds title to Stonehenge. Through our wholly owned subsidiaries,GTA GP, Inc. and GTA LP, Inc., we held 100 percent of the interestsin the Operating Partnership as of November 8, 2008. GTA GP, Inc. isthe sole general partner of the Operating Partnership and owns a0.2 percent interest therein. GTA LP, Inc. is the sole limitedpartner in the operating partnership and owns a 99.8 percent interesttherein.

 

**Termination of the Plan of Liquidation**

 

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

 

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

 

Subsequent to the termination of the POL, wehave continued to own and operate Stonehenge which has approximately 880members. Concurrently, we have placed renewed emphasis on initiatives to resumecorporate growth in an effort to create value for stockholders. We are seekingto grow within areas of historical expertise and areas that managementconsiders to be of logical interest, but will also evaluate acquisitions orbusiness combinations in unallied industries.

 

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

 

**Discontinued Operations**

 

The Companysigned a purchase and sale agreement for the disposition of Stonehenge on September 26,2008 with an anticipated closing date on or before January 23, 2009;therefore, the operations of Stonehenge are accounted for as discontinuedoperations as of the signing of this agreement. As of November 8, 2008, the Company’s only remaining real estateassets are the undeveloped land obtained in the settlement of the YoungComplaints and Stonehenge.

 

**StockRepurchase Authorization**

 

On November11, 2008, the Company’s Board of Directors authorized the repurchase of up to$500,000 in shares of the Company's common stock.  Stock repurchases under this authorizationmay be made through open market and privately negotiated transactions at timesand in such amounts as management deems appropriate. The timing and actual numberof shares repurchased will depend on a variety of factors, including price,cash balances, general business and market conditions, the dilutive effects ofshare-based incentive plans, alternative investment opportunities and workingcapital needs. The stock repurchase authorization does not have an expirationdate and may be limited or terminated at any time without prior notice. Thepurchases will be funded from available cash balances and repurchased shareswill be returned to the status of authorized but un-issued shares of commonstock.

 

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**Executive Summary**

 

We reported a net loss of approximately$675,000($0.09 per basic share) and $131,000 ($0.02 per basic share) for thethree and nine months ended September 30, 2008, respectively.  Due to the fact that we were under theliquidation basis of accounting for the three and nine months ended September 30,2007, the two periods are not meaningful for comparison purposes; however, acomparison of the operating results for just Stonehenge which is comparable forthese periods is provided below under the heading *Results ofOperations*.  The net loss forthe three months ended September 30, 2008 is primarily due to the factthat the operations of Stonehenge did not realize sufficient net income tocover the public company operating costs of the Corporate office and we did notrealize any “other income” in the three months ended September 30,2008.  The net loss for the nine monthsended September 30, 2008 of approximately $131,000 was primarily duepublic company operating costs of the corporate office of approximately$1,342,000 which were offset by the recognition of a gain from the settlementof certain litigation formerly known as the Young Complaints.    In connection with the settlement, a notereceivable that was recorded at its estimated net present value on the date ofthe settlement of approximately $432,000 and undeveloped land that was recordedat its estimated fair value of approximately $1,032,000 .  Further, the Company recognized approximately$177,000 in income from the resolution of the property tax lawsuit related tothe Innisbrook Resort and Golf Club, or the Resort, which we owned until it wassold on July 16, 2007.

 

For the three months ended September 30,2008, operating expenses from the continuing operations of the Company totaledapproximately $412,000 consisting of approximately  $1,000 in depreciation expense and $411,000in operating expenses of the corporate office. The Corporate office expenses primarily consisted of approximately  (i) $47,000  in tax, audit and accounting consulting fees,(ii) $100,000 in salary and benefits, (iii) $16,000 in legal fees, (iv) $48,000in insurance, (v) $140,000 in settlement fees on certain litigation nowresolved, (vi) $37,000 in stock option expense, (vii) $15,000 forshareholder related expenses such as shareholder transfer agent fees, board fees and printing costs for SECrequired reports, and  (viii) $32,000in other fees and operating expenses such as rent and utilities, travel andother miscellaneous operating expenses offset by (ix) the reimbursement oftaxes paid with the Company’s filing of its extension for its corporate incometax return of approximately $24,000.

 

For the nine months ended September 30,2008, operating expenses from the continuing operations of the Company totaledapproximately $1,344,000 consisting of approximately $2,000 in depreciationexpense and $1,342,000 in operating expenses of the Corporate office.  The Corporate office expenses primarilyconsisted of approximately (i) $230,000 in tax, audit and accountingconsulting fees, (ii) $364,000 in salary and benefits, (iii) $93,000in legal fees, (iv) $146,000 in insurance, (v) $183,000 in settlementfees and expenses related certain claims now resolved, (vi) $108,000 in stock option expense, (vii) $104,000for shareholder related expenses such as the annual American Stock Exchangefee, shareholder transfer agent fees, board fees and printing costs for SECrequired reports, and (viii) $138,000 in other fees and operating expensessuch as rent and utilities, certain annual taxes and fees and othermiscellaneous operating expenses offset by (ix) the reimbursement of taxespaid with the Company’s filing of its extension for its corporate income taxreturn of approximately $24,000.

 

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**Results of Operations for the Three and NineMonths Ended September 30, 2008 and 2007**

 

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

 
| ** **                          | ** ** | **For the three months ended  September 30,** | ** ** | **Change  Favorable /** | ** ** |
|-------------------------------------|------------|------------------------------------------------------------------------|------------|------------------------------|------------|
| **Stonehenge**                      | ** ** | **2008**                                                               | ** ** | **2007**                     | ** ** | **(Unfavorable)** | ** ** |
| ** **                          | ** ** | **(unaudited)**                                                        | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Revenues**                        |       |                                                                   |       |                         |       |   |   |   |   |
| Golf operating revenue              |       | $                                                                      | 226,092    |                         | $          | 299,570 |   | $ | (73,478 | ) | (25 | )% |
| Food and beverage revenue           |       | 162,466                                                                |       | 163,945                      |       | (1,479 | ) | (1 | )% |
| Membership dues and fees revenue    |       | 498,024                                                                |       | 505,166                      |       | (7,142 | ) | (1 | )% |
| Other club revenue                  |       | 107,698                                                                |       | 27,964                       |       | 79,734 |   | 285 | % |
| Total operating revenue             |       | 994,280                                                                |       | 996,645                      |       | (2,365 | ) | 0 | % |
| **Expenses**                        |       |                                                                   |       |                         |       |   |   |   |   |
| Golf operating expenses             |       | 151,056                                                                |       | 166,076                      |       | 15,020 |   | 9 | % |
| Food and beverage expenses          |       | 165,915                                                                |       | 187,857                      |       | 21,942 |   | 12 | % |
| Other club expenses                 |       | 501,319                                                                |       | 347,318                      |       | (154,001 | ) | (44 | )% |
| General and administrative expenses |       | 253,012                                                                |       | 228,722                      |       | (24,290 | ) | (11 | )% |
| Total operating expenses            |       | 1,071,303                                                              |       | 929,973                      |       | (141,329 | ) | (15 | )% |
| Operating income (loss)             |       | (77,022                                                                | )          | 66,672                       |       | (143,694 | ) | 216 | % |
|                                     |            |                                                                        |            |                              |            |  |  |  |  |  |  |  |

 
| ** **                          | ** ** | **For the nine months ended  September 30,** | ** ** | **Change  Favorable /** | ** ** |
|-------------------------------------|------------|-----------------------------------------------------------------------|------------|------------------------------|------------|
| **Stonehenge**                      | ** ** | **2008**                                                              | ** ** | **2007**                     | ** ** | **(Unfavorable)** | ** ** |
| ** **                          | ** ** | **(unaudited)**                                                       | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Revenues**                        |       |                                                                  |       |                         |       |   |   |   |   |
| Golf operating revenue              |       | $                                                                     | 740,214    |                         | $          | 781,062 |   | $ | (40,848 | ) | (5 | )% |
| Food and beverage revenue           |       | 528,527                                                               |       | 519,671                      |       | 8,856 |   | 2 | % |
| Membership dues and fees revenue    |       | 1,522,430                                                             |       | 1,456,908                    |       | 65,522 |   | 4 | % |
| Other club revenue                  |       | 331,494                                                               |       | 55,760                       |       | 275,734 |   | 495 | % |
| Total operating revenue             |       | 3,122,665                                                             |       | 2,813,401                    |       | 309,264 |   | 11 | % |
| **Expenses**                        |       |                                                                  |       |                         |       |   |   |   |   |
| Golf operating expenses             |       | 495,338                                                               |       | 471,592                      |       | (23,746 | ) | (5 | )% |
| Food and beverage expenses          |       | 476,532                                                               |       | 567,601                      |       | 91,069 |   | 16 | % |
| Other club expenses                 |       | 1,308,282                                                             |       | 1,069,577                    |       | (238,705 | ) | (22 | )% |
| General and administrative expenses |       | 734,660                                                               |       | 661,361                      |       | (73,299 | ) | (11 | )% |
| Total operating expenses            |       | 3,014,812                                                             |       | 2,770,131                    |       | (244,681 | ) | (9 | )% |
| Operating income                    |       | 107,853                                                               |       | 43,270                       |       | 64,583 |   | 149 | % |
|                                     |            |                                                                       |            |                              |            |  |  |  |  |  |  |  |

 

Note: We operated under the liquidation basisof accounting for the three and nine months ended September 30, 2007;therefore, depreciation expense of approximately $147,000 and $441,000 for thethree and nine months ended September 30, 2008, respectively, was excludedfrom the analysis above for comparability purposes.

 

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For the three months ended September 30, 2008, operating revenuewas flat, decreasing by approximately $2,000 while operating expenses increasedby approximately $141,000 (15%) resulting in a pre-tax operating loss ofapproximately $77,000.  This result was anunfavorable change from the same period in the prior year of approximately $144,000(216%).

 

Golf operating revenue decreased approximately $73,000 which wasprimarily due to a decrease in rounds of approximately 400, an average of 4.5rounds per day for the quarter, which had a negative impact on greens fees,cart fees and merchandise sales.  Memberdues and fees decreased approximately $7,000 due to the resignation ofapproximately thirty Club members attributed to the current economicenvironment and potentially from concerns related to the pending sale of theClub to a subset of the membership group. Included in other club revenue is approximately $80,000 in bartertransaction revenue which represents the estimated fair value related to themanagement services that we provide for the Woodcreek Farms amenities ascontemplated in the use and access agreement with the developer of theWoodcreek Farms subdivision.   Due to thefact that we were under the liquidation basis of accounting in 2007 until November 6,2007, this barter transaction was not recorded in the same period of the prioryear resulting in an increase in this revenue category period over period ofapproximately $80,000 which offset the decrease in golf operating revenue of$73,000.

 

Club operating expenses increased approximately $141,000 (15%) overprior year. This increase was primarily attributed to approximately $80,000 inbarter transaction expenses included in Other club expenses which offsets thebarter transaction revenue described above. Other club expenses also include the expenses of the golf coursemaintenance department which increased approximately $82,000.  This increase was primarily due to operatingleases for new golf course maintenance equipment that were entered in tosubsequent to September 30, 2007 which represents approximately $42,000 ofthe overall departmental increase with the remaining $40,000 increaseattributed to the purchase new sod and additional golf course chemicals such asfertilizers and seed to repair damage from the drought and loss of water at theWildewood Golf Course in 2007 and early 2008. The increase in the barter transaction expense and the golf coursemaintenance department expense were offset by a net decrease of approximately$8,000 in the operating expenses of other miscellaneous departments included inOther club expenses including swim, tennis and marketing.  Golf operating expenses decreased approximately$15,000 (9%) in the three months ended September 30, 2008 compared to thesame period in the prior year primarily due to the decrease in merchandise costof sales attributed to the decrease in merchandise sales period overperiod.  Food and beverage departmentexpense decreased approximately $22,000 (12%) primarily due to an improvementin productivity in this department through organizational changes and a focuson more efficient buying practices and controlling labor costs.  General and administrative expenses increasedapproximately $24,000 (11%) primarily due to an increase in property taxes ofapproximately $10,000 coupled with an increase in utilities of approximately$20,000 due to the fact that we assumed financial responsibility for the utilitiesat the Woodcreek Clubhouse from the developer subsequent to September 30,2007.  These increases were offset by anet decrease of approximately $6,000 in various other general andadministrative accounts.

 

For the nine months ended September  30, 2008, operating revenueincreased by approximately $309,000 (11%) and operating expenses increased byapproximately $245,000 (9%) resulting in pre-tax operating income ofapproximately $108,000.  This result wasa favorable change of 149% from the same period in the prior year in which wereported pre-tax net operating income of approximately $44,000. Included inOther club revenue is approximately $241,000 in barter transaction revenuewhich represents the estimated fair value related to the management services weprovide for the Woodcreek Farms amenities as contemplated in the use and accessagreement with the developer of the Woodcreek Farms subdivision.  Golf operating revenue decreasedapproximately $41,000 (5%) primarily due to the decrease of 400 golf rounds inthe third quarter, as discussed above, which negatively impacted cart rentalfees for the nine months by approximately $17,000 and greens fees byapproximately $20,000.  These decreaseswere coupled with a net decrease in other golf revenue categories ofapproximately $4,000.  Food and beveragerevenue increased by approximately $9,000 due to an increase in banquet salesfor the Woodcreek Clubhouse for the nine months ended September 30,2008.   Member dues and fees  increased approximately $65,000 (4%) due to agrowth in membership of approximately thirty-nine new members in the first sixmonths of 2008 coupled with a 10% increase in dues that was implemented in August 2007.  As referenced, thirty members resigned in thethird quarter of 2008 which is expected to have a negative impact on memberdues and fees for the remainder of the fiscal year.  The 

 

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remainingincrease in Other club revenue of approximately $35,000, after consideration ofthe barter transaction, is primarily due to the fact that approximately $37,000in refundable initiation fees were issued in the nine months ended September 30,2007 offset by a net decrease in other accounts in this category ofapproximately $2,000.  In the nine monthsended September 30, 2008, approximately $26,000 in refundable initiationsfees were issued but due to the fact that we exited the liquidation basis ofaccounting on November 6, 2007, these refunds were recorded against therefundable initiation fee liability instead of as a reduction of revenue.

 

Club operating expenses increased approximately $245,000 (9%), overprior year. This increase was primarily in Other club expenses which increasedapproximately $238,000 (22%).  Thisincrease was primarily attributed to approximately $241,000 in bartertransaction expenses which offset the barter transaction revenue describedabove coupled with a net decrease in the combined operating expenses of themaintenance, swimming and tennis departments of approximately $3,000.  The increase in golf operating expenses ofapproximately $24,000 (5%) was due to higher labor costs from an increasedfocus on service levels for the membership and an increase in overhead costsrelated to additional range expenses. Food and beverage expenses decreasedapproximately $91,000 (16%) compared to the same period in the prior year dueto an improvement in productivity in this department through organizationalchanges, a focus on more efficient purchasing practices, controlling laborcosts and improving margins on cost of goods sold.  General and administrative expenses increasedapproximately $73,000 (11%) primarily due to an increase in property taxes ofapproximately $29,000 and an increase in utilities of approximately $64,000 dueto the fact that we assumed financial responsibility for the utilities at theWoodcreek Clubhouse and due to increased electric rates in 2008.  These increases were offset by a net decreasein other general and administrative accounts of approximately 20,000.

 

*Employee Stock Options and Awards*

 

On January 18, 2008, 50,000 option shares were granted from the2007 Stock Option Plan to the Company’s CFO, Tracy S. Clifford, and on January 23,2008, 160,000 option shares were granted from the 2007 Stock Option Plan to thefour independent members of the Company’s Board (40,000 to each member).  The estimated grant-date fair value of theseoptions was approximately $0.84 and $0.80 per share, respectively. The exerciseprice is $1.90 and $1.82, respectively, the closing American Stock Exchangeprice on the respective grant date, as specified by the Compensation Committee.For the nine months ended September 30, 2008, stock option expense ofapproximately $108,000 has been recorded related to these issued options andthe 275,000 options shares issued to our CEO on December 14, 2007.

 

The fair value of each option award is estimated on the date of grantusing the Black Sholes option valuation model. Expected volatility is based onthe historical volatility of the Company’s stock and was estimated at 53.80%.The risk-free rate for periods within the contractual life of the option isbased on the U.S. Treasury bill rate in effect at the time of grant which wasapproximately 2.86% at January 18, 2008 and 2.64% at January 23,2008. The expected term in years is an average of four years. Any optionsissued to employees who are subsequently terminated do not expire early as aresult of termination but expire pursuant to their contractual terms atissuance. The total outstanding unvested options at September 30, 2008 is485,000. At September 30, 2008, there was approximately $333,000 of totalunrecognized compensation expense related to nonvested-share-based compensationarrangements granted under the 2007 Stock Option Plan that will be amortizedover the period ending January 23, 2011. At September 30, 2008, these options had no value.

 

Pursuant to the respectiveoption plans, except the 1997 Non-Employee Director’s Plan and the 2007 StockOption Plan, any options issued to employees who are subsequently terminatedexpire ninety days following his/her termination if not exercised. The optionsissued under the 1997 Non-Employee Director’s Plan are exercisable until theiroriginal expiration date.  During thethree months ended September 30, 2008, no options were exercised and10,000 options expired.  During the ninemonths ended September 30, 2008, no options were exercised and 270,000options expired. As of September 30, 2008, there are 60,000 optionsoutstanding under the 1997 Non-Employee Director’s Plan, 20,000 optionsoutstanding under the 1997 General Plan.

 

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**Income Taxes**

 

The Company had a pre-tax loss of approximately $675,000 and  $213,000 for the three and nine months ended September 30,2008, respectively, and a decrease of approximately $268,000 and $2,663,000 innet assets in liquidation for the three and nine months ended September 30,2007, respectively.  Included in deferredincome tax assets as of September 30, 2008 and December 31, 2007 areFederal and state operating loss carryforwards of approximately $84 million and$85 million, respectively.  The Companyrecorded a valuation allowance for these carryforwards.  These net operating losses expire at variousdates beginning with the 2021 tax year and ending with the 2026 tax year.

 

**Liquidity and Capital Resources**

 

Currently, our only sources of cash flow are from the operations ofStonehenge and interest income from our invested cash balances. GTAStonehenge, LLC has a $4,200,000 revolving credit line with TextronFinancial Corporation (“Textron”), which matures on March 18, 2009. Thisloan is collateralized by a security interest in Stonehenge. The interest rateis the prime rate plus 1.75% per annum paid monthly. This loan requires thatthe operations at Stonehenge for the immediately preceding twelve month periodbe sufficient to meet a debt service coverage ratio, as defined in themortgage, of at least 1.20, as measured monthly. At September 30, 2008,the Company did not meet the debt service coverage ratio (in part due to increasedefforts to improve the playing quality of the golf courses by investingsignificantly in additional beautification, repair and maintenance projects, aswell as attendant labor costs, related to the golf courses, but which do notqualify for capitalization accounting treatment). In light of the fact that theCompany has consistently met its financial obligations throughout the term ofthe loan, as of December 31, 2007 Textron waived the debt service covenantviolations for 2008 subject to re-evaluation at December 31, 2008.

 

At September 30, 2008, our cash balance is approximately $8,239,000. We received the escrowed funds from the Resort sale in the amount of$2,000,000 plus accrued interest of approximately $31,000 on April 3,2008. Additionally, the promissory note that was executed in the settlement ofthe Young Complaints has scheduled payments as follows: (a) $100,000principal due and paid on May 31, 2008; (b) approximately $133,000principal due on January 1, 2009; (c) approximately $133,000 principaldue on January 1, 2010; (d) approximately $134,000 principal due on January 1,2011. In the event these installments are not received timely, the noteprovides for an additional installment of approximately $3,377,000 principal,plus interest. Also, the Board continues to assess future plans for the landthat we obtained title to in the settlement of the Young Complaints(approximately 118 acres of undeveloped land in Charleston County, SouthCarolina), which could provide additional liquidity.

 

Stonehenge has historically possessed sufficient liquidity to cover itsoperations. Stonehenge has also covered the Textron debt service and propertytax escrow for the nine months ended September 30, 2008.   Management has invested approximately$102,000 in capital expenditures at Stonehenge during the nine months ended September 30,2008 of which $54,000 were funded by cash flow from Stonehenge operations and$48,000 were funded by Corporate and will be reimbursed as cash flow permits.The technological infrastructure at the Company’s corporate office was updatedduring the second quarter at a cost of approximately $12,000 which was fundedfrom existing cash balances. We currently intend to pay corporate overhead in2008 from current cash balances.  During2008, several cost reduction initiatives were implemented at corporateheadquarters to reduce operating expenses including reduction of professionalfees which have decreased since we are no longer under the plan of liquidation,reduction of Board fees, consolidation of office space, reduction of staff, andelimination of certain services. However, the corporate overhead expense for2008 may be impacted if we are successful in completing an acquisition or othergrowth initiative.

 

The Company believes that it possesses adequate liquidity and capitalresources to conduct its operations. In the event that the Company pursues anacquisition or other strategic alternative requiring significant capitalinvestment, it is anticipated that funding will be provided by cash on hand,equity issuance, debt issuance, commercial credit facilities, or a combinationof the aforementioned.

 

The Board has not limitedthe types of alternative growth strategies it intends to consider. Emphasis isto be placed on areas of historical Company expertise, as well as that of ourmanagement and board of directors.  Todate, the Company has not entered into a definitive agreement with anothercompany regarding growth initiatives or a business combination.

 

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**Off Balance Sheet Arrangements**

 

As of September 30, 2008, we have no offbalance sheet arrangements that have or are reasonably likely to have a currentor future material effect on our financial condition, revenues, expenses,results of operations, liquidity, capital expenditures or capital resources.

 

**Contractual Obligations, Contingent Liabilities and Commitments**

 

There have not been any material changes from thecontractual obligations, contingent liabilities and commitments previouslydisclosed in our 2007 annual report for fiscal year ended December 31,2007.  Please refer to “Management’sDiscussion and Analysis of Financial Condition and Results ofOperations—Contractual Obligations, Contingent Liabilities and Commitments” inour Form 10-K for the year ended December 31, 2007, filed on  March 31, 2008, for a description of ourcontractual obligations.

 

**Inflation**

 

Inflation has not had a significant impact on us. As operating costsand expenses increase, we generally attempt to offset the adverse effects ofincreased costs by increasing prices in line with industry standards. However,we are subject to the risks that our costs of operations will increase and wewill be unable to offset those increases through increased dues and feeswithout adversely affecting demand. In addition to inflation, factors thatcould cause operating costs to rise include, among other things, increasedlabor costs, lease payments at our leased facilities, energy costs and propertytaxes.

 

**Seasonality**

 

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

 

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

 

We have not entered intoany transactions using derivative financial instruments. We are subject tomarket risk associated with changes in interest rates applicable to the$4,100,000 outstanding under our revolving line of credit.  As of September 30, 2008, a 25 basispoint movement would have resulted in a $10,000 annualized increase or decreasein interest expense and cash flows.

 

We have not entered intoany transactions using foreign currency or derivative commodity instruments;therefore, we do not face any foreign currency exchange rate risk or commodityprice risk.

 

Reference is made to Note 6, DiscontinuedOperations, to the Condensed Consolidated Financial Statements in Item 1 foradditional debt information.

 

**ITEM 4. CONTROLS AND PROCEDURES**

 

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

 

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As of September 30, 2008, we evaluated, underthe supervision and with the participation of our management, including ourChief Executive Officer and Chief Financial Officer, the effectiveness of thedesign and operation of our disclosure controls and procedures (as defined inExchange Act Rule 13a-15(e)). Management concluded that as of September 30,2008, our disclosure controls and procedures are effective in timely alertingthem to material information relating to us (including our consolidatedsubsidiaries) required to be included in our Exchange Act reports.

 

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

 

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**PART II. OTHERINFORMATION**

 

**ITEM 1. LEGAL PROCEEDINGS**

 

We are currently involved in, or prior to the filing of this QuarterlyReport we have concluded, the following legal proceedings:

 

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

 

Thetitled action was brought in the Circuit Court of Miller County, Missouri byLOCI, and its asserted assignee of lien and account rights, Everett HoldingCompany, Inc., in the fall of 1999 against numerous defendants, includingthe Operating Partnership. Plaintiffs asserted that LOCI performed constructionservices on, or that benefited, the property of various defendants, includingthe Operating Partnership. With respect to the Operating Partnership,plaintiffs sought to foreclose a mechanic’s lien upon property formerly ownedby the Operating Partnership. The lien was for the principal amount ofapproximately $1,276,000, plus interest at 10% per annum and attorney fees.Plaintiffs calculated interest to May 20, 1999, just prior to the lienfiling, to be approximately $151,000 and interest thereafter to be $354 perday. The Court entered a written order granting the Operating Partnership’sMotion for Summary Judgment in April 2002 and a final judgment in November 2003.Plaintiffs appealed the ruling to the Missouri Court of Appeals. The Court ofAppeals on April 5, 2005 reversed the Circuit Court judgment in favor ofus and remanded the case to the Circuit Court for further proceedings. On May 31,2005, the Court of Appeals filed a modified Opinion, which again reversed theCircuit Court judgment in favor of us and remanded the case to the CircuitCourt for further proceedings. On March 12, 2008, a case managementconference was held. The presiding judge set September 30, 2008, asdeadline for completing discovery and scheduled another conference for October 8,2008, at which time it was anticipated that the case would be set for trial. On October 3, 2008, the Companyentered in to a Settlement Agreement (the “Agreement”) with theplaintiffs.   The Agreement establishedthe terms of the final resolution of the complaint Lake Ozark ConstructionIndustries, Inc. and Everett Holding Company, Inc. v. Osage LandCompany, L.L.C., et al, Case No. CV599-366CC.   As a result of the Agreement, the Companypaid the plaintiffs $140,000 on October 6, 2008 and all claims of bothparties were dismissed.

 

***RoutineLitigation***

** **

Owners and operators ofgolf courses are subject to a variety of legal proceedings arising in theordinary course of operating a golf course, including proceedings relating topersonal injury and property damage. We have in the past been, and expect tocontinue in the future to be, subject to proceedings relating to personal injuryand property damage. Such proceedings are generally brought against theoperator of a golf course, but may also be brought against the owner ofthe golf course. We maintain insurance to defend against certain of theseactions.

 

**ITEM 1A. RISK FACTORS**

 

Notapplicable.

 

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

 

None.

 

**ITEM 3. DEFAULTS UPON SENIOR SECURITIES**

 

None.

 

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

 

No matters were submitted to a vote of securityholders during the three months ended September 30, 2008.

 

**ITEM 5. OTHER INFORMATION**

 

None.

 

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**ITEM 6. EXHIBITS**

 

**EXHIBIT INDEX**

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

 

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**SIGNATURES**

 

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

 
|                               | ** ** | **GOLF TRUST OF  AMERICA, INC.**    |
|-------------------------------|------------|------------------------------------------|
| ** **                    | ** ** | ** **                               |
| Date: November 14,  2008 | By:        | /s/ Michael C.  Pearce              |
|                          |       | Michael C. Pearce                        |
| * *                      | * *   | *Chief Executive Officer and  President* |
| * *                      | * *   | * *                                 |
| Date: November 14,  2008 | By:        | /s/ Tracy S.  Clifford              |
|                          |       | Tracy S. Clifford                        |
| * *                      | * *   | *Chief Financial Officer and  Secretary* |

 

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