Overview

Golf Trust of America, Inc. was incorporated in Maryland on November 8, 1996. We have been engaged in a liquidation of our assets pursuant to a plan of liquidation approved by our stockholders. However, as previously announced and described more fully below, we are currently considering additional strategic options to maximize stockholder value. We were originally formed to be a REIT; however, as of fiscal year 2002 we no longer have our REIT status as a result of our repossession and operation of certain golf courses following the default of their original third-party lessees. As of August 8, 2008, our only remaining real estate assets are the undeveloped land obtained in the settlement of certain litigation formerly known as the Young Complaints and the Country Clubs of Wildewood and Woodcreek Farms, or Stonehenge, representing two private golf courses operating under one club structure located in South Carolina. The Operating Partnership holds title to Stonehenge. Through our wholly owned subsidiaries, GTA GP, Inc. and GTA LP, Inc., we held 100 percent of the interests in the Operating Partnership as of August 8, 2008. GTA GP, Inc. is the sole general partner of the Operating Partnership and owns a 0.2 percent interest therein. GTA LP, Inc. is the sole limited partner in the operating partnership and owns a 99.8 percent interest therein.

Termination of the Plan of Liquidation

The Board adopted a resolution declaring the termination of the Plan of Liquidation, or the "POL", advisable and the Company's stockholders approved such proposal to terminate the POL on November 8, 2007. Therefore, financial statements subsequent to this date are presented under the going concern basis as an operating company rather than under the liquidation basis of accounting.

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

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

There can be no assurance that the Company will successfully consummate a viable alternative growth strategy. The Company has limited financial and management capacity, will be competing with organizations possessing far greater resources, and is subject to specific industry and macro economic factors, many of which may prove outside of the Company's control or sphere of influence.

Executive Summary

We reported a net loss of approximately $386,000 ($0.05 per basic share) and net income of approximately $544,000 ($0.07 per basic share) for the three and six months ended June 30, 2008, respectively. Due to the fact that we were under the liquidation basis of accounting for the three and six months ended June 30, 2007, the two periods are not meaningful for comparison purposes; however, a comparison of the operating results for just Stonehenge which is comparable for these periods is provided below under the heading Results of Operations. The net loss for the three months ended June 30, 2008 is primarily due to the fact that the operations of Stonehenge did not realize sufficient net income to cover the public company operating costs of the Corporate office and we did not realize any "other income" in the three months ended June 30, 2008. The net income for the six months ended June 30, 2008 of approximately $544,000 was primarily due to the recognition of a gain from the settlement of certain litigation

formerly known as the Young Complaints. In connection with the settlement, a note receivable that was recorded at its estimated net present value on the date of the settlement of approximately $432,000 and undeveloped land that was recorded at 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 to the Innisbrook Resort and Golf Club, or the Resort, which we owned until it was sold on July 16, 2007.

For the three months ended June 30, 2008, operating expenses for the Company totaled approximately $1,530,000 consisting of approximately (i) $147,000 in depreciation expense, (ii) $308,000 in operating expenses of the Corporate office and (iii) $1,075,000 in operating expenses of Stonehenge. The Corporate office expenses primarily consisted of approximately (i) $8,000 in tax, audit and accounting consulting fees, (ii) $116,000 in salary and benefits,
(iii) $22,000 in legal fees, (iv) $44,000 in insurance, (v) $5,000 in settlement fees and expenses related certain claims now resolved, (vi) $37,000 in stock option expense, (vii) $40,000 for shareholder related expenses such as shareholder transfer agent fees, board fees and printing costs for SEC required reports, and (viii) $36,000 in other fees and operating expenses such as rent and utilities, travel and other miscellaneous operating expenses.

For the six months ended June 30, 2008, operating expenses for the Company totaled approximately $3,168,000 consisting of approximately (i) $294,000 in depreciation expense, (ii) $931,000 in operating expenses of the Corporate office and (iii) $1,943,000 in operating expenses of Stonehenge. The Corporate office expenses primarily consisted of approximately (i) $183,000 in tax, audit and accounting consulting fees, (ii) $263,000 in salary and benefits,(iii) $77,000 in legal fees, (iv) $97,000 in insurance, (v) $41,000 in settlement fees and expenses related certain claims now resolved, (vi) $71,000 in stock option expense, (vii) $89,000 for shareholder related expenses such as the annual American Stock Exchange fee, shareholder transfer agent fees, board fees and printing costs for SEC required reports, and (viii) $110,000 in other fees and operating expenses such as rent and utilities, certain annual taxes and fees and other miscellaneous operating expenses.

Results of Operations for the Three and Six Months Ended June 30, 2008 and 2007



Stonehenge's operating results which are included in our unaudited condensed
consolidated financial results are provided in the table below.



                                               For the three months ended               Change
                                                        June 30,                     Favorable /
Stonehenge                                       2008              2007             (Unfavorable)
                                                      (unaudited)
Revenues
Golf operating revenue                      $      332,815    $      328,771    $    4,044           1 %
Food and beverage revenue                          214,207           190,413        23,794          12 %
Membership dues and fees revenue                   510,049           483,468        26,581           5 %
Other club revenue                                 115,829             4,584       111,245        2427 %
Operating revenue                                1,172,900         1,007,236       165,664          16 %
Expenses
Golf operating expenses                            205,000           159,159       (45,481 )       (29 )%
Food and beverage expenses                         168,579           207,567        38,988          19 %
Other club expenses                                454,843           377,235       (77,608 )       (21 )%
General and administrative expenses                246,241           220,793       (25,448 )       (12 )%
Total expenses                                   1,074,663           964,754      (109,910 )       (11 )%
Operating income                                    98,237            42,482        55,754         131 %
Other income (expense)
Interest income                                        404                 -          (404 )       100 %
Interest expense                                    (7,610 )               -        (7,610 )      (100 )%
Other expense, net                                  (7,206 )               -        (7,206 )      (100 )%
Pre-tax income exclusive of depreciation    $       91,031    $       42,482    $   48,548         114 %




                                               For the six months ended              Change
                                                       June 30,                    Favorable /
Stonehenge                                      2008             2007             (Unfavorable)
                                                     (unaudited)
Revenues
Golf operating revenue                      $     514,165    $     481,491    $  32,674           7 %
Food and beverage revenue                         366,060          355,726       10,334           3 %
Membership dues and fees revenue                1,024,363          951,742       72,621           8 %
Other club revenue                                223,795           27,796      195,999         705 %
Operating revenue                               2,128,383        1,816,755      311,629          17 %
Expenses
Golf operating expenses                           344,621          305,516      (39,105 )       (13 )%
Food and beverage expenses                        310,617          379,744       69,127          18 %
Other club expenses                               806,623          722,259      (84,364 )       (12 )%
General and administrative expenses               481,648          432,639      (49,009 )       (11 )%
Total expenses                                  1,943,509        1,840,158     (103,351 )       (18 )%
Operating income (loss)                           184,875          (23,403 )    208,278        (890 )%
Other income (expense)
Interest income                                     1,322                -        1,322         100 %
Interest expense                                  (15,414 )              -      (15,414 )      (100 )%
Other expense, net                                (14,092 )              -      (14,092 )      (100 )%
Pre-tax income exclusive of depreciation    $     170,783    $     (23,403 )  $ 194,186         830 %

Note: We operated under the liquidation basis of accounting for the three and six months ended June 30, 2007; therefore, depreciation expense of approximately $147,000 and $293,000 for the three and six months ended June 30, 2008, respectively, was excluded from the analysis above for comparability purposes.

For the three months ended June 30, 2008, operating revenue increased by approximately $166,000 (16%) and expenses increased by approximately $110,000
(11%) resulting in an increase in pre-tax income of approximately $49,000 (114%)
over the same period in the prior year. The revenue increase was due to an increase in member dues and fees of approximately $26,000 (5%) and in food and beverage revenue which increased approximately $24,000 (12%). Included in other club revenue is approximately $80,000 in barter transaction revenue which represents the fair value related to the management services we provide for the Woodcreek Farms amenities as contemplated in the use and access agreement with the developer of the Woodcreek Farms subdivision. The remaining increase in Other club revenue, after consideration of the barter transaction, is due to the fact that approximately $30,000 in refundable initiation fees were issued in the three months ended June 30, 2007 and no such refunds were issued in the three months ended June 30, 2008. The cumulative net increase in operating revenues in the other departments was approximately $5,000. The increase in member dues and fees revenue was attributed to a growth in membership of approximately twenty new members in the three months ended June 30, 2008 coupled with a 10% increase in dues that was implemented in August 2007 and the implementation of a food minimum as part of the dues in October 2006. While there were also approximately twenty-one member resignations during this period, the net impact of the additions and resignations of members during the three months ended June 30, 2008 was positive impact to revenue due to the fact that the members that resigned were in membership types that had a lower dues and initiation fee structure than the new members that have joined in membership types with more privileges and are at higher dues and initiation fee levels. The increase in food and beverage revenue was attributed to an increase in banquet sales for the Woodcreek Clubhouse in May 2008 when compared to the same period in the prior year.

Club operating expenses increased approximately $110,000 (11%), over prior year. This increase was primarily attributed to approximately $80,000 in barter transaction expenses included in Other club expenses which offsets the barter transaction revenue described above and an increase in golf operating expenses of approximately $45,000 (29%). The increase in golf operating expenses was due to the cost of sales related to higher merchandise sales in this period compared to the prior year as well as higher labor costs from an increased focus on service levels for the membership and an increase in overhead costs related to additional range expenses. Food and beverage expenses decreased approximately $39,000 (19%) compared to the same period in the prior year due to more cost efficient buying practices, a focus on controlling labor costs and improving margins on cost of goods sold. General and administrative expenses increased approximately $25,000 (12%) primarily due to an increase in property taxes of approximately $10,000 (28%) coupled with an increase in the utilities, health insurance, employer taxes and other overhead expenses from the increased number of employees for the Woodcreek Farms Clubhouse and restaurant that opened in September 2006. Other departments had a combined net decrease in operating expenses of approximately $1,000.

For the six months ended June 30, 2008, operating revenue increased by approximately $312,000 (17%) and expenses increased by approximately $103,000 (18%) resulting in an increase in pre-tax income of approximately $194,000 (830%) over the same period in the prior year. Included in Other club revenue is approximately $161,000 in barter transaction revenue which represents the fair market value related to the management services we provide for the Woodcreek Farms amenities as contemplated in the use and access agreement with the developer of the Woodcreek Farms subdivision. Operating revenue increased in all categories compared to the same period in the prior year with the most significant increase, disregarding the barter transaction revenue, occurring in member dues and fees which increased approximately $73,000 (8%). The increase in member dues and fees revenue was attributed to a growth in membership of approximately thirty-nine new members in the six months ended June 30, 2008 coupled with a 10% increase in dues that was implemented in August 2007 and the implementation of a food minimum as part of the dues in October 2006. The increase in golf operating revenue of approximately $33,000 (7%) was attributed to an increase of approximately 500 golf rounds, higher greens and care fees and increased merchandise sales compared to the same period in the prior year. The remaining increase in Other club revenue, after consideration of the barter transaction, is due to the fact that approximately $30,000 in refundable initiation fees were issued in the six months ended June 30, 2007 and no such refunds were issued in the six months ended June 30, 2008. The increase in food and beverage revenue of approximately $10,000 (3%) was attributed to an increase in banquet sales for the Woodcreek Clubhouse in the six months ended June 30, 2008 when compared to the same period in the prior year. Other departments had a combined net increase in operating expenses of approximately $5,000.

Club operating expenses increased approximately $103,000 (18%), over prior year. This increase was primarily in other club expenses which increased approximately $84,000. This increase was primarily attributed to the approximately $161,000 in barter transaction expenses which offset the barter transaction revenue described above. This increase in Other club expenses was offset by a decrease in operating expenses primarily in the maintenance department which decreased approximately $64,000 (11%). This savings was realized due to a revised winter agronomic plan that was implemented in the first quarter which reduced labor costs, fertilizer and chemical cost. The increase in golf operating expenses of approximately $39,000 (13% was due to the cost of sales resulting from higher merchandise sales in this period compared to the prior year as well as higher labor costs from an increased focus on service levels for the membership and an increase in overhead costs related to additional range expenses. Food and beverage expenses decreased approximately $69,000 (18%) compared to the same period in the prior year due to more cost efficient buying practices, a focus on controlling labor costs and improving margins on cost of goods sold. Other departments had a combined net decrease in operating expenses of approximately $13,000 (2%). General and administrative expenses increased approximately $49,000 (11%) primarily due to an increase in property taxes of approximately $19,000 (28%) coupled with an increase in the utilities, health insurance, employer taxes and other overhead expenses from the increased number of employees for the Woodcreek Farms Clubhouse and restaurant that opened in September 2006.

Employee Stock Options and Awards

On January 18, 2008, 50,000 option shares were granted from the 2007 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 the four independent members of the Company's Board (40,000 to each member). The estimated grant-date fair value of these options was approximately $0.84 and $0.80 per share, respectively. The exercise price is $1.90 and $1.82, respectively, the closing American Stock Exchange price on the respective grant date, as specified by the Compensation Committee. Stock option expense of approximately $34,000 was recorded related to these issued options and the 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 grant using the Black Sholes option valuation model. Expected volatility is based on the 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 is based on the U.S. Treasury bill rate in effect at the time of grant which was approximately 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 options issued to employees who are subsequently terminated do not expire early as a result of termination but expire pursuant to their contractual terms at issuance. The total outstanding unvested options at June 30, 2008 is 485,000. At June 30, 2008, there was approximately $370,000 of total unrecognized compensation expense related to nonvested-share-based compensation arrangements granted under the 2007 Stock Option Plan that will be amortized over the period ending January 23, 2011. At June 30, 2008, these options had no intrinsic value.

Pursuant to the respective option plans, except the 1997 Non-Employee Director's Plan and the 2007 Stock Option Plan, any options issued to employees who are subsequently terminated expire ninety days following his/her termination if not exercised. The options issued under the 1997 Non-Employee Director's Plan are exercisable until their original expiration date. During the three months ended June 30, 2008, no options were exercised and no options expired. During the six months ended June 30, 2008, no options were exercised and 260,000 options expired. As of June 30, 2008, there are 60,000 options outstanding under the 1997 Non-Employee Director's Plan, 25,000 options outstanding under the 1997 General Plan and 5,000 outstanding under the 1997 Officers Plan.

Income Taxes

The Company had a pre-tax loss of approximately $386,000 and pre-tax income of approximately $544,000 for the three and six months ended June 30, 2008, respectively, and a decrease of approximately $1,890,000 and $2,395,000 in net assets in liquidation for the three and six months ended June 30, 2007, respectively. Included in deferred income tax assets as of June 30, 2008 and December 31, 2007 are Federal and state operating loss carryforwards of approximately $84 million and $85 million, respectively. The Company recorded a valuation allowance for these carryforwards. These net operating losses expire at various dates 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 of Stonehenge and interest income from our invested cash balances. GTA Stonehenge, LLC has a $4,200,000 revolving credit line with Textron Financial Corporation ("Textron"), which matures on March 18, 2009. This loan is collateralized by a security interest in Stonehenge. The interest rate is the prime rate plus 1.75% per annum paid monthly. This loan requires that the operations at Stonehenge for the immediately preceding twelve month period be sufficient to meet a debt service coverage ratio, as defined in the mortgage, of at least 1.20, as measured monthly. At June 30, 2008, the Company did not meet the debt service coverage ratio (in part due to increased efforts to improve the playing quality of the golf courses by investing significantly in additional beautification, repair and maintenance projects, as well as attendant labor costs, related to the golf courses, but which do not qualify for capitalization accounting treatment). In light of the fact that the Company has consistently met its financial obligations throughout the term of the loan, as of December 31, 2007 Textron waived the debt service covenant violations for 2008 subject to re-evaluation at December 31, 2008.

At June 30, 2008, our cash balance is approximately $8,662,000. 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 of the Young Complaints has scheduled payments as follows: (a) $100,000 principal due and paid on May 31, 2008;
(b) approximately $133,000 principal due on January 1, 2009; (c) approximately $133,000 principal due on January 1, 2010; (d) approximately $134,000 principal due on January 1, 2011. In the event these installments are not received timely, the note provides for an additional installment of approximately $3,377,000 principal, plus interest. Also, the Board is currently assessing future plans for the land that we obtained title to in the settlement of the Young Complaints (approximately 118 acres of undeveloped land in Charleston County, South Carolina), which could provide additional liquidity.

Stonehenge has historically possessed sufficient liquidity to cover its operations. Stonehenge has also covered the Textron debt service for the first quarter of 2008 and is expected to cover the Textron debt service for the fiscal year ended December 31, 2008. Management is focused on several membership initiatives to grow the membership at Stonehenge, which it anticipates will increase revenues and enhance cash flow. Management is currently anticipating capital expenditures in 2008 at Stonehenge of approximately $100,000 (of which approximately $83,000 was expended during the six months ended June 30, 2008) which will be funded by cash flow from Stonehenge operations. The technological infrastructure at the Company's corporate office was updated during the second quarter at a cost of approximately $12,000 which was funded from existing cash balances. We currently intend to pay corporate overhead in 2008 from current cash balances. Several cost reduction initiatives have been implemented at corporate headquarters to reduce operating expenses including reduction of professional fees which have decreased since we are no longer under the POL, reduction of Board fees, consolidation of office space, reduction of staff, and elimination of certain services. However, the corporate overhead expense for 2008 may be impacted if we are successful in completing an acquisition or other growth initiative.

The Company believes that it possesses adequate liquidity and capital resources to conduct its operations. In the event that the Company pursues an acquisition or other strategic alternative requiring significant capital investment, it is anticipated that funding will be provided by cash on hand, equity issuance, debt issuance, commercial credit facilities, or a combination of the aforementioned.

Off Balance Sheet Arrangements

As of June 30, 2008, we have no off balance sheet arrangements that have or are reasonably likely to have a current or 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 the contractual obligations, contingent liabilities and commitments previously disclosed in our 2007 annual report for fiscal year ended December 31, 2007. Please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations-Contractual

Obligations, Contingent Liabilities and Commitments" in our Form 10-K for the year ended December 31, 2007, filed on March 31, 2008, for a description of our contractual obligations.

Inflation

Inflation has not had a significant impact on us. As operating costs and expenses increase, we generally attempt to offset the adverse effects of increased costs by increasing prices in line with industry standards. However, we are subject to the risks that our costs of operations will increase and we will be unable to offset those increases through increased dues and fees without adversely affecting demand. In addition to inflation, factors that could cause operating costs to rise include, among other things, increased labor costs, lease payments at our leased facilities, energy costs and property taxes.

Seasonality

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