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 November 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 November 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 880 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.

Discontinued Operations

The Company signed 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 discontinued operations as of the signing of this agreement. As of November 8, 2008, the Company's only remaining real estate assets are the undeveloped land obtained in the settlement of the Young Complaints and Stonehenge.

Stock Repurchase Authorization

On November 11, 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 authorization may be made through open market and privately negotiated transactions at times and in such amounts as management deems appropriate. The timing and actual number of shares repurchased will depend on a variety of factors, including price, cash balances, general business and market conditions, the dilutive effects of share-based incentive plans, alternative investment opportunities and working capital needs. The stock repurchase authorization does not have an expiration date and may be limited or terminated at any time without prior notice. The purchases will be funded from available cash balances and repurchased shares will be returned to the status of authorized but un-issued shares of common stock.

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 the three and nine months ended September 30, 2008, respectively. Due to the fact that we were under the liquidation basis of accounting for the three and nine months ended September 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 September 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 September 30, 2008. The net loss for the nine months ended September 30, 2008 of approximately $131,000 was primarily due public company operating costs of the corporate office of approximately $1,342,000 which were offset by 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 September 30, 2008, operating expenses from the continuing operations of the Company totaled approximately $412,000 consisting of approximately $1,000 in depreciation expense and $411,000 in 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) $48,000 in insurance, (v) $140,000 in settlement fees on certain litigation now resolved, (vi) $37,000 in stock option expense, (vii) $15,000 for shareholder related expenses such as shareholder transfer agent fees, board fees and printing costs for SEC required reports, and (viii) $32,000 in other fees and operating expenses such as rent and utilities, travel and other miscellaneous operating expenses offset by (ix) the reimbursement of taxes paid with the Company's filing of its extension for its corporate income tax return of approximately $24,000.

For the nine months ended September 30, 2008, operating expenses from the continuing operations of the Company totaled approximately $1,344,000 consisting of approximately $2,000 in depreciation expense and $1,342,000 in operating expenses of the Corporate office. The Corporate office expenses primarily consisted of approximately (i) $230,000 in tax, audit and accounting consulting fees, (ii) $364,000 in salary and benefits, (iii) $93,000 in legal fees,
(iv) $146,000 in insurance, (v) $183,000 in settlement fees and expenses related certain claims now resolved, (vi) $108,000 in stock option expense,
(vii) $104,000 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) $138,000 in other fees and operating expenses such as rent and utilities, certain annual taxes and fees and other miscellaneous operating expenses offset by (ix) the reimbursement of taxes paid with the Company's filing of its extension for its corporate income tax return of approximately $24,000.

Results of Operations for the Three and Nine Months Ended September 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
                                                   September 30,                    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                Change
                                                   September 30,                    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 basis of accounting for the three and nine months ended September 30, 2007; therefore, depreciation expense of approximately $147,000 and $441,000 for the three and nine months ended September 30, 2008, respectively, was excluded from the analysis above for comparability purposes.

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

Golf operating revenue decreased approximately $73,000 which was primarily due to a decrease in rounds of approximately 400, an average of 4.5 rounds per day for the quarter, which had a negative impact on greens fees, cart fees and merchandise sales. Member dues and fees decreased approximately $7,000 due to the resignation of approximately thirty Club members attributed to the current economic environment and potentially from concerns related to the pending sale of the Club to a subset of the membership group. Included in other club revenue is approximately $80,000 in barter transaction revenue which represents the estimated fair value related to the management services that we provide for the Woodcreek Farms amenities as contemplated in the use and access agreement with the developer of the Woodcreek Farms subdivision. Due to the fact 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 prior year resulting in an increase in this revenue category period over period of approximately $80,000 which offset the decrease in golf operating revenue of $73,000.

Club operating expenses increased approximately $141,000 (15%) 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. Other club expenses also include the expenses of the golf course maintenance department which increased approximately $82,000. This increase was primarily due to operating leases for new golf course maintenance equipment that were entered in to subsequent to September 30, 2007 which represents approximately $42,000 of the overall departmental increase with the remaining $40,000 increase attributed to the purchase new sod and additional golf course chemicals such as fertilizers and seed to repair damage from the drought and loss of water at the Wildewood Golf Course in 2007 and early 2008. The increase in the barter transaction expense and the golf course maintenance department expense were offset by a net decrease of approximately $8,000 in the operating expenses of other miscellaneous departments included in Other 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 the same period in the prior year primarily due to the decrease in merchandise cost of sales attributed to the decrease in merchandise sales period over period. Food and beverage department expense decreased approximately $22,000 (12%) primarily due to an improvement in productivity in this department through organizational changes and a focus on more efficient buying practices and controlling labor costs. General and administrative expenses increased approximately $24,000 (11%) primarily due to an increase in property taxes of approximately $10,000 coupled with an increase in utilities of approximately $20,000 due to the fact that we assumed financial responsibility for the utilities at the Woodcreek Clubhouse from the developer subsequent to September 30, 2007. These increases were offset by a net decrease of approximately $6,000 in various other general and administrative accounts.

For the nine months ended September 30, 2008, operating revenue increased by approximately $309,000 (11%) and operating expenses increased by approximately $245,000 (9%) resulting in pre-tax operating income of approximately $108,000. This result was a favorable change of 149% from the same period in the prior year in which we reported pre-tax net operating income of approximately $44,000. Included in Other club revenue is approximately $241,000 in barter transaction revenue which represents the estimated 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. Golf operating revenue decreased approximately $41,000 (5%) primarily due to the decrease of 400 golf rounds in the third quarter, as discussed above, which negatively impacted cart rental fees for the nine months by approximately $17,000 and greens fees by approximately $20,000. These decreases were coupled with a net decrease in other golf revenue categories of approximately $4,000. Food and beverage revenue increased by approximately $9,000 due to an increase in banquet sales for the Woodcreek Clubhouse for the nine months ended September 30, 2008. Member dues and fees increased approximately $65,000 (4%) due to a growth in membership of approximately thirty-nine new members in the first six months of 2008 coupled with a 10% increase in dues that was implemented in August 2007. As referenced, thirty members resigned in the third quarter of 2008 which is expected to have a negative impact on member dues and fees for the remainder of the fiscal year. The

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

Club operating expenses increased approximately $245,000 (9%), over prior year. This increase was primarily in Other club expenses which increased approximately $238,000 (22%). This increase was primarily attributed to approximately $241,000 in barter transaction expenses which offset the barter transaction revenue described above coupled with a net decrease in the combined operating expenses of the maintenance, swimming and tennis departments of approximately $3,000. The increase in golf operating expenses of approximately $24,000 (5%) was due to 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 $91,000 (16%) compared to the same period in the prior year due to an improvement in productivity in this department through organizational changes, a focus on more efficient purchasing practices, controlling labor costs and improving margins on cost of goods sold. General and administrative expenses increased approximately $73,000 (11%) primarily due to an increase in property taxes of approximately $29,000 and an increase in utilities of approximately $64,000 due to the fact that we assumed financial responsibility for the utilities at the Woodcreek Clubhouse and due to increased electric rates in 2008. These increases were offset by a net decrease in 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 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. For the nine months ended September 30, 2008, stock option expense of approximately $108,000 has been 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 September 30, 2008 is 485,000. At September 30, 2008, there was approximately $333,000 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 September 30, 2008, these options had no 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 September 30, 2008, no options were exercised and 10,000 options expired. During the nine months ended September 30, 2008, no options were exercised and 270,000 options expired. As of September 30, 2008, there are 60,000 options outstanding under the 1997 Non-Employee Director's Plan, 20,000 options outstanding under the 1997 General Plan.

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 in net assets in liquidation for the three and nine months ended September 30, 2007, respectively. Included in deferred income tax assets as of September 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 September 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 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 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 continues to assess 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 and property tax 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 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. During 2008, several cost reduction initiatives were implemented at corporate headquarters to reduce operating expenses including reduction of professional fees which have decreased since we are no longer under the plan of liquidation, 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.

The Board has not limited the types of alternative growth strategies it intends to consider. Emphasis is to be placed on areas of historical Company expertise, as well as that of our management and board of directors. To date, the Company has not entered into a definitive agreement with another company regarding growth initiatives or a business combination.

Off Balance Sheet Arrangements

As of September 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, . . .