Pernix Therapeutics 10-Q 2003 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

Commission File Number 000-22091

GOLF TRUST OF AMERICA, INC.

(Exact name of registrant as specified in its charter)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report(s) and (2) has been subject to such filing requirements for the past 90 days. Yes ý  No o.

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

On November 7, 2003, there were 7,884,943 common shares outstanding of the registrant’s only class of common stock. On November 7, 2003, there were 800,000 shares outstanding of the registrant’s 9.25% Series A Cumulative Convertible Preferred Stock, which is the registrant’s only class of outstanding preferred stock.

The Exhibit Index begins on page 50.

GOLF TRUST OF AMERICA, INC.
Form 10-Q Quarterly Report
For the Three and Nine Months Ended September 30, 2003

INDEX

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

Cautionary Note Regarding Forward-Looking Statements

The following report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements are statements that predict or describe future events or trends and that do not relate solely to historical matters. All of our projections in this annual report are forward-looking statements, including our projections regarding the amount and timing of liquidating distributions. You can generally identify forward-looking statements as statements containing the words “believe,” “expect,” “will,” “anticipate,” “intend,” “estimate,” “project,” “assume” or other similar expressions. You should not place undue reliance on our forward-looking statements because the matters they describe are subject to known (and unknown) risks, uncertainties and other unpredictable factors, many of which are beyond our control. Our forward-looking statements are based on the limited information currently available to our company and speak only as of the date on which this report was filed with the SEC. Our continued internet posting or subsequent distribution of this dated report does not imply continued affirmation of the forward-looking statements included in it. We undertake no obligation, and we expressly disclaim any obligation, to issue any updates to our forward-looking statements, even if subsequent events cause our expectations to change regarding the matters discussed in those statements. Future events are inherently uncertain. Moreover, in the current economy it is particularly difficult to predict business activity levels at the Innisbrook Resort (underlying our most significant asset) with any certainty more than a few months in advance. Accordingly, our projections in this annual report are subject to particularly high uncertainty. Our projections should not be regarded as legal promises, representations or warranties of any kind whatsoever. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such difference might be significant and harmful to our stockholders interests. Many important factors that could cause such a difference are described under the caption “Risks that might Delay or Reduce our Liquidating Distributions,” in Item 2 of this quarterly report, which you should review carefully.

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GOLF TRUST OF AMERICA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF NET ASSETS (LIQUIDATION BASIS)

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

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

See accompanying notes to condensed consolidated financial statements.

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GOLF TRUST OF AMERICA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN NET ASSETS (LIQUIDATION BASIS)

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

(in thousands) (unaudited)

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

See accompanying notes to condensed consolidated financial statements.

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GOLF TRUST OF AMERICA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN NET ASSETS (LIQUIDATION BASIS)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

(in thousands) (unaudited)

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

See accompanying notes to condensed consolidated financial statements.

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GOLF TRUST OF AMERICA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (LIQUIDATION BASIS)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

(in thousands, unaudited)

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

See accompanying notes to condensed consolidated financial statements.

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GOLF TRUST OF AMERICA, INC.
Form 10-Q Quarterly Report
For the Three and Nine Months Ended September 30, 2003

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.  Plan of Liquidation

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

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

Since late 1999, the golf industry has experienced declining performance and increased competition. Two of the economic sectors most affected by the economic recession in the United States have been the leisure and travel sectors of the economy. Golf courses and, in particular, destination-resort golf courses, are at the intersection of these sectors. We retained Houlihan Lokey to advise us on strategic alternatives available to us in furtherance of our efforts to seek to enhance stockholder value under our plan of liquidation. In connection with this engagement, Houlihan Lokey reviewed: (i) our corporate strategy; (ii) various possible strategic alternatives available to us with a view towards determining the best approach of maximizing stockholder value in the context of our existing plan of liquidation; and (iii) other strategic alternatives independent of the plan of liquidation. Houlihan Lokey evaluated our lender’s mortgage interest in the Innisbrook Resort under two different scenarios, both of which assumed that we would obtain a fee simple interest in the asset by either successfully completing a negotiated settlement with our borrower or foreclosing on our borrower’s interest in the mortgage encumbering the asset. Under the first scenario, Houlihan Lokey analyzed immediate liquidation of the asset, and under the second scenario Houlihan Lokey analyzed holding the asset until no later than December 31, 2005 to seek to realize a modest recovery in the financial performance levels based on historical financial results. Following receipt of Houlihan Lokey’s report on March 15, 2002, and after consideration of other relevant facts and circumstances then available to us, our board of directors unanimously determined to proceed with our plan of liquidation without modification.  In February 2003, we, at the direction of our board, again engaged Houlihan Lokey to assist us in updating our projected range of liquidating distributions in light of the actual sale prices we had obtained during the prior year and other relevant factors.   Following receipt of Houlihan Lokey’s updated report on March 18, 2003, and after consideration of other relevant facts and circumstances then available to us, our board of directors unanimously reaffirmed their decision to proceed with our plan of liquidation without modification.  As a result, we value the participating mortgage on our balance sheet based on our estimate of the resale value of the Resort at the conclusion of the holding period.  At June 30, 2003, we carried the participating mortgage on our books at $60.0 million, based on the assumptions that we would take ownership of the Resort, that the Resort’s operations would begin to recover in 2004 and that by the end of the 2005 holding period the Resort would have realized a modest recovery in line with historical results (among other assumptions).  We have identified our valuation of the participating mortgage as a critical accounting estimate, as discussed below under the caption “Application of Critical Accounting Policies.”

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During the third quarter of 2003, we continued to negotiate for a global settlement of claims resulting from the borrower’s default.  However, these negotiations stalled in October when we received from the Westin Hotel Company (which operates the hotel and conference facilities at the Resort) an updated Innisbrook forecast for the fourth quarter of 2003 and the calendar year 2004.  As disclosed in our press release dated October 20, 2003, the updated forecast was materially less favorable than forecasts we had received earlier from Westin regarding the same periods.  The revised forecast included a forecast for golf operations at the Resort prepared by Troon Golf (which operates the golf courses at the Resort and which is an affiliate of Westin).  Following our receipt of the revised forecast and the corresponding 2004 budget, we reviewed the budget methodology and economic assumptions underlying the 2004 budget in a series of meetings with Westin and Troon.  The decline in the revised forecast resulted primarily from fewer than anticipated group bookings at the Resort in the fourth quarter of 2003, which leads Westin to believe that the adverse economic conditions of the past two years at the Resort will continue throughout 2004.

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

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

2.  Organization and Basis of Presentation

Golf Trust of America, Inc., or GTA, was incorporated in Maryland on November 8, 1996. We were originally formed to be a real estate investment trust, or REIT, however, we no longer have our REIT status as a result of our repossession and operation of golf courses following the default of their original third-party lessees. We now own and operate golf courses. In our SEC filings, we often state golf course quantities in terms of 18-hole equivalents. Therefore, one 27-hole golf course property would be counted as 1.5 golf courses. As of November 7, 2003, we have interests in five properties which represent nine golf courses. Five of these nine golf courses are owned by us and four (namely, the Innisbrook Resort golf courses) are collateral for a 30-year participating mortgage wherein we are the lender. The five golf courses that we own are held by us in fee simple. The nine golf courses are located in Florida (6), South Carolina (2), and New Mexico. Title to our golf courses is generally held by Golf Trust

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

Adjustment to Liquidation Basis of Accounting

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

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

Reserve for Estimated Costs During the Period of Liquidation

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

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

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

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

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

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

3.  Summary of Significant Accounting Policies

Interim Statements

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

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

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footnotes are adequate to make the information not misleading, but also believes that such information should be read in conjunction with the consolidated financial statements and notes thereto included in our annual report on Form 10-K, as amended, for the year ended December 31, 2002.

Recent Accounting Pronouncements

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

4.  Mortgage Note Receivable

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

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

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

Following September 11, 2001, the borrower informed us that due to the significant impact of the events of September 11th on the Resort’s operating performance, the borrower might default on its mortgage payments to us. The borrower then failed to pay us interest when due for the month of October 2001.  On November 29, 2001, we notified the borrower that its failure to cure its non-payment of the October 2001 interest payment within ten days of our previous notice constituted an event of default of the borrower under our participating mortgage.

On March 8, 2002, we sent a notice to Westin Hotel Company alleging that Westin breached the subordination agreement by failing to remit payments directly to us on behalf of the borrower. Westin has contested our claim that it breached the subordination agreement. No litigation has been filed in this regard. We are seeking a resolution of this dispute with Westin as part of the proposed global settlement at Innisbrook discussed below.

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Additionally, on March 8, 2002, we delivered a legal notice to the borrower accelerating the entire amount of its indebtedness to us as a result of its continuing default under the participating mortgage. The participating mortgage is a non-recourse loan. Accordingly, following an event of default, we cannot bring a legal action directly against the borrower to compel payment. Rather, our recourse is to proceed against the guarantors and/or to foreclose upon the Innisbrook Resort (other than the condominium units which are owned by third parties) and any other property of the borrower that has been pledged to us as collateral to secure our loan to the borrower. Since early 2002, we have been seeking a negotiated foreclosure or settlement with the borrower as well as negotiating a global resolution of all issues impacting the Innisbrook Resort .  Due to a number of issues that need to be resolved prior to the closing of the deed transfer, we now do not expect to enter into formal documentation of the global resolution until sometime in 2004; however, we can provide no assurances as to the terms, timing or likelihood of any such global settlement.

5.  Commitments and Contingencies

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

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

Other Litigation

Lake Ozark Industries, Inc. and Everett Holding Company, Inc. v. Golf Trust of America, et al.  This is an action initiated in the Circuit Court of Miller County, Missouri, by a contractor, Lake Ozark Construction Industries, Inc., or LOCI, against numerous defendants including us. LOCI asserts that it performed construction services on, or which benefited the property of, the various defendants, including us and seeks to foreclose a mechanic’s lien upon our property. Plaintiffs’ amended petition is in six counts. Counts I, II and III seek recovery of payment for LOCI’s work from M & M Contractors, Inc., which plaintiffs’ claim was the prime contractor and the party who hired LOCI as a subcontractor. Counts IV, V and VI name us and other defendants. Count IV seeks to foreclose a mechanic’s lien upon the property of various defendants, including us. The lien is for the principal amount of $1,276,123, plus interest at 10% per year and attorneys’ fees. Plaintiffs calculate interest to May 20, 1999, just prior to the lien filing, to be $151,180, and interest thereafter to be $354 per day. Count V of the amended petition, directed at various defendants, including us, seeks a determination of the priority of plaintiffs’ claimed mechanic’s lien over various deeds of trust and property interests, including our interest. The outcome of count V will be determined by the resolution on the merits of count IV. Finally, count VI seeks foreclosure of a deed of trust from one of the other defendants, Osage Land Company, apparently given to Everett to forestall plaintiffs’ filing of the mechanic’s lien. The deed of trust was recorded subsequent to the recordation of the deed from Ozark Land Company to us for its property. The court ruled in June 2001 on cross-motions for summary judgment filed by plaintiffs, us, and defendant Central Bank of Lake of the Ozarks, a beneficiary of deed of trust on some of the property covered by the mechanic’s lien and by the deed of trust from Osage Land Company to Everett. The court denied all the motions with one exception–it granted Everett summary judgment on count VI (foreclosure of the deed of trust to Everett from Osage Land Company) but ruled that the deed to us and the deeds of trust to Central Bank of Lake of the Ozarks are prior to the deed of trust to Everett. The court did not explain its rulings on the remainder of plaintiffs’ motion or on our Central Bank of Lake of the Ozarks motions, except that “there remain substantial and genuine issues of material fact.” We filed two motions for summary judgment on counts IV and V. The grounds for the motions are that plaintiffs’ claimed lien does not comply with requirements of the Missouri mechanic’s lien statute and thus is invalid. On March 25, 2002, the court orally granted our requested relief and ruled

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

Ordinary Course Litigation

In addition to litigation between lessor and our former lessees (and their affiliates), owners and operators of golf courses are subject to a variety of legal proceedings arising in the ordinary course of operating a golf course, including proceedings relating to personal injury and property damage. Such proceedings are generally brought against the operator of a golf course, but may also be brought against the owner. Our participating leases provided that each lessee was responsible for claims based on personal injury and property damage at the golf courses which were leased and required each lessee to maintain insurance for such purposes. Since we are now the operator of our remaining golf courses, excepting Innisbrook, we maintain insurance for these purposes. We are not currently subject to any material claims of this type.

Refundable Initiation Fees

Certain membership initiation fees at these golf courses are refundable based on specific conditions. The estimated present value of the potential refunds over the thirty-year required membership term, as defined in the Club Membership Manual, recorded as an accrued liability on our books at September 30, 2003 and is valued at $125,000. Additionally, certain initiation fees may be refundable prior to the expiration of the thirty-year term under specific membership replacement conditions. There is no liability recorded to consider the refundability of refunds issued under these conditions due to the fact that four new members have to join in the specific membership category for a resigned member to receive a refund. A refund issued under these specific circumstances would be considered a reduction of membership revenue for that period.  All initiation fees received are initially recorded as deferred revenue and amortized over the average life of a membership which, based on historical information, is deemed to be nine years.

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6.  Other Assets

Receivables—net consists of the following:

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

The rent receivable represented the rent due on the golf courses at the Eagle Ridge Inn & Resort at December 31, 2002 which was subsequently received.  This property was sold on January 30, 2003.

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

Loans to Officers

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

The other miscellaneous receivables include approximately $390,000 of member, trade and other miscellaneous receivables of our managed golf courses and $241,000 in notes receivable, including accrued interest, taken in participating lease terminations.

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7.  Credit Agreement

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

8.  Preferred Stock

Series A Preferred Stock

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

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

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

Moreover, under our voting agreement with AEW, since we did not fully redeem the Series A preferred stock by May 22, 2003 (which was the second anniversary of our shareholders’ adoption of the plan of liquidation), AEW Targeted Securities Fund (or its transferee) had the right to require us to redeem the Series A preferred stock in full within 60 days, which right they exercised on May 23, 2003. Since we defaulted on that obligation, from and after July 21, 2003 the stated dividend rate of the Series A preferred stock increased from 9.25% to 12.50% per annum (equivalent to a quarterly dividend of $625,000) until the Series A preferred stock is redeemed. Although we are permitted to continue to accrue such dividends without paying them on a current basis, they must be paid in full prior to any distribution to our common stockholders, which will reduce our cash available for liquidating distributions to common stockholders.  We intend to continue to accrue such dividends until such time as we have cash available to redeem the Series A preferred stock, at which time we intend to redeem the Series A preferred stock.

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GOLF TRUST OF AMERICA, INC.
Form 10-Q Quarterly Report
For the Three and Nine Months Ended September 30, 2003

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

Golf Trust of America, Inc., or GTA, was incorporated in Maryland on November 8, 1996. We are engaged in a liquidation of our assets pursuant to a plan of liquidation approved by our stockholders.  We were originally formed to be a real estate investment trust, or REIT,  however, we no longer have our REIT status as a result of our repossession and operation of golf courses following applicable tenants’ defaults under their original third-party lessees.  We now own and operate golf courses, subject to our efforts to market the same for sale to third-parties.  In our SEC filings, we often state golf course quantities in terms of 18-hole equivalents. Therefore, one 27-hole golf course property would be counted as 1.5 golf courses. As of November 7, 2003, we have interests in five properties which represent nine golf courses. Five of these nine golf courses are owned by us and four (namely, the Innisbrook Resort golf courses) are collateral for a 30-year participating mortgage wherein we are the lender. The five golf courses that we own are held by us in fee simple. The nine golf courses are located in Florida (6), South Carolina (2), and New Mexico. Title to our golf courses is generally held by Golf Trust of America, L.P., a Delaware limited partnership. We refer to Golf Trust of America, L.P. as our “operating partnership” or “OP” and we refer to the operating partnership and GTA (together with all of their subsidiaries) collectively as “we”, “us” or our “Company.” Golf Trust of America, Inc., through its wholly owned subsidiaries GTA GP, Inc. (“GTA GP”) and GTA LP, Inc. (“GTA LP”) holds a 99.6 percent interest in our operating partnership as of November 7, 2003. GTA GP is the sole general partner of our operating partnership and owns a 0.2 percent interest therein. GTA LP is a limited partner in the operating partnership and owns a 99.4 percent interest therein. These percentages give effect to all outstanding preferred OP units on an as-converted basis. One of our former lessees holds the only remaining minority interest in our operating partnership.

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

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

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

•We continued to negotiate for a potential settlement of claims resulting from the borrower’s default under the participating mortgage at the Innisbrook.  Operating performance at the Resort fell short of budget expectations for the first nine months of 2003 and has been forecast at levels below expectations for the fourth quarter of 2003 and calendar year 2004.

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

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Our Participating Mortgage secured by the Innisbrook Resort

Recent Innisbrook Developments

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

Orderly Liquidation Remains Current Strategy for the Participating Mortgage.  Based in part on projected cash-flows from the Resort, in the Spring of 2003 (as previously reported) our board affirmed the “orderly liquidation” strategy for the participating mortgage.  As a result, we value the participating mortgage on our balance sheet based on our estimate of the resale value of the Resort at the conclusion of the holding period. At June 30, 2003, we carried the participating mortgage on our books at $60.0 million, based on the assumptions that we would take ownership of the Resort, that the Resort’s operations would begin to recover in 2004 and that by the end of the 2005 holding period the Resort would have realized a modest recovery in line with historical results (among other assumptions).  We have identified our valuation of the participating mortgage as a critical accounting estimate, as discussed below under the caption “Application of Critical Accounting Policies.”

Updated Innisbrook Resort 2004 Forecast.  During the third quarter of 2003, we continued to negotiate for a global settlement of claims resulting from the borrower’s default.  However, these negotiations stalled in October when we received from the Westin Hotel Company (which operates the hotel and conference facilities at the Resort) an updated Innisbrook forecast for the fourth quarter of 2003,  the calendar year 2004, and annual performance estimates for years 2005 through 2007.  As disclosed in our press release dated October 20, 2003, the updated forecast was materially less favorable than forecasts we had received earlier from Westin regarding the same periods.  The revised forecast included a forecast for golf operations at the Resort prepared by Troon Golf (which operates the golf courses at the Resort and which is an affiliate of Westin).  Following our receipt of the revised forecast and the corresponding 2004 budget, we reviewed the budget methodology and economic assumptions underlying the 2004 budget in a series of meetings with Westin and Troon.  The decline in the revised forecast resulted primarily from fewer than anticipated group bookings at the Resort in the fourth quarter of 2003 and the decrease in the number of bookings for 2004 currently on the books as compared to the same time last year, which leads Westin to believe that the adverse economic conditions of the past two years at the Resort will continue throughout 2004.

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

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Factors Considered in Preparing our Revised Estimate of the Resale Value of the Resort.  In our effort to determine the proper extent of the write-down, we considered the following information, among other factors.

•Booking Information for the Fourth Quarter 2003.  As mentioned above, the Resort’s bookings for the fourth quarter 2003 are disappointing and the lack of bookings is expected to result in a significant revenue decline for the fourth quarter, as compared to the same quarter of the prior year.  As yet, it is too early to discern whether this trend will continue into 2004, particularly inasmuch as Westin recently hired a new general manager for the Resort who will seek greater performance and operating efficiencies. Based on the Resort’s historical experience, we do not expect to be able to discern annual 2004 booking trends for the Resort until mid-way through the first quarter, at the earliest.  To compound the problem, advance booking data is becoming less useful as a leading indicator of the Resort’s performance because, in response to increased competition from discount Internet travel sites and other factors, booking windows have narrowed resulting in Resort reservations increasingly being booked shorter time periods in advance of the stay.

•Extended Westin Forecasts for the Resort.  We obtained Innisbrook Resort earnings forecasts from Westin for years 2004 through 2007, which predicted relatively slow, steady growth from the forecast 2004 levels described above.  In general, these extended projections do not appear to assume a sharp recovery or rapid rebound from the depressed performance that the Resort has experienced in 2003.  If the economy does recover strongly in 2004, Westin is assuming only marginal positive impact due in part to the effect on their 2003 performance of competition from two new resorts in their market.   We continue to believe that the Resort may be able to return to reasonable performance levels as compared to its historical trend level of operating performance if and when the resort and lodging sector of the economy rebounds.

•Discussions with Westin Management.  Following receipt of Westin’s extended forecasts we, together with representatives of our financial advisor, met again with Westin representatives to clarify any differences in our view of the asset.  The main difference seems to be that we expect greater potential upside over the next few years for the Resort, particularly if the Resort broadens the scope of their marketing approach that would target relatively smaller business and personal groups, golf packages, transient stays and vacation bookings rather than focusing primarily on large corporate group bookings.  Westin has informed us that they will attempt to broaden their marketing strategy for the Resort.  As lender to the property owner, we have no contractual control over how Westin manages the property pursuant to its operating agreement with the owner (borrower).

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

Estimated Value of the Participating Mortgage/Amount of Write-Down.  Based on the above considerations and the other limited information available to us at this time, for purposes of our September 30, 2003 balance sheet we estimated the fair value of the participating mortgage under the “orderly liquidation” strategy (i.e., based on our estimate of the Resort’s resale value as a going concern at the end of the 2005 holding period) to be $44.2 million.  Accordingly, for the quarter ended September 30, 2003, we recorded a write-down of $15.8 million against the participating mortgage’s June 30, 2003 value of $60 million.  In arriving at this revised fair value estimate, we made several assumptions about future events, including the following:

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

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

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

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

•we assumed that we will have sufficient liquidity and capital resources to hold and operate the resort through the end of the anticipated holding period.  We face the risk that we might have insufficient liquidity and capital resources to hold the Resort for the current or any extended holding period.  During the holding period, we currently anticipate that our liquidity and capital resources will come from:

•sales of our remaining golf courses (for which we currently have no purchase agreements or letters of intent);

•a potential decision by our board to seek short-term financing on the Stonehenge Golf Course; as our other remaining properties are currently not producing positive cash-flow;

•potential positive cash flows from the operations of Innisbrook and/or our other remaining properties; and/or

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

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

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

•the successful implementation of the process to broaden the marketing focus from primarily large corporate group bookings to smaller business and personal groups, golf packages, transient stays and vacation bookings.  (Although we expect to have influence over Westin’s operating decisions, we have no contractual right to manage the asset and we continue to expect that the Resort will remain subject to a management agreement with Westin even after we take possession of the Resort.  Accordingly, our direct ability to oversee such a change in marketing focus is quite limited).

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

As discussed above, our write-down of the participating mortgage resulted primarily from the Resort’s weak performance in the fourth quarter of 2003 and the new forecast for calendar year 2004 that reflects minimal improvement over 2003.  In January of 2004, we expect to receive the full-year 2003 performance data.  By mid-March of 2004, we will have a substantially complete view of the Resort’s first quarter 2004 performance and more-complete advance booking data for the remainder of 2004.  We will also have a better idea of the strength of the recovery (if any) in Florida’s resort and lodging industry.  These data points may support more-reliable projections of the Resort’s 2004 performance than do the current limited data available to us.  Once these and other relevant data points are available, our board intends to re-evaluate the strategic alternatives available to our company regarding the Resort.  Our board might determine that the prospect of a modest recovery at the Resort in 2006 is sufficiently real that extending our expected holding period of the Resort for another year would be in the best interests of our

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stockholders.  In that case, our end-of-holding-period valuation of the Resort might increase.  In contrast, our board may decide that an immediate sale would be in the best interests of our stockholders.  We cannot predict what such future data will show or what decision the board will take at that time.

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

Innisbrook Background

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

Pursuant to the terms of the participating mortgage, the loan term of the participating mortgage is 30 years from inception, with an initial base interest rate of 9.6% per annum, annual increases (of at least 5% but no more than 7%) in the interest payment for the first five years, and a participating interest feature throughout the term based upon the growth in revenues, if any, over the base year. However, operations at the Resort have not resulted in any participating interest payments (as distinct from base interest payments) since 1999 (see Note 4 to our condensed consolidated financial statements).

In addition to the Resort itself, the collateral securing the borrower’s performance under the participating mortgage currently includes 365,380 shares of GTA common stock owned by the borrower (and held by GTA as the secured party) and three condominium units owned by the borrower at the Resort. The borrower’s parent, Golf Hosts, Inc., guaranteed all of the borrower’s loan payment obligations, however, Golf Hosts, Inc. has few significant assets other than its interest in the borrower. In June 1997, Westin and the borrower entered into an agreement pursuant to which Westin agreed to advance, in specified circumstances, up to $2.5 million per year to the borrower for five years in the event that the Resort did not generate the levels of cash flow specified in that agreement. Westin, the borrower and GTA entered into a subordination agreement whereby Westin agreed to make such payments directly to GTA in specified circumstances, and GTA agreed that in the event of foreclosure, Westin would continue to manage the resort pursuant to the existing management agreement.

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

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reimbursement period, the owner or successor owner forfeits any unpaid installments at the time the unit is removed from the pool. We understand that the refurbishment of all of the total rental pool units of approximately 619 has been completed to date.

Certain of the condominium owners (as plaintiffs) initiated legal action against our borrower, Golf Host Resorts, Inc., and its corporate parent, Golf Hosts, Inc. (as defendants), regarding various aspects of the prior rental pool arrangement and asking that the case proceed as a class action on behalf of all similarly situated condominium owners. We have been informed that by order dated April 3, 2003, Golf Host Resorts, Inc. was substituted in place of Golf Hosts, Inc. as the defendant in this lawsuit. We are not a party to the lawsuit. It is our understanding, however, that the condominium owners/plaintiffs allege breaches of contract, including breaches in connection with the prior rental pool arrangement. The plaintiffs are seeking unspecified damages and declaratory judgment stating that the plaintiffs are entitled to participate in the rental pool and requiring that golf course access be limited to persons who are either condominium owners, members, their accompanied guests, or guests of the Resort.  In July 2003, the judge in the litigation against Golf Host Resorts, Inc. reversed an earlier ruling and held that the case could not proceed as a class action. The judge also ruled that the plaintiffs could not seek recovery from the individuals that hold stock in Golf Host Resorts, Inc. and its affiliates (rejecting plaintiffs’ attempt to “pierce the corporate veil”).  In October 2003, the judge ruled that the claims of the former members of the class who were not named as plaintiffs in the lawsuit were barred by the statute of limitations.  These rulings leave approximately 80 individual plaintiffs in the lawsuit.  Plaintiffs have appealed the first and second rulings to the court of appeals, and have stated their intention to appeal the third issue.  The court of appeals has not yet ruled on any of these issues.

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

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

On March 8, 2002, we sent a notice to Westin Hotel Company alleging that Westin breached the subordination agreement by failing to remit payments directly to us, on behalf of the borrower. Westin has contested our claim that it breached the subordination agreement. No litigation has been filed in this regard. We are seeking a resolution of this dispute with Westin as part of the proposed global settlement of matters at the Resort, as discussed below.

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

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2002, we have been seeking a negotiated foreclosure or settlement with the borrower as described in more detail below.

Innisbrook Strategy

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

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

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

Houlihan Lokey’s analysis regarding the Resort includes forward-looking statements, subject to this report’s introductory cautionary note and the risk factors listed herein. The actual value we may obtain from our participating mortgage interest might be much lower. Houlihan Lokey’s analysis is based on several assumptions about future events, including assumptions that we will successfully obtain fee simple title to the Resort and then successfully realize a recovery in the financial performance of the Resort (which is dependent on the success of the Resort operators and a recovery in the travel and leisure sectors of the U.S. economy). Any or all of these assumptions might prove to be incorrect. Moreover, Houlihan Lokey’s projections are not based on any appraisals of the Resort asset or any independent litigation risk assessments. Accordingly, we have not, and you should not, place undue reliance upon Houlihan Lokey’s analysis.

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

•enter into a settlement agreement with the borrower, Golf Hosts Resorts, which will, among other matters:

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

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•all financial accounts;

•three Innisbrook condominiums;

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

•interests of the borrower and some of its affiliates in their shares of common stock, limited partnership units and options to purchase common stock of our company and some of its affiliates;

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

•a direct or indirect ownership interest in an affiliate of the borrower responsible for brokerage activities regarding the sale and re-sale of condominium units at the Resort.

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

•provide for an orderly transition of ownership of the Resort to us and limiting our liability for pre-transition events.

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

•a restructuring of the base management fee to include ultimate responsibility for all revenue lines of the Resort, including golf; and

•new financial reporting relationships and standards pertaining to compliance with the Sarbanes-Oxley Act.

•contractual coordination of Troon management with Westin personnel from an organizational and reporting point of view; and

•improvement in the performance measurement standards of Westin and Troon Golf.

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

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

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

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

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

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early 2004, however, we can provide no assurances as to the terms, timing or likelihood of any possible global settlement. If we decide to pursue judicial foreclosure of the Resort, we expect that it would be expensive and time-consuming and there is a risk to us that the borrower might pursue and obtain bankruptcy and/or other judicial protection. We also face the risk that our negotiations with Westin might not be successful. If our settlement negotiations with Westin do not succeed, but we nonetheless become the owner of the Resort, we may become involved in potentially costly litigation with Westin regarding the effect of the subordination agreement. Any such litigation would likely focus on the extent, if any, to which we, as successor owner of the Resort, must assume the borrower’s outstanding liabilities to Westin under the original management agreement, among other issues. Nothing herein shall imply a view that we have any such obligation or that we do not have defenses to any allegations that we have such an obligation. Even if we successfully obtain ownership of the Resort, we, along with the Resort’s operators, Westin and Troon Golf, expect to face the difficult task of seeking to realize a recovery in the Resort’s performance, which is currently hindered by the delay in and/or lack of any meaningful economic recovery in the relevant sectors of the U.S. economy. Because the borrower is insolvent, it cannot generally make distributions to its equity owners. We have also received confirmations (and corresponding unaudited financial statements) from the Resort’s management that all cash generated by the business is retained in the operating entity and is being utilized to cover Resort financial obligations.

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

We face a number of risks respecting the Resort, our attempted resolution of the issues described above and the timing thereof.  These risks are described further below under the heading “Risks that might Delay or Reduce our Liquidating Distributions.”

Innisbrook Resort Financial Performance

If we acquire ownership of the Resort, together with the business and assets of the Resort’s owner, Golf Hosts Resorts (and its various related parties associated with operations at the Resort), we expect to include these newly-acquired assets of these entities within our consolidated financial reporting group. The consolidated financial results of these entities are discussed below.

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

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

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

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

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

Plan of Liquidation

Background regarding the Plan of Liquidation

On February 25, 2001 our board of directors adopted, and on May 22, 2001 our common and preferred stockholders approved, our  plan of liquidation. The events and considerations leading our board to adopt the plan of liquidation are summarized in our proxy statement dated April 6, 2001, and in our most recent annual report on Form 10-K. The plan of liquidation contemplates the sale of all of our assets and the payment of (or provision for) our liabilities and expenses, and authorizes us to establish a reserve to fund our contingent liabilities. The plan of liquidation gives our board of directors the power to sell any and all of our assets without further approval by our stockholders. However, the plan of liquidation constrains our ability to enter into sale agreements that provide for gross proceeds below the low end of the range of gross proceeds that our management initially estimated would be received from the sale of such assets absent a fairness opinion, an appraisal or other evidence satisfactory to our board of directors that the proposed sale is in the best interest of our stockholders.

At the time we prepared our proxy statement soliciting stockholder approval for the plan of liquidation, we expected that our liquidation would be completed within 12 to 24 months from the date of stockholder approval on May 22, 2001 and would result in liquidating distributions to common stockholders within a specified range. While we have made significant progress toward that goal, our ability to complete the plan of liquidation within this time-frame and within the range of liquidating distributions per share set forth in our proxy statement is now far less likely, particularly insofar as the disposition of our lender’s interest in the participating mortgage at the Innisbrook Resort is concerned. We use the term “Original 2001 Range” to refer to our 2001 projection of the range within which total liquidating distributions to common stockholder would likely occur. (As the context requires, the term “Original 2001 Range” also refers to the component estimate prices or price ranges for particular golf courses, all of which contributed to the overall projected range of liquidating distributions.).  At the time management prepared the Original 2001 Range, one of our financial advisors, Houlihan Lokey, estimated that liquidating distributions to common stockholders would be lower. We refer to this projection as “Houlihan Lokey’s 2001 Range,” which term also refers to its component per-course estimated sale price ranges, as the context requires. With respect to our dispositions, as of November 7, 2003,  we have sold 29 of our 34 properties (stated in 18-hole equivalents, we have

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

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

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

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

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

•an assumption that we will not be subject to any material liability under any of the lawsuits we were then defending (the two most important of which have subsequently been dismissed or settled).

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

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

•estimated cash inflows or working capital shortfalls from the other golf courses that we own and manage up to the estimated date of sale;

•estimated repayment dates for our outstanding indebtedness (which was subsequently repaid in full on June 19, 2003) and redemption dates for our outstanding preferred stock (after which interest and preferred

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dividends, respectively, will cease to accrue); and

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

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

Assets Held for Sale

The following chart identifies each of our unsold properties:

Properties Held for Sale as of November 7,  2003

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

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

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Application of Critical Accounting Policies

Liquidation Basis of Accounting

As a result of our board of directors’ adoption of a plan of liquidation and its approval by our stockholders, we adopted the liquidation basis of accounting as required. Our discussion and analysis of our financial condition and results of operations is based on our financial statements which have been prepared in accordance with generally accepted accounting principles in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and other various assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. Our most significant estimate is the fair value of our interest in the Innisbrook Resort, which was determined as previously described under the heading Factors Considered in Preparing our Revised Estimate of the Resale Value of the Resort.  The valuation of our real estate held for sale, our four other properties, is based on estimates of sales values based on indications of interest from the marketplace, certain assumptions by management specifically applicable to each property, and on the property value ranges.

Estimated Liquidation Value of our Participating Mortgage Note Receivable on the Innisbrook Resort.

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

Reserve for Estimated Costs During the Period of Liquidation

Under the liquidation basis of accounting we are required to estimate and accrue the costs associated with implementing the plan of liquidation. These amounts can vary significantly due to, among other factors, the timing and actual receipt of proceeds from golf course sales, the costs of retaining personnel and others to oversee the liquidation, including the costs of insurance, the timing and amounts associated with discharging known and contingent liabilities and the costs associated with cessation of our operations. These costs are estimated and are expected to be paid over the liquidation period.

Revenue Recognition

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

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

Certain membership initiation fees at these golf courses are refundable based on specific conditions. The estimated present value of the potential refunds at Wildewood and Woodcreek Farms over the original 30-year required membership term, as defined in the Club Membership Manual, recorded as an accrued liability on our books at September 30, 2003 is valued at $125,000. Additionally, certain initiation fees may be refundable prior to the expiration of the 30-year term under specific membership replacement conditions. There is no liability recorded to reflect our contingent refund obligation due to the fact that four new members have to join in the specific membership category for a resigned member to receive a refund. A refund issued under these specific circumstances would be considered a reduction of membership revenue for that period.  All initiation fees received are initially recorded as deferred revenue and amortized over the average life of a membership which, based on historical information, is deemed to be nine years.

Results of Operations

Results of operations for the three months ended September 30, 2003 and 2002

For the three months ended September 30, 2003 and 2002, we recognized $1,375,000 and $5,799,000, respectively, in revenue from from the operations of the golf courses that we manage and from the participating leases.  The decrease in revenues of $4,424,000, or 76%, is due to lost rental revenue of approximately $1,659,000 from 3.5 of the 4.5 golf courses that were sold in January 2003 together with the lost operating revenue from golf courses that we managed and subsequently sold.  Revenue from the operations of the 5.0 golf courses that we managed totaled $1,375,000 during the three months ended September 30, 2003. For the same period in 2002, we managed 10.0 golf courses from which we recorded $4,140,000 in revenue from managed golf course operations.  Of these 10.0 golf courses, 5.0 were also managed during this period in 2003 and 5.0 were sold prior to the third quarter of 2003.

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

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

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

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

Results of operations for the nine months ended September 30, 2003 and 2002

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

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

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

We accrued quarterly preferred dividends totaling $1,514,000 and $1,387,000 in the aggregate for the nine months ended September 30, 2003 and 2002, respectively.

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

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Adjustment to Liquidation Basis of Accounting

We adopted the liquidation basis of accounting for all periods subsequent to May 22, 2001, the date on which our stockholders approved our plan of liquidation. Accordingly, on May 22, 2001, our assets were adjusted to their estimated fair value and our liabilities, including estimated costs associated with implementing the plan of liquidation, were adjusted to their estimated settlement amounts. The minority interest in our operating partnership was reclassified to net assets because the holders of common limited partnership units, which we call OP units, do not have preferential distribution rights over the common stockholders.

The valuation of real estate held for sale, including the real estate pledged as collateral under our participating mortgage note receivable, as of September 30, 2003 is based on current contracts and estimates of sales values based on indications of interest from the marketplace, certain assumptions by management specifically applicable to each property, and on the property value ranges.  The valuation of our other assets and liabilities under the liquidation basis of accounting is based on management’s estimates as of September 30, 2003.

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

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

Tax Consideration

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

Credit Facility

Our credit facility from a syndicate of lenders led by Bank of America, N.A., which was scheduled to mature on June 30, 2003 was paid in full on June 19, 2003 concurrent with the sale of the Sandpiper Golf Course which occurred on June 17, 2003.

Liquidity and Capital Resources

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

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

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

Moreover, under our voting agreement with AEW, since we did not fully redeem the Series A preferred stock by May 22, 2003 (which was the second anniversary of our shareholders’ adoption of the plan of liquidation), AEW Targeted Securities Fund (or its transferee) had the right to require us to redeem the Series A preferred stock in full within 60 days which right they exercised.  Since we defaulted on that obligation, the stated dividend rate of the Series A preferred stock increased from 9.25% to 12.50% per annum (equivalent to a quarterly dividend of $625,000) until the Series A preferred stock is redeemed. Although we are permitted to continue to accrue such dividends without paying them on a current basis, they must be paid in full prior to any distribution to our common stockholders, which would reduce our cash available for liquidating distributions to common stockholders.  We intend to continue to accrue such dividends and the preferred shares shall remain outstanding until such time as we have cash available to redeem the Series A preferred stock, at which time we intend to redeem the Series A preferred stock.

Cash flows for the nine months ended September 30, 2003 and 2002

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

We invested approximately $143,000 in golf course capital expenditures at the golf courses that we managed during the nine months ended September 30, 2003 compared to $1,714,000 in the nine months ended September 30, 2002,  primarily at Eagle Ridge. In addition, our investing activities for the first nine months of 2003 provided $67,767,000 in cash flow from the sale of 7.0 golf courses compared to $22,144,000 in cash flow from the sale of 5.0 golf courses during the same period in 2002. Additionally, we received $112,000 in payments on two notes receivable originally taken in connection with the termination of participating leases.  During the nine months ended September 30, 2002, we received the pay-off of the note receivable by the borrower on the land parcel near the Sandpiper Golf Course that matured on June 2, 2002.

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

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Off Balance Sheet Arrangements

Generally

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

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

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

Contractual Obligations, Contingent Liabilities and Commitments

Contractual Obligation Table

The following table summarizes our contractual obligations at September 30, 2003, and the effect such obligations are expected to have on the liquidity and cash flows of our company (or our successors in interest under the applicable contracts, if the contracts are not terminated) in future periods:

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

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

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

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

Pursuant to the terms of our executive officers’ amended and restated employment agreements dated as of February 25, 2001, we made non-recourse loans of $1,595,000 to our executive officers ($1,150,000 to Mr. Blair and $445,000 to Mr. Peters) on February 25, 2001 for the payment of personal income taxes arising from the acceleration of their restricted stock grants and the forgiveness of their outstanding debt to us that occurred on such date. These new loans were evidenced by promissory notes from the executives and secured by their total holdings of 199,415 (143,790 of Mr. Blair’s and 55,625 of Mr. Peters’) shares of our common stock valued at $8 per share at the time of the issuance of these loans. Interest accrues on these loans at 5.06% per annum (the applicable federal rate on the date of the loan) and is due at maturity. Effective July 1, 2002, we discontinued accruing interest on these loans because the total outstanding balance of each loan exceeded the value of the collateral, common stock, computed based on the current net assets available to common stockholders. The outstanding balance of these loans at June 30, 2002, principal and interest, was $1,655,000. In 2002, we recorded an allowance for doubtful accounts against this receivable in the aggregate amount of $400,000, which approximated the difference in the pledged value of $8 per share and the computed value based on the net assets in liquidation at December 31, 2002.  For the nine months ended September 30, 2003, we recorded an additional allowance for doubtful accounts against this receivable in the aggregate amount of $497,000, which approximated the difference in the pledged value of $8 per share and the computed value based on the net assets in liquidation at September 30, 2003.

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

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

Liquor License Note Payable.  On November 9, 2000, we entered into a liquor license purchase agreement with The Marr Company Incorporated to obtain a liquor license for Tierra Del Sol Country Club. The principal amount of this purchase agreement is $150,000, of which $25,000 was paid at the time of the execution of the purchase agreement and $125,000 is represented by an installment promissory note which requires that we pay accrued interest only each month at a rate of 8% per annum ($833.33 per month). The promissory note specifically restricts prepayment in whole or in part prior to April 1, 2004. The promissory note matures on December 1, 2007.  In the table above, we have noted the obligation of the required interest payments through April 1, 2004, the expiration date of the prepayment restriction.  This note will be assumed by the buyer when Tierra Del Sol is sold.

Operating Lease Agreements.  In the normal course of operating the golf courses that we manage, we have entered into operating lease agreements to lease golf course maintenance equipment, golf course vehicles, golf carts, and office equipment at the managed courses. The terms of these leases range from twelve to sixty months.

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

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Lease agreements for GTA corporate office.  This represents the office space lease and the office equipment leases for our corporate office.

Commitments

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

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

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

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

Inflation

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

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Seasonality

The golf industry is seasonal in nature because of weather conditions, with fewer available tee times in the rainy season and the winter months. Conversely, revenues fall at the Innisbrook Resort during the summer months as a result of the hot Florida weather being less appealing for group golf outings and vacation destination golfers along with the fact that business conventions and meetings are typically held October through April, when business customers are relatively less likely to be on family vacations.  In October 2003, the Innisbrook Resort hosted, and will host thereafter through 2006, a nationally televised PGA event, the Chrysler Championship, that brings some of the highest profile golfers to the Resort for several days for the tournament, as well as high profile golf industry sponsors and vendors.  Historically, revenues pick-up in the fourth quarter but are generally the greatest during the first quarter with guests coming form the northeast and other regions to enjoy the warm weather.  The effects of seasonality can be partially offset at daily-fee golf courses by varying greens fees based on changes in demand. Under our prior (now defunct) participating lease structure, we expected to be insulated from the effects of seasonality in that the participating leases required our lessees to pay us base rent ratably throughout the year. Now that we manage our golf courses directly (except Innisbrook), we are experiencing some seasonal variability in our operating results, which seasonality is expected to increase in the event that we assume operations at the Innisbrook Resort.

Risks that might Delay or Reduce our Liquidating Distributions

In our most recent annual report on Form 10-K, we reported an updated projected range of liquidating distributions to common stockholders and an updated projection as to when liquidating distributions to common stock holders might commence.  We refer to these projections as our Updated 2003 Range.  Our expectations about the amount of liquidating distributions we will make and when we will make them are based on many factors, including input from our financial advisors and several estimates and assumptions.  We face the risk that actual events might prove to be less favorable than our estimates and assumptions.  Several important factors that could cause such a difference are described below.  Although we have attempted to account for the following risks during the preparation of the Updated 2003 Range, we might have underestimated their effects, and perhaps substantially so.  As a result, the actual amount of liquidating distributions we pay to our common stockholders might be substantially below our Updated 2003 Range of projected liquidating distributions. We also face the risk that the underestimation of the effects of these risks could result in no liquidating distributions to shareholders.  Any liquidating distributions that are available might be paid substantially later than projected. Factors that could cause actual payments to be later or lower than we expect include the matters discussed below.

Stockholder litigation related to the plan of liquidation could result in substantial costs and distract our management.

Extraordinary corporate actions, such as our plan of liquidation, often lead to securities class action lawsuits and derivative litigation being filed against companies such as ours.  We became involved in this type of litigation in connection with our plan of liquidation (and the transactions associated with it) in a legal action we refer to as the Crossley litigation.  During the second quarter, the Crossely claim was dismissed with prejudice on our motion for summary judgment, which means that the law suit was dismissed and the plaintiff will not be allowed to refile the claim, although the plaintiff could appeal the dismissal.  We subsequently entered into a non-monetary settlement with the plaintiff whereby the plaintiff agreed not to appeal the dismissal and we agreed not to seek reimbursement of our legal costs from the plaintiff.  Even though the Crossley litigation has been dismissed, we face the risk that other claims might be brought against us.  Any such litigation would likely be expensive and, even if we ultimately prevail, the process would divert management’s attention from implementing the plan of liquidation and otherwise operating our business. If we do not prevail in any such litigation, we might be liable for damages. We cannot predict the amount of such damages, if any, but they might be significant and would reduce our cash available for distribution.

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Golf Host Resorts, Inc., the borrower under our $79 million participating mortgage on the Innisbrook Resort, has failed to make required payments to us since November 1, 2001 and our collateral is the subject of litigation among others. Consequently the current resale value of the participating mortgage is impaired. If we are unable to resolve the borrower’s continuing default by negotiation, we intend to foreclose upon the collateral, which could be time-consuming and expensive and our ultimate recovery might be reduced, delayed or prevented by court order and/or diminished by the pending litigation.

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

Currently, the borrower is in monetary default due to its failure, commencing on November 1, 2001, to make base interest payments to us. We may in the future determine that additional non-monetary defaults exist. We have delivered a legal notice to the borrower accelerating the entire amount of the participating mortgage as a result of the borrower’s default. We have also sent a legal notice to Westin Hotel Company asserting that Westin failed to comply with the terms of a subordination agreement between us and Westin, which Westin has contested, and we are attempting to negotiate a resolution.  We might become involved in litigation with Westin if we and Westin are unable to agree on our respective rights and obligations pursuant to Westin’s management agreement with the borrower and our subordination agreement with Westin. Any litigation might be expensive and time-consuming. We are negotiating with the borrower regarding a possible consensual foreclosure or a possible conveyance in lieu of foreclosure. In a negotiated resolution, we might agree to assume certain contingent liabilities of the borrower, potentially including liabilities and costs of the borrower related to the pending condominium owners’ legal action against the borrower and the advances under the Westin guarantee. If we agree to assume some of the borrower’s liabilities, if any, to the condominium owners (or other contingent liabilities), we will face the risk that our ultimate liability might be greater than we expected. In that case, a large verdict against us (or other contingent payout) would significantly reduce our cash available for distribution and the ultimate amount of our liquidating distributions to common stockholders.

The participating mortgage loan is a non-recourse loan, which means that following an event of default by the borrower we cannot bring a legal action directly against the borrower to compel payment, but instead our recourse is to proceed against the guarantors and/or to foreclose upon the Innisbrook Resort (other than the individually owned condominium units) and any other property of the borrower that has been pledged by the borrower to secure our loan. If we decide to pursue judicial foreclosure against the borrower, it would be expensive and time-consuming and there is a risk that the borrower might obtain judicial protection. Even if we obtain ownership of the Innisbrook Resort, we would face the difficult task of revitalizing its revenues. The terms of the management agreement with Westin require that Westin be retained as the operator of the resort after a foreclosure.

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

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

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Our estimate of the Innisbrook Resort’s fair value, as recorded on our books for accounting purposes, is based on forward-looking estimates which are subject to change.  We might sell the Innisbrook Resort for an amount less than our current estimate of its fair value, which would reduce our liquidating distributions to common stock holders.

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

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

If the borrower under our participating mortgage declares bankruptcy, our efforts to foreclose upon the mortgage collateral (the Innisbrook Resort) could be substantially delayed and our recoveries reduced, which could delay and reduce our liquidating distributions.

Under the federal bankruptcy code, the filing of a bankruptcy petition by or against the borrower under our participating mortgage would stay (i.e., temporarily suspend) our efforts to collect past due payments owed to us. In the case of our participating mortgage, a bankruptcy filing would also temporarily prevent our ability to commence or continue a judicial foreclosure action. Additionally, the bankruptcy trustee (or the borrower as debtor-in-possession) would have special powers to avoid, subordinate or disallow debts. In some circumstances, it is possible that our claims may be subordinated to financing obtained by the borrower subsequent to its bankruptcy.

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

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by a bankrupt borrower. A bankruptcy court also may:

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

•reduce monthly payments due under the loan;

•change the rate of interest due on the loan;

•otherwise alter the loan’s repayment schedule;

•change other terms of the loan;

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

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

If we are unable to retain at least one of our key executives and sufficient staff members to complete the plan of liquidation in a reasonably expeditious manner, our liquidating distributions might be delayed or reduced.

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

We face the risk that both of our key executives might resign. In particular, our payment in full of our outstanding obligations under our credit facility, which occurred in the second quarter, was the last remaining milestone under our executives’ amended employment agreements, and their performance bonuses are now due and payable by us.  Accordingly, our executives might conclude that they no longer have meaningful financial incentives to remain with our company.  Following the disposition of our Sandpiper property in mid-2003 and the corresponding reduction in demands on Mr. Peters’ time, the compensation committee of our board of directors determined that management should seek to negotiate a reduced time commitment and a reduced salary arrangement with Mr. Peters, and we entered into an amended and restated employment agreement with Mr. Peters on August 29, 2003.  Under this amended and restated employment agreement, Mr. Peters is expected to devote a specified number of hours per calendar quarter to our company, representing a substantially reduced time commitment from Mr. Peters.  Mr. Peters will continue to serve as our Senior Vice President, Secretary and Chief Financial Officer, as well as continuing to serve on our board of directors.  Under the amended agreement, we will pay Mr. Peters a salary of $12,000 per quarter.  To the extent that we require more of Mr. Peters’ time, we will pay him on an hourly basis, up to a capped amount per diem.  Unless terminated earlier by us or Mr. Peters, this arrangement will terminate on June 30, 2004.

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

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individual in light of our financial condition, our assets remaining to be liquidated, and the complexity of any issues bearing on our company and the liquidation at that time.  If and when the issues surrounding Innisbrook (our last significant asset in liquidation) are resolved, our need for a full-time executive may be less significant.

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

If we are unable to find buyers for the Innisbrook Resort or our other golf courses at our revised estimates of value, our liquidating distributions might be delayed or reduced.

In addition to the four golf courses at the Innisbrook Resort, we have four other properties (or five eighteen-hole equivalent golf courses) which are not currently subject to sale agreements or letters of intent. In calculating our projected liquidating distribution, we assumed that we will be able to find buyers for the Innisbrook Resort and these other golf courses at amounts based on our estimates of their fair market values at the time we expect to sell them. However, we may have overestimated the sales prices that we will ultimately be able to obtain in the sale of these golf courses. The analysis performed by Houlihan Lokey as of March 18, 2003 (on which our Updated 2003 Range was based in part) is neither an appraisal nor an opinion. Assumptions underlying our Updated 2003 Range and the recent estimate of the fair value of Innisbrook might prove to be incorrect and, therefore, our projections might overstate the ultimate net proceeds we will receive. For example, in order to find buyers in a reasonably expeditious manner, we might be required to lower our asking price below our estimate of a golf course’s fair value. If we are not able to find buyers for these golf courses in a reasonably expeditious manner or if we have overestimated the sales prices we will ultimately receive, our liquidating payments to our common stockholders will be delayed or reduced, perhaps in substantial ways.

If we are unable to realize the value of a promissory note taken as part of any purchase price, our liquidating distributions might be reduced.

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

Decreases in golf course values caused by prolonged economic recession and/or additional terrorist activity might reduce the amount for which we can sell our assets.

The value of our interests in golf courses might be reduced, and substantially so, by a number of factors that are beyond our control, including the following:

•adverse changes in the economy, prolonged recession and/or additional terrorist activity against the United States or our allies or other war-time activities might increase public pessimism and decrease travel and leisure spending, thereby reducing golf course operators’ revenues (particularly destination-resort golf course revenues) and diminishing the resale value of the affected golf courses;

•increased competition, such as increasing numbers of golf courses being offered for sale in our markets or nationwide;

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

•changes in real estate tax rates and other operating expenses.

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

If our liquidation costs or unpaid liabilities are greater than we expect, our liquidating distributions might be delayed or reduced, potentially in a substantial manner.

Before making the final liquidating distribution to common stockholders, we will need to pay all of our transactions costs pertaining to the liquidation and all valid claims of our creditors. Our board may also decide to acquire one or more additional insurance policies covering unknown or contingent claims against us, including, without limitation, additional directors’ and officers’ liability insurance, for which we would pay an additional premium based upon market prices prevailing at the time of purchase. We have estimated such transactions costs in calculating the amount of our projected liquidating distributions. To the extent that we have underestimated costs and expenses in calculating our projections, our actual aggregate liquidating distributions will be lower than we have projected, and perhaps in substantial amounts.

Our loss of REIT status will expose us to potential income tax liability in the future, which could lower the amount of our liquidating distributions.

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

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

The holder of our Series A preferred stock might exercise its right to appoint two directors to our board of directors, which might result in decisions that prejudice the economic interests of our common stockholders in favor of our preferred stockholders..

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

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has informed us that it does not currently intend to exercise that right.  However, we face the risk that it might decide to exercise such right in the future.  The appointment of such directors to our board might reduce the efficiency of our board’s decision making or result in decisions that prejudice the economic interests of our common stock holders in favor of our preferred stock holder.

Distributing interests in a liquidating trust may cause you to recognize gain prior to the receipt of cash.

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

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

In addition, it is possible that the fair market value of the Innisbrook Resort and the other assets received by the liquidating trust, as estimated for purposes of determining the extent of the stockholder’s gain at the time interests in the liquidating trust are distributed to the stockholders, will exceed the cash or fair market value of property ultimately received by the liquidating trust upon its sale of the assets, in which case the stockholder may not receive a distribution of cash or other assets with which to satisfy any tax liability resulting from the contribution of the assets to the liquidating trust. In this case, the stockholder would recognize a loss in a taxable year subsequent to the taxable year in which the gain was recognized, which loss might be limited under the tax code.

If we do not distribute our assets to a liquidating trust and, instead, continue to operate as a regular corporation until all of our assets are sold, we would recognize gains or losses upon the sale of assets for federal income tax purposes. Since we are no longer a REIT, we could be subject to income tax on any recognized gains. However, as of December 31, 2002, we believe we have sufficient net operating loss carryovers to offset any recognized gains. If we were to recognize taxable gains in a year before consideration of net operating loss carryovers, we could be subject to alternative minimum tax. Generally, for tax years ending after December 31, 2002, the use of net operating loss carryovers to reduce alternative minimum taxable income is limited to 90% of alternative minimum taxable income. Therefore, tax at a rate of 20% could be imposed on our alternative minimum taxable income that cannot be reduced by net operating loss carryovers. If a liquidating trust is formed, our net operating loss carryovers will not be available to reduce any gains recognized within the trust. However, the trust will have a tax basis equal to the fair market value of its assets at the date the liquidating trust is formed. Any gain recognized by the trust would thus be the result of either appreciation in the value of the assets during the time that they are owned by the trust, or an initial underestimation of the fair market value of the assets at the time the trust is formed.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have not entered into any transactions using derivative commodity instruments. We are no longer subject to market risk associated with changes in interest rates since we retired the outstanding obligations under our credit facility.  Reference is made to Note 7 to the Condensed Consolidated Financial Statements of Item 1 for additional debt information.

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ITEM 4.  CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our management assesses the costs and benefits of such controls and procedures based upon the prevailing facts and circumstances, including management’s reasonable judgment of such facts.  As we neither control nor manage the Innisbrook Resort at this time, our disclosure controls and procedures with respect to such persons and entities are necessarily more limited than those we maintain with respect to our own corporate operations.

As of September 30, 2003, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Because our Company only has eight employees, excluding golf course employees, two of the eight of which are the CEO and the CFO, all matters of a disclosable nature are typically addressed and handled by these two individuals. Based upon the foregoing, our Chief Executive Officer and our Chief Financial Officer concluded that as of September 30, 2003, our disclosure controls and procedures are effective in timely alerting them to material information relating to our Company (including our consolidated subsidiaries) required to be included in our Exchange Act reports. There have been no significant changes in our internal controls or in other factors which could significantly affect internal controls subsequent to the date we carried out our evaluation.

PART II.  OTHER INFORMATION

ITEM 1:  Legal Proceedings.

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

Pete Dye Golf Club

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

Osage National Golf Club

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

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less valuable than had been represented by us and, therefore, they have suffered actual damages in the amount of not less than $3,500,000. In addition, plaintiffs’ claim that they are entitled to unspecific punitive damages. A scheduling conference was held with the court in late February 2002, and the case was tentatively set for trial on October 28, 2002. The parties agreed to submit the case on stipulated facts and have submitted such a stipulation to the court. The parties met with the court on October 29, 2002 and an order was entered scheduling memoranda of law and other procedures to present the case. On December 30, 2002, plaintiffs filed their memorandum of law in which they limited their request for judgment to $1,465,886.80 plus interest at 9% from June 20, 2000. On January 6, 2003, we filed a responsive memorandum. On June 18, 2003, the parties filed their joint request for entry of judgment.  On September 20, 2003 the court entered a judgment in our favor and denied all of the plaintiffs’ causes of action.  The time for the plaintiffs to file an appeal of this judgment has passed and no appeal was filed.  The judgment is, therefore, final and non-appealable and this matter is concluded.

Tierra Del Sol Country Club

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

On September 20, 2000, Terence Mulvihill, a principal in the lessee and in the entity which previously owned the golf course, attempted to terminate our water rights lease Agreement at the golf course for (a) the existence of an unauthorized assignment, which Mr. Mulvihill claimed was the result of allowing GTA Tierra Del Sol, LLC to operate the golf course; (b) utilizing the water on the golf course in a manner which was contrary to the purposes authorized under the water rights lease agreement; (c) using the water in amounts in excess of what was permitted under the terms of the water rights lease agreement; and (d) non-payment of taxes under the water rights lease agreement for fiscal year 1999. We have responded in writing to Mr. Mulvihill disputing the termination of the water rights lease agreement. We also filed a complaint on January 15, 2002, in the Thirteenth Judicial District Court, County of Valencia, State of New Mexico, against the Mulvihill Estate (Mr. Mulvihill died in December 2000) and Golf Classic Resorts, LLC. Our complaint sought various forms of relief in relation to the water rights lease agreement and the underlying purchase of Tierra Del Sol, including, but not limited to, requesting a determination that: (1) the water rights lease agreement has not been terminated and remains in effect; (2) the lease, in essence, constitutes a transfer of a fee interest in the water rights; or (3) alternatively requesting a rescission of the 1998 contribution and leaseback agreement pursuant to which the water rights were assigned to Mr. Mulvihill, based upon the fraud and misrepresentation of the seller and Mr. Mulvihill.

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

Palm Desert Country Club

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

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

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

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

Plan of Liquidation Action

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

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

•that our officers defrauded the company in the renegotiation of their employment agreements; and

•that the actions of the defendants in approving the payments under the employment agreements and the Legends transaction constituted a breach of our charter resulting in the unjust enrichment of certain individual defendants.

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

Innisbrook Resort Condominium Owner Litigation

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

•whether every condominium owner who is also a member of the Innisbrook Golf and Country Club has the

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

•whether the condominium unit owners were coerced by economic pressure and duress to enter into the guaranteed distribution master lease agreement, or guaranteed lease agreement;

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

•whether the unit owners who signed the guaranteed lease agreement have the right to return to the master lease agreement without penalty and thereby be entitled to be reimbursed for the difference between the income that they received under the guaranteed lease agreement and the income they would have received under the master lease agreement; and

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

Deposition of class members and others, including depositions of prior executives of Golf Host Resorts, Inc. have been taken and additional discovery remains.  The previously scheduled trial date of February 3, 2003 was postponed by the Court; a new trial date has not yet been set.  In July 2003, the judge in the litigation against Golf Host Resorts, Inc. reversed an earlier ruling and held that the the case could not proceed as a class action. The judge also ruled that the plaintiffs could not seek recovery from the individuals that hold stock in Golf Host Resorts, Inc. and its affiliates (rejecting plaintiffs’ attempt to “pierce the corporate veil”).  In October 2003, the judge ruled that the claims of the former members of the class who were not named as plaintiffs in the lawsuit were barred by the statute of limitations.  These rulings leave approximately 80 individual plaintiffs in the lawsuit.  Plaintiffs have appealed the first and second rulings to the court of appeals, and have stated their intention to appeal the third issue.  The court of appeals has not yet ruled on any of these issues.

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

Lake Ozark Industries, Inc. and Everett Holding Company, Inc. v. Golf Trust of America, et al.

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

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filing of the mechanic’s lien. The deed of trust was recorded subsequent to the recordation of the deed from Ozark Land Company to us for its property. The court ruled in June 2001 on cross-motions for summary judgment filed by plaintiffs, us, and defendant Central Bank of Lake of the Ozarks, a beneficiary of deed of trust on some of the property covered by the mechanic’s lien and by the deed of trust from Osage Land Company to Everett. The court denied all the motions with one exception—it granted Everett summary judgment on count VI (foreclosure of the deed of trust to Everett from Osage Land Company) but ruled that the deed to us and the deeds of trust to Central Bank of Lake of the Ozarks are prior to the deed of trust to Everett. The court did not explain its rulings on the remainder of plaintiffs’ motion or on our Central Bank of Lake of the Ozarks motions, except that “there remain substantial and genuine issues of material fact.” We filed two motions for summary judgment on counts IV and V. The grounds for the motions are that plaintiffs’ claimed lien does not comply with requirements of the Missouri mechanic’s lien statute and thus is invalid. On March 25, 2002, the court orally granted our requested relief and ruled that plaintiffs’ claimed lien does not comply with requirements of the Missouri mechanic’s lien statute and is invalid. The court entered its written order granting our motions for summary judgment on April 20, 2002. As we have previously reported, since not all claims involved in this lawsuit have been resolved, plaintiffs’ time to appeal the April 20, 2002 order granting our motions for summary judgment had not yet begun to run.  Although the plaintiffs’ attorneys informed us that they were making efforts to resolve the remaining claims in this lawsuit, this had apparently not come to pass.  Accordingly, on April 15, 2003, we filed a motion with the court asking that it make final the judgment granted to Golf Trust of America, L.P.  On May 12, 2003, the Court entered a judgment that disposed of all outstanding claims in the lawsuit. On June 10, 2003 Plaintiffs filed a Notice of Appeal of the ruling in favor of Golf Trust of America, L.P. on its Motion for Summary Judgment.   In late September 2003 the court of appeals determined that the owners of one of the lots covered by LOCI and Everett’s lien file a counterclaim against LOCI that never has been disposed of.  Although the counterclaim was filed in November 1999, the owners did nothing further on the counterclaim and it apparently was forgotten.  Because this counterclaim has not been disposed of, the counterclaim prevents the trial court’s decision in favor of us from being final and appealable.  As a result, the appeal was dismissed on October 7, 2003.  We have been told that the counterclaim will be dismissed in the near future and that LOCI and Everett then will file a new appeal.  It is too early to know how much this will delay a final decision by the court of appeals.  Because of the uncertainty of an appeal by plaintiffs, at this time we are unable to assess the likely outcome of this litigation.

Routine Litigation

In addition to litigation between a lessor and our former lessees (and their affiliates), owners and operators of golf courses are subject to a variety of legal proceedings arising in the ordinary course of operating a golf course, including proceedings relating to personal injury and property damage. Such proceedings are generally brought against the operator of a golf course, but may also be brought against the owner. Our participating leases provided that each lessee is responsible for claims based on personal injury and property damage at the golf courses which are leased and require each lessee to maintain insurance for such purposes. Since we are now the operator of our remaining golf courses, except Innisbrook, we maintain insurance for these purposes. We are not currently subject to any claims of this sort that we deem to be material.

ITEM 2.  CHANGES IN SECURITIES

Not Applicable.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

As previously reported, on July 21, 2003 we defaulted on our obligation, under our voting agreement with the holder of our Series A preferred stock, to redeem the Series A shares within 60 days of the holder’s May 23, 2003 demand.  As a result, the aggregate Series A dividend rate increased from $462,500 per quarter to $625,000 per quarter and the preferred stock holder has a right to appoint two directors to our board of directors.  The preferred stock holder has that same right under our the Series A Articles Supplementary (our charter document relating to the preferred stock) because we have not paid a preferred stock dividend since the third quarter of 2001 and such right arises when preferred stock dividends are in arrears for six or more quarters.  The preferred stock holder

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has informed us that it does not currently intend to exercise that right.  However, it remains free to do so at any time (pursuant to the procedures specified in our charter and the voting agreement).

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

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

ITEM 5.  OTHER INFORMATION

Not Applicable.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

Exhibits

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

Form 8-K Filings

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

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	GOLF TRUST OF AMERICA, INC., registrant
Date: November 13, 2003	By:  /s/	W. Bradley Blair, II
		W. Bradley Blair, II
		President and Chief Executive Officer
Date: November 13, 2003	By:  /s/	Scott D. Peters
		Scott D. Peters
		Senior Vice President and Chief Financial Officer

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EXHIBIT INDEX

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

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

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

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

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

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

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

*Filed herewith

†Portions of this exhibit have been omitted pursuant to a request for confidential treatment.

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