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EX-32.1 - USA REIT FORM 10Q 6-30-09 EXHIBIT 32.1 - USA REAL ESTATE INVESTMENT TRUST /CAq63009_32.htm
EX-31.1 - USA REIT FORM 10Q 6-30-09 EXHIBIT 31.1 - USA REAL ESTATE INVESTMENT TRUST /CAq063009_31.htm



 
 

 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
     
þ
 
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
for the quarterly period ended June 30, 2009 or

     
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 0-20488

USA REAL ESTATE INVESTMENT TRUST
(Exact Name of Registrant as Specified in Its Charter)
     
California
 
68-0420085
(State or Other Jurisdiction of Incorporation or
 
(I.R.S. Employer Identification No.)
Organization)
   
641 Fulton Avenue, Suite 200
Sacramento, CA  95825
(Address of Principal Executive Offices, Including Zip Code)

(916) 761-4992
(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 reports), and (2) has been subject to such filing requirements for the past 90 days.  oYes     þ No

 
     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).      
o Yes     o No

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer  o
 
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company þ
             
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes     þ No

     As of November 16, 2009, 18,007 shares of the registrant’s common stock were outstanding.

 
 
 

 

PART I.  FINANCIAL INFORMATION

USA REAL ESTATE INVESTMENT TRUST
Balance Sheet
(Unaudited)


   
June 30,
 
   
2009
 
Assets
     
       
Real estate owned
  $ 5,738,256  
Real estate loan
    600,000  
Interest receivable
    20,943  
Cash
    354,675  
Total assets
  $ 6,713,874  
         
Liabilities and Shareholders' Equity
       
         
Liabilities:
       
Accounts payable
  $ 103,869  
         
Shareholders' equity:
       
Shares of beneficial interest, par value $1 per share;
62,500 shares authorized; 18,007 shares outstanding
    18,007  
Additional paid-in capital
    26,355,335  
Distributions in excess of cumulative net income
    ( 19,763,337 )
  Total shareholders’ equity
  $ 6,610,005  
         
  Total liabilities and shareholders’ equity
  $ 6,713,874  




See notes to financial statements.

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USA REAL ESTATE INVESTMENT TRUST
Statements of Income
(Unaudited)




   
Three Months Ended
June 30,
 
   
2009
   
2008
 
 
           
             
Revenues:
           
Interest income
  $ 21,096     $ 436,785  
                 
Expenses:
               
General and administrative expense
    132,623       84,706  
Operating expense
    94,769       --  
      227,392       84,706  
                 
Net (loss) income
  $ ( 206,296 )   $ 352,079  
                 
                 
Net (loss) income per share
  $ ( 11.46 )   $ 19.55  
                 
                 
Weighted-average number of shares outstanding
    18,007       18,007  
                 
                 
Distributions per share
  $ 0.00     $ 16.00  
                 
                 
See notes to financial statements.
               


Page  3 of 11
 
 

 


USA REAL ESTATE INVESTMENT TRUST
Statements of Income
(Unaudited)




   
Six Months Ended
June 30,
 
   
2009
   
2008
 
 
           
             
Revenues:
           
Interest income
  $ 41,960     $ 856,943  
                 
Expenses:
               
General and administrative expense
    233,552       145,955  
Operating expense
    143,360       --  
      376,912       145,955  
                 
Net (loss) income
  $ ( 334,952 )   $ 710,988  
                 
                 
Net (loss) income per share
  $ ( 18.60 )   $ 39.48  
                 
                 
Weighted-average number of shares outstanding
    18,007       18,007  
                 
                 
Distributions per share
  $ 8.00     $ 32.00  
                 
                 
See notes to financial statements.
               


Page  4 of 11
 
 

 

USA REAL ESTATE INVESTMENT TRUST
Statements of Cash Flows
(Unaudited)



   
Six Months Ended
June 30,
 
   
2009
   
2008
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net (loss) income
  $ ( 334,952 )   $ 710,988  
Adjustments to reconcile net income to net cash provided by operating activities:
               
 Amortization of loan fees
    --       (19,166 )
Changes in operating assets and liabilities:
               
 Increase in interest receivable
    ( 13,809 )     (457,984 )
 Decrease in other assets
    --       2,500  
 Increase in accounts payable
    20,233       --  
                 
Net cash (used in) provided by operating activities
    ( 328,528 )     236,338  
                 
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Investments in real estate owned
    ( 35,276 )     --  
Investments in real estate loans
    --       (303,927 )
                 
Net cash used in investing activities
    ( 35,276 )     (303,927 )
                 
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
            --  
Distributions paid
    ( 144,058 )     (576,235 )
Advances on line of credit
    --       625,000  
                 
Net cash (used in) provided by financing activities
    ( 144,058 )     48,765  
                 
NET (DECREASE) INCREASE IN CASH
    ( 507,862 )     ( 18,824 )
                 
CASH AT BEGINNING OF PERIOD
    862,537       116,682  
                 
CASH AT END OF PERIOD
  $ 354,675     $ 97,858  
                 
                 
                 
See notes to financial statements.
               


Page  5 of 11
 
 

 


USA REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements

1.   ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

GENERAL:  USA Real Estate Investment Trust (the "Trust") was organized under the laws of the State of California pursuant to a Declaration of Trust dated October 7, 1986.  The Trust commenced operations on October 19,1987, upon the sale of the minimum offering amount of shares of beneficial interest.  The Trust is a self-administered, self-managed, real estate investment trust.

USE OF ESTIMATES:  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities.  Actual results could differ from those estimates.

REAL ESTATE OWNED:  Real estate owned consists solely of the one hundred and twenty-one acres of land the Trust acquired through foreclosure on January 6, 2009.  Real estate owned is originally recorded at fair value less estimated selling costs.  Fair value was derived from a recent appraisal of the property which was reviewed by the Trust.  The current market for comparable properties in southern Mississippi is weak and there are no recent sales of comparable properties.  These conditions are not indicative of an active market.  Appraised values in such markets are potentially subject to significant fluctuations if and when sales of comparable properties occur.  The Trust monitors valuations in this market through discussions with developers and others, plus its own assessments of the highest and best use for real estate owned.

REAL ESTATE LOANS:  The Trust carries its real estate loans at their unpaid principal balances net of unamortized loan fees unless they are impaired.  A loan is considered impaired when the Trust determines that it is probable that it will be unable to collect all amounts due according to the contractual terms of the loan agreement.  The Trust measures impairment of a loan based upon the fair value of the collateral.  If the measurement of impairment for the loan is less than the recorded investment in the loan, the shortfall is charged off with a corresponding charge to the provision for loan losses.

CASH:  Cash consists of demand deposits with financial institutions.  Cash balances periodically exceeded the insurable amounts.

DISTRIBUTIONS IN EXCESS OF NET INCOME:  The Trust has a general policy of distributing cash to its shareholders in an amount that approximates taxable income plus noncash charges such as depreciation and amortization.  As a result, distributions to shareholders exceed cumulative net income.

SEGMENT POLICY:  The Trust operates in one business segment.  For the six months ended June 30, 2009 and June 30, 2008, all material revenues have been derived from domestic operations.  

REVENUE RECOGNITION:  Interest income is accrued on the outstanding principal amounts of the real estate loans.  When the Trust determines that a loan is impaired, income recognition is suspended if full recovery of interest and principal appears uncertain.  Cash receipts will be allocated to interest income except when the Trust believes the loan is not fully recoverable.  Loan fees are recognized as interest income over the lives of the related real estate loans using the straight-line method.

INCOME TAXES:  The Trust has elected to be taxed as a real estate investment trust.  Accordingly, the Trust does not pay income tax on income because income distributed to shareholders is at least equal to the greater of 90% of its taxable income or 100% of its capital gains.

Page  6 of 11
 
 

 


NET INCOME PER SHARE:  Net income per share is computed based on the weighted-average number of shares outstanding.

RECLASSIFICATIONS:  Certain items in the 2008 financial statements have been reclassified to conform to the 2009 presentation.


NEW ACCOUNTING PRONOUNCEMENTS:  In April, 2009, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” (FSP FAS 157-4). FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for the asset or liability have significantly decreased and includes guidance for identifying circumstances that indicate a transaction is not orderly. This guidance is necessary to maintain the overall objective of fair value measurements, which is that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. FSP FAS 157-4 became effective for the Trust on April 1, 2009. The adoption of FSP FAS 157-4 did not have an impact on the financial statements.

In May, 2009, the Financial Accounting Standards Board (FASB) issued SFAS 165, “Subsequent Events,” (SFAS 165). SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, SFAS 165 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. SFAS 165 became effective for the Trust on April 1, 2009. The adoption of SFAS 165 did not have an impact on the financial statements as management already followed a similar approach prior to the adoption of this new guidance.

In June, 2009, the Financial Accounting Standards Board (FASB) issued SFAS 168, “The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162,” (SFAS 168). SFAS 168 The FASB Accounting Standards CodificationTM (“Codification”) will become the source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of SFAS 168, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Codification will become nonauthoritative. SFAS 168 becomes effective for the Trust on July 1, 2009. Management has determined that the adoption of SFAS 168 will not have an impact on the financial statements.

Page  7 of 11
 
 

 

2.  REAL ESTATE LOAN

As of June 30, 2009 the Trust had one $600,000 real estate loan collateralized by property in Sacramento, California and personally guaranteed by the principal members of the borrower.  The loan bears interest at 10% per annum, payable in monthly installments of interest only, with the $600,000 principal balance due in August 2010.

The fair value of the $600,000 real estate loan approximated its carrying value as of June 30, 2009 due to current market rates of real estate loans and its near term maturity.  The Trust has assessed the collectibility of the real estate loan and unpaid interest of $37,184 and believes them to be fully collectible at September 30, 2009.


3.  SUBSEQUENT EVENT

On November 9, 2009 the Trust borrowed $300,000 under a promissory note collateralized by a deed of trust on the one hundred and twenty-one acres in Wiggins, Mississippi.  The promissory note bears interest at 9% per annum with both the interest and principal due on January 31, 2012.  The Trust evaluated subsequent events for potential recognition and/or disclosure through November 16, 2009, the date the financial statements were issued.  Other than the item noted above, no subsequent events occurred.




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

CRITICAL ACCOUNTING ESTIMATES

REAL ESTATE OWNED:  Real estate owned consists solely of the one hundred and twenty-one acres of land the Trust acquired through foreclosure on January 6, 2009.  Real estate owned is originally recorded at fair value less estimated selling costs.  Fair value was derived from a recent appraisal of the property which was reviewed by the Trust.  The current market for comparable properties in southern Mississippi is weak and there are no recent sales of comparable properties.  These conditions are not indicative of an active market.  Appraised values in such markets are potentially subject to significant fluctuations if and when sales of comparable properties occur.  The Trust monitors valuations in this market through discussions with developers and others, plus its own assessments of the highest and best use for real estate owned.

REAL ESTATE LOANS:  The Trust carries its real estate loans at their unpaid principal balances net of unamortized loan fees unless they are impaired.  A loan is considered impaired when the Trust determines that it is probable that it will be unable to collect all amounts due according to the contractual terms of the loan agreement.  The Trust measures impairment of a loan based upon the fair value of the collateral.  If the measurement of impairment for the loan is less than the recorded investment in the loan, the shortfall is charged off with a corresponding charge to the provision for loan losses.


RESULTS OF OPERATIONS

Interest revenues were lower in the six months ended June 30, 2009 compared to the six months ended June 30, 2008 primarily due to lower average real estate loan balances.

General and administrative expense increased in the six months ended June 30, 2009 compared to the six months ended June 30, 2008 primarily due to increased legal and professional fees related to the

Page  8 of 11
 
 

 

acquisition of the one hundred and twenty-one acres in Wiggins, Mississippi and unsuccessful efforts to sell the property.

When the Trust acquired the one hundred and twenty-one acres in Wiggins, Mississippi through foreclosure on January 6, 2009 it transferred the related real estate loan balance to real estate owned.  All of the operating expense for the six months ended June 30, 2009 relate to this property.  The Trust had no real estate owned or operating expense in the six months ended June 30, 2008.


LIQUIDITY AND CAPITAL RESOURCES

The Trust expects to meet its short-term liquidity requirements from cash on hand, collections on its real estate loan, borrowings collateralized by real estate owned and the sale of real estate owned.

Currently, the Trust has no substantial income, but continuing expenses.  As a result the Trustees have suspended distributions at this time.




ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable for smaller reporting companies.



ITEM 4
CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURE

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 Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to us to allow timely decisions regarding required disclosure.  In designing and evaluating the disclosure controls and procedures, we recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and we necessarily were required to apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Rule 13a-15(b) under the Securities and Exchange Act of 1934, we carried out an evaluation, under the supervision and with the participation of Gregory Crissman, the Trust's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.  Based on the foregoing, Gregory Crissman concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective at the reasonable assurance level.


PART II.  OTHER INFORMATION

ITEM 1
LEGAL PROCEEDINGS

None.


Page  9 of 11
 
 

 


ITEM 1A
RISK FACTORS

Not applicable for smaller reporting companies.


ITEM 2
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.


ITEM 3
DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Trust had no meetings in the second quarter.


ITEM 5
OTHER INFORMATION

None.


 
ITEM 6
EXHIBITS

Exhibit 31.1 Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


Exhibit 32.1 Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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USA REAL ESTATE INVESTMENT TRUST
Signatures




Pursuant to the requirement 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.





         
 
November 16, 2009
 
/s/  Gregory Crissman
 
 
Date
 
Gregory Crissman,
 
     
Chairman
 
         
         
         
 
November 16, 2009
 
/s/  Benjamin Diaz
 
 
Date
 
Benjamin Diaz,
 
     
Trustee
 

 


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