Attached files
| file | filename |
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| EX-31.2 - EXHIBIT 31.2 - USA REAL ESTATE INVESTMENT TRUST /CA | ex31-2.htm |
| EX-31.1 - EXHIBIT 31.1 - USA REAL ESTATE INVESTMENT TRUST /CA | ex31-1.htm |
| EX-32.1 - EXHIBIT 32.1 - USA REAL ESTATE INVESTMENT TRUST /CA | ex32-1.htm |
| EXCEL - IDEA: XBRL DOCUMENT - USA REAL ESTATE INVESTMENT TRUST /CA | Financial_Report.xls |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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þ
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Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the quarterly period ended September 30, 2011 or
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o
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from____________________to ____________________
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Commission file number 0-16508
USA REAL ESTATE INVESTMENT TRUST
(Exact Name of Registrant as Specified in Its Charter)
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California
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68-0420085
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(State or Other Jurisdiction of Incorporation or
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(I.R.S. Employer Identification No.)
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Organization)
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650 Howe Avenue, Suite 730
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. þYes o 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).
þ 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):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company þ
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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 14, 2011, 18,007 shares of beneficial interest of the registrant were outstanding.
Page 1 of 11
PART I. FINANCIAL INFORMATION
USA REAL ESTATE INVESTMENT TRUST
Balance Sheets
(Unaudited)
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September 30,
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December 31,
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2011
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2010
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Assets
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Real estate owned
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$ | 2,600,000 | $ | 2,600,000 | ||||
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Real estate loan, net of reserve of $150,800 and $0
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-- | 555,800 | ||||||
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Cash
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589,928 | 140,519 | ||||||
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Total assets
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$ | 3,189,928 | $ | 3,296,319 | ||||
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Liabilities and Shareholders' Equity
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Liabilities:
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Note payable
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$ | 500,000 | $ | 500,000 | ||||
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Accounts payable
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194,790 | 203,260 | ||||||
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Total liabilities
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694,790 | 703,260 | ||||||
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Commitments and contingencies (Note 5)
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Shareholders' equity:
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Shares of beneficial interest, par value $1 per share;
62,500 shares authorized; 18,007 shares outstanding
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18,007 | 18,007 | ||||||
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Additional paid-in capital
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26,355,335 | 26,355,335 | ||||||
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Distributions in excess of cumulative net income
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(23,878,204 | ) | (23,780,283 | ) | ||||
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Total shareholders’ equity
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2,495,138 | 2,593,059 | ||||||
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Total liabilities and shareholders’ equity
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$ | 3,189,928 | $ | 3,296,319 | ||||
See notes to financial statements.
Page 2 of 11
USA REAL ESTATE INVESTMENT TRUST
Statements of Operations
(Unaudited)
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Three Months Ended
September 30,
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2011
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2010
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Revenues:
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Interest income
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$ | -- | $ | -- | ||||
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Expenses:
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General and administrative expenses
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56,630 | 59,702 | ||||||
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Operating expense
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27,911 | 18,242 | ||||||
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Provision for loan loss
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150,800 | -- | ||||||
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Total expenses
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235,341 | 77,944 | ||||||
| Other income | -- | -- | ||||||
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Net loss
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$ | (235,341 | ) | $ | ( 77,944 | ) | ||
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Net loss per share
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$ | (13.07 | ) | $ | (4.33 | ) | ||
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Weighted-average number of shares outstanding
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18,007 | 18,007 | ||||||
See notes to financial statements.
Page 3 of 11
USA REAL ESTATE INVESTMENT TRUST
Statements of Operations
(Unaudited)
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Nine Months Ended
September 30,
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2011
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2010
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Revenues:
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Interest income
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$ | -- | $ | -- | ||||
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Expenses:
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General and administrative expenses
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166,030 | 225,260 | ||||||
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Operating expense
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60,841 | 33,983 | ||||||
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Provision for loan loss
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150,800 | - | ||||||
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Total expenses
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377,671 | 259,243 | ||||||
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Other income
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279,750 | -- | ||||||
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Net loss
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$ | (97,921 | ) | $ | ( 259,243 | ) | ||
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Net loss per share
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$ | (5.44 | ) | $ | ( 14.40 | ) | ||
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Weighted-average number of shares outstanding
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18,007 | 18,007 | ||||||
See notes to financial statements.
Page 4 of 11
USA REAL ESTATE INVESTMENT TRUST
Statements of Cash Flows
(Unaudited)
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Nine Months Ended
September 30,
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2011
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2010
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net loss
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$ | (97,921 | ) | $ | (259,243 | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
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Reserve for loan loss
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150,800 | -- | ||||||
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Changes in operating assets and liabilities:
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Decrease in interest receivable
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-- | 40,800 | ||||||
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(Decrease) increase in accounts payable
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(8,470 | ) | 75,115 | |||||
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Net cash provided by (used in) operating activities
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44,409 | (143,328 | ) | |||||
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CASH FLOWS FROM INVESTING ACTIVITIES:
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Investments in real estate owned
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-- | (82,615 | ) | |||||
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Collections on real estate loans
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405,000 | 19,200 | ||||||
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Net cash provided by (used in) investing activities
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405,000 | (63,415 | ) | |||||
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CASH FLOWS FROM FINANCING ACTIVITIES:
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Increase in note payable
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-- | 100,000 | ||||||
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Net cash provided by financing activities
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-- | 100,000 | ||||||
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NET INCREASE (DECREASE) IN CASH
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449,409 | (106,743 | ) | |||||
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CASH AT BEGINNING OF PERIOD
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140,519 | 217,309 | ||||||
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CASH AT END OF PERIOD
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$ | 589,928 | $ | 110,566 | ||||
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. The interim unaudited financial statements of the Trust have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. The Trust believes that the disclosures are adequate to make the information presented not misleading. These interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Trust’s 2010 Annual Report on Form 10-K. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Trust’s financial position at September 30, 2011 and December 31, 2010, and the results of its operations for the three month and nine month interim periods ended September 30, 2011 and September 30, 2010 and its cash flows for the nine month interim periods ended September 30, 2011 and September 30, 2010 have been included. Certain reclassifications have been made to prior period amounts to conform to the 2011 presentation. The results of operations for interim periods are not necessarily indicative of results for the full year.
RECENTLY ADOPTED AND ISSUED ACCOUNTING GUIDANCE: On January 1, 2011, the Trust adopted Accounting Standards Update 2010-06, Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures about Fair Value Measurements. Specifically, the changes require a reporting entity to disclose, in the reconciliation of fair value measurements using significant unobservable inputs (Level 3), separate information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number). These changes had no effect on the Trust’s financial statements.
2. REAL ESTATE OWNED
As of September 30, 2011 the Trust owned one hundred and twenty-one acres of land valued at $2,600,000. The Trust acquired this land through foreclosure on January 6, 2009.
3. REAL ESTATE LOAN
As of September 30, 2011 the Trust had one 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. The principal balance was due August 31, 2010.
The Trust’s motion for summary judgment in the lawsuit the Trust filed to enforce the guarantees of the guarantors of the real estate loan was granted and judgment entered on September 10, 2010. The Trust received a $400,000 settlement payment from one of the guarantors in September 2011. The Trust intends to pursue collection of the remaining $150,800 balance from the remaining guarantor. As such, the remaining $150,800 balance is considered impaired and the Trust recorded a $150,800 provision for loan loss to establish a loan loss reserve at September 30, 2011. Effective January 1, 2010, the Trust suspended income recognition on the real estate loan and subsequent payments were first credited against previously recognized accrued and unpaid interest and second against principal. As the accrued interest has been paid, all future payments will be credited against principal until the principal is fully recovered. Interest income not realized on the real estate loan during the nine months ended September 30, 2011 was $41,239.
Page 6 of 11
4. NOTE PAYABLE
As of September 30, 2011, the Trust had a $500,000 note payable collateralized by its real estate owned. The promissory note bears interest at 9% per annum with both the interest and principal due on January 31, 2012. The note evidences, in part, $200,000 borrowed from Bonnie Leidig, the spouse of Gregory Crissman, a trustee and chief financial officer of the Trust. The aggregate fair value of the note approximates its carrying value as of September 30, 2011.
5. COMMITMENTS AND CONTINGENCIES
The Trust is involved in claims and legal proceedings and it may become involved in other legal matters arising in the ordinary course of business. The Trust evaluates these claims and legal matters on a case-by-case basis to make a determination as to the impact, if any, on its business, liquidity, results of operations, financial condition or cash flows. Except as indicated below, the Trust currently believes that the ultimate outcome of these claims and proceedings, individually and in the aggregate, will not have a material adverse impact on its financial position, results of operations or cash flows. The Trust’s evaluation of the potential impact of these claims and legal proceedings on its business, liquidity, results of operations, financial condition and cash flows could change in the future. The Trust currently is a party to the legal proceedings described below. Attorney fees related to legal matters are expensed as incurred.
USA Real Estate Investment Trust v. Frank J. Ferris and Collie Christensen
On December 30, 2009, the Trust filed an action in the Superior Court of the State of California, County of Sacramento, to enforce the guarantees of Frank J. Ferris and Collie Christensen of a loan made on February 28, 2007, to CFG, LLC, a Mississippi limited liability company, in the sum of $6,800,000. The loan was secured by a deed of trust on real property located in Wiggins, Mississippi, which was foreclosed on January 6, 2009. The Trust foreclosed against the real property collateral bidding $2,500,000 of the indebtedness. The Trust seeks to recover the deficiency from the guarantors with interest thereon at the rate of 25% per annum from January 6, 2009, until paid. There are no known defenses to this action.
On March 5, 2010, a default was entered against Frank J. Ferris. Collie Christensen filed an answer on March 5, 2010, and discovery is proceeding. Although numerous defenses were raised in the answer, the Trust is aware of no factual basis for any of the asserted defenses.
On February 4, 2011, Frank Ferris filed a Petition in Bankruptcy seeking a discharge under Chapter 7 of the Bankruptcy Code and was discharged on May 24, 2011.
On February 11, 2011, Collie Christensen pleaded guilty in federal court to one count of wire fraud related to a scheme to misappropriate nearly $1,000,000 of investor funds unrelated to the Trust. He was sentenced on October 18, 2011 to five years. He is appealing the sentence.
On November 10, 2011 the case was referred to Trial Setting Process for selection of Trial and Mandatory Settlement Conference.
USA Real Estate Investment Trust v. Gabrielle D. Chandler
On June 30, 2009, the Trust filed an action to enforce the guarantees of Robert A. Cook, John D. Chandler, Robert A. Leach and Lonnie C. Nielson of a loan to Rivage Marina, LLC, a California limited liability company, under a promissory note, dated August 21, 2008, of the original principal sum of $600,000. Rivage Marina, LLC filed for bankruptcy on April 7, 2009.
The bankruptcy of Rivage Marina, LLC was dismissed on September 20, 2010, because Rivage Marina, LLC had no assets and there was nothing remaining to reorganize. Prior to Rivage Marina, LLC filing bankruptcy, it transferred the collateral of the deed of trust related to the $600,000 promissory note to Captain’s Table Marina, LLC, a newly formed entity owned by the same persons who are the members of Rivage Marina, LLC. Robert A. Leach filed for bankruptcy and was dismissed from the action. Mr. Leach was discharged in Bankruptcy on September 2, 2010.
Page 7 of 11
On September 10, 2010, a judgment was entered against Robert A. Cook, John D. Chandler and Lonnie C. Nielson. Costs and attorneys’ fees were added to the judgment on January 18, 2011, and an abstract of judgment was recorded on January 27, 2011. The Trust discovered that John D. Chandler transferred his interest in the family’s residence to his wife, Gabrielle D. Chandler, on February 26, 2010, as her sole and separate property, which deed was recorded on April 7, 2010. On February 26, 2011, the Trust filed a complaint to set aside the transfer as a fraudulent conveyance. Gabrielle D. Chandler filed an answer on April 14, 2011.
A debtor’s examination of John D. Chandler has been completed and we have determined that the transfers that were made to his wife were not made for reasonably equivalent value and there was no reason for the transfers other than to hinder and delay creditors. Several other properties were transferred to Gabrielle D. Chandler as well, and the Trust amended the complaint to set aside those transfers also.
In August 2011, the parties reached a settlement which was signed on September 8, 2011, by John D, Chandler and Gabrielle D. Chandler. The settlement called for the payment of $400,000 within ten days, which funds have been received by the Trust. In order to avoid a possible set aside of the settlement in bankruptcy, the action will not be dismissed and the properties encumbered by the litigation will not be released until ninety-one days after the funds have passed, at which time the judgment will be acknowledged as satisfied as to John D. Chandler and the action against Gabrielle D. Chandler will be dismissed.
Robert A. Cook filed for bankruptcy under Chapter 11 on August 8, 2011, seeking to reorganize his financial affairs.
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ITEM 2
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS
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CRITICAL ACCOUNTING POLICIES
The Trust’s critical accounting policies govern real estate owned and real estate loans. These policies are described in the “Critical Accounting Estimates” section and Note 1 to Financial Statements in the Trust’s Annual Report on Form 10-K for the year ended December 31, 2010.
RESULTS OF OPERATIONS
Effective January 1, 2010, the Trust suspended income recognition on the real estate loan and subsequent payments were first credited against previously recognized accrued and unpaid interest and second against principal. As the accrued interest has been paid, all future payments will be credited against principal until the principal is fully recovered. Accordingly, no interest income was recognized in 2011 or 2010. The Trust recorded a $150,800 provision for loan loss to establish the loan loss reserve against the real estate loan at September 30, 2011.
On May 5, 2011, the Trust entered into a Full and Final Release, Accord, Satisfaction and Acknowledgment of Settlement (the “Settlement Agreement”) by and among Patrick A. Sheehan and Security Title Guarantee Corporation of Baltimore. Pursuant to the Settlement Agreement the Trust received $279,750, which is recognized as other income in the Statement of Operations for the nine months ended September 30, 2011.
The Trust’s results of operations are substantially affected by its ability to sell its real estate owned.
Page 8 of 11
FINANCIAL POSITION
The Trust’s financial position is substantially affected by its ability to sell its real estate owned.
LIQUIDITY AND CAPITAL RESOURCES
The Trust has no continuing operating income, but continuing expenses. As a result, the Trustees have suspended distributions at this time. The Trust expects to meet its short-term liquidity requirements from cash on hand, borrowings collateralized by real estate owned and the sale of real estate owned.
OFF-BALANCE SHEET ARRANGEMENTS
The Trust has no off-balance sheet arrangements.
IMPACT OF INFLATION
The Trust's operations have not been materially affected by inflation. The rate of inflation has been relatively low since the Trust commenced operations in October 1987.
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ITEM 3
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Not applicable for smaller reporting companies.
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ITEM 4
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CONTROLS AND PROCEDURES
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EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Trust maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its 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 the Trust to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, the Trust 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 the Trust necessarily was required to apply its 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, the Trust carried out an evaluation, under the supervision and with the participation of Gregory Crissman, the Trust’s Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. Based on the foregoing, Gregory Crissman concluded that, as of the end of the period covered by this report, the Trust’s disclosure controls and procedures were effective at the reasonable assurance level.
Page 9 of 11
PART II. OTHER INFORMATION
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ITEM 1
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LEGAL PROCEEDINGS
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Please refer to Note 5, Commitments and Contingencies, of the Notes to Financial Statements included with the Financial Statements of this Quarterly Report on Form 10-Q for information regarding the Trust’s legal proceedings, which are incorporated herein by reference.
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ITEM 1A
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RISK FACTORS
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Not applicable for smaller reporting companies.
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ITEM 6
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EXHIBITS
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Exhibit 31.1 Section 302, Certifications of the Chief Executive Officer pursuant to SEC Release No. 33-8212 and 34-37551.
Exhibit 31.2 Section 302, Certifications of the Chief Financial Officer pursuant to SEC Release No. 33-8212 and 34-37551.
Exhibit 32.1 Section 906, Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to SEC Release No. 33-8212 and 34-47551.
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101.INS**
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XBRL Instance
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101.SCH**
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XBRL Taxonomy Extension Schema
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101.CAL**
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XBRL Taxonomy Extension Calculation
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101.DEF**
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XBRL Taxonomy Extension Definition
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101.LAB**
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XBRL Taxonomy Extension Labels
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101.PRE**
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XBRL Taxonomy Extension Presentation
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**
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XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
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Page 10 of 11
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.
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November 14, 2011
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USA REAL ESTATE INVESTMENT TRUST
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By: /s/ Jeffrey B. Berger
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Jeffrey B. Berger, Chief Executive Officer
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November 14, 2011
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USA REAL ESTATE INVESTMENT TRUST
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By: /s/ Gregory E. Crissman
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Gregory E. Crissman, Chief Financial Officer
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Page 11 of 11