UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
x QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2008
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _______________ to _______________
Commission file number 0-16508
USA REAL ESTATE INVESTMENT TRUST
| California | 68-0420085 |
| | I.R.S. Employer Identification No. |
| | |
425 Fairgate Road, Sacramento, California 95825
(916) 761-4992
COMMONWEALTH EQUITY TRUST USA
Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 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. Yesx Noo
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS. Not applicable.
Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yeso Noo
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the issuer's common equity, as of May 9, 2008: 18,007
Transitional Small Business Disclosure Format (Check One): Yeso Nox
PART I. FINANCIAL INFORMATION
USA REAL ESTATE INVESTMENT TRUST
Balance Sheet
(Unaudited)
| | | March 31, | |
| | | 2008 | |
| Assets | | | |
| | | | |
| Real estate loans, net | | $ | 9,296,777 | |
| Interest receivable | | | 1,055,949 | |
| Cash | | | 175,827 | |
| Other assets | | | 1,664 | |
| Total assets | | $ | 10,530,217 | |
| | | | | |
| Liabilities and Shareholders' Equity | | | | |
| | | | | |
| Liabilities: | | | | |
| Line of credit | | $ | 325,000 | |
| Total liabilities | | | 325,000 | |
| | | | | |
| 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 | | | 26,355,334 | |
| Distributions in excess of cumulative net income | | | (16,168,124 | ) |
| Total shareholders’ equity | | | 10,205,217 | |
| | | | | |
| Total liabilities and shareholders’ equity | | $ | 10,530,217 | |
See notes to financial statements.
USA REAL ESTATE INVESTMENT TRUST
Statements of Income
(Unaudited)
| | | Three Months Ended March 31, | |
| | | 2008 | | | 2007 | |
| | | | | | | |
| | | | | | | |
| Revenues: | | | | | | |
| Interest income | | $ | 420,158 | | | $ | 238,217 | |
| | | | | | | | | |
| Expenses: | | | | | | | | |
| General and administrative expense | | | 61,249 | | | | 64,765 | |
| | | | | | | | | |
| Net income | | $ | 358,909 | | | $ | 173,452 | |
| | | | | | | | | |
| | | | | | | | | |
| Net income per share | | $ | 19.93 | | | $ | 7.60 | |
| | | | | | | | | |
| | | | | | | | | |
| Weighted-average number of shares outstanding | | | 18,007 | | | | 22,816 | |
| | | | | | | | | |
| | | | | | | | | |
| Dividends per share | | $ | 16.00 | | | $ | 0.00 | |
| | | | | | | | | |
| | | | | | | | | |
| See notes to financial statements. | | | | | | | | |
USA REAL ESTATE INVESTMENT TRUST
Statements of Cash Flows
(Unaudited)
| | | Three Months Ended March 31, | |
| | | 2008 | | | 2007 | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
| Net income | | $ | 358,909 | | | $ | 173,452 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
| Amortization of loan fees | | | (10,666 | ) | | | (7,167 | ) |
| Changes in operating assets and liabilities: | | | | | | | | |
| Increase in interest receivable | | | (86,521 | ) | | | ( 125,975 | ) |
| Decrease (Increase) in other assets | | | 1,251 | | | | (19,603 | ) |
| Decrease in accounts payable | | | -- | | | | (6,108 | ) |
| | | | | | | | | |
| Net cash provided by operating activities | | | 262,973 | | | | 14,599 | |
| | | | | | | | | |
| | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | |
| Investments in real estate loans | | | (240,710 | ) | | | ( 7,570,319 | ) |
| Receipt of loan fees | | | -- | | | | 94,000 | |
| | | | | | | | | |
| Net cash used in investing activities | | | (240,710 | ) | | | ( 7,476,319 | ) |
| | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | |
| Redemption of shares | | | -- | | | | (894,750 | ) |
| Dividends paid | | | (288,118 | ) | | | -- | |
| Advances on line of credit | | | 325,000 | | | | -- | |
| | | | | | | | | |
| Net cash provided by (used in) financing activities | | | 36,882 | | | | (894,750 | ) |
| | | | | | | | | |
| NET INCREASE (DECREASE) IN CASH | | | 59,145 | | | | ( 8,356,470 | ) |
| | | | | | | | | |
| CASH AT BEGINNING OF PERIOD | | | 116,682 | | | | 11,999,804 | |
| | | | | | | | | |
| CASH AT END OF PERIOD | | $ | 175,827 | | | $ | 3,643,334 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| See notes to financial statements. | | | | | | | | |
USA REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
| 1. | DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION |
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 amount of shares of beneficial interest. The Trust is a self-administered, self-managed, real estate investment trust.
In the opinion of the trustees, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included.
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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 INVESTMENTS: The Trust carries its rental properties at cost less accumulated depreciation and its real estate loans at their unpaid principal balances net of unamortized loan fees unless they are determined to be impaired. The Trust records impairment losses on assets when events and circumstances indicate that these assets might be impaired and the expected undiscounted cash flows estimated to be generated by these assets is less than the related carrying amounts. If a rental property or real estate loan is determined to be impaired, the impairment would be measured based upon the excess of the asset’s carrying value over the fair value.
The Trust reports each individual property as a component for determining discontinued operations. The operating results of properties that are sold or classified as held for sale in the current period are reported as discontinued operations and their respective results of operations from prior periods are reclassified as discontinued operations. Properties that are classified as held for sale are shown on the balance sheet as real estate held for sale and no further depreciation is recognized on these properties. The operating results of real estate sold or held for sale and the gains or losses from real estate sold are included in discontinued operations on the statements of income.
CASH: Cash consists of demand deposits with financial institutions. Cash balances in individual banks exceed insurable amounts.
DISTRIBUTIONS IN EXCESS OF CUMULATIVE NET INCOME: The Trust has a general policy of distributing cash to its shareholders in an amount that approximates taxable income plus non-cash charges such as depreciation and amortization. As a result, distributions to shareholders exceed cumulative net income.
REVENUE RECOGNITION: Interest income is accrued on the outstanding principal amounts of the real estate loans. 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 taxes on income because distributions to shareholders are at least equal to the greater of 90 percent of its taxable income or 100 of its capital gains.
NET INCOME PER SHARE: Net income per share is computed based on the weighted average number of shares outstanding during the three months ended March 31, 2008 and 2007.
RECLASSIFICATIONS: Certain items in the 2007 financial statements have been reclassified to conform to the 2008 presentation.
NEW ACCOUNTING PRONOUNCEMENTS: In February 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including Amendment of FASB Statement No. 115. This standard permits entities to choose to measure many financial instruments and certain other items at fair value and is effective for the first fiscal year beginning after November 15, 2007. The Trust does not intend to make this fair value election.
As of March 31, 2008, the Trust had two real estate loans, net totaling $9,296,777, which consist of gross real estate loans of $9,327,944 less unamortized loan fees of $31,167.
As of March 31, 2008, $2,527,944 and $6,768,833 of the outstanding balance of the Trust’s real estate loans mature in 2008 and 2009, respectively.
As of March 31, 2008, the real estate loans had a weighted-average interest rate of 17.28%. The contract rate and the pay rate on the $6,768,833 real estate loan is 20.00% and 10.00% respectively. The accrued and unpaid 10.00% is payable on the earlier of the payoff of the loan or March 1, 2009. The 10.00% pay rate is payable quarterly.
As of March 31, 2008, 72.81% and 27.19% of the outstanding balance of the Trust’s real estate loans were collateralized by properties in Mississippi and California, respectively.
The fair market value of the real estate loans approximated their carrying value at March 31, 2008 due to current market rates of real estate loans and their near term maturity.
| | At March 31, 2008, the Trust had available a $1,000,000 line of credit. The line of credit expires on September 1, 2008 and is secured by an interest in the $6,768,833 real estate loan. Advances under the line bear interest at prime plus 0.50% per annum. At March 31, 2008, there was a $325,000 outstanding balance on the line of credit. |
| ITEM 2 | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND |
| | RESULTS OF OPERATIONS |
CRITICAL ACCOUNTING POLICIES
The Trust carries its rental properties at cost less accumulated depreciation and its real estate loans at their unpaid principal balances net of any unamortized loan fees unless they are determined to be impaired. The Trust records impairment losses on these assets when events and circumstances indicate that these assets might be impaired and the expected undiscounted cash flows estimated to be generated by these assets is less than the related carrying amounts. If a rental property or real estate loan is determined to be impaired, the impairment would be measured based upon the excess of the asset's carrying value over its fair value.
The Trust reports each individual property as a component for determining discontinued operations. The operating results of properties that are sold or classified as held for sale in the current period are reported as income from discontinued operations and their respective results of operations from prior periods are reclassified as income (loss) from discontinued operations. Properties that are classified as held for sale are shown on the balance sheet as real estate held for sale and no further depreciation is recognized on these properties. The operating results of real estate sold or held for sale and the gains or losses from real estate sold are included in discontinued operations on the income statement.
RESULTS OF OPERATIONS
Interest income increased in 2008 compared to 2007 due to higher average real estate loan balances.
LIQUIDITY AND CAPITAL RESOURCES
The Trust expects to meet its short-term liquidity requirements through cash on hand, net cash provided by operations, collections on real estate loans and borrowings collateralized by real estate loans.
OFF-BALANCE SHEET ARRANGEMENTS
The Trust has no off-balance sheet arrangements.
CONTRACTUAL OBLIGATIONS AND CONTINGENT LIABILITIES
The Trust has no contractual obligations or contingent liabilities.
| 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
Exhibit 31.1 Section 302 Certifications filed by the Chief Executive Officer and Chief Financial Officer pursuant to SEC Release No. 33-8212 and 34-37551.
Exhibit 32 Section 906 Certifications as furnished by the Chief Executive Officer and the Chief Financial Officer pursuant to SEC Release No. 33-8212 and 34-47551.
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.
| | | | | |
| | May 9, 2008 | | /s/ Gregory Crissman | |
| | Date | | Gregory Crissman, | |
| | | | Chairman | |
| | | | | |
| | | | | |
| | | | | |
| | May 9, 2008 | | /s/ Benjamin Diaz | |
| | Date | | Benjamin Diaz, | |
| | | | Trustee | |
