1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended September 30, 2002 Commission file number 0-16508 USA REAL ESTATE INVESTMENT TRUST (Exact Name of Registrant as specified in its Charter) California 68-0109347 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) PMB 314, P.O. Box 255427, Sacramento, California 95825-5427 (Address of registrant's principal executive offices) (Zip Code) (800)308-4532 (Registrant's telephone number, including area code) COMMONWEALTH EQUITY TRUST USA (Former name) 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. / X/ Yes / / No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the latest practical date. Certificates of Beneficial Interest Outstanding at September 30, 2002 par value one dollar per share 26,439 2 USA REAL ESTATE INVESTMENT TRUST Index Part I. Financial Information Balance Sheets - September 30, 2002 and December 31, 2001 ................................. 3 Statements of Income - For the Three Months Ended September 30, 2002 and 2001 ................. 4 Statements of Income - For the Nine Months Ended September 30, 2002 and 2001 ................. 5 Statements of Cash Flows - For the Nine Months Ended September 30, 2002 and 2001 .......... 6 Notes to Financial Statements ....................... 7 Management's Discussion and Analysis of the Financial Condition and Results of Operations ..... 8 Part II. Other Information ................................... 8 3 PART I. FINANCIAL INFORMATION USA REAL ESTATE INVESTMENT TRUST Balance Sheets September 30, December 31, 2002 2001 (Unaudited) (Audited) ----------- ----------- Assets Investments: Rental properties, less accumulated depreciation of $4,161,750 at September 30, 2002 and $4,562,374 at December 31, 2001 $ 12,976,769 $ 19,554,997 Notes receivable 125,000 150,000 ---------- ----------- 13,101,769 19,704,997 Cash and cash equivalents 609,387 737,709 Other assets 280,431 307,263 ----------- ----------- Total assets $ 13,991,587 $ 20,749,969 =========== =========== Liabilities and Shareholders' Equity Liabilities: Long-term notes payable $ 0 $ 3,755,977 Lines of credit 0 2,824,285 Accounts payable and accrued expenses 58,286 6,923 Lease deposits 53,611 53,301 ----------- ----------- Total liabilities 111,897 6,640,486 ----------- ----------- Shareholders' Equity: Shares of beneficial interest, par value $1 a share; authorized 62,500 shares; 26,439 shares outstanding at September 30, 2002 and 26,898 at December 31, 2001 $ 26,439 $ 26,898 Additional paid-in capital 30,615,735 30,834,227 Distributions in excess of cumulative net income (16,762,484) (16,751,642) ----------- ----------- Total shareholders' equity 13,879,690 14,109,483 ----------- ----------- Total liabilities and shareholders' equity $ 13,991,587 $ 20,749,969 =========== =========== See accompanying notes to financial statements. 4 USA REAL ESTATE INVESTMENT TRUST Statements of Income (Unaudited) Three Months Ended September 30, 2002 2001 ---------- ---------- Revenues: Rent $ 530,448 $ 776,355 Interest 3,125 3,750 ---------- ---------- 533,573 780,105 ---------- ---------- Expenses: Operating expenses 87,718 73,120 Property taxes 54,600 54,000 Property management fees 13,200 13,200 Interest 35,561 172,470 Depreciation and amortization 183,165 162,000 General and administrative 32,555 48,242 ---------- ---------- 406,799 523,032 ---------- ---------- Net income before gain on sale of properties 126,774 257,073 Gain on sale of properties 670,362 119,231 ---------- ---------- Net income $ 797,136 $ 376,304 ========== ========== Net income per share of beneficial interest $ 30.07 $ 13.91 ========== ========== See accompanying notes to financial statements. 5 USA REAL ESTATE INVESTMENT TRUST Statements of Income (Unaudited) Nine Months Ended September 30, 2002 2001 ---------- ---------- Revenues: Rent $ 1,890,446 $ 2,368,743 Interest 9,792 11,042 ---------- ---------- 1,900,238 2,379,785 ---------- ---------- Expenses: Operating expenses 255,369 241,227 Property taxes 161,634 159,768 Property management fees 39,600 39,600 Interest 253,772 551,589 Depreciation and amortization 482,237 486,000 General and administrative 124,858 158,177 ---------- ---------- 1,317,470 1,636,361 ---------- ---------- Net income before gain on sale of properties 582,768 743,424 Gain on sale of properties 670,362 119,231 ---------- ---------- Net income $ 1,253,130 $ 862,655 ========== ========== Net income per share of beneficial interest $ 47.16 $ 31.70 ========== ========== See accompanying notes to financial statements. 6 Statements of Cash Flows (Unaudited) Nine Months Ended September 30, 2002 2001 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,253,130 862,655 ---------- ---------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 482,237 486,000 Gain on sale of properties (670,362) (119,231) Changes in other assets and liabilities: (Increase)decrease in other assets (63,633) 23,956 Increase in accounts payable and accrued expenses 51,363 65,462 Increase in lease deposits 310 0 ---------- ---------- Total adjustments to income (200,085) 456,187 ---------- ---------- Net cash provided by operating activities 1,053,045 1,318,842 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of and improvements to rental properties (271,924) (404,536) Decrease in notes receivable 25,000 75,000 Proceeds from the sale of properties 7,128,742 690,547 ---------- ---------- Net cash provided by investing activities 6,881,818 361,011 CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in lines of credit, net (2,824,285) (69,600) Redemption of shares (218,951) (240,032) Principal payments on long-term notes payable (3,755,977) (145,042) Distributions paid (1,263,972) (1,292,425) ---------- ---------- Net cash used in financing activities (8,063,185) (1,747,099) ---------- ---------- Net decrease in cash (128,322) (67,246) Cash and cash equivalents, beginning of period 737,709 90,600 ---------- ---------- Cash and cash equivalents, end of period $ 609,387 $ 23,354 ========== ========== See accompanying notes to financial statements. 7 USA REAL ESTATE INVESTMENT TRUST Notes to Financial Statements 1. In the opinion of the Trust, the accompanying unaudited financial statements contain all adjustments necessary to present fairly the Trust's financial position as of September 30, 2002, and the results of its operations for the three months and nine months ended September 30, 2002 and 2001 and cash flows for the nine months ended September 30, 2002 and 2001. The accounting policies followed by the Trust are set forth in Note 1 to the Trust's financial statements in the 2001 Form 10-K, which are incorporated herein by reference. 2. In 1987, the Trust elected to be taxed as a real estate investment trust and, as such, will not be taxed on that portion of its taxable income which is distributed to shareholders provided that at least 90% of its real estate investment trust taxable income is distributed. The Trust intends to continue to qualify as a real estate investment trust and, accordingly, no provision for income taxes has been made in the financial statements. 8 USA REAL ESTATE INVESTMENT TRUST Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Rent revenues decreased $245,907 and $478,297 for the three months and nine months ended September 30, 2002, respectively compared to the three months and nine months ended September 30, 2001. These decreases were primarily due to the sale of 845 Harbor Boulevard in West Sacramento, California in December 2001 and 1590 Sycamore Drive in Hercules, California in July 2002. Interest expense decreased $136,909 and $297,817 for the three months and nine months ended September 30, 2002, respectively, compared to the three months and nine months ended September 30, 2001 primarily due to lower average levels of outstanding debt during 2002. The $119,231 or $4.40 per share gain on sale of properties in 2001 was attributed to the sale of 7390 Greenback Lane in Citrus Heights, California in July 2001. The $670,362 or $25.29 per share gain on sale of properties in 2002 was attributed to the sale of 1590 Sycamore Drive in Hercules, California in July 2002. Net income was $30.07 and $47.16 per share for the three months and nine months ended September 30, 2002, respectively, compared to $13.91 and $31.70 for the three months and nine months ended September 30, 2001. The Trust paid distributions of $15.84 per share for the three months ended September 30, 2002 and September 30, 2001 and $47.52 per share for the nine months ended September 30, 2002 and September 30, 2001. CAPITAL RESOURCES AND LIQUIDITY The Trust meets its liquidity requirements through net cash provided by operating activities, along with traditional debt alternatives available to it and proceeds from the sale of properties. Cash provided by operating activities is distributed to shareholders in the form of dividends. Accordingly, capital outlays for renovations, principal payments on long- term notes payable and share repurchases require additional sources of capital. The expected additional sources of capital are debt and proceeds from the sale of properties. The Trust's capital requirements depend upon the level of improvements and redevelopment of its existing properties. The sources of funding will be draws on its lines of credit, collection of the remaining note receivable or additional debt. 9 PART II. OTHER INFORMATION USA REAL ESTATE INVESTMENT TRUST ITEM 5: OTHER INFORMATION: None. ITEM 6: REPORTS ON FORM 8-K None. 10 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. USA Real Estate Investment Trust ---------------------------------------- November 11, 2002 Gregory Crissman -------------------- ---------------------------------------- Date Gregory Crissman Chairman November 11, 2002 Benjamin Diaz -------------------- ---------------------------------------- Date Benjamin Diaz Trustee