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EX-31.1 - EXHIBIT 31.1 - USA REAL ESTATE INVESTMENT TRUST /CAex31-1.htm
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-K

x
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

Commission file number 0-16508

USA REAL ESTATE INVESTMENT TRUST
(Exact Name of Small Business Issuer as specified in its Charter)

California
68-0420085
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
 

650 Howe Avenue, Suite 730
Sacramento, California  95825
(Address of principal executive offices)  (Zip Code)

(916) 761-4992
(Issuer's telephone number, including area code)

Securities registered under Section 12(b) of the Exchange Act:

None

Securities registered under Section 12(g) of the Exchange Act:

 
Shares of Beneficial Interest
 
 
(Title of class)
 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes o No x

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.     Yes x No o
 
 
1

 
 
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   o

Indicate by check mark if 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.

Large accelerated filer  o
Accelerated filer  o
   
Non-accelerated filer  o (Do not check if a smaller reporting company)
Smaller reporting company  x
 
Indicate by check mark whether the Registrant is a shell company (as defined under Rule 12b-2 of the Securities Exchange Act of 1934).    Yes o  No x

The aggregate market value of the registrant’s voting shares held by non-affiliates:  no established market exists for the registrant’s shares of beneficial interest.

The number of shares of beneficial interest outstanding at March 26, 2012 was 18,007.
RDGPreambleEnd
 
2

 
 
USA REAL ESTATE INVESTMENT TRUST
Table of Contents

     
Page
PART I.
ITEM 1.
Business
4
 
ITEM 1A.
Risk Factors
5
 
ITEM 1B.
Unresolved Staff Comments
5
 
ITEM 2.
Properties
5
 
ITEM 3.
Legal Proceedings
5
 
ITEM 4.
Mine Safety Disclosures
6
       
PART II.
ITEM 5.
Market for the Registrant’s Common Equity and Related Shareholder Matters and Issuer Purchases of Equity Securities
7
 
ITEM 6.
Selected Financial Data
7
 
ITEM 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
7
 
ITEM 7A.
Quantitative and Qualitative Disclosures About Market Risk
8
 
ITEM 8.
Financial Statements and Supplementary Data
9
 
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
18
 
ITEM 9A(T).
Controls and Procedures
18
 
ITEM 9B.
Other Information
19
       
PART III.
ITEM 10.
Directors, Executive Officers and Corporate Governance
21
 
ITEM 11.
Executive Compensation
21
 
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
21
 
ITEM 13.
Certain Relationships and Related Transactions and Director Independence
22
 
ITEM 14.
Principal Accounting Fees and Services
22
       
PART IV
ITEM 15.
Exhibits and Financial Statement Schedules
23

 
3

 

Forward-Looking Statements

This Annual Report on Form 10-K of USA Real Estate Investment Trust (the "Trust"), contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  Such statements are based on assumptions and expectations which may not be realized and are inherently subject to risks, uncertainties and other factors, many of which cannot be predicted with accuracy and some of which might not even be anticipated.  Future events and actual results, performance, transactions or achievements, financial and otherwise, may differ materially from the results, performance, transactions or achievements expressed or implied by the forward-looking statements.  Risks, uncertainties and other factors that might cause such differences, some of which could be material, include, but are not limited to: changes in the global political environment; national and local economic, business and real estate and other market conditions; the competitive environment in which the Trust operates; property management risks; financing risks, such as the inability to obtain debt or equity financing on favorable terms; possible future downgrades in the Trust's credit rating; the level of volatility of interest rates; financial stability of tenants, including the ability of tenants to pay rent, the decision of tenants to close stores and the effect of bankruptcy laws; the rate of revenue increases versus expense increases; the ability to maintain the Trust's status as a real estate investment trust ("REIT") for federal income tax purposes; governmental approvals, actions and initiatives; environmental/safety requirements and costs; risks of real estate acquisition and development, including the failure of acquisitions to close and pending developments and redevelopments to be completed on time and within budget; risks of disposition strategies, including the failure to complete sales on a timely basis and the failure to reinvest sale proceeds in a manner that generates favorable returns; risks of joint venture activities; as well as other risks identified in this Annual Report on Form 10-K and, from time to time, in the other reports the Trust files with the Securities and Exchange Commission or in other documents that the Trust publicly disseminates.  The Trust undertakes no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.

PART I.

ITEM 1.  BUSINESS.

The Trust is a California business trust that was formed on October 7, 1986, for the primary purpose of engaging in the business of acquiring, owning, operating and financing real estate investments.  The Trust commenced operations on October 19, 1987, upon the sale of the minimum offering amount of shares of beneficial interest.

The purpose of the Trust is to provide investors with an opportunity to own, through transferable shares, an interest in diversified real estate investments.  Through such investments, the Trust seeks to provide investors with an opportunity to participate in a portfolio of professionally managed real estate investments in the same way a mutual fund affords investors an opportunity to invest in a professionally managed portfolio of stocks, bonds and other securities.

The Trust has operated and intends to continue to operate in a manner intended to qualify as a REIT under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code").  A qualified REIT is relieved, in part, from federal income taxes on ordinary income and capital gains distributed to its shareholders.  State tax benefits also may accrue to a qualified REIT. Pursuant to Code requirements, the Trust distributes to its shareholders at least 90 % of its taxable income and 100 % of the net capital gain from the sale of Trust properties.
 
 
4

 
 
The Trust will terminate 21 years after the death of the last survivor of persons listed in the Trust's Declaration of Trust.  The Trust may also be terminated at any time by the majority vote or written consent of its shareholders.

The office of the Trust is located at 650 Howe Avenue, Suite 730 in Sacramento, California.

The Trust has no employees.  It is administered by its Trustees and by its Chairman, and by independent contractors who work under the supervision thereof as a self-administered real estate investment trust.

The rules and regulations adopted by various agencies of federal, state or local governments relating to environmental controls and the development and operation of real property may operate to reduce the number of investment opportunities available to the Trust or may adversely affect the properties currently owned by it.  While the Trust does not believe environmental controls have had a material impact on its activities, there can be no assurance that the Trust will not be adversely affected thereby in the future.

The business of the Trust is uniquely sensitive to tax legislation.  Changes in tax laws are made frequently.  There is no way for the Trust to anticipate when or what changes in the tax laws may be made in the future, or how such changes might affect the Trust.

ITEM 1A.  RISK FACTORS.

Not applicable to smaller reporting companies.

ITEM 1B.  UNRESOLVED STAFF COMMENTS.

Not applicable to smaller reporting companies.

ITEM 2.  PROPERTIES.

    As of December 31, 2011 the Trust owned one hundred and twenty-one acres of land in Wiggins, Mississippi valued at $1,786,000.  The Trust acquired this land through foreclosure on January 6, 2009.

ITEM 3.  LEGAL PROCEEDINGS.

USA Real Estate Investment Trust vs. 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.

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.
 
 
5

 

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.

A mandatory settlement conference and the trial have been set for April 11, 2012 and May 16, 2012, respectively.

USA Real Estate Investment Trust v. Robert A. Cook, John D. Chandler, Robert A. Leach and Lonnie C. Nielson

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.

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.

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 was not dismissed until January 5, 2012.  The properties encumbered by the litigation have been released and the judgment against John D. Chandler has been acknowledged as satisfied as to him only.
 
Robert A. Cook filed for bankruptcy under Chapter 11 on August 8, 2011, seeking to reorganize his financial affairs.   A bankruptcy trustee has been appointed who is marshalling the assets and contemplating a liquidating plan.  The value of the estate is speculative and no distribution is expected in the near future.

ITEM 4.  MINE SAFETY DISCLOSURES.
 
None.
 
 
6

 

PART II


ITEM 5.  MARKET FOR THE REGISTRANT’SCOMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES.

The Trust has one class of authorized and outstanding equity consisting of shares of beneficial interest with a par value of $1 per share.  The Trust engaged in a continuous best efforts public offering from May 20, 1987 until May 20, 1992.  As of March 26, 2012, the Trust had 18,007 shares outstanding to 2,019 shareholders of record.

No active public trading market presently exists for the shares of the Trust.   Occasional trades in the shares of the Trust take place without the participation of the Trust on the Over-the-Counter Bulletin Board.

The Trust paid no distributions in 2011 or 2010.  Currently, the Trust has no continuing income, but continuing expenses.   As a result the Trustees have suspended distributions at this time.

ITEM 6.  SELECTED FINANCIAL DATA.

Not applicable to smaller reporting companies.

ITEM 7.  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.  Subsequent to acquisition, real estate owned is carried at the lower of carrying amount or current fair value less selling costs.  Decreases in the carrying amount of real estate owned are recorded as an impairment charge in the statements of operations.

REAL ESTATE LOAN:  The Trust carries its real estate loans at its 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

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 in September 2011.
 
 
7

 
 
    As of December 31, 2011 the Trust owned one hundred and twenty-one acres of land in Wiggins, Mississippi recorded at $1,786,000 which is after an impairment of $814,000 was taken.  Prior to impairment the recorded amount was $2,600,000.  The Trust acquired this land through foreclosure on January 6, 2009.  On January 20, 2012 the Trust entered into an agreement to sell its real estate owned for $1,900,000, less a six percent selling cost.  The Trust has determined that the current negotiations reflect a reasonable basis for determining the fair value of the real estate owned at December 31, 2011.  

    In 2011, the Trust entered into two settlement agreements pertaining to the closing of a commercial real estate loan transaction in 2007.  Pursuant to these settlement agreements the Trust received $653,580 which is recognized as other income in the Statement of Operations in 2011.

    The Trust’s results of operations are substantially affected by its ability to sell its real estate owned.

FINANCIAL POSITION

The Trust’s financial position is substantially affected by its ability to sell its real estate owned.

LIQUIDITY AND CAPITAL RESOURCES

Currently, the Trust has no continuing 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.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable to smaller reporting companies.

 
8

 

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

   
Page
     
 
Reports of Independent Registered Public Accounting Firms
10
     
 
Balance Sheet As of December 31, 2011 and 2010
12
     
 
Statements of Operations Years Ended December 31, 2011 and 2010
13
     
 
Statements of Changes in Shareholders' Equity Years Ended December 31, 2011 and 2010
14
     
 
Statements of Cash Flows Years Ended December 31, 2011 and 2010
15
     
 
Notes to Financial Statements
16
 
 
9

 
 
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
To the Trustees and Shareholders
USA Real Estate Investment Trust
Sacramento, California
 
We have audited the accompanying balance sheet of USA Real Estate Investment Trust (the "Trust") as of December 31, 2011, and the related statements of operations, shareholders' equity, and cash flows for the year then ended.  These financial statements are the responsibility of the Trust's management.  Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Trust is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Trust as of December 31, 2011, and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.
 


Sacramento, California
March 26, 2012

 
10

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Trustees and Shareholders
USA Real Estate Investment Trust


We have audited the accompanying balance sheet of USA Real Estate Investment Trust (the "Trust") as of December 31, 2010, and the related statements of operations, changes in shareholders' equity, and cash flows for the year then ended.  These financial statements are the responsibility of the Trust's management.  Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.   An audit  includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of USA Real Estate Investment Trust as of December 31, 2010, and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.



Sacramento, California
March 31, 2011

 
11

 
RDGXBRLParseBegin
USA REAL ESTATE INVESTMENT TRUST
Balance Sheets

   
December 31,
   
December 31,
 
   
2011
   
2010
 
             
Assets
           
             
Real estate owned
  $ 1,786,000     $ 2,600,000  
Real estate loan
    --       555,800  
Cash
    718,198       140,519  
Other assets
    78,500       --  
Total assets
  $ 2,582,698     $ 3,296,319  
                 
                 
Liabilities and Shareholders' Equity
               
                 
Liabilities:
               
Accounts payable
  $ 102,052     $ 203,260  
Note payable
    500,000       500,000  
Total liabilities
    602,052       703,260  
                 
Shareholders' Equity:
               
Shares of beneficial interest, par value $1 per share; 62,500 shares authorized; 18,007 shares outstanding
    18,007       18,007  
Additional paid-in capital
    26,355,335       26,355,335  
Distributions in excess of cumulative net income
    ( 24,392,696 )     ( 23,780,283 )
Total shareholders' equity
    1,980,646       2,593,059  
                 
Total liabilities and shareholders' equity
  $ 2,582,698     $ 3,296,319  
 
See notes to financial statements.
 
 
12

 
 
USA REAL ESTATE INVESTMENT TRUST
Statements of Operations
Years Ended December 31, 2011 and 2010
 
   
2011
   
2010
 
 
           
Revenues:
           
Interest income
  $ --     $ --  
                 
Expenses:
               
Operating
    74,916       50,071  
Impairment charge
    964,800       3,453,951  
General and administrative
    226,277       309,573  
      1,265,993       3,813,595  
Other income
    653,580       --  
                 
Net (loss)
  $ ( 612,413 )   $ ( 3,813,595 )
                 
                 
Net loss per share
  $ ( 34.01 )   $ ( 211.78 )
                 
                 
Weighted-average number of shares
    18,007       18,007  
                 
                 
Distributions per share
  $ 0.00     $ 0.00  
 
See notes to financial statements.
 
 
13

 
 
USA REAL ESTATE INVESTMENT TRUST
Statements of Changes in Shareholders' Equity
Years Ended December 31, 2011 and 2010

   
Shares of Beneficial
Interest
   
Additional
Paid-in
   
Distributions in
Excess of Cumulative
   
Total Shareholders'
 
   
Number
   
Amount
   
Capital
   
Net Income
   
Equity
 
                               
                               
December 31, 2009
    18,007     $ 18,007     $ 26,355,335     $ ( 19,966,688 )   $ 6,406,654  
                                         
Net loss
                            ( 3,813,595 )     ( 3,813,595 )
                                         
December 31, 2010
    18,007       18,007       26,355,335       ( 23,780,283 )     2,593,059  
                                         
Net loss
                            ( 612,413 )     ( 612,413 )
                                         
December 31, 2011
    18,007     $ 18,007     $ 26,355,335     $ ( 24,392,696 )   $ 1,980,646  
 
See notes to financial statements.
 
 
14

 
 
USA REAL ESTATE INVESTMENT TRUST
Statements of Cash Flows
For the Years Ended December 31, 2011 and 2010

   
2011
   
2010
 
             
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
  $ ( 612,413 )   $ ( 3,813,595 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Impairment charge
    964,800       3,453,951  
Changes in operating assets and liabilities:
               
Decrease in interest receivable
    --       40,800  
(Decrease) increase in accounts payable
    ( 101,208 )     80,469  
Increase in other assets
    ( 78,500 )     --  
                 
Net cash provided by (used in) operating activities
    172,679       ( 238,375 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Collections on real estate loans
    405,000       44,200  
Investments in real estate owned
    --       ( 82,615 )
                 
Net cash provided by (used in) in investing activities
    405,000       ( 38,415 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Increase in notes payable
    --       200,000  
                 
Net cash provided by financing activities
    --       200,000  
                 
NET INCREASE (DECREASE) IN CASH
    577,679       ( 76,790 )
                 
CASH AT BEGINNING OF PERIOD
    140,519       217,309  
                 
CASH AT END OF PERIOD
  $ 718,198     $ 140,519  
 
See notes to financial statements.
 
 
15

 
 
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.  Subsequent to acquisition, real estate owned is carried at the lower of carrying amount or current fair value less selling costs.  Decreases in the carrying amount of real estate owned are recorded as an impairment charge in the statements of operations.

REAL ESTATE LOAN:  The Trust carries its real estate loans at its 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.  Please refer to Note 3, Real Estate Loan, for additional information.

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 2011 and 2010, 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.  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.

NET INCOME PER SHARE:  Net income per share is computed based on the weighted-average number of shares outstanding.
 
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 (ASU 2010-06). ASU 2010-06 requires changes to disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. The adoption of these changes had no impact on the financial statements or disclosures.
 
 
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In June 2011, the FASB issued Accounting Standards Update 2011-05, Comprehensive Income (Topic 220) – Presentation of Comprehensive Income. The Update requires the disclosure of comprehensive income on the face of the income statement or in a stand-alone statement of comprehensive income, as opposed to the more common historical practice of disclosure as a component of the statement of stockholders' equity. This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and should be applied retrospectively. The adoption of this guidance will have no impact on the financial statements or disclosures.
 
In May 2011, the FASB issued Accounting Standards Update 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The Update modifies accounting guidance and expands existing disclosure requirements for fair value measurements. This Update clarifies how fair values should be measured for instruments classified in stockholders’ equity and under what circumstances premiums and discounts should be applied in fair value measurements. This Update also permits entities to measure fair value on a net basis for financial instruments that are managed based on net exposure to market risks and/or counterparty credit risk. This update is effective in the first quarter of 2012 and should be applied retrospectively. The adoption of this guidance will have no impact on the financial statements or disclosures.

2.    REAL ESTATE OWNED

As of December 31, 2011 the Trust owned one hundred and twenty-one acres of land in Wiggins, Mississippi recorded at $1,786,000 which is after an impairment of $814,000 was taken.  Prior to impairment the recorded amount was $2,600,000.  The Trust acquired this land through foreclosure on January 6, 2009.  On January 20, 2012 the Trust entered into an agreement to sell its real estate owned for $1,900,000, less a six percent selling cost.  The Trust has determined that the current negotiations reflect a reasonable basis for determining the fair value of the real estate owned at December 31, 2011.  

3.    REAL ESTATE LOAN

As of December 31, 2011 the Trust had one real estate loan with a recorded amount of $0, which is net of a $150,800 allowance, 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 in September 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 in September 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 2011and 2010 was $41,239 and $76,636, respectively.
 
 
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4.    NOTE PAYABLE

As of December 31, 2011, the Trust had a $500,000 note payable collateralized by the one hundred and twenty-one acres of land in Wiggins, Mississippi.  The promissory note bears interest at 9% per annum with both the interest and principal due on January 31, 2012.  Accrued and unpaid interest on the note payable was $83,244 at December 31, 2011.  The note evidences, in part, $200,000 borrowed from Bonnie Leidig, the spouse of Gregory E. Crissman, a Trustee and Chief Financial Officer of the Trust. The aggregate fair value of the note approximates its carrying value as of December 31, 2011.

On December 27, 2011, the Trust and the holders of the $500,000 note payable entered into an agreement to extend the maturity date to January 31, 2013 and revise the interest rate and the interest payment dates.  Under this new agreement the interest rate from January 31, 2012 through January 31, 2013 was reduced from 9% to 6.5% and $75,156 of the $87,066 of accrued and unpaid interest that was due on January 31, 2012 was extended to December 15, 2012.

5.    DISTRIBUTIONS

The Trust paid no distributions in 2011 or 2010. 

6.    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.  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.

7.    RELATED PARTY

      In 2011 the Trust paid Benjamin A. Diaz, a Trustee and Secretary of the Trust, $44,000 for legal services provided in connection with certain settlements entered into by the Trust.
RDGXBRLParseEnd
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

      None.

ITEM 9A(T).  CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures
 
      The Trust's management, including its Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of the Trust's disclosure controls and procedures as of December 31, 2011.  Based on that evaluation, they concluded that the Trust's disclosure controls and procedures were effective as of December 31, 2011 to provide reasonable assurance that information the Trust is required to disclose in reports that it submits under the Exchange Act 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 management as appropriate, to allow timely decisions regarding required disclosure.
 
 
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Changes in Internal Controls over Financial Reporting

      There have been no changes in the Trust’s internal controls over financial reporting that occurred during the quarter ended December 31, 2011, that have materially affected, or are reasonably likely to materially affect, the Trust’s internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

      In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.  In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Management’s Report on Internal Control over Financial Reporting

     Management of the Trust is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act.  Management assessed the effectiveness of the Trust’s internal control over financial reporting based on criteria for effective internal control over financial reporting described in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  Based on its assessment, management concluded that the Trust’s internal control over financial reporting was effective as of December 31, 2011.

     This annual report does not include an attestation report of the Trust’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Trust’s independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Trust to provide only management’s report in this annual report.

ITEM 9B.  OTHER INFORMATION.

None.

PART III.
 
ITEM 10.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CORPORATE GOVERNANCE.

GENERAL

The Trust has no employees.  It is administered by its Trustees and by its Chairman, and by independent contractors who work under the supervision thereof.

THE TRUSTEES

The Trustees of the Trust are as follows:

Name
 
Age
 
Trustee
Since
 
Office
             
Jeffrey B. Berger
 
59
 
2010
 
Trustee, Chairman and Chief Executive Officer
             
Gregory E. Crissman
 
60
 
1986
 
Trustee and Chief Financial Officer
             
Benjamin A. Diaz
 
79
 
1988
 
Trustee and Secretary
 
 
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The following is a brief description of the background and business experience of each Trustee.

JEFFREY B. BERGER.  Mr. Berger is a Trustee and the Chairman and the Chief Executive Officer of the Trust.  Mr. Berger is president of University Capital Management, Inc.  University Capital Management, Inc. is a full-service real estate company engaged principally in the ownership and development, acquisition and management of commercial and residential real estate throughout California, Nevada, Hawaii and Oregon.  Mr. Berger earned his Bachelor of Arts from the University of California in Davis, California in 1974 and his Juris Doctor degree from Thomas Jefferson School of Law in 1978.  He is a member of The State Bar of California and the American Bar Association.

GREGORY E. CRISSMAN.  Mr. Crissman is a Trustee and the Chief Financial Officer of the Trust.  He has over 30 years of experience in real estate, accounting, auditing, and taxation.   Mr. Crissman earned a Bachelor of Science in Business Administration from California State University in Sacramento, California in 1976.  He is a Certified Public Accountant and a member of both the California Society of Certified Public Accountants and the American Institute of Certified Public Accountants.

BENJAMIN A. DIAZ.  Mr. Diaz is a Trustee and the Secretary of the Trust.  Mr. Diaz is a retired judge of the Superior Court of California.  He served as a judge of the Sacramento County Superior Court from April 1976 to May 1986.  He engaged in private practice in Sacramento, California from 1986 to December 1991 specializing in real estate transactions, general practice, litigation, business law, and personal injury matters.  From January 1992 to the present, Judge Diaz has been engaged in private judging, arbitration, mediation and consulting services.  Mr. Diaz received his Juris Doctor degree from the University of Pacific, McGeorge School of Law in Sacramento, California in 1966.  

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
 
      Section 16(a) of the Exchange Act requires the Trustees, executive officers, and holders of more than 10% of the Trust’s shares of beneficial interest to file with the SEC reports regarding their ownership and changes in ownership of the Trust’s shares.  The Trust believes that during 2011, the trustees, executive officers, and any 10% shareholders complied with all Section 16(a) filing requirements.
 
      In making these statements, the Trust relied upon examination of the copies of Forms 3, 4, and 5, and amendments to these forms, provided to it and the written representations of the Trustees, executive officers, and any 10% shareholders.

CODE OF ETHICS
 
      The Trustees have adopted a code of ethics that applies to its trustees and officers. The Trust filed a copy of its code of ethics as an exhibit to its annual report on Form 10-K.
 
 
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AUDIT COMMITTEE
 
      The Trustees have established an Audit Committee, comprised of Mr. Diaz. Mr. Diaz serves as chairman of the Audit Committee.  The trustees have determined that Mr. Diaz is an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K.

The Trustees do not maintain a nominating or compensation committee or any other standing committee except for the audit committee.

ITEM 11.  EXECUTIVE COMPENSATION.

COMPENSATION OF OFFICERS

During 2011, the Trust was a self-administered, self-managed real estate investment trust.  The Trust has the following officers:  Chairman, Chief Executive Officer, Chief Financial Officer, and Secretary.  No officer except Gregory E. Crissman was compensated by the Trust in his capacity as an officer.  During 2011, none of the Trust's officers received compensation in excess of $18,425.

Name and
     
All Other
             
Principal Position
 
Year
 
Compensation
         
Total
 
                       
Gregory E. Crissman, Chief Financial Officer
 
2011
  $ 18,425       (1)     $ 18,425  
                             
Gregory E. Crissman, Chief Financial Officer
 
2010
  $ 62,425       (1)     $ 62,425  
 
(1) 
Includes fees for each meeting of the Trustees attended for a total of $9,625.
 
COMPENSATION OF TRUSTEES

Each Trustee receives $1,375 for each Trustee’s meeting attended plus reimbursement of direct expenses incurred in connection with such attendance.  There are currently no plans to alter this compensation schedule.  No Trustee received compensation under any other arrangement during 2011 except Gregory E. Crissman who received compensation as an officer for work performed.  The Trustees do not maintain a nominating or compensation committee or any other standing committee except for an audit committee.  The audit committee consists of Benjamin A. Diaz who serves without additional compensation.  The Trustees have authority to establish committees and to compensate members as appropriate for their service.  During 2011, the Trustees had seven regular meetings.  All Trustees attended all meetings.
 
 
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ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS.

As of March 26, 2012, no person known to the Trust owns beneficially more than 5% of its outstanding shares.  This percentage of ownership is based on the number of shares of beneficial interest on such date.  No Trustee beneficially owns any shares of the Trust except as set forth below:
 
   
Amount and Nature of
 
Percent
Name and Address of Beneficial Owner
 
Beneficial Ownership
 
of Class
         
Gregory E. Crissman, Trustee and Chief Financial Officer
1066 Vanderbilt Way
Sacramento, CA 95825
 
46
 
0.2555
         
Jeffrey B. Berger. Trustee, Chairman and Chief Executive Officer
2443 Fair Oaks Boulevard, #368
Sacramento, CA 95825
 
1
 
0.0056
         
Benjamin A. Diaz, Trustee and Secretary
P.O. Box 2008
Folsom, CA 95763
 
0
 
0.0000
         
All Trustees and officers as a group
 
47
 
0.2611
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.

None.

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES.

Perry-Smith LLP was the Trust’s independent registered accounting firm until October 31, 2011.

   
2011
   
2010
 
             
Audit Fees
  $ 9,000     $ 29,000  
Audit-Related Fees
    --       --  
Tax Fees
    --       --  
All Other Fees
    --       --  
    $ 9,000     $ 29,000  
 
Crowe Horwath, LLP the Trust’s current independent registered accounting firm was appointed as of November 1, 2011.

   
2011
   
2010
 
             
Audit Fees
  $ 8,000     $ --  
Audit-Related Fees
    --       --  
Tax Fees
    --       --  
All Other Fees
    --       --  
    $ 8,000     $ --  
 
 
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Pre-Approval Policy for Accounting Services.  In 2005, the Audit Committee and the Trustees adopted a formal pre-approval policy for accounting services and fees.  The policy requires that all audit services, audit related services, tax fees and all other fees of the Trust's independent auditor be pre-approved by the Audit Committee and the Trustees.  The Audit Committee and the Trustees approved the audit and audit related fees provided by the independent auditor during 2011 and 2010.

Audit Fees

Audit Fees relate to services related to the audit of the Trust’s financial statements, review of the financial statements included in the Trust’s quarterly reports on Form 10-Q and consents and assistance in connection with other filings.

Audit-Related Fees

Audit-Related Fees consist of fees for assurance and related services that were reasonably related to the performance of the audit or review of the Trust’s financial statements and are reported under “Audit Fees.”  There were no such fees in 2011 or 2010.

Tax Fees

Tax Fees include fees for services rendered in connection with the preparation of federal, state and foreign tax returns and other filings and tax consultation services.  There were no such fees in 2011 or 2010.

All Other Fees

There were no other fees in 2011 or 2010.

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

3.1
 
Amended and Restated Declaration of Trust of USA Real Estate Investment Trust (included as Exhibit 3.2 to Form S-11 (File No. 33-9315) and incorporated herein by reference).
     
3.2
 
Bylaws of the Trust (included as Exhibit 3.2 to Form S-11 (File No. 33-9315) and incorporated herein by reference).
     
3.4
 
Amendments to Sections 2.3.1, 2.3.7, 2.3.8, 2.4.2 and 2.4.3 of the Amended and Restated Declaration of Trust of USA Real Estate Investment Trust (included as Exhibit 3.4 to Form 10-K for the year ended December 31, 1987 and incorporated herein by reference).
     
4.1
 
Article VIII of Exhibit 3.1(included as Exhibit 4.1 to Form S-11 (File No. 33-9315) and incorporated herein by reference).
     
4.2
 
Form of Share Certificate (included as Exhibit 4.2 to Form S-11 (File No. 33-9315) and incorporated herein by reference).
     
14.1
 
Code of Ethics (included as Exhibit 14.1 to Form 10-K filed on March 14, 2004 and incorporated herein by reference).
     
 31.1
 
Section 302 Certification of the Chief Executive Officer Pursuant to Rule 13-14(a) of the Securities Exchange Act of 1934.
     
 31.2
 
Section 302 Certification of the Chief Financial Officer Pursuant to Rule 13-14(a) of the Securities Exchange Act of 1934.
     
32.1
 
Section 906 Certifications  filed by the Chief Executive Officer and the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.
     
101.INS
* XBRL Instance
     
101.SCH
* XBRL Taxonomy Extension Schema
     
101.CAL
* XBRL Taxonomy Extension Calculation
     
101.DEF
* XBRL Taxonomy Extension Definition
     
101.LAB
* XBRL Taxonomy Extension Labels
     
101.PRE
* XBRL Taxonomy Extension Presentation
 
*  
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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Signatures

Pursuant to the requirements of Section 13 of 15(d) 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.

         
Dated:
March 26, 2012
 
USA Real Estate Investment Trust
 
 
Date
     
   
By:
/s/  Jeffrey B. Berger
 
     
Jeffrey B. Berger
 
     
Chief Executive Officer
 
         

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:


Dated:
March 26, 2012
By:
/s/ Jeffrey B. Berger
 
     
Jeffrey B. Berger, Trustee, Chairman
 
     
and Chief Executive Officer
 
         
         
Dated:
March 26, 2012
By:
/s/  Gregory E. Crissman
 
 
Date
 
Gregory E. Crissman, Trustee
 
     
and Chief Financial Officer
 
         
         
Dated:
March 26, 2012
By:
/s/  Benjamin Diaz
 
 
Date
 
Benjamin Diaz,
 
     
Trustee and Secretary
 

 
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