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UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-Q

|                                                   |  |                                                                                         
|-------------------------------------------------- |  | ----------------------------------------------------------------------------------------
|[X]                                                |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 
|                                                  
|For the quarterly period ended: September 30, 2002
|OR                                                
|                                                  
|[   ]                                              |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|                                                  
|For the transition period from  to                

Commission file number: 333-86972

SPECIALTY TRUST, INC.(Formerly Specialty Mortgage Trust, Inc.)(Exact name of Registrant as specified in its Charter)

|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|Maryland
(State or other jurisdiction of
Incorporation or organization) |  | 88-0382463
(I.R.S. Employer
Identification No.)
|                                                                       
|6160 Plumas St.
Reno, Nevada
(Address of principal executive offices)   |  | 89509
(Zip Code)                               

(775) 826-0809
(Registrants telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all documents
and 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.

YesX                      No

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuers classes
of stock, as of the last practicable date.

|                              |  |                                  
|----------------------------- |  | ---------------------------------
|Common Stock ($.01 par value) |  | 7,183,004 as of November 19, 2002



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TABLE OF CONTENTS



|                              |                                                                                              |                                                 |  |  |  |  |  | 
|----------------------------- | -------------------------------------------------------------------------------------------- | ----------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM I. FINANCIAL STATEMENTS                                                                
|                              |                                                                                              | CONSOLIDATED BALANCE SHEETS                    
|                              |                                                                                              | CONSOLIDATED STATEMENTS OF EARNINGS            
|                              |                                                                                              | CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|                              |                                                                                              | CONSOLIDATED STATEMENTS OF CASH FLOWS          
|                              |                                                                                              | NOTES TO FINANCIAL STATEMENTS                  
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operation
|                              | Item 3. Quantitative and Qualitative Disclosures about Market Risk                          
|                              | Item 4. Controls and Procedures                                                             
|PART II. OTHER INFORMATION   
|                              | Item 1. Legal Proceedings.                                                                  
|                              | Item 2. Changes in Securities and Use of Proceeds.                                          
|                              | Item 3. Defaults Upon Senior Securities.                                                    
|                              | Item 4. Submission of Matters to a Vote of Security Holders.                                
|                              | Item 5. Other Information.                                                                  
|                              | Item 6. Exhibits and Reports on Form 8-K.                                                   
|SIGNATURES                   
|CERTIFICATION                
|CERTIFICATION                
|Exhibit 11                   
|Exhibit 99.1                 
|Exhibit 99.2                 



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INDEX

PART I. FINANCIAL INFORMATION

|                           |  |                                                                                                                                   |  |      |    | 
|-------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                           |  |                                                                                                                                   |  | Page
|                           |  |                                                                                                                                   |  |     
|Item 1                     |  | Financial Statements  Specialty Trust, Inc. (Unaudited)                                                                          |  |      | 3  | 
|                           |  | Consolidated Balance Sheets as of September 30, 2002 and
December 31, 2002                                                        |  |      | 3  | 
|                           |  | Consolidated Statements of Earnings for the Three and Nine Months
Ended September 30, 2002 and 2001                               |  |      | 4  | 
|                           |  | Consolidated Statements of Stockholders Equity for the Nine
Months Ended September 30, 2002 and the Year Ended
December 31, 2001 |  |      | 5  | 
|                           |  | Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2002 and 2001                                       |  |      | 6  | 
|                           |  | Notes to Consolidated Financial Statements                                                                                        |  |      | 8  | 
|Item 2                     |  | Managements Discussion and Analysis of Financial Condition And
Results of Operations                                             |  |      | 13 | 
|Item 3                     |  | Quantitative and Qualitative Disclosures about Market Risk                                                                        |  |      | 21 | 
|Item 4                     |  | Controls and Procedures                                                                                                           |  |      | 22 | 
|PART II. OTHER INFORMATION
|Item 1                     |  | Legal Proceedings                                                                                                                 |  |      | 23 | 
|Item 2                     |  | Changes in Securities and Use of Proceeds                                                                                         |  |      | 23 | 
|Item 3                     |  | Defaults Upon Senior Securities                                                                                                   |  |      | 23 | 
|Item 4                     |  | Submission of Matters to a Vote of Security Holders                                                                               |  |      | 23 | 
|Item 5                     |  | Other Information                                                                                                                 |  |      | 23 | 
|Item 6                     |  | Exhibits and Reports on Form 8-K                                                                                                  |  |      | 24 | 

2



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##### Table of Contents






PART I. FINANCIAL INFORMATION




ITEM I. FINANCIAL STATEMENTS (UNAUDITED)




SPECIALTY TRUST, INC. AND SUBSIDIARYCONSOLIDATED BALANCE SHEETS (UNAUDITED)

ASSETS

|                                     |                                                                                                                                                                                                  |                                            |   |               |            |              |   |            |            | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | - | ------------- | ---------- | ------------ | - | ---------- | ---------- | 
|                                     |                                                                                                                                                                                                  |                                            |   | September 30, |            | December 31,
|                                     |                                                                                                                                                                                                  | 2002                                       |   | 2001         
|                                     |                                                                                                                                                                                                  |                                            |   |              
|ASSETS                               |                                                                                                                                                                                                  |                                            |   |               |            |              |   |           
|                                     | Cash and cash equivalents                                                                                                                                                                        |                                            | $ | 6,328,915     |            |              | $ | 58,989     |           
|                                     | Accrued interest receivable                                                                                                                                                                      |                                            |   | 880,657       |            |              |   | 836,837    |           
|                                     | Land held for residential development                                                                                                                                                            |                                            |   | 2,416,691     |            |              |   | 2,782,715  |           
|                                     | Real estate owned (held for sale)                                                                                                                                                                |                                            |   | 950,000       |            |              |   | 445,424    |           
|                                     | Mortgage loans held for investment, net of
allowance for loan losses of $1,409,643 and
$1,020,321 and discount of $116,510 and $78,144 at
September 30, 2002 and December 31, 2001,
respectively |                                            |   | 74,324,879    |            |              |   | 72,233,194 |           
|                                     | Other assets                                                                                                                                                                                     |                                            |   | 447,449       |            |              |   | 307,063    |           
|                                     |                                                                                                                                                                                                  |                                            |   |               |            |              |   |           
|                                     |                                                                                                                                                                                                  | Total assets                               |   | $             | 85,348,591 |              |   | $          | 76,664,222 | 
|                                     |                                                                                                                                                                                                  |                                            |   |               |            |              |   |           
|                                    
|LIABILITIES AND STOCKHOLDERS EQUITY
|LIABILITIES                          |                                                                                                                                                                                                  |                                            |   |               |            |              |   |           
|                                     | Dividends payable                                                                                                                                                                                |                                            | $ |              |            |              | $ | 2,046,811  |           
|                                     | Accounts payable and accrued expenses                                                                                                                                                            |                                            |   | 120,455       |            |              |   | 99,233     |           
|                                     | Accrued interest payable                                                                                                                                                                         |                                            |   | 25,121        |            |              |   | 16,699     |           
|                                     | Note payable  related party                                                                                                                                                                     |                                            |   | 31,983        |            |              |   |           |           
|                                     | Collateralized notes                                                                                                                                                                             |                                            |   | 15,000,969    |            |              |   | 8,395,919  |           
|                                     | Collateralized notes  related party                                                                                                                                                             |                                            |   | 990,579       |            |              |   | 1,079,522  |           
|                                     | Deferred revenue                                                                                                                                                                                 |                                            |   | 51,951        |            |              |   |           |           
|                                     |                                                                                                                                                                                                  |                                            |   |               |            |              |   |           
|                                     |                                                                                                                                                                                                  | Total liabilities                          |   |               | 16,221,058 |              |   |            | 11,638,184 | 
|                                     |                                                                                                                                                                                                  |                                            |   |               |            |              |   |           
|STOCKHOLDERS EQUITY                 |                                                                                                                                                                                                  |                                            |   |               |            |              |   |           
|                                     | Common stock; $0.01 par value; 50,000,000 and
46,468,085 shares authorized; 7,076,575 and 6,822,703
issued and outstanding as of September 30, 2002 and
December 31, 2001 respectively           |                                            |   | 70,766        |            |              |   | 68,227     |           
|                                     | Additional paid-in capital                                                                                                                                                                       |                                            |   | 67,120,429    |            |              |   | 64,957,811 |           
|                                     | Retained earnings                                                                                                                                                                                |                                            |   | 1,936,338     |            |              |   |           |           
|                                     |                                                                                                                                                                                                  |                                            |   |               |            |              |   |           
|                                     |                                                                                                                                                                                                  | Total stockholders equity                 |   |               | 69,127,533 |              |   |            | 65,026,038 | 
|                                     |                                                                                                                                                                                                  |                                            |   |               |            |              |   |           
|                                     |                                                                                                                                                                                                  | Total liabilities and stockholders equity |   | $             | 85,348,591 |              |   | $          | 76,664,222 | 
|                                     |                                                                                                                                                                                                  |                                            |   |               |            |              |   |           

The accompanying notes are an integral part of these unaudited statements.

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SPECIALTY TRUST, INC. AND SUBSIDIARYCONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)

|                                      |                                |                      |                                                                  |         |                    |           |                   |           |               |           |               |         |           |           |      |           |           |           | 
|------------------------------------- | ------------------------------ | -------------------- | ---------------------------------------------------------------- | ------- | ------------------ | --------- | ----------------- | --------- | ------------- | --------- | ------------- | ------- | --------- | --------- | ---- | --------- | --------- | --------- | 
|                                      |                                |                      |                                                                  |         | Three Months Ended |           | Nine Months Ended
|                                      |                                |                      |                                                                  |         |                    |           |                  
|                                      |                                |                      |                                                                  |         | September 30,      |           | September 30,     |           | September 30, |           | September 30,
|                                      |                                |                      |                                                                  |         | 2002               |           | 2001              |           | 2002          |           | 2001         
|                                      |                                |                      |                                                                  |         |                    |           |                   |           |               |           |              
|Revenue                               |                                |                      |                                                                  |         |                    |           |                   |           |               |           |               |         |           |           |      |          
|                                      | Interest and dividend income:  |                      |                                                                  |         |                    |           |                   |           |               |           |               |         |           |           |      |           |          
|                                      |                                | Mortgage loans       |                                                                  | $       | 2,397,291          |           |                   | $         | 2,055,257     |           |               | $       | 7,003,517 |           |      | $         | 5,529,090 |          
|                                      |                                | Cash accounts        |                                                                  |         | 15,545             |           |                   |           | 22,559        |           |               |         | 49,769    |           |      |           | 34,143    |          
|                                      |                                | Dividends            |                                                                  |         |                   |           |                   |           |              |           |               |         |          |           |      |           | 7,097     |          
|                                      |                                |                      |                                                                  |         |                    |           |                   |           |               |           |               |         |           |           |      |          
|                                      |                                |                      | Total interest and dividend income                               |         |                    | 2,412,836 |                   |           |               | 2,077,816 |               |         |           | 7,053,286 |      |           |           | 5,570,330 | 
|                                      |                                |                      |                                                                  |         |                    |           |                   |           |               |           |               |         |           |           |      |          
|                                      | Interest expense:              |                      |                                                                  |         |                    |           |                   |           |               |           |               |         |           |           |      |           |          
|                                      |                                | Lines of credit      |                                                                  |         | 266                |           |                   |           | 718           |           |               |         | 2,813     |           |      |           | 51,878    |          
|                                      |                                | Notes Payable        |                                                                  |         | 1,796              |           |                   |           |              |           |               |         | 3,121     |           |      |           |          |          
|                                      |                                | Collateralized notes |                                                                  |         | 208,417            |           |                   |           | 187,956       |           |               |         | 543,645   |           |      |           | 550,475   |          
|                                      |                                |                      |                                                                  |         |                    |           |                   |           |               |           |               |         |           |           |      |          
|                                      |                                |                      | Total interest expense                                           |         |                    | 210,479   |                   |           |               | 188,674   |               |         |           | 549,579   |      |           |           | 602,353   | 
|                                      |                                |                      |                                                                  |         |                    |           |                   |           |               |           |               |         |           |           |      |          
|                                      |                                |                      | Net interest and dividend income                                 |         |                    | 2,202,357 |                   |           |               | 1,889,142 |               |         |           | 6,503,707 |      |           |           | 4,967,977 | 
|                                      | Provision for loan losses      |                      |                                                                  | 131,266 |                    |           |                   | 125,000   |               |           |               | 389,322 |           |           |      | 375,000   |          
|                                      |                                |                      |                                                                  |         |                    |           |                   |           |               |           |               |         |           |           |      |          
|                                      |                                |                      | Net interest and dividend income after
provision for loan losses |         |                    | 2,071,091 |                   |           |               | 1,764,142 |               |         |           | 6,114,385 |      |           |           | 4,592,977 | 
|                                      | Other Income                   |                      |                                                                  | 3,559   |                    |           |                   |          |               |           |               | 85,167  |           |           |      |          |          
|                                      |                                |                      |                                                                  |         |                    |           |                   |           |               |           |               |         |           |           |      |          
|                                      |                                |                      | Net revenue                                                      |         |                    | 2,074,650 |                   |           |               | 1,764,142 |               |         |           | 6,199,552 |      |           |           | 4,592,977 | 
|                                      |                                |                      |                                                                  |         |                    |           |                   |           |               |           |               |         |           |           |      |          
|Expenses                              |                                |                      |                                                                  |         |                    |           |                   |           |               |           |               |         |           |           |      |          
|                                      | General and administrative     |                      |                                                                  | 100,300 |                    |           |                   | 78,830    |               |           |               | 349,404 |           |           |      | 288,509   |          
|                                      | Management and directors fees |                      |                                                                  | 13,244  |                    |           |                   | 58,440    |               |           |               | 130,491 |           |           |      | 102,766   |          
|                                      | Other                          |                      |                                                                  | 24,768  |                    |           |                   |          |               |           |               | 65,164  |           |           |      |          |          
|                                      |                                |                      |                                                                  |         |                    |           |                   |           |               |           |               |         |           |           |      |          
|                                      |                                |                      | Total expenses                                                   |         |                    | 138,312   |                   |           |               | 137,270   |               |         |           | 545,059   |      |           |           | 391,275   | 
|                                      |                                |                      |                                                                  |         |                    |           |                   |           |               |           |               |         |           |           |      |          
|                                      |                                |                      | NET EARNINGS                                                     |         |                    | 1,936,338 |                   |           |               | 1,626,872 |               |         |           | 5,654,493 |      |           |           | 4,201,702 | 
|                                      | Preferred stock dividend       |                      |                                                                  |        |                    |           |                   | 1,413,586 |               |           |               |        |           |           |      | 2,815,107 |          
|                                      |                                |                      |                                                                  |         |                    |           |                   |           |               |           |               |         |           |           |      |          
|                                      |                                |                      | NET EARNINGS ATTRIBUTABLE TO
COMMON STOCK                        |         | $                  | 1,936,338 |                   |           | $             | 213,286   |               |         | $         | 5,654,493 |      |           | $         | 1,386,595 | 
|                                      |                                |                      |                                                                  |         |                    |           |                   |           |               |           |               |         |           |           |      |          
|Basic earnings per share              |                                | $                    | 0.27                                                             |         |                    | $         | 0.63              |           |               | $         | 0.81          |         |           | $         | 4.09 |          
|                                      |                                |                      |                                                                  |         |                    |           |                   |           |               |           |               |         |           |           |      |          
|Diluted earnings per share            |                                | $                    | 0.27                                                             |         |                    | $         | 0.27              |           |               | $         | 0.81          |         |           | $         | 0.77 |          
|                                      |                                |                      |                                                                  |         |                    |           |                   |           |               |           |               |         |           |           |      |          
|Dividends on common stock declared    |                                | $                    | 0.30                                                             |         |                    | $         |                  |           |               | $         | 0.60          |         |           | $         |     |          
|                                      |                                |                      |                                                                  |         |                    |           |                   |           |               |           |               |         |           |           |      |          
|Dividends on preferred stock declared |                                | $                    |                                                                 |         |                    | $         | 0.30              |           |               | $         |              |         |           | $         | 0.60 |          
|                                      |                                |                      |                                                                  |         |                    |           |                   |           |               |           |               |         |           |           |      |          

The accompanying notes are an integral part of these unaudited statements.

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SPECIALTY TRUST, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (UNAUDITED)

|                                                          |                            |                                                       |            |                 |   |              |         |            |   |          |           |               |   |          |        |        |   |       |            |   |   |   |            |   |           |   |       |   |         |   |            |           |           |  
|--------------------------------------------------------- | -------------------------- | ----------------------------------------------------- | ---------- | --------------- | - | ------------ | ------- | ---------- | - | -------- | --------- | ------------- | - | -------- | ------ | ------ | - | ----- | ---------- | - | - | - | ---------- | - | --------- | - | ----- | - | ------- | - | ---------- | --------- | --------- | -
|                                                          |                            |                                                       |            | Class A         |   |              |         |            |   |          |           |               |   |          |        |        |   |       |            |   |   |   |            |   |           |   |       |  
|                                                          |                            |                                                       |            | Convertible     |   |              |         |            |   |          |           |               |   |          |        |        |   |       |            |   |   |   |            |   |           |   |       |  
|                                                          |                            |                                                       |            | Preferred Stock |   | Common Stock |         | Additional |   |          |           |               |   |          |        |        |   |       |            |  
|                                                          |                            |                                                       |            |                 |   |              |         | Paid-in    |   | Retained |           | Comprehensive |   |          |        |       
|                                                          |                            |                                                       |            | Shares          |   | Amount       |         | Shares     |   | Amount   |           | Capital       |   | Earnings |        | Income |   | Total
|                                                          |                            |                                                       |            |                 |   |              |         |            |   |          |           |               |   |          |        |        |   |      
|Balance, January 1, 2001                                  |                            |                                                       | 4,624,276  |                 |   | $            | 46,243  |            |   |          | 334,400   |               |   | $        | 3,344  |        |   | $     | 45,242,156 |   |   | $ |           |   |           |   | ($957 | ) |         | $ | 45,290,786 |          
|Comprehensive income:                                     |                            |                                                       |            |                 |   |              |         |            |   |          |           |               |   |          |        |        |   |       |            |   |   |   |            |   |           |   |       |   |         |   |            |          
|                                                          |                            | Net earnings                                          |            |                 |  |              |         |            |  |          |           |               |  |          |        |        |  |       |            |   |  |   |            |   | 6,085,129 |   |       |   |        |   |            |           | 6,085,129 |  
|                                                          |                            | Net unrealized loss on
investments available-for-sale |            |                 |   |              |         |            |   |          |           |               |   |          |        |        |   |       |            |   |   |   |            |   |           |   |       |   | 11,349  |   |            |           | 11,349    |  
|                                                          |                            | Reclassification adjustment                           |            |                 |   |              |         |            |   |          |           |               |   |          |        |        |   |       |            |   |   |   |            |   |           |   |       |   | (10,392 | ) |            |           | (10,392   | )
|                                                          |                            |                                                       |            |                 |   |              |         |            |   |          |           |               |   |          |        |        |   |       |            |   |   |   |            |   |           |   |       |   |         |   |            |          
|                                                          | Total comprehensive income |                                                       |            |                 |   |              |         |            |   |          |           |               |   |          |        |        |   |       |            |   |   |   |            |   |           |   |       |   |         |   |            | 6,086,086 |          
|Stock options exercised                                   |                            |                                                       |           |                 |   |              |        |            |   |          | 20,218    |               |   |          | 202    |        |   |       | 21,250     |   |   |   |           |   |           |   |      |   |         |   | 21,452     |          
|Non-employee stock
option expense                         |                            |                                                       |           |                 |   |              |        |            |   |          |          |               |   |          |       |        |   |       | 70,558     |   |   |   |           |   |           |   |      |   |         |   | 70,558     |          
|Conversion of collateralized
notes into preferred
stock   |                            |                                                       | 270,284    |                 |   |              | 2,703   |            |   |          |          |               |   |          |       |        |   |       | 2,970,425  |   |   |   |           |   |           |   |      |   |         |   | 2,973,128  |          
|Preferred stock issued
through dividend reinvestment
plan |                            |                                                       | 176,588    |                 |   |              | 1,766   |            |   |          |          |               |   |          |       |        |   |       | 1,851,982  |   |   |   |           |   |           |   |      |   |         |   | 1,853,748  |          
|Preferred stock issued (net
of offering costs of $48,982) |                            |                                                       | 1,396,937  |                 |   |              | 13,969  |            |   |          |          |               |   |          |       |        |   |       | 15,303,352 |   |   |   |           |   |           |   |      |   |         |   | 15,317,321 |          
|Conversion of preferred stock
to common stock             |                            |                                                       | (6,468,085 | )               |   |              | (64,681 | )          |   |          | 6,468,085 |               |   |          | 64,681 |        |   |       |           |   |   |   |           |   |           |   |      |   |         |   |           |          
|Dividends declared on
preferred stock                     |                            |                                                       |           |                 |   |              |        |            |   |          |          |               |   |          |       |        |   |       |           |   |   |   | (4,540,231 | ) |           |   |      |   |         |   | (4,540,231 | )        
|Dividends declared on
common stock                        |                            |                                                       |           |                 |   |              |        |            |   |          |          |               |   |          |       |        |   |       | (501,912   | ) |   |   | (1,544,898 | ) |           |   |      |   |         |   | (2,046,810 | )        
|                                                          |                            |                                                       |            |                 |   |              |         |            |   |          |           |               |   |          |        |        |   |       |            |   |   |   |            |   |           |   |       |   |         |   |            |          
|Balance, December 31, 2001                                |                            |                                                       |           |                 |   |              |        |            |   |          | 6,822,703 |               |   |          | 68,227 |        |   |       | 64,957,811 |   |   |   |           |   |           |   |      |   |         |   | 65,026,038 |          
|                                                          |                            |                                                       |            |                 |   |              |         |            |   |          |           |               |   |          |        |        |   |       |            |   |   |   |            |   |           |   |       |   |         |   |            |          
|Net earnings                                              |                            |                                                       |           |                 |   |              |        |            |   |          |          |               |   |          |       |        |   |       |           |   |   |   | 5,654,493  |   |           |   |      |   |         |   | 5,654,493  |          
|Stock options exercised                                   |                            |                                                       |           |                 |   |              |        |            |   |          | 32,684    |               |   |          | 327    |        |   |       | 105,768    |   |   |   |           |   |           |   |      |   |         |   | 106,095    |          
|Non-employee stock options
expense                        |                            |                                                       |           |                 |   |              |        |            |   |          |          |               |   |          |       |        |   |       | 70,422     |   |   |   |           |   |           |   |      |   |         |   | 70,422     |          
|Common stock issued through
dividend reinvestment plan    |                            |                                                       |           |                 |   |              |        |            |   |          | 221,188   |               |   |          | 2,212  |        |   |       | 2,430,853  |   |   |   |           |   |           |   |      |   |         |   | 2,433,065  |          
|Dividends declared on
common stock                        |                            |                                                       |           |                 |   |              |        |            |   |          |          |               |   |          |       |        |   |       | (444,425   | ) |   |   | (3,718,155 | ) |           |   |      |   |         |   | (4,162,580 | )        
|                                                          |                            |                                                       |            |                 |   |              |         |            |   |          |           |               |   |          |        |        |   |       |            |   |   |   |            |   |           |   |       |   |         |   |            |          
|Balance, September 30, 2002                               |                            |                                                       |           |                 |   | $            |        |            |   |          | 7,076,575 |               |   | $        | 70,766 |        |   | $     | 67,120,429 |   |   | $ | 1,936,338  |   |           | $ |      |   |         | $ | 69,127,533 |          
|                                                          |                            |                                                       |            |                 |   |              |         |            |   |          |           |               |   |          |        |        |   |       |            |   |   |   |            |   |           |   |       |   |         |   |            |          

The accompanying notes are an integral part of these unaudited statements.

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SPECIALTY TRUST, INC. AND SUBSIDIARYCONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

|                                                               |                                                                                    |                                             |                                               |                                           |         |                   |             |               |         |          |             |  
|-------------------------------------------------------------- | ---------------------------------------------------------------------------------- | ------------------------------------------- | --------------------------------------------- | ----------------------------------------- | ------- | ----------------- | ----------- | ------------- | ------- | -------- | ----------- | -
|                                                               |                                                                                    |                                             |                                               |                                           |         | Nine Months Ended
|                                                               |                                                                                    |                                             |                                               |                                           |         |                  
|                                                               |                                                                                    |                                             |                                               |                                           |         | September 30,     |             | September 30,
|                                                               |                                                                                    |                                             |                                               |                                           |         | 2002              |             | 2001         
|                                                               |                                                                                    |                                             |                                               |                                           |         |                   |             |              
|Cash flows from operating activities:                          |                                                                                    |                                             |                                               |                                           |         |                   |             |              
|                                                               | Net earnings                                                                       |                                             | $                                             | 5,654,493                                 |         |                   | $           | 4,201,702     |        
|                                                               | Adjustment to reconcile net earnings to net cash
provided by operating activities: |                                             |                                               |                                           |         |                   |             |               |        
|                                                               |                                                                                    | Amortization and depreciation               |                                               |                                           | 71,562  |                   |             |               | 53,936  |         
|                                                               |                                                                                    | Provision for loan losses                   |                                               |                                           | 389,322 |                   |             |               | 375,000 |         
|                                                               |                                                                                    | Interest reinvested in collateralized notes |                                               |                                           | 483,888 |                   |             |               | 470,399 |         
|                                                               |                                                                                    | Amortization of discount on mortgage loans  |                                               |                                           | (45,166 | )                 |             |               | (15,167 | )       
|                                                               |                                                                                    | Non-employee stock option expense           |                                               |                                           | 70,422  |                   |             |               | 52,173  |         
|                                                               |                                                                                    | Gain on sale of real estate owned           |                                               |                                           | (56,292 | )                 |             |               | (10,392 | )       
|                                                               |                                                                                    | Changes in assets and liabilities:          |                                               |                                           |         |                   |             |               |         |         
|                                                               |                                                                                    |                                             | Accrued interest receivable                   |                                           |         | (64,035           | )           |               |         | (189,388 | )          
|                                                               |                                                                                    |                                             | Other assets                                  |                                           |         | (85,553           | )           |               |         | (3,097   | )          
|                                                               |                                                                                    |                                             | Accounts payable and accrued interest payable |                                           |         | 29,644            |             |               |         | 29,542   |            
|                                                               |                                                                                    |                                             | Deposits                                      |                                           |         |                  |             |               |         | (923,406 | )          
|                                                               |                                                                                    |                                             |                                               |                                           |         |                   |             |              
|                                                               |                                                                                    |                                             |                                               | Net cash provided by operating activities |         |                   | 6,448,285   |               |         |          | 4,041,302   |  
|                                                               |                                                                                    |                                             |                                               |                                           |         |                   |             |              
|Cash flows from investing activities:                          |                                                                                    |                                             |                                               |                                           |         |                   |             |              
|Investment in real estate owned                                |                                                                                    |                                             |                                              |                                           |         |                   | (244,613    | )            
|Proceeds from sale of real estate owned                        |                                                                                    |                                             | 446,710                                       |                                           |         |                   | 259,866     |              
|Investment in land held for residential development            |                                                                                    |                                             | (199,919                                      | )                                         |         |                   |            |              
|Proceeds from builder on land held for residential development |                                                                                    |                                             | 565,943                                       |                                           |         |                   |            |              
|Purchase of mortgage loans held for investment                 |                                                                                    |                                             | (37,741,681                                   | )                                         |         |                   | (28,491,203 | )            
|Principal repayments of mortgage loans held for investment     |                                                                                    |                                             | 34,458,740                                    |                                           |         |                   | 14,649,275  |              
|                                                               |                                                                                    |                                             |                                               |                                           |         |                   |             |              
|                                                               |                                                                                    |                                             |                                               | Net cash used in investing activities     |         |                   | (2,470,207  | )             |         |          | (13,826,675 | )
|                                                               |                                                                                    |                                             |                                               |                                           |         |                   |             |              
|Cash flows from financing activities:                          |                                                                                    |                                             |                                               |                                           |         |                   |             |              
|Proceeds from Preferred Stock Offering, net                    |                                                                                    |                                             |                                              |                                           |         |                   | 15,317,321  |              
|Proceeds from common stock options exercised                   |                                                                                    |                                             | 106,095                                       |                                           |         |                   | 21,427      |              
|Cash dividends paid                                            |                                                                                    |                                             | (3,776,326                                    | )                                         |         |                   | (2,903,618  | )            
|Net payments on line of credit                                 |                                                                                    |                                             |                                              |                                           |         |                   | (4,452,500  | )            
|Proceeds from issuance of note payable-related party           |                                                                                    |                                             | 31,983                                        |                                           |         |                   |            |              
|Proceeds from issuance of collateralized notes                 |                                                                                    |                                             | 10,952,309                                    |                                           |         |                   | 10,346,682  |              
|Principal payments on collateralized notes                     |                                                                                    |                                             | (4,920,090                                    | )                                         |         |                   | (4,815,865  | )            
|Debt issue costs                                               |                                                                                    |                                             | (102,123                                      | )                                         |         |                   | (202,173    | )            
|                                                               |                                                                                    |                                             |                                               |                                           |         |                   |             |              
|                                                               |                                                                                    |                                             |                                               | Net cash provided by financing activities |         |                   | 2,291,848   |               |         |          | 13,311,274  |  
|                                                               |                                                                                    |                                             |                                               |                                           |         |                   |             |              
|                                                               |                                                                                    |                                             |                                               | NET INCREASE IN CASH AND CASH EQUIVALENTS |         |                   | 6,269,926   |               |         |          | 3,525,901   |  
|Cash and cash equivalents at beginning of period               |                                                                                    |                                             | 58,989                                        |                                           |         |                   | 2,619,717   |              
|                                                               |                                                                                    |                                             |                                               |                                           |         |                   |             |              
|Cash and cash equivalents at end of period                     |                                                                                    | $                                           | 6,328,915                                     |                                           |         | $                 | 6,145,618   |              
|                                                               |                                                                                    |                                             |                                               |                                           |         |                   |             |              

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SPECIALTY TRUST, INC. AND SUBSIDIARYCONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)  CONTINUED

|                                                                                                |                                 |   |                   |         |               |   |           |   | 
|----------------------------------------------------------------------------------------------- | ------------------------------- | - | ----------------- | ------- | ------------- | - | --------- | - | 
|                                                                                                |                                 |   | Nine Months Ended
|                                                                                                |                                 |   |                  
|                                                                                                |                                 |   | September 30,     |         | September 30,
|                                                                                                |                                 |   | 2002              |         | 2001         
|                                                                                                |                                 |   |                   |         |              
|Supplemental cash flow information:                                                             |                                 |   |                   |         |               |   |           |  
|Cash paid for interest                                                                          |                                 | $ | 57,738            |         |               | $ | 140,195   |  
|                                                                                                |                                 |   |                   |         |               |   |           |  
|Supplemental disclosure of non-cash investing and
financing activities:                         |                                 |   |                   |         |               |   |           |  
|Conversion of collateralized notes into preferred stock                                         |                                 | $ |                  |         |               | $ | 2,973,128 |  
|                                                                                                |                                 |   |                   |         |               |   |           |  
|Collateralized notes refinanced at maturity                                                     |                                 | $ | 10,428,691        |         |               | $ | 8,009,318 |  
|                                                                                                |                                 |   |                   |         |               |   |           |  
|Preferred stock issued through dividend reinvestment plan                                       |                                 | $ |                  |         |               | $ | 1,298,772 |  
|                                                                                                |                                 |   |                   |         |               |   |           |  
|Common stock issued through dividend reinvestment plan                                          |                                 | $ | 2,433,065         |         |               | $ |          |  
|                                                                                                |                                 |   |                   |         |               |   |           |  
|Mortgage loans held for investment transferred to Land Held
for Development                     |                                 | $ |                  |         |               | $ | 2,823,562 |  
|                                                                                                |                                 |   |                   |         |               |   |           |  
|Foreclosure of property securing mortgage loan including
accrued interest receivable of $20,215 |                                 | $ | 1,903,215         |         |               | $ |          |  
|                                                                                                |                                 |   |                   |         |               |   |           |  
|Mortgage loan received for sale of real estate owned:                                           |                                 |   |                   |         |               |   |           |  
|                                                                                                | Investment in real estate owned |   | $                 | 953,215 |               |   | $         |  | 
|                                                                                                | Deferred revenue                |   |                   | 82,685  |               |   |           |  | 
|                                                                                                |                                 |   |                   |         |               |   |           |  
|                                                                                                |                                 | $ | 1,035,900         |         |               |   |          |  
|                                                                                                |                                 |   |                   |         |               |   |           |  

The accompanying notes are an integral part of these unaudited statements.

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SPECIALTY TRUST, INC. AND SUBSIDIARYNOTES TO FINANCIAL STATEMENTSSeptember 30, 2002(Unaudited)

NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION

Specialty Trust, Inc., formerly Specialty Mortgage Trust, and Subsidiary (the
Company) is a Maryland corporation, which acquires and holds mortgage loans
secured by property located in Nevada, Arizona, Colorado, California, and Utah.
Our strategy is to focus on land loans, construction loans, commercial
building loans and nonconforming single-family and small multifamily
residential loans. The Company has elected to be a real estate investment
trust (REIT) under the Internal Revenue Code of 1986, as amended. The mortgage
loans are originated and serviced by Specialty Financial (the Manager), a
private mortgage finance business operating in Nevada and wholly owned by Nello
Gonfiantini III, the Companys President and Chairman of the Board of
Directors. The Company was incorporated on October 21, 1997 and began
operations on January 31, 1998, following the closing of the Companys initial
private placement of its preferred stock.

The unaudited consolidated financial statements of the Company are prepared in
accordance with accounting principles generally accepted in the United States
of America for interim financial information and in accordance with the
instructions to Form 10-Q. In the opinion of management, all adjustments
necessary for a fair presentation of the financial position, results of
operations and cash flows for the periods presented have been included and are
normal and recurring in nature. The results for the nine months ended
September 30, 2002 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2002 or for any other period. These
unaudited consolidated financial statements should be read in conjunction with
the audited financial statements included in the Companys annual report on
Form 10-K for the year ended December 31, 2001.

The unaudited consolidated financial statements for the three and nine months
ended September 30, 2002 include the accounts of the Company and its wholly
owned subsidiary, Specialty Acquisition Corporation, a taxable REIT subsidiary
(Specialty Acquisition). Specialty Acquisition was formed on May 2, 2002 to
enable the Company to perform development activities to land it foreclosed upon
(Note 2), and to maintain the Companys qualified REIT status. All
inter-company accounts and transactions have been eliminated upon
consolidation.

The prior year financial statements contain certain reclassifications to
conform to the current year classifications. These reclassifications had no
effect on net earnings.

Land Held for Residential Development
Land Held for Residential Development includes real estate acquired through
foreclosure and is carried at the lower of the recorded investment in the loan,
or the propertys estimated fair value, less estimated costs to sell. When
circumstances such as adverse market conditions indicate a possible impairment
of the value of the real estate held for development, the Company will initiate
a review of the recoverability of the propertys carrying value. The review of
recoverability is based on an estimate of the future undiscounted cash flows
(excluding interest charges) expected to result from the real estate
developments eventual disposition. These cash flows consider factors such as
expected future trends and prospects, as well as the effects of project demand,
competition and other factors. If impairment exists due to the inability to
recover the carrying value of a real estate investment, an impairment loss is
recorded to the extent that the carrying value exceeds the estimated fair value
of the property.

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The Company adopted Financial Accounting Standards Boards (FASB) Statement
of Financial Accounting Standard (FAS) 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, on January 1, 2002. FAS 144 supersedes FAS
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. The primary objectives of FAS 144 are to develop
one accounting model based on the framework established in FAS 121 for
long-lived assets to be disposed of by sale, and to address significant
implementation issues regarding impairment of long-lived assets held for use.
FAS 144 retained the fundamental provisions of FAS 121 for recognition and
measurement of impairment. The Companys adoption of FAS 144 did not have a
material impact on their financial position, cash flows, or results of
operations.

Recent Accounting Pronouncements
In June 2001, the FASB issued FAS 143, Accounting for Asset Retirement
Obligations. Under FAS 143, the fair value of a liability for an asset
retirement obligation must be recognized in the period in which it is incurred
if a reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the related
long-lived asset. FAS 143 is effective for fiscal years beginning after June
15, 2002. The Company does not believe that FAS 143 will have a material
impact on their financial position, cash flows, or results of operations.

In April 2002, the FASB issued FAS 145, Rescission of FASB Statements No. 4,
44, and 64, Amendment of FAS Statement No. 13, and Technical Correction. FAS
145 eliminates extraordinary accounting treatment for reporting a loss on debt
extinguishments, and amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, and describe applicability
under changed conditions. The provisions of FAS 145 are effective for the
Company with the beginning of fiscal year 2003; however, early application of
FAS 145 is encouraged. Debt extinguishments reported as extraordinary items
prior to scheduled or early adoption of FAS 145 would be reclassified in most
cases following adoption. The Company does not anticipate a significant impact
on their financial position, cash flows, or results of operations from adopting
FAS 145.

In June 2002, the FASB issued FAS 146, Accounting for Costs Associated with
Exit or Disposal Activities. FAS 146 requires the recording of costs
associated with exit or disposal activities at their fair values when a
liability has been incurred. Under previous guidance, certain exit costs were
accrued upon managements commitment to an exit plan, which is generally before
an actual liability has been incurred. Adoption of FAS 146 is required for the
Companys fiscal year beginning January 1, 2003. The Company does not believe
that the adoption of FAS 146 will have a significant impact on their financial
position, cash flows, or results of operations.

NOTE 2. LAND HELD FOR RESIDENTIAL DEVELOPMENT

In February 2001, the Company foreclosed on a mortgage loan in default and
obtained ownership of the residential land development project (the Project)
securing the loan. The Companys recorded investment in the loan at the time
of foreclosure was approximately $2.7 million. The Company obtained a
third-party appraisal of the Project at the time of the foreclosure which was
used by management to value the Project at approximately $2.5 million, net of
estimated costs to sell. A loss of $225,000 was recorded upon recording the
initial carrying value of the Project upon foreclosure. The three phases
comprising this Project which totaled 117 lots were in various stages of
completion. The appraisal provided an allocation of the fair value as follows:
(i) phase Is 15 lots at $35,000 each, (ii) phase IIs 61 lots and phase IIIs
41 lots all at approximately $15,000 each. The appraisal was based on the
current condition of the lots and did not consider costs which the Company or
its assignee would incur to get these lots ready for commencement of
homebuilding. The Company subsequently assigned the Project to Specialty
Acquisition, its wholly-owned taxable REIT subsidiary.

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In June 2002, Specialty Acquisition entered into an agreement with a
third-party homebuilder to transfer title to the lots to the homebuilder in
exchange for an upfront payment, in cash, equal to a portion of the
original appraised value of the uncompleted lots. In addition, Specialty
Acquisition is entitled to 50% of the profits, if any, realized by the
homebuilder upon closing of the sale of each home built. Specialty Acquisition
also receives a security interest in each lot transferred to the homebuilder,
subordinate to the senior interest held by the homebuilders construction
lender. Specialty Acquisition is not obligated for any future costs of the
Project once a completed lot is delivered to the homebuilder and the upfront
payment received by Specialty Acquisition is non-refundable. This arrangement
is accounted for as a real estate investment by which cash received upfront
upon delivery of the completed lots reduces Specialty Acquisitions investment
in the land held for residential development. Upon the sale of completed homes
by the homebuilder to an independent third-party, Specialty Acquisition will
recognize revenue equal to its share of the profits realized and received and
may record a provision for income taxes if Specialty Acquisition is expected to
generate taxable income for the year.

As of September 30, 2002, all 76 lots in phases I and II have been transferred
and the homebuilder has paid Specialty Acquisition $565,943 in conjunction with
the delivery of these completed lots. In order to complete the lots, Specialty
Acquisition has incurred site mapping and other engineering costs and has
incurred real estate taxes, all of which were capitalized. As of September 30,
2002, no developed lots have been sold by the homebuilder. The following
provides a roll-forward of this account in 2002:

|                                                |  |   |           |  
|----------------------------------------------- |  | - | --------- | -
|Balance-December 31, 2001                       |  | $ | 2,782,715 |  
|Capitalized costs in 2002                       |  |   | 199,919   |  
|Cash payments received from homebuilder in 2002 |  |   | (565,943  | )
|                                                |  |   |           |  
|Balance-September 30, 2002                      |  | $ | 2,416,691 |  
|                                                |  |   |           |  

NOTE 3. COLLATERALIZED NOTES

On January 18, 2001, the Companys initial registration statement covering the
public sale of up to $250,000,000 of collateralized notes (the Collateralized
Notes) was declared effective by the Securities and Exchange Commission. The
Collateralized Notes are secured by mortgage loans at least one and one-half
times the aggregate principal amount outstanding on the Collateralized Notes.
On May 7, 2002, a new registration statement was declared effective by the
Securities and Exchange Commission increasing the amount of Collateralized
Notes available for sale up to $269,312,000 (including amounts remaining unsold
under the prior registration). This new registration statement permits the
issuance of Collateralized Notes with maturities of up to five years. The
outstanding Collateralized Notes have maturities ranging from one month to five
years from the date of issue and bear a fixed rate of interest (3.25% to 7.5%
at September 30, 2002 and 4.50% to 8.00% at December 31, 2001). The effective
yield of Collateralized Notes outstanding at September 30, 2002 and December
31, 2001 and was 4.88% and 6.93%, respectively. At September 30, 2002 and
December 31, 2001, the Collateralized Notes were secured by $25,881,527 and
$19,401,620, respectively, of mortgage loans pledged as collateral,
respectively.

There are several related parties who held Collateralized Notes with the
Company. As of September 30, 2002 and December 31, 2001, they owned
approximately $991,000 and $1,080,000 in Collateralized Notes, which
represented approximately 6.2 % and 11.4% of the total balance, respectively.

NOTE 4. DELINQUENT LOANS

At September 30, 2002, the Company had three loans that were 60 to 89 days past
due, totaling approximately $6.9 million in principal and accrued interest.
The average loan to value on these loans was 54%. The Company has accrued
interest on these three loans; however, in accordance with our revenue
recognition policy, the

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Company will cease accruing additional interest income if these loans become 90
days past due. The accrued interest recorded on the three delinquent loans at
September 30, 2002 was approximately $191,000. Management has evaluated the
collectability of these delinquent loans in light of the types and dollar
amounts of the loans in the portfolio, adverse situations that may affect the
borrowers ability to repay, prevailing economic conditions and the underlying
collateral securing the loan.

The company was in the process of foreclosure on two of these three loans
totaling approximately $5.2 million of accrued interest and principal.

NOTE 5. RELATED PARTY

On October 23, 1997, the Company entered into a Management Agreement with the
Manager. The Manager is responsible for the day-to-day operations of the
Company and will perform such services and activities relating to the assets
and operations of the Company as are provided for in the Management Agreement.
The Manager originates the mortgage loans in the name of the Manager, and sells
the loans to the Company. The Manager retains the servicing of the mortgage
loans.

The Manager receives the mortgage placement fees or points, usually charged to
the borrower for and upon origination, extension or refinancing of loans, up to
2.5% of the loan balance with any additional fees or points paid to the
Company, effectively discounting the purchase price of the loan from the
Manager. The Manager will also receive a fee for loan servicing equal to
one-half of one percent per annum of the total mortgage loans serviced and any
late payment charges. These fees are earned directly by the Manager and
deducted from the interest or late payments to cover costs to manage the
portfolio, effectively reducing the yield to the Company. In
addition, the Manager will receive, as incentive compensation for each fiscal
quarter, an amount equal to 50% of the taxable net income before the dividend
deduction of the Company in excess of an annualized return to the Company equal
to 12%. For the nine months ended September 30, 2002 and 2001, the Manager
earned the following:

|                                    |  |      |         |      |  |   |         | 
|----------------------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                                    |  | 2002 |         | 2001
|                                    |  |      |         |     
|Loan origination and
Extension fees |  | $    | 927,519 |      |  | $ | 667,750 | 
|Loan servicing fees                 |  |      | 269,778 |      |  |   | 59,512  | 
|Late payment charges                |  |      | 9,295   |      |  |   | 16,668  | 
|Incentive compensation bonus        |  |      | 93,977  |      |  |   | 49,846  | 

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NOTE 6. EARNINGS PER SHARE

Following is a reconciliation of earnings per share (in thousands, except share
and per share amounts):

|                                                                                                                   |                              |   |                    |      |                   |   |           |      |      |   |           |      |  |   |           |      | 
|------------------------------------------------------------------------------------------------------------------ | ---------------------------- | - | ------------------ | ---- | ----------------- | - | --------- | ---- | ---- | - | --------- | ---- |  | - | --------- | ---- | 
|                                                                                                                   |                              |   | Three Months Ended |      | Nine Months Ended
|                                                                                                                   |                              |   | September 30,      |      | September 30,    
|                                                                                                                   |                              |   |                    |      |                  
|                                                                                                                   |                              |   | 2002               |      | 2001              |   | 2002      |      | 2001
|                                                                                                                   |                              |   |                    |      |                   |   |           |      |     
|Basic:                                                                                                             |                              |   |                    |      |                   |   |           |      |      |   |           |      |  |   |           |     
|Net earnings applicable to common stock                                                                            |                              | $ | 1,936              |      |                   | $ | 213       |      |      | $ | 5,654     |      |  | $ | 1,387     |     
|                                                                                                                   |                              |   |                    |      |                   |   |           |      |      |   |           |      |  |   |           |     
|Weighted average number of shares  basic                                                                          |                              |   | 7,075,801          |      |                   |   | 340,400   |      |      |   | 6,983,196 |      |  |   | 338,645   |     
|                                                                                                                   |                              |   |                    |      |                   |   |           |      |      |   |           |      |  |   |           |     
|                                                                                                                   | Earnings per share  basic   |   | $                  | 0.27 |                   |   | $         | 0.63 |      |   | $         | 0.81 |  |   | $         | 4.09 | 
|                                                                                                                   |                              |   |                    |      |                   |   |           |      |      |   |           |      |  |   |           |     
|Diluted:                                                                                                           |                              |   |                    |      |                   |   |           |      |      |   |           |      |  |   |           |     
|Add: preferred stock dividend                                                                                      |                              |   |                   |      |                   |   | 1,414     |      |      |   |          |      |  |   | 2,815     |     
|                                                                                                                   |                              |   |                    |      |                   |   |           |      |      |   |           |      |  |   |           |     
|Net earnings for diluted earnings per share                                                                        |                              | $ | 1,936              |      |                   | $ | 1,627     |      |      | $ | 5,654     |      |  | $ | 4,202     |     
|                                                                                                                   |                              |   |                    |      |                   |   |           |      |      |   |           |      |  |   |           |     
|Weighted average number of shares  basic                                                                          |                              |   | 7,075,801          |      |                   |   | 340,400   |      |      |   | 6,983,196 |      |  |   | 338,645   |     
|Conversion of preferred stock under the if converted
method                                                        |                              |   |                   |      |                   |   | 5,750,412 |      |      |   |          |      |  |   | 5,044,492 |     
|Weighted average shares of dilutive stock
options using average period stock price
under the treasury stock method |                              |   | 39,154             |      |                   |   | 43,399    |      |      |   | 39,154    |      |  |   | 43,399    |     
|                                                                                                                   |                              |   |                    |      |                   |   |           |      |      |   |           |      |  |   |           |     
|Weighted average number of shares  diluted                                                                        |                              |   | 7,114,955          |      |                   |   | 6,134,211 |      |      |   | 7,022,350 |      |  |   | 5,426,536 |     
|                                                                                                                   |                              |   |                    |      |                   |   |           |      |      |   |           |      |  |   |           |     
|                                                                                                                   | Earnings per share  diluted |   | $                  | 0.27 |                   |   | $         | 0.27 |      |   | $         | 0.81 |  |   | $         | 0.77 | 
|                                                                                                                   |                              |   |                    |      |                   |   |           |      |      |   |           |      |  |   |           |     

NOTE 7. SUBSEQUENT EVENTS

On October 30, 2002, the Board of Directors declared a dividend equal to $0.30
per share of the Companys common stock which was paid on November 1, 2002 to
all common stockholders on record as of September 30, 2002.

On November 8, 2002, the Company obtained a new $5.0 million line of credit
with a bank. The line of credit expires on October 15, 2003.

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Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operation

The following discussion should be read in conjunction with the Financial
Statements and Notes.

Safe Harbor Statement

Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995: Statements in this discussion regarding Specialty Trust, Inc., and our
business, which are not historical facts are forward-looking statements that
involve risks and uncertainties. For a discussion of such risks and
uncertainties, which could cause actual results to differ from those contained
in the forward-looking statements, we refer you to Risk Factors commencing on
Page 13 of our Prospectus included in the Registration Statement
on
Form S-11
(File No. 333-86972) relating to our collateralized investment notes.

Company Overview

The Company is a mortgage finance company specializing in acquiring
nonconforming residential and commercial real estate mortgage loans for the
purpose of holding the loans in its portfolio. We fund our loans chiefly
through equity and to a lesser degree with short-term debt. This short-term
debt is in the form of secured bank lines of credit and collateralized notes.

Our business objective and strategy is to build and hold a portfolio of
mortgage loans for investment that generates net income for distribution to
stockholders. Loans are made principally to borrowers in the States of Nevada,
Arizona, Colorado, California, and Utah whose needs are generally not being
served by traditional financial institutions. Our strategy is to focus on land
loans, construction loans, commercial building loans and nonconforming
single-family and small multi-family residential loans. We generally limit the
amount of our investment in any single mortgage loan or in mortgage loans to
one borrower to $10 million, although the board of directors may approve
exceptions. Most loans will have terms of one to three years. Our mortgage
loans may be secured by mortgages on unimproved as well as improved real
property and non-income producing as well as income-producing real property.
Some mortgage loans may be secured by borrowers leasehold interest in real
property. Our loans generally produce higher yields than are obtained on
traditional single-family residential mortgage loans, but are subject to higher
risks of default and loss.

We are structured as a real estate investment trust (REIT), thereby generally
eliminating federal taxes at the corporate level on income we distribute to
stockholders. Because we are not structured as a traditional lender that
accepts deposits, we are subject to substantially less regulatory oversight and
incur lower compliance expenses compared to banks, thrifts and many other
holders of mortgage loans.

Specialty Financial serves as our manager and is responsible for loan
originations, loan servicing, and our day-to-day operations, subject to the
supervision of our board of directors.

Significant Aspects of Third Quarter 2002 and Year End 2001

At September 30, 2002, we owned approximately $75.9 million of mortgage loans
and approximately
$2.4 million of land held for residential development. Our total assets were
approximately $85.3 million. These assets were financed with approximately
$16.0 million of recourse short-term debt, and approximately
$69.1 million of common equity.

As of September 30, 2002, our equity-to-assets ratio was 81.0% and our
debt-to-equity ratio was 23.5%. For the quarter ended September 30, 2002, our
annualized return on equity was 11.6%.

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At December 31, 2001, we owned approximately $73.3 million of mortgage loans
and approximately $2.8 million of land held for residential development. Our
total assets were approximately $76.7 million. The assets were financed with
approximately $9.5 million in recourse short-term debt, and approximately $65.0
million of common equity.

As of December 31, 2001, our equity-to-asset ratio was 84.8% and our
debt-to-equity ratio was 17.9%, and our average return on equity for the year
ended December 31, 2001 was 11.0%.

The increase in assets was the result of additional cash received from
operating activities and cash received from the collateralized notes program.
The increase in stockholders equity at September 30, 2002 was due to retained
earnings not yet being declared as dividends as they were at December 31, 2001.
In addition, the increase was also a result of stockholders reinvesting
dividends in common stock through the dividend reinvestment program.

Changes in Financial Condition

Assets

Cash and Cash Equivalents. Cash and cash equivalents increased by
approximately $6.3 million as of September 30, 2002, compared to December 31,
2001. The timing of loan funding and the timing of debt or equity issues
generally determine the amount of cash held by the Company. It is our goal to
keep cash invested in loans or other financial instruments and therefore keep
cash balances low whenever possible.

Land Held for Residential Development.Land Held for Residential Development
decreased by approximately $316,000 (11%). Land held for residential
development represents three phases of undeveloped lots (the Project) which
were obtained by the Company through foreclosure in February 2001 of the
collateral securing a mortgage loan. This Project includes 117 lots which were
in various stages of completion at the time of foreclosure. An appraisal was
obtained at the time of foreclosure which provided an allocation of the fair
value as follows: (i) phase Is 15 lots at $35,000 each, (ii) phase IIs 61
lots and phase IIIs 41 lots all at approximately $15,000 each. The appraisal
was based on the current condition of the lots and did not consider costs which
the Company or its assignee would incur to get these lots ready for
commencement of homebuilding. The Company subsequently assigned the Project to
Specialty Acquisition Corporation (Specialty Acquisition), its wholly-owned
taxable REIT subsidiary in May 2002.

In June 2002, Specialty Acquisition entered into an agreement with a
third-party homebuilder to transfer title to the lots to the homebuilder in
exchange for an upfront payment, in cash, equal to a portion of the
original appraised value of the uncompleted lots. In addition, Specialty
Acquisition is entitled to 50% of the profits, if any, realized by the
homebuilder upon closing of the sale of each home built. Specialty Acquisition
also receives a security interest in each lot transferred to the homebuilder,
subordinate to the senior interest held by the homebuilders construction
lender. Specialty Acquisition is not obligated for any future costs of the
Project once a completed lot is delivered to the homebuilder and the upfront
payment received by Specialty Acquisition is non-refundable. This arrangement
is accounted for as a real estate investment by which cash received upfront
upon delivery of the completed lots reduces Specialty Acquisitions investment
in the land held for residential development. Upon the sale of completed homes
by the homebuilder to an independent third-party, Specialty Acquisition will
recognize revenue equal to its share of the profits realized and received and
may record a provision for income taxes if Specialty Acquisition is expected to
generate taxable income for the year.

As of September 30, 2002, all 76 lots in phases I and II have been transferred
and the homebuilder has paid Specialty Acquisition $565,943 in conjunction with
the delivery of these completed lots. In order to complete the lots, Specialty
Acquisition has incurred site mapping and other engineering costs and has
incurred real estate taxes, all of which were capitalized.

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As of September 30,
2002, no developed lots have been sold by the homebuilder. The following
provides a roll-forward of this account in 2002:

|                                                |  |   |           |  
|----------------------------------------------- |  | - | --------- | -
|Balance  December 31, 2001                     |  | $ | 2,782,715 |  
|Capitalized costs in 2002                       |  |   | 199,919   |  
|Cash payments received from homebuilder in 2002 |  |   | (565,943  | )
|                                                |  |   |           |  
|Balance  September 30, 2002                    |  | $ | 2,416,691 |  
|                                                |  |   |           |  

Real Estate Owned (Held for Sale).Real Estate Owned increased by
approximately $505,000 (113%). This increase was due to the acquisition of an
office building through foreclosure in July 2002. This increase was offset by
the sale of another office building in early June 2002. The net gain on the
sale was approximately $36,000. Specialty Trust also had a single-family
residence, which was acquired through foreclosure in May 2002. The property was
subsequently sold in June 2002. The net gain on sale was approximately
$83,000, which will be deferred over the life of the new loan under the
installment method. The amortization of the deferred gain recognized for the
three and nine months ended September 30, 2002 was approximately $15,000 and
$20,000 respectively.

Mortgage Loans.Mortgage loans held for investment net of allowance for loan
losses increased by approximately $2.1 million (35%). This increase in
mortgage loans was due primarily to new loans being underwritten and funded
faster than loans were maturing.

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Liabilities

Dividends Payable.Dividends payable decreased by approximately $2.0 million
(100%) as of September 30, 2002, compared to December 31, 2001 as a result of
the payment of the accrued dividend in January 2002.

Collateralized Notes and Collateralized Notes  Related Party.Collateralized
Notes as a whole increased by approximately $6.5 million (69%) because of
increased issuance of such notes due to increased demand. Demand increased
primarily because the stated interest rates of the notes are slightly higher
than the average rate paid by banks. Our collateralized notes were approved for public sale on
January 19, 2001 in our initial registration statement. A new registration
statement was filed and declared effective on May 7, 2002.

Results of Operations

The rate volume analysis set forth in the following table analyzes changes in
net interest income for the periods indicated by their rate and volume
components.

|                |                               |       |   |                    |         |                    |   |            |          |        |   |         |         |        |   |           |           |            |   |          |          |   |   |           |           | 
|--------------- | ----------------------------- | ----- | - | ------------------ | ------- | ------------------ | - | ---------- | -------- | ------ | - | ------- | ------- | ------ | - | --------- | --------- | ---------- | - | -------- | -------- | - | - | --------- | --------- | 
|                |                               |       |   | Three Months Ended |         | Nine Months Ended 
|                |                               |       |   | September 30, 2002 |         | September 30, 2002
|                |                               |       |   |                    |         |                    |   | Over/Under |          |        |   |         |         |        |   |           |           | Over/Under |   |          |          |  
|                |                               |       |   | September 30, 2001 |         | September 30, 2001
|                |                               |       |   |                    |         |                   
|                |                               |       |   | Net                |         |                    |   |            |          |        |   |         |         | Net    |   |           |           |            |   |          |          |  
|                |                               |       |   | Change             |         | Rate               |   | Volume     |          | Change |   | Rate    |         | Volume
|                |                               |       |   |                    |         |                    |   |            |          |        |   |         |         |       
|Interest Income |                               |       |   |                    |         |                    |   |            |          |        |   |         |         |        |   |           |           |            |   |          |          |   |   |          
|                | Mortgage Loans                |       | $ | 342,034            |         |                    | $ | (421,204   | )        |        | $ | 763,238 |         |        | $ | 1,474,427 |           |            | $ | (202,292 | )        |   | $ | 1,676,719 |          
|                | Cash Accounts                 |       |   | (7,014             | )       |                    |   | (35,204    | )        |        |   | 28,190  |         |        |   | 15,626    |           |            |   | (30,138  | )        |   |   | 45,764    |          
|                |                               |       |   |                    |         |                    |   |            |          |        |   |         |         |        |   |           |           |            |   |          |          |   |   |          
|                |                               | Total |   |                    | 335,020 |                    |   |            | (456,408 | )      |   |         | 791,428 |        |   |           | 1,490,053 |            |   |          | (232,430 | ) |   |           | 1,722,483 | 
|                |                               |       |   |                    |         |                    |   |            |          |        |   |         |         |        |   |           |           |            |   |          |          |   |   |          
|Expense         |                               |       |   |                    |         |                    |   |            |          |        |   |         |         |        |   |           |           |            |   |          |          |   |   |          
|                | Line of Credit                |       |   | (452               | )       |                    |   | 984        |          |        |   | (1,436  | )       |        |   | (49,065   | )         |            |   | (14,724  | )        |   |   | (34,341   | )        
|                | Notes Payable                 |       |   | 1,796              |         |                    |   |           |          |        |   | 1,796   |         |        |   | 3,121     |           |            |   |         |          |   |   | 3,121     |          
|                | Collateralized Notes          |       |   | 20,461             |         |                    |   | (74,420    | )        |        |   | 94,881  |         |        |   | (6,830    | )         |            |   | (217,198 | )        |   |   | 210,368   |          
|                |                               |       |   |                    |         |                    |   |            |          |        |   |         |         |        |   |           |           |            |   |          |          |   |   |          
|                |                               | Total |   |                    | 21,805  |                    |   |            | (73,436  | )      |   |         | 95,241  |        |   |           | (52,774   | )          |   |          | (231,922 | ) |   |           | 179,148   | 
|                |                               |       |   |                    |         |                    |   |            |          |        |   |         |         |        |   |           |           |            |   |          |          |   |   |          
|                | Change in net
interest income |       | $ | 313,215            |         |                    | $ | (382,972   | )        |        | $ | 696,187 |         |        | $ | 1,542,827 |           |            | $ | (508     | )        |   |   | 1,543,335 |          
|                |                               |       |   |                    |         |                    |   |            |          |        |   |         |         |        |   |           |           |            |   |          |          |   |   |          

Our operating results include all of the reported income of our mortgage
finance operation. The comparison of the three and nine months ended September
30, 2002 to the three and nine months ended September 30, 2001 are as follows:

Interest Income, Mortgage Assets.Interest income increased approximately
$335,000 (16%) and $1.49 million (27%) for the three and nine months ended
September 30, 2002, respectively, as compared to the comparable prior year
periods. This increase was due primarily to additional funds invested in
mortgage loans as a result of increased cash available from dividend
reinvestments during the period and the use of short-term borrowings to fund a
corresponding increase in loan demand.

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Total Interest Expense.Interest expense increased by approximately $22,000
(12%) and decreased approximately $53,000 (9%) for the three and nine months
ended September 30, 2002, respectively, as compared to the comparable prior
year periods. The increase for the three months ended September 30, 2002 is
primarily due to the increase in collateralized notes from the prior year. The
decrease for the nine months ended September 30, 2002 was primarily due to the
Companys limited use of the lines of credit and the decrease in interest
rates. The decrease in the line of credit use was offset by the Company
utilizing collateralized notes facility.

Other Income.Other income increased by approximately $4,000 (100%) and
$85,000 (100%) for the three and nine months ended September 30, 2002,
respectively, as compared to the comparable prior year periods. Other income
increased for the nine month period primarily due to the gain on sale of real
estate owned of approximately $56,000 and the net operating income generated
from one of these properties sold of approximately $26,000.

Total Expenses.Total expenses increased by approximately $1,000 (1%) and
$154,000 (39%) for the three and nine months ended September 30, 2002,
respectively, as compared to the comparable prior year periods. This change
was primarily due to an increase in professional fees and compensation expense
related to non employee exercised options.

Interest Rate/Market/Credit Risk

We seek to manage the interest rate, credit and market risk of our portfolio.
By originating short-term loans (generally less than three years), we can
significantly reduce the risk of changing interest rates. Additionally, we
continue to monitor the quality of our loans through our underwriting
guidelines and loss mitigation through our servicing procedures. In this way
we seek to control credit risk. The majority of our loans are in the state of
Nevada, but we are also acquiring loans in Arizona, Colorado, California and
Utah. This will help diversify the portfolio and reduce the risk of investing
in one market.

The following table sets forth the weighted average yield earned on our assets
and the weighted average expense of our liabilities for the periods shown.

|                 |                      |                     |  |                    |      |                   |  |           |      |           |  |       |      |   |  |       |      |  
|---------------- | -------------------- | ------------------- |  | ------------------ | ---- | ----------------- |  | --------- | ---- | --------- |  | ----- | ---- | - |  | ----- | ---- | -
|                 |                      |                     |  | Annualized         |      | Annualized       
|                 |                      |                     |  |                    |      |                  
|                 |                      |                     |  | Three Months Ended |      | Nine Months Ended
|                 |                      |                     |  |                    |      |                  
|                 |                      |                     |  | 9/30/2002          |      | 9/30/2001         |  | 9/30/2002 |      | 9/30/2001
|                 |                      |                     |  |                    |      |                   |  |           |      |          
|Interest Income  |                      |                     |  |                    |      |                   |  |           |      |           |  |       |      |   |  |      
|                 | Mortgage Loans       |                     |  | 12.20              | %    |                   |  | 12.99     | %    |           |  | 12.52 | %    |   |  | 12.87 | %   
|                 | Cash Accounts        |                     |  | 1.68               | %    |                   |  | 2.50      | %    |           |  | 1.71  | %    |   |  | 1.74  | %   
|Interest Expense |                      |                     |  |                    |      |                   |  |           |      |           |  |       |      |   |  |      
|                 | Line of Credit       |                     |  | 4.84               | %    |                   |  | 6.95      | %    |           |  | 4.75  | %    |   |  | 6.95  | %   
|                 | Notes Payable        |                     |  | 6.01               | %    |                   |  |          |      |           |  | 5.59  | %    |   |  |      |     
|                 | Collateralized Notes |                     |  | 5.32               | %    |                   |  | 7.23      | %    |           |  | 5.36  | %    |   |  | 7.50  | %   
|                 |                      | Net Interest Spread |  |                    | 6.40 | %                 |  |           | 5.16 | %         |  |       | 6.69 | % |  |       | 4.71 | %

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Liquidity and Capital Resources

We manage our short-term liquidity (that is, our funding needs to cover
commitments and anticipated uses occurring over the next 12 months) in a number
of ways. First, the scheduled interest payments from our mortgage portfolio
produce monthly cash flow, which can be used to originate new loans or to pay
dividends to stockholders. This source provides approximately $9.3 million on
an annual basis. We generally have the ability to apply this cash flow as
needed.

Secondly, the payoff and prepayment of loans provides additional liquidity to
our portfolio. Historically, we have experienced annual loan payoffs and
prepayments of approximately 30% to 35% of our outstanding portfolio. Since our
loan terms are usually one to three years, the rate of principal payoffs is
significant. With a current portfolio of approximately $75.9 million, we
anticipate annual cash flows from principal pay downs of approximately $22.8
million. As we continue to issue collateralized notes, our portfolio will
increase as will the cash flow from principal pay downs. Again, normally these
funds are used to originate new mortgage loans, but can be used in other ways.

Thirdly, we have the ability to issue collateralized notes to provide
additional liquidity to our portfolio. As of May 7, 2002, we were able to
offer collateralized notes with maturities of up to five years. Although not a
committed source, we can utilize collateralized notes to meet a portion of our
short-term funding needs under normal market conditions.

Lastly, we had two committed lines of credit with commercial banks to provide
another level of liquidity as of September 30, 2002. We can borrow $6.5
million and $3.0 million on these two separate lines of credit to provide
funding for new mortgage loans, for an aggregate of $9.5 million. The $6.5
million and $3.0 million lines are available through July 1, 2003. On November
4, 2002 the Company obtained a third line of credit totaling $5.0 million and
will mature on October 15, 2003. All three of the lines are collateralized by
mortgage loans and borrowings under the lines bear interest at the applicable
banks prime or reference rate. We are required to comply with various
operating and financial covenants in the lines. Such covenants include
restrictions on (i) any change in business activities from those we are
presently engaged in, and (ii) any change in executive and management personnel
that would result in reduced qualifications and experience compared to present
personnel. Such covenants also contain requirements for (i) minimum tangible
net worth, and (ii) maximum debt-to-equity ratio. We are in compliance with
these covenants. The Company did not have an outstanding balance on these
lines of credit as of September 30, 2002 and December 31, 2001.

We believe the combination of these sources of capital allows us to manage our
anticipated short-term liquidity needs and thereby efficiently use our capital
resources.

With respect to our long-term liquidity (funding needs during periods beyond
the next 12 months), our only commitments that require funding are those
arising from our construction loans. At September 30, 2002, the Company was
committed to advancing an additional $8.1 million related to its construction
loans. We do not have any commitments for material capital expenditures or
payments due on long-term debt obligations. We believe the same sources we
rely on for short-term liquidity needs will be sufficient to fund our long-term
needs as well.

Risk Management and the Allowance for Loan Losses

The loan portfolio is the Companys primary asset subject to credit risk. To
reflect this credit risk, the Company sets aside an allowance or reserve for
credit losses through periodic changes to earnings. These charges are shown in
the Companys Statement of Earnings as provision for loan losses. Credit risk
is managed and monitored through the use of lending standards, a thorough
review of potential borrowers, and an on-going review of payment performance.
Asset quality administration, including early identification of problem loans
and timely resolution of problems, further enhances management of credit risk
and minimization of loan losses. All specifically identifiable and
quantifiable losses are immediately charged off against the allowance.
Charged-off

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loans are subject to periodic review, and specific efforts are taken to achieve
maximum recovery of principal and interest.

Management reviews the adequacy of the Allowance for Loan Losses on a quarterly
basis to determine whether the allowance is adequate to provide for probable
losses inherent in the loan portfolio as of the balance sheet date. Valuation
of the adequacy of the allowance for loan losses is based primarily on
managements periodic assessment and grading of the loan portfolio as described
below. Additional factors considered by management include the consideration
of past loan loss experience, trends in past due and nonperforming loans, risk
characteristics of the various classifications of loans, current economic
conditions, the fair value of underlying collateral, and other regulatory or
legal issues that could affect loan losses.

Loans are initially graded when originated. They are re-graded on a quarterly
basis and numerous factors are considered such as renewal, loans to the same
borrower, identified facts demonstrating heightened risk of nonpayment, or if
they have become delinquent. The loan review, or grading process attempts to
identify and measure problem and watch list loans. Problem loans are those
loans with higher than average risk with workout and/or legal action probable
within one year. These loans are reported quarterly to the directors for
action to be taken. Watch list loans are those loans considered as having
weakness detected in character, capacity to repay or balance sheet concerns,
and prompt management to take corrective action at the earliest opportunity.
Problem and watch list loans generally exhibit one or more of the following
characteristics:





| |  |  | Adverse financial trends and conditions                                              
| | - |  | -------------------------------------------------------------------------------------
|
| |  |  | Decline in the entire industry                                                       
|
| |  |  | Managerial problems                                                                  
|
| |  |  | Customers failure to provide financial information or other collateral documentation
|
| |  |  | Repeated delinquency, overdrafts or renewals                                         

The loan review process reviews every significant problem loan and assessments
are performed quarterly to confirm the risk rating to that loan, proper
accounting and the adequacy of loan loss reserve assigned.

After reviewing the loan portfolio, management will allocate or assign a
portion of the allowance for loan loss to groups of loans and individual loans
to cover managements estimate of probable loss. Allocation is related to the
grade of the loan and includes a component resulting from the application of
the measurement criteria of Statements of Financial Accounting Standards No 114
(SFAS 114) Accounting by Creditors for Impairment of a Loan and No 118 (SFAS
118) Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures. Management then compares the amounts allocated for probable
losses to the current allowance. To the extent that the current allowance is
insufficient to cover managements best estimate of probable losses, management
records additional provision for credit loss. If the allowance is greater than
required at that point in time, provision expense is adjusted accordingly.

While management uses available information to recognize losses on loans,
future adjustments to the allowance for loan loss may be necessary based on
changes in economic conditions and the impact of such changes on the Companys
borrowers.

Consistent with US GAAP and with the methodologies used in estimating the
unidentified losses in the loan loss portfolio, the allowance for loan loss
consists of two components as discussed below.

First the allowance includes a component resulting from the application of the
measurement criteria of SFAS 114 and SFAS 118.

The second or unallocated component of the allowance for loan loss is a
component that is intended to absorb losses that may not be provided for by the
first component. The primary reason that the first component discussed above
might not be sufficient to absorb the losses present in portfolios, and the
unallocated portion of the allowance for loan loss is used to provide for the
losses that have occurred, is because there are limitations to any credit risk
grading process. Even for experienced loan reviewers, grading loans and
estimating losses

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involves a significant degree of judgment regarding the present situation with
respect to individual loans and the portfolio as a whole. In addition, it is
possible that grading and loan review may be done without knowing whether all
relevant facts are at hand. For example, troubled borrowers may inadvertently
or deliberately omit important information from correspondence with lending
officers regarding their financial condition and the diminished strength of
repayment sources.

While there exists probable asset quality problems in the loan portfolio,
management believes sufficient reserves have been provided in the allowance for
loan loss to absorb probable losses in the loan portfolio at September 30,
2002.

Non-Performing Loans

The accrual of interest income is discontinued when a loan becomes 90 days past
due as to principal or interest. If collectibility is in doubt, cash receipts
on non-accrual loans are used to reduce principal rather than recorded as
interest income. As of September 30, 2002, no loan had become 90 days past
due. Three loans were delinquent, however, management does not consider them
to be impaired as their average loan-to-value ratio was 54%.

Land Held for Residential Development and Real Estate Owned (Held for Sale)

Land Held for Residential Development and Real Estate Owned (Held for Sale)
includes real estate acquired through foreclosure and is carried at the lower
of the recorded investment in the loan, inclusive of any senior indebtedness,
or the propertys estimated fair value, less estimated costs to sell. Costs
related to the improvements to the property are capitalized. All other costs
are expensed.

In accordance with Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-lived Assets, the Company
periodically compares the carrying value of real estate to expected future cash
flows for the purpose of assessing the recoverability of the recorded amounts.
If the carrying value exceeds future cash flows, the assets are reduced to fair
value. There were no required reductions to the carrying value of Land Held
for Residential Development or Real Estate Owned for the three and nine months
ended respectively September 30, 2002.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk includes risks that arise from changes in interest rates, foreign
currency exchange rates, commodity prices, equity prices and other market
changes that affect market sensitive instruments. We are a party to various
financial instruments that are subject to market risk. These instruments
include commercial mortgage loans, land loans, nonconforming single-family and
small multifamily residential mortgage loans, lines of credit and
collateralized notes. Our financial instruments involve elements of interest
rate risk. Our loan portfolio is also subject to real estate market risk.

None of our financial instruments have been entered into for trading purposes.
We have not entered into, nor do we intend to enter into, any financial
instruments for trading or speculative purposes. As we have no investments
outside of the United States, we are not subject to foreign currency exchange
rate risk. We do not hedge our exposure to changes in the fair value of our
loans through the use of derivative instruments. Instead, we have managed these
exposures through careful underwriting and servicing of our loans. Further, we
target as potential customers borrowers with relatively significant equity
value in their property.

Loans provide for either monthly payments of interest only and a payment of
principal in full at the end of the loan term, or interest only with principal
payments upon lot releases and principal in full at the end of the loan term.
Because of the high yield of our loans, we do not believe that a 1,000 basis
point increase or decrease in general interest rates (from those prevailing at
September 30, 2002) would have a significant impact on the fair value of our
fixed rate loan portfolio. A significant increase in interest rates could,
however, make it more difficult for our borrowers to sell or refinance their
respective properties. This could have a material adverse effect on us, either
through loan defaults or the need to grant extensions of the maturity dates,
thereby delaying repayment. Additionally, a real estate market decline in
Nevada, Arizona, Colorado, California, or Utah could have a material
adverse impact on us. If real estate values were to decline, borrowers might
find it difficult, if not impossible, to repay some or all of the principal and
accrued interest in connection with a sale or refinancing of the underlying
properties. A number of factors could lead to a real estate market decline
including, but not limited to, a slowdown in the growth of the economy,
increasing commercial interest rates and supply and demand factors. It is not
possible for us to quantify the potential loss in earnings or cash flows that
might result from a real estate market decline.

We have attempted to mitigate these risk exposures by carefully underwriting
and servicing our loans. The underwriting decision to provide a loan to an
applicant is based primarily upon the loan-to-value ratio for the underlying
collateral. Thereafter, our manager uses early intervention, aggressive
collection and loss mitigation techniques in the servicing process. While we
have attempted to mitigate these risk exposures, there can be no assurance that
these efforts will be successful.

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|        |  |                         |  |                                                                                                                                                                                                                                                                                                                          
|------- |  | ----------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item 4. |  | Controls and Procedures
|       
|        |  | (a)                     |  | Evaluation of Disclosure Controls and Procedures                                                                                                                                                                                                                                                                         
|       
|        |  |                         |  | The undersigned principal executive officer and principal
financial officer of Specialty Trust, Inc. conclude that
Specialty Trust, Inc.s disclosure controls and procedures are
effective based on their evaluation of these controls and
procedures as of a date within 90 days of the filing date of
this report.    
|       
|        |  | (b)                     |  | Changes in internal controls.                                                                                                                                                                                                                                                                                            
|       
|        |  |                         |  | There have been no significant changes in Specialty Trust,
Inc.s internal controls or in other factors that could
significantly affect these controls subsequent to the date of
the evaluation of these controls by the undersigned principal
executive officer and principal financial officer of Specialty
Trust, Inc.

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##### Table of Contents






PART II. OTHER INFORMATION
















|        |  |                                                                                                                                                                                                                                                                                              
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item 1. |  | Legal Proceedings.                                                                                                                                                                                                                                                                           
|       
|        |  | At September 30, 2002, other than litigation by the Company in the
ordinary course of business involving foreclosures or other exercise
of its rights as a creditor, there were no material pending
proceedings to which the Company was a party or of which any of its
property was subject.
|       
|Item 2. |  | Changes in Securities and Use of Proceeds.                                                                                                                                                                                                                                                   
|       
|        |  | None                                                                                                                                                                                                                                                                                         
|       
|Item 3. |  | Defaults Upon Senior Securities.                                                                                                                                                                                                                                                             
|       
|        |  | Not applicable                                                                                                                                                                                                                                                                               
|       
|Item 4. |  | Submission of Matters to a Vote of Security Holders.                                                                                                                                                                                                                                         
|       
|        |  | On July 29, 2002, Specialty Trust held its Annual Meeting of
Shareholders. The results of the meeting were as follows:                                                                                                                                                                       
|       
|        |  | (a) The election of Class II Directors: Ernest
Martinelli, Mark Combs and George E. Bull III.                                                                                                                                                                                                
|       
|        |  | (b) Approval of the appointment of KPMG LLP as the
Independent Auditors of the Company for the year ended
      December
31, 2002.                                                                                                                                                           
|       
|Item 5. |  | Other Information                                                                                                                                                                                                                                                                            
|       
|        |  | None                                                                                                                                                                                                                                                                                         

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Item 6. Exhibits and Reports on Form 8-K.

(a)  Exhibits

| |             |  |                                                                                                                                    
| | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------
| | Exhibit No. |  | Document                                                                                                                           
| |             |  |                                                                                                                                    
| | 3.1*        |  | Articles of Incorporation                                                                                                          
| | 3.3*        |  | Bylaws                                                                                                                             
| | 3.3.1*      |  | Amendment to Bylaws                                                                                                                
| | 11          |  | Statement Regarding Computation of per
share earnings for the three and nine months ended,
respectively September 30, 2002 and 2001
| | 99.1        |  | Statement Of Chief Executive Officer
Regarding Form 10-Q For Quarter Ending September 30, 2002                                     
| | 99.2        |  | Statement Of Chief Financial Officer
Regarding Form 10-Q For Quarter Ending September 30, 2002                                     



---

|*   |  | Incorporated by reference to the correspondingly
numbered exhibit to the Registration Statement on Form S-11
(Registration No. 333-44860) filed by Specialty Trust, Inc.
with the Securities and Exchange Commission on August 30, 2000.                              
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Reports on Form 8-K                                                                                                                                                                                                                                                   
|   
|    |  | On October 11, 2002, the Company filed a current report on
Form 8-K under Item 4 that Grant Thornton LLP was dismissed as
principal accountant and KPMG LLP was selected as the
Companys independent public accountants for the fiscal year
ending December 31, 2002.
|   
|    |  | On October 25, 2002, The Company filed a current report on
Form 8-K/A Amendment No. 1 to the current report on Form 8-K
dated October 11, 2002 to make certain technical corrections
to the original Form 8-K filed.                                                  

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##### Table of Contents






SIGNATURES

Pursuant to the requirements 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.

|                         |  |     |  |                                                                                                                                 
|------------------------ |  | --- |  | --------------------------------------------------------------------------------------------------------------------------------
|                         |  |     |  | SPECIALTY TRUST, INC.                                                                                                           
|                        
|                        
|Dated: November 19, 2002 |  | By: |  | /s/ Nello Gonfiantini III                                                                                                       
|                         |  |     |  |                                                                                                                                 
|                         |  |     |  | Nello Gonfiantini III
Chairman, President, and Secretary                                                                        
|                        
|                         |  |     |  | (Signed in the capacity of (i) duly
authorized officer of the registrant)                                                       
|                        
|Dated: November 19, 2002 |  | By: |  | /s/ Stephanie Schmitt                                                                                                           
|                         |  |     |  |                                                                                                                                 
|                         |  |     |  | Stephanie S. Schmitt
Chief Financial Officer                                                                                    
|                        
|                         |  |     |  | (Signed in the capacity of (i) duly
authorized officer of the registrant and
(ii) principal Financial Officer of the
registrant)

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##### Table of Contents






CERTIFICATION

I, Nello Gonfiantini, III, certify that:

I have reviewed this quarterly report on Form 10-Q of Specialty Trust, Inc.

Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

The registrants other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of
registrants board of directors (or persons performing the equivalent
function):



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weaknesses
in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        

The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                                                                  |  |                                     
|----------------------------------------------------------------- |  | ------------------------------------
|/s/ Nello Gonfiantini III

Name: Nello Gonfiantini III            |  | Dated this 19th day of November 2002
|Title: Chairman of the Board, President
            and Secretary |  |                                     

26



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##### Table of Contents






CERTIFICATION

I, Stephanie Schmitt, III, certify that:

I have reviewed this quarterly report on Form 10-Q of Specialty Trust, Inc.

Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

The registrants other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of
registrants board of directors (or persons performing the equivalent
function):



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weaknesses
in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        

The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                                                      |  |                                       
|----------------------------------------------------- |  | --------------------------------------
|/s/ Stephanie Schmitt                                 |  | Dated this 19th day of November, 2002.
|                                                      |  |                                       
|Name: Stephanie SchmittTitle: Chief Financial Officer |  |                                       

27