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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, 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: June 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: 333-44860

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

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

Yes [X]          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) | 6,974,245 as of August 14, 2002
|----------------------------- | -------------------------------



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TABLE OF CONTENTS



|                              |                                                                                              |                                                 |  |  |  |  |  | 
|----------------------------- | -------------------------------------------------------------------------------------------- | ----------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              |                                                                                              | 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                          
|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                   
|Exhibit 11                   
|Exhibit 99.1                 
|Exhibit 99.2                 



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##### Table of Contents



INDEX

PART I. FINANCIAL INFORMATION

|                           |  |                                                                                               |  |      |    | 
|-------------------------- |  | --------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                           |  |                                                                                               |  | Page
|                           |  |                                                                                               |  |     
|Item 1                     |  | Financial Statements 
        Specialty Trust, Inc.                                          |  |      | 3  | 
|                          
|                           |  | Consolidated Balance Sheets                                                                   |  |      | 3  | 
|                          
|                           |  | Consolidated Statements of
        Earnings                                                   |  |      | 4  | 
|                          
|                           |  | Consolidated Statements of
        Stockholders Equity                                       |  |      | 5  | 
|                          
|                           |  | Consolidated Statements of
        Cash Flows                                                 |  |      | 6  | 
|                          
|                           |  | Notes to the Financial Statements                                                             |  |      | 7  | 
|                          
|Item 2                     |  | Managements Discussion
        and Analysis of Financial Condition And Results of Operations |  |      | 10 | 
|                          
|Item 3                     |  | Quantitative and Qualitative
        Disclosures about Market Risk                            |  |      | 16 | 
|                          
|PART II. OTHER INFORMATION
|                          
|Item 1                     |  | Legal Proceedings                                                                             |  |      | 17 | 
|                          
|Item 2                     |  | Changes in Securities and
        Use of Proceeds                                             |  |      | 17 | 
|                          
|Item 3                     |  | Defaults Upon Senior Securities                                                               |  |      | 17 | 
|                          
|Item 4                     |  | Submission of Matters to a
        Vote of Security Holders                                   |  |      | 17 | 
|                          
|Item 5                     |  | Other Information                                                                             |  |      | 17 | 
|                          
|Item 6                     |  | Exhibits and Reports on Form 8-K                                                              |  |      | 18 | 

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##### Table of Contents






PART I. FINANCIAL INFORMATION

SPECIALTY TRUST, INC.




CONSOLIDATED BALANCE SHEETS


ASSETS

|                                     |                                                                                                                                                                                   |                                            |   |             |            |              |   |            |            | 
|------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | - | ----------- | ---------- | ------------ | - | ---------- | ---------- | 
|                                     |                                                                                                                                                                                   |                                            |   | June
30,    |            | December 31,
|                                     |                                                                                                                                                                                   |                                            |   | 2002        |            | 2001        
|                                     |                                                                                                                                                                                   |                                            |   |             |            |             
|                                     |                                                                                                                                                                                   |                                            |   | (unaudited) |            |             
|ASSETS                              
|                                     | Cash and cash equivalents                                                                                                                                                         |                                            | $ | 3,085,788   |            |              | $ | 58,989     |           
|                                     | Accrued interest receivable                                                                                                                                                       |                                            |   | 875,288     |            |              |   | 836,837    |           
|                                     | Land held for residential development                                                                                                                                             |                                            |   | 2,362,691   |            |              |   | 2,782,715  |           
|                                     | Investment
in joint venture                                                                                                                                                       |                                            |   | 334,496     |            |              |   |           |           
|                                     | Real
estate owned (held for sale)                                                                                                                                                 |                                            |   |            |            |              |   | 445,424    |           
|                                     | Mortgage loans held for investment, net of
allowance for loan losses of $1,278,377 and $1,020,321
at June 30, 2002 and December 31, 2001, respectively                            |                                            |   | 76,101,401  |            |              |   | 72,311,338 |           
|                                     | Deferred charges                                                                                                                                                                  |                                            |   | 462,616     |            |              |   | 307,063    |           
|                                     |                                                                                                                                                                                   |                                            |   |             |            |              |   |           
|                                     |                                                                                                                                                                                   | Total assets                               |   | $           | 83,222,280 |              |   | $          | 76,742,366 | 
|                                     |                                                                                                                                                                                   |                                            |   |             |            |              |   |           
|LIABILITIES AND STOCKHOLDERS EQUITY
|LIABILITIES                          |                                                                                                                                                                                   |                                            |   |             |            |              |   |           
|                                     | Dividends payable                                                                                                                                                                 |                                            | $ |            |            |              | $ | 2,046,811  |           
|                                     | Accounts
payable and accrued expenses                                                                                                                                             |                                            |   | 124,917     |            |              |   | 99,233     |           
|                                     | Accounts payable  related party                                                                                                                                                  |                                            |   | 101,935     |            |              |   |           |           
|                                     | Accrued interest payable                                                                                                                                                          |                                            |   | 22,473      |            |              |   | 16,699     |           
|                                     | Note payable  related party                                                                                                                                                      |                                            |   | 31,982      |            |              |   |           |           
|                                     | Collateralized notes                                                                                                                                                              |                                            |   | 13,738,843  |            |              |   | 8,395,919  |           
|                                     | Collateralized notes  related party                                                                                                                                              |                                            |   | 929,000     |            |              |   | 1,079,522  |           
|                                     | Deferred revenue                                                                                                                                                                  |                                            |   | 149,705     |            |              |   | 78,144     |           
|                                     |                                                                                                                                                                                   |                                            |   |             |            |              |   |           
|                                     |                                                                                                                                                                                   | Total liabilities                          |   |             | 15,098,855 |              |   |            | 11,716,328 | 
|                                     |                                                                                                                                                                                   |                                            |   |             |            |              |   |           
|STOCKHOLDERS EQUITY                 |                                                                                                                                                                                   |                                            |   |             |            |              |   |           
|                                     | Class A
Convertible Preferred Stock; $0.01 par value, 0 and 3,531,915 shares authorized; 0 shares
issued and outstanding as of June 30, 2002 and
December 31, 2001, respectively  |                                            |   |            |            |              |   |           |           
|                                     | Common stock; $0.01 par value; 50,000,000 and
46,468,085 shares authorized; 6,966,545 and 6,822,703
issued and outstanding as of June 30, 2002 and
December 31, 2001 respectively |                                            |   | 69,665      |            |              |   | 68,227     |           
|                                     | Additional paid-in capital                                                                                                                                                        |                                            |   | 66,117,951  |            |              |   | 64,957,811 |           
|                                     | Retained earnings                                                                                                                                                                 |                                            |   | 1,935,809   |            |              |   |           |           
|                                     |                                                                                                                                                                                   |                                            |   |             |            |              |   |           
|                                     |                                                                                                                                                                                   | Total stockholders equity                 |   |             | 68,123,425 |              |   |            | 65,026,038 | 
|                                     |                                                                                                                                                                                   |                                            |   |             |            |              |   |           
|                                     |                                                                                                                                                                                   | Total liabilities and stockholders equity |   | $           | 83,222,280 |              |   | $          | 76,742,366 | 
|                                     |                                                                                                                                                                                   |                                            |   |             |            |              |   |           

The accompanying notes are an integral part of these statements.

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##### Table of Contents



SPECIALTY TRUST, INC.




CONSOLIDATED STATEMENTS OF EARNINGS


|                                |                                |                      |                                                                  |         |                    |           |                  |           |               |           |               |         |           |           |      |           |           |           | 
|------------------------------- | ------------------------------ | -------------------- | ---------------------------------------------------------------- | ------- | ------------------ | --------- | ---------------- | --------- | ------------- | --------- | ------------- | ------- | --------- | --------- | ---- | --------- | --------- | --------- | 
|                                |                                |                      |                                                                  |         | Three Months Ended |           | Six Months Ended
|                                |                                |                      |                                                                  |         |                    |           |                 
|                                |                                |                      |                                                                  |         | June 30, 2002      |           | June 30, 2001    |           | June 30, 2002 |           | June 30, 2001
|                                |                                |                      |                                                                  |         |                    |           |                  |           |               |           |              
|                                |                                |                      |                                                                  |         | (unaudited)        |           | (unaudited)      |           | (unaudited)   |           | (unaudited)  
|Revenue                         |                                |                      |                                                                  |         |                    |           |                  |           |               |           |               |         |           |           |      |          
|                                | Interest and dividend income   |                      |                                                                  |         |                    |           |                  |           |               |           |               |         |           |           |      |           |          
|                                |                                | Mortgage loans       |                                                                  | $       | 2,477,350          |           |                  | $         | 1,732,581     |           |               | $       | 4,606,226 |           |      | $         | 3,463,442 |          
|                                |                                | Cash accounts        |                                                                  |         | 7,976              |           |                  |           | 11,119        |           |               |         | 34,224    |           |      |           | 11,583    |          
|                                |                                | Investment Gain      |                                                                  |         |                   |           |                  |           | 10,392        |           |               |         |          |           |      |           | 10,392    |          
|                                |                                | Dividends            |                                                                  |         |                   |           |                  |           |              |           |               |         |          |           |      |           | 7,097     |          
|                                |                                |                      |                                                                  |         |                    |           |                  |           |               |           |               |         |           |           |      |          
|                                |                                |                      | Total interest and dividend
income                               |         |                    | 2,485,326 |                  |           |               | 1,754,092 |               |         |           | 4,640,450 |      |           |           | 3,492,514 | 
|                                |                                |                      |                                                                  |         |                    |           |                  |           |               |           |               |         |           |           |      |          
|                                | Interest expense               |                      |                                                                  |         |                    |           |                  |           |               |           |               |         |           |           |      |           |          
|                                |                                | Lines of credit      |                                                                  |         | 1,577              |           |                  |           | 10,612        |           |               |         | 2,547     |           |      |           | 51,160    |          
|                                |                                | Notes Payable        |                                                                  |         | 1,325              |           |                  |           |              |           |               |         | 1,325     |           |      |           |          |          
|                                |                                | Collateralized notes |                                                                  |         | 188,645            |           |                  |           | 207,929       |           |               |         | 335,228   |           |      |           | 362,518   |          
|                                |                                |                      |                                                                  |         |                    |           |                  |           |               |           |               |         |           |           |      |          
|                                |                                |                      | Total interest expense                                           |         |                    | 191,547   |                  |           |               | 218,541   |               |         |           | 339,100   |      |           |           | 413,678   | 
|                                |                                |                      | Net interest and dividend
income                                 |         |                    | 2,293,779 |                  |           |               | 1,535,551 |               |         |           | 4,301,350 |      |           |           | 3,078,836 | 
|                                | Provision for loan losses      |                      |                                                                  | 128,517 |                    |           |                  | 125,000   |               |           |               | 258,056 |           |           |      | 250,000   |          
|                                |                                |                      |                                                                  |         |                    |           |                  |           |               |           |               |         |           |           |      |          
|                                |                                |                      | Net
interest and dividend income after
provision for loan losses |         |                    | 2,165,262 |                  |           |               | 1,410,551 |               |         |           | 4,043,294 |      |           |           | 2,828,836 | 
|                                | Other Income                   |                      |                                                                  | 121,186 |                    |           |                  |          |               |           |               | 132,935 |           |           |      |          |          
|                                |                                |                      |                                                                  |         |                    |           |                  |           |               |           |               |         |           |           |      |          
|                                |                                |                      | Net revenue                                                      |         |                    | 2,286,448 |                  |           |               | 1,410,551 |               |         |           | 4,176,229 |      |           |           | 2,828,836 | 
|                                |                                |                      |                                                                  |         |                    |           |                  |           |               |           |               |         |           |           |      |          
|Expenses                        |                                |                      |                                                                  |         |                    |           |                  |           |               |           |               |         |           |           |      |          
|                                | General and administrative     |                      |                                                                  | 152,615 |                    |           |                  | 131,465   |               |           |               | 249,104 |           |           |      | 209,680   |          
|                                | Management and directors fees |                      |                                                                  | 110,442 |                    |           |                  | 9,796     |               |           |               | 117,247 |           |           |      | 44,466    |          
|                                | Other Expenses                 |                      |                                                                  | 87,582  |                    |           |                  |          |               |           |               | 91,723  |           |           |      |          |          
|                                |                                |                      |                                                                  |         |                    |           |                  |           |               |           |               |         |           |           |      |          
|                                |                                |                      | Total expenses                                                   |         |                    | 350,639   |                  |           |               | 141,261   |               |         |           | 458,074   |      |           |           | 254,146   | 
|                                |                                |                      |                                                                  |         |                    |           |                  |           |               |           |               |         |           |           |      |          
|                                |                                |                      | Earnings before income taxes                                     |         |                    | 1,935,809 |                  |           |               | 1,269,290 |               |         |           | 3,718,155 |      |           |           | 2,574,690 | 
|                                | Income taxes                   |                      |                                                                  |        |                    |           |                  |          |               |           |               |        |           |           |      |          |          
|                                |                                |                      |                                                                  |         |                    |           |                  |           |               |           |               |         |           |           |      |          
|                                |                                |                      | NET
EARNINGS                                                     |         |                    | 1,935,809 |                  |           |               | 1,269,920 |               |         |           | 3,718,155 |      |           |           | 2,574,690 | 
|                                | Preferred stock dividend       |                      |                                                                  |        |                    |           |                  | 1,401,521 |               |           |               |        |           |           |      | 1,401,521 |          
|                                |                                |                      |                                                                  |         |                    |           |                  |           |               |           |               |         |           |           |      |          
|                                |                                |                      | NET EARNINGS (LOSS) ATTRIBUTABLE
TO COMMON STOCK                 |         | $                  | 1,935,809 |                  |           | $             | (132,231  | )             |         | $         | 3,718,155 |      |           | $         | 1,173,169 | 
|Basic
earnings (loss) per share |                                |                      | 0.28                                                             |         |                    |           | (0.39            | )         |               |           | 0.54          |         |           |           | 3.47 |          
|                                |                                |                      |                                                                  |         |                    |           |                  |           |               |           |               |         |           |           |      |          
|Diluted
earnings per share      |                                |                      | 0.28                                                             |         |                    |           | 0.25             |           |               |           | 0.53          |         |           |           | 0.51 |          
|                                |                                |                      |                                                                  |         |                    |           |                  |           |               |           |               |         |           |           |      |          

The accompanying notes are an integral part of these statements.

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SPECIALTY TRUST, INC.




CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


|                                                          |                            |                                                        |            |                 |   |              |         |            |   |          |           |               |   |          |        |        |   |       |            |   |   |   |            |   |           |   |      |   |         |   |            |           |           |  
|--------------------------------------------------------- | -------------------------- | ------------------------------------------------------ | ---------- | --------------- | - | ------------ | ------- | ---------- | - | -------- | --------- | ------------- | - | -------- | ------ | ------ | - | ----- | ---------- | - | - | - | ---------- | - | --------- | - | ---- | - | ------- | - | ---------- | --------- | --------- | -
|                                                          |                            |                                                        |            | 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     |          
|Collaterized notes received
for preferred stock           |                            |                                                        | 270,284    |                 |   |              | 2,703   |            |   |          |          |               |   |          |       |        |   |       | 2,970,425  |   |   |   |           |   |           |   |     |   |         |   | 2,973,128  |          
|Dividends reinvested for
preferred stock                  |                            |                                                        | 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 10/1/01     |                            |                                                        | (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                                              |                            |                                                        |           |                 |   |              |        |            |   |          |          |               |   |          |       |        |   |       |           |   |   |   | 3,718,155  |   |           |   |     |   |         |   | 3,718,155  |          
|Stock options exercised                                   |                            |                                                        |           |                 |   |              |        |            |   |          | 22,234    |               |   |          | 222    |        |   |       | 70,047     |   |   |   |           |   |           |   |     |   |         |   | 70,269     |          
|Non-employee stock options
expense                        |                            |                                                        |           |                 |   |              |        |            |   |          |          |               |   |          |       |        |   |       | 43,892     |   |   |   |           |   |           |   |     |   |         |   | 43,892     |          
|Dividends reinvested for
common stock                     |                            |                                                        |           |                 |   |              |        |            |   |          | 121,608   |               |   |          | 1,216  |        |   |       | 1,336,471  |   |   |   |           |   |           |   |     |   |         |   | 1,337,687  |          
|Dividends declared on
common stock                        |                            |                                                        |           |                 |   |              |        |            |   |          |          |               |   |          |       |        |   |       | (290,270   | ) |   |   | (1,782,346 | ) |           |   |     |   |         |   | (2,072,616 | )        
|                                                          |                            |                                                        |            |                 |   |              |         |            |   |          |           |               |   |          |        |        |   |       |            |   |   |   |            |   |           |   |      |   |         |   |            |          
|Balance, June 30, 2002
(unaudited)                        |                            |                                                        |           |                 |   | $            |        |            |   |          | 6,966,545 |               |   | $        | 69,665 |        |   | $     | 66,117,951 |   |   | $ | 1,935,809  |   |           | $ |     |   |         | $ | 68,123,425 |          
|                                                          |                            |                                                        |            |                 |   |              |         |            |   |          |           |               |   |          |        |        |   |       |            |   |   |   |            |   |           |   |      |   |         |   |            |          

The accompanying notes are an integral part of these statements.

5



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##### Table of Contents



SPECIALTY TRUST, INC.




CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                 |                                                            |                                          |                                  |                                           |         |                  |            |               |         |          |            |  
|------------------------------------------------ | ---------------------------------------------------------- | ---------------------------------------- | -------------------------------- | ----------------------------------------- | ------- | ---------------- | ---------- | ------------- | ------- | -------- | ---------- | -
|                                                 |                                                            |                                          |                                  |                                           |         | Six Months Ended
|                                                 |                                                            |                                          |                                  |                                           |         |                 
|                                                 |                                                            |                                          |                                  |                                           |         | June 30, 2002    |            | June 30, 2001
|                                                 |                                                            |                                          |                                  |                                           |         |                  |            |              
|                                                 |                                                            |                                          |                                  |                                           |         | (unaudited)      |            | (unaudited)  
|Cash flows from operating activities:            |                                                            |                                          |                                  |                                           |         |                  |            |              
|                                                 | Net earnings                                               |                                          | $                                | 3,718,155                                 |         |                  | $          | 2,574,690     |        
|                                                 |                                                            |                                          |                                  |                                           |         |                  |            |              
|                                                 | Adjustment to reconcile net earnings to net cash           |                                          |                                  |                                           |         |                  |            |               |        
|                                                 | Provided by operating activities:                          |                                          |                                  |                                           |         |                  |            |               |        
|                                                 |                                                            | Amortization                             |                                  |                                           | 29,557  |                  |            |               | 34,934  |         
|                                                 |                                                            | Provision for loan losses                |                                  |                                           | 258,056 |                  |            |               | 250,000 |         
|                                                 |                                                            | Collateralized notes interest reinvested |                                  |                                           | 303,004 |                  |            |               | 300,348 |         
|                                                 |                                                            | Non-employee stock option expense        |                                  |                                           | 43,892  |                  |            |               | 36,178  |         
|                                                 |                                                            | Gain on sale of investments              |                                  |                                           | (11,278 | )                |            |               | (10,392 | )       
|                                                 |                                                            | Changes in assets and liabilities:       |                                  |                                           |         |                  |            |               |         |         
|                                                 |                                                            |                                          | Accrued interest receivable      |                                           |         | (38,451          | )          |               |         | (103,710 | )         
|                                                 |                                                            |                                          | Other Assets                     |                                           |         |                 |            |               |         | (5,419   | )         
|                                                 |                                                            |                                          | Deferred Charges                 |                                           |         | (52,449          | )          |               |         |          |           
|                                                 |                                                            |                                          | Accounts payable                 |                                           |         | 25,684           |            |               |         | (7,533   | )         
|                                                 |                                                            |                                          | Accounts payable  related party |                                           |         | 101,935          |            |               |         |          |           
|                                                 |                                                            |                                          | Deposits                         |                                           |         |                 |            |               |         | (923,406 | )         
|                                                 |                                                            |                                          | Accrued interest payable         |                                           |         | 5,774            |            |               |         | (3,649   | )         
|                                                 |                                                            |                                          | Deferred revenue                 |                                           |         | 10,237           |            |               |         | (1,684   | )         
|                                                 |                                                            |                                          |                                  |                                           |         |                  |            |              
|                                                 |                                                            |                                          |                                  | Total adjustments                         |         |                  | 675,961    |               |         |          | (434,333   | )
|                                                 |                                                            |                                          |                                  |                                           |         |                  |            |              
|                                                 |                                                            |                                          |                                  | Net cash provided by operating activities |         |                  | 4,394,116  |               |         |          | 2,140,357  |  
|                                                 |                                                            |                                          |                                  |                                           |         |                  |            |              
|Cash flows from investing activities:            |                                                            |                                          |                                  |                                           |         |                  |            |              
|                                                 |                                                            |                                          |                                  |                                           |         |                  |            |              
|                                                 | Proceeds
from sale of real estate owned                    |                                          |                                  | 438,673                                   |         |                  |            |              |        
|                                                 | Investment in real estate owned                            |                                          |                                  | (1,989                                    | )       |                  |            | (68,565       | )      
|                                                 | Investment
in land held for investment                     |                                          |                                  | (159,652                                  | )       |                  |            |              |        
|                                                 | Proceeds
received from investment in joint venture         |                                          |                                  | 257,585                                   |         |                  |            |              |        
|                                                
|                                                 | Proceeds from sale of investments                          |                                          |                                  |                                          |         |                  |            | 259,866       |        
|                                                 | Purchase of mortgage loans held for investment             |                                          |                                  | (22,651,365                               | )       |                  |            | (12,588,564   | )      
|                                                 | Principal repayments of mortgage loans held for investment |                                          |                                  | 18,672,183                                |         |                  |            | 8,455,833     |        
|                                                 |                                                            |                                          |                                  |                                           |         |                  |            |              
|                                                 |                                                            |                                          |                                  | Net cash used in investing activities     |         |                  | (3,444,565 | )             |         |          | (3,941,430 | )
|                                                 |                                                            |                                          |                                  |                                           |         |                  |            |              
|Cash flows from financing activities:            |                                                            |                                          |                                  |                                           |         |                  |            |              
|                                                 | Proceeds from Preferred Stock Offering, net                |                                          |                                  |                                          |         |                  |            | 7,993,807     |        
|                                                 | Proceeds from common stock options exercised               |                                          |                                  | 70,269                                    |         |                  |            | 12,535        |        
|                                                 | Cash dividends paid                                        |                                          |                                  | (2,781,740                                | )       |                  |            | (1,913,292    | )      
|                                                 | Net (payments)/proceeds on line of credit                  |                                          |                                  |                                          |         |                  |            | (4,452,500    | )      
|                                                 | Proceeds on collateralized notes                           |                                          |                                  | 7,538,098                                 |         |                  |            | 8,515,458     |        
|                                                 | Principal payments on collateralized notes                 |                                          |                                  | (2,648,700                                | )       |                  |            | (2,223,962    | )      
|                                                 | Debt issue costs                                           |                                          |                                  | (100,679                                  | )       |                  |            | (183,089      | )      
|                                                 |                                                            |                                          |                                  |                                           |         |                  |            |              
|                                                 |                                                            |                                          |                                  | Net cash provided by financing activities |         |                  | 2,077,248  |               |         |          | 7,748,957  |  
|                                                 |                                                            |                                          |                                  |                                           |         |                  |            |              
|                                                 |                                                            |                                          |                                  | NET INCREASE IN CASH AND CASH EQUIVALENTS |         |                  | 3,026,799  |               |         |          | 5,947,884  |  
|                                                 |                                                            |                                          |                                  |                                           |         |                  |            |              
|Cash and cash equivalents at beginning of period |                                                            |                                          | 58,989                           |                                           |         |                  | 2,619,717  |              
|                                                 |                                                            |                                          |                                  |                                           |         |                  |            |              
|Cash and cash equivalents at end of period       |                                                            | $                                        | 3,085,788                        |                                           |         | $                | 8,567,601  |              
|                                                 |                                                            |                                          |                                  |                                           |         |                  |            |              

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##### Table of Contents



SPECIALTY TRUST, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS  CONTINUED

|                                                                        |                                                                             |  |                  |           |               |  |   |           | 
|----------------------------------------------------------------------- | --------------------------------------------------------------------------- |  | ---------------- | --------- | ------------- |  | - | --------- | 
|                                                                        |                                                                             |  | Six Months Ended
|                                                                        |                                                                             |  |                 
|                                                                        |                                                                             |  | June 30, 2002    |           | June 30, 2001
|                                                                        |                                                                             |  |                  |           |              
|                                                                        |                                                                             |  | (unaudited)      |           | (unaudited)  
|Supplemental cash flow information:                                     |                                                                             |  |                  |           |               |  |   |          
|                                                                        | Cash paid for interest                                                      |  | $                | 29,872    |               |  | $ | 74,092    | 
|                                                                        |                                                                             |  |                  |           |               |  |   |          
|Supplemental disclosure of non-cash investing and
financing activities: |                                                                             |  |                  |           |               |  |   |          
|                                                                        | Collateralized notes exchanged for issuance of preferred stock              |  | $                |          |               |  | $ | 2,973,128 | 
|                                                                        |                                                                             |  |                  |           |               |  |   |          
|                                                                        | Collateralized notes refinanced at maturity                                 |  | $                |          |               |  | $ | 3,860,542 | 
|                                                                        |                                                                             |  |                  |           |               |  |   |          
|                                                                        | Collateralized notes interest reinvested                                    |  | $                | 303,004   |               |  | $ | 300,348   | 
|                                                                        |                                                                             |  |                  |           |               |  |   |          
|                                                                        | Dividends reinvested for preferred stock                                    |  | $                |          |               |  | $ | 875,512   | 
|                                                                        |                                                                             |  |                  |           |               |  |   |          
|                                                                        | Dividends reinvested for common stock                                       |  | $                | 1,337,687 |               |  | $ |          | 
|                                                                        |                                                                             |  |                  |           |               |  |   |          
|                                                                        | Mortgage loans held for investment transferred to Land Held
for Development |  | $                |          |               |  | $ | 2,665,564 | 
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Foreclosure
of property                                                     |  | $                | 966,963   |               |  | $ |          | 
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Mortgage
loan received for sale of foreclosed property                      |  | $                | 1,035,900 |               |  | $ |          | 
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Loan
points financed with manager                                           |  | $                | 31,982    |               |  | $ |          | 
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Land
transferred to joint venture                                           |  | $                | 592,081   |               |  | $ |          | 
|                                                                        |                                                                             |  |                  |           |               |  |   |          

The accompanying notes are an integral part of these statements.

SPECIALTY TRUST, INC.




NOTES TO FINANCIAL STATEMENTS
June 30, 2002
(Unaudited)


NOTE 1. THE COMPANY

Specialty Trust, Inc., formerly Specialty Mortgage Trust, (the Company or
ST) is a Maryland corporation, which acquires and holds mortgage loans
secured by property located in Nevada, Arizona, California, Utah and Colorado.
Our strategy is to focus on land loans, construction loans, commercial building
loans and nonconforming single-family and small multifamily residential loans.
ST 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, STs
President and Chairman of the Board of Directors. ST was incorporated on
October 21, 1997 and began operations on January 31, 1998, following the
closing of STs initial private placement.

ST has evaluated the applicability of SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information, which requires reporting business
segments and information, including how the segments are determined, products
and services provided, and changes in the measurement of segment accounting
from period to period. ST operates as one business segment.

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The accompanying financial statements for the three-month and six-months
periods ended June 30, 2002 and 2001 are unaudited. In the opinion of
management, all adjustments, consisting of normal recurring adjustments
necessary for a fair presentation of the Companys financial position and
results of operations, for such periods have been included. The accompanying
unaudited financial statements should be read in conjunction with the Companys
audited financial statements for the years ended December 31, 2001 and 2000
included in STs Form 10-K. The results for the six months ended June 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.

NOTE 2. RECLASSIFICATIONS

The prior year financial statements reflected certain reclassifications, which
have no effect on net earnings, to conform to the classifications of the
current year.

NOTE 3. REVENUE RECOGNITION

The Companys revenue recognition policies for the
sale of real estate follow Statement of Financial Accounting
Standards (FAS) No. 66, Accounting  for Sale of Real
Estate. The Company evaluates the recording of revenues on the
sale of real estate on a case by case basis depending on the facts and
circumstances of the transaction.

NOTE 4. BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Specialty Trust
and its wholly-owned subsidiary Specialty Acquisition Corporation. All
material inter-company accounts and transactions have been eliminated

NOTE 5. SPECIALTY ACQUISITION CORPORATION

On April 29, 2002, the Company elected to establish a taxable REIT subsidiary,
Specialty Acquisition Corporation. Specialty Acquisition Corporation was
formed May 2, 2002 to enable the Company to complete transactions related to
the Land Held for Development.

As of May 2, 2002, the Company had 117 lots
available for development. There are three phases of development for
the property. Phase I consists of 17 lots that are valued at
$35,000 each (prior
to costs associated with development). The remaining lots for Phases II and III
are valued at $15,000 each (prior to costs associated with development).
Title transfers to the joint venture partner at the assigned value at
the release of each phase. Specialty Acquisition Corporation has an
agreement with the builder in which the builder shares in the
expenses related to the development of the property. Any remaining
profit is shared equally between the Company and the builder.

As of June 30, 2002, Phase I had begun as
17 lots have been transferred to the joint venture. The Company has
also received approximately $258,000 from the joint venture partner,
which reduced the investment in the joint venture. Any gain or loss
on the development of the property occurs after the sale of the
property to an individual buyer. As of June 30, 2002, there were
no developed properties sold.

NOTE 6. COLLATERALIZED NOTES

On April 26, 2002, SMT filed a new registration statement covering the public
sale of up to $269,132,000 (including amounts remaining unsold under a prior
registration) of collaterized notes (the collaterized notes). The
registration statement was declared effective by the Securities and Exchange
Commission on May 7, 2002. This registration permits the issuance of
collaterized notes with maturities of up to five years. The collateralized
notes are secured by mortgage loans at least one and one-half times the
aggregate principal amount outstanding on the collateralized notes.

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On January 18, 2001, the Companys initial registration statement covering the
public sale of up to $250,000,000 of collateralized notes was declared
effective by the Securities and Exchange Commission. The outstanding
collateralized notes have maturities ranging from one month to twelve months
from the date of issue and bear a fixed rate of interest (3.25% to 6.5% at June
30, 2002 and 4.50% to 8.00% at December 31, 2001). The effective yield of
collateralized notes outstanding at June 30, 2002 and December 31, 2001 and was
4.86% and 6.93%, respectively. At June 30, 2002 and December 31, 2001, the
collateralized notes were secured by $28,644,765 and $19,401,620, respectively,
of mortgage loans pledged as collateral, respectively.

There are several related parties who held collaterized notes with ST. As of
June 30, 2002 and December 31, 2001, they owned approximately $929,000 and
$1,080,000 in collaterized notes, which represented approximately 6.3% and
11.4% of the total balance, respectively.

NOTE 7. DELINQUENT LOANS

At June 30, 2002, the Company had four delinquent loans of 90 days or more with
a principal balance totaling approximately $7.6 million delinquent in principal
and or interest payments. The company was in the process of foreclosure on one
of the loans. On July 3, 2002, the Company began foreclosure procedures on two
of the loans of approximately $230,000. The average loan to value on these
loans was 56% and the Company has recorded a specific allowance of $138,021 at
June 30, 2002. Accrued interest on these loans at June 30, 2002 was
approximately $54,000. Management has evaluated the collectability of the
loans in light of the types and dollar amounts of the loans in the portfolio,
adverse situations that may affect the borrowers ability to repay, prevailing
economic conditions and the underlying collateral securing the loan.
Accordingly, the Companys management has recorded an allowance for loan losses
based upon these factors.

NOTE 8. RELATED PARTY

On October 23, 1997, ST entered into a Management Agreement with the Manager.
The Manager is responsible for the day-to-day operations of ST and will perform
such services and activities relating to the assets and operations of ST 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 ST. 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 ST
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 ST. 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 ST in excess of an annualized return to
ST equal to 12%. For the quarters ended June 30, 2002 and 2001, the Manager
earned the following:

|                                    |  |      |         |      |  |   |         | 
|----------------------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                                    |  | 2002 |         | 2001
|                                    |  |      |         |     
|Loan origination and
extension fees |  | $    | 710,828 |      |  | $ | 408,700 | 
|Loan servicing fees                 |  |      | 176,653 |      |  |   | 63,510  | 
|Late payment charges                |  |      | 7,825   |      |  |   | 5,316   | 
|Incentive compensation bonus        |  |      | 93,977  |      |  |   | 4,605   | 

The Company has deferred loan fees of approximately
$32,000 with the management company (Specialty Financial), which is
payable June 3, 2005. These fees are charged interest at the
prime rate (4.75%).

9



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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. 333-44860) 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 or 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, California, Utah, and Colorado 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 multifamily residential loans. We generally limit the
amount of our investment in any single mortgage loan or in mortgage loans to
one borrower to $5 million, although the board of directors may approve
exceptions. Most loans will have terms of two 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 Second Quarter 2002 and Year End 2001

At June 30, 2002, we owned approximately $77.4 million of mortgage loans and
approximately $2.7 million of land held for residential development. Our total
assets were approximately $83.2 million. The assets were financed with
approximately $14.7 million of recourse short-term debt, and approximately
$68.1 million of common equity.

As of June 30, 2002, our equity-to-assets ratio was 81.9% and our
debt-to-equity ratio was 22.1%. For the quarter ended June 30, 2002, our
annualized return on equity was 11.8%.

10



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

As of December 31, 2001, our equity-to-asset ratio was 84.7%; our
debt-to-equity ratio was 18.0%, 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 collaterized notes program.
The outstanding balance of mortgage loans increased by approximately $3.8
million This was offset against the increase in the collaterized note
program. The increase in stockholders equity was due to dividends for the
second quarter not being declared until the third quarter of 2002. In
addition, the increase was also a result of stockholders reinvesting dividends
from earnings in the dividend reinvestment program.

Changes in Financial Condition

Assets

Cash and Cash Equivalents. Cash and cash equivalents increased by
approximately $3.0 million (5131%) as of June 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 Development.Land Held for Development decreased by
approximately $420,000 (15%). This decrease is largely due to the
transfer of 17 lots to the joint venture partner for completion. This
decrease was offset by approximately $160,000 of development costs.

Investment in Joint Venture.Investment in Joint Venture increased by approximately $334,000
(100%). This increase is due to the creation of a joint venture for
the development of property.

Real Estate Owned (Held for Sale).Real
Estate Owned decreased by approximately $445,000 (100%). This
decrease was due to the sale of an office building in early June,
2002. The net gain on the sale was approximately $4,000. The Company
had received approximately $26,000 in rental income and had
approximately $72,000 in additional expenses related to this
property. In addition, Specialty Trust had single family residence, which
was acquired through foreclosure in May, 2002. The property was
subsequently sold in June, 2002, and a new loan was recorded on the
books at $1,035,900. The net gain on the sale was approximately
$99,000, which will be allocated over the life of the new loan under
the installment method. The
net gain for the three and six months ended June 30, 2002 was
$7,613. The company had approximately $14,000 in foreclosure fees.

Mortgage Loans.Mortgage loans held for investment net of allowance for loan
losses increased by approximately $3.8 million (5%). This increase in mortgage
loans was due primarily to new loans being underwritten and funded faster than
loans were maturing.

Liabilities

Dividends Payable.Dividends payable decreased by approximately $2 million
(100%) as of June 30, 2002, compared to December 31, 2001. Due to our REIT
status the Board of Directors must declare dividends in the fourth quarter for
the remaining earnings for the year. Therefore, this dividend carries over the
fiscal year end and was paid in January 2002.

Collateralized Notes.On June 30, 2002, collateralized notes increased $5.2
million (55%) over December 31, 2001 primarily because the notes could be
offered at a lower interest rate on short-term borrowings, longer
term collateralized notes are at slightly higher rates than those
offered by our lines of credit. Our collateralized notes were approved for public sale
January 19, 2001. A post-effective amendment was filed and
approved May 7, 2002.

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##### Table of Contents



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 |         | Six Months Ended
|                |                               |       |   | June 30, 2002      |         | June 30, 2002   
|                |                               |       |   | Over/Under         |         | Over/Under      
|                |                               |       |   | June 30, 2001      |         | June 30, 2001   
|                |                               |       |   |                    |         |                 
|                |                               |       |   | Net                |         |                  |  |         |         |        |  |         |         | Net    |   |           |           |   |  |          |          |  
|                |                               |       |   | Change             |         | Rate             |  | Volume  |         | Change |  | Rate    |         | Volume
|                |                               |       |   |                    |         |                  |  |         |         |        |  |         |         |       
|Interest Income |                               |       |   |                    |         |                  |  |         |         |        |  |         |         |        |   |           |           |   |  |          |          |   |  |          
|                | Mortgage Loans                |       | $ | 744,769            |         |                  |  | 63,921  |         |        |  | 680,848 |         |        | $ | 1,142,784 |           |   |  | (32,120  | )        |   |  | 1,174,904 |          
|                | Cash Accounts                 |       |   | (3,143             | )       |                  |  | 3,702   |         |        |  | (6,845  | )       |        |   | 22,641    |           |   |  | 12,522   |          |   |  | 10,119    |          
|                |                               |       |   |                    |         |                  |  |         |         |        |  |         |         |        |   |           |           |   |  |          |          |   |  |          
|                |                               | Total |   |                    | 741,626 |                  |  |         | 67,623  |        |  |         | 674,003 |        |   |           | 1,165,425 |   |  |          | (19,598  | ) |  |           | 1,185,023 | 
|                |                               |       |   |                    |         |                  |  |         |         |        |  |         |         |        |   |           |           |   |  |          |          |   |  |          
|Expense         |                               |       |   |                    |         |                  |  |         |         |        |  |         |         |        |   |           |           |   |  |          |          |   |  |          
|                | Line of Credit                |       |   | (9,035             | )       |                  |  | (699    | )       |        |  | (8,336  | )       |        |   | (48,613   | )         |   |  | (14,165  | )        |   |  | (34,448   | )        
|                | Notes
Payable                 |       |   | 1,325              |         |                  |  |        |         |        |  | 1,325   |         |        |   | 1,325     |           |   |  |         |          |   |  | 1,325     |          
|                | Collateralized Notes          |       |   | (19,284            | )       |                  |  | (73,440 | )       |        |  | 54,156  |         |        |   | (27,290   | )         |   |  | (141,454 | )        |   |  | 114,164   |          
|                |                               |       |   |                    |         |                  |  |         |         |        |  |         |         |        |   |           |           |   |  |          |          |   |  |          
|                |                               | Total |   |                    | 26,994  |                  |  |         | (74,139 | )      |  |         | 47,145  |        |   |           | (74,578   | ) |  |          | (155,619 | ) |  |           | 81,041    | 
|                |                               |       |   |                    |         |                  |  |         |         |        |  |         |         |        |   |           |           |   |  |          |          |   |  |          
|                | Change in net
interest income |       | $ | 768,620            |         |                  |  | 141,762 |         |        |  | 626,858 |         |        | $ | 1,240,003 |           |   |  | 136,021  |          |   |  | 1,103,982 |          
|                |                               |       |   |                    |         |                  |  |         |         |        |  |         |         |        |   |           |           |   |  |          |          |   |  |          

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

Interest Income, Mortgage Assets.Interest income increased approximately
$745,000 (43%) and $1.1 million (33%) for the three and six months ended,
respectively, June 30, 2002, as compared to the comparable prior year period.
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.

Total Interest Expense.Interest expense decreased by approximately $27,000
(12%) and $75,000 (18%) for the three and six months ended respectively June
30, 2002, as compared to the comparable prior year period. The decrease was
primarily due to the Companys limited use of the line of credit and the
associated decrease in interest rates. The decrease in the line of credit use
was offset by the Company utilizing its ability to issue collaterized notes.

Other Income.Other income increased by approximately $133,000 (100%) and
$121,000 (100%) for the three and six months ended respectively June 30, 2002
as compared to the comparable prior year period. This increase was due to
additional income related to the foreclosure of three loans during the second
quarter.

Total Expenses.Total expenses increased by
approximately $209,000 (148%) and
$204,000 (80%) for the three and six months ended respectively June 30, 2002
as compared to the comparable prior year period. This change was primarily due
to an increase in professional fees.

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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 stress the quality of our borrowers through our underwriting
guidelines and loss mitigation through our servicing procedures. In this way
we seek to control credit risk. Although the majority of our loans are in the
state of Nevada, we are beginning to acquire loans in Arizona, California,
Utah, and Colorado. 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 |      | Six Months Ended
|                 |                      |                     |  |                    |      |                 
|                 |                      |                     |  | 6/30/2002          |      | 6/30/2001        |  | 6/30/2002 |      | 6/30/2001
|                 |                      |                     |  |                    |      |                  |  |           |      |          
|Interest Income  |                      |                     |  |                    |      |                  |  |           |      |           |  |       |      |   |  |      
|                 | Mortgage Loans       |                     |  | 12.88              | %    |                  |  | 12.53     | %    |           |  | 12.68 | %    |   |  | 12.74 | %   
|                 | Cash Accounts        |                     |  | 2.00               | %    |                  |  | 1.08      | %    |           |  | 1.72  | %    |   |  | 1.10  | %   
|Interest Expense |                      |                     |  |                    |      |                  |  |           |      |           |  |       |      |   |  |      
|                 | Line of Credit       |                     |  | 4.80               | %    |                  |  | 6.95      | %    |           |  | 4.75  | %    |   |  | 10.15 | %   
|                 | Notes
Payable        |                     |  | 7.27               | %    |                  |  |          |      |           |  | 7.27  | %    |   |  |      |     
|                 | Collateralized Notes |                     |  | 5.44               | %    |                  |  | 7.55      | %    |           |  | 5.37  | %    |   |  | 7.65  | %   
|                 |                      | Net Interest Spread |  |                    | 7.24 | %                |  |           | 4.22 | %         |  |       | 6.82 | % |  |       | 4.42 | %

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 $10.2 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 $77.4 million, we would
anticipate annual cash flows from principal pay downs of approximately $27.1
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 collaterized notes to provide additional
liquidity to our portfolio. As of May 7, 2002, we were able to offer
collaterized notes with maturities of up to five years. Although not a
committed source, we can utilize collaterized notes to meet a portion of our
short-term funding needs under normal market conditions.

Lastly, we have two committed lines of credit with commercial banks to provide
another level of liquidity. We can borrow up to $6.5 million on one of the
lines to provide funding for new loans and $3.0 million on the other,

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for an aggregate of $9.5 million. Both lines of credit extend through July 1,
2003. Both 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 June 30,
2002 and December 31, 2001.

We believe the combination of these sources of capital allows us to manage our
short-term liquidity needs in virtually any business situation 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. 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 qualifiable
losses are immediately charged off against the allowance. Charged-off 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 credit 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 condition                                               
| | - |  | -------------------------------------------------------------------------------------
|
| |  |  | 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 credit and
assessments are performed quarterly to confirm the risk rating to that credit,
proper accounting and the adequacy of loan loss reserve assigned.

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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 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 June 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.

Land Held for Development

Land Held for Development 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. Expenses related to the improvement of the fair market value of
the property are capitalized. All other expenses are expensed.

In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-lived Assets and Long-lived Assets to be
Disposed of, 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

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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 Development for the three and six months ended respectively
June 30, 2002.

On June 30, 2002, our Land Held for Residential Development totaled $2,697,187.
The properties owned consist of 102 undeveloped lots, which were transferred
from mortgage loans to Land Held for Residential Development upon foreclosure.




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, principal and interest payments
with a balloon payment 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
10% increase or decrease in general interest rates (from those prevailing at
June 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, California, Utah, or Colorado 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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PART II. OTHER INFORMATION




Item 1. Legal Proceedings.

| |                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | At June 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.

| |     
| | ----
| | None




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 six months ended,
respectively June 30, 2002 and 2001
|           
|99.1        |  | Statement of Chief Executive Officer Regarding Form 10Q for
Quarter ending June 30, 2002                                     
|           
|99.2        |  | Statement of Chief Financial Officer Regarding Form 10Q for
Quarter ending June 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
| | --- |  | -------------------
|
| |     |  | None               

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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: August 14, 2002 | By: |                                                         
|---------------------- | --- | --------------------------------------------------------
|                       |     | Nello Gonfiantini III
Chairman, President, and Secretary



| | (Signed in the capacity of (i) duly
authorized officer of the registrant
| | ------------------------------------------------------------------------



|Dated: August 14, 2002 | By: |                                             
|---------------------- | --- | --------------------------------------------
|                       |     | 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)

19