<PAGE>
 
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-Q

(Mark One)
[XX]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OR THE SECURITIES
          EXCHANGE ACT OF 1934
For the quarterly period ended 30 September 1996

                                       OR

[  ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OR THE SECURITIES
          EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________

Commission file number 33-98766

                          AMERICAN EQUITY TRUST INC.
                         ----------------------------
             (Exact name of registrant as specified in its charter)

         Maryland                                       95-4509278
         ---------                                      ----------
  (State or other jurisdiction                        (I.R.S. Employer
of incorporation or organization)                    Identification No.)


            2221 Rosecrans Avenue, Suite 110, El Segundo, CA 90245
            ------------------------------------------------------
                   (Address of principal executive officer)
                                  (Zip Code)

                                 310-536-0926
                                 ------------
             (Registrant's telephone number, including area code)

                 -----------------------------------         
  (Former name, former address and former fiscal year, if changed since last
                                    report)

  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities 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 ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
                        DURING THE PRECEDING FIVE YEARS:

  Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes        No  X
    ----     ----

                     APPLICABLE ONLY TO CORPORATE ISSUERS:
  Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 274,714 as of September 30,
1996
<PAGE>
 
                          AMERICAN EQUITY TRUST, INC.

                                     INDEX
<TABLE>
                                                                       Page No.
                                                                       --------
          <S>                                                              <C>
PART I -  FINANCIAL INFORMATION

Item 1.   Financial Statements (Unaudited):

          Balance Sheets at September 30, 1996 and December 31, 1995.      3                     
                                                                                                
          Statements of Cash Flows for the Nine Months Ended                                     
             September 30, 1996 and 1995.............................      4                    
                                                                                                
          Notes to Condensed Financial Statements....................      5                    
                                                                                                
Item 2.   Management's Discussion and Analysis of Financial Condition                          
             and Results of Operations...............................      5                    
                                                                            
                                                                            
PART II - OTHER INFORMATION                                                 
Item 1.   Legal Proceedings..........................................      6                    
Item 2.   Changes in Securities......................................      6                    
Item 3.   Defaults upon Senior Securities............................      6                    
Item 4.   Submission of Matters to a Vote of Securities Holders......      6                    
Item 5.   Other Information..........................................      6                    
Item 6.   Exhibits and Reports on Form 8-K...........................      6                    
          Signature Page.............................................      7                     
</TABLE>
<PAGE>
 
PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                          AMERICAN EQUITY TRUST, INC.

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                       September 30,            December 31,  
                                                                           1996                    1995       
                                                                       -------------            -----------   
                                                                        (unaudited)                           

<S>                                                                   <C>                      <C>            
ASSETS

Current assets:                                                                                               
Cash...............................................................     $      165               $ 19,824     
Deferred offering costs............................................      1,236,782                674,000     
Deferred loan costs................................................         31,422                 31,422     
Property acquisition costs.........................................        109,520                102,620     
Other assets.......................................................         57,407                 38,532     
                                                                        ----------               --------     
                                                                                                              
 Total assets......................................................     $1,435,296               $866,398     
                                                                        ==========               ========     
                                                                                                              
LIABILITIES AND STOCKHOLDERS' EQUITY                                                                          
                                                                                                              
Accounts payable and accrued expenses..............................     $  336,698                239,300     
Notes payable (Note 2).............................................        730,281                258,281     
                                                                        ----------               --------     
                                                                                                              
 Total liabilities.................................................      1,066,979                498,081     
                                                                        ----------               --------     
                                                                                                              
Common Stock, $0.01 par value; shares authorized -                                                            
 35,000,000; shares issued and outstanding - 274,714...............          2,747                  2,747     
1995 Convertible Preferred Stock, shares authorized - 1,100,000;                                              
 issued and outstanding - 1,021,500 (liquidation preference is                                              
 $0.01 per share)..................................................         10,210                 10,210     
8% Convertible Preferred Stock, shares authorized - 1,500,000;                                                
 issued and outstanding - none (liquidation value $13.20 per                                                 
 share)............................................................             --                     --     
Additional paid-in capital.........................................        420,155                420,155     
Deficit............................................................        (64,795)               (64,795)    
                                                                        ----------               --------     
Total stockholders' equity.........................................        368,317                368,317     
                                                                        ----------               --------     
                                                                                                              
Total liabilities and stockholders' equity.........................     $1,435,296               $866,398     
                                                                        ==========               ========      

</TABLE>

                                    Page 3
<PAGE>
 
                          AMERICAN EQUITY TRUST, INC.

                            STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                      September 30,   December 31,
                                                                          1996          1996
                                                                      -------------   -----------
                                                                       (unaudited)
<S>                                                                   <C>             <C>
Cash flows from operating activities:
Net loss....................................................           $      --      $     --      
Increase (decrease) in cash from changes in:                                                        
  Other assets..............................................                   0       (14,868)      
  Accounts payable and accrued expenses.....................              (6,845)      (19,955)      
                                                                       ---------      --------      
                                                                                                    
Net cash provided by (used for) operating activities........              (6,845)      (34,823)      
                                                                       ---------      --------      
Cash flows from financing activities:                                                               
Deferred offering costs.....................................            (125,094)      (92,979)      
Net proceeds from private placements........................             155,000       130,300      
                                                                       ---------      --------      
                                                                                                    
Net cash provided by (used for) financing activities........              29,906        37,321      
                                                                       ---------      --------      
                                                                                                    
Net (decrease) increase in cash and cash equivalents........                 (50)        2,498      
                                                                                                    
Cash and cash equivalents, at beginning of period...........                 215        35,056      
                                                                       ---------      --------      
                                                                                                    
Cash and cash equivalents, at end of period.................           $     165      $ 37,554      
                                                                       =========      ========       
 
</TABLE>

                                   Page 4
<PAGE>
 
                          AMERICAN EQUITY TRUST INC.

                         NOTES TO FINANCIAL STATEMENTS



NOTE 1 - BASIS OF PRESENTATION

The financial information included herein is unaudited; however, such
information reflects all adjustments, consisting of only normal recurring
accruals, which are, in the opinion of management, necessary to present fairly
the Company's financial position at September 30, 1996 and the cash flows for
the three months ended September 30, and June 30, 1996. There were no operations
as of September 30, 1996.

The information contained in this Form 10-Q should be read in conjunction with
the audited financial statements as of March 31, 1996 filed as part of the
Company's registration statement on Form S-11 (File No. 33-98766).

NOTE 2 - NOTES PAYABLE

10% Notes

During February through September 1996 the Company issued 10% Notes (New Notes)
in the amount of $480,555 due the earlier of 90 days after the Offering or April
15, 1997. The notes were issued at a 10% discount and the Company received net
proceeds of $432,500.

In addition to the New Notes the Company issued an additional $25,000 note 
without discount. This note is due the earlier of September 15, 1997 or 90 days 
after the Offering, and bears interest at 10% per annum.

NOTE 3 - INITIAL PUBLIC OFFERING

In June, 1996, the Company obtained permission from the Securities and Exchange
Commission to begin selling stock in conjunction with its initial public
offering.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

In June the Company obtained clearance from the Securities and Exchange
Commission to begin selling stock in conjunction with its initial public
offering. To date, the Company has not acquired any properties nor had any
operations. During the nine months ended September 30, 1996 and 1995, the
Company conducted a series of private placements of debt to provide funds to pay
for costs necessary to complete the initial public offering.

                                    Page 5
<PAGE>

                          AMERICAN EQUITY TRUST INC.
 
PART II - OTHER INFORMATION


Item 1.  Legal Proceedings.

         The Company is neither currently a party to nor is any of its property
         the subject of any legal proceedings which would be material to the
         business or financial condition of the Company.

Item 2.  Changes in Securities.  

         Not applicable.

Item 3.  Defaults on Senior Securities.  

         Not applicable.

Item 4.  Submissions of Matters to a Vote of Security Holders.  

         Not applicable.

Item 5.  Other Information.  

         Not applicable.

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

         A. The following exhibit is included herewith:

             Exhibit 27 - Financial Data Schedule.

         B. The Company filed no reports on Form 8-K during the quarter for
            which this report is filed.

                                    Page 6
<PAGE>

                          AMERICAN EQUITY TRUST INC.
 
                                   SIGNATURES

    Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Date:  October 13, 1996

                                     AMERICAN EQUITY TRUST INC.



                                     /s/ Arthur P. Herring
                                     ------------------------------------
                                     Arthur P. Herring
                                     Chairman of the Board of Directors,
                                     Chief Executive Officer, and
                                     Chief Financial Officer

                                    Page 7