UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
(X) Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended March 31,
2001
Commission File Number: 333-11625
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CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
(Exact name of registrant as specified in its charter)
Delaware 94-3240473
- ------------------------------- -------------------------------------
(State or other Jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
50 California Street
Suite 2020
San Francisco, California 94111
- --------------------------------------- -------------------
(Address of principal executive office) (zip code)
(415) 288-9575
--------------
(Registrant"s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve 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 No _X_
As of May 14, 2001, the registrant's common shares closed at $12.50 per share
and the aggregate market value of the registrant's common shares held by
non-affiliates of the registrant was approximately $5,066,988. At that date
approximately 405,359 shares of $.01 par value common stock were held by
non-affiliates of the registrant. The shares are listed on the American Stock
Exchange.
PART I
ITEM 1.
FINANCIAL STATEMENTS
2
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Balance Sheets
(unaudited) (audited)
March 31, 2001 December 31, 2000
-------------- -----------------
ASSETS
Cash and cash equivalents $ 877,156 $ 368,241
Restricted cash 243,090 654,084
Accounts receivable 205,691 293,592
Due from affiliates 56,838 --
Notes receivable:
Warehouse lines of credit to related parties 6,750,169 4,744,674
Mortgage notes receivable 11,563,125 11,906,589
Allowance for loan losses (108,854) (80,000)
------------ ------------
Net receivable 18,204,440 16,571,263
Real estate owned 426,377 530,000
Investments in affiliates 671,962 603,459
Origination costs (net) 197,131 197,131
Prepaid items (net) 86,637 81,562
------------ ------------
Total assets $ 20,969,322 $ 19,299,332
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Mortgage note holdbacks $ 243,090 $ 654,084
Loan payable 5,864,062 3,737,511
Due to affiliates -- 42,190
Other liabilities 189,192 155,383
------------ ------------
Total liabilities 6,296,344 4,589,168
------------ ------------
Stockholders' Equity
Preferred stock, $.01 par value per share; 6,413 6,413
675,000 shares authorized; 641,283 shares
issued and outstanding
Additional paid in capital -preferred stock 5,664,848 5,664,848
Less: treasury shares, 9,526 preferred at cost (86,944) (86,944)
Common stock, $.01 par value; 5,000,000 shares 14,847 14,847
authorized ; 1,484,740 shares issued and outstanding
Additional paid in capital - common stock 9,362,043 9,361,000
Less: treasury shares, 81,479 common at cost (2000) -- (250,000)
Less: treasury shares, 92,479 common at cost (2001) (288,229) --
------------ ------------
Total stockholders' equity 14,672,978 14,710,164
------------ ------------
Total liabilities and stockholders' equity $ 20,969,322 $ 19,299,332
============ ============
See accompanying notes to financial statements.
3
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Statements of Operations
(Unaudited)
Three Months Ended
March 31,
2001 2000
---- ----
REVENUES
Interest income $ 410,896 $ 420,190
Interest income from affiliates 132,093 88,848
Investment income from affiliates 68,503 (59,300)
Other income 13,610 425
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Total revenues 625,102 450,163
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EXPENSES
Loan servicing fees to related party 99,912 76,402
Management fees to related party 57,956 38,156
Interest expense 102,032 32,288
Provision for loan losses 28,854 17,500
Operating expenses of real estate owned 5,709 13,820
Taxes 4,600 8,200
General and administrative 61,548 37,781
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Total expenses 360,611 224,147
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INCOME BEFORE GAIN (LOSS) ON REAL
ESTATE OWNED 264,491 226,016
Gain (loss) on real estate owned -- (5,024)
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NET INCOME $ 264,491 $ 220,992
=========== ===========
PREFERRED DIVIDENDS $ 144,172 $ 150,039
BASIC EARNINGS PER COMMON SHARE $ 0.086 $ 0.047
DILUTED EARNINGS PER COMMON SHARE $ 0.076 $ 0.047
AVERAGE COMMON SHARES
OUTSTANDING - BASIC EARNINGS PER SHARE 1,397,761 1,484,740
AVERAGE COMMON SHARES
OUTSTANDING - DILUTED EARNINGS PER SHARE 1,575,761 1,484,740
See accompanying notes to financial statements.
4
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 264,491 $ 220,992
Adjustments to reconcile net income to net cash
Amortization/(increased) prepaid expenses (5,075) 5,000
Gain (loss) on real estate owned -- (5,024)
(Increase) decrease in accounts receivable 87,901 (1,605)
Provisions for loan loss 28,854 17,500
Increase (decrease) in due to/from affiliates (99,028) 149,269
Increase (decrease) in other liabilities 33,809 23,666
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Net cash provided by (used in) operating activities 310,952 409,798
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CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in restricted cash 410,994 103,106
Increase (decrease) in mortgage note holdbacks (410,994) (103,106)
Increase (decrease) in origination costs -- --
(Increase) decrease in warehouse lines of credit (2,005,495) 302,153
(Increase) in investments (68,503) 59,300
Increase in related party note receivable -- --
Investments in mortgage notes receivable (2,801,755) (2,470,210)
Repayments of mortgage notes receivable 3,145,219 1,942,500
Net proceeds from sale of real estate owned 108,250 449,485
Capital costs of foreclosed property (4,626) --
----------- -----------
Net cash provided by (used in) investing (1,626,910) 283,228
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CASH FLOWS FROM FINANCING ACTIVITIES
Increased (decreased) borrowings 2,126,551 --
Redemption of shares (38,229) --
Preferred dividends paid (144,172) (150,039)
Common dividends paid (119,277) (126,203)
----------- -----------
Net cash provided by (used in) financing activities 1,824,873 (276,242)
----------- -----------
NET INCREASE (DECREASE) IN CASH 508,915 416,784
CASH AT BEGINNING OF PERIOD 368,241 41,939
----------- -----------
CASH AT END OF PERIOD $ 877,156 $ 458,723
=========== ===========
SUPPLEMENTAL CASHFLOW INFORMATION:
Interest expense paid 86,830 $ 32,288
Taxes paid 1,600 $ 800
See accompanying notes to financial statements.
5
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the three-month period ended March 31, 2001
1. Organization.
------------
Capital Alliance Income Trust Ltd., A Real Estate Investment Trust (the
"Trust"), a Delaware corporation, primarily invests in mortgage loans
secured by real estate. The Trust was formed December 12, 1995 as a
mortgage investment which invests primarily in loans secured by deeds of
trust on one-to-four unit residential properties as the loan's primary
collateral. The Manager, Capital Alliance Advisors, Inc. (the "Manager")
originates, services and sells the Trust's loans.
2. Basis of presentation.
---------------------
The accompanying financial statements include the accounts of the Trust.
The financial information presented has been prepared from the books and
records without audit. The accompanying financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and the footnotes required by generally
accepted accounting principles for complete statements. In the opinion of
management, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such financial
statements, have been included.
These financial statements should be read in conjunction with the
financial statements and notes thereto for the year ended December 31,
2000 filed pursuant to 15d-2 on Form 10-K with the Securities and Exchange
Commission.
The unaudited interim financial statements for the three months ended
March 31, 2001 and March 31, 2000 represent the financial statements of
the Trust.
3. Summary of significant accounting policies & nature of operations.
-----------------------------------------------------------------
Use of estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that effect the accounts reported in financial
statements and the accompanying notes. Actual results could differ from
those estimates.
Cash and cash equivalents. Cash and cash equivalents include cash and
liquid investments with an original maturity of three months or less. The
Trust deposits cash in financial institutions insured by the Federal
Deposit Insurance Corporation. At times, the Trust"s account balances may
exceed the insured limits.
Revenue recognition. Interest income is recorded on the accrual basis of
accounting in accordance with the terms of the loans. When the payment of
principal or interest is 90 or more days past due, management reviews the
likelihood that the loan will be repaid. For these delinquent loans,
management continues to record interest income and establishes a loan loss
reserve as necessary to protect against losses in the loan portfolio
including accrued interest.
Concentration of credit risk. The Trust holds numerous mortgage notes
receivable. These notes are secured by deeds of trust on residential
properties located primarily in California, which results in a
concentration of credit risk. The value of the portfolio may be affected
by changes in the economy or other conditions of the geographic area.
6
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the three-month period ended March 31, 2001
Loan loss reserve. Management reviews its loan loss provision periodically
and the Trust maintains an allowance for losses from receivables at an
amount that management believes is sufficient to protect against losses in
the loan portfolio. Accounts receivable deemed uncollectible are written
off or reserved. The Trust does not accrue interest income on impaired
loans. As of March 31, 2001 and December 31, 2000 the loan loss reserves
were $108,854 and $80,000, respectively.
Investments. During 2000 the Trust held an investment in Sierra Capital
Acceptance ("SCA"), a division of Sierra Capital Funding, LLC ("SCF"), a
Delaware Limited Liability Company which originated and sold residential
mortgages. SCA operated as a separate operating division of SCF. The
Trust's investment received a 15% preferential interest distribution per
annum. Sierra Capital Services, Inc., a related party, owned 99% of the
common shares of the Sierra Division of SCF and maintained voting control.
SCA ceased operations during 2000.
The Trust holds an investment in Capital Alliance Funding Corporation
("CAFC") that orginates and sells residential mortgage loans. The Trust
owns 100% of the outstanding non-voting preferred shares of CAFC with a
99% equity interest.
Income taxes. The Trust intends at all times to qualify as a real estate
investment trust ("REIT") for federal income tax purposes, under Sections
856 through 860 of the Internal revenue Code of 1986, as amended and
applicable Treasury Regulations. Therefore, the Trust will not be subject
to federal corporate income taxes, if the Trust distributes at least 90%
(95% in 2000) of its taxable income to its shareholders. To qualify as a
REIT, the trust must elect to be so treated and must meet on a continuing
basis certain requirements relating to the Trusts organization, sources of
income, nature of assets, and distribution of assets to shareholders. The
Trust must maintain certain records and request certain information from
its stockholders designed to disclose actual ownership of its stock. In
addition the Trust must satisfy certain gross income requirements and
certain asset tests at the close of each quarter of its taxable year.
If the Trust fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Trust will be subject to tax
on its taxable income at regular corporate rates. Distributions to
stockholders in any year in which the Trust fails to qualify will not be
deductible by the Trust nor will they be required to be made. Unless
entitled to relief under specific statutory provisions, the Trust will
also be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost.
Based on the Trust"s belief that it has operated in a manner so as to
allow it to elect to be taxed as a REIT since inception, no provision for
federal income taxes has been made in the financial statements.
For the three-month period ended March 31, 2001, the distributions per
preferred and common share are allocated 100% as ordinary income for tax
purposes. For the period ended March 31, 2000, the distributions per
preferred and common share are allocated 100% as ordinary income for tax
purposes.
Fair value of financial instruments. For cash and cash equivalents, the
carrying amount is a reasonable estimate of fair value. For mortgage note
receivables, fair value is estimated by discounting the future cash flows
using the current interest rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities. It was determined that the difference between the carrying
amount and the fair value of the mortgage notes receivable is immaterial.
7
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the three-month period ended March 31, 2001
Origination costs. Origination costs relating to mortgage notes receivable
are deferred and recognized as an adjustment to yield over the term of the
notes.
Real estate owned. Real estate owned results from foreclosure of loans and
at time of foreclosure is recorded at the lower of carrying amount or fair
value of the property minus estimated costs to sell. At this time senior
debt to which the asset is subject is reported as mortgage payable.
Subsequent to foreclosure, the foreclosed asset value is periodically
reviewed and is adjusted to fair value. No depreciation is taken on the
real estate held for sale. Income and expenses related to real estate
owned are recorded as other income, interest expense of real estate owned
and as operating expenses of real estate owned on the Statements of
Operations.
4. Restricted cash and mortgage note holdbacks.
-------------------------------------------
Pursuant to mortgage loan agreements between the Trust and certain of its
borrowers, a portion of the loan proceeds are held by the Trust in
segregated accounts to be disbursed to borrowers upon completion of
improvements on the secured property. As of March 31, 2001 and December
31, 2000, mortgage note holdbacks from the consummation of mortgage loans
made amounted to $243,090 and $654,084 respectively.
5. Mortgage notes receivable.
-------------------------
Mortgage notes receivable are stated at the principal outstanding.
Interest on the mortgages is due monthly and principal is due as a balloon
payment at loan maturity.
Mortgage notes receivable represent home equity loans secured by
residential real estate. At their original origination, all loans have a
combined loan-to-value of not more than 75% of the underlying collateral's
appraisal. The Trust is subject to the risks inherent in finance lending
including the risk of borrower default and bankruptcy.
6. Accounts receivable.
-------------------
Accounts receivable consists of accrued interest on mortgage notes
receivable and other amounts due from borrowers.
7. Mortgage notes payable.
-----------------------
As of March 31, 2001 and December 31, 2000 the Trust held no mortgage
notes payable.
8. Related party transactions.
--------------------------
The Manager, which is owned by several of the Trustees and their
affiliate, contracted with the Trust to provide administration services
and receives a fee for these services from the Trust. The Manager is also
entitled to reimbursement for clerical and administrative services at cost
based on relative utilization of facilities and personnel. The Manager
bears all expenses of services for which it is separately compensated.
8
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the three-month period ended March 31, 2001
The Manager receives a management fee equal to one-twelfth (1/12) of 1%
annually of the book value of mortgages, mortgage-related investments and
real property ("Gross Mortgage Assets") of the Trust plus one-twelfth
(1/12) of one half percent (1/2%) of the book value of the non-mortgage
assets of the Trust computed at the end of each month. The Trust paid the
Manager a management fee of $57,956 and $38,156 for the three months ended
March 31, 2001 and March 31, 2000, respectively.
The Manager also receives a loan origination and servicing fee equal to
one-twelfth (1/12) of 2% annually of the Gross Mortgage Assets of the
Trust computed at the end of each month. The Trust paid the Manager a loan
origination and servicing fee of $99,912 and $76,402 for the three months
ended March 31, 2001 and March 31, 2000, respectively.
As described in Note 3, the Trust held an investment in Sierra Capital
Funding and received a 15% return per annum. For the three months ended
March 31, 2000 the interest was deferred.
As described in Note 3, the Trust has a non-qualified REIT subsidiary,
Capital Alliance Funding Corporation. For the three months ended March 31,
2001 and March 31, 2000 the Trust was allocated a gain of $68,503 and a
loss of $59,300, respectively.
9. Preferred stock and common stock.
--------------------------------
The Preferred Shares are entitled to a distribution preference in an
amount equal to an annualized return on the Aggregate Adjusted Net Capital
Contribution of Preferred Shares at each dividend record date during such
year (or, if the Directors do not set a record date, as of the first day
of the month) equal to the lesser of 10.25% or 150 basis points over the
Prime Rate (determined on a not less than quarterly basis).
After declaration of dividends for a given quarter to the Preferred Shares
in the amount of the distribution preference, no further distributions may
be declared on the Preferred Shares for the quarter until the current
Distributions declared on each Common Share for that quarter equals the
distribution preference for each Preferred Share for such quarter. Any
additional distributions generally will be allocated such that the amount
of distributions per share to the holders of the Preferred Shares and
Common Shares for the quarter are equal. The distribution preference of
the Preferred Shares is not cumulative.
Preferred Shares are entitled to receive all liquidating distributions
until they have received an amount equal to their Aggregate Adjusted Net
Capital Contribution. Thereafter, Common shareholders are entitled to all
liquidation distributions until the Aggregate Adjusted Net Capital
Contributions of all Common Shares has been reduced to zero. Any
subsequent liquidating distributions will be allocated among the holders
of the Common Shares and Preferred Shares pro rata.
The Trust has the power to redeem or prohibit the transfer of a sufficient
number of common and/or Preferred shares or the exercise of warrants and
to prohibit the transfer of shares to persons that would result in
violation of the Trust"s share holding requirements. In addition, the
Bylaws provide that no shareholder may own more than 9.8% of the total
outstanding shares after the conclusion of the initial public offering of
Common Shares.
9
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the three-month period ended March 31, 2001
One Shareholder Warrant was issued for every ten Common Shares purchased
in the Trust's initial public offering. Each shareholder Warrant entitled
the holder to purchase one Common Share. The exercise price for each
Shareholder warrant was $5.60, which may be exercised during the 25th
through 48th month after April 28, 1997. In order to protect the Warrant
holders against dilution, the exercise price of the Warrants and the
number of which may be purchased upon exercise of the Warrants will be
adjusted should certain events occur (i.e., stock dividends, split-ups,
combinations, and reclassifications). Provision was also made to protect
against dilution in the event of a merger, consolidation, or disposition
of all or substantially all of the Trust"s assets. Warrant holders did not
have the rights of a shareholder and they were not entitled to participate
in a distribution of the Trust"s assets in a liquidation, dissolution, or
winding up of the Trust, unless the Warrants were exercised. The Trust
could refuse to allow the exercise of a warrant if the effect of such
exercise would disqualify the Trust as a REIT under the Internal Revenue
Code. On April 28, 2001 all issued Warrants expired unexercised.
During 1998, the Trust purchased 9,526 preferred shares as treasury stock.
The purchase was recorded at cost.
During 2000, the Trust adopted a Stock Repurchase Plan and authorized the
purchase of $250,000 of Common Stock. The Board of Directors authorized in
December 2000 to repurchase an additional $150,000 in Common Shares as
part of its Stock Repurchase Plan. During 2000 the Trust purchased 81,479
Common Shares as treasury stock. During the first three months of 2001,
the Trust purchased 11,000 Common Shares as Treasury Stock. The purchase
was recorded at cost.
On November 17, 2000, the Trust duly approved (subject to satisfaction of
miscellaneous filing requirements) a one share for each three shares (1
for 3) reverse stock split or consolidation of its Common and Preferred
Shares which will become effective at the close of business on May 11,
2001. Upon the effectiveness of the consolidation-reverse split on May 11,
2001, one (1) new Common Share and one (1) new Series "A" Preferred Share
was exchanged for each three (3) outstanding Common and Preferred Share,
respectively, to provide approximately 494,913 issued and outstanding
Common Shares (the March 31, 2001 Common Treasury Share balance will
provide 30,827 post-split Common treasury shares) and approximately
213,761 issued and outstanding Preferred Shares (the December 31, 2000
Preferred Treasury Share balance will provide 3,176 post-split Preferred
Treasury Shares) each with $.01 par value. The price of the Common Shares
closed at $12.50 per share on May 14, 2001 and the Aggregate Adjusted Net
Capital Contribution attributable to each Series "A" Preferred Share
increased to $26.51 per share, three (3) times the prior Aggregate
Adjusted Net Capital Contribution of each such Preferred Share ($8.83) as
of March 31, 2001. The authorized capital of the Trust will remain
unchanged with 5,000,000 Common Shares and 675,000 Series "A" Preferred
Shares being authorized. The Reverse-Split was approved by the Trust's
Board to enable shareholders to take advantage of margin purchases and
more favorable bid-ask spreads to lower transaction costs and to
facilitate a market price above $5.00 per share, which may enable the
Common Shares to obtain institutional interest which is otherwise
generally unavailable for shares trading below $5.00 per share.
10
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the three-month period ended March 31, 2001
10. Earnings per share.
------------------
The following table is a reconciliation of the numerator and denominators
of the basic and diluted earnings per common share.
Quarter Ended Quarter Ended
March 31, 2000 March 31, 2001
-------------- --------------
Numerator:
Net income $ 220,992 $ 264,491
Less: Preferred Dividend $ 150,039 $ 144,172
---------- ----------
Numerator for basic and diluted
earnings per share $ 70,953 $ 120,319
---------- ----------
Denominator:
Basic weighted average shares 1,484,740 1,397,761
Effect of common repurchases 0 5,500
Effect of dilutive warrants 0 172,500
---------- ----------
Diluted weighted average shares 1,484,740 1,575,761
---------- ----------
Basic earnings per common share $ 0.047 $ 0.086
---------- ----------
Diluted earnings per common share $ 0.047 $ 0.076
---------- ----------
11
PART I
ITEM 2.
MANAGEMENT"S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
MANAGEMENT"S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The financial statements of Capital Alliance Income Trust Ltd., A Real
Estate Investment Trust (the "Trust") dated herein were prepared from the
unaudited books and ledgers of the Trust.
General
Recent Trends. The Trust invests in non-conforming mortgage loans on
one-to-four unit residential properties because management believes that there
is a large demand for non-conforming mortgage loans on these kinds of properties
which produce higher yields without comparably higher credit risks when compared
with conforming mortgage loans. Management invests primarily in A-, B/C
credit-rated home equity loans secured by deeds of trust. In general, B and C
credit-rated home equity loans are made to borrowers with lower credit ratings
than borrowers of higher credit quality, such as A credit-rated home equity
loans. Home equity loans rated A-, B/C tend to have higher rates of loss and
delinquency, but higher rates of interest than borrowers of higher credit
quality.
Management believes there is strong demand for non-conforming mortgage
loans by borrowers and strong demand by investors for high yielding,
non-conforming mortgages for securitization
Loan Origination and Loan Servicing. Mortgage loan origination consists of
establishing a relationship with a borrower or his broker, obtaining and
reviewing documentation concerning the credit rating and net worth of borrowers,
inspecting and appraising properties that are proposed as the subject of a home
equity loan, processing such information and underwriting and funding the
mortgage loan. Mortgage loan servicing consists of collecting payments from
borrowers, accounting for interest payments, holding escrow funds until
fulfillment of mortgage loan requirements, contacting delinquent borrowers,
foreclosing in the event of unremedied defaults and performing other
administrative duties. Mortgage loan origination and loan servicing were
provided to the Trust by CAAI, its Manager.
Commitments and Contingencies. As of March 31, 2001, the Trust"s loan
portfolio included 84 loans totaling $11,563,125 of which 10 loans totaling
$1,073,638 representing 9.3% of the loan portfolio were delinquent over 60 days.
There were 9 delinquent loans which were in the process of foreclosure at March
31, 2001. In assessing the collectibility of these delinquent mortgage loans,
management has established a loan loss reserve of $108,854, if it is necessary
to foreclose upon the mortgage loans. The Trust generally issues loan
commitments only on a conditional basis and generally funds such loans promptly
upon removal of any conditions. Accordingly, the Trust did not have any
commitments to fund loans as of March 31, 2001 and March 31, 2000.
Results of Operations
The historical information presented herein is not necessarily indicative
of future operations.
12
Three months ended March 31, 2001 and 2000. Revenues for the first quarter
increased to $625,102 as compared to $450,163 for the same period in the prior
year. The increase in revenue, during the first three months of 2000 was
primarily due to CAFC's improved operating results of $127,803 and increased
interest income from affiliates of $43,245.
Expenses for the first quarter 2001 increased to $360,611 as compared to
$224,147 for the same period in the prior year. The increased expenses during
the first three months of 2001 were primarily due to $69,744 of increased
interest expense and $43,310 of increased advisory fees paid to the Manager.
Inflation
The financial statements of the Trust, prepared in accordance with
generally accepted accounting principles, report the Trust"s financial position
and operating results in terms of historical dollars and does not consider the
impact of inflation. Inflation affects the Trust"s operations primarily through
its effect on interest rates, since interest rates normally increase during
period of high inflation and decrease during periods of low inflation. When
interest rates increase, the demand for mortgage loans and a borrower"s ability
to qualify for mortgage financing may be adversely affected.
Liquidity and Capital Resources
The liquidity of the Trust will be based upon the need to fund investments
in mortgage loans, the repayment of existing mortgage loans, the sale of
foreclosed properties, and the continued availability of warehouse financing.
Net cash provided by operating activities during the three months ended
March 31, 2001 and 2000 was $310,952 and $409,798, respectively.
Net cash provided by (used in) investing activities for the three months
ended March 31, 2001 and 2000 was ($1,626,910) and $283,228, respectively. The
increased use of cash in 2001 compared to the prior period is primarily due to a
$2,005,495 increase in warehouse lines of credit to affiliates.
Net cash provided by financing activities during the three months ended
March 31, 2001 and 2000 was $1,824,873 and ($276,242), respectively. The 2001
results are reduced by $263,449 for the payment of dividends and increased by
borrowings of $2,126,551. The 2000 results are from the payment of dividends.
The Trust has two warehouse lines of credit for $7,000,000 and $2,250,000
with two different lenders. During February 2001 CAFC elected to terminate a
$2,000,000 warehouse line of credit which was guaranteed by the Trust. CAFC had
secured a more favorably priced warehouse line of credit for $5,000,000 in
September 2000. The Trust has also extended a warehouse line of credit to CAFC
and the Mortgage Division of CAlliance Realty Fund, LLC ("CRF"). Management
believes that cash flow from operations, the proceeds of loan repayments plus
the establishment of the warehouse lines of credit for the Mortgage Conduit
Business will be sufficient to meet the liquidity needs of the Trust"s
businesses for the next twelve months.
13
PART II
OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
The trust is not involved in any legal proceedings at this
time.
ITEM 2 CHANGES IN SECURITIES
During the first quarterly period ending March 31, 2001, the
Trust purchased 11,000 common shares.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5 OTHER INFORMATION
Press Release, Exhibit "A" attached hereto and incorporated
herein, regarding declaration of second quarterly dividend and
improved operating results.
Press Release, Exhibit "B" attached hereto and incorporated
herein, regarding election of Donald R. Looper to Board of
Directors.
Subsequent to the end of the first quarter of 2001, Sutter
Opportunity Fund 2, LLC ("Sutter") on April 9, 2001 initiated
a partial tender offer for up to 20% of the Trust's common
shares at $4.50 per share (less distributions declared or
paid). The Trust's Board recommended to its shareholders that
Sutter's tender offer was inadequate and not in the
shareholders best interests and that the shareholders reject
the offer.
Effective at the close of business on May 11, 2001, the
previously approved 1-for-3 reverse stock split for the
Trust's common and preferred shares will be effective for
shareholders of record on that date.
ITEM 6 REPORTS ON FORM 8-K
Not applicable.
14
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.
CAPITAL ALLIANCE INCOME TRUST LTD.,
A Real Estate Investment Trust
Dated: May 15, 2001 By: /s/ Thomas B. Swartz
------------------------------------
Thomas B. Swartz,
Chairman and Chief Executive Officer
Dated: May 15, 2001 By: /s/ Richard J. Wrensen
------------------------------------
Richard J. Wrensen,
Executive Vice President and
Chief Financial Officer
15
EXHIBIT "A"
CAPITAL ALLIANCE INCOME TRUST LTD. ANNOUNCES
IMPROVED OPERATING RESULTS FOR YEAR 2000 AND FIRST QUARTER 2001
AND COMPLETION OF 1 FOR 3 REVERSE STOCK SPLIT
Press Release
SAN FRANCISCO --(BUSINESS WIRE)--March 14, 2001--Capital Alliance Income Trust
Ltd. ("CAIT") (AMEX: CAA- news), a specialty residential finance company,
announced earnings, as reflected in its Form 10-K filed with the SEC, of
$515,023 for the year 2000 as compared to earnings of $450,605 for the year
1999. CAIT also reported increased earnings (unaudited) for the first quarter of
2001 of $264,491, which compare favorably to quarterly earnings of $155,809 and
$65,940 for the fourth and third quarters of 2000, respectively.
Thomas B. Swartz, Chairman and CEO of CAIT, noted that "management was pleased
to see the continuing incremental improvement in earnings for the last three
quarters since they reflect the benefit of CAIT"s re-emphasis of its portfolio
lending operations, reduced interest costs, and improved profitability in its
portfolio operations as well as in its mortgage banking subsidiary." He also
observed that the improvement in CAIT"s earnings appeared to be continuing into
the second quarter of 2001.
Richard J. Wrensen, CAIT's CFO also indicated that the previously announced
1-for-3 reverse stock split of CAIT"s common and preferred shares became
effective at the close of business on Friday, May 11, 2001 for shareholders of
record on that date. CAIT's share price should initially triple as a result of
the reverse stock split. There will be a mandatory exchange of certificates and
fractional shares will be rounded up to the nearest higher whole share. Mr.
Wrensen also noted that shareholder value should be enhanced not only by CAIT's
improving earnings but also by the reverse split, since margin financing should
be available to investors, investors should be able to obtain narrower bid and
ask spreads and reduced transaction costs should be available on future trades
in CAIT stock. CAIT's stock will also then be eligible for investment by
institutional investors who don't usually invest in stocks priced under $5.00.
CAIT is a specialty residential mortgage lender which invests in high-yielding,
non-conforming residential mortgage loans on one-to-four unit residential
properties located in California and other western states. It also originates
non-conforming and conforming loans for sale to investors and Freddie Mac on a
whole loan basis for cash through its subsidiary, Capital Alliance Funding
Corporation.
Certain oral and written statements of management of CAIT included in the press
release may contain forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of
1934. The accuracy of such statements cannot be guaranteed, as they may be
subject to a variety of risks and contingencies.
- --------------------
Contact: Capital Alliance Income Trust Ltd.
Richard J. Wrensen, CFO, 415/288-9575
16
EXHIBIT "B"
CAPITAL ALLIANCE INCOME TRUST ANNOUNCES ELECTION
OF DONALD R. LOOPER TO ITS BOARD OF DIRECTORS
SAN FRANCISCO--(BUSINESS WIRE)-- March 26, 2001--Capital Alliance Income Trust
Ltd. ("CAIT"), (AMEX: CAA - news), a non-conforming --- ---- specialty
residential finance company, announced that its Board has elected Donald R.
Looper of Houston, Texas to its Board of Directors. Mr. Looper will also serve
as an independent director on the Board's Audit Committee.
Mr. Looper, 48, is Senior Partner of the Houston-based law firm of Looper, Reed,
& McGraw. He graduated, with honors, from the University of Texas with a
Bachelor of Arts degree (1974); received a Master of Professional Accounting
degree (specialization in Tax Accounting) (1976) from the University of Texas
and a J.D. degree in Law from the University of Houston (1979). Mr. Looper's
legal practice has involved the representation of both public and
privately-owned corporations and the complex structuring of substantial
financings involving mortgage financings of real estate and international
business transactions.
Thomas B. Swartz, Chairman and CEO of CAIT, stated that Mr. Looper brings a keen
business and accounting, as well as legal, mind to CAIT's Board - not to mention
an enjoyable personality - and will contribute his valuable legal, accounting
and tax expertise to the Board and its Audit Committee as an independent
Director, thus strengthening the independence and effectiveness of CAIT's audit
committee.
With Mr. Looper's addition to CAIT's Board and Audit Committee, CAIT has
completed all of the requirements for compliance with the new audit committee
structure and membership requirements of the American Stock Exchange.
CAIT is a specialty residential mortgage lender which invests in high-yielding,
non-conforming and conforming residential mortgage loans on one-to-four unit
residential properties located primarily in California and other western states.
It also originates non-conforming and conforming loans for sale to investors,
including Freddie Mac, on a whole loan basis for cash through its mortgage
banking subsidiary, Capital Alliance Funding Corporation.
- --------------------
Contact: Capital Alliance Income Trust Ltd.
Thomas B. Swartz, Chairman, 415/288-9575
17