UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
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 June 30, 2001
Commission File Number: 333-11625
-------------------
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
incorporation or organization) Identification Number)
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 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 ___.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of July 31, 2001, the registrant's common shares closed at $13.02 per share
and the aggregate market value of the registrant's common shares held by
non-affiliates of the registrant was approximately $5,159,826. At that date
approximately 396,300 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
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Balance Sheets
(Unaudited) (Audited)
June 30, 2001 December 31, 2000
------------- -----------------
ASSETS
Cash and cash equivalents $ 789,887 $ 368,241
Restricted cash 785,740 654,084
Accounts receivable 274,122 293,592
Notes receivable:
Warehouse lines of credit to related parties 6,724,835 4,744,674
Mortgage notes recievable 12,154,804 11,906,589
Allowance for loan losses (82,241) (80,000)
------------ ------------
Net Receivable 18,797,398 16,571,263
Real estate owned 426,058 530,000
Investments in affiliates 829,052 603,459
Origination costs (net) 197,131 197,131
Prepaid items (net) 61,904 81,562
------------ ------------
Total assets $ 22,161,292 $ 19,299,332
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Mortgage note holdbacks $ 785,740 $ 654,084
Loans payable 5,993,903 3,737,511
Due to affiliates 535,425 42,190
Other liabilities 245,546 155,383
------------ ------------
Total liabilities 7,560,614 4,589,168
------------ ------------
Stockholders' Equity
Preferred stock, $.01 par value; 675,000 shares authorized; 2,138 6,413
641,283 shares issued and outstanding at December 31, 2000;
213,761 shares issued and outstanding at June 30, 2001
Additional paid in capital - preferred stock 5,669,123 5,664,848
Less: 9,526 preferred shares held in treasury at cost (2000) -- (86,944)
Less: 3,188 preferred shares held in treasury at cost (2001) (86,944) --
Common stock, $.01 par value; 5,000,000 shares authorized; 4,949 14,847
1,484,740 shares issued and outstanding at December 31, 2000;
494,913 shares issued and outstanding at June 30, 2001
Additional paid in capital - common stock 9,372,206 9,361,000
Less: 81,479 common shares held in treasury at cost (2000) -- (250,000)
Less: 36,425 common shares held in treasury at cost (2001) (360,794) --
------------ ------------
Total stockholders' equity 14,600,678 14,710,164
------------ ------------
Total liabilities and stockholders' equity $ 22,161,292 $ 19,299,332
============ ============
See accompanying notes to financial statement.
2
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
---- ---- ---- ----
REVENUES
Interest income 420,753 $ 385,760 831,650 $ 805,950
Interest income from affiliates 119,757 123,344 251,850 212,192
Investment income from affiliates 126,872 (189,208) 195,375 (248,508)
Other income 4,802 3,872 18,412 4,297
----------- ----------- ----------- -----------
Total revenues 672,184 323,768 1,297,287 773,931
----------- ----------- ----------- -----------
EXPENSES
Loan servicing fees to related parties 100,235 76,022 200,147 152,424
Management fees to related parties 56,994 37,500 114,950 75,656
Interest expense 94,265 77,866 196,297 110,154
Provision for loan losses 46,718 18,000 75,572 35,500
Operating expenses of REO 4,172 (3,084) 9,882 10,736
Taxes 7,065 4,500 11,665 12,700
General and administrative 110,758 44,902 172,305 82,683
----------- ----------- ----------- -----------
Total expenses 420,207 255,706 780,818 479,853
----------- ----------- ----------- -----------
Income Before Gain (Loss) on REO 251,977 $ 68,062 516,469 $ 294,078
Gain (Loss) on Real Estate Owned -- 2,500 -- (2,524)
----------- ----------- ----------- -----------
NET INCOME $ 251,977 $ 70,562 $ 516,469 $ 291,554
=========== =========== =========== ===========
PREFERRED DIVIDENDS $ 133,362 $ 153,793 $ 277,534 $ 303,834
COMMON DIVIDEND PER SHARE $ 0.255 $ 0.255 $ 0.51 $ 0.51
=========== =========== =========== ===========
BASIC EARNINGS PER
COMMON SHARE $ 0.26 $ (0.06) $ 0.52 $ (0.01)
=========== =========== =========== ===========
DILUTED EARNINGS PER
COMMON SHARE $ 0.23 $ (0.06) $ 0.48 $ (0.01)
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON
SHARES - BASIC EARNINGS 459,931 1,484,692 462,925 1,484,716
WEIGHTED AVERAGE COMMON
SHARES - DILUTED EARNINGS 512,637 1,484,740 499,033 1,484,740
* The 2001 presentation fully reflects the May 11, 2001 reverse stock split.
See notes to accompanying financial statemens.
3
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 516,469 $ 291,554
Adjustments to reconcile net income to net cash:
Amortization - prepaid expenses 45,853 8,750
Gain (loss) on real estate owned -- 2,500
(Increase) decrease in accounts receivable 19,470 12,190
(Increase) decrease in prepaid items (25,568) --
Provision for loan loss 75,572 35,500
Increase (decrease) in due to / due from affiliates 493,235 (79,791)
Increase (decrease) in other liabilities 90,163 731,986
----------- -----------
Net cash provided by (used in) operating activities 1,215,194 1,002,689
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in restricted cash (131,656) (4,607)
Increase (decrease) in mortgage note holdbacks 131,656 4,607
Increase (decrease) in origination costs -- --
(Increase) decrease in warehouse lines of credit (1,980,161) (417,202)
(Increase) in investments (225,593) 82,508
(Increase) in related party note receivable -- --
Investments in mortgage notes receivable (6,767,785) (4,617,043)
Repayments of mortgage notes receivable 6,445,604 4,123,670
Net proceeds from sale of real estate owned 108,250 449,485
Capital costs of foreclosed property (4,308) (1,427,160)
----------- -----------
Net cash provided by (used in) investing (2,423,993) (1,805,742)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in loans payable 2,256,392 2,246,055
Redemption of shares (110,794) (5,050)
Preferred dividends paid (277,534) (303,834)
Common dividends paid (237,619) (252,406)
----------- -----------
Net cash provided by (used in) financing activities 1,630,445 1,684,765
----------- -----------
NET INCREASE (DECREASE) IN CASH 421,646 881,712
CASH AT BEGINNING OF PERIOD 368,241 41,939
----------- -----------
CASH AT END OF PERIOD $ 789,887 $ 923,651
=========== ===========
SUPPLEMENTAL CASHFLOW INFORMATION:
Interest expense paid $ 173,170 $ 110,154
Taxes paid $ 3,665 $ 800
Contribution to affiliate (note 11) $ 30,219 $ 100,000
See accompanying notes to financial statement.
4
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the six months ended June 30, 2001 and 2000
(Unaudited)
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 trust 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 six months ended June
30, 2001 and June 30, 2000 represent the financial statements of the
Trust.
3. Summary of significant accounting policies
------------------------------------------
Use of estimates. The preparation of financial statements in conformity
with generally accepted accounting principals 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,
5
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the six months ended June 30, 2001 and 2000
(Unaudited)
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.
Loan loss reserve. Management reviews its loan loss provision
periodically and the Trust maintains an allowance for losses on mortgage
notes receivable 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 (Note 5). As of June 30, 2001
and June 30, 2000, the loan loss reserves were $82,241 and $35,500,
respectively.
Investments. The Trust has an investment in Capital Alliance Funding
Corporation which is accounted for under the equity method of accounting
and further described in Note 11.
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.
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.
Origination costs. Origination costs relating to mortgage notes
receivable are deferred and recognized as an adjustment to yield over
the term of the notes.
6
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the six months ended June 30, 2001 and 2000
(Unaudited)
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 and
general and administrative expenses on the Statements of Operations.
Reclassifications. Certain 2000 amounts have been reclassified to
conform with 2001 classifications. Such reclassifications had no effect
on reported net income.
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 only to such borrowers upon
completion of certain improvements on the secured property. As of June
30, 2001 and December 31, 2000 mortgage note holdbacks amounted to
$785,740 and $654,084, respectively.
5. Mortgage notes receivable
-------------------------
Mortgage notes receivable represent home equity loans secured by
residential real estate. At the time of origination, all loans have a
combined loan-to-value of not more than 75% of the underlying collateral.
The Trust is subject to the risks inherent in finance lending including
the risk of borrower default and bankruptcy.
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.
6. Accounts receivable
-------------------
Accounts receivable consists of accrued interest on mortgage notes
receivable and other amounts due from borrowers.
7. Notes payable
-------------
As of June 30, 2001 and December 31, 2000, the Trust had borrowed
$5,897,653 and $2,231,873 under a two-year warehouse line of credit. The
Trust receives advances under the agreement up to a maximum of
$7,000,000, with the mortgage loans pledged as collateral against the
advances received. Annual interest is at LIBOR (London Interbank Offered
Rate for U.S. dollar deposits) plus 2.00% (5.92% at June 30, 2001) and is
payable monthly. Maturity date for this line of credit is September 26,
2002.
7
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the six months ended June 30, 2001 and 2000
(Unaudited)
As of June 30, 2001 and December 31, 2000, the Trust had borrowed $96,250
and $1,505,638, respectively under another warehouse line of credit. the
Trust receives advances under the agreement up to a maximum of
$2,250,000, with the mortgage loans pledged as collateral against the
advances received. Annual interest is the applicable prime rate plus .50%
(7.25% as of June 30, 2001) and is payable monthly. Maturity date for
this line of credit is April 15, 2002.
As of June 30, 2001, the Trust has borrowed at 5% per annum an unsecured
$535,425 demand note payable to CAlliance Realty Fund, LLC, a related
party, with interest payable monthly. As of June 30, 2000, the Trust held
an 11.25% notes payable (mortgage) of $900,805 due in 2027 with interest
payable monthly encumbering its real estate owned.
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.
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 Asset") 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 $114,950 and $75,656 for the six months ended
June 30, 2001 and June 30, 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 $200,147 and $152,424 for the six
months ended June 30, 2001 and June 30, 2000, respectively.
The Manager also receives incentive compensation for each fiscal quarter,
equal to 25% of the net income of the Trust in excess of an annualized
return on equity for such quarter equal to the ten year U.S. Treasury
Rate plus 2% provided that the payment of such incentive compensation
does not reduce the Trust's annualized return on equity for such quarter
to less than the ten year U.S. Treasury Rate plus 2% after the preferred
dividend has been paid. As of June 30, 2001 and June 30, 2000, no
incentive compensation was paid.
The Trust holds an investment in Capital Alliance Funding Corporation
("CAFC") that originates and sells residential mortgage loans. The Trust
owns 100% of the outstanding non-voting preferred shares of CAFC with a
99% equity interest. For the six months ended June 30, 2001 and June 30,
2000, the Trust was allocated a gain of $195,375 and a loss of $248,508,
respectively.
8
The Trust entered into a loan purchase agreement on December 12, 1997
with ("CAFC"). Under the terms of the agreement, the Trust advances
funds to CAFC to acquire mortgage loans secured by real estate. The
Trust then acquires all of CAFC's right, title and interest in such
loans. CAFC is obligated to reacquire the loans from the Trust at a
preset price. As of June 30, 2001 and December 31, 2000, the Trust
advanced CAFC $6,724,835 and $3,501,940, respectively. Annual interest
on this line of credit is equal to the interest rate of the mortgage
loans pledged and is payable monthly.
The Trust entered into a loan purchase agreement on January 1, 1998 with
CAlliance Realty Mortgage Trust, which subsequently merged into the
Mortgage Division of CAlliance Realty Fund, LLC ("CRF") on May 30, 2000.
Under the terms of the agreement, the Trust advances funds to CRF to
acquire mortgage loans secured by real estate. The trust then acquires
all of CRF's right, title and interest in such loans. CRF is obligated to
reacquire the loans from the Trust at a preset price. As of June 30, 2001
and December 31, 2000, the Trust advanced CRF $0 and $1,242,734
respectively. Annual interest on this line of credit is 12% and is
payable monthly.
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. For the six
months ended June 30, 2000, the interest was deferred. SCA ceased
operations during 2000.
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 Preferred Shares, at the option of the Board of Directors, are
redeemable by a Shareholder annually on June 30 for redemption requests
received by May 15 of such year. The Board of Directors may in their sole
discretion deny, delay, postpone or consent to any or all requests for
redemption. The Redemption amount to be paid for redemption of such
Preferred Share is the Aggregate Adjusted Net Capital Contribution plus
unpaid accrued dividends, divided by all Preferred Shares outstanding. A
liquidation charge may be charged by the Trust in connection with a
redemption.
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 six months ended June 30, 2001 and 2000
(Unaudited)
One Shareholder Warrant was originally issued for every ten Common Shares
purchased. Each shareholder Warrant entitled the holder to purchase one
Common Share. The exercise price for each Shareholder Warrant was $5.60
On April 28, 2001 all issued Warrants expired unexercised.
During 2000 the Trust adopted a Stock Repurchase Plan and authorized the
purchase of $250,000 of Common Stock. In December 2000 and June 2001 an
additional $150,000 and an additional $180,000 was authorized as part of
the Stock Repurchase Plan.
During 2000 the Trust purchased 81,479 Common Shares as treasury stock.
During the first quarter of 2001, the Trust purchased 11,000 Common
Shares as Treasury Stock. During the second quarter of 2001, the Trust
purchased 5,600 post-reverse stock split Common Shares. The purchases are
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 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
Trust's Board approved the Reverese-Split 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.
The 1998 Incentive Stock Option Plan, adopted by the board of directors
and approved by stockholders, provides options for the purchase of a
total of 247,500 Common Shares of the Trust. Officers and employees of
the Manager, and directors of the board are eligible recipients of the
options. The options have a term of ten years with a first exercise date
generally two (2) to six (6) months after the date of the grant. Options
for the purchase of 68,875 of Common Shares were granted April 1, 1999
with an adjusted exercise price of $13.50 per new Common Share. On
February 2, 2000, options for the purchase of 109,750 shares were granted
with an adjusted exercise price of $9.00 per new Common Share. On
February 8, 2001, options to purchase 68,875 shares were granted with an
adjusted exercise
10
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the six months ended June 30, 2001 and 2000
(Unaudited)
price of $9.06 per new Common Share. No options have been exercised as
of the date of this report.
10. Earnings per share
------------------
The following table is a reconciliation of the numerator and denominators
of the basic and diluted earnings per common share.
Three months ended Six months ended
June 30, 2001 June 30, 2001
------------- -------------
Numerator:
Net income $251,977 $516,469
Less: Preferred Dividend $133,362 $277,534
-------- --------
Numerator for basic and diluted
earnings per share $118,615 $238,935
Denominator:
Basic weighted average shares 459,931 462,925
Effect of dilutive options 52,706 36,108
-------- --------
Diluted weighted average shares 512,637 499,033
Basic earnings per common share .26 .52
Diluted earnings per common share .23 .48
11. Investment in affiliates.
------------------------
The Trust has a non-qualified REIT subsidiary, Capital Alliance Funding
Corporation ("CAFC"), to conduct a mortgage banking business. The Trust
owns all of the outstanding Series "A" Preferred Stock (2,000 shares of
non-voting stock), which constitutes a 99% economic interest in CAFC. The
Trust's Manager owns all the Common Shares (1,000) of CAFC, which
constitutes a 1% economic interest and has 100% voting control. The
Trust's Manager also manages CAFC and provides mortgage origination and
sale services for CAFC.
11
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the six months ended June 30, 2001 and 2000
(Unaudited)
CAPITAL ALLIANCE FUNDING CORPORATION
Three months ended Six months ended
June 30, 2001 June 30, 2001
------------- -------------
Revenue $441,589 $800,812
Expenses 313,432 613,360
-------- --------
Net operating income 128,157 187,452
Gain/(loss) sale of assets 0 9,900
-------- --------
Net Income (loss) $128,157 $197,352
-------- --------
During the second quarter of 2001, the Trust contributed a $30,219 mortgage note
receivable to Capital Alliance Funding Corporation. The transfer of the mortgage
note receivable is a non- cash transaction that is not shown on the Trust's
statements of cash flow.
June 30, 2001 December 31, 2000
------------- -----------------
Total assets $10,327,993 $6,385,152
=========== ==========
Total liabilities $9,509,241 $5,794,031
Total stockholder equity $818,692 $591,121
----------- ----------
Total liabilities and equity $10,327,993 $6,385,152
=========== ==========
12
PART I
ITEM 2.
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 June 30 , 2001, the Trust's loan
portfolio included 82 loans totaling $12,154,804 of which seven loans totaling
$1,139,828 of the loan portfolio were delinquent over sixty days. There were
three delinquent loans representing $395,481 of the portfolio were in the
process of foreclosure at June 30, 2001. In assessing the collectibility of
these delinquent mortgage loans, management has established a loan loss reserve
of $82,241, 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 June 30, 2001 and June 30,
2000.
Results of Operations
The historical information presented herein is not necessarily indicative
of future operations.
Three months and six months ended June 30, 2001 and 2000. Revenues for
the second quarter of 2001 increased to $672,184 as compared to $323,768 for the
same period in the previous year. Revenues for six months of 2001 increased to
$1,297,287 as compared to $773,931 for the same period of the previous year.
13
The 2001 interest income and interest income from affiliates approximated
the results for the quarter and six months, compared to the same period in the
previous year. The increased revenue is primarily due to the improved operating
results of Capital Alliance Funding Corporation.
Expenses for the second quarter 2001 increased to $420,207 as compared to
$255,706 for the same period in the previous year. Expenses for the six-month
period of 2001 increased to $780,813 as compared to $479,853 for the same period
of the previous year.
The increase in the second quarter of 2001 compared to 2000 is due to a
higher reserve for loan losses, increased interest expenses from greater
borrowings, and greater administration expenses primarily due to professional
costs associated with the Sutter Opportunity Fund tender offer. The increase in
the six months of 2001 compared to 2000 is similarly explained.
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 external credit
facilities.
Net cash provided by operating activities during the six months ended
June 30, 2001 and 2000 was $1,215,194 and $1,002,689, respectively. The 2001 net
cash provided by operations is primarily generated by net income and increased
borrowing from an affiliate. The 2000 results are primarily generated by net
income and the assumption of a real estate owned liability.
Net cash (used in) investing activities for the six months ended June 30,
2001 and 2000 was ($2,428,993) and ($1,805,742), respectively. The 2001 net cash
used in investing activities is primarily the result of a significant increase
in the warehouse line of credit to Capital Alliance Funding Corporation and a
net increase in the mortgage notes receivable. The 2000 results are primarily
generated by a significant increase in real estate owned and a net increase in
mortgage notes receivable.
Net cash provided by financing activities during the six months ended
June 30, 2001 and 2000 was $1,630,445 and $1,684,765, respectively. Both the
2001 and 2000 results are primarily generated by significant increases in loans
payable and reduced by dividends paid.
The Trust has two warehouse lines of credit for $7,000,000 and $2,250,000
with two different lenders. CAFC has a $5,000,000 warehouse line of credit. 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 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.
14
Year 2000
The Trust has not incurred any significant costs or suffered any
operational problems from Year 2000 compliance.
PART I
ITEM 3.
QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK
Forwarding-Looking Statements
Certain statements contained herein are not, and certain statements
contained in future filings by the Trust with the SEC, in the Trust's press
releases or in the Trust's public and stockholder communications may not be
based on historical facts and are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements may be identified by reference to a future period or periods, or by
the use of forward-looking terms such as "may", "will", "expect", "anticipate",
or similar terms. Actual results could materially differ from those in the
forward-looking statements due to a variety of factors.
Market Risk
Market risk is the exposure to loss resulting from changes in interest
rates, credit spreads, foreign exchange rates, commodity prices, and equity
prices. The primary market risks to which the Trust is exposed are interest rate
risk and credit risk.
Interest Risk. Interest rate risk is highly sensitive to many factors,
including governmental, monetary and tax policies, domestic and international
economic and political considerations and other factors beyond the control of
the Trust. Changes in the general level of the U.S. Treasury yield curve can
have significant effects on the market value of the Trust's portfolio. The
majority of the Trust's assets are fixed-rate loans with a spread to U.S.
Treasuries. The Trust's loans are valued on the June 30, 2001 balance sheet of
the lower of cost or market.
As U.S. Treasury securities are priced to a lower yield and/or the spread
to U.S. Treasuries used to price the Trust's assets are decreased, the market
value of the Trust's portfolio may increase. Conversely, as U.S. Treasury
securities are priced to a higher yield and/or the spread to U.S. Treasuries
used to price the Trust's assets is increased , the market value of the Trust's
portfolio may decline. Changes in the level of the U.S. Treasury yield curve can
also affect, among other things, the prepayment assumptions used to value
certain of the Trust's loans. In addition, changes in the general level of the
LIBOR money market rates can affect the Trust's net interest income. The
majority of the Trust's liabilities are floating rate based on a spread over one
month LIBOR. As the level of LIBOR increases or decreases, the Trust's interest
expense will move in the same direction.
On account of the relatively short adjusted weighted average maturity of
the Trust's portfolio (29.5 months), a variety of financial instruments
available to limit the effects of interest rate fluctuations on its operations
have not been utilized. The use of these types of derivatives (such as interest
rate swaps, caps, floors and other interest rate exchange contracts) to hedge
interest-earnings assets and/or interest-bearing liabilities carry risks,
including the risk that the net losses on a hedge position may exceed the amount
invested in such instruments.
15
Credit Risk. Credit risk is the exposure to loss from loan defaults and
foreclosures. Default and foreclosure rates are subject to a wide variety of
factors, including, but not limited to, property values, supply/demand factors,
construction trends, consumer behavior, regional economics, interest rates, the
strength of the American economy and other factors beyond the control of the
Trust.
All loans are subject to a certain probability of default and
foreclosure. An increase in default rates will reduce the book value of the
Trust's assets and the Trust's earnings and cash flow available to fund
operations and pay dividends.
The Trust manages credit risk through the underwriting process, limiting
loans at the time of funding to 75% of the collateral's appraised value,
establishing loss assumptions and carefully monitoring loan performance.
Nevertheless, the Trust assumes that a certain portion of its loans will default
and adjusts the allowance for loan losses based on that assumption. For purposes
of illustration, a doubling of the assumed losses in the Trust's portfolio would
reduce the second quarter 2001 GAAP income applicable to common shareholders by
$82,241 or 33%.
Asset and Liability Management
Asset and liability management is concerned with the timing and magnitude
of the maturity of assets and liabilities. In general, management's strategy is
to approximately match the term of the Trust's liabilities to the portfolio's
adjusted weighted average maturity (29.5 months).
The majority of the Trust's assets pay a fixed coupon and the income from
such assets are relatively unaffected by interest rate changes. The Trust's
borrowings are currently under a variable rate line of credit that resets
monthly. Given this relationship between assets and liabilities, the Trust's
interest rate sensitivity gap is highly negative. This implies that a period of
falling short term interest rates (as prevailed during the first and second
quarter of 2001) will tend to increase the Trust's net interest income, while a
period of rising short term rates will tend to reduce the Trust's net interest
income.
16
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 second quarterly period ending June 30, 2001, the
Trust purchased 5,600 (post reverse split) Common Shares.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Trust's 2001 Annual Meeting was held on August 8, 2001.
The results of the annual meeting will be reported in the 10-Q
filing for the quarter ending September 30, 2001.
ITEM 5 OTHER INFORMATION
Press Release, Exhibit "A" attached hereto and incorporated
herein, regarding Capital Alliance Income Trust's Board urging
shareholders to wait for its position on tender offer by Sutter
Opportunity Fund before taking any action.
Press Release, Exhibit "B" attached hereto and incorporated
herein, regarding Capital Alliance Income Trust Ltd. Board's
recommendation that its shareholders reject inadequate tender
offer of Sutter Opportunity Fund.
Press Release, Exhibit "C" attached hereto and incorporated
herein, regarding Capital Alliance Income Trust Ltd.'s
announcement of record date for and date of Annual Meeting and
record date for and date of effectiveness of reverse stock
split.
Press Release, Exhibit "D" attached hereto and incorporated
herein, regarding Capital Alliance Income Trust Ltd.'s report of
delayed filing of form 10-K and response to Sutter Opportunity
Fund's comments regarding the delayed filing.
Press Release, Exhibit "E" attached hereto and incorporated
herein, regarding Capital Alliance Income Trust Ltd.'s
announcement of improved operating results for year 2000 and
first quarter 2001 and completion of 1 for 3 reverse stock
split.
Press Release, Exhibit "F" attached hereto and incorporated
herein, regarding declaration of third quarterly dividend and
expanded stock purchase plan.
ITEM 6 REPORTS ON FORM 8-K
Not applicable.
17
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: August 10, 2001 By: /s/ Thomas B. Swartz
------------------------------------
Thomas B. Swartz,
Chairman and Chief Executive Officer
Dated: August 10, 2001 By: /s/ Richard J. Wrensen
------------------------------------
Richard J. Wrensen,
Executive Vice President
and Chief Financial Officer
18
EXHIBIT "A"
CAPITAL ALLIANCE INCOME TRUST'S BOARD
URGES SHAREHOLDERS TO WAIT FOR ITS POSITION
ON TENDER OFFER BY SUTTER OPPORTUNITY FUND
BEFORE TAKING ANY ACTION
SAN FRANCISCO - (BUSINESS WIRE) - April 12, 2001 - Capital Alliance Income Trust
Ltd. ("CAIT"), (AMEX: CAA - news), a non-conforming specialty residential
finance company, announced today that on April 9, 2001, Sutter Opportunity Fund
2, LLC ("Opportunity Fund") commenced a tender offer to purchase for cash up to
20 % of CAIT's outstanding Common Shares for $4.50 per share (less future
distributions declared or paid) .
CAIT's Board currently has the tender offer under consideration and on or before
Friday, April 20, 2001, it will publish its position with respect to the tender
offer and the basis for its decision. CAIT's Board has not yet had time to fully
evaluate the offer, the application on CAIT's by-law restrictions on stock
ownership, or the applicable provisions of Delaware law.
Accordingly, at this time, CAIT's Board requests and suggests that CAIT's
shareholders DEFER THEIR DECISIONS ON WHETHER TO ACCEPT OR REJECT THE TENDER
OFFER OF THE OPPORTUNITY FUND UNTIL THEY HAVE BEEN ADVISED OF THE BOARD'S
POSITION.
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.
Certain oral and written statements of the management of CAIT included in this
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 the statements cannot be guaranteed, as
they are subject to a variety of risks and contingencies.
- ---------------------------
Contact: Capital Alliance Income Trust Ltd.
Thomas B. Swartz, CEO - 415/288-9575
19
EXHIBIT "B"
CAPITAL ALLIANCE INCOME TRUST LTD.
ANNOUNCES RECOMMENDATION OF ITS BOARD
THAT ITS SHAREHOLDERS REJECT INADEQUATE
TENDER OFFER OF SUTTER OPPORTUNITY FUND
SAN FRANCISCO - (BUSINESS WIRE) - April 19, 2001 - Capital Alliance Income Trust
Ltd. ("CAIT"), (AMEX: CAA), a non-conforming specialty residential finance
company, announced today that its board of directors voted unanimously to
recommend that CAIT stockholders reject the tender offer commenced by Sutter
Opportunity Fund 2, LLC to purchase shares of CAIT's common stock at $4.415 per
share as inadequate and not in the best interests of CAIT's stockholders.
Thomas Swartz, Chairman and Chief Executive Officer of CAIT, stated, "Our
Board's position remains clear and unanimous that Sutter Opportunity Fund's
tender offer is opportunistic and not in the best interest of our stockholders.
Our Board is committed to seeking opportunities that are in CAIT stockholders'
long term best interests and after careful consideration of the terms of
Sutter's offer, we believe that CAIT stockholders will benefit in the long term
by rejecting the tender offer of $4.415 per share and continuing to hold onto
their shares. We feel strongly that CAIT's common stock represents an attractive
investment opportunity. Sutter obviously agrees with this analysis - otherwise
why would it make an offer to purchase CAIT common stock at the $4.415 offer
price unless it thought CAIT's common stock was worth much more?"
Mr. Swartz also noted that Capital Alliance Advisors, Inc., the Trust's Manager,
has acquired over 5% of CAIT's common stock and CAIT's executive officers and
directors have acquired, in the aggregate, approximately 12% of CAIT common
stock during the past 24 months. He commented, "is there better evidence of our
belief in the intrinsic value of CAIT and its Common Shares than these purchases
and the fact that none of us currently intend to tender shares into this low
ball offer?"
In making its determination, CAIT's board of directors considered a number of
factors, including the following:
o Historic and current prices for shares of CAIT common stock.
o The book value of CAIT's common stock of $6.45 per share.
o The board's belief that if CAIT stockholders accept the offer, Sutter
will be rewarded for opportunistically taking advantage of short term
volatility and mispricing in the equity markets.
o The board's determination that the offer and current trading prices of
CAIT's common stock do not reflect the intrinsic value of CAIT's
common stock.
o The board's belief that the acquisition of up to 20% of CAIT's common
stock by Sutter as contemplated by the offer could have an adverse
effect on the company's REIT status.
o The superior positive performance of CAIT's common stock during the
most recent five quarters as compared to the Dow Jones, NASDAQ and S&P
indices - all of which were down substantially - for the same period.
o The 20.4% increase in CAIT's earnings for 2000 as compared to 1999.
20
o The reduction of the offer price of $4.50 to $4.415 due to the $0.085
dividend distribution made to CAIT's common stockholders on April 16,
2001.
o The fact that Sutter believes that purchasing CAIT common stock at the
offer price represents an attractive investment opportunity for it
depriving any stockholder who accepts the offer of the opportunity to
realize the long term value of holding CAIT's common stock.
The full text of the Board's recommendation is contained in CAIT's Schedule
14D-9 which will be available on the SEC website at www.sec.gov.
CAIT separately announced that it previously approved a 1 for 3 reverse stock
split that will be effective for stockholders of record on May 11, 2001.
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.
Certain oral and written statements of the management of CAIT included in this
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 the statements cannot be guaranteed, as
they are subject to a variety of risks and contingencies.
- -------------------
Contact: Capital Alliance Income Trust Ltd.
Thomas B. Swartz, CEO - 415/288-9575
21
EXHIBIT "C"
CAPITAL ALLIANCE INCOME TRUST LTD.
ANNOUNCES RECORD DATE FOR AND
DATE OF ANNUAL MEETING AND RECORD DATE FOR AND
DATE OF EFFECTIVENESS OF REVERSE STOCK SPLIT
SAN FRANCISCO --BUSINESS WIRE)-- April 25, 2001-- Capital Alliance Income Trust
Ltd. ("CAIT") (AMEX: CAA - news), a non-conforming specialty residential finance
company, announced the following dates relating to its Annual Meeting and its
pending 1 for 3 Reverse Stock Split relating to both its Common and Series "A"
Preferred Shares:
(a) Annual Meeting:
(i) Annual Meeting Date: July 6, 2001.
(ii) Annual Meeting Record Date: May 3, 2001.
(b) Reverse Stock Split of Common and Series "A" Preferred Shares:
(i) Record Date for Reverse Stock Split: May 11, 2001.
(ii) Effective Date of Reverse Stock Split: May 11, 2001 (4 p.m. EDT).
(iii) All outstanding share certificates must be submitted to CAIT's
Transfer Agent and exchanged for new certificates. Notice of the
Reverse Split and instructions for the exchange of shares and/or
share certificates will be sent to shareholders upon the
effectiveness of the reverse split on May 11, 2001.
(iv) Fractional shares will be settled in cash through CAIT's Transfer
Agent.
(v) CAIT's Transfer Agent is: Gemisys Corporation, 7103 South Revere
Pkwy., Englewood, CO 80112.
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, CEO - 415/288-9575
22
EXHIBIT "D"
CAPITAL ALLIANCE INCOME TRUST LTD. REPORTS
DELAYED FILING OF FORM 10-K AND
RESPONDS TO SUTTER OPPORTUNITY FUND'S
COMMENTS REGARDING THE DELAYED FILING
SAN FRANCISCO- (BUSINESSWIRE)- April 26, 2001. The senior management of CAPITAL
ALLIANCE INCOME TRUST LTD. ("CAIT") (AMEX: CAA - news), a non-conforming
specialty residential finance company, today , reported that CAIT was delayed in
filing its Form 10-K beyond its extended filing date of April 16, 2001. Thomas
B. Swartz, Chairman of CAIT noted that it is expected that its audited financial
statements will be delivered by their auditors within the next three or four
business days and that the 10-K will be filed within that time frame. Mr. Swartz
stated that "the delay was and has been primarily due to the serious,
debilitating, long-lasting and recurring illness of CAIT's Chief Financial
Officer, and to the considerable and increased demands on our accounting staff."
Mr. Swartz also stated that "the descriptive portions of the Form 10-K are
basically complete but cannot be finalized until the auditors deliver the
audited financial statements for 2000. He noted that it is expected that there
will be no material variances between the audited financials to be delivered by
the auditors and (a) CAIT's Third Quarter 2000 Form 10-Q financials filed in
November 2000 and/or (b) the preliminary earnings estimates for the fourth
quarter 2000 and the year 2000, released on March 23, 2001." He also noted,
however, that "one modification that CAIT does plan to incorporate in its 2000
audited financials is an increased loan-loss reserve which will have an
immaterial effect on earnings. We feel that this is a prudent move, is
consistent with industry standards and is required by the current state of our
California economy, which could see a lowering of the value of the residential
real estate which secures our loans".
Mr. Swartz also responded to the comments by the management of Sutter
Opportunity Fund, which is pursuing a tender offer for up to twenty percent of
CAIT's Common Shares. He noted that Sutter, in its press release responding to
CAIT's Boards recommendation that Sutter's tender offer be rejected, stated that
CAIT's shareholders should be "concerned" by CAIT's delayed filing of its annual
report to the SEC. Mr. Swartz stated that if such warning was intended to imply
that something was wrong with CAIT's business affairs, no such implication was
warranted. He noted that "since September, 2000, when CAIT re-emphasized its
profitable core portfolio mortgage lending business and obtained a new,
favorably-priced $12 million term and warehousing credit facility from a
financial institution, CAIT's operating performance has improved". "In fact", he
noted, "as reported in CAIT's March 23, 2001 press release, CAIT's preliminary
figures reflected improved earnings for the fourth quarter of 2000 and for the
year 2000 and also reflected that the improvement in earnings was continuing
into the first quarter of 2001."
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 in primarily in California ans 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 the management of CAIT included in this
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 are subject to a variety of risks and contingencies.
- --------------------
Contact: Capital Alliance Income Trust Ltd.
Thomas B. Swartz, Chairman and CEO or
Richard J. Wrensen, CFO - 415/288-9575
23
EXHIBIT "E"
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
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 $250,000, 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
24
EXHIBIT "F"
CAPITAL ALLIANCE INCOME TRUST ANNOUNCES
DECLARATION OF THIRD QUARTER DIVIDEND AND
EXPANDED STOCK PURCHASE PLAN
SAN FRANCISCO--(BUSINESS WIRE)-- June 20, 2001--Capital Alliance Income Trust
Ltd. ("CAIT"), (AMEX: CAA-news), a non-conforming specialty residential finance
company, announced that its Board has declared CAIT's third quarterly Common
Share dividend for 2001 at $.255 per share.
The dividend will be payable on July 16, 2001 to shareholders of record on July
2, 2001.
Separately, CAIT announced the expansion of its existing Stock Purchase Plan
(bringing to $580,000 the amount allocated to the Plan), which should further
enhance shareholder value.
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.
Certain oral and written statements of the management of CAIT included in this
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 are subject to a variety of risks and contingencies.
- --------------------
Contact: Capital Alliance Income Trust Ltd.
Richard J. Wrensen, CFO - 415/288-9575
25