Correspondence
Capital Alliance Income Trust
100 Pine Street, Suite 2450
San Francisco, California 94111
December 3, 2007
Ms. Kristi Marrone
Division of Corporate Finance
100 F Street, N. E.
Washington, D. C. 20549
Mail Stop 4561
RE: Capital Alliance Income Trust LTD., A Real Estate Investment Trust
Form 10-KSB for the year ended December 31, 2006
Form 10-QSB for the quarter ended March 31, 2007
File No. 1-12941
Dear Ms. Marrone:
I have received your most recent comment letter dated October 30, 2007. The
purpose of this correspondence is to correct the previously proposed footnote's
reference to discontinued operations and to explain more thoroughly the proposed
revisions of Capital Alliance Income Trust's statement of cash flows presented
in the Company's correspondence dated October 16, 2007.
Below are the Securities and Exchange Commission's ("SEC") October 30, 2007
comments on the Company's letter dated October 16, 2007and the Company's
Response:
Consolidated Statements of Cash Flows, page F-5
-----------------------------------------------
1. We note that the narrative of your proposed restatement footnote
refers to the discontinuance of operations of CAFC, while in your response
to comment 1 you maintain that CAFC does not qualify for discops treatment
under SFAS 144. Please revise the terminology used in the narrative to
avoid a contradiction to your accounting treatment. In addition, please
explain more thoroughly the revisions to be made to your statement of cash
flows, as well as your basis in GAAP for these revisions, as they are not
clear from your proposed restatement narrative.
Response 1:
Upon review we agree that the restatement footnote could appear to
contradict the Company's Response 1 dated October 4, 2007. Therefore, the
updated proposed footnote follows:
Restatement
The Company has restated its consolidated statements of cash flows, as
previously reported in its Form 10-KSB filed for the years ended December 31,
2006 and 2005. The consolidated statement of cash flows partially aggregated
CAFC's investing activities as a discontinuance of operations. As a result of
such error, the company has restated CAFC's aggregated balances into the
appropriate line items within the operating, investing and financing cash flows
under the appropriate guidance within SFAS 95.
The following is a reconciliation of the consolidated statements of cash flows
as previously reported in the Company's Form 10-K as of and for the years ended
December 31, 2006 and 2005, to the consolidated statements of cash flows as
reported in the accompanying consolidated financial statements included in the
Company's Form 10-KSB-A:
"As Previously
Reported" "As Restated"
December 31, December 31,
2006 Adjustments 2006
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of (investment in) marketable securities 18,678 18,678
(Increase) decrease of investment in related party 5,000 5,000
(Increase) decrease in origination costs 59,246 25,823 85,069
Discontinuance of operations of CAFC 25,823 (25,823) --
Increase (decrease) in warehousing facilities (4,842,646) (4,842,646)
Increase (decrease) in warehousing facilities to related party (950,000) (950,000)
(Increase) decrease in net real estate owned 1,733,350 1,733,350
Increase (decrease) in gross mortgage payable (962,127) (962,127)
(Increase) decrease in gross mortgage notes receivable 9,321,677 9,321,677
---------- ---------- ----------
Net cash provided by investing activities 4,409,001 -- 4,409,001
---------- ---------- ----------
"As Previously
Reported" "As Restated"
December 31, December 31,
2006 Adjustments 2006
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of (investment in) marketable securities (17,853) (17,853)
(Increase) decrease of investment in related party (5,000) (5,000)
(Increase) decrease in origination costs 59,999 59,999
Discontinuance of operations of CAFC 2,459,653 (2,459,653) --
Increase (decrease) in warehousing facilities 4,842,646 4,842,646
Increase (decrease) in warehousing facilities to related party 950,000 950,000
(Increase) decrease in net real estate owned 652,535 652,535
Increase (decrease) in gross mortgage payable (551,922) (2,521,650) (3,073,572)
(Increase) decrease in gross mortgage notes receivable (8,378,900) 4,981,303 (3,397,597)
---------- ---------- ----------
Net cash provided by investing activities 11,158 -- 11,158
---------- ---------- ----------
The following narrative is not part of the proposed footnote, but provides a
more thorough explanation of each revision:
2006 Revision
- -------------
Origination costs include the entire life cycle (acquisition through
disposition) of mortgage banking loans. During 2006, CAIT incurred both
investment loan origination costs and mortgage banking loan origination costs.
Within the previously filed 2006 statement of cash flows, certain mortgage
banking loan disposition expenses were reported as "Discontinuance of operations
of CAFC". As we agree, the terminology of this line item (i.e. Discontinuance)
could appear to contradict the SFAS 144 required accounting treatment as
outlined in the Company's October 4, 2007 correspondence. Therefore, the
proposed revision includes these costs as part of the Company's 2006 origination
costs line item within the statement of cash flow consistent with SFAS 95.
The 2005 statement of cash flows allocates both investment loan and mortgage
banking loan origination costs within origination costs and is consistent with
the proposed 2006 revision.
2005 Revision
- -------------
The 2005 statement of cash flows netted 2005's mortgage banking loan inventory
activity within "Discontinuance of operations of CAFC". As previously noted, the
terminology of this line item contradicts the SFAS 144 required accounting
treatment as outlined in the Company's October 4, 2007 correspondence and the
reporting is inconsistent with SFAS 95 reporting requirements. Therefore, the
net balance of $2,459,653 is separated into its components of mortgage notes
receivable ($4,981,303 as a source of cash) and mortgages payable ($2,521,650 as
a use of cash) to report gross transaction activity consistent with SFAS 95.
Capital Alliance Income Trust acknowledges:
* the Company is responsible for the adequacy and accuracy of the disclosure in
its filings,
* the Securities and Exchange Commission's staff comments or changes to
disclosure in response to staff comments do not foreclose the Commission from
taking any action with respect to the filings; and
* the Company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under federal securities laws of the
United States.
If you have any follow up questions that can be addressed over the phone
415-288-9595 or by e-mail (Rwrensen@caitreit.com), please contact me. Our
facsimile number is 415-576-1810.
Sincerely,
/s/ Richard J. Wrensen
- ----------------------
Richard J. Wrensen
President and Chief Executive Officer
Capital Alliance Income Trust