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 March 31,
2000
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
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 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 _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 April 30, 2000, the aggregate market value of the registrant"s shares of
Common Stock, $.01 par value, held by non affiliates of the registrant was
approximately $4,454,220. At that date 1,484,740 shares of common stock were
outstanding. The shares are listed and publicly traded on the American Stock
Exchange.
<PAGE>
PART I
ITEM 1.
FINANCIAL STATEMENTS
<PAGE>
CAPITAL ALLIANCE INCOME TRUST LTD.,
A Real Estate Investment Trust
<TABLE>
<CAPTION>
Balance Sheets
(unaudited) (audited)
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
Cash and cash equivalents $ 458,722 $ 41,939
Restricted cash 384,158 487,174
Accounts receivable 234,622 233,017
Due from affiliates 488,222 637,491
Notes receivable:
Warehouse lines of credit to related parties 2,887,164 3,189,317
Mortgage notes receivable 11,335,374 10,807,664
Allowance for loan losses (17,500) (85,000)
------------ ------------
Net receivable 14,205,038 13,991,981
Real estate owned 298,622 644,326
Investments in affiliates 811,166 870,466
Origination costs 164,128 163,635
Loan Fee 11,667 16,667
Total assets $ 17,044,678 $ 17,006,696
============ ============
Liabilities
Mortgage note holdbacks $ 384,158 $ 487,174
Loan payable 1,089,000 904,750
Other liabilities 199,937 187,938
------------ ------------
Total liabilities 1,673,095 1,579,862
------------ ------------
Stockholders' Equity
Preferred stock, $.01 par value per share; 6,413 6,413
675,000 shares authorized; 641,283 shares
issued and 631,757 outstanding at March 31, 2000
and December 31, 1999
Additional paid in capital -preferred stock 5,752,907 5,752,907
Less: treasury stock, 9,526 shares 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
at March 31, 2000 and December 31,1999
Additional paid in capital - common stock 9,684,360 9,739,611
------------ ------------
Total stockholders' equity 15,371,583 15,426,834
------------ ------------
Total liabilities and stockholders' equity $ 17,044,678 $ 17,006,696
============ ============
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
CAPITAL ALLIANCE INCOME TRUST LTD.,
A Real Estate Investment Trust
<TABLE>
<CAPTION>
Statements of Operations
(Unaudited)
Three Months Ended
March 31,
2000 1999
---- ----
<S> <C> <C>
Interest income 420,190 $ 398,440
Interest income from affiliates 88,848 125,944
Investment income from affiliates (59,300) (157,815)
Other income 425 4,888
----------- -----------
Total revenues 450,163 371,457
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EXPENSES
Loan servicing fees to related party 76,402 75,609
Management fees to related party 38,156 38,233
Interest expense 32,288 39,950
Provision for loan losses 17,500 32,500
Operating expenses of real estate owned 13,820 5,620
Taxes 8,200 5,300
General and administrative 37,781 30,854
----------- -----------
Total expenses 224,147 228,066
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INCOME BEFORE GAIN (LOSS) ON REAL
ESTATE OWNED 226,016 143,391
Gain (loss) on real estate owned (5,024) --
----------- -----------
NET INCOME $ 220,992 $ 143,391
=========== ===========
PREFERRED DIVIDENDS $ 150,039 $ 138,789
BASIC EARNINGS PER COMMON SHARE $ 0.047 $ 0.003
DILUTED EARNINGS PER COMMON SHARE $ 0.047 $ 0.003
AVERAGE COMMON SHARES
OUTSTANDING - BASIC EARNINGS PER SHARE 1,484,740 1,484,740
AVERAGE COMMON SHARES
OUTSTANDING - DILUTED EARNINGS PER SHARE 1,484,740 1,484,740
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
CAPITAL ALLIANCE INCOME TRUST LTD.,
A Real Estate Investment Trust
<TABLE>
<CAPTION>
Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income ............................................ $ 220,992 $ 143,391
Adjustments to reconcile net income to net cash
Amortization ........................................ 5,000 1,101
Gain (loss) on real estate owned .................... (5,024) --
(Increase) decrease in accounts receivable ......... (1,605) 14,806
Accrued interest capitalized to real estate owned ... -- (34,075)
Provisions for loan loss ............................ 17,500 32,500
Increase in organization costs ...................... -- --
Increase (decrease) in security deposits ............ -- (5,857)
Increase (decrease) in due to affiliates ............ 149,269 (146,360)
Increase (decrease) in other liabilities ............ 11,999 48,861
----------- -----------
Net cash provided by (used in) operating activities 398,131 54,367
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in restricted cash ................ 103,106 75,158
Increase (decrease) in mortgage note holdbacks ........ (103,106) (75,158)
Increase (decrease) in origination costs .............. -- --
(Increase) decrease in warehouse lines of credit ...... 302,153 707,534
(Increase) in investments ............................. 59,300 157,815
Increase in related party note receivable ............. -- (22,500)
Investments in mortgage notes receivable .............. (2,470,210) (3,408,469)
Repayments of mortgage notes receivable ............... 1,942,500 2,077,651
Net proceeds from sale of real estate owned ........... 461,151 --
Capital costs of foreclosed property .................. -- (13,967)
----------- -----------
Net cash provided by (used in) investing ............ 294,894 (501,936)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Note payable to related party ......................... -- --
Redemption of shares .................................. -- --
Proceeds from issuance of shares ...................... -- --
Payment of mortgage notes payable ..................... -- 745,950
Preferred dividends paid .............................. (150,039) (138,789)
Common dividends paid ................................. (126,203) (252,406)
----------- -----------
Net cash provided by (used in) financing activities . (276,242) 354,755
----------- -----------
NET INCREASE (DECREASE) IN CASH ............................. 416,783 (92,814)
CASH AT BEGINNING OF PERIOD ................................. 41,939 570,710
----------- -----------
CASH AT END OF PERIOD ....................................... $ 458,722 $ 477,896
=========== ===========
SUPPLEMENTAL CASHFLOW INFORMATION:
Interest expense paid ................................. $ 32,288 $ 39,922
Taxes paid ............................................ $ 800 $ 800
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
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. The Manager, Capital
Alliance Advisors, Inc. (the "Manager") originates, services and sells the
Trust's loans.
On September 30, 1998, the Trust completed its initial public offering of
1,484,740 at $8.00 per share and warrants to purchase an additional
148,474 common shares at $5.60 per share.
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,
1999 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, 2000 and March 31, 1999 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. Restricted cash represents segregated cash and
is to be disbursed only to mortgage loan borrowers upon completion of
certain improvements to the secured property (see Note 4).
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. A
portion of the portfolio is secured by second trust deeds on real estate.
6
<PAGE>
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 (Note 5). As of March 31, 2000 and March 31, 1999 the loan loss
reserves were $15,000 and $202,500, respectively.
Investments. The Trust hold an investment in Sierra Capital Acceptance
("SCA"), a division of Sierra Capital Funding, LLC ("SCF"), a Delaware
Limited Liability Company which originates and sells residential mortgages.
SCA will continue operations as a separate operating division of SCF. The
Trust's investment in receives a 15% preferential interest distribution per
annum. Sierra Capital Services, Inc., a related party, owns 99% of the
Sierra common shares of SCF and maintains voting control.
During 1997 the Trust formed its non-qualified REIT subsidiary Capital
Alliance Funding Corporation ("CAFC") to conduct its mortgage conduit
business. The Trust owns 100% of the outstanding Series "A" Preferred stock
(2,000 shares of non-voting stock) in CAFC, which constitute a 99% economic
interest in CAFC. The Trust"s Manager owns 100% of the Common Shares (1,000
shares) of CAFC, which constitute a 1% economic interest and has 100%
voting control. The Trust"s Manager also manages CAFC and provides mortgage
origination and sale and services for CAFC. The Trust accounts for its
investment in CAFC under the equity method.
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 95% 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, 2000, the distributions per
preferred share are allocated 100% as ordinary income and the common share
distribution is allocated 100% ordinary income for tax purposes. For the
period ended March 31, 1999, the distributions per preferred share are
allocated 100% ordinary income and the common share distribution is
allocated 100% 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
<PAGE>
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 and as operating expenses of
real estate owned on the Statements of Operations.
Reclassifications. Certain 1999 amounts may be reclassified to conform with
2000 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 to borrowers upon completion of
improvements on the secured property. As of March 31, 2000 and December 31,
1999, mortgage note holdbacks from the consummation of mortgage loans made
amounted to $ 384,158 and $487,174 respectively.
5. Mortgage notes receivable.
-------------------------
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.
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. Mortgage notes payable.
-----------------------
As of March 31, 2000 and December 31, 1999 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.
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 $38,156 and $38,233 for the three months ended
March 31, 2000 and March 31, 1999, respectively.
8
<PAGE>
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 $76,402 and $75,609 for the three months
ended March 31, 2000 and March 31, 1999, respectively.
As described in Note 3, the Trust holds an investment in Sierra Capital
Funding and receives a 15% return per annum. For the three months ended
March 31, 2000 the interest was deferred and for the three months ended
March 31, 1999 the Trust earned interest of $7,500.
As described in Note 3, the Trust has a non-qualified REIT subsidiary,
Capital Alliance Funding Corporation. For the three months ended March 31,
2000 and March 31, 1999 the Trust was allocated losses of $59,300 and
157,815, respectively. These losses are attributable to the expansion of
the subsidiaries wholesale loan origination capacity.
During the first quarter of 1999, the Trust advanced $25,000 to Equity
1-2-3, a division of Sierra Capital Funding LLC, a related party, and
recorded it as an addition to the $225,000 note receivable. from Equity
1-2-3. The note bore interest at 15% per annum and interest was payable
quarterly. The Trust wrote off the note receivable and the advance in 1999.
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 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.
One Shareholder Warrant was issued for every ten Common Shares purchased.
Each shareholder Warrant entitles the holder to purchase one Common Share.
The exercise price foe each Shareholder warrant is $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 is
also made to protect against dilution in the event of a merger,
consolidation, or disposition of all or
9
<PAGE>
substantially all of the Trust"s assets. Warrant holders do not have the
rights of a shareholder and they are 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 have been exercised. The Trust
may 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.
10. Earnings per share.
------------------
The following table is a reconciliation of the numerator and denominators
of the basic and diluted earnings per common share.
<TABLE>
<CAPTION>
Numerator: March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Net income ........................... $ 220,992 $ 143,391
Less: Preferred Dividend ............. $ 150,039 $ 138,789
---------- ----------
Numerator for basic and diluted
earnings per share ............................... $ 70,953 $ 4,602
---------- ----------
Denominator:
Basic weighted average shares ........ 1,484,740 1,484,700
Effect of dilutive warrants .......... 0
---------- ----------
0
Diluted weighted average shares ...... 1,484,740 1,484,700
---------- ----------
Basic earnings per common share .................. $ 0.047 $ 0.003
---------- ----------
Diluted earnings per common share ................ $ 0.047 $ 0.003
---------- ----------
</TABLE>
10
<PAGE>
PART I
ITEM 2.
MANAGEMENT"S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
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 (or
less) 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 (or less) 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, 2000, the Trust"s loan
portfolio included total loans of $11,335,374 of which $1,439,521 representing
12.7% of the loan portfolio were delinquent over sixty days. There were 7
delinquent loans which were in the process of foreclosure at March 31, 2000. In
assessing the collectibility of these delinquent mortgage loans, management has
established a loan loss reserve of $17,500, 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, 2000 and March 31, 1999.
Results of Operations
The historical information presented herein is not necessarily indicative
of future operations.
Three months ended March 31, 2000 and 1999. Revenues for the first quarter
increased to $450,163 as compared to $371,457 for the same period in the
previous year. The increase in revenue, during the first three months of 2000
was primarily due to CAFC's improved operating results of $98,515.
11
<PAGE>
Expenses for the first quarter 1999 decreased to $221,647 as compared to
$228,066 for the same period in the previous year. The decrease in expenses
during the first three months of 2000 was primarily due to a $15,000 reduction
in reserves for loan losses.
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 and the repayment of existing mortgage loans and the sale of
foreclosed properties. The Trust"s average mortgage loan matures is less than
two years.
Net cash provided by operating activities during the three months ended
March 31, 2000 and 1999 was $398,131 and $54,367 respectively.
Net cash provided by (used in) investing activities for the three months
ended March 31, 2000 and 1999 was $294,894 and $501,936, respectively. The large
increase in 2000 compared to the prior period is due to increased sale of
foreclosed real estate.
Net cash provided by financing activities during the three months ended
March 31, 2000 and 1999 was $(276,242) and $354,755 respectively. The 2000
results are from the payment of dividends The 1999 results are from the payment
of dividends and the payoff of mortgage notes assumed upon foreclosure.
As of March 10, 2000, CAFC extended an agreement for a $4,000,000
warehouse line of credit which is guaranteed by the Trust. The Trust has also
extended a warehouse line of credit to CAFC. 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.
12
<PAGE>
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
There have been no changes in the outstanding securities of
the Trust at this time
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
On March 24, 2000 (Exhibit A) and April 17, 2000 (Exhibit B)
the Registrant issued two (2) press releases attached as
exhibits.
ITEM 6 REPORTS ON FORM 8-K
Not applicable.
13
<PAGE>
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 19, 2000 By: /s/ Richard J. Wrensen
----------------------
Richard J. Wrensen, Chief Financial Officer
14
<PAGE>
EXHIBIT "A"
CAPITAL ALLIANCE INCOME TRUST ANNOUNCES DECLARATION OF
COMMON SHARE DIVIDEND FOR FIRST QUARTER AND
REVISED INVESTMENT POLICY TO ALLOW INCREASED USE OF LEVERAGE
SAN FRANCISCO--(Business Wire)--March 21, 2000--Capital Alliance Income
Trust Ltd., ("CAIT") (AMEX: CAA), a non-conforming specialty residential finance
company announced that its Board had declared CAIT's common share dividend for
the first quarter at $.085 per share. The dividend will be payable on April 17,
2000 to shareholders of record on April 1, 2000.
Thomas B. Swartz, CAIT's Chairman and CEO, also disclosed that CAIT's
Board had authorized an increased leveraging of CAIT's capital position for up
to four times its capital base to increase the size of its loan portfolio and to
provide additional warehouse facilities for its mortgage banking subsidiary,
Capital Alliance Funding ("CAFC"). Prior to this, CAIT has followed a
low-leverage policy in its mortgage investment (portfolio) business and has used
its warehouse lines only in CAFC, its mortgage banking subsidiary. Swartz stated
that, "Notwithstanding our prior policy, we believe that with the positive
interest spreads available to us, the use of leverage can be favorable in our
portfolio operations if intelligently used, even with recent rate increases." He
also noted that, "While CAIT will utilize the additional liquidity to expand its
mortgage portfolio, it will, as it has done since its inception, continue to
hedge its risks by limiting loans to relatively short terms, with a healthy
interest rate and a maximum 75% loan-to-value ratio." He indicated that based on
pending negotiations with a major banking institution in the mortgage field, the
new term and warehouse financings should be in place "early in the second
quarter". He also indicated that the immediate effect of the expanded liquidity
on earnings "would be muted and deferred by accounting requirements to amortize
origination income but should be positive in the long run."
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.
- ---------------------
Contact: Capital Alliance Income Trust Ltd.
Thomas B. Swartz, Chairman
(415) 288-9575
<PAGE>
EXHIBIT "B"
CAPITAL ALLIANCE INCOME TRUST LTD.
ANNOUNCES IMPROVED FOURTH QUARTER EARNINGS
SAN FRANCISCO--(BUSINESS WIRE)--April 17, 2000-Capital Alliance Income
Trust Ltd., ("CAIT") (AMEX: CAA-news), a non-conforming specialty residential
mortgage company, announced that net earnings for the fourth quarter of 1999
were $205,126 on gross revenues of 498,831, a 107% increase in earnings over
earnings for the third quarter of 1999. Earnings for all of 1999, totaled
$450,605 on gross revenues of $1,975,882 as compared to earnings of $1,003,706
for all of 1998 on gross revenues of $1,689,082. Earnings for all of 1999 were
depressed by the substantial costs of expanding the mortgage origination
capacity of CAIT's mortgage banking subsidiary, all of which costs were
currently expensed and not amortized. 99% of the subsidiary's earnings (losses)
are reflected in CAIT's financial statements under the equity method of
accounting.
Thomas B. Swartz, CAIT's Chairman and CEO, noted that "with the
completion of CAIT's expansion and reorganization of its wholesale mortgage
banking subsidiary and with its pending acquisition of both a term loan and an
expanded warehouse facility, CAIT's earnings should show steady improvement in
the year 2000 as the result of a larger mortgage investment portfolio with
favorable interest spreads and a positive contribution from its mortgage banking
subsidiary."
CAIT is a specialty residential mortgage lender which invests primarily
in high-yielding, non-conforming residential mortgage loans on one-to-four unit
properties located primarily in California and other western states. It also
originates similar loans for sale to investors on a whole loan basis for cash
through its wholesale mortgage banking subsidiary.
Certain oral and written statements of 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.
- ---------------------
Contact: Capital Alliance Income Trust Ltd.
Thomas B. Swartz, Chairman
(415) 288-9575
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<FISCAL-YEAR-END> DEC-31-2000
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