<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1995
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------------- -------------------
Commission File Number 0-9211
NATIONAL INCOME REALTY TRUST
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
California 94-2537061
-------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
280 Park Avenue, East Building, 20th Floor, New York, NY 10017
---------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 949-5000
---------------------------------------------------
(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
--- ---
Shares of Beneficial Interest, No par value 3,119,846
-------------------------------------------- ------------------------------
(Class) (Outstanding at August 4, 1995)
1
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying Consolidated Financial Statements have not been audited by
independent certified public accountants, but in the opinion of the management
of National Income Realty Trust (the "Trust"), all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of consolidated
results of operations, consolidated financial position and consolidated cash
flows at the dates and for the periods indicated, have been included.
NATIONAL INCOME REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
------------- -------------
1995 1994
------------- -------------
(unaudited) (audited)
<S> <C> <C>
Assets
------
Real Estate
Held for investment, net of accumulated depreciation
($41,280 in 1995 and $38,532 in 1994) . . . . . . . . . . . $ 184,834 $ 179,086
Held for sale, net of accumulated depreciation
($1,071 in 1995 and $895 in 1994) . . . . . . . . . . . . . 7,969 6,850
------------- -------------
192,803 185,936
Less - allowance for estimated losses . . . . . . . . . . . . . . (275) (700)
------------- -------------
192,528 185,236
Notes and interest receivable
Performing . . . . . . . . . . . . . . . . . . . . . . . . . . 14,780 14,762
Nonperforming, nonaccruing . . . . . . . . . . . . . . . . . . . 1,506 1,509
------------- -------------
16,286 16,271
Less - allowance for estimated losses . . . . . . . . . . . . . . (6,274) (6,274)
------------- -------------
10,012 9,997
Investments in partnerships . . . . . . . . . . . . . . . . . . . 13,794 11,026
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . 1,934 3,484
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . 3,959 3,222
Investment in marketable equity securities . . . . . . . . . . . - 593
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 3,621 3,482
------------- -------------
$ 225,848 $ 217,040
============= =============
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
2
<PAGE> 3
NATIONAL INCOME REALTY TRUST
CONSOLIDATED BALANCE SHEETS (Continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
------------- -------------
1995 1994
------------- -------------
(unaudited) (audited)
<S> <C> <C>
Liabilities and Shareholders' Equity
------------------------------------
Liabilities
Notes, debentures and interest payable . . . . . . . . . . . . . $ 147,710 $ 138,316
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . 7,269 5,364
------------- -------------
154,979 143,680
Commitments and contingencies . . . . . . . . . . . . . . . . . .
Shareholders' equity
Shares of beneficial interest, no par value; authorized
shares, unlimited; 3,129,709 shares outstanding in 1995
and 3,216,267 shares outstanding in 1994 (after
deducting 375,375 shares in 1995 and 287,875 shares
in 1994 held in treasury) . . . . . . . . . . . . . . . . . . . 9,397 9,657
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . 274,418 275,178
Accumulated distributions in excess of
accumulated earnings . . . . . . . . . . . . . . . . . . . . . (212,946) (211,887)
Unrealized gains on marketable equity securities . . . . . . . . - 412
------------- -------------
70,869 73,360
------------- -------------
$ 225,848 $ 217,040
============= =============
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
3
<PAGE> 4
NATIONAL INCOME REALTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------------------- --------------------------
1995 1994 1995 1994
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Revenue
Rentals . . . . . . . . . . . . . . . . $ 10,744 $ 9,580 $ 21,232 $ 18,739
Interest . . . . . . . . . . . . . . . 316 356 616 699
Equity in income (losses) of
partnerships . . . . . . . . . . . . . . 157 (93) 347 (8)
------------ ------------ ------------ -----------
11,217 9,843 22,195 19,430
Expenses
Property operations . . . . . . . . . . 6,261 5,434 12,293 10,725
Interest . . . . . . . . . . . . . . . . 3,139 2,689 6,210 5,218
Depreciation . . . . . . . . . . . . . . 1,553 1,288 2,995 2,469
Advisory fee to prior advisor . . . . . - - - 469
Advisory fee to affiliate . . . . . . . 228 317 524 317
General and administrative . . . . . . . 448 569 920 920
Provision for losses . . . . . . . . . . (425) - (425) -
------------ ------------ ------------ -----------
11,204 10,297 22,517 20,118
------------ ------------ ------------ -----------
Income (loss) from operations . . . . . . . 13 (454) (322) (688)
Gain on sale of real estate . . . . . . . . 110 385 110 385
Gain on sale of investments . . . . . . . . - 141 412 141
------------ ------------ ------------ -----------
Net income (loss) . . . . . . . . . . . . . $ 123 $ 72 $ 200 $ (162)
============ ============ ============ ===========
Earnings per share
Income (loss) from operations . . . . . $ - $ (.14) $ (.10) $ (.21)
Gain on sale of real estate . . . . . . .04 .12 .03 .12
Gain on sale of investments . . . . . . - .04 .13 .04
------------ ------------ ------------ -----------
Net income (loss) . . . . . . . . . . . . . $ .04 $ .02 $ .06 $ (.05)
============ ============ ============ ===========
Weighted average shares of
beneficial interest used in
computing earnings per share . . . . . . 3,159,024 3,310,002 3,174,530 3,342,870
============ ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
4
<PAGE> 5
NATIONAL INCOME REALTY TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Accumulated Unrealized
Shares of Distributions Gains on
Beneficial Interest in Excess of Marketable
-------------------- Paid-in Accumulated Equity Shareholders'
Shares Amount Capital Earnings Securities Equity
--------- ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 . . . 3,216,267 $ 9,657 $ 275,178 $ (211,887) $ 412 $ 73,360
Repurchase of shares
of beneficial interest . . (87,500) (263) (768) - - (1,031)
Cash distributions
($0.39 per share) . . . . . - - - (1,248) - (1,248)
Stock dividends . . . . . . . . 942 3 8 (11) - -
Realized gains on sale of
marketable equity securities - - - - (412) (412)
Net income . . . . . . . . . . - - - 200 - 200
--------- ---------- ---------- ----------- ---------- -----------
Balance, June 30, 1995
(Unaudited) . . . . . . . . 3,129,709 $ 9,397 $ 274,418 $ (212,946) $ - $ 70,869
========= ========== ========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
5
<PAGE> 6
NATIONAL INCOME REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
-------------------------------
1995 1994
---------- ----------
<S> <C> <C>
Cash Flows from Operating Activities
Rentals collected . . . . . . . . . . . . . . . . . . . . . . . $ 21,126 $ 18,402
Interest collected . . . . . . . . . . . . . . . . . . . . . . 584 652
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . (6,090) (4,783)
Payments for property operations . . . . . . . . . . . . . . . (11,304) (11,402)
General and administrative expenses paid . . . . . . . . . . . (891) (626)
Advisory fee paid to affiliate . . . . . . . . . . . . . . . . (622) (333)
Advisory fee paid to prior advisor . . . . . . . . . . . . . . - (342)
Payments for deferred borrowing costs . . . . . . . . . . . . . (500) (676)
---------- ----------
Net cash provided by operating activities . . . . . . . . . 2,303 892
Cash Flows from Investing Activities
Acquisition of real estate . . . . . . . . . . . . . . . . . . (2,332) (1,075)
Real estate improvements . . . . . . . . . . . . . . . . . . . (3,317) (903)
Proceeds from sale of real estate . . . . . . . . . . . . . . . 329 -
Collections on notes receivable . . . . . . . . . . . . . . . . 10 255
Acquisition of partnership interest . . . . . . . . . . . . . . (462) -
Distribution from a partnership's investing activities . . . . - 852
Net distributions from partnerships . . . . . . . . . . . . . . 559 181
Proceeds from sale of investments . . . . . . . . . . . . . . . 593 210
---------- ----------
Net cash (used in) investing activities . . . . . . . . . . (4,620) (480)
Cash Flows from Financing Activities
Borrowings from financial institutions . . . . . . . . . . . . 8,800 12,600
Payments of mortgage notes payable . . . . . . . . . . . . . . (6,251) (9,358)
Payments to prior advisor . . . . . . . . . . . . . . . . . . . - (132)
Borrowings on margin account . . . . . . . . . . . . . . . . . 188 187
Replacement escrow (deposits) receipts, net . . . . . . . . . . (325) 52
Repurchase of shares of beneficial interest . . . . . . . . . . (1,031) (1,571)
Distributions to shareholders . . . . . . . . . . . . . . . . . (614) (919)
Cash collateral deposited . . . . . . . . . . . . . . . . . . . - (750)
---------- ----------
Net cash provided by financing activities . . . . . . . . . 767 109
---------- ----------
Net increase (decrease) in cash and cash equivalents . . . . . . (1,550) 521
Cash and cash equivalents, beginning of period . . . . . . . . . 3,484 1,060
---------- ----------
Cash and cash equivalents, end of period . . . . . . . . . . . . $ 1,934 $ 1,581
========== ==========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
6
<PAGE> 7
NATIONAL INCOME REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
---------------------------------
1995 1994
---------- ----------
<S> <C> <C>
Reconciliation of net income (loss) to net cash
provided by operating activities
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . $ 200 $ (162)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Gain on sale of real estate . . . . . . . . . . . . . . . . . . (110) (385)
Gain on sale of investments . . . . . . . . . . . . . . . . . . (412) (141)
Provision for losses . . . . . . . . . . . . . . . . . . . . . (425) -
Depreciation and amortization . . . . . . . . . . . . . . . . . 3,286 2,697
Equity in (income) losses of partnerships . . . . . . . . . . . (347) 8
(Increase) in interest receivable . . . . . . . . . . . . . . . (32) (47)
(Increase) in other assets . . . . . . . . . . . . . . . . . . (711) (961)
Increase (decrease) in other liabilities . . . . . . . . . . . 899 (442)
(Decrease) increase in interest payable . . . . . . . . . . . . (45) 325
---------- ----------
Net cash provided by operating activities . . . . . . . . . $ 2,303 $ 892
========== ==========
Supplemental schedule of noncash investing and financing activities
Assets acquired and liabilities incurred in connection
with the acquisition of real estate
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,973 $ 4,777
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 214 39
Mortgage debt . . . . . . . . . . . . . . . . . . . . . . . . . (5,743) (3,711)
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . (112) (30)
---------- ----------
Cash paid . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,332 $ 1,075
========== ==========
Note payable from acquisition of economic interest
in partnership . . . . . . . . . . . . . . . . . . . . . . . . $ (2,500) $ -
Mortgage debt released in connection with litigation
settlement . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,020 $ -
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
7
<PAGE> 8
NATIONAL INCOME REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying Consolidated Financial Statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. Operating results for the six month period ended June 30, 1995 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1995. Dollar amounts in tables are in thousands. For
further information, refer to the Consolidated Financial Statements and Notes
thereto included in the Trust's Annual Report on Form 10-K for the year ended
December 31, 1994 ("1994 Form 10-K").
Certain 1994 balances have been reclassified to conform to the 1995
presentation.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Effective January 1, 1995, the Trust adopted, as required, Statement of
Financial Accounting Standards ("SFAS") No. 114 "Accounting by Creditors for
Impairment of a Loan", which amends SFAS No. 5 - "Accounting for Contingencies"
and SFAS No. 15 - "Accounting by Debtors and Creditors for Troubled Debt
Restructurings". This statement requires that notes receivable be considered
impaired when "based on current information and events, it is probable that a
creditor will be unable to collect all amounts due, both principal and
interest, according to the contractual terms of the loan agreement".
Impairment is to be measured either on the present value of expected future
cash flows discounted at the note's effective interest rate or, if the note is
collateral dependent, on the fair value of the collateral. The Trust also
adopted, as required, SFAS No. 118 - "Accounting by Creditors for Impairment of
a Loan - Income Recognition and Disclosure", which eliminates the income
recognition provisions of SFAS No. 114, substituting disclosure of the
creditor's policy of income recognition on impaired notes. There was no
cumulative effect nor any impact on the Trust's financial position as a result
of the adoptions.
NOTE 3. INVESTMENTS IN PARTNERSHIPS
The Trust's investments in partnerships, accounted for using the equity method,
consisted of the following at June 30, 1995:
<TABLE>
<S> <C>
Sacramento Nine ("SAC 9") . . . . . . . . . . . $ 2,195
Indcon, L.P. ("Indcon") . . . . . . . . . . . . 8,502
801 Pennsylvania Avenue . . . . . . . . . . . . 3,000
Other . . . . . . . . . . . . . . . . . . . . . 97
--------
$ 13,794
========
</TABLE>
The Trust, in partnership with Continental Mortgage and Equity Trust ("CMET"),
owns SAC 9, which currently owns two office buildings in the vicinity of
Sacramento, California. The Trust has a 70% interest in the partnership's
earnings, losses and distributions. The SAC 9 partnership agreement requires
unanimous consent of both the Trust and CMET for any material changes in the
operations of the partnership's properties, including sales, refinancings and
changes in property management. The Trust, as a noncontrolling partner,
accounts for its investment in the partnership under the equity method.
8
<PAGE> 9
NATIONAL INCOME REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
NOTE 3. INVESTMENTS IN PARTNERSHIPS (Continued)
The Trust and CMET are also partners in Income Special Associates ("ISA"), a
joint venture partnership in which the Trust has a 40% interest in earnings,
losses and distributions. ISA in turn owns a 100% interest in Indcon, formerly
known as Adams Properties Associates, which owned 32 industrial warehouses at
June 30, 1995. The Trust, as a noncontrolling partner, accounts for its
investment in Indcon using the equity method.
In June 1995, the Trust acquired an effective 50% economic interest in the
ownership of an office building located at 801 Pennsylvania Avenue, Washington,
D.C. (the "Property"). This interest was acquired through the purchase of a
first lien mortgage note with a face value of $8.5 million (the "Note") for
$500,000 in cash and a $2.5 million promissory note (the "Trust Note"), which
bears interest at the Prime Rate plus 1% per annum and matures December 1995.
In accordance with the terms of the Note, the Trust's $3.0 million investment is
to be repaid from Property cash flow after operating expenses at the rate of
11% per annum on $500,000 and on $2.5 million at the Prime Rate plus 1% per
annum. The Trust is also to receive interest at 11% per annum on any
additional advances made to the Property. The balance of the Note may be
satisfied by payment of 50% of all funds available after Property operating
expenses plus 50% of the proceeds from any sale and any refinancing. The Note
is guaranteed by the principals of the borrower until the Trust Note is paid in
full at which time the Note becomes nonrecourse to all parties and is secured
only by the Property.
The following information summarizes the results of operations of partnerships
the Trust accounts for using the equity method for the six months ended June
30, 1995:
<TABLE>
<S> <C>
Rentals . . . . . . . . . . . . . . . . . . . . $ 4,806
Depreciation . . . . . . . . . . . . . . . . . . (1,172)
Property operations . . . . . . . . . . . . . . (1,513)
Interest . . . . . . . . . . . . . . . . . . . . (1,544)
---------
Net income . . . . . . . . . . . . . . . . . . . $ 577
=========
</TABLE>
NOTE 4. NOTES AND INTEREST RECEIVABLE
As disclosed in the Trust's 1994 Form 10-K, in January 1995, the Trust agreed
to a modification of the terms of a $1.6 million first mortgage note
receivable, secured by 4.5 acres of land and improvements, a 177,397 square
foot shopping center, (subject to a ground lease) in Dallas, Texas. In
accordance with the modified terms, the Trust released part of the land
securing the loan (approximately 15,000 square feet), and in exchange, the
ground lease was terminated. Additionally, the mortgage interest rate was
increased from 15% per annum to 18% per annum and the maturity date was
shortened 20 months from September 1997 to January 1996. The Trust recognized
no gain or loss on the modification.
9
<PAGE> 10
NATIONAL INCOME REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
NOTE 5. REAL ESTATE
As previously disclosed in the Trust's 1994 Form 10-K, in 1993, the State of
Wisconsin commenced eminent domain proceedings to acquire the Pepperkorn
Building located in Manitowoc, Wisconsin ("Pepperkorn"). The Trust originally
purchased Pepperkorn in July 1991 for $1.1 million, paying $130,000 in cash and
financed the remainder through a $1.0 million promissory note. Concurrently
with the acquisition, the former owner and primary tenant (the "Seller") signed
a lease at another one of the Trust's properties, the Lakeview Mall, also
located in Manitowoc, Wisconsin. The terms of this transaction, as well as the
condemnation proceeds offered by the State of Wisconsin, have been in
litigation since 1993. In May 1995, the court found, among other things, the
$1.0 million promissory note made by the Trust and the related lease, prior to
the May 1995 judgment, between the Trust and the Seller were unenforceable.
Accordingly, the note balance was offset against the carrying value of the
Property, the net rent receivable and the preliminary condemnation award of
approximately $200,000. As a result, the Trust reversed a previously recorded
provision for loss in the amount of $700,000 during the second quarter of 1995.
The condemnation amount is currently under appeal, and although the Trust
anticipates a successful outcome, there is no assurance that additional
condemnation proceeds will be awarded.
During the first half of 1995, the Trust purchased four apartment complexes, as
more fully described below, and in connection with these acquisitions paid
Tarragon Realty Advisors, Inc. ("Tarragon") real estate acquisition fees
totaling $76,800. Also in May 1995, the Trust sold a parcel of land in Dallas,
Texas for $357,700 in cash, receiving net cash proceeds of $329,000 after
closing costs, and recorded a gain on the sale of $110,000.
In February 1995, the Trust purchased the Park Side Apartments, a 39-unit
apartment complex in Los Angeles, California for $376,000 in cash.
In April 1995, the Trust purchased the Marina Park Apartments, a 90-unit
apartment complex in North Miami, Florida for $3.1 million. The Trust
financed a portion of the purchase price through a $2.5 million first mortgage
loan, which accounted for $2.2 million of the purchase price after loan closing
costs and the funding of a $300,000 repair escrow deposit. This mortgage bears
interest at the prime rate plus .5% per annum and requires payments of interest
only for the first six months. Beginning in November 1995, monthly payments of
principal and interest are due through maturity in May 1998. The balance of
the purchase price, along with closing costs, of $961,000 was paid in cash.
In May 1995, the Trust purchased the Mustang Creek Apartments, a 120-unit
complex in Arlington, Texas for $3.4 million. The Trust obtained first
mortgage financing in the amount of $2.7 million and paid the remaining
purchase price, as well as the related closing costs, of $770,000 in cash.
Monthly payments of principal and interest, calculated on a 25-year
amortization, are called for under the new loan terms and the note matures May
1996.
In June 1995, the Trust purchased the Park Norton Apartments, a 56-unit complex
located in Los Angeles, California for $705,000. Financing in the amount of
$564,000 was provided by the City of Los Angeles multifamily bond program. In
accordance with the loan terms, a portion of the apartment units will be rented
to Low Income Tenants, as defined in the related Regulatory Agreement. The
loan calls for monthly principal and interest payments with interest based on
the weighted average interest rate of the bonds, currently 5.64% per annum, and
matures June 2005. The remaining purchase price, including closing costs, of
$147,000 was paid in cash.
10
<PAGE> 11
NATIONAL INCOME REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
NOTE 6. INVESTMENTS IN MARKETABLE SECURITIES
During the first quarter of 1995, the Trust sold 39,500 shares of beneficial
interest of CMET for $593,000 and, as a result, recorded a $412,000 gain on
sale of investments.
NOTE 7. NOTES PAYABLE
During the six months ended June 30, 1995, the Trust obtained first mortgage
financing on three Trust properties totaling $8.8 million. Net cash proceeds
of $3.3 million were received after the payoff of $4.8 million in existing
mortgage debt. The balance of the refinancing proceeds was used to fund
escrows for real estate taxes, insurance and repairs as well as pay the
associated closing costs. In connection with these 1995 refinancings, the
Trust paid refinancing fees of $88,000 to Tarragon. The following table
illustrates these transactions:
<TABLE>
<CAPTION>
NEW LOANS PRIOR LOANS
------------------------------------------------------------ --------------------------------
Month Maturity Mortgage Interest Debt Mortgage Interest Debt
Property Refinanced Date Balance Rate Service(B) Balance Rate Service(B)
----------- ---------- ---------- --------- -------- --------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Crosscreek January Feb-2000 $ 2,000 9.78% $ 18 $ 964 9.50% $ 9
Woodcreek, FL January Feb-2005 3,800 9.73% 34 2,568 8.50% 26
Park Dale June Jul-2005 3,000 8.30% 24 1,307 9.50% 11
--------- ------- ------ ---------- ----- -----
$ 8,800 9.25%(A) $ 76 $ 4,839 8.97%(A) $ 46
========= ======= ======= ========== ===== =====
</TABLE>
(A) Represents weighted average interest rate per annum.
(B) Debt service amounts are based on average monthly payments.
NOTE 8. INCOME TAXES
As more fully discussed in the Trust's 1994 Form 10-K, the Trust has elected
and, in the opinion of the Trust's management, qualified to be taxed as a Real
Estate Investment Trust ("REIT") as defined under Sections 856 through 860 of
the Internal Revenue Code of 1986, and as such, will not be taxed for federal
income tax purposes on that portion of its taxable income which is distributed
to shareholders, provided that at least 95% of its REIT taxable income is
distributed.
No provision has been made for federal income taxes because the Trust believes
it has qualified as a Real Estate Investment Trust ("REIT") and expects that it
will continue to do so.
NOTE 9. COMMITMENTS AND CONTINGENCIES
The Trust is involved in various lawsuits arising in the ordinary course of
business. Management is of the opinion that the outcome of these lawsuits
would have no material impact on the Trust's financial condition.
11
<PAGE> 12
NATIONAL INCOME REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
NOTE 10. ADVISORY AGREEMENT
At the March 1995 Board of Trustees' meeting, the Trustees approved a new
revised form of advisory agreement, effective April 1, 1995, which is to be
submitted to shareholders for their approval at the next meeting, whether
annual or special. In addition to technical changes designed to clarify the
responsibilities and rights of Tarragon, the new agreement eliminates the
$100,000 annual base fee and certain incentive sales compensation. Moreover,
it provides that real estate brokerage commissions shall be payable to Tarragon
and its affiliates only following specific Board approval for each transaction
rather than pursuant to a general agreement.
NOTE 11. SUBSEQUENT EVENT
On July 13, 1995, the Trust purchased a tract of land adjacent to the K-Mart
Shopping Center in Kansas City, Missouri for $125,000. Simultaneous with the
purchase, the Trust sold the K-Mart Shopping Center and the tract of land,
keeping a small portion of the undeveloped land, for $2.2 million. The Trust
received net cash proceeds of $855,000 after the first lien payoff $1.1 million
and other related closing costs, and which included a $414,000 discounted
payoff of the K-Mart lease. During the second quarter of 1995, the Trust
recorded a provision for loss of $275,000 to account for the excess carrying
value of the property over the related sales price.
[This space intentionally left blank.]
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
National Income Realty Trust (the "Trust") was organized on October 31, 1978 to
invest in real estate, through acquisitions, leases and partnerships and, to a
lesser extent, in mortgage loans on real estate. The Trust's policy, at
present, is to make mortgage loans only in connection with, and to facilitate,
the sale or acquisition of real estate. Accordingly, as existing mortgages are
paid off, the Trust's portfolio of mortgage notes receivable is expected to
decline.
The Trust's real estate portfolio at June 30, 1995 consisted of 56 properties
located throughout the United States, with concentrations in the Southeast, 8
of which are held for sale and 48 held for investment. These properties
consist of 34 apartment complexes, 14 shopping centers, 4 office buildings,
three parcels of land and one single-family residence. All of the Trust's real
estate, except twelve properties, is pledged to secure first mortgage notes
payable.
The Trust's management plans to continue its efforts of enhancing the long-term
value of shareholder investments through efficient asset and property
management, as well as, selective investments in underperforming apartment
properties in the same geographical regions that the Trust currently operates.
Additionally, management intends to raise capital through refinancings and
dispositions of certain assets and increase cash distributions to shareholders
after making adequate provisions for capital investments in the Trust's
existing portfolio and share repurchases.
Liquidity and Capital Resources
Cash and cash equivalents aggregated $1.9 million at June 30, 1995, compared
with $3.5 million at December 31, 1994. The principal reasons for this
decrease in cash are discussed in the paragraphs below. The Trust's principal
sources of cash have been and will continue to be property operations, proceeds
from property sales, the collection of mortgage notes receivable and
borrowings. The Trust expects that funds from such sources will be sufficient
to meet the Trust's various cash needs, including, but not limited to debt
service obligations, property maintenance and improvements and shareholder
distributions.
Funds from operations increased 21% to $1.4 million for the second quarter of
1995 from $1.1 million for the second quarter of 1994. For the first half of
1995, funds from operations totaled $2.8 million, up 19% from $2.3 million for
the first six months of 1994. Funds from operations is defined as net income
(loss) (computed in accordance with generally accepted accounting principles),
excluding gains (or losses) from debt restructuring and sales of property, plus
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. Adjustments for unconsolidated partnerships
and joint ventures are calculated to reflect funds from operations on the same
basis.
Operating Activities
The Trust's cash flow from property operations (rentals collected less payments
for property operating expenses) increased to $9.8 million for the first six
months of 1995 from $7.0 million for the corresponding period in 1994,
primarily due to the properties acquired by the Trust during 1994 and 1995.
Additionally, approximately $1.0 million of prior year real estate taxes were
paid during the first half of 1994.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
Investing Activities
The Trust purchased four apartment complexes during the first half of 1995
increasing the Trust's multifamily portfolio by 305 units to 6,092 units.
These properties are located in the same geographical areas where the Trust
currently operates, in Texas, Florida and California, and were acquired in
separate transactions for an aggregate $8.0 million purchase price, including
closing costs and commissions. The Trust paid $2.3 million of this purchase
price in cash and financed the remainder, primarily through first mortgage
financing.
In June 1995, the Trust sold a tract of land in Dallas, Texas for $357,700 in
cash, receiving net cash proceeds of $329,000 after closing costs and recorded
a $110,000 gain on the sale.
The Trust made $3.3 million of capital improvements to its properties during
the first half of 1995 as compared to $903,000 during the first half of 1994.
Several Trust properties are undergoing major rehabilitation in order to
prepare the properties for occupancy, including but not limited to The Vistas
at Lake Worth, formerly the Woodlake Apartments, Dunhill Apartments, and
Parkside Apartments, acquired in February 1995. The Trust is also renovating
several other properties, including Woodcreek Apartments in Florida, Sandstone
Apartments, Lakepoint Apartments, and the Lakeview Mall, in an effort to
increase occupancy levels. Aggregate real estate improvements to these
properties during the six months ended June 30, 1995 totaled approximately $1.7
million. The Trust expects capital improvement expenditures during the second
half of 1995 to total $3.0 million.
Also in June 1995, the Trust acquired an effective 50% economic interest in the
ownership of an office building in Washington, D.C. (the "Property"). This
interest was acquired through the purchase of a first lien mortgage note with a
face value of $8.5 million (the "Note") for $500,000 in cash, including
approximately $38,000 of legal fees which were unpaid as of June 30, 1995, and
a $2.5 million promissory note that accrues interest at the Prime Rate plus 1%
per annum and matures December 1995. In accordance with the terms of the
agreement, the Trust's $3.0 million investment is to be repaid from Property
cash flow after operating expenses at the rate of 11% per annum on $500,000 and
on $2.5 million at the Prime Rate plus 1% per annum. The balance of the Note
is to be satisfied by payment of 50% of all funds available after property
operating expenses plus 50% of the proceeds from any sale and any refinancing.
In January and February 1995, the Trust sold its remaining 39,500 shares of
beneficial interest of Continental Mortgage and Equity Trust ("CMET") for
$593,000 in cash and, as a result, recorded a $412,000 gain on sale of
investments.
Financing Activities
During the six months ended June 30, 1995, the Trust obtained first mortgage
financing on three Trust properties totaling $8.8 million and received net cash
proceeds of $3.3 million, after the payoff of $4.8 million in existing
mortgage debt. The balance of the refinancing proceeds was used to fund
escrows and pay the associated closing costs. In addition, the maturity date
of the $581,000 mortgage note secured by a first lien mortgage on the Acadian
Apartments, originally scheduled to mature in March 1995, was extended one year
to April 1996. As scheduled, in January 1995, the Trust paid in full the
$236,000 mortgage note secured
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
Financing Activities (Continued)
by the Lakeview Mall. It is the Trust's intention to either pay the mortgage
loans when due or seek to extend the due dates by one, two or more years while
attempting to obtain long term financing. However, while management is
confident of its ability to acquire refinancing as needed, there is no
assurance that the Trust will continue to be successful in its efforts in this
regard.
During the six months ended June 30, 1995, the Trust repurchased 87,500 of its
shares of beneficial interest at a total cost to the Trust of $1.0 million. In
May 1994, the Trust's Board of Trustees authorized the Trust to repurchase up
to 300,000 shares of beneficial interest of which 146,702 have been purchased
to date.
Cash distributions to shareholders totaling $1.2 million, or $0.39 per share,
have been declared by the Trust's Board of Trustees during 1995. Of this
total, $614,000 had been distributed as of June 30, 1995. The balance was
distributed in July 1995. On July 31, 1995, the Trust announced a $0.20 per
share cash dividend and a 10% stock dividend both payable on September 30, 1995
to shareholders of record as of September 15, 1995. This represents the
Trust's ninth cash distribution and the third stock dividend since the
resumption of regular quarterly distributions in September 1993.
Results of Operations
The Trust's net operating results increased from net income of $72,000 and a
net loss of $162,000 for the three and six month periods ended June 30, 1994 to
net income of $123,000 and $200,000 for the three and six month periods ended
June 30, 1995. The following discussion explains the primary changes in the
Trust's net operating results.
Net rental income (rental income less property operating expenses) increased
from $4.1 million and $8.0 million for the three and six month periods ended
June 30, 1994 to $4.5 million and $8.9 million for the three and six month
periods ended June 30, 1995.
Multifamily Properties
The Trust's multifamily portfolio, which accounts for 71% of the Trust's
consolidated net rental income and includes 6,092 units at June 30, 1995,
reported an increase in net rental income of $393,000, or 14%, and
$997,000, or 18.5%, for the three and six month periods ended June 30, 1995
as compared to the corresponding periods in 1994. Of these increases,
$491,000 and $968,000, respectively, are related to the five multifamily
properties acquired in 1994 and the four multifamily properties acquired
during the first half of 1995. For multifamily properties held in both the
first half of 1994 and 1995, net rental income decreased $98,000 and
increased $29,000 for the three and six month periods ended June 30, 1995 as
compared to the corresponding periods in 1994. Although the Trust has
benefited from higher rental rates on these properties, in an effort to
increase occupancy levels, the Trust has incurred a larger number of leasing
concessions and other related expenses preparing vacant units for future
tenants.
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
Commercial Properties
The Trust's commercial portfolio included 1.7 million square feet at June
30, 1995. The K-Mart Shopping Center in Indianapolis, Indiana was a new
addition to the Trust's commercial portfolio in December 1994 and contributed
an additional $76,000 and $125,000, respectively, net rental income for the
three and six month periods ended June 30, 1995. Commercial properties held
in both years experienced a $166,000 and $173,000 decrease in net rental
income for the three and six month periods ended June 30, 1995 as compared to
the same periods in 1994 principally due to a greater number of leasing
discounts and concessions extended to increase occupancy levels, which were
slightly lower than those reported in 1994.
Equity in income (losses) of partnerships increased from an $8,000 loss for the
six months ended June 30, 1994 to income of $347,000 for the six months ended
June 30, 1995 primarily due to the Trust's investments in the Indcon, L.P.
("Indcon") and Sacramento Nine ("SAC 9") partnerships. Indcon, in which the
Trust holds a 40% interest, reported increases in rental income due to higher
rental rates and increases in common area cost recovery income. This
partnership also decreased certain expenses in areas such as depreciation,
insurance and real estate tax expenses. SAC 9, in which the Trust holds a 70%
interest, modified a $2.1 million mortgage note during 1994 reducing the
interest rate from 12% per annum to 8% per annum and the related interest
expense by $56,000.
Interest expense increased from $2.7 million and $5.2 million for the three and
six month periods ended June 30, 1994 to $3.1 million and $6.2 million for the
three and six month periods ended June 30, 1995. Prior and current year
acquisitions increased interest expense a total of $304,000 and $674,000,
respectively, for these periods. In addition, the 1994 and 1995 debt
refinancings increased interest expense by $272,000 and $414,000 for the three
and six month periods ended June 30, 1995 as compared to the same periods in
1994. Additional loan cost amortization of $82,000 was also recorded in 1995.
Depreciation expense increased from $1.3 million and $2.5 million for the three
and six month periods ended June 30, 1994 to $1.6 million and $3.0 million for
the three and six month periods ended June 30, 1995 primarily due to the
properties acquired during 1994 and 1995 and the additional depreciation of
capital improvements made to Trust properties during 1994 and the first six
months of 1995.
Advisory fees decreased $89,000 and $262,000 for the three and six month
periods ended June 30, 1995 as compared to the same periods in 1994. The Trust
changed advisors from Basic Capital Management ("BCM") to Tarragon Realty
Advisors, Inc. ("Tarragon") effective April 1, 1994. Under the BCM advisory
agreement, the Trust paid a monthly fee equal to .0625% of the average gross
asset value of the Trust. The Tarragon advisory agreement called for a $100,000
base fee, which was eliminated in the 1995 agreement, and a monthly incentive
fee equal to 16% per annum of adjusted funds from operations, as defined in
the advisory agreement and approved by the Trust's Board of Trustees.
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
The Trust reported a provision for loss credit of $425,000 for the six months
ended June 30, 1995. A provision for loss of $275,000 was recorded in June
1995 due to the sale of the K-Mart Shopping Center in Kansas City, Missouri in
July 1995. In June 1995, the litigation involving the Trust's acquisition of
the Pepperkorn Office Building in Manitowoc, Wisconsin was resolved and as a
result of the court's judgment, the Trust reversed a previously recorded
provision for loss of $700,000. See NOTE 5. REAL ESTATE for a more detailed
discussion.
For the six months ended June 30, 1994, the Trust reported a gain on the sale
of real estate of $385,000 related to the sale of a warehouse by Indcon in May
1994. For the six months ended June 30, 1995, the Trust reported a gain of
$110,000 on the sale of a tract of land in Dallas, Texas. The Trust also
recognized a gain on sale of investments of $141,000 during 1994 and $412,000
during 1995 attributable to the sale of the shares of beneficial interest of
Continental Mortgage and Equity Trust.
The Trust's management, on a quarterly basis, reviews the carrying value of the
Trust's mortgage loans, properties held for investment and properties held for
sale. Generally accepted accounting principles require that the carrying value
of an investment cannot exceed its cost or its estimated net realizable value.
In those instances in which estimates of net realizable value of the Trust's
properties are less than the carrying value thereof at the time of evaluation,
a provision for loss is recorded by a charge against operations. The estimate
of net realizable value of the mortgage loans is based on management's review
and evaluation of the collateral properties securing the mortgage loans. The
review generally includes selective property inspections, a review of the
property's current rents compared to market rents, a review of the property's
expenses, a review of maintenance requirements, discussions with the manager of
the property and a review of the surrounding area. Future quarterly reviews
could cause the Trust's management to adjust current estimates of net
realizable value.
Income Tax Aspects
As more fully discussed in the Trust's 1994 Form 10-K, the Trust has elected
and, in the opinion of the Trust's management, qualified to be taxed as a Real
Estate Investment Trust ("REIT") as defined under Sections 856 through 860 of
the Internal Revenue Code of 1986, and as such, will not be taxed for federal
income tax purposes on that portion of its taxable income which is distributed
to shareholders, provided that at least 95% of its REIT taxable income is
distributed.
Environmental Matters
Under various federal, state and local environmental laws, ordinances and
regulations, the Trust may be potentially liable for removal or remediation
costs, as well as certain other potential costs (including governmental fines
and injuries to persons and property) relating to hazardous or toxic substances
where property-level managers have arranged for the removal, disposal or
treatment of hazardous or toxic substances. In addition, certain environmental
laws impose liability for release of asbestos-containing materials into the
air, and third parties may seek recovery from the Trust for personal injury
associated with such materials.
The Trust's management is not aware of any environmental liability relating to
the above matters that would have a material adverse effect on the Trust's
business, assets or results of operations.
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Recent Accounting Pronouncements
In March 1995, the FASB issued SFAS No. 121 - "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". The statement
requires that long-lived assets be reviewed for impairment "...whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. If the sum of the expected future cash flows (undiscounted
and without interest charges) is less than the carrying amount of the asset, an
impairment loss is recognized," by a charge against earnings, equal to "...the
amount by which the carrying amount of the asset exceeds the fair value of the
asset." If impairment of a long-lived asset is recognized, the carrying value
of the asset shall be reduced by the amount of the impairment and shall be
accounted for as the asset's "new cost", and such new cost shall be depreciated
over the asset's remaining useful life.
SFAS No. 121 also requires that long-lived assets held for sale "...be reported
at the lower of carrying amount or fair value less cost to sell." If a
reduction in a held for sale asset's carrying value to fair value less cost to
sell is required, a provision for loss shall be recognized by a charge against
earnings. Subsequent revisions, either upward or downward, to a held for sale
asset's fair value less cost to sell shall result in adjustments to the asset's
carrying value with a corresponding charge or credit to earnings, but the
adjusted carrying value may not exceed the asset's carrying value when
originally classified as held for sale. Long-lived assets held for sale are
not to be depreciated.
SFAS No. 121 is effective for fiscal years beginning after December 15, 1995.
The Trust has not fully evaluated the effects of adopting SFAS No. 121 but
anticipates that the Trust's policy with regard to the classification of
revenue producing properties as assets held for sale prior to entering into a
firm contract of sale may require reevaluation.
The Trust estimates that if SFAS No. 121 had been adopted effective January 1,
1995, its depreciation would have been reduced by $83,000 and net income would
have increased by like amount for the six months ended June 30, 1995, and a
provision for loss for either impairment of its properties held for investment
or a decline in estimated fair value less cost to sell of its properties held
for sale would not have been required.
[This space intentionally left blank.]
18
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Olive Litigation. In February 1990, the Trust, together with CMET, Income
Opportunity Realty Trust ("IORT") and Transcontinental Realty Investors, Inc.
("TCI"), three real estate entities with, at the time, the same officers,
directors or trustees and advisor as the Trust, entered into a settlement of a
class and derivative action entitled Olive et al. v. National Income Realty
Trust et al., relating to the operation and management of each of the entities.
On April 23, 1990, the court granted final approval of the terms of the
original settlement.
On May 4, 1994, the parties entered into a Modification of Stipulation of
Settlement dated April 27, 1994 (the "Modification"), which settled subsequent
claims of breaches of the settlement which were asserted by the plaintiffs and
modified certain provisions of the April 1990 settlement. The Modification was
preliminarily approved by the court on July 1, 1994 and final court approval
was entered on December 12, 1994. The effective date of the Modification is
January 11, 1995.
The Modification, among other things, provided for the addition of at least
three new unaffiliated members to the Trust's Board of Trustees and set forth
new requirements for the approval of any transactions with affiliates over the
next five years. In accordance with the procedures set forth in the
Modification, Irving E. Cohen, Lance Liebman, Sally Hernandez-Pinero and L. G.
Schafran were appointed to the Board. In addition, BCM, Gene E. Phillips and
William S. Friedman have agreed to pay a total of $1.2 million to the Trust,
CMET, IORT and TCI, of which the Trust's share is $150,000.
Under the Modification, the Trust, CMET, IORT, TCI and their shareholders
released the defendants from any claims relating to the plaintiffs'
allegations. The Trust, CMET, IORT and TCI also agreed to waive any demand
requirement for the plaintiffs to pursue claims on behalf of each of them
against certain persons or entities. The Modification also requires that any
shares of the Trust held by Messrs. Phillips, Friedman or their affiliates
shall be (i) voted in favor of the reelection of all current Board members that
stand for reelection during the two calendar years following the effective date
of the Modification and (ii) voted in favor of all new Board members appointed
pursuant to the terms of the Modification that stand for reelection during the
three calendar years following the effective date of the Modification.
The Modification also terminated a number of the provisions of the Stipulation
of Settlement, including the requirement that the Trust, CMET, IORT and TCI
maintain a Related Party Transaction Committee and a Litigation Committee of
their respective Boards. The court will retain jurisdiction to enforce the
Modification.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27.0 - Financial Data Schedule
(b) Reports on Form 8-K as follows:
During the quarter for which this report is filed, one current Report
on Form 8-K was filed on May 3, 1995, with respect to the Advisory
Agreement dated April 1, 1995, between National Income Realty Trust and
Tarragon Realty Advisors, Inc. reported under Item 5. "OTHER EVENTS"
and Item 7. "FINANCIAL STATEMENTS AND EXHIBITS".
19
<PAGE> 20
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.
NATIONAL INCOME REALTY TRUST
Date: August 8, 1995 By: /s/ John A. Doyle
--------------------- ---------------------------
John A. Doyle
Chief Financial Officer and
Chief Operating Officer
Date: August 8, 1995 By: /s/ Katie Jackson
--------------------- ----------------------------
Katie Jackson
Vice President and
Chief Accounting Officer
20
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
27.0 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 1,934
<SECURITIES> 0
<RECEIVABLES> 16,286
<ALLOWANCES> (6,549)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 235,154
<DEPRECIATION> (42,351)
<TOTAL-ASSETS> 225,848
<CURRENT-LIABILITIES> 0
<BONDS> 147,710
<COMMON> 0
0
0
<OTHER-SE> 70,869
<TOTAL-LIABILITY-AND-EQUITY> 225,848
<SALES> 0
<TOTAL-REVENUES> 22,195
<CGS> 0
<TOTAL-COSTS> 12,293
<OTHER-EXPENSES> 3,519
<LOSS-PROVISION> (425)
<INTEREST-EXPENSE> 6,210
<INCOME-PRETAX> (322)
<INCOME-TAX> 0
<INCOME-CONTINUING> (322)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 200
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
