<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: JUNE 30, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-12166
MERIDIAN POINT REALTY TRUST `83
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-6542723
---------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer I.D. Number)
incorporation or organization)
655 MONTGOMERY STREET, SUITE 800, SAN FRANCISCO, CALIFORNIA 94111
- --------------------------------------------------------------------------------
(Address and zip code of principal executive offices)
Registrant's telephone number, including area code: (415) 393-8000
- --------------------------------------------------------------------------------
(Former name, address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of the common stock as of the
latest practicable date:
SHARES OF BENEFICIAL INTEREST OUTSTANDING AS OF JULY 31, 1998: 3,031,618
<PAGE>
- --------------------------------------------------------------------------------
PART I: FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS.
The accompanying unaudited financial statements should be read in
conjunction with the 1997 Form 10-K of the registrant (the "Company"). These
statements have been prepared in accordance with the instructions of the
Securities and Exchange Commission Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
In the opinion of the Company's management, all material adjustments of
a normal recurring nature considered necessary for a fair presentation of
results of operations for the interim periods have been included. The results of
operations for the six months ended June 30, 1998 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1998.
2
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MERIDIAN POINT REALTY TRUST `83
BALANCE SHEET
JUNE 30, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and Cash Equivalents $ 573,986 $ 2,886,339
Investment in Mortgage-Related Assets 2,019,461 --
Accounts Receivable, Net of Reserves of $25,000 as of
June 30, 1998 and December 31, 1997 -- --
Other Assets, Net 55,214 21,052
- ------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 2,648,661 $ 2,907,391
============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts Payable 9,188 102,057
- ------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 9,188 102,057
- ------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Shares of Beneficial Interest - $1.00 stated value:
Authorized - Unlimited; 3,031,618 shares issued and
outstanding as of June 30, 1998 and December 31, 1997 3,031,618 3,031,618
Paid-in Capital 22,755,694 22,755,694
Distributions in Excess of Income (23,147,839) (22,981,978)
- ------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 2,639,473 2,805,334
============================================================================================================
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,648,661 $ 2,907,391
============================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
MERIDIAN POINT REALTY TRUST `83
STATEMENT OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Rentals from Real Estate Investments $ -- $396,446 $ -- $711,058
Interest and Other 2,341 68,802 38,333 140,606
- -------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 2,341 465,248 38,333 851,664
- -------------------------------------------------------------------------------------------------------------
EXPENSES:
Interest and Amortization of Loan Costs -- 102,432 -- 205,512
Property Taxes -- 29,797 -- 61,693
Property Operating Costs, Including
Amounts Paid to Related Parties of $0,
$30,000, $0 and $60,000, respectively -- 109,259 -- 175,710
General and Administrative, Including
Amounts Paid to Related Parties of
$49,050, $12,250, $79,050 and
$26,250, respectively 101,944 69,816 204,194 144,548
Depreciation and Amortization -- 6,923 -- 13,846
- -------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 101,944 318,227 204,194 601,309
- -------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $(99,603) $147,021 $(165,861) $250,355
=============================================================================================================
NET INCOME (LOSS) PER COMMON SHARE $(0.03) $0.05 $(0.05) $0.08
=============================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
MERIDIAN POINT REALTY TRUST `83
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (165,861) $ 250,355
Adjustments to Reconcile Net Income (Loss) to
Net Cash Used by Operating Activities:
Amortization - Other -- 17,996
Increase in Restricted Cash -- (240,881)
Decrease in Accounts Receivable -- 32,353
Increase in Other Assets (34,162) (121,962)
Increase (Decrease) in Accounts Payable (92,869) 2,802
Decrease in Other Liabilities -- (18,252)
- ------------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (292,892) (77,589)
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements to Existing Real Estate -- (1,103)
Investment in Mortgage Related Assets (2,019,461) --
- ------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (2,019,461) (1,103)
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal Payments on Mortgage Notes -- (59,471)
- ------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES -- (59,471)
- ------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND EQUIVALENTS (2,312,353) (138,163)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 2,886,339 4,437,422
- ------------------------------------------------------------------------------------------------------------
END OF PERIOD $ 573,986 $4,299,259
============================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
MERIDIAN POINT REALTY TRUST `83
JUNE 30, 1998
(UNAUDITED)
1. GENERAL.
Meridian Point Realty Trust `83 (the "Company") is a business trust
organized under the laws of the State of California for the purpose of
acquiring, operating, holding for investment and ultimately selling
income-producing commercial and industrial real estate. The Company was formed
as a self-liquidating/finite life trust. Under this self-liquidating policy, the
Company may not invest net proceeds from sales or refinancings in additional
properties. The Company was formed on June 24, 1982 and commenced operations on
April 12, 1983. On February 23, 1996, the Company sold all of its real estate
properties except for the Charleston Business Park ("Charleston") (See Note 6).
On August 21, 1997, the Company sold the Charleston property. Following the
sale, the Company's assets consisted almost entirely of cash and cash
equivalents. In June 1998, the Company invested approximately $2 million in
short-term mortgage investments. The Company's remaining assets consist almost
entirely of cash and cash equivalents. The Board of Trustees has been evaluating
the options available to the Company, including its sale or liquidation. In July
1998, the Board called an annual meeting of shareholders for September 22, 1998,
for the principal purpose of electing trustees and approving and adopting the
plan of liquidation that had previously been adopted by the Board. Neither
management or the Board can provide assurances as to the outcome of the vote. If
the current trustees are reelected and the plan is approved and adopted by the
shareholders, subsequent financial statements will be presented on a liquidation
basis whereby all assets will be carried at their estimated net realizable
values, and liabilities, including a provision for estimated costs of the plan,
will be stated at their estimated settlement amounts. It is estimated that the
costs of liquidation and the overhead and operating expenses to be incurred
until the liquidation is completed would range from about $560,000 to
$640,000. In addition, it is contemplated that the Board of Trustees would set
aside whatever funds it deems appropriate as a reserve to cover fixed and
contingent debts, liabilities and obligations.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. CASH EQUIVALENTS.
The Company considers all investments with an original maturity of
three months or less to be cash equivalents.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS.
On June 29, 1998, the Company purchased four Real Estate Mortgage
Investment Conduits ("REMICs"). The Company classified these investments as
available-for-sale under Statement of Financial Accounting Standard No. 115,
Accounting for Certain Investments in Debt and Equity Securities. As of June 30,
1998, the fair market value of these instruments approximated historical cost.
Presented in the following table is a schedule of the REMICs purchased by the
Company.
REMIC Series Stated Interest Rate Maturity
------------ -------------------- --------
FHLMC 1458 GA 6.750% 05/15/04
FNMA 96-2 B 7.500% 10/22/09
FHLMC 1432 E 6.750% 01/15/06
FHLMC 1472 E 6.250% 02/15/05
6
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4. RENTALS FROM REAL ESTATE INVESTMENTS.
Certain of the Company's leases required lessees to pay all or a
portion of real estate taxes, insurance and operating costs ("Expense
Recaptures"). Expense Recaptures of $0 and $129,254 for the three months ended
June 30, 1998 and 1997, respectively, have been included in Rentals from Real
Estate Investments. Expense Recaptures of $0 and $175,974 for the six months
ended June 30, 1998 and 1997, respectively, have been included in Rentals from
Real Estate Investments.
5. INVESTMENTS IN REAL ESTATE AND DEPRECIATION METHODS.
Since the Company entered into an exclusive listing agreement for the
sale of the Charleston property on June 27, 1996, the Company ceased
depreciating the property as of August 1, 1996. Leasing commissions and tenant
improvements were amortized under the straight-line method over the term of the
related lease.
6. DISPOSITION OF ASSETS.
On August 21, 1997, the Company sold the Charleston property, the last
property remaining in its portfolio. The total purchase price for the property
was $13,000,000 less a $1,350,000 credit for estimated remediation work (see
Note 10) and related costs, resulting in a net sales price of $11,650,000. The
purchase price was paid entirely in cash. Out of escrow, the Company used
$4,557,500 of the sales proceeds to pay off the then outstanding principal on
the mortgage note payable. The Company also paid $891,504 in closing costs and
$189,070 in mortgage prepayment penalties. In connection with the sale, the
Company recognized a Gain on Sale of Property of $4,528,701. If this transaction
had occurred on January 1, 1997, the Company's pro forma results of operations
for the respective three and six month period ended June 30, 1997 would have
been (in thousands except per share amounts):
<TABLE>
<CAPTION>
March 31, 1997 June 30, 1997
-------------- -------------
<S> <C> <C>
Revenues $ 77 $ 154
Expenses (117) (234)
------ ------
Net Income $(40) $(80)
====== ======
Net Income per Share $(0.01) $(0.02)
====== ======
</TABLE>
7. EARNINGS PER SHARE.
Basic earnings per share of beneficial interest is determined by
dividing net income (loss) by the weighted average number of shares of
beneficial interest outstanding during the period. Weighted average number of
shares outstanding was 3,031,618 for the three and six months ended June 30,
1998 and 1997. During the six months ended June 30, 1997 and 1998, the Company
had no cash distributions.
8. INCOME TAXES.
The Company has previously elected to be taxed as a REIT pursuant to
Section 856(c)(1) of the Internal Revenue Code (the "Code") and intends to be
taxed as a REIT under the Code for the fiscal year ended December 31, 1998. The
REIT provisions of the Code generally allow a REIT to deduct dividends paid to
shareholders in computing the Company's taxable income. No provisions for
federal or state income taxes have been made in the accompanying consolidated
statements of operations.
To qualify for REIT status, the Company must meet a number of highly
technical organizational and operations requirements on a continuing basis.
Those requirements seek to ensure, among other things, that the gross income and
investments of a REIT are largely real estate related, with certain other
permitted assets, that a REIT distributes substantially all its ordinary taxable
income to shareholders on a current
7
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basis and that the REIT's ownership is not overly concentrated. Due to the
complex nature of these rules, the limited available guidance concerning
interpretation of the rules, the importance of ongoing factual determinations
and the possibility of adverse changes in or interpretations of the law,
administrative interpretations of the law and developments at the Company, no
assurance can be given regarding the Company's qualification as a REIT for any
particular year. As a result of the Company's sale of its last real estate
property in August 1997, the Company's status as a REIT for 1998 is dependent,
in part, upon tax rules regarding investments by REITs in certain types of non-
real estate assets.
If the Company failed to qualify as a REIT for the fiscal year ended
December 31, 1998, it would be taxed as a regular corporation, and distributions
to shareholders would not be deductible in computing the Company's taxable
income. The resulting corporate tax liabilities could materially reduce the
funds available for distribution to the Company's shareholders or for
reinvestment. If the Company failed to qualify as a REIT, distributions to
stockholders would no longer be required. Moreover, the Company might not be
able to elect to be treated as a REIT for the four taxable years after the year
during which the Company ceased to qualify as a REIT. In addition, if the
Company later requalified as a REIT, it might be required to pay a full
corporate-level tax on any unrealized gain associated with its assets as of the
date of requalification and to make distributions equal to any C corporation
earnings accumulated during the period of non-REIT status.
9. RELATED PARTIES.
Effective February 24, 1996, the Company entered into an agreement with
E&L Associates, Inc. ("E&L") under which E&L provides asset management and
certain other administrative services to the Company. E&L receives a monthly fee
of $10,000 plus reimbursement for other expenses incurred on behalf of the
Company. During the six months ended June 30, 1998, E&L received management fees
of $60,000, all of which is included in General and Administrative Costs on the
accompanying statements of operations. E&L is a wholly-owned subsidiary of a
company in which Lorraine O. Legg (the Company's Chief Executive Officer and a
Trustee) has an ownership interest. Other than the fees paid to E&L, Ms. Legg
receives no other compensation from the Company.
In connection with the sale of the Charleston property, the Board of
Trustees adopted an incentive payment plan for E&L for arranging, structuring,
negotiating and closing the transaction. The amount of the incentive fee would
vary depending upon the sales price achieved and subject to a maximum payment.
Under this plan, E&L received a fee of $233,000 in September, 1997.
10. COMMITMENTS AND CONTINGENCIES.
The ownership of real estate entails environmental risks and potential
liability to owners, including former owners. Environmental investigation at the
Golden Cove property sold to Meridian Industrial Trust ("MIT") in 1996 indicated
that soil at the property contained volatile organic compounds in concentrations
that exceeded the clean-up goals typically cited by the California Regional
Water Quality Control Board (the "RWQCB"). As part of the sale transaction, the
Company was obligated fully to fund the remediation costs, for which it had
previously accrued $140,000 in 1994. Approximately $95,000 had been expended by
the Company for remediation costs through December 1997 and it does not believe
that any additional costs will be incurred, but there can be no assurance to
that effect. The Company may be entitled to seek contribution and indemnity for
the remediation costs against other potentially responsible parties who may have
caused the contamination at the property.
In the late 1980s, the San Francisco Bay Region of the RWQCB requested
that the Company investigate and characterize soil and groundwater contamination
of the Charleston property. The Company engaged an environmental engineering
firm that discovered the presence of trichloroethylene and other solvent
chemicals in the groundwater. The RWQCB deferred issuing a Site Cleanup
Requirements ("SCRs") order to give the Company time to complete the pending
sale of the Charleston property. As part of the sale, the purchaser agreed to
indemnify the Company broadly against the pending SCRs and other types of
environmental claims. Its indemnity is backed by an environmental insurance
policy placed with Reliance Insurance Company of Illinois. It is possible that
the RWQCB could still name the Company
8
<PAGE>
when it ultimately issues its SCRs order for the property based on the Company's
former ownership. If that occurs, the Company would tender the SCRs order to the
purchaser for compliance. Similarly, the Company would tender any other
environmental claim brought against it to the purchaser pursuant to the
indemnity.
On June 16, 1998, the Company was informed of the filing by Turkey
Vulture Fund XIII, Ltd., a shareholder of the Company, of a lawsuit in the
California Superior Court in San Francisco seeking monetary damages from the
Company's Trustees of approximately $600,000 alleging that they have breached
their fiduciary duties to the Company by failure to preserve its legal status as
a REIT under the Internal Revenue Code.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The Company was formed and currently operates as a self-liquidating,
finite-life REIT. The following discussion should be read in conjunction with
the Company's Balance Sheets and Statements of Operations and Cash Flows and the
notes thereto. Unless otherwise defined in this report, or unless the context
otherwise requires, the capitalized words or phrases referred to in this section
either: (a) describe accounting terms that are used as line items in such
financial statements, or (b) have the meanings ascribed to them in such
financial statements and the notes thereto.
Liquidity and Capital Resources
- -------------------------------
The Company's liquidity and capital resources have been dramatically
changed as a result of the February 23, 1996 and August 21, 1997 asset sales. In
June 1998, the Company invested approximately $2 million in short-term mortgage
investments. The Company's source of near-term liquidity is its unrestricted
cash which, at June 30, 1998, totaled $573,986. These funds are expected to be
adequate to satisfy the Company's overhead and operating expenses in the short
term.
The Board of Trustees has been evaluating the options available to the
Company, including its sale or liquidation. In July 1998, the Board called an
annual meeting of shareholders for September 22, 1998, for the principal purpose
of electing trustees and approving and adopting the plan of liquidation that had
previously been adopted by the Board. Neither management or the Board can
provide assurances as to the outcome of the vote. If the current trustees are
reelected and the plan is approved and adopted by the shareholders, subsequent
financial statements will be presented on a liquidation basis whereby all assets
will be carried at their estimated net realizable values, and liabilities,
including a provision for estimated costs of the plan, will be stated at their
estimated settlement amounts. It is estimated that the costs of liquidation and
the overhead and operating expenses to be incurred until the liquidation is
completed would range from about $560,000 to $640,000. In addition, it is
contemplated that the Board of Trustees would set aside whatever funds it deems
appropriate as a reserve to cover fixed and contingent debts, liabilities and
obligations.
During the six months ended June 30, 1997 and 1998, the Company had no
cash distributions.
Material Changes in Results of Operations
- -----------------------------------------
Rentals from Real Estate Investments totaled $0 and $711,058 for the
six months ended June 30, 1998 and 1997, respectively. The decrease is the
result of the sale of the Charleston property in August 1997.
Interest and other revenues were $38,333 and $140,606 in the six months
ended June 30, 1998 and 1997, respectively. The change was due to primarily the
sale of the Charleston property in August 1997 and changes in the Company's
average cash balances available for investment.
9
<PAGE>
Interest expense, property taxes and property operating costs during
the six months declined from period to period because of the August 1997
property sale. Depreciation and amortization declined from period to period
because of the August 1997 property sale.
General and administrative expense was $204,194 and $144,548 in the six
months ended June 30, 1998 and 1997, respectively. The increase resulted from
increased expenditures related to the Board of Trustees evaluation of the
Company's future options.
10
<PAGE>
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PART II: OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: None.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter June 30, 1998.
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.
REGISTRANT
MERIDIAN POINT REALTY TRUST `83
Date: August 14, 1998 By: /s/ LORRAINE O. LEGG
--------------------
Lorraine O. Legg,
President and Chief
Executive Officer
(Principal Executive Officer)
Date: August 14, 1998 By: /s/ JOHN E. CASTELLO
--------------------
John E. Castello,
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 573,986
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,074,675
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,648,661
<CURRENT-LIABILITIES> 9,188
<BONDS> 0
0
0
<COMMON> 3,031,618
<OTHER-SE> 392,145
<TOTAL-LIABILITY-AND-EQUITY> 2,648,661
<SALES> 0
<TOTAL-REVENUES> 38,333
<CGS> 0
<TOTAL-COSTS> 204,194
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (165,861)
<INCOME-TAX> 0
<INCOME-CONTINUING> (165,861)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (165,861)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
