<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 MARCH 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-8692
------------------------
PACIFIC GATEWAY PROPERTIES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
NEW YORK 04-2816560
-------------------------------------- ----------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
930 MONTGOMERY STREET, SUITE 400,
SAN FRANCISCO, CALIFORNIA 94133
-------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (415) 398-4800
NOT APPLICABLE
-------------------------------------------------------------------------
(Former name, former 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 each of the issuer's classes of
common stock, as of the latest practicable date of May 2, 1999:
3,933,536 shares of Common Stock, $1.00 par value and
300,000 shares of Series 1 Convertible Preferred Stock, $1.00 par value.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PACIFIC GATEWAY PROPERTIES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
------------
<S> <C> <C> <C>
Part I--Financial Information:
Item 1. Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 1999 and
December 31, 1998................................................................... 3
Condensed Consolidated Statements of Operations for the Three Months Ended March 31,
1999 and 1998....................................................................... 4
Condensed Consolidated Statement of Stockholders' Equity for the Three Months Ended
March 31, 1999...................................................................... 5
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31,
1999 and 1998....................................................................... 6
Notes to Condensed Consolidated Financial Statements (Unaudited)...................... 7-11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 12-16
Part II--Other Information
Item 1. Legal Proceedings.......................................................... 16-17
Item 2. Changes in Security........................................................ None
Item 3. Defaults Upon Senior Securities............................................ None
Item 4. Submission of Matters to a Vote of Security Holders........................ 17-18
Item 5. Other Information.......................................................... 18
Item 6. Exhibits and Reports on Form 8-K........................................... 18
Signatures.......................................................................................... 19
</TABLE>
2
<PAGE>
PACIFIC GATEWAY PROPERTIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, DECEMBER 31,
1999 1998
---------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................................................... $ 6,139 $ 6,535
Restricted cash......................................................................... 1,750 1,573
Accounts receivable, prepaid taxes and other current assets............................. 432 230
Investment properties:.................................................................. 68,360 68,138
Less-accumulated depreciation......................................................... (17,013) (16,205)
---------- ------------
Investment properties, net.......................................................... 51,347 51,933
---------- ------------
Property held for sale, net of accumulated depreciation and reserve for write-down to
net realizable value of $2,733 at December 31, 1998................................... -- 2,480
Deferred tax asset...................................................................... 11,808 10,216
Capitalized loan costs, net............................................................. 715 743
Capitalized lease commissions, rent concessions and other deferred costs, net........... 1,821 1,841
---------- ------------
Total assets........................................................................ $ 74,012 $ 75,551
---------- ------------
---------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, prepaid rent, tenant security deposits, accrued interest and other
current liabilities................................................................... $ 2,660 $ 3,453
Debt related to investment properties................................................... 46,182 48,707
Deferred tax liability.................................................................. 22,091 20,274
---------- ------------
Total liabilities................................................................... 70,933 72,434
---------- ------------
STOCKHOLDERS' EQUITY
Common Stock $1.00 par value:
Authorized--10,000,000 shares
Issued and outstanding--4,052,090 shares as of March 31, 1999 and December 31, 1998... 4,052 4,052
Series 1 Convertible Preferred Stock $1.00 par value, $3,000,000 preference in
liquidation:
Authorized, issued and outstanding--300,000 shares.................................... 2,889 2,889
Paid-in-deficit......................................................................... (8,968) (8,968)
Retained earnings....................................................................... 7,143 7,181
Treasury Stock, at cost--118,554 common shares at March 31, 1999 and December 31,
1998.................................................................................. (2,037) (2,037)
---------- ------------
Total stockholders' equity............................................................ 3,079 3,117
---------- ------------
Total liabilities and stockholders' equity.......................................... $ 74,012 $ 75,551
---------- ------------
---------- ------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
PACIFIC GATEWAY PROPERTIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
INVESTMENT PROPERTIES:
Rental revenues......................................................... $ 4,382 $ 3,469
Operating expenses...................................................... (1,408) (1,395)
Interest expense........................................................ (973) (1,059)
Depreciation and amortization........................................... (924) (819)
--------- ---------
Investment properties income.......................................... 1,077 196
--------- ---------
General and administrative expenses....................................... (568) (440)
Other income, net......................................................... 72 24
--------- ---------
Income (loss) before taxes................................................ 581 (220)
Income tax (provision) benefit............................................ (238) 83
--------- ---------
Net income (loss)....................................................... $ 343 $ (137)
--------- ---------
--------- ---------
Preferred dividends....................................................... (27) --
--------- ---------
Net income (loss) available to common stockholders...................... $ 316 $ (137)
--------- ---------
--------- ---------
Income (loss) per common share, basic..................................... $ 0.08 $ (0.04)
--------- ---------
--------- ---------
Income (loss) per common share, diluted................................... $ 0.08 $ (0.04)
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
PACIFIC GATEWAY PROPERTIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES 1
CONVERTIBLE
COMMON PREFERRED PAID-IN- RETAINED TREASURY
STOCK STOCK DEFICIT EARNINGS STOCK TOTAL
----------- ----------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998............................. $ 4,052 $ 2,889 $ (8,968) $ 7,181 $ (2,037) $ 3,117
Net income............................................. -- 27 -- 316 -- 343
Dividends.............................................. -- (27) -- (354) -- (381)
----------- ----------- --------- ----------- --------- ---------
Balance at March 31, 1999................................ $ 4,052 $ 2,889 $ (8,968) $ 7,143 $ (2,037) $ 3,079
----------- ----------- --------- ----------- --------- ---------
----------- ----------- --------- ----------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
PACIFIC GATEWAY PROPERTIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flow from operating activities:
Net income (loss)....................................................... $ 343 $ (137)
Non-cash revenues and expenses included in net income (loss):
Depreciation and amortization......................................... 924 819
Deferred taxes, net................................................... 225 (90)
Gain on settlement of reimbursement obligation, net................... (6) --
Change in assets and liabilities:
Accounts receivable, prepaid taxes and other current assets........... (202) (140)
Accounts payable and other current liabilities........................ (152) 1,553
--------- ---------
NET CASH GENERATED BY OPERATING ACTIVITIES.............................. 1,132 2,005
--------- ---------
Cash flow from investing activities:
Additions to building and other improvements, capitalized lease
commissions, rent concessions, and other deferred costs............... (288) (1,971)
(Increase) decrease in restricted cash.................................. (177) (29)
Proceeds from sale of property, net..................................... 3,785 --
--------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES..................... 3,320 (2,000)
--------- ---------
Cash flow from financing activities:
Repurchase of warrants.................................................. -- (1,007)
Payments on debt........................................................ (267) (243)
Payment to settle reimbursement obligation.............................. (4,200) --
Payment of dividends.................................................... (381) --
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES................................... (4,848) (1,250)
--------- ---------
Decrease in cash and cash equivalents..................................... (396) (1,245)
Balance at beginning of period............................................ 6,535 2,065
--------- ---------
Balance at end of period.................................................. $ 6,139 $ 820
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest.................................................. $ 1,618 $ 1,032
--------- ---------
--------- ---------
Cash paid for taxes..................................................... $ 1 $ 1
--------- ---------
--------- ---------
Non-cash transactions:
Increase in additional paid-in capital from repurchase of warrants.... $ -- $ 883
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
PACIFIC GATEWAY PROPERTIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with Pacific Gateway Properties, Inc.'s (the
"Company") 1998 Form 10-K and Form 10-Q for the quarter ended March 31, 1998.
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, 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
consolidated operations for the three months ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to be consistent with
current period classifications.
ESTIMATES AND ASSUMPTIONS
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,
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 may differ from those estimates.
2. REAL ESTATE PARTNERSHIP INVESTMENTS
RINCON CENTER ASSOCIATES PARTNERSHIP (RCA)--SAN FRANCISCO, CALIFORNIA
The Company owns general (non-managing) and limited partnership interests in
RCA totaling approximately 22.8% and, subject to the funding agreement entered
into with RCA's managing general partner, Perini Land & Development Company (a
wholly owned subsidiary of Perini Corporation), discussed below, is responsible
for 20% of cash requirements in excess of available financing. The Company's
minority, general (non-managing) and limited partnership interests in RCA
represent significant potential financial exposure. This exposure includes, and
may not be limited to, the potential tax liability associated with the Company's
negative tax basis, the joint and several guarantees provided by the Company to
the mortgage lender on Rincon Center Phase Two and the master lessor on Rincon
Center Phase One, and the potential tax liability that would exist from the
cancellation of debt in connection with a possible debt restructuring. Except
for the deferred income tax liabilities related to the tax that would result
from any gain recognized from the Company's negative tax basis in its
partnership interest, the accompanying financial statements do not include any
adjustments for these uncertainties.
RCA sold Rincon Center Phase One to Chrysler MacNally Corporation (Chrysler)
in June 1988; subsequently, RCA leased the property back under a master lease
which is treated as an operating lease for financial reporting purposes. In July
1993, Chrysler completed a refinancing of Rincon Center Phase One. The maturity
date of this debt was July 1, 1998. Payments under the master lease agreement
may be adjusted to reflect adjustments in the rate of interest payable by
Chrysler on the Rincon Center Phase One debt. The master lease also permits
Chrysler to put the property back to RCA at stipulated prices
7
<PAGE>
PACIFIC GATEWAY PROPERTIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE QUARTER ENDED MARCH 31, 1999
2. REAL ESTATE PARTNERSHIP INVESTMENTS (CONTINUED)
beginning January 1998 if long-term financing meeting certain conditions is not
obtained. As of January 1, 1998, no new long term financing commitment had been
secured although negotiations with the current lender were in progress. In order
to allow those discussions to continue, Chrysler agreed to temporarily delay the
enforcement of the purchase requirements. RCA can make no assurances about the
outcome of these negotiations. As a result of the current loan negotiations, RCA
has written-down the carrying value of the assets related to this segment of the
property by $17,150,000 in 1997 to the estimated net realizable value. On June
30, 1997, RCA filed a lawsuit against Chrysler in Superior Court in the State of
California, County of San Francisco. The lawsuit's primary cause of action
alleges that Chrysler has breached the master lease and a certain letter
agreement because the rent payments due from RCA after the 1993 refinancing of
Rincon Center Phase One, resulted in an increase in Chrysler's after tax rate of
return from rent payments. The lawsuit states that such excessive rent
recalculations directly contravene both the letter and the spirit of the master
lease.
In September 1993, RCA completed a refinancing of Rincon Center Phase Two
with Citibank. The residential portion of Rincon Center Phase Two is being
financed with redevelopment bonds from the Redevelopment Agency of the City and
County of San Francisco, California, which are due December 1, 2006. The bonds
are secured by an irrevocable letter-of-credit issued by Citibank in the name of
RCA. In the event that drawings are made on the letter-of-credit, RCA has agreed
to reimburse Citibank for such drawings pursuant to the terms of the
Reimbursement Agreement which is secured by a deed of trust on Rincon Center
Phase Two and other guarantees. During 1997, the irrevocable letter-of-credit
was due to expire. RCA is currently in negotiations with Citibank to extend the
letter-of-credit and no assurances can be made about the outcome of this
negotiation. Currently, the letter-of-credit has been extended to June 1, 1999.
The commercial portion of Rincon Center Phase Two was financed pursuant to a
Construction Loan Agreement between RCA and Citibank. The Construction Loan
Agreement is secured by a deed of trust on the commercial portion of Rincon
Center Phase Two. RCA is currently in negotiations with Citibank to extend the
loan and no assurances can be made about the outcome of this negotiation. A
portion of the security for the Construction Loan Agreement was a $3.65 million
letter-of-credit issued by Bank of America National Trust and Savings
Association (the Issuing Bank) on behalf of the Company in favor of Citibank.
The letter-of-credit for $3.65 million was drawn by Citibank prior to its
expiration date of June 23, 1997. Citibank is currently holding the $3.65
million in a separate restricted account on behalf of RCA and has not applied
said funds to any outstanding debt of RCA. The Issuing Bank made a demand on the
Company to reimburse them for the $3.65 million drawn on the letter-of-credit
and also notified the Company it is in default with respect to the reimbursement
obligation. In accordance with generally accepted accounting principles,
effective June 30, 1997, the Company recorded a "provision for settlement of
reimbursement obligation" in the amount of $2.2 million to provide for the
ultimate settlement of the reimbursement obligation. On or about August 18,
1997, the Issuing Bank commenced an action against the Company in the Land Court
Department of the Trial Court of Massachusetts (the Land Court), to obtain a
conditional judgment in the full amount of the Company's indebtedness to the
Issuing Bank. The Company filed a complaint against the Issuing Bank on November
21, 1997 in the Superior Court Department of the Trial Court of the Commonwealth
of Massachusetts (the Superior Court) seeking
8
<PAGE>
PACIFIC GATEWAY PROPERTIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE QUARTER ENDED MARCH 31, 1999
2. REAL ESTATE PARTNERSHIP INVESTMENTS (CONTINUED)
damages, equitable relief and a jury trial for causes of action flowing from the
Issuing Bank's conduct regarding the letter of credit.
The Company and the Issuing Bank settled the Land and Superior Court actions
on January 15, 1999. Pursuant to the terms of a mutual release and settlement
agreement, the Company paid the Issuing Bank the sum of $4.2 million and
released the Issuing Bank from all claims raised in the Superior Court action.
The Issuing Bank, meanwhile, executed discharges of mortgage and rent
assignment, and released the Company from all claims raised in the Land Court
action. Concurrent with the mutual release and settlement between the Company
and the Issuing Bank, the Company closed on the sale of the 410 First Avenue
property on January 20, 1999, for approximately $3,950,000. The net proceeds
from the sale were utilized to partially fund the $4.2 million settlement with
the Issuing Bank.
In 1996, the Company ceased recording any activity related to its interest
in RCA because (i) it had previously written-down its equity investment in and
loans to RCA to zero in 1995 and (ii) the Company currently has no obligation,
prospects or plans to invest further in or on behalf of RCA.
In 1993, the Company entered into an agreement with RCA's managing general
partner whereby such managing general partner agreed to advance funds to RCA on
behalf of the Company on an unsecured non-recourse basis, subject to interest at
prime plus 2% and certain annual fees (principal, unpaid interest and fees are
collectively referred to as the RCA Advances). This agreement does not reduce
the level of the Company's general and limited partnership interests in RCA. The
RCA Advances are only required to be repaid from the Company's share of future
distributions from RCA, if any. During the first three months of 1999 and 1998,
RCA incurred net losses of approximately $3,060,000 and $4,403,000,
respectively. The RCA Advances amount to $8,699,000 at March 31, 1999 and as
noted above, are not recorded on the Company's consolidated financial statements
since (i) the RCA Advances are only required to be repaid from the Company's
share of future distributions from RCA, if any, (ii) the Company has no
intention or legal obligation to repay the RCA Advances other than from its
share of distributions from RCA, if any, and (iii) the Company does not
anticipate any material cash distributions by RCA in the foreseeable future.
On March 16, 1999, the Company filed a derivative suit asserting the rights
of RCA against Perini Land & Development and Perini Corporation, among others,
alleging that defendants were usurping the partnership's opportunity to purchase
the fee interest upon which Rincon Center sits from the fee owner. The fee
interest has subsequently been purchased by an entity in which Perini
Corporation or one of its affiliates holds an interest. The Company is seeking,
at minimum, to have a constructive trust in favor of RCA imposed on the interest
in such fee held directly or indirectly by Perini Corporation or its affiliates.
On April 30, 1999, these defendants answered the complaint, denying liability.
In addition, they filed a cross-complaint against the Company alleging that, by
filing the above-described action, the Company tortiously interfered with
cross-plaintiffs' contract to purchase the fee interest. Cross-plaintiffs also
allege that the Company has anticipatorily repudiated an April 1998 term sheet
addressing a potential restructuring of the Rincon Center project, under which
cross-plaintiffs allege that the Company committed itself to provide $3.75
million in cash towards such restructuring. The Company denies that such term
sheet, which was never replaced as contemplated by a written agreement, binds it
at this time and, in any event, denies that Perini Land & Development has
complied or can comply with its terms.
9
<PAGE>
PACIFIC GATEWAY PROPERTIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE QUARTER ENDED MARCH 31, 1999
2. REAL ESTATE PARTNERSHIP INVESTMENTS (CONTINUED)
During 1997, the Company asserted certain claims against RCA for payment to
the Company by RCA for leasing services provided to RCA by the Company during
1996. The Company has not accrued for such claims pending resolution of this
matter with RCA's managing general partner.
Summary unaudited financial statement data for RCA is as follows (in
thousands):
<TABLE>
<CAPTION>
FEBRUARY 28, DECEMBER 31,
AS OF 1999 1998
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
Investment properties, net........................................ $ 108,718 $ 109,320
Other assets...................................................... 1,806 2,734
------------ ------------
$ 110,524 $ 112,054
------------ ------------
------------ ------------
Debt.............................................................. $ 49,515 $ 45,788
Amounts due to partners........................................... 203,469 201,118
Other liabilities................................................. 11,000 16,569
Partners' deficit................................................. (153,460) (151,421)
------------ ------------
$ 110,524 $ 112,054
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Revenue................................................... $ 4,836 $ 4,571
Expenses:
Operating and lease expenses............................ 3,834 4,793
Interest expense........................................ 3,399 3,411
Depreciation expense.................................... 663 770
--------- ---------
7,896 8,974
--------- ---------
Net loss.................................................. $ (3,060) $ (4,403)
--------- ---------
--------- ---------
</TABLE>
As of the date of this report, the managing general partner of RCA had not
completed the financial accounting for RCA. As a result, the Company has
recorded an estimate of revenue and expenses for the first three months of 1999
based upon actual operating revenue and expenses for January and February 1999,
and has included the actual unaudited balance sheet as of February 28, 1999. The
Company has conferred with the managing general partner of RCA and considers
these estimates to be reasonable; however, actual results will differ from these
estimates.
3. PER SHARE DATA
Basic earnings per share is computed as earnings divided by weighted average
shares, excluding the dilutive effects of stock options and other potentially
dilutive securities. Outstanding stock options enter into the weighted average
shares outstanding when computing diluted earnings per share using the Treasury
Stock Method.
10
<PAGE>
PACIFIC GATEWAY PROPERTIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE QUARTER ENDED MARCH 31, 1999
3. PER SHARE DATA (CONTINUED)
The number of weighted average common shares and potential common shares
used in the earning per share calculations are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Basic.................................................. 3,933,536 3,899,596
Stock options and warrants............................. 81,675 --
--------- ---------
Diluted................................................ 4,015,211 3,899,596
--------- ---------
--------- ---------
</TABLE>
In the first quarter of 1998, due to the Company's loss position, the
inclusion of stock options and warrants would have been anti-dilutive, and
accordingly the number of outstanding shares used in calculating basic and
diluted earnings per share for this quarter are the same. The Company's Series 1
Convertible Preferred Stock was excluded from diluted earnings per share for the
three months ended March 31, 1999 as inclusion would have been anti-dilutive.
4. GAIN ON SETTLEMENT OF REIMBURSEMENT OBLIGATION
On January 20, 1999, the Company sold the 410 First Avenue property in
Needham, Massachusetts for approximately $3,785,000, net of selling expenses of
approximately $165,000. This property had been classified as a property held for
sale on the Company's December 31, 1998 balance sheet. The net proceeds from the
sale were utilized to partially fund the $4.2 million settlement with the
Issuing Bank, as previously discussed in Note 2.
5. SUBSEQUENT EVENT
A Special in Lieu of Annual Meeting ("Annual Meeting") of Shareholders of
the Company was held on April 26, 1999. At the Annual Meeting, the Shareholders
elected all seven incumbent Directors. At the Annual Meeting, 3,979,031 shares
of a total of 3,933,536 common shares and 300,000 preferred shares were
represented. The results of each vote is more fully described in Item 4
Submission of Matters to a Vote of Security Holders in this Form 10-Q.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
Pacific Gateway Properties, Inc. (the "Registrant") is a New York
corporation formed in 1984 for the purpose of investing and managing income
producing real estate. The Registrant's overall business plan has been to
assemble a substantial portfolio of income producing properties. The Registrant
historically focused its property acquisitions in the following markets:
Northern California, Arizona, Florida and Massachusetts. The Registrant's
long-term objectives continue to be maximizing net cash flow from operations and
achieving growth through appreciation of asset values. The current strategic
plan of the Registrant is to focus on real estate investment on the West Coast
with specific emphasis on the San Francisco Bay Area. The current investment
emphasis is on commercial properties which require aggressive management and
leasing in order to maximize their potential. This strategy is influenced by the
following factors: (1) the Registrant's current property portfolio is
concentrated on the West Coast; and (2) the Registrant believes that geographic
concentration will enhance operational efficiencies.
The following discussion should be read in conjunction with the Registrant's
Form 10-K for 1998, quarterly report on Form 10-Q for the quarter ended March
31, 1998, and in conjunction with the Unaudited Condensed Consolidated Balance
Sheet, Statements of Income and Cash Flows and the notes thereto. Unless
otherwise defined in this report, or unless the context otherwise requires, the
capitalized words or phrases used in this section either (i) describe accounting
terms that are used as line items in such financial statements, or (ii) have the
meaning ascribed to them in such financial statements and the notes thereto.
FINANCIAL CONDITION
CAPITAL IMPROVEMENTS, TENANT IMPROVEMENTS AND OTHER DEFERRED COSTS--During
the three months ended March 31, 1999, there were additions to investment
properties amounting to approximately $288,000 for tenant improvements, capital
improvements and other deferred costs which includes leasing commissions. The
Registrant anticipates further additions to investment properties of
approximately $1,865,000 during the remainder of 1999, which will be funded from
cash, restricted cash, and future cash flow generated by operating activities.
FINANCING--Approximately $267,000 of debt principal was repaid in the three
months ended March 31, 1999 as scheduled debt amortization.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
INVESTMENT PROPERTIES--During the first three months of 1999, the income
from investment properties was $1,077,000 compared to income of $196,000 during
the first three months of 1998. The increase of $881,000 in income from
investment properties is attributable to new leases completed during 1998
leading to increased occupancy and renewal of existing leases at higher rates.
Interest expense decreased from $1,059,000 during the first three months of 1998
to $973,000 during the first three months of 1999 primarily as a result of
inclusion in interest expense for the first three months of 1998 of $104,000 of
interest recorded on the settlement obligation which was eliminated when the 410
First Avenue property was sold in January 1999 as further discussed in Note 2.
Depreciation and amortization expense increased as a result of commencing
depreciation of expenditures capitalized during 1998 and early 1999 relating to
the Registrant's leasing activities and capital improvement projects.
GENERAL AND ADMINISTRATIVE EXPENSES--General and administrative expenses in
the first three months of 1999 amounted to $568,000 compared to $440,000 for the
first three months of 1998. The increase is primarily attributable to a
increases in professional services and personnel costs.
OTHER INCOME, NET--Other income, net, consisting primarily of interest
income, was $72,000 and $24,000 during the first three months of 1999 and 1998,
respectively. The increase is primarily due to the
12
<PAGE>
additional cash invested resulting from the issuance of Series 1 Convertible
Preferred Stock as more fully discussed in the Registrant's 1998 Form 10-K.
INCOME TAX (PROVISION) BENEFIT--A tax provision of $238,000 has been
recorded in connection with the net income for the first three months of 1999. A
tax benefit of $83,000 was recorded in connection with the net loss for the
three months ended March 31, 1998. These amounts have been recorded at rates
that approximate the effective statutory rate.
LIQUIDITY AND CAPITAL RESOURCES
REGULATION AND SUPERVISION
Many jurisdictions have adopted laws and regulations relating to the
ownership of real estate. Compliance with these requirements from time to time
may require capital expenditures by the Registrant (for example, expenditures
necessary in order to comply with the Americans with Disabilities Act or changes
in local building or other codes). In addition, the Registrant may from time to
time have to expend capital for environmental control facilities. While the
ownership of real estate may entail environmental risks and liabilites to the
owner, the Registrant's management is sensitive to environmental issues and is
not currently aware of and does not expect any material effects on current or
future capital expenditures, earnings or competitive position resulting from
compliance with present federal, state or local environmental control
provisions.
DISCUSSION OF KNOWN TRENDS, EVENTS AND UNCERTAINTIES
The economic climate for commercial real estate has shown signs that rental
rates and property values have stabilized and in selected markets has improved.
Notwithstanding a stabilizing real estate market, tenants may or may not
continue to renew leases as they expire or may renew on less favorable terms.
Conditions differ in each market in which the Registrant's properties are
located. Because of the continuing uncertainty of future economic developments
in each market, the impact these developments will have on the Registrant's
future cash flow and results of operations is uncertain.
Inflation, inflationary expectations and their effect on interest rates may
affect the Registrant in the future by changing the underlying value of the
Registrant's real estate or by impacting the costs of financing the Registrant's
operations.
LIQUIDITY AND CAPITAL RESOURCES
The bulk of the Registrant's resources are committed to relatively
non-liquid real estate assets. These assets, due to their value and cash flow,
have provided the Registrant with an ability to generate capital as required,
both internally and externally, through asset-based financings. In addition,
since 1992, assets or portions thereof were sold to provide further liquidity.
The Registrant has taken several actions to generate and conserve cash, as
discussed below, and continues to review and analyze alternative actions. At the
same time, the Registrant is seeking to retain value and identify future
opportunities for investment. At March 31, 1999, the Registrant has
approximately $6.1 million of unrestricted cash, $1.7 million of restricted
cash, investment properties with a net book value of approximately $51.3
million, total non-recourse mortgage debt of approximately $46.2 million and
stockholders' equity of approximately $3.1 million. Given the Registrant's
desire to increase its liquidity, the Registrant has actively pursued the sale
of selected real estate assets in the past, has restructured and refinanced its
mortgage debt, and has entered into an agreement with the managing general
partner of RCA to limit the Registrant's cash obligations to RCA. The Registrant
continues to evaluate various alternatives to improve its liquidity through debt
refinancing and the sale of properties which do not fit within its long term
strategy. Funds raised in the preceeding fashion would be used for
13
<PAGE>
tenant improvements and other capital requirements, certain mandatory debt
reductions, and general corporate purposes including possible new investments.
The Registrant is also obligated to fund reserves for building and tenant
improvements, leasing commissions and debt service in connection with its
mortgage loans on Walnut Creek Executive Park, North Tucson Business Center and
South Bay Office Tower. Scheduled funding under the various loan agreements
during the twelve month period ending March 31, 2000, will amount to
approximately $597,000, and will be funded from future cash flow generated by
operating activities.
Scheduled principal maturites on the above described debt during the twelve
month period ending March 31, 2000, will amount to approximately $1,066,000.
Approximately $267,000 of debt principal was repaid in the three months ended
March 31, 1999 as scheduled debt amortization.
The Registrant and Bank of America National Trust and Savings Association
(the Issuing Bank) settled the Land and Superior Court actions on January 15,
1999. Pursuant to the terms of a mutual release and settlement agreement, the
Registrant paid the Issuing Bank the sum of $4.2 million and released the
Issuing Bank from all claims raised in the Superior Court action. The Issuing
Bank, meanwhile, executed discharges of mortgage and rent assignment, and
released the Registrant from all claims raised in the Land Court action.
Concurrent with the mutual release and settlement between the Registrant and the
Issuing Bank, the Registrant closed on the sale of the 410 First Avenue property
on January 20, 1999, for approximately $3,950,000. The net proceeds from the
sale were utilized to partially fund the $4.2 million settlement with the
Issuing Bank.
The Registrant's minority, general (non-managing) and limited partnership
interests in RCA represent significant potential financial exposure. This
exposure includes, and may not be limited to, the potential tax liability,
associated with the Registrant's negative tax basis, the joint and several
guarantees provided by the Registrant to the mortgage lender on Rincon Center
Phase Two and the master lessor on Rincon Center Phase One, and the potential
tax liability that would exist from the cancellation of debt in connection with
a possible debt restructuring. Additionally, RCA's managing general partner
agreed to advance funds to RCA on behalf of the Registrant on an unsecured
non-recourse basis, subject to interest at the prime rate plus 2% and certain
fees (principal, unpaid interest and fees are collectively referred to as the
RCA Advances). As indicated previously, RCA's managing general partner is
seeking to void the letter agreement under which these loans were made and is
also seeking restitution of the loans advanced. The RCA Advances amount to
$8,699,000 at March 31, 1999, and are not recorded by the Registrant since (i)
the RCA Advances are only required to be repaid from the Registrant's share of
future distributions from RCA, if any, (ii) the Registrant has no intention or
legal obligation to repay the RCA Advances other than from its share of
distributions from RCA, if any, and (iii) the Registrant does not anticipate any
material cash distributions by RCA in the foreseeable future. The managing
general partner of RCA is currently in negotiations to refinance the debt on
Rincon Center Phases One and Two as more fully described in Note 2 to the
Registrant's Unaudited Condensed Consolidated Financial Statements. The proposed
refinancing is subject to a number of conditions and approvals among the parties
involved in the refinancing. The managing general partner of RCA and the
Registrant can make no assurances that the refinancing will be completed.
Except as described above, at March 31, 1999, the Registrant's material
capital expenditures over the next twelve months and beyond are expected to be
funded from restricted cash or future cash flow generated by operating
activities. Ongoing repair and maintenance expenditures are expected to be
funded from cash flow generated by operating activities. Future tenant
improvements and leasing commissions will be funded from restricted cash, cash
flow generated by operating activities and funds generated from future debt
refinancings or property sales, if any.
The Registrant continued to experience more stabilized operating results in
its wholly owned properties during the first quarter of 1999, and except for
RCA, expects this trend to continue. In addition, the completion of certain
leasing transactions has continued to reduce the level of vacancies in the
14
<PAGE>
Registrant's portfolio and the Registrant is continuing to aggressively pursue
new leases on currently available space and renew existing leases as they
expire.
YEAR 2000 COMPLIANCE
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
two-digit year is commonly referred to as the Year 2000 compliance issue. As the
Year 2000 approaches, such systems may be unable to accurately process certain
date-based information. As used by the Registrant, "Year 2000 ready" means that
a system will function in the Year 2000 without modification or adjustment, or
with a one-time manual adjustment.
THE REGISTRANT'S STATE OF READINESS. The Registrant utilizes a number of
computer software programs and operating systems across its entire organization
including applications used in financial business systems and various
administrative functions. The Registrant has established an action plan for
addressing Year 2000 issues. The Registrant's action plan for addressing Year
2000 compliance issues in its information technology ("IT") and non-IT systems
covers four phases: (i) identification of all IT and non-IT systems; (ii)
assessment of Year 2000 issues; (iii) repair of IT and non-IT systems, if
necessary; and (iv) creation of a contingency plan to address any potential Year
2000 failures. The Registrant is also contacting third parties with which it
deals (such as financial institutions and vendors) to evaluate their Year 2000
readiness and determine whether any Year 2000 failure will affect their ability
to perform as the Year 2000 approaches and arrives.
As of March 31, 1999, the Registrant has completed the first two phases of
its Year 2000 action plan with respect to its IT systems. The Registrant has
identified all of its IT systems, assessed the Year 2000 readiness of these
systems (which involved review and testing by internal personnel) and has begun
to make necessary repairs. As of December 31, 1998, the Registrant has completed
its Year 2000 action plan with respect to its non-IT systems. The Registrant has
identified all of its non-IT systems (which are comprised of embedded systems
contained in its properties), assessed the Year 2000 readiness of these systems
through review and testing and concluded that any failure of these systems to be
Year 2000 ready is not reasonably likely to have a material adverse effect on
the Registrant's financial condition and results of operations. The Registrant
is scheduled to complete all four phases of its Year 2000 initiative with
respect to its IT systems no later than June 30, 1999.
The Registrant has received assurances from a majority of its suppliers and
third parties with which it interacts that they have addressed their Year 2000
issues. The Registrant is evaluating these assurances for their adequacy and
accuracy and, in cases where the Registrant has not received assurances from
third parties, is initiating further mail or phone correspondence. As a general
matter, the Registrant is vulnerable to failures by third parties to address
their own Year 2000 issues. The Registrant relies heavily upon third parties for
utility services, maintenance labor, financial services, building materials and
office supplies. There can be no assurance that the Registrant's suppliers and
other third parties will adequately address their Year 2000 issues, and any such
issues could have a material adverse affect upon the Registrant's financial
condition and results of operations.
COST OF ADDRESSING THE REGISTRANT'S YEAR 2000 ISSUES. The Registrant has
not spent a material amount of financial resources to remediate Year 2000
problems and does not anticipate that it will spend a material amount of
financial resources to remediate Year 2000 problems in the future. The costs of
such remediation will be paid out as part of the Registrant's general and
administrative expenses or operating expenses for property level remediation.
RISKS OF THE REGISTRANT'S YEAR 2000 ISSUES. Based upon the Registrant's
assessment and remediation efforts to date, and the planned, normal
course-of-business upgrades, management believes that any residual Year 2000
risk is limited to non-material, non-critical business applications and support
hardware. No assurance can be given, however, that all of the Registrant's
systems will be Year 2000 ready or that
15
<PAGE>
non-compliance, if any, will not have a material adverse effect on the
Registrant's future liquidity or results of operations or ability to service
debt. In addition, the failure to address Year 2000 issues by the Registrant's
suppliers and other third parties with which it interacts could have a material
adverse effect upon the Registrant's financial condition and results of
operations.
THE REGISTRANT'S CONTINGENCY PLANS. The Registrant's Year 2000 action plan
calls for the Registrant to develop a Year 2000 contingency plan. The Registrant
will develop such a plan if the results of its Year 2000 action plan identify
risks of a Year 2000 failure.
FORWARD-LOOKING STATEMENTS; FACTORS THAT MAY AFFECT OPERATING RESULTS
Certain information included in this Form 10-Q and other materials filed or
to be filed by the Registrant with the Securities and Exchange Commission may
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking information
involves known and unforseen risks, uncertainties and other factors that may
cause actual results or performance to be materially different from those
expressed or implied by such forward-looking statements. These risks and
uncertainties include, but are not limited to, uncertainties affecting the real
estate business generally, such as lease renewals and the financial stability of
tenants, general economic conditions and conditions in the Registrant's markets,
risks relating to acquisitions and dispositions of properties, risks relating to
interest rate levels and fluctuations, the availability of financing, and
regulatory risks. Given these and other risks described elsewhere in this Form
10-Q, investors are cautioned not to place undue reliance on any forward-looking
statements.
ITEM 1. LEGAL PROCEEDINGS
On March 20, 1997, the Registrant filed a Complaint in the San Francisco
Superior Court, Case No. 985464, against Rincon Center Associates and Perini
Land and Development Company seeking to recover approximately $812,000 in
commissions due for leasing and construction services performed for Rincon
Center. The Complaint has been answered and a Cross-Complaint has been filed.
The Cross-Complaint seeks indemnity concerning the claim for leasing commissions
on the ground that the Registrant is also a general partner of RCA, and further
seeks to rescind or otherwise avoid the effect of a letter agreement of June 22,
1993, regarding non-recourse loans from Perini Land and Development Company to
the Registrant, together with restitution of amounts loaned to the Registrant
pursuant to such letter agreement. The trial date has been rescheduled for
October 4, 1999. The case is only in the beginning stages of discovery, and,
based on advice from counsel, the Registrant is not in a position at this time
to opine as to the likelihood or remoteness of liability, or the amount of
damages should liability be established.
See Note 2 to the Registrant's Unaudited Condensed Consolidated Financial
Statements concerning the $3.65 million letter-of-credit issued by the Bank of
America National Trust and Savings Association (the Issuing Bank) as a portion
of the security for the refinancing of Rincon Center Phase Two. On August 18,
1997, the Issuing Bank commenced an action against the Registrant in the Land
Court Department of the Trial Court of Massachusetts, to obtain a conditional
judgement in the full amount of the Registrant's indebtedness to the Issuing
Bank. The Registrant previously filed a complaint against the Issuing Bank on
November 21, 1997 in the Superior Court Department of the Trial Court of the
Commonwealth of Massachusetts seeking damages, equitable relief and a jury trial
for causes of action flowing from the Issuing Bank's conduct regarding the
letter-of-credit.
The Registrant and the Issuing Bank settled the Land and Superior Court
actions on January 15, 1999. Pursuant to the terms of a mutual release and
settlement agreement, the Registrant paid the Issuing Bank the sum of $4.2
million and released the Issuing Bank from all claims raised in the Superior
Court action. The Issuing Bank, meanwhile, executed discharges of mortgage and
rent assignment, and released the Registrant from all claims raised in the Land
Court action. Concurrent with the mutual release and
16
<PAGE>
settlement between the Registrant and the Issuing Bank, the Registrant closed on
the sale of the 410 First Avenue property on January 20, 1999, for approximately
$3,785,000, net of selling expenses of approximately $165,000. The net proceeds
from the sale were used to partially fund the settlement with the Issuing Bank.
On March 16, 1999, the Registrant filed a derivative suit asserting the
rights of RCA against Perini Land & Development and Perini Corporation, among
others, alleging that defendants were usurping the partnership's opportunity to
purchase the fee interest upon which Rincon Center sits from the fee owner. The
fee interest has subsequently been purchased by an entity in which Perini
Corporation or one of its affiliates holds an interest. The Registrant is
seeking, at minimum, to have a constructive trust in favor of RCA imposed on the
interest in such fee held directly or indirectly by Perini Corporation or its
affiliates. On April 30, 1999, these defendants answered the complaint, denying
liability. In addition, they filed a cross-complaint against the Registrant
alleging that, by filing the above-described action, the Registrant tortiously
interfered with cross-plaintiffs' contract to purchase the fee interest.
Cross-plaintiffs also allege that the Registrant has anticipatorily repudiated
an April 1998 term sheet addressing a potential restructuring of the Rincon
Center project, under which cross-plaintiffs allege that the Registrant
committed itself to provide $3.75 million in cash towards such restructuring.
The Registrant denies that such term sheet, which was never replaced as
contemplated by a written agreement, binds it at this time and, in any event,
denies that Perini Land & Development has complied or can comply with its terms.
The Registrant is involved in various other claims and lawsuits incidental
to its business. In the opinion of the Registrant, these other claims and
lawsuits in the aggregate will not have a material adverse impact on the
Registrant's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A Special in Lieu of Annual Meeting ("Annual Meeting") of Shareholders of
the Registrant was held on April 26, 1999. At the Annual Meeting, the
Shareholders elected all seven incumbent Directors. At the Annual Meeting,
3,979,031 shares of a total of 3,933,536 common shares and 300,000 preferred
shares were represented. The following sets forth the results of each vote:
Proposal I. Election of Directors:
<TABLE>
<CAPTION>
TOTAL VOTE
FOR
EACH TOTAL VOTE WITHHELD
DIRECTOR FOR EACH DIRECTOR
------------ -------------------
<S> <C> <C>
S.A. Calabrese............................................. 3,972,364 6,877
M.D. Grossi................................................ 3,972,364 6,877
L.B. Helzel................................................ 3,971,664 6,877
C.L. Jarratt............................................... 3,971,944 6,877
R.V. Marino................................................ 3,972,364 6,877
R.M. Osborne............................................... 3,971,944 6,877
M.S. Roher................................................. 3,972,364 6,877
</TABLE>
Proposal II. Reincorporation:
Authorized the reincorporation of the Registrant as a Maryland corporation
by merging into a newly formed, wholly owned Maryland Corporation.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN BROKER NON-VOTE
- ---------- ----------- --------- ---------------
<S> <C> <C> <C>
3,210,605.. 7,095 10,447 750,884
</TABLE>
17
<PAGE>
Proposal III. Election of REIT Status:
Granted the Board of Directors of the Registrant the authority to convert
the Registrant to a Real Estate Investment Trust ("REIT") at the discretion of
the Board of Directors, by making certain appropriate elections under federal
tax laws.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN BROKER NON-VOTE
- ---------- ----------- --------- ---------------
<S> <C> <C> <C>
3,206,165.. 9,635 12,347 750,884
</TABLE>
Proposal IV. Ratification of Auditors:
Ratified the selection of Arthur Andersen LLP as the Registrant's
independent auditors for 1999 and 1998.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
- ---------- ----------- -----------
<S> <C> <C>
3,965,974.. 3,830 9,227
</TABLE>
ITEM 5. OTHER INFORMATION
On April 29, 1999, the Registrant filed Form 10-K/A for the year ended
December 31, 1998 to include Items 10 through 13.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
<TABLE>
<CAPTION>
NO. DESCRIPTION
- --- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
18
<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.
<TABLE>
<S> <C>
PACIFIC GATEWAY PROPERTIES, INC.
Registrant
Date: May 14, 1999 /s/ RAYMOND V. MARINO
---------------------------------------------
Raymond V. Marino
PRESIDENT AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE AND FINANCIAL OFFICER)
Date: May 14, 1999 /s/ MELANIE L. ADKINS
---------------------------------------------
Melanie L. Adkins
CONTROLLER--CORPORATE
(PRINCIPAL ACCOUNTING OFFICER)
Date: May 14, 1999 /s/ NEIL C. MARCK
---------------------------------------------
Neil C. Marck
CONTROLLER--MANAGEMENT COMPANY
(PRINCIPAL ACCOUNTING OFFICER)
</TABLE>
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> $7,889
<SECURITIES> $0
<RECEIVABLES> $432
<ALLOWANCES> $0
<INVENTORY> $0
<CURRENT-ASSETS> $8,321
<PP&E> $68,360
<DEPRECIATION> $17,013
<TOTAL-ASSETS> $74,012
<CURRENT-LIABILITIES> $2,660
<BONDS> $46,182
$2,889
$0
<COMMON> $4,052
<OTHER-SE> ($3,862)
<TOTAL-LIABILITY-AND-EQUITY> $74,012
<SALES> $0
<TOTAL-REVENUES> $4,382
<CGS> $0
<TOTAL-COSTS> $1,408
<OTHER-EXPENSES> $0
<LOSS-PROVISION> $0
<INTEREST-EXPENSE> $973
<INCOME-PRETAX> $581
<INCOME-TAX> $238
<INCOME-CONTINUING> $343
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $343
<EPS-PRIMARY> $0.08
<EPS-DILUTED> $0.08
</TABLE>
