<PAGE> 1
SECURITIES EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1998
Commission File Number 1-7062
INNSUITES HOSPITALITY TRUST
(Exact name of registrant as specified in its charter)
OHIO 34-6647590
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
925 EUCLID AVENUE
SUITE 1750
CLEVELAND, OHIO 44115
(Address of principal executive offices)
(216) 622-0046
(Registrant's telephone number, including area code)
REALTY REFUND TRUST
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant: (l) has filed all reports
required to be filed by Section 13 or l5(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
--- ---
Number of outstanding Shares of Beneficial Interest, without par value, as
of December 1, 1998: 2,274,071
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
INNSUITES HOSPITALITY TRUST
BALANCE SHEETS
OCTOBER 31, AND JANUARY 31, 1998
<TABLE>
<CAPTION>
OCTOBER 31, 1998 JANUARY 31, 1998
---------------- ----------------
(UNAUDITED) (AUDITED)
ASSETS
<S> <C> <C>
INVESTMENT IN HOTEL PROPERTIES $58,934,646 $41,241,241
CASH AND CASH EQUIVALENTS 809,203 2,378,398
PERCENTAGE RENT RECEIVABLE 430,397 --
OTHER ASSETS 804,266 --
------------------------------
$60,978,512 $43,619,639
==============================
LIABILITIES AND SHAREHOLDERS' EQUITY
MORTGAGE NOTES PAYABLE $23,359,014 $17,709,589
NOTES PAYABLE TO BANKS 10,955,323 155,000
OTHER NOTES PAYABLE -- 2,864,690
ADVANCES PAYABLE TO RELATED PARTIES 645,110 1,699,601
DUE TO LESSEE -- 944,234
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 1,773,798 572,031
MINORITY INTEREST IN PARTNERSHIP 15,948,800 14,075,523
SHAREHOLDERS' EQUITY:
Shares of beneficial interest, without par value; unlimited authorization;
2,216,905 and 1,667,817 shares outstanding at October 31, and
January 31, 1998, respectively 8,296,467 5,598,971
------------------------------
$60,978,512 $43,619,639
==============================
</TABLE>
The accompanying notes are an integral part of these balance sheets.
1
<PAGE> 3
INNSUITES HOSPITALITY TRUST
UNAUDITED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED OCTOBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
REVENUES:
Lease revenue (Note 2) $ 7,667,996 $ --
Interest income 19,780 --
Rental revenue from real estate held for sale -- 1,367,366
----------- -----------
7,687,776 1,367,366
----------- -----------
EXPENSES:
Real estate depreciation 1,854,155 --
Real estate and personal property taxes, insurance and ground rent 833,575 --
General and administrative 1,023,915 174,440
Interest on mortgage notes payable 1,537,454 --
Interest on notes payable to banks 387,238 --
Interest on note payable to related party -- 118,082
Loan fee amortization 19,334 --
Advisory fee paid to related party 488,436 --
Operating expenses of real estate held for sale -- 1,403,562
Amortization of deferred leasing commissions -- 21,724
Loss on sale of real estate -- 35,620
----------- -----------
6,144,107 1,753,428
----------- -----------
INCOME (LOSS) BEFORE MINORITY INTEREST 1,543,669 (386,062)
MINORITY INTEREST 1,423,162 --
----------- -----------
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES $ 120,507 $ (386,062)
=========== ===========
EARNINGS PER SHARE-- basic and diluted $ .07 $ (.38)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 1,813,563 1,020,586
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 4
INNSUITES HOSPITALITY TRUST
UNAUDITED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED OCTOBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
REVENUES:
Lease revenue (Note 2) $ 2,936,504 $ --
Rental revenue from real estate held for sale -- 262,507
----------- -----------
2,936,504 262,507
----------- -----------
EXPENSES:
Real estate depreciation 743,881 --
Real estate and personal property taxes, insurance and ground rent 279,896 --
General and administrative 210,330 62,565
Interest on mortgage notes payable 453,245 --
Interest on notes payable to banks 205,443 --
Interest on note payable to related party -- 20,636
Loan fee amortization 19,334 --
Advisory fee paid to related party 184,467 --
Operating expenses of real estate held for sale -- 389,886
Loss on sale of real estate -- 35,620
----------- -----------
2,096,596 508,707
----------- -----------
INCOME (LOSS) BEFORE MINORITY INTEREST 839,908 (246,200)
MINORITY INTEREST 794,483 --
----------- -----------
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES $ 45,425 $ (246,200)
=========== ===========
EARNINGS PER SHARE-- basic and diluted $ .02 $ (.24)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 2,100,301 1,020,586
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 5
INNSUITES HOSPITALITY TRUST
UNAUDITED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 120,507 $ (386,062)
Adjustments to reconcile net income (loss) to net cash provided by
(used for) operating activities --
Depreciation and amortization 1,873,489 --
Minority interest 1,423,162 --
Amortization of deferred leasing commissions -- 21,724
Increase in other assets (823,600) 216,346
Decrease in amounts due to Lessee (944,234) --
Increase in accounts payable and accrued expenses 718,785 (847,092)
Increase in percentage rent receivable (430,397) --
----------- -----------
Net cash provided by (used for) operating activities 1,937,712 (995,084)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of hotel properties (1,448,000) --
Improvements and additions to hotel properties (1,164,414) --
Proceeds from sale of real estate, net -- 5,599,122
----------- -----------
Net cash provided by (used for) investing activities (2,612,414) 5,599,122
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net bank borrowings 10,750,323 --
Payments of mortgage notes payable (7,435,201) --
Payment of cash dividends and distributions (948,772) (153,088)
Payment of other notes payable (218,063) --
Payment to related parties (3,042,780) (2,300,000)
----------- -----------
Net cash used for financing activities (894,493) (2,453,088)
----------- -----------
NET INCREASE (DECREASE) IN CASH (1,569,195) 2,150,950
CASH AT BEGINNING OF PERIOD 2,378,398 531,997
----------- -----------
CASH AT END OF PERIOD $ 809,203 $ 2,682,947
=========== ===========
</TABLE>
4
The accompanying notes are an integral part of these statements.
<PAGE> 6
INNSUITES HOSPITALITY TRUST
NOTES TO UNAUDITED FINANCIAL STATEMENTS
OCTOBER 31, 1998 AND 1997
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION:
Prior to fiscal 1999, InnSuites Hospitality Trust, formerly known as
Realty ReFund Trust, (the Trust, or the Company) specialized in mortgage
financing as its investment vehicle, refinancing existing incoming-producing
commercial, industrial and multi-unit residential real property by supplementing
or replacing existing financing. The primary refinancing technique which the
Trust employed was wrap-around mortgage lending.
On January 31, 1998, the Trust contributed $2,081,000 to RRF Limited
Partnership (the Partnership), a Delaware limited partnership, in exchange for a
13.6% general partnership interest therein. The Trust is the sole general
partner of the Partnership. The Partnership issued limited partnership interests
representing 86.4% of the Partnership to acquire six hotel properties from
various entities. In addition, in order to acquire a seventh hotel property
through a wholly-owned subsidiary, the Trust issued 647,231 shares of beneficial
interest in exchange for all of the outstanding shares of Buenaventura
Properties, Inc. (BPI), which owned a hotel located in Scottsdale, Arizona.
These hotels, together with the hotels described in Note 4, are referred to
herein as the Hotels. The Hotels are leased to InnSuites Hotels, Inc., formerly
known as Realty Hotel Lessee Corp. (the Lessee) pursuant to leases which contain
provisions for rent based on the revenues of the Hotels (the Percentage Leases).
Each Percentage Lease obligates the Lessee to pay rent equal to the greater of
the minimum rent or a percentage rent based on the gross revenues of each Hotel.
The Lessee holds the franchise agreement for each Hotel. The Lessee is owned
9.8% by InnSuites Innternational Hotels, Inc., an entity owned by James F.
Wirth, Chairman, President and Chief Executive Officer of the Trust ("Wirth")
and his spouse.
On September 10, 1998, the Securities and Exchange Commission declared
effective the Trust's Registration Statement on Form S-2 relating to the
offering by certain selling stockholders of up to 4,182,361 shares of beneficial
interest of the Trust which shares have been or will be issued in one or more
private placements, or may be issued upon conversion of Class A limited
partnership units in the Partnership.
Partnership Agreement
The Partnership Agreement provides for the issuance of two classes of
limited partnership units, Class A and Class B. Such classes are identical in
all respects, except that each Class A limited partnership unit in the
Partnership shall be convertible into a like number of shares of beneficial
interest of the Trust, at any time at the option of the particular limited
partner, if the Trust determines that such conversion would not cause the Trust
to fail to qualify as a REIT. As of October 31, 1998, a total of 2,636,385
Class A limited partnership units were issued and outstanding. Additionally,
39,046 Class A limited partnership units were reserved for issuance to those
partners who did not accept the formation exchange offer. As of October 31,
1998, a total of 5,179,363 Class B limited partnership units were issued to
Wirth and his affiliates, in lieu of the issuance of Class A limited
partnership units. If all of the Class A limited partnership units were to be
converted, the limited partners in the Partnership would hold 2,790,328 shares
of beneficial interest of the Trust. The Class B limited partnership units may
only become convertible with the approval of the Board of Trustees, in its sole
discretion.
Basis of Presentation
As general partner, the Trust exercises unilateral control over the
Partnership. Therefore, the financial statements of the Trust, its wholly owned
subsidiaries and the Partnership are consolidated. All significant intercompany
transactions and balances have been eliminated.
5
<PAGE> 7
These financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions for 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.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine- and three-month periods ended October 31, 1998
are not necessarily indicative of the results that may be expected for the year
ended January 31, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the period ended January 31, 1998.
2. CHANGE IN ACCOUNTING PRINCIPLE:
In May 1998, the Financial Accounting Standards Board's Emerging Issues
Task Force issued EITF number 98-9 "Accounting for Contingent Rent in Interim
Periods" ("EITF 98-9"). EITF 98-9 provides that a lessor shall defer recognition
of contingent rental income in interim periods until specified targets that
trigger the contingent income are met. In July 1998, the Task Force issued
transition guidance stating that the consensus could be applied on a prospective
basis or in a manner similar to a change in accounting principle. In the second
quarter, the Company adopted the provisions of EITF 98-9 and elected to restate
the first quarter results of 1998 in accordance with the new pronouncement. The
effect of the change on the three months ended April 30, 1998 was to decrease
lease revenues by $1,053,000 and, therefore, net income applicable to
shareholders by $262,000 ($.16 per share -- basic and diluted) to net income of
$173,000 ($.10 per share -- basic and diluted). Effective August 1, 1998, the
Company amended its percentage lease agreements to eliminate the annualization
of interim hotel revenues. As a result, in the third quarter the Company
recognized as revenues $738,674 of previously deferred lease revenues. During
the third quarter, accounting for contingent rent under EITF 98-9 was rescinded.
As such, the Company will not restate the first quarter results of fiscal 1999.
3. NET INCOME PER SHARE:
Pursuant to SFAS No. 128 "Earnings Per Share", the concept of common
stock equivalents was eliminated, and "primary" and "fully diluted" earnings per
share were replaced with "basic" and "diluted" earnings per share. For the
periods presented there were no dilutive securities.
Basic earnings per share has been computed based on the weighted
average number of shares outstanding during the periods presented. The
calculation of basic earnings per share for the nine- and three-month periods
ended October 31, 1998 and 1997 was based upon 1,813,563 and 2,100,301 shares,
respectively.
4. ACQUISITIONS:
On February 1, 1998, the Partnership acquired 100% of the ownership
interests in the Tucson St. Mary's Hotel and Resort for $10,820,000. The
Partnership issued 699,933 Class B limited partnership units to Wirth, and his
spouse, who each held a 50% equity ownership interest in the Tucson St. Mary's
hotel.
On April 29, 1998, the Trust acquired a hotel property located in San
Diego, California for an aggregate consideration of $5,148,000, which was funded
with cash, proceeds from the Trust's credit facility and two promissory notes
secured by mortgage trust deeds on the property.
On June 1, 1998, the Partnership acquired 100% of the ownership of the
InnSuites Hotel Buena Park for $7,100,000. The Partnership assumed $4,116,754 in
mortgage debt and other obligations and issued 681,739 limited partnership units
to Wirth and Steven S. Robson (of which 13,034 units were subsequently paid to a
third party as an advisory fee), who each held a 50% equity ownership interest
in the Buena Park hotel. Mr. Robson is a Trustee of the Trust.
All of the above acquisitions have been accounted for as purchases.
6
<PAGE> 8
5. CREDIT FACILITY:
The Trust has established a $12,000,000 secured revolving line of
credit with Pacific Century Bank. The credit facility requires, among other
things, the Trust to maintain a minimum net worth, a specified coverage ratio of
EBITDA to debt service, and a specified coverage ratio of EBITDA to debt service
and fixed charges. Further, the Trust is required to maintain its franchise
agreement at each of the hotel properties and to maintain its REIT status.
6. PERCENTAGE LEASE AGREEMENTS:
As previously stated, effective August 1, 1998, the Company amended its
Percentage Leases modifying the interim calculations of percentage rent and the
expiration dates of the agreements. The Percentage Leases have non-cancelable
terms, which expire at various dates through May 31, 2007, subject to earlier
termination on the occurrence of certain contingencies, as defined. The rent
due under each Percentage Lease is the greater of minimum rent, as defined, or
percentage rent. Percentage rent applicable to room and other hotel revenue
varies by lease and is calculated on a quarterly basis by multiplying fixed
percentages by the actual quarterly amounts of such gross revenues in excess of
specified threshold amounts. Both the minimum rent and the revenue thresholds
used in computing percentage rents are subject to annual adjustments beginning
January 1, 1999, based on increases in the United States Consumer Price Index.
Percentage rent applicable to food and beverage revenues is calculated as 5% of
such revenues over a minimum threshold.
Future minimum rentals (ignoring CPI increases) to be received by the
Trust from the Lessee pursuant to the Percentage Leases for the Hotels for each
of the next five fiscal years and in total thereafter are as follows:
<TABLE>
<S> <C>
Fiscal 1999 $1,703,000
2000 6,850,000
2001 6,850,000
2002 6,850,000
2003 6,850,000
Thereafter 29,683,000
------------
$58,786,000
============
</TABLE>
7. RELATED PARTY TRANSACTIONS:
Wirth beneficially owns 9.8% of the common stock of the Lessee. The
Lessee was the sole source of the Trust's Percentage Lease revenue during the
quarter ended October 31, 1998.
Wirth beneficially owns 100% of the common stock of Mid-America
ReaFund Advisors, Inc. (MARA). MARA is paid an advisory fee of 1% of invested
assets (as defined). On August 12, 1998, the Trustees authorized the purchase of
MARA for a purchase price not to exceed $1,100,000. This purchase has not yet
been consummated.
8. STATEMENT OF CASH FLOWS, SUPPLEMENTAL DISCLOSURES:
In connection with the acquisition of the Buena Park hotel,
approximately $4,544,000 of historical net book value in hotel properties was
contributed to the Partnership in exchange for Partnership units and the
Partnership assumed approximately $4,103,000 of debt and other obligations. The
exchanging partners' interest, other than Wirth, resulted in adjustment to the
historical net carrying values of the Buena Park hotel property equal to
$1,271,000 of the difference between the fair market values and the historical
net carrying values.
During the second quarter, several non-exchanging partners from the
formation exchange offer exchanged their interests in the hotels for interests
in the Partnership. The fair market value in excess of the historical net
carrying values of the respective hotels resulted in a writeup of $1,033,573.
7
<PAGE> 9
In connection with the acquisition of the San Diego hotel, $3,700,000
of the purchase price was satisfied through promissory notes payable to the
sellers.
On August 11, 1998, the Trust satisfied a $2.65 million participating
mortgage obligation related to the Ontario hotel through the issuance of 423,687
shares of beneficial interest to former partners of Ontario Hospitality
Properties Limited Partnership and 133,492 Class B limited partnership units in
the Partnership to Wirth and his affiliates for their respective interests.
During the third quarter, holders of 153,943 of Class A limited
partnership units converted their interests, valued at $731,229, for shares of
beneficial interest of the Trust.
9. PRO FORMA FINANCIAL INFORMATION:
The unaudited pro forma financial information set forth below is
presented as if (i) the formation transactions discussed in Note 1, (ii) the
acquisition of the membership interests in the Tucson St. Mary's and Buena
Park hotels and (iii) the acquisition of the San Diego hotel had been
consummated as of February 1, 1997. The pro forma financial information is not
necessarily indicative of what actual results of operations of the Trust would
have been assuming the formation transactions and the acquisitions had been
consummated as of February 1, 1997 nor does it purport to represent the results
of operations for future periods.
<TABLE>
<CAPTION>
(unaudited)
NINE MONTHS ENDED
OCTOBER 31,
1998 1997
------ ------
<S> <C> <C>
LEASE REVENUE $8,315 $7,519
INTEREST INCOME 20 -
------ ------
Total revenue 8,335 7,519
------ ------
DEPRECIATION AND AMORTIZATION 2,021 1,772
REAL ESTATE AND PERSONAL PROPERTY TAXES, INSURANCE AND
GROUND RENT 936 941
GENERAL AND ADMINISTRATIVE 1,096 593
INTEREST EXPENSE ON MORTGAGE AND OTHER NOTES PAYABLE 2,296 2,522
ADVISORY FEE TO RELATED PARTY ADVISOR 533 614
MINORITY INTEREST 1,330 895
------ ------
TOTAL EXPENSES AND MINORITY INTEREST 8,232 7,337
------ ------
NET INCOME APPLICABLE TO COMMON SHARES $ 103 $ 182
====== ======
NET INCOME PER SHARE-- basic and diluted $ .05 $ .09
====== ======
</TABLE>
8
<PAGE> 10
INNSUITES HOTELS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PREDECESSOR
------------- AS OF
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------- ------------
(audited) (unaudited)
ASSETS
<S> <C> <C>
INVESTMENT IN HOTEL PROPERTIES, at cost:
Land............................................................ $ 3,439,738 $ --
Buildings and improvements...................................... 24,831,670 --
Furniture and equipment......................................... 10,845,586 --
------------- ------------
39,116,994 --
Less-- Accumulated depreciation................................. 12,184,479 --
------------- ------------
Net investment in hotel properties.............................. 26,932,515 --
Cash and cash equivalents............................................ 129,871 556,820
Accounts receivable.................................................. 571,301 711,503
Payments on behalf of the Partnership................................ -- 3,114,510
Inventories.......................................................... 415,575 702,354
Other assets......................................................... 295,440 864,553
Cash held in escrow.................................................. 296,099 --
Deferred expenses, net............................................... 252,430 --
------------- ------------
$ 28,893,231 $ 5,949,740
============= ============
LIABILITIES AND COMBINED EQUITY
Mortgage notes payable............................................... $ 17,776,627 $ --
Accounts payable
Trade........................................................... 678,637 1,367,568
Affiliates...................................................... 1,260,601 942,845
Bank overdrafts................................................. 121,052 209,961
Lines of credit...................................................... 131,000 42,000
Percentage rent payable.............................................. -- 3,299,510
Capital lease obligation............................................. 22,437 --
Land lease payable................................................... 80,441 --
Participation investors contingent liability......................... 2,646,627 --
Accrued expenses and other liabilities............................... 867,267 1,013,377
------------- ------------
23,860,055 6,875,261
EQUITY:.............................................................. 5,033,176 (925,521)
------------- ------------
$ 28,893,231 $ 5,949,740
============= ============
</TABLE>
See accompanying notes to financial statements.
9
<PAGE> 11
INNSUITES HOTELS, INC.
UNAUDITED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR PREDECESSOR
----------- -----------
FOR THE NINE FOR THE EIGHT FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues from hotel operations:
Room revenue $14,165,01 $ 16,113,554 $ 4,496,300 $ 5,139,800
Food and beverage revenue 319,603 822,949 117,541 254,712
Other revenue 735,243 1,097,592 39,908 374,663
------------ ------------ ------------ ------------
Total revenues 15,219,863 18,034,095 4,653,749 5,769,175
------------ ------------ ------------ ------------
Expenses:
Departmental expenses:
Rooms 4,057,132 5,555,192 1,575,555 2,490,028
Food and beverage 284,503 670,376 144,524 (147,904)
General and administrative 2,196,370 2,597,002 611,129 1,113,007
Advertising and promotion 884,120 1,407,838 216,683 578,867
Utilities 685,497 983,946 221,720 439,103
Repairs and maintenance 2,071,050 1,017,951 993,965 534,763
Real estate, personal property
taxes, and insurance 593,164 -- 275,311 --
Percentage rent -- 6,807,504 -- 1,863,152
Interest expense 1,291,519 -- 291,410 --
Depreciation 823,279 -- 229,927 --
------------ ------------ ------------ ------------
Total expenses 12,886,634 19,039,809 4,607,612 6,871,016
------------ ------------ ------------ ------------
Net income (loss) $ 2,333,229 $ (1,005,714) $ 46,137 $ (1,101,841)
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
10
<PAGE> 12
INNSUITES HOTELS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR
-----------
FOR THE NINE FOR THE EIGHT
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $2,333,229 $(1,005,714)
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 858,227 --
(Increase) decrease in:
Accounts receivable (145,514) (79,634)
Inventories (53,600) (304,547)
Cash held in escrow (396,853) --
Other assets -- (254,392)
Payments on behalf of the Partnership -- (3,114,510)
(Increase) decrease in:
Accounts payable 192,719 746,495
Bank overdraft -- (199,235)
Accrued expenses (44,208) (608,940)
Percentage rent payable -- 3,299,510
----------- -----------
Net cash provided by operating activities 2,744,000 (1,520,967)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture, fixtures, and equipment (205,114) --
Transfer of net assets -- 711,847
----------- -----------
Net cash used by investing activities (205,114) 711,847
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase of mortgage notes payable (453,116) --
Increase in loans from affiliates 363,855 941,845
Purchase of partners' capital (1,018,872) --
Distributions (1,208,872) --
Line of credit 40,000 42,000
Other (679,248) --
----------- -----------
Net cash (used) provided by financing activities (2,341,058) 983,845
----------- -----------
Net change in cash and cash equivalents 197,828 234,725
Cash and cash equivalents at beginning of period 628,797 322,095
----------- -----------
Cash and cash equivalents at end of period $ 826,625 $ 556,820
=========== ===========
</TABLE>
See accompanying notes to financial statements.
11
<PAGE> 13
INNSUITES HOTELS, INC.
NOTES TO FINANCIAL STATEMENTS
EIGHT MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
1. DESCRIPTION OF BUSINESS:
InnSuites Hotels, Inc., formerly known as Realty Hotel Lessee Corp.
(the Lessee), manages and operates full and limited service hotels
located in Arizona and California pursuant to the terms of percentage
leases with RRF Limited Partnership (the Partnership) and RRF Sub
Corp., a wholly-owned subsidiary of the Trust (collectively, the
Lessor).
2. ORGANIZATION:
The Lessee commenced operations on January 31, 1998. The Lessor
acquired seven of the hotel properties as of January 31, 1998, one as
of February 1, 1998, one as of April 29, 1998, and one as of June 1,
1998. The predecessor to the Lessee's business consisted of the
entities which owned the seven initial hotels.
3. BASIS OF PRESENTATION:
These financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial
information and with the instructions for 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. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. The Lessee
operates on a calendar year basis, and accordingly, its financial
information is presented on that basis. The financial statements for
1997 represent the predecessor's financial statements and are not
comparable in all respects with the financial statements of the Lessee.
Operating results for the eight- and three-month periods ended
September 30, 1998 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1998. For further
information, refer to the predecessor's consolidated financial
statements and footnotes thereto included in the Trust's Annual Report
on Form 10-K for the period ended January 31, 1998.
4. PERCENTAGE LEASE AGREEMENTS:
The Lessee leases ten hotels (the Hotels) from the Partnership and RRF
Sub Corp., pursuant to long-term leases (the Percentage Leases). The
Hotels are located in Phoenix, Tempe, Scottsdale, Flagstaff, Tucson
(2), and Yuma, Arizona; and Buena Park, Ontario, and San Diego,
California.
In August 1998, the Lessee and Lessor amended the terms of the
Percentage Leases modifying the interim calculations of percentage rent
and the expiration dates of the agreements.
The Percentage Leases expire on May 31, 2007, subject to earlier
termination on the occurrence of certain contingencies, as defined. The
Percentage Leases do not contain renewal terms. The Lessee is required
to pay the higher of a minimum rent, as defined, or a percentage rent.
Percentage rent applicable to room and other hotel revenue varies by
lease and is calculated on a quarterly basis by multiplying fixed
percentages by the actual quarterly amounts of such revenues over
specified threshold amounts. Percentage rent related to food and
beverage revenues is at 5% of such revenues in excess of $200,000 for
all of the Percentage Leases. Both the threshold amounts used in
computing percentage rent and minimum rent are subject to annual
adjustments beginning January 1, 1999 based on increases in the United
States Consumer Price Index.
12
<PAGE> 14
Other than real estate and personal property taxes, casualty insurance
and capital improvements, which are obligations of the Lessor, the
Percentage Leases require the Lessee to pay all costs and expenses
incurred in the operation of the Hotels.
The Percentage Leases require the Lessee to indemnify the Lessor
against all liabilities, costs and expenses incurred by, imposed on or
asserted against the Lessor in the normal course of operating the
Hotels.
Future minimum rent (ignoring CPI increases) to be paid by the Lessee
under the Percentage Leases at June 30, 1998 for each of the years in
the period 1998 to 2002 and in total thereafter is as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 1,703,000
1999 6,850,000
2000 6,850,000
2001 6,850,000
2002 6,850,000
Thereafter 30,254,000
-----------
$59,357,000
===========
</TABLE>
Rent expense for the eight months ended September 30, 1998 was
$6,807,504 of which approximately $2,045,004 was in excess of minimum
rent.
5. PRO FORMA FINANCIAL INFORMATION:
The following unaudited pro forma condensed statements of operations
for the nine-month periods ended September 30, 1998 and 1997 are
presented as if the Lessee leased and operated from January 1, 1997 all
of the Hotels owned by the Partnership as of September 30, 1998.
The pro forma condensed statements of operations do not purport to
present what actual results of operations would have been if the Hotels
were operated by the Lessee pursuant to the Percentage Leases from
January 1, 1997 or to project results for any future period.
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
---------------------
(IN THOUSANDS)
<S> <C> <C>
Room revenue $18,208 $17,912
Food and beverage revenue 953 1,008
Other revenue 1,170 920
------- -------
Total revenues 20,332 19,840
------- -------
Departmental expenses of hotels 7,170 6,715
Percentage lease expense 6,808 7,385
Other expenses 7,954 8,156
------- -------
Total expenses 21,937 22,256
------- -------
Net loss $(1,605) $(2,416)
======= =======
</TABLE>
13
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
On February 1, 1998, the Partnership acquired 100% of the ownership
interests in the Tucson St. Mary's InnSuites Hotel and Resort for $10,820,000.
The Partnership assumed $7,803,000 in mortgage debt and other obligations and
issued 669,933 Class B limited partnership units to James F. Wirth, Trustee,
Chairman, President and Chief Executive Officer of the Company ("Wirth"), and
his wife (of which 28,800 units were subsequently paid to third parties as
advisory fees), who collectively held all of the equity ownership interests in
the Tucson St. Mary's hotel. On April 29,1998, the Partnership acquired the
InnSuites Hotel San Diego for $5,148,000. The Partnership invested $1,448,000 in
cash (of which $1,348,000 was drawn under the Company's secured revolving line
of credit with Pacific Century Bank) and became obligated for $3,700,000 in
seller financing in the form of two promissory notes secured by mortgage trust
deeds on the property. On June 1, 1998, the Partnership acquired 100% of the
ownership interests in an 185-suite InnSuites Hotel located in Buena Park,
California for $7,100,000. The Partnership assumed $4,103,000 in mortgage debt
and other obligations and issued 628,052 limited partnership units to Wirth and
Steven S. Robson, Trustee of the Company (of which 13,034 units were
subsequently paid to a third party as an advisory fee), who each held a 50%
equity interest in the Buena Park hotel.
At October 31, 1998, the Company owned interests in nine hotels through
its sole general partner interest in the Partnership and 100% of a tenth hotel
through RRF Sub Corp., a wholly-owned subsidiary of the Company. (Unless the
context indicates otherwise, all references to the Partnership shall include RRF
Sub Corp.) In order for the Company to qualify as a real estate investment trust
under the Internal Revenue Code of 1986, as amended (a "REIT"), neither the
Company nor the Partnership can operate the hotels. Therefore, each of the
hotels is leased to, and operated by, InnSuites Hotels, Inc. (formerly known as
Realty Hotel Lessee Corp., the "Lessee") pursuant to a Percentage Lease. Each
Percentage Lease obligates the Lessee to pay rent equal to the greater of a
minimum rent or a percentage rent based on the gross revenues of each hotel. The
Lessee also holds the franchise agreement for each hotel. The Lessee is owned
9.8% by InnSuites Innternational Hotels, Inc., an entity owned by Mr. Wirth and
his wife. The Company's principal source of revenue is distributions from the
Partnership, which are dependent upon lease payments from the Lessee pursuant to
the Percentage Leases. The Lessee's ability to make payments to the Partnership
pursuant to the Percentage Leases is dependent primarily upon the operations of
the hotels. Therefore, management believes that a discussion of the pro forma
operating results of the Lessee is important to an understanding of the business
of the Company. The following discusses (i) the Company's pro forma results of
operations for the nine months ended October 31, 1998 and October 31, 1997; and
(ii) the Lessee's pro forma results of operations for the nine months ended
September 30, 1998 and September 30, 1997.
14
<PAGE> 16
RESULTS OF OPERATIONS
ADOPTION OF EITF 98-9
In May 1998, the Financial Accounting Standards Board's Emerging Issues
Task Force (the "EITF") issued EITF number 98-9, "Accounting for Contingent Rent
in Interim Financial Periods" ("EITF 98-9"). EITF 98-9 provides that a lessor
shall defer recognition of contingent rental income in interim periods until
specified annual targets that trigger the contingent income are met. In the
second quarter, the Company adopted the provisions of EITF 98-9 and elected to
restate the first quarter results of 1998 in accordance with the new
pronouncement. The effect of the change on the three months ended April 30, 1998
was to decrease lease revenues of $1,053,000 and, therefore, net income
applicable to shareholders by $262,000 ($.16 per share -- basic and diluted) to
income of $173,000 ($.10 per share -- basic and diluted). Effective August 1,
1998, the Company amended its percentage lease agreements to eliminate the
annualization of interim hotel revenues. As a result, in the third quarter the
Company recognized as revenues $738,674 of previously deferred lease revenues.
During the third quarter, accounting for contingent rent under EITF 98-9 was
rescinded. As such, the Company will not restate the first quarter results of
fiscal 1999.
PRO FORMA RESULTS OF OPERATIONS FOR THE CONSOLIDATED COMPANY
For the nine months ended October 31, 1998, the Company had pro forma
revenues of $8.3 million compared to $7.5 million for the nine months ended
October 31, 1997, an increase of $.8 million (10.7%). This was due to a $.8
million increase in Percentage Lease revenues in 1998 caused by a 3.0% increase
in occupancy at the hotels and a $1.54 increase in the average daily rate (ADR)
at the hotels. Total expenses increased $.9 million from $7.3 million in the
nine months ended October 31, 1997 to $8.2 million in the nine months ended
October 31, 1998. An increase of $.6 million in general and administrative
expenses was due to increased legal and accounting and advisory expenses.
Overall, the Company improved net income applicable to common shares to $.10
million for the nine months ended October 31, 1998, a decrease of $.08 million
(44%), from $.18 million for the nine months ended October 31, 1997 and earnings
per common share (basic and diluted) declined to $.05 from $.09 for the same
respective periods.
PRO FORMA RESULTS OF OPERATIONS OF LESSEE
For the nine months ended September 30, 1998, the Lessee had pro forma
revenues of $20.3 million compared to $19.8 million for the nine months ended
September 30, 1997. This was due to consistent occupancy in 1998 and 1997 and a
$3.09 increase in ADR from 1997 to 1998. Total expenses decreased from
$22.6 million in the nine months ended September 30, 1997 to $21.9 million in
the nine months ended September 30, 1998.
Room revenues increased $.3 million, or 1.6%, from the nine months
ended September 30, 1997 to the nine months ended September 30, 1998. This was
driven by an increase in ADR of $1.54, along with a 3.0% increase in occupancy
from period to period. This was attributable to the general improvement in the
business travel and tourism industries, offset by some new competition in the
markets where the hotels operate and the InnSuites' refurbishment program. Food
and beverage revenue declined $.06 million or 5.4% from the nine months ended
September 30, 1997 to the nine months ended September 30, 1998 relating to
reduced food and beverage revenue at the Scottsdale and Tucson St. Mary's hotels
and expansion of food service, including room service at two of the other
hotels.
Departmental expenses grew by $.46 million, or 6.0%, between the years
because of increased payroll costs, general inflationary pressures and increased
occupancy. These costs grew as a percentage of revenues from 33.8% in 1997 to
35.3% in 1998.
15
<PAGE> 17
ACTUAL RESULTS OF OPERATIONS FOR THE CONSOLIDATED COMPANY
Comparison of the nine months ended October 31, 1998 with 1997
For the nine months ended October 31, 1998, the Company had revenues of
$7.7 million compared to $1.4 million for the nine months ended October 31,
1997, an increase of $6.3 million, reflecting the inclusion of lease revenues of
$7.7 million in the nine months ending October 31, 1998 following the formation
transactions and the absence of $1.4 million of revenue from rental of real
estate held for sale (the Carbon & Carbide Building) which was sold in September
1997. Total current year expenses of $6.1 million represented a $4.4 million
increase over expenses of $1.8 million in the nine months ended October 31,
1998 due to inclusion of $1.8 million in depreciation, $1.5 million in mortgage
interest paid, $.83 million in property taxes, insurance and ground rent paid
and $.5 million in advisory fees paid to Mid-America ReaFund Advisors, Inc., a
related party, which were all associated with the ownership of the hotels in
the nine months ending October 31, 1998 compared to no similar expenses in the
nine months ended October 31, 1997 when the Company owned no hotels. General and
administrative expense increased $.8 million from $.2 million in the nine months
ended October 31, 1997 to $1.0 million in the nine months ended October 31, 1998
due to increased expenses related to administering the hotel portfolio.
Expenses related to the operation of the Carbon & Carbide Building of $1.4
million incurred in the nine months ending October 31, 1997 were not incurred
in the nine months ending October 31, 1998 due to the sale of that building in
September 1997. Net income before minority interest of $1.5 million in the nine
months ended October 31, 1998 represented a $1.9 million improvement over the
$.4 million loss incurred in the nine months ended October 31, 1997. After
deducting minority interest of $1.4 million, net income applicable to common
shares of $.12 million and earnings per share of $.07 for the nine months ended
October 31, 1998 represented an increase of $.51 million over the $.39 million
loss ($.38 per share) incurred in the nine months ended October 31, 1997. Funds
from Operations (FFO), which represents net income plus non-cash charges,
including depreciation and amortization, increased from ($.39) million or
($.38) per share in the nine months ended October 31, 1997 to $3.4 million or
$.36 per share/unit in the nine months ended October 31, 1998. Cash available
for distribution (CAD) which is FFO less amortization of debt and reserves for
repairs and replacements (4% of gross revenue) was $1.4 million or $.15 per
share/unit for the nine months ended October 31, 1998 compared to $.38 million
and $(.38) per share for the nine months ended October 31, 1997.
Comparison of the quarter ended October 31, 1998 with 1997
For the quarter ended October 31, 1998, the Company had revenues of
$2.9 million compared to $.3 million for the quarter ended October 31, 1997,
an increase of $2.6 million, reflecting the inclusion of lease revenues of
$2.9 million in the quarter ending October 31, 1998 following the formation
transactions and the absence of $.3 million of revenue from rental of real
estate held for sale (the Carbon & Carbide Building) which was sold in September
1997. Total expenses of $2.1 million in the quarter ended October 31, 1998
represented a $1.6 million increase over expenses of $.5 million in the quarter
ended October 31, 1997 due to inclusion of $.74 million in depreciation, $.45
million in mortgage interest paid, $.2 million in other interest paid, $.28
million in property taxes, insurance and ground rent paid and $.18 million in
advisory fees paid to Mid-America ReaFund Advisors, Inc., which were all
associated with the ownership of the hotels in the quarter ending October 31,
1998 compared to no similar expenses in the quarter ended October 31, 1997 when
the Company owned no hotels. General and administrative expense increased $.15
million from $.06 million in the quarter ended October 31, 1997 to $.21 million
in the quarter ended October 31, 1998 due to increased expenses related to
administering the hotels. Expenses related to the operation of the Carbon &
Carbide Building of $.39 million incurred in the quarter ending October 31,
1997 were not incurred in the quarter ending October 31, 1998
16
<PAGE> 18
due to the sale of that building in September 1997. Net income before minority
interest of $.84 million in the quarter ended October 31, 1998 represented a
$1.09 million increase over the $.25 million loss incurred in the quarter ended
October 31, 1997. After deducting minority interest of $.79 million, net income
applicable to common shares of $.045 million and income per share of $.02 for
the quarter ended October 31, 1998 represented an increase of $.29 million over
the $.25 million loss ($.24 per share) incurred in the quarter ended
October 31, 1997. FFO increased from ($.25) million or ($.24) per share in the
quarter ended October 1, 1997 to $1.58 million or $.16 per share/unit in the
quarter ended October 31, 1998. Cash available for distribution (CAD) which is
FFO less amortization of debt and reserves for repairs and replacements (4% of
gross revenue) was $(.88) million or $(.09) per share/unit for the quarter ended
October 31, 1998 compared to $(.25) million and $(.24) per share for the quarter
ended October 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Outstanding mortgage debt increased from $17.7 million at January 31,
1998 to $23.4 million at October 31, 1998 due to mortgage debt assumed or
incurred related to the acquisitions of the Tucson St. Mary's, San Diego and
Buena Park hotels.
Beyond the 4% reserve for refurbishment and replacements set aside
annually, the Company has no present commitments for extraordinary capital
expenditures other than $350,000 in anticipated refurbishing costs at the
recently acquired InnSuites Hotel San Diego.
SEASONALITY
The hotels' operations historically have been seasonal. The six
southern Arizona hotels and the Ontario, California hotel experience their
highest occupancy rates in the first fiscal quarter. The Flagstaff, Arizona and
San Diego and Buena Park, California hotels experience their highest occupancy
rates in the second and third fiscal quarters. This seasonality pattern can be
expected to cause fluctuations in the Company's quarterly lease revenues under
the Percentage Leases. The Company anticipates that its cash flow from the
Lessee's operation of the hotels will be sufficient to enable the Company to
make quarterly distributions at the rate of $.10 per share for at least the next
twelve months. To the extent that cash flow from operations is insufficient
during any quarter, because of temporary or seasonal fluctuations in lease
revenue, the Company expects to utilize other cash on hand or borrowings to make
those distributions. No assurance can be given that the Company will make
distributions in the future at the indicated rate, or at all.
YEAR 2000 COMPLIANCE
The Year 2000 problem is the result of computer programs having been
written using two digits instead of four digits to define the applicable year.
Any of the Company's computer programs that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the Year 2000. This
could potentially result in a system failure or miscalculations, causing
disruptions of operations and normal business activity.
The Company and the Lessee are currently in the process of upgrading
their computer accounting programs and have commenced installing a new property
management system along with necessary hardware. These new systems have been
warranted to be Year 2000 compliant. The Company has estimated the total cost
which will be incurred in connection with these installations to be
approximately $400,000, which will be capitalized and amortized over seven
years. The Company believes that such costs will not result in a material
adverse effect on its financial condition or results of operations.
These new systems represent virtually all of the Company's computer
systems. However, the Company cannot predict the effect of the Year 2000 problem
on vendors, customers and other entities with which the Company transacts
business, and there can be no assurance that the effect of the Year 2000 problem
on such entities will not adversely affect the Company's operations.
17
<PAGE> 19
FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-Q constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. The Company intends that
such forward-looking statements be subject to the safe harbors created by such
Acts. Those forward-looking statements include statements regarding the intent,
belief or current expectations of the Company, its Trustees or its officers in
respect of (i) the declaration or payment of dividends; (ii) the leasing,
management or operation of the hotels; (iii) the adequacy of reserves for
renovation and refurbishment; (iv) the Company's financing plans; (v) the
Company's position regarding investments, acquisitions, financings, conflicts of
interest and other matters; (vi) the Company's continued qualification as a
REIT; and (vii) trends affecting the Company's or any hotel's financial
condition or results of operations. The words and phrases "looking ahead", "we
are confident", "should be", "will be", "predicted", "believe", "expect",
"anticipate" and similar expressions identify forward-looking statements.
These forward-looking statements reflect the Company's current views in
respect of future events and financial performance, but are subject to many
uncertainties and factors relating to the operations and business environment of
the hotels which may cause the actual results of the Company to differ
materially from any future results expressed or implied by such forward-looking
statements. Examples of such uncertainties include, but are not limited to:
fluctuations in hotel occupancy rates; changes in room rental rates which may be
charged by the Lessee in response to market rental rate changes or otherwise;
interest rate fluctuations; changes in federal income tax laws and regulations;
competition; any changes in the Company's financial condition or operating
results due to acquisitions or dispositions of hotel properties; real estate and
hospitality market conditions; hospitality industry factors; and local or
national economic and business conditions, including, without limitation,
conditions which may affect public securities markets generally, the hospitality
industry, or the markets in which the Company operates or will operate. The
Company undertakes no obligation to update publicly or revise any
forward-looking statements whether as a result of new information, future events
or otherwise. Pursuant to Section 21E(b)(2)(E) of the Securities Exchange Act of
1934, the qualifications set forth hereinabove are inapplicable to any
forward-looking statements in this Form 10-Q relating to the operations of the
Partnership.
18
<PAGE> 20
PART II
OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
Effective September 23, 1998, the Company changed its name to InnSuites
Hospitality Trust to recognize the Company's focus on the ownership and
operation of hotels. To reflect the name change, the Company changed its New
York Stock Exchange ticker symbol to "IHT".
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a)
EXHIBIT
NUMBER EXHIBIT
------ -------
3.1 Second Amended and Restated Declaration of Trust
(incorporated by reference to Annex A of the
Company's definitive Proxy Statement, filed with the
Securities and Exchange Commission on May 5, 1998).
27.1 Financial Data Schedule. (1)
- ----------
(1) Filed only in electronic format pursuant to Item 601(c) of Regulation S-K.
(b) REPORTS ON FORM 8-K.
1. Current Report on Form 8-K filed September 2, 1998, in connection with
the acquisition of interests in a Buena Park, California hotel
property.
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.
Dated: December 15, 1998 INNSUITES HOSPITALITY TRUST (Registrant)
By:
--------------------------------------------
Gregory D. Bruhn, Executive Vice President,
Chief Financial Officer, Treasurer and Secretary
19
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000082473
<NAME> INNSUITES HOSPITALITY TRUST
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 809,203
<SECURITIES> 0
<RECEIVABLES> 1,234,663
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 58,934,646
<DEPRECIATION> 0
<TOTAL-ASSETS> 60,978,512
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 52,682,045
0
0
<COMMON> 0
<OTHER-SE> 8,296,467
<TOTAL-LIABILITY-AND-EQUITY> 60,978,512
<SALES> 0
<TOTAL-REVENUES> 7,687,776
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,642,577
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,924,692
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 120,507
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
<FN>
<F1>The registrant utilizes an unclassified balance sheet and therefore the
captions "total current assets" and "total current liabilities" are not
applicable.
</FN>
</TABLE>
