- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the transition period from to
------------------- --------------------
Commission file number 0-18294
METRIC INCOME TRUST SERIES, INC.,
a California corporation
(Exact name of Registrant as specified in its charter)
CALIFORNIA 94-3087630
- --------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One California Street
San Francisco, California 94111
- --------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 678-2000
(800) 347-6707 in all states
Indicate by check mark whether the registrant (1) has filed all the reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Shares of common stock outstanding as of September 30, 1999: 6,321,641.
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Page 1
<PAGE>
PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
METRIC INCOME TRUST SERIES, INC.,
a California corporation
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31,
1999 1998
---- ----
ASSETS
Cash $ 342,000 $ 1,291,000
Accounts and Interest Receivable 9,000 14,000
Investment in Mortgage-Backed Securities 1,565,000 2,550,000
Prepaid and Other Assets -- 22,000
------------ ------------
Total Assets $ 1,916,000 $ 3,877,000
============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities
Dividends Payable $ -- $ 868,000
Payable to Advisor and Affiliates 5,000 4,000
Other Accounts Payable and Accrued Liabilities 9,000 36,000
------------ ------------
Total Liabilities 14,000 908,000
------------ ------------
Commitments and Contingencies
Shareholders' Equity:
Common Stock - no par value, stated at $0.001,
12,250,000 Shares authorized and 6,321,641
Shares issued and outstanding 6,000 6,000
Additional Paid-in Capital 55,200,000 55,200,000
Accumulated Dividends in Excess of Net Income (53,258,000) (52,278,000)
Unrealized Holding Gain (Loss) on Investment
in Mortgage-Backed Securities (46,000) 41,000
------------ ------------
Total Shareholders' Equity 1,902,000 2,969,000
------------ ------------
Total Liabilities and Shareholders' Equity $ 1,916,000 $ 3,877,000
============ ============
See notes to consolidated financial statements (unaudited).
Page 2
<PAGE>
METRIC INCOME TRUST SERIES, INC.,
a California corporation
CONSOLIDATED STATEMENTS OF INCOME OR LOSS (UNAUDITED)
For the Nine Months Ended
September 30,
-------------------------
1999 1998
---- ----
Revenues:
Lease income $ -- $ 98,000
Interest on mortgage-backed securities 86,000 78,000
Interest and other income 25,000 80,000
Gain on sale of mortgage-backed securities 8,000 --
--------- ---------
Total Revenues 119,000 256,000
--------- ---------
Expenses:
General and administrative 205,000 278,000
--------- ---------
Total Expenses 205,000 278,000
--------- ---------
Loss Before Loss on Sale of Properties (86,000) (22,000)
Loss on Sale of Properties - Net -- (25,000)
--------- ---------
Net Loss $ (86,000) $ (47,000)
========= =========
Net Income (Loss) per Share:
Loss before loss on sale of properties $ (0.01) $ --
Loss on sale of properties -- --
--------- ---------
Net Loss per Share $ (0.01) $ --
========= =========
Dividends per Share $ 0.14 $ --
========= =========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OR LOSS (UNAUDITED)
For the Nine Months Ended
September 30,
-------------------------
1999 1998
---- ----
Net loss $ (86,000) $ (47,000)
Unrealized holding gain (loss) on investment in
mortgage-backed securities (79,000) 77,000
Realization of unrealized holding gain on
investment in mortgage-backed securities (8,000) --
--------- ---------
Comprehensive loss $(173,000) $ 30,000
========= =========
See notes to consolidated financial statements (unaudited).
Page 3
<PAGE>
METRIC INCOME TRUST SERIES, INC.,
a California corporation
CONSOLIDATED STATEMENTS OF INCOME OR LOSS (UNAUDITED)
For the Three Months Ended
September 30,
--------------------------
1999 1998
---- ----
Revenues:
Lease income $ -- $ 27,000
Interest on mortgage-backed securities 27,000 43,000
Interest and other income 4,000 7,000
Gain on sale of mortgage-backed securities -- --
-------- --------
Total Revenues 31,000 77,000
-------- --------
Expenses:
General and administrative 65,000 87,000
-------- --------
Total Expenses 65,000 87,000
-------- --------
Loss Before Loss on Sale of Properties (34,000) (10,000)
Loss on Sale of Properties - Net -- --
-------- --------
Net Loss $(34,000) $(10,000)
======== ========
Net Income (Loss) per Share:
Income (Loss) before loss on sale of properties $ -- $ --
Loss on sale of properties -- --
-------- --------
Net Loss per Share $ -- $ --
======== ========
Dividends per Share $ -- $ --
======== ========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OR LOSS (UNAUDITED)
For the Three Months Ended
September 30,
--------------------------
1999 1998
---- ----
Net loss $(34,000) $(10,000)
Unrealized holding gain (loss) on investment in
mortgage-backed securities (3,000) 57,000
Realization of unrealized holding gain on
investment in mortgage-backed securities -- --
-------- --------
Comprehensive loss $(37,000) $ 47,000
======== ========
See notes to conolidated financial statements (unaudited).
Page 4
<PAGE>
METRIC INCOME TRUST SERIES, INC.,
a California corporation
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
For the Nine Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
Unrealized
Holding
Accumulated Gain/(Loss)on
Common Stock Additional Dividends in Investment in
------------ Paid-in Excess of Mortgage-Backed
Shares Amount Capital Net Income Securities - Net Total
------ ------ ------- ---------- ---------------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 6,321,641 $ 6,000 $ 55,200,000 $(52,278,000) $ 41,000 $ 2,969,000
Unrealized Holding Loss
on Investment in Mortgage-Backed
Securities (79,000) (79,000)
Realization of Unrealized Holding Gain
on Investment in Mortgage-Backed
Securities (8,000) (8,000)
Net Loss (86,000) (86,000)
Dividends Declared (894,000) (894,000)
------------ ------------ ------------ ------------ ------------ ------------
Balance, September 30, 1999 6,321,641 $ 6,000 $ 55,200,000 $(53,258,000) $ (46,000) $ 1,902,000
============ ============ ============ ============ ============ ============
Balance, January 1, 1998 6,321,641 $ 6,000 $ 55,200,000 $(51,342,000) $ -- $ 3,864,000
Unrealized Holding Gain
on Investment in Mortgage-Backed
Securities 77,000 77,000
Loss Before Loss on
Sale of Properties (22,000) (22,000)
Loss on Sale of Properties (25,000) (25,000)
------------ ------------ ------------ ------------ ------------ ------------
Balance, September 30, 1998 6,321,641 $ 6,000 $ 55,200,000 $(51,389,000) $ 77,000 $ 3,894,000
============ ============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements (unaudited).
Page 5
<PAGE>
METRIC INCOME TRUST SERIES, INC.,
a California corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended
September 30,
--------------------------
1999 1998
---- ----
Operating Activities
Net Loss $ (86,000) $ (47,000)
Adjustments to reconcile net loss to net cash
used by operating activities:
Amortization (1,000) --
Gain on sale of mortgage-backed securities (8,000) --
Loss on sale of properties -- 25,000
Changes in operating assets and liabilities:
(Increase) Decrease in accounts and
interest receivable 5,000 (8,000)
Decrease in prepaid and other assets 22,000 5,000
Increase (Decrease) in payable to sponsor
and affiliates 1,000 (46,000)
Decrease in other accounts payable and
accrued liabilities (27,000) (301,000)
------------ ------------
Net cash used by operating activities (94,000) (372,000)
------------ ------------
Investing Activities
Purchase of mortgage-backed securities -- (2,702,000)
Proceeds from sale of mortgage-backed securities 669,000 --
Principal payments received on mortgage-backed
securities 238,000 114,000
Proceeds from sale of properties -- 1,005,000
Cash used for selling costs of properties -- (140,000)
------------ ------------
Net cash provided (used) by investing activities 907,000 (1,723,000)
------------ ------------
Financing Activities
Dividends paid to Shareholders (1,762,000) (17,385,000)
------------ ------------
Cash used by financing activities (1,762,000) (17,385,000)
------------ ------------
Decrease in Cash (949,000) (19,480,000)
Cash at beginning of period 1,291,000 19,762,000
------------ ------------
Cash at End of Period $ 342,000 $ 282,000
============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Sale of rental properties - see Note 4
Unrealized holding gain (loss) on investment in mortgage-backed securities - see
Note 5
See notes to consolidated financial statements (unaudited).
Page 6
<PAGE>
METRIC INCOME TRUST SERIES, INC.,
a California corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Reference to 1998 Audited Consolidated Financial Statements
These unaudited consolidated financial statements should be read in
conjunction with the Notes to Consolidated Financial Statements included in
the 1998 audited consolidated financial statements.
The financial information contained herein reflects all normal and
recurring adjustments that are, in the opinion of management, necessary for
a fair presentation.
2. Transactions with Advisor and Affiliates
In accordance with the Advisory Agreement, the Fund pays the Advisor and
its affiliates compensation for services provided to the Fund. Amounts
earned by the Advisor and its affiliates for the nine months ended
September 30, 1999 and 1998 were as follows:
1999 1998
-------- --------
Reimbursement of administrative expenses $ 60,000 $ 75,000
Securities management fee 7,000 7,000
Advisory fee 75,000 50,000
-------- --------
Total $142,000 $132,000
======== ========
The securities management fee was earned by State Street Research &
Management Company, an affiliate of the Advisor.
The quarterly advisory fees payable to the Advisor under the Advisory
Agreement commencing April 1, 1994 were calculated at a rate of 0.75
percent per annum of the appraised value of the properties. Such fees were
payable in full only if the Fund made annualized dividend payments equaling
at least 8.5 percent of the Shareholders' adjusted capital contribution. To
the extent that the dividend paid for a calendar quarter was less than 8.5
percent on an annualized basis, the advisory fee payable to the Advisor was
proportionately reduced. No dividends were paid for the first quarter of
1998; therefore no advisory fee was earned. In February 1998, the
Independent Directors approved the renewal of the term of the Advisory
Agreement to December 31, 1998 with flat fees of $25,000 per quarter to be
paid to the Advisor with the quarter commencing April 1, 1998. In the first
quarter of 1999, the Independent Directors approved the extension of the
Advisory Agreement and the payment of flat fees of $25,000 per quarter to
December 31, 1999.
3. Net Loss per Share
Net loss per Share is based upon 6,321,641 Shares outstanding.
4. Sale of Rental Properties
In the first half of 1998, additional expenses of sale were paid and a loss
on sale totaling $11,000 was recognized for the following properties which
were sold in December of 1997: the National Convenience Stores located in
Placentia, California, Marietta, Georgia, and Fort Worth and San Antonio,
Texas, and the Wickes Furniture Store located in Torrance, California.
In March 1998, the Fund sold the Pearle Express Store located in Morrow,
Georgia for $1,005,000. After payment of expenses of sale of $103,000
(including real estate commissions of $80,000 paid to outside brokers), the
proceeds received by the Fund were $902,000. The carrying value at the time
of sale was $916,000 (net of the $42,000 provision for impairment of value
recognized in 1997), resulting in a net loss on sale of $14,000.
Page 7
<PAGE>
5. Mortgage-Backed Securities
In the first quarter of 1999, the Fund sold a pool of mortgage-backed
securities. Net proceeds from the sale were $669,000 resulting in a
realized gain of $8,000. In accordance with FAS 115 and Management's
intentions, the Fund's investment in mortgage-backed securities is
classified as "available-for-sale securities" and reported at fair value
with unrealized gains and losses reported as a net amount in a separate
component of Shareholders' Equity. Fair values of mortgage-backed
securities at September 30, 1999 and December 31, 1998 were as follows:
Gross Unrealized Gross Unrealized Estimated Fair
Amortized Cost Holding Gains Holding Losses Market Value
-------------- ---------------- ---------------- --------------
1999:
GNMA $1,611,000 $ 0 $ 46,000 $1,565,000
1998:
GNMA $2,509,000 $ 41,000 $ 0 $2,550,000
The coupon rate of the securities is 6.5% per annum and the repayment period
terminates in 2024.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This item should be read in conjunction with Consolidated Financial Statements
and other Items contained elsewhere in this Report.
Pursuant to the Plan of Liquidation and Dissolution approved by Shareholders in
June 1998, the Registrant is in the process of winding down its operations and
has sold all of its real property assets as of December 31, 1998. Accordingly,
historical financial information will not be representative of future results.
Future results of operations will be limited to the orderly liquidation of the
Registrant's assets and liabilities. Such liquidation is expected to occur by
year-end.
Properties
A description of the properties in which the Fund or its subsidiary held an
ownership interest as of September 30, 1999 and September 30, 1998 follows:
METRIC INCOME TRUST SERIES, INC.,
a California corporation
PROPERTY AND OCCUPANCY SUMMARY
Occupancy at June 30,
Date of ---------------------
Size Purchase 1999 1998
------------ -------- ------ -----
National Convenience Stores (1) ... 3,100 sq. ft. 11/89 -- 100%
- ---------
(1) The Fund has sold its entire original portfolio of nineteen convenience
stores, the last of which was sold in December 1998. For details of
individual properties, see Part I, Item 2 of the Form 10-K Report filed for
1998.
Results of Operations
Loss before loss on sale of properties increased $64,000 and $24,000
respectively for the first three quarters and third quarter of 1999 compared to
the same periods in 1998 primarily due to the sale of the Fund's remaining
properties in 1998 offset by a decrease in expenses in 1999. There was no lease
income in 1999 compared to $98,000 in the first three quarters of 1998. Interest
on mortgage-backed securities increased $8,000 and decreased $16,000,
respectively, in the first three quarters and third quarter of 1999 compared to
the same periods in 1998. The increase for the first three quarters of 1999 was
due to the fact that the Fund held no mortgage-backed securities until the
Page 8
<PAGE>
second quarter of 1998. The decrease for the third quarter of 1999 was due to
the sale of a portion of the mortgage-backed securities portfolio in the first
quarter of 1999. Interest and other income decreased $71,000 and $3,000 for the
first three quarters and third quarter of 1999, respectively, due primarily to
the interest earned in the first half of 1998 on the proceeds from the sales
which took place in the last quarter of 1997 and first quarter of 1998. As a
result of the sale of a portion of its mortgage-backed securities portfolio, the
Fund had an $8,000 gain on sale of mortgage-backed securities in the first
quarter of 1999.
General and Administrative expenses decreased $73,000 and $22,000 in the first
three quarters and third quarter of 1999, respectively, compared with the same
periods in 1998. This was due mainly to higher asset management costs and higher
accruals for audit and tax preparation fees in the first three quarters of 1998.
The first three quarters of 1999 included an adjustment to the audit expense
accrued in 1998, as the actual cost was lower than accrued. The reduction in
expenses in the first three quarters of 1999 was offset by the payment of a
$25,000 asset management fee in the first quarter of 1999 while no asset
management fee was paid in the first quarter of 1998 (See Note 2 to the
Consolidated Financial Statements).
As discussed in Note 4 to the Consolidated Financial Statements, the Fund sold
the Pearle Express Store in Morrow, Georgia in March 1998, resulting in a loss
on sale of $14,000, and paid additional expenses of sale for properties sold in
December 1997, resulting in a loss on sale of $11,000 recognized in the first
half of 1998.
In August 1996 the Board of Directors approved a sales strategy for the Fund's
remaining convenience stores and by year end 1998, all had been sold.
In the second quarter of 1997 the Board of Directors approved a sales strategy
for the Fund's Haverty's Furniture Store in Plano, Texas and the remaining
Pearle Express Store in Morrow, Georgia, and in the third quarter approved
remarketing the Wickes Furniture Store in Torrance, California. Haverty's was
sold in October 1997 and Wickes was sold in December 1997. The Pearle Express -
Morrow, Georgia location was sold in March 1998.
As previously reported, in September 1997, the Advisor was instructed by the
Board of Directors to liquidate the Fund's holdings in mortgage-backed
securities. These securities were sold in the third quarter of 1997. During the
first half of 1998, the Fund invested cash reserved from sales in the fourth
quarter of 1997 and the bulk of the proceeds from the sale of the Pearle Express
- - Morrow, Georgia location in mortgage-backed securities. In January 1999 a pool
of mortgage-backed securities was sold.
Fund Liquidity and Capital Resources
The Fund intends to meet its cash needs from cash flow generated by securities
that it holds. In order to continue to qualify as a REIT for income tax
purposes, the Fund is required, among other things, to distribute 95 percent of
its REIT taxable income to its Shareholders annually. The level of cash
distributions to Shareholders through 1999 will be sustained by cash provided
from net operating activities, from the principal repayments on the
mortgage-backed securities, and from capital gains from the sale of securities.
First Three Quarters of 1999
The Fund, after taking into account interest on mortgage-backed securities,
other interest income, gain on sale of mortgage-backed securities, and general
and administrative expenses, experienced negative results from operations for
the period.
As presented in the Consolidated Statement of Cash Flows, cash was provided by
investing activities, from proceeds from sale of mortgage-backed securities, and
from principal payments received on mortgage-backed securities. Cash was used in
financing activities for dividends paid to Shareholders.
The Advisor anticipates that the Fund will have sufficient resources to meet its
capital and operating requirements through its dissolution.
Page 9
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
There are no material pending legal proceedings, other than ordinary routine
litigation incidental to the business, to which the Fund (or any of its
subsidiaries) is a party or of which any of their property is the subject.
Item 6. Exhibits and Reports on Form 8-K.
a) No reports on Form 8-K were required to be filed during the last
quarter of the period covered by this Report.
Page 10
<PAGE>
SIGNATURE
---------
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.
METRIC INCOME TRUST SERIES, INC.,
a California corporation
By: /s/ William A. Finelli
----------------------
William A. Finelli
Director, Vice President,
Chief Financial Officer,
and Treasurer
Date: November 15, 1999
-----------------
Page 11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 342,000
<SECURITIES> 1,565,000
<RECEIVABLES> 9,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,916,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 6,000
<OTHER-SE> 1,896,000
<TOTAL-LIABILITY-AND-EQUITY> 1,916,000
<SALES> 0
<TOTAL-REVENUES> 119,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 205,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (86,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (86,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (86,000)
<EPS-BASIC> (.01)
<EPS-DILUTED> 0
</TABLE>
