e10vkza
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Mark One)
|
|
|
þ |
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 5(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2004
OR
|
|
|
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-14784
Income Opportunity Realty Investors, Inc.
(Exact name of registrant as specified in its charter)
|
|
|
Nevada
|
|
75-2615944 |
|
|
|
(State or other jurisdiction of
Incorporation or organization)
|
|
(IRS Employer
Identification Number) |
|
|
|
1755 Wittington Place, Suite 340, Dallas, Texas
|
|
75234 |
|
|
|
(Address of principal executive offices)
|
|
(Zip Code) |
|
|
|
Registrants Telephone Number, including area code
|
|
214-750-5800 |
|
|
|
Securities registered pursuant to Section 12(b) of the Act:
|
|
|
Title of Each Class
Common Stock, $0.01 par value
|
|
Name of each exchange on which registered
American Stock Exchange |
|
|
|
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes o No þ
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 þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Act). Yes o
No þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act. Yes o No þ
The aggregate market value of the shares of voting and non-voting common equity held by
non-affiliates of the Registrant, computed by reference to the closing sales price of the Common
Stock on the American Stock Exchange as of June 30, 2004 (the last business day of the Registrants
most recently completed second fiscal quarter) was $4,034,394 based upon a total of 298,844 shares
held as of June 30, 2004 by persons believed to be non-affiliates of the Registrant. The basis of
the calculation does not constitute a determination by the Registrant as defined in Rule 405 of the
Securities Act of 1933, as amended, such calculation, if made as of a date within sixty days of
this filing, would yield a different value. As of March 18, 2005, there were 1,389,345 shares of
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
AMENDMENT NO. 5 TO
ANNUAL REPORT ON FORM 10-K FOR
INCOME OPPORTUNITY REALTY INVESTORS, INC.
The undersigned Registrant hereby further amends the following items, exhibits, or other
portions of its Annual Report on Form 10-K for the fiscal year ended December 31, 2004 as set forth
below and as reflected in the substituted pages attached hereto which replace the same numbered
pages in the original filing as previously amended by Amendment Nos. 1, 2, 3 and 4 (this Amendment
No. 5 is necessitated by virtue of an oral request/comment of the Staff of the Securities and
Exchange Commission on October 28, 2005):
|
|
|
Pages 29-54 Item 8. Financial Statements and Supplementary Data. The Reports of
Independent Registered Public Accounting Firms (Pages 30-32) have been updated for a
subsequent review. The consolidated balance sheets, consolidated statements of operations,
consolidated statements of stockholders equity and consolidated statements of cash flows
(Pages 33-38) and Notes to Consolidated Financial Statements (Pages 39-55) have been
revised to consolidate all prior amendments to this Item. |
|
|
|
|
Exhibit 31.1 Certification required by Exchange Act Rules 13a-14(a) and
15d-14(a) (refiled as required by Rule 12b-15). |
|
|
|
|
Exhibit 32.1 Certification pursuant to 18 U.S.C. § 1350 (refiled as required
by Rule 12b-15). |
2
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this Amendment to be signed on its behalf by the undersigned, thereunto
duly-authorized.
Date: November 7, 2005.
|
|
|
|
|
|
INCOME OPPORTUNITY REALTY
INVESTORS, INC.
|
|
|
By: |
/s/ R. Neil Crouch, II
|
|
|
|
R. Neil Crouch, II, Executive Vice President |
|
|
|
and Chief Financial Officer and Acting |
|
|
3
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page |
|
Financial Statements |
|
|
|
|
|
|
|
|
|
Report of Independent Registered Public Accounting Firms |
|
|
30 |
|
|
|
|
|
|
Consolidated Balance SheetsDecember 31, 2004 and 2003 |
|
|
33 |
|
|
|
|
|
|
Consolidated Statements of OperationsYears Ended December 31, 2004, 2003 and 2002 |
|
|
34 |
|
|
|
|
|
|
Consolidated Statements of Stockholders EquityYears Ended December 31, 2004, 2003 and 2002 |
|
|
36 |
|
|
|
|
|
|
Consolidated Statements of Cash FlowsYears Ended December 31, 2004, 2003 and 2002 |
|
|
37 |
|
|
|
|
|
|
Notes to Consolidated Financial Statements |
|
|
39 |
|
|
|
|
|
|
Financial Statement Schedules |
|
|
|
|
|
|
|
|
|
Schedule IIIReal Estate and Accumulated Depreciation |
|
|
52 |
|
|
|
|
|
|
Schedule IVMortgage Loans on Real Estate |
|
|
54 |
|
All other schedules are omitted because they are not required, are not applicable or the
information required is included in the Financial Statements or the notes thereto.
29
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors of
Income Opportunity Realty Investors, Inc.
We have audited the accompanying consolidated balance sheet of Income Opportunity Realty Investors,
Inc. and Subsidiaries as of December 31, 2004, and the related consolidated statements of
operations, stockholders equity and cash flows for year ended December 31, 2004. We have also
audited the schedules listed in the accompanying index. These financial statements and the
schedules are the responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedules are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and schedules. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements and schedules. We believe our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Income Opportunity Realty Investors, Inc.
and Subsidiaries as of December 31, 2004 and the consolidated results of their operations and their
cash flows for year ended December 31, 2004, in conformity with accounting principles generally
accepted in the United States of America.
Also, in our opinion, the schedules referred to above presents fairly, in all material respects,
the information set forth therein.
/s/ Swalm & Associates, P.C.
Swalm & Associates, P.C.
Plano, Texas
March 2, 2005, except for the effects of the changes contained in Note 18, which is dated August 19, 2005
30
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors of
Income Opportunity Realty Investors, Inc.
We have audited the accompanying consolidated balance sheet of Income Opportunity Realty Investors,
Inc. and Subsidiaries as of December 31, 2003, and the related consolidated statements of
operations, stockholders equity and cash flows for year ended December 31, 2003. We have also
audited the schedules listed in the accompanying index. These financial statements and the
schedules are the responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedules are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and schedules. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements and schedules. We believe our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Income Opportunity Realty Investors, Inc.
and Subsidiaries as of December 31, 2003 and the consolidated results of their operations and their
cash flows for year ended December 31, 2003, in conformity with accounting principles generally
accepted in the United States of America.
Also, in our opinion, the schedules referred to above presents fairly, in all material respects,
the information set forth therein.
/s/ Farmer, Fuqua & Huff, P.C.
Farmer, Fuqua, & Huff, P.C.
Plano, Texas
March 12, 2004, except for the effects of the changes contained in Note 18, which is dated August 19, 2005
31
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors of
Income Opportunity Realty Investors, Inc.
We have audited the accompanying consolidated statements of operations, stockholders equity and
cash flow of Income Opportunity Realty Investors, Inc. for the year ended December 31, 2002. We
have also audited the schedules listed in the accompanying index. These financial statements and
the schedules are the responsibility of the Companys management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
As described in Note 17, Income Opportunity Realty Investors, Inc.s management has indicated its
intent to both sell income producing properties and refinance or extend debt secured by real estate
to meet its liquidity needs.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated results of their operations and their cash flows of Income
Opportunity Realty Investors, Inc. for the year ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States of America.
Also, in our opinion, the schedules presents fairly, in all material respects, the information set
forth therein.
BDO SEIDMAN, LLP
Dallas, Texas
March 21, 2003
32
INCOME OPPORTUNITY REALTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2004 |
|
|
2003 |
|
|
|
(dollars in thousands, |
|
|
|
except per share) |
|
|
|
(Restated) |
|
(Restated) |
Assets |
|
|
|
|
|
|
|
|
Real estate held for investment |
|
$ |
34,988 |
|
|
$ |
56,367 |
|
Less accumulated depreciation |
|
|
(3,620 |
) |
|
|
(6,002 |
) |
|
|
|
|
|
|
|
|
|
|
31,368 |
|
|
|
50,365 |
|
Notes and interest receivable |
|
|
54,911 |
|
|
|
45,531 |
|
Investment in real estate partnerships |
|
|
604 |
|
|
|
607 |
|
Cash and cash equivalents |
|
|
399 |
|
|
|
58 |
|
Receivables from affiliates |
|
|
261 |
|
|
|
479 |
|
Other assets |
|
|
3,095 |
|
|
|
4,053 |
|
|
|
|
|
|
|
|
|
|
$ |
90,638 |
|
|
$ |
101,093 |
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Notes and interest payable |
|
$ |
44,571 |
|
|
$ |
60,825 |
|
Payables to affiliates |
|
|
1,248 |
|
|
|
|
|
Other liabilities |
|
|
1,529 |
|
|
|
1,615 |
|
|
|
|
|
|
|
|
|
|
|
47,348 |
|
|
|
62,440 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Stockholders equity
Common Stock, $.01 par value;
authorized 10,000,000 shares; issued
and outstanding and 1,389,345 shares in
2004 and 1,438,945 shares in 2003 |
|
|
14 |
|
|
|
14 |
|
Paid-in capital |
|
|
61,983 |
|
|
|
62,774 |
|
Accumulated deficit |
|
|
(18,707 |
) |
|
|
(24,135 |
) |
|
|
|
|
|
|
|
|
|
|
43,290 |
|
|
|
38,653 |
|
|
|
|
|
|
|
|
|
|
$ |
90,638 |
|
|
$ |
101,093 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
33
INCOME OPPORTUNITY REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
(Restated) |
|
|
(Restated) |
|
|
|
|
|
|
(dollars in thousands, except per share)
|
Property revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Rents |
|
$ |
5,905 |
|
|
$ |
5,224 |
|
|
$ |
5,298 |
|
Property expense |
|
|
|
|
|
|
|
|
|
|
|
|
Property operations |
|
|
3,129 |
|
|
|
3,331 |
|
|
|
2,748 |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
2,776 |
|
|
|
1,893 |
|
|
|
2,550 |
|
Other income |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
3,325 |
|
|
|
626 |
|
|
|
270 |
|
Equity in income (loss) of equity partnerships |
|
|
(3 |
) |
|
|
(7 |
) |
|
|
862 |
|
Recovery of loss provision on receivable from related party |
|
|
|
|
|
|
1,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,322 |
|
|
|
2,188 |
|
|
|
1,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
3,570 |
|
|
|
1,812 |
|
|
|
1,457 |
|
Depreciation |
|
|
740 |
|
|
|
816 |
|
|
|
748 |
|
Advisory fee to affiliate |
|
|
741 |
|
|
|
424 |
|
|
|
714 |
|
Net income fee to affiliate |
|
|
440 |
|
|
|
109 |
|
|
|
169 |
|
Provision for loss on receivable from related party |
|
|
|
|
|
|
|
|
|
|
1,568 |
|
Provision for Asset Impairment |
|
|
|
|
|
|
848 |
|
|
|
|
|
General and administrative |
|
|
563 |
|
|
|
779 |
|
|
|
1,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,054 |
|
|
|
4,788 |
|
|
|
5,694 |
|
Net income (loss) from continuing operations |
|
|
44 |
|
|
|
(707 |
) |
|
|
(2,012 |
) |
|
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
(89 |
) |
|
|
(1,771 |
) |
|
|
(3,055 |
) |
Gain on sale of real estate by equity investees |
|
|
|
|
|
|
|
|
|
|
383 |
|
Gain on sale of operations |
|
|
5,473 |
|
|
|
3,824 |
|
|
|
6,769 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from discontinued operations |
|
|
5,384 |
|
|
|
2,053 |
|
|
|
4,097 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
5,428 |
|
|
$ |
1,346 |
|
|
$ |
2,085 |
|
|
|
|
|
|
|
|
|
|
|
34
INCOME OPPORTUNITY REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (cont.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
(Restated) |
|
|
(Restated) |
|
|
|
|
|
|
|
(dollars in thousands, except per share)
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations |
|
$ |
0.03 |
|
|
$ |
(0.49 |
) |
|
$ |
(1.40 |
) |
Discontinued operations |
|
|
3.88 |
|
|
|
1.43 |
|
|
|
2.85 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
3.91 |
|
|
$ |
0.94 |
|
|
$ |
1.45 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of Common Stock
used in computing earnings per share |
|
|
1,389,345 |
|
|
|
1,438,945 |
|
|
|
1,438,945 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
35
INCOME OPPORTUNITY REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Paid-in |
|
|
Accumulated |
|
|
Stockholders' |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Equity |
|
|
|
(dollars in thousands, except shares)
|
Balance, January 1, 2002 |
|
|
1,438,945 |
|
|
|
14 |
|
|
|
62,774 |
|
|
|
(27,566 |
) |
|
|
35,222 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,085 |
|
|
|
2,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2002 |
|
|
1,438,945 |
|
|
|
14 |
|
|
|
62,774 |
|
|
|
(25,481 |
) |
|
|
37,307 |
|
Net income (as restated) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,346 |
|
|
|
1,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003 (as restated) |
|
|
1,438,945 |
|
|
$ |
14 |
|
|
$ |
62,774 |
|
|
$ |
(24,135 |
) |
|
$ |
38,653 |
|
Repurchase of Common Stock |
|
|
(49,600 |
) |
|
|
|
|
|
|
(791 |
) |
|
|
|
|
|
|
(791 |
) |
Net income (as restated) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,428 |
|
|
|
5,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004 (as restated) |
|
|
1,389,345 |
|
|
$ |
14 |
|
|
$ |
61,983 |
|
|
$ |
(18,707 |
) |
|
$ |
43,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
36
INCOME OPPORTUNITY REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
(dollars in thousands) |
|
|
|
(Restated) |
|
(Restated) |
|
|
|
|
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Rents collected |
|
$ |
8,106 |
|
|
$ |
10,671 |
|
|
$ |
10,554 |
|
Payments for property operations |
|
|
(5,086 |
) |
|
|
(5,903 |
) |
|
|
(7,131 |
) |
Interest collected |
|
|
2,413 |
|
|
|
262 |
|
|
|
291 |
|
Interest paid |
|
|
(3,885 |
) |
|
|
(3,702 |
) |
|
|
(4,339 |
) |
Advisory and net income fee paid to affiliate |
|
|
(1,110 |
) |
|
|
(451 |
) |
|
|
(868 |
) |
General and administrative expenses paid |
|
|
(562 |
) |
|
|
(785 |
) |
|
|
(1,029 |
) |
Distributions from equity partnerships operating cash flow |
|
|
|
|
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
(124 |
) |
|
|
92 |
|
|
|
(2,497 |
) |
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate improvements |
|
|
|
|
|
|
|
|
|
|
(365 |
) |
Deposits on pending purchases and financings |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of real estate |
|
|
5,680 |
|
|
|
9,582 |
|
|
|
19,230 |
|
Distributions from equity partnerships investing cash flow |
|
|
|
|
|
|
|
|
|
|
752 |
|
Funding of note receivable (including $5,109 in 2002 to
related party) |
|
|
|
|
|
|
(1,567 |
) |
|
|
(7,109 |
) |
Collection of note receivable |
|
|
|
|
|
|
|
|
|
|
500 |
|
Payments from (to) advisor and affiliates |
|
|
(3,866 |
) |
|
|
(7,955 |
) |
|
|
(6,244 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities |
|
|
1,814 |
|
|
|
60 |
|
|
|
6,764 |
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from notes payable |
|
|
1,193 |
|
|
|
917 |
|
|
|
23,152 |
|
Payments on notes payable |
|
|
(1,435 |
) |
|
|
(603 |
) |
|
|
(26,308 |
) |
Deferred financing costs |
|
|
(316 |
) |
|
|
(418 |
) |
|
|
(1,167 |
) |
Retirement of Treasury Stock |
|
|
(791 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(1,349 |
) |
|
|
(104 |
) |
|
|
(4,323 |
) |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
341 |
|
|
|
48 |
|
|
|
(56 |
) |
Cash and cash equivalents, beginning of year |
|
|
58 |
|
|
|
10 |
|
|
|
66 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
399 |
|
|
$ |
58 |
|
|
$ |
10 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
37
INCOME OPPORTUNITY REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
(dollars in thousands) |
|
|
|
(Restated) |
|
(Restated) |
|
|
|
|
Reconciliation of net income (loss) to net cash used in operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
5,428 |
|
|
$ |
1,346 |
|
|
$ |
2,085 |
|
Adjustments to reconcile net income (loss) to net cash used in
operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
1,392 |
|
|
|
2,165 |
|
|
|
1,867 |
|
Gain on sale of real estate |
|
|
(5,473 |
) |
|
|
(3,824 |
) |
|
|
(7,152 |
) |
Impairment of asset |
|
|
|
|
|
|
848 |
|
|
|
|
|
Equity in (income) loss of partnerships |
|
|
3 |
|
|
|
2 |
|
|
|
(862 |
) |
Distributions from equity partnerships operating cash flow |
|
|
|
|
|
|
|
|
|
|
25 |
|
Provision for loss |
|
|
|
|
|
|
|
|
|
|
1,568 |
|
(Increase) decrease in interest receivable |
|
|
(807 |
) |
|
|
(368 |
) |
|
|
5 |
|
(Increase) decrease in other assets |
|
|
(781 |
) |
|
|
1 |
|
|
|
774 |
|
Increase (decrease) in interest payable |
|
|
(168 |
) |
|
|
29 |
|
|
|
(9 |
) |
Increase (decrease) in other liabilities |
|
|
282 |
|
|
|
(107 |
) |
|
|
(798 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by Operating activities |
|
$ |
(124 |
) |
|
$ |
92 |
|
|
$ |
(2,497 |
) |
|
|
|
|
|
|
|
|
|
|
Schedule of noncash investing and financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable from purchase of real estate |
|
$ |
|
|
|
$ |
18,687 |
|
|
$ |
|
|
Notes payable assumed by buyer on sale of real estate |
|
|
15,844 |
|
|
|
9,637 |
|
|
|
|
|
Notes receivable collected by affiliates |
|
|
|
|
|
|
|
|
|
|
5,541 |
|
Notes receivable collected from affiliates |
|
|
8,339 |
|
|
|
44,706 |
|
|
|
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
38
INCOME OPPORTUNITY REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying Consolidated Financial Statements of Income Opportunity Realty Investors, Inc. and
consolidated entities were prepared in conformity with accounting principles generally accepted in
the United States of America, the most significant of which are described in NOTE 1. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES. The Notes to Consolidated Financial Statements are an integral
part of these Consolidated Financial Statements. The data presented in the Notes to Consolidated
Financial Statements are as of December 31 of each year and for the year then ended, unless
otherwise indicated. Dollar amounts in tables are in thousands, except per share amounts.
Certain balances for 2003 and 2002 have been reclassified to conform to the 2004 presentation.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and business. Income Opportunity Realty Investors, Inc. (IORI) is the successor to a
California business trust organized on December 14, 1984, which commenced operations on April 10,
1985. IORI invests in real estate through direct ownership, leases and partnerships and it also may
invest in mortgage loans on real estate.
Basis of consolidation. The Consolidated Financial Statements include the accounts of IORI and
controlled subsidiaries and partnerships. All significant intercompany transactions and balances
have been eliminated.
Accounting estimates. In the preparation of the Consolidated Financial Statements in conformity
with accounting principles generally accepted in the United States of America, it is necessary for
management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated
Financial Statements and the reported amounts of revenues and expenses for the year then ended.
Actual results could differ from those estimates.
Recent accounting Pronouncements. SFAS No. 151 In November 2004, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 151, Inventory Costs, an
Amendment of ARB No. 43, Chapter 4 (SFAS No. 151). SFAS No. 151 amends ARB 43, Chapter 4, to
clarify that abnormal amounts of idle facility expense, freight, handling costs and wasted
materials (spoilage) be recognized as current period charges. It also requires that allocation of
fixed production overheads to the costs of conversion be based on the normal capacity of the
production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. The adoption of SFAS No. 151 is not expected to have a material
impact on the consolidated financial position or results of operations of IORI.
SFAS No. 152 In December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 152, Accounting for Real Estate Time-Sharing Transactions
(SFAS No. 152). SFAS No. 152 amends FASB Statement No. 66, Accounting for Sales of Real Estate,
to reference the financial accounting and reporting guidance for real estate time-sharing
transactions that is provided in AICPA Statement of Position 04-2, Accounting for Real Estate
Time-Sharing Transactions (SOP 04-2). This Statement also amends FASB Statement No. 67,
Accounting for Costs and Initial Rental Operations of Real Estate Projects, to state that the
guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not
apply to real estate time-sharing transactions. The accounting for those operations and costs is
subject to the guidance in SOP 04-2.
SFAS No. 152 is effective for financial statements for fiscal years beginning after June 15, 2005,
and is to be reported as a cumulative effect of a change in accounting principle. The adoption of
SFAS No. 145 is not expected to have a material impact on the consolidated financial position or
results of operations of IORI.
39
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
SFAS No. 123 In December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, Share-Based Payment, revised (SFAS No. 123R). SFAS No.
123R addresses the accounting for share-based payments to employees, including grants of employee
stock options. Under the new standard, companies will no longer be able to account for share-based
compensation transactions using the intrinsic method in accordance with APB Opinion No. 25,
Accounting for Stock Issued to Employees. Instead, companies will be required to account for such
transactions using a fair-value method and recognize the expense in the consolidated statement of
income. SFAS No. 123R will be effective for periods beginning after June 15, 2005 and allows, but
does not require, companies to restate the full fiscal year of 2005 to reflect the impact of
expensing share-based payments under SFAS No. 123R. The Company has not yet determined which
fair-value method and transitional provision it will follow. The adoption of SFAS No. 123R is not
expected to have a material impact on the Companys consolidated financial position or results of
operations.
SFAS No. 153 In December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 153, Exchanges of Non-monetary Assets, An Amendment of APB
Opinion No. 29 (SFAS No. 153). The guidance in APB Opinion No. 29, Accounting for Non-monetary
Transactions, is based on the principle that exchanges of non-monetary assets should be measured
based on the fair value of the assets exchanged. The guidance in APB Opinion No. 29, however,
included certain exceptions to that principle. SFAS No. 153 amends APB Opinion No. 29 to eliminate
the exception for non-monetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of non-monetary assets that do not have commercial substance. A
non-monetary exchange has commercial substance if the future cash flows of the entity are expected
to change significantly as a result of the exchange. SFAS No. 153 is effective for non-monetary
asset exchanges in fiscal periods beginning after June 15, 2005. The adoption of SFAS No. 153 is
not expected to have a material impact on the consolidated financial position or results of
operations of IORI.
Real estate held for investment and depreciation. Real estate held for investment is carried at
cost. Statement of Financial Accounting Standards No. 144 (SFAS No. 144) requires that a property
be considered impaired, if the sum of the expected future cash flows (undiscounted and without
interest charges) is less than the carrying amount of the property. If impairment exists, an
impairment loss is recognized by a charge against earnings equal to the amount by which the
carrying amount of the property exceeds the fair value of the property. If impairment of a property
is recognized, the carrying amount of the property is reduced by the amount of the impairment and a
new cost for the property is established. Such new cost is depreciated over the propertys
remaining useful life. Depreciation is provided by the straight-line method over estimated useful
lives, which range from 2 to 40 years.
Revenue recognition on the sale of real estate. Sales of real estate are recognized when and to the
extent permitted by Statement of Financial Accounting Standards No. 66, Accounting for Sales of
Real Estate (SFAS No. 66). Until the requirements of SFAS No. 66 for full profit recognition
have been met, transactions are accounted for using either the deposit, the installment sale, the
cost recovery or the financing method, whichever is appropriate. See NOTE 2. REAL ESTATE.
Investment in noncontrolled partnerships. The equity method is used to account for investments in
partnerships which IORI does not control. Under the equity method, an initial investment, recorded
at cost, is increased by a proportionate share of the partnerships operating income and any
additional advances and decreased by a proportionate share of the partnerships operating losses
and distributions received.
Operating segments. Management has determined reportable operating segments to be those that are
used for internal reporting purposes which disaggregates operations by type of real estate.
Fair value of financial instruments. The following assumptions were used in estimating the fair
value of notes receivable and payable. For notes receivable the fair value was estimated by
discounting future cash flows using current interest rates for similar loans. For notes payable the
fair value was estimated using year end interest rates for mortgages with similar terms and
maturities.
Cash equivalents. For purposes of the Consolidated Statements of Cash Flows, all highly liquid
investments purchased with an original maturity of three months or less are considered cash
equivalents.
Earnings per share. Income (loss) per share is presented in accordance with Statement of Financial
Accounting Standards No. 128 Earnings Per Share. Income (loss) per share is computed based upon
the weighted average number of shares of Common Stock outstanding during each year.
40
NOTE 2. REAL ESTATE
In 2004, IORI sold the following properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
Net Cash |
|
|
Debt |
|
|
Gain/(Loss) |
|
Property |
|
Location |
|
|
Sq.Ft. |
|
|
Price |
|
|
Received |
|
|
Discharged |
|
|
on Sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office Building |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Akard Building |
|
Dallas, TX |
|
42,258 Sq.Ft. |
|
$ |
3,900 |
|
|
$ |
2,007 |
|
|
$ |
1,849 |
|
|
$ |
427 |
|
Yeager Building |
|
Chantilly, VA |
|
60,060 Sq.Ft. |
|
$ |
7,600 |
|
|
$ |
2,174 |
|
|
$ |
5,230 |
|
|
$ |
1,939 |
|
Residential Building |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treehouse (San Antonio) |
|
San Antonio, TX |
|
88,957 Sq.Ft. |
|
$ |
5,400 |
|
|
$ |
1,437 |
|
|
$ |
3,747 |
|
|
$ |
3,091 |
|
Treehouse(Irving) |
|
Irving, TX |
|
153,072 Sq.Ft. |
|
$ |
7,500 |
|
|
|
|
|
|
$ |
5,018 |
|
|
|
|
|
Land |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frankel Land |
|
Midland County, TX |
|
1 Acre |
|
$ |
63 |
|
|
$ |
61 |
|
|
|
|
|
|
$ |
16 |
|
Concentration of investment risk. IORI has a high concentration of investment risk on properties in
the Southwest region of the United States. This risk includes, but is not limited to changes in
local economic conditions, changes in real estate and zoning laws, increases in real estate taxes,
floods, tornados and other acts of God and other factors beyond the control of management. In the
opinion of management, this investment risk is partially mitigated by the diversification of
property types in other geographical regions of the United States, managements review of
additional investments, acquisitions in other areas and by insurance.
NOTE 3. NOTES AND INTEREST RECEIVABLE
Junior Mortgage Loans. Junior mortgage loans are loans secured by mortgages that are subordinate to
one or more prior liens either on the fee or a leasehold interest in real estate. Recourse on the
loans ordinarily includes the real estate which secures the loan, other collateral and personal
guarantees of the borrower.
On September 30, 2004, a Secured Promissory Note in the amount of $1,222,500 given by UHF for
Unified Housing of Parkside Crossing, LLC to Regis I and the accrued interest receivable of
$112,878 were assigned from Regis I to IORI as a paydown of certain intercompany receivables.
On September 30, 2004, a Secured Promissory Note in the amount of $1,053,616 given by UHF for
Unified Housing of Temple, LLC to Regis I and the accrued interest receivable of $98,338 were
assigned from Regis I to IORI as a paydown of certain intercompany receivables.
On September 30, 2004, a Secured Promissory Note in the amount of $835,658 given by UHF for Unified
Housing of Terrell, LLC to Regis I and the accrued interest receivable of $80,223 were assigned
from Regis I to IORI as a paydown of certain intercompany receivables.
On September 30, 2004, a Secured Promissory Note in the amount of $1,770,000 given by UHF for
Housing for Seniors of Lewisville, LLC to Regis I and the accrued interest receivable of $174,640
were assigned from Regis I to IORI as a paydown of certain intercompany receivables.
On May 24, 2004, a Secured Promissory Note in the amount of $2,990,000 given by UHF for UHM to
Transcontinental Eldorado, Inc. was assigned from TCI to IORI as a partial payment for TCIs
repurchase of 100% of the outstanding common shares of Treehouse-IR from IORI.
On December 30, 2003, a Secured Promissory Note in the amount of $6,363,360 given by Humble to NLP
was assigned from ARI to IORI as a paydown of certain intercompany receivables.
On December 30, 2003, a Secured Promissory Note in the amount of $2,000,000 given by Humble to NLP
was assigned from ARI to IORI as additional paydown of certain intercompany receivables.
On October 14, 2003, IORI purchased, sold, and conveyed an office building known as One Hickory
Centre, and sold 202 acres of unimproved real property known as the Travelers Land in Dallas
County, Texas to Encino Executive Plaza, Ltd. The sale price for One Hickory Centre was $12,200,000
and Encino Executive Plaza, Ltd. executed a wrap-around promissory note in the amount of
$11,973,025 payable to the order of IORI secured by a
41
Deed of Trust encumbering One Hickory Centre. The remaining difference of which was as a result of
prorations and various expenses paid by IORI in connection with the closing of the transaction. The
note bears interest at 5.5% per annum. The sale price for the Travelers Land was $25,000,000. At
closing, Encino Executive Plaza, Ltd. executed an all inclusive wrap-around promissory note payable
to the order of IORI in the principal amount of $22,801,987 secured by a Deed of Trust covering the
Travelers Land sold and delivered cash to IORI in the amount of $1,946,715. As with the prior
transaction, the difference between the purchase price and the promissory note represented
adjustments for various prorations. The note bears interest at 5.5% per annum. Subsequently, IORI
made a loan to Encino Executive Plaza, Ltd. in the amount of $1,567,232 payable upon demand or if
no demand is made prior thereto on June 30, 2006 with a market rate of interest. Encino Executive
Plaza, Ltd. executed and delivered a promissory note payable to the order of IORI in the stated
principal amount of $1,567,232. The note bears interest at 5.5% per annum.
NOTE 4. INVESTMENT IN EQUITY METHOD PARTNERSHIPS
Investments in equity method partnerships consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
Nakash Income Associates (NIA) |
|
|
402 |
|
|
|
341 |
|
TCI Eton Square, L.P. (Eton Square) |
|
|
202 |
|
|
|
266 |
|
|
|
|
|
|
|
|
|
|
$ |
604 |
|
|
$ |
607 |
|
|
|
|
|
|
|
|
IORI owns a 40% general partner interest in NIA. NIAs only asset is a wraparound mortgage note
receivable secured by a shopping center in Maulden, Missouri. TCI owns the remaining 60% general
partner interest in NIA.
IORI also owns a 10% limited partner interest in Eton Square, which at December 31, 2004, owned the
Eton Square Building in Tulsa, Oklahoma. TCI owns a 90% general partner interest in Eton Square.
Set forth below are summarized financial data for the partnerships accounted for using the equity
method:
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
Notes receivable |
|
$ |
902 |
|
|
$ |
902 |
|
Real estate, net of accumulated depreciation ($2,146 in 2004 and $1,631 in 2003) |
|
|
14,595 |
|
|
|
13,753 |
|
Other assets |
|
|
(262 |
) |
|
|
(262 |
) |
Notes payable |
|
|
(10,054 |
) |
|
|
(10,206 |
) |
Other liabilities |
|
|
(2,154 |
) |
|
|
(677 |
) |
|
|
|
|
|
|
|
Partners capital |
|
$ |
3,027 |
|
|
$ |
3,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rents |
|
$ |
1,365 |
|
|
$ |
1,233 |
|
|
$ |
2,981 |
|
Interest income |
|
|
156 |
|
|
|
156 |
|
|
|
156 |
|
Interest expense |
|
|
(739 |
) |
|
|
(685 |
) |
|
|
(1,119 |
) |
Property operations expense |
|
|
(775 |
) |
|
|
(802 |
) |
|
|
(1,453 |
) |
Depreciation |
|
|
(475 |
) |
|
|
(400 |
) |
|
|
(628 |
) |
|
|
|
|
|
|
|
|
|
|
Loss before gains on sale of real estate |
|
|
(468 |
) |
|
|
(498 |
) |
|
|
(63 |
) |
Gain on sale |
|
|
|
|
|
|
|
|
|
|
1,054 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(468 |
) |
|
$ |
(498 |
) |
|
$ |
991 |
|
|
|
|
|
|
|
|
|
|
|
42
IORIs equity share of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before gains on sale of real estate |
|
$ |
(3 |
) |
|
$ |
(7 |
) |
|
$ |
862 |
* |
Gain on sale of real estate |
|
|
|
|
|
|
|
|
|
|
383 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(3 |
) |
|
$ |
(7 |
) |
|
$ |
1,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Includes the $1.3 million gain from the sale of IORIs investment in Tri-City. |
NOTE 5. NOTES AND INTEREST PAYABLE
Scheduled notes payable principal payments are due as follows:
|
|
|
|
|
2005 |
|
$ |
6,446 |
|
2006 |
|
|
6,101 |
|
2007 |
|
|
717 |
|
2008 |
|
|
2,833 |
|
2009 |
|
|
742 |
|
Thereafter |
|
|
27,503 |
|
|
|
|
|
|
|
$ |
44,342 |
|
|
|
|
|
Notes payable at December 31, 2004, bear interest at rates ranging from 4.48% to 9.56% and mature
between 2005 and 2012. The mortgages are collateralized by deeds of trust on real estate with a
net carrying value of $31.4 million. As indicated in the foregoing schedule, the book value of
notes payable decreased $16.1 million in 2004 from 2003 due to retirement of notes payable
resulting from sale of four properties during 2004. See ITEM 7.
MANAGEMENTS DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSObligations and Commitments and ITEM
7A. QUANTIFICATIVE AND QUALIFICATIVE DISCLOSURES ABOUT MARKET RISKLiabilities.
In April 2002, the Company transferred all of its residential properties to partnerships formed
with Metra Capital LLC (Metra). The properties included the 60-unit Brighton Court, the 92-unit
Del Mar, the 68-unit Enclave, the 280-unit Meridian, the 57-unit Signature, and the 114-unit
Sinclair, all located in Midland, Texas, and the 106-unit Treehouse located in San Antonio, Texas.
Innovo Realty, Inc., a subsidiary of Innovo Group, Inc. (Innovo) is a limited partner in the
partnerships that purchased the properties. A former director of ARI, a related party, controlled
approximately 11.67% of the outstanding common stock of Innovo. The transfer constituted 23% of
the total assets of the Company as of December 31, 2001. The transfer price for the properties
totaled $26.2 million, of which the Company received $5.3 million in cash after the payment of
$15.9 million in debt and various closing costs. Management determined to account for the
transaction as a refinancing transaction (rather than a sale) in accordance with SFAS 66
Accounting for Sales of Real Estate. At the time of the transaction in April 2002, ARI was a
related party to the Company by virtue of ARIs subsidiaries ownership of approximately 28.5% of
the then outstanding common stock of the Company, and the fact that ARI and the Company had the
same persons as executive officers. The compensation price for the properties transferred totaled
$26.2 million and possible additional contingent consideration depending upon the sale price of the
properties by the Metra partnerships. The Company also received $5.2 million in value of 8% in
non-recourse, non-convertible preferred stock of Innovo. Based upon the prospect of additional
consideration, ultimate continued involvement through the preferred stock and the related-party
nature of the former ARI directors involvement, as well as the Company retaining a right to
approve the price of any ultimate sale by a Metra partnership of the properties, and a process by
which the Company effectively guaranteed a preferential return to the Metra investors, management
determined that the transaction must be classified as a financing transaction and not a sale. The
Company continued to be able to exert control over the Metra partnerships, and no sale was
recorded. The Treehouse property was subsequently sold to a non-related party in February 2004,
and all of its debts have been repaid to the lenders at the time of the sale. During August 2004,
certain entities, including the Company, instituted an action in a Texas state court against Innovo
and Metra and others over the process, as well as distribution questions. During April 2005, a
resolution of the litigation occurred settling all liabilities remaining from the original
partnership arrangements which included a return of the Metra investor equity, prepayment of
prospective asset management fees and miscellaneous fees and transaction costs from the Company and
the other plaintiffs as a payment of the Preferential Return along with the delegation of
management to another entity. Of the payment made, the Company recognized expense of $56,000 and a
reduction of $1,476,000 in liabilities during the second quarter of 2005.
43
INCOME OPPORTUNITY REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
In 2004, IORI refinanced the following property:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sq.Ft/ |
|
|
|
|
|
Received/ |
|
Interest |
|
Maturity |
Property |
|
Location |
|
Acres |
|
Debt Incurred |
|
Debt Discharged |
|
(Paid) |
|
Rate |
|
Date |
Office Building |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chuck Yeager |
|
Chantilly, VA |
|
60,060 |
|
$5,500 |
|
$4,307 |
|
$1,193 |
|
5.25%(1) |
|
1/07 |
NOTE 6. RELATED PARTY TRANSACTIONS
On September 30, 2004, a Secured Promissory Note in the amount of $1,222,500 given by UHF for
Unified Housing of Parkside Crossing, LLC to Regis I and the accrued interest receivable of
$112,878 were assigned from Regis I to IORI as a paydown in the same amount of certain intercompany
receivables due to IORI.
On September 30, 2004, a Secured Promissory Note in the amount of $1,053,616 given by UHF for
Unified Housing of Temple, LLC to Regis I and the accrued interest receivable of $98,338 were
assigned from Regis I to IORI as a paydown in the same amount of certain intercompany receivables
due to IORI.
On September 30, 2004, a Secured Promissory Note in the amount of $835,658 given by UHF for Unified
Housing of Terrell, LLC to Regis I and the accrued interest receivable of $80,223 were assigned
from Regis I to IORI as a paydown in the same amount of certain intercompany receivables due to
IORI.
On September 30, 2004, a Secured Promissory Note in the amount of $1,770,000 given by UHF for
Housing for Seniors of Lewisville, LLC to Regis I and the accrued interest receivable of $174,640
were assigned from Regis I to IORI as a paydown in the same amount of certain intercompany
receivables due to IORI.
On May 24, 2004, a Secured Promissory Note in the amount of $2,990,000 given by UHF for UHM to
Transcontinental Eldorado, Inc. was assigned from TCI to IORI as a partial payment for TCIs
repurchase of 100% of the outstanding common shares of Treehouse-IR from IORI.
On December 30, 2003, a Promissory Note in the amount of $6.3 million given by Humble to NLP was
assigned from ARI to IORI. On December 30, 2003, a Promissory Note in the amount of $2.0 million
given by Humble to NLP was assigned from ARI to IORI. These assignments were payments aggregating
$8.3 million plus accrued interest of $386,000 on certain intercompany receivables due to IORI.
On September 19, 2002, IORIs Board of Directors authorized the Chief Financial Officer of the
Company to advance funds either to or from the Company, through the advisor, in an amount up to
$5.0 million on the condition that such advances shall be repaid in cash or transfers of assets
within 90 days.
44
The following table reconciles the beginning and ending balances of Accounts Receivable from
Affiliates as of December 31, 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SWI |
|
|
Regis I |
|
|
ARI |
|
|
TCI |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003 (as restated) |
|
|
324 |
|
|
|
(473 |
) |
|
$ |
367 |
|
|
$ |
261 |
|
Cash transfers |
|
|
11,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash repayments |
|
|
(5,831 |
) |
|
|
|
|
|
|
(367 |
) |
|
|
|
|
Other additions |
|
|
192 |
|
|
|
1,075 |
|
|
|
|
|
|
|
|
|
Other repayments |
|
|
(7,463 |
) |
|
|
(602 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004 (as restated) |
|
|
(1,248 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Returns on Metra Properties. As described in Note 5, IORI sold all of its residential properties
during 2002 to partnerships controlled by Metra. The partnership agreement for each of these
partnerships states that the Metra Partners, as defined, receive cash flow distributions at least
quarterly in an amount sufficient to provide them with a fifteen percent cumulative compounded
annual rate of return on their invested capital, as well as a cumulative annual amount of 0.50% of
the average outstanding balance of the mortgage indebtedness secured by any of these residential
properties. These distributions to the Metra Partners are to have priority over distributions to
any of the other partners.
NOTE 7. DIVIDENDS
While IORI was a REIT, dividends of $685,000 ($.45 per share) were paid in 2000. It was reported to
the Internal Revenue Service that 100% of the dividends paid in 2000 represented capital gains.
In December 2000, the Board of Directors determined not to pay a fourth quarter dividend to holders
of IORIs Common Stock. The non-payment decision was based on the Board determining that IORI
needed to retain cash for acquisitions that were anticipated in 2001 and that IORI had no REIT
taxable income that required a distribution.
No quarterly dividends were declared or paid in 2004, 2003 or 2002. Management expects to pay no
cash dividends in 2005.
NOTE 8. RENTS UNDER OPERATING LEASES
Operations include the leasing of office buildings. The leases thereon expire at various dates
through 2012. The following is a schedule of minimum future rents on non-cancelable operating
leases as of December 31, 2004:
|
|
|
|
|
2005 |
|
$ |
1,134 |
|
2006 |
|
|
867 |
|
2007 |
|
|
638 |
|
2008 |
|
|
529 |
|
2009 |
|
|
176 |
|
Thereafter |
|
|
446 |
|
|
|
|
|
|
|
$ |
3,790 |
|
|
|
|
|
NOTE 9. ADVISORY AGREEMENT
SWI is 100% owned by Gene E. Phillips. Mr. Phillips is Chairman, President, Chief Executive
Officer, and Director of SWI, and is involved in daily consultation with the officers of SWI and
has significant influence over the conduct of SWIs business, including the rendering of advisory
services and the making of investment decisions for itself and for IORI.
Under the Advisory Agreement, SWI is required to annually formulate and submit for Board approval a
budget and business plan containing a twelve-month forecast of operations and cash flow, a general
plan for asset sales and purchases, borrowing activity and other investments. SWI is required to
report quarterly to the Board on IORIs performance against the business plan. In addition, all
transactions require prior Board approval, unless they are explicitly provided for in the approved
business plan or are made pursuant to authority expressly delegated to SWI by the Board.
45
The Advisory Agreement also requires prior Board approval for the retention of all consultants and
third party professionals other than legal counsel. The Advisory Agreement provides that SWI shall
be deemed to be in a fiduciary relationship to the stockholders and contains a broad standard
governing SWIs liability for losses incurred by IORI.
The Advisory Agreement provides for SWI to be responsible for IORIs day-to-day operations and to
receive an advisory fee comprised of a gross asset fee of .0625% per month (.75% per annum) of the
average of the gross asset value (total assets less allowance for amortization, depreciation or
depletion and valuation reserves) and an annual net income fee equal to 7.5% per annum of net
income.
The Advisory Agreement also provides for SWI to receive an annual incentive sales fee. SWI or an
affiliate of SWI is to receive an acquisition commission for supervising the purchase or long-term
lease of real estate. SWI or an affiliate of SWI is to receive a mortgage or loan acquisition fee
with respect to the purchase of any existing mortgage loan. SWI or an affiliate of SWI also is to
receive a mortgage brokerage and equity refinancing fee for obtaining loans or refinancing of
IORIs properties. In addition, SWI receives reimbursement of certain expenses incurred by it, in
the performance of advisory services for IORI.
The Advisory Agreement requires SWI or any affiliate of SWI to pay to IORI one-half of any
compensation received from third parties with respect to the origination, placement or brokerage of
any loan made by IORI.
Under the Advisory Agreement all or a portion of the annual advisory fee must be refunded by SWI if
the Operating Expenses of IORI (as defined in the Advisory Agreement) exceed certain limits
specified in the Advisory Agreement. The effect of this limitation was to require SWI to refund
$-0- of the 2004 annual advisory fee, $227,000 of the 2003 annual advisory fee, and $68,000 of the
2002 annual advisory fee.
Additionally, if management was to request that SWI render services other than those required by
the Advisory Agreement, SWI or an affiliate of BCM would be separately compensated for such
additional services on terms to be agreed upon from time to time. As discussed in NOTE 10.
PROPERTY MANAGEMENT, Triad Realty Services, Ltd., an affiliate of BCM, provides property
management services and, as discussed in NOTE 11. REAL ESTATE BROKERAGE, Regis Realty I, LLC.,
provided, on a non-exclusive basis, brokerage services.
SWI may assign the Advisory Agreement only with the prior consent of IORI.
NOTE 10. PROPERTY MANAGEMENT
Triad provides property management services for a fee of 6% or less of the monthly gross rents
collected on residential properties and 3% or less of the monthly gross rents collected on
commercial properties under its management. Triad subcontracts with other entities for
property-level management services at various rates. The general partner of Triad is BCM. The
limited partner of Triad is Highland. Triad subcontracted to Regis, which is owned by Highland, the
property-level management and leasing of IORIs five office buildings and the commercial property
owned by Eton Square, until December 2002. Since January 1, 2003, Regis I, which is also owned by
Highland, provided property management services. Regis was and Regis I is entitled to receive
property and construction management fees and leasing commissions in accordance with the terms of
its property-level management agreement with Triad.
NOTE 11. REAL ESTATE BROKERAGE
Regis also provided brokerage services on a non-exclusive basis until December 2002. Regis was and
Regis I is entitled to receive a commission for property purchases and sales in accordance with a
sliding scale of total brokerage fees to be paid by IORI.
46
NOTE 12. ADVISORY FEES, PROPERTY MANAGEMENT FEES, ETC.
Fees and cost reimbursements to SWI/BCM and affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
Fees |
|
(Restated) |
|
|
(Restated) |
|
|
|
|
|
Fees Advisory |
|
$ |
741 |
|
|
$ |
424 |
|
|
$ |
714 |
|
Net income |
|
|
440 |
|
|
|
109 |
|
|
|
169 |
|
Commission on property sale |
|
|
301 |
|
|
|
473 |
|
|
|
|
|
Mortgage brokerage and equity refinancing |
|
|
518 |
|
|
|
547 |
|
|
|
262 |
|
Property & Construction Mgt. & Leasing Comm |
|
|
120 |
|
|
|
323 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,120 |
|
|
$ |
1,876 |
|
|
$ |
1,145 |
|
|
|
|
|
|
|
|
|
|
|
Cost reimbursements |
|
$ |
78 |
|
|
$ |
173 |
|
|
$ |
246 |
|
|
|
|
|
|
|
|
|
|
|
NOTE 13. INCOME TAXES
For the year 2002, IORI elected and qualified to be treated as a Real Estate Investment Trust
(REIT), as defined in Sections 856 through 860 of the Internal Revenue Code of 1986, as amended
(the Code), and as such, was not taxed for federal income tax purposes on that portion of its
taxable income which is distributed to stockholders. Due to the completion of the tender offer by
ARI, an affiliate, and the resulting concentration of ownership, IORI no longer met the
requirements for tax treatment as a REIT under the Code as of January 1, 2003, and is prohibited
for re-qualifying for REIT status for at least five years.
IORI had net income for federal income tax purposes before the application of operating loss
carryforwards in 2004, 2003 and 2002. Therefore, IORI recorded no provision for income taxes.
IORIs tax basis in its net assets differs from the amount at which its net assets are reported for
financial statement purposes, principally due to the accounting for gains and losses on property
sales, depreciation on owned properties and investments in joint venture partnerships.
Deferred income taxes reflect the tax effects of temporary timing differences between carrying
amounts of assets and liabilities reflected on the financial statements and the amounts used for
income tax purposes. The tax effects of temporary differences and net operating loss carryforwards
that give rise to the deferred tax assets are presented below:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2004 |
|
|
2003 |
|
Deferred tax assets |
|
|
|
|
|
|
|
|
Basis difference in preferred stock |
|
$ |
1,542 |
|
|
$ |
1,960 |
|
Accumulated Depreciation and amortization |
|
|
284 |
|
|
|
449 |
|
Basis difference in Metra assets and liabilities |
|
|
425 |
|
|
|
219 |
|
Other |
|
|
182 |
|
|
|
|
|
Federal benefit of net operating loss carryforward |
|
|
122 |
|
|
|
855 |
|
|
|
|
|
|
|
|
Deferred tax asset |
|
|
2,555 |
|
|
|
3,483 |
|
Less valuation allowance |
|
|
(2,555 |
) |
|
|
(3,483 |
) |
|
|
|
|
|
|
|
Total deferred tax asset |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition of the benefits of the deferred tax assets will require the Company to generate future
taxable income. There is no assurance that the Company will generate earnings in future years.
Therefore the Company has established a valuation allowance for deferred tax assets of
approximately $2,555,000 and $3,483,000 as of December 31, 2004 and 2003.
In prior years the Company had losses, which resulted in net operating losses carryforwards for tax
purposes amounting to approximately $321,000 at December 31, 2004 that may be offset against future
taxable income. These carryforwards expire in 2021.
47
The following table presents the principal reasons for the differences between the Companys
effective tax rate and the United States statutory income tax rate of 35%.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal income tax at statutory rate |
|
|
1,922 |
|
|
|
623 |
|
|
|
730 |
|
State tax expense |
|
|
100 |
|
|
|
41 |
|
|
|
110 |
|
Gain on sale differences |
|
|
(1,261 |
) |
|
|
(243 |
) |
|
|
62 |
|
Other |
|
|
(36 |
) |
|
|
(106 |
) |
|
|
282 |
|
Utilization of net operating loss carryforward |
|
|
(725 |
) |
|
|
(315 |
) |
|
|
(1,184 |
) |
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
NOTE 14. OPERATING SEGMENTS
Significant differences among the accounting policies of the operating segments as compared to the
Consolidated Financial Statements principally involve the calculation and allocation of general and
administrative expenses. Management evaluates the performance of the operating segments and
allocates resources to each of them based on their operating income and cash flow. Items of income
that are not reflected in the segments are interest and equity in partnerships totaling $3.3
million, $2.2 million, $1.1 million for 2004, 2003 and 2002, respectively. Expenses/(Gains) that
are not reflected in the segments are general and administrative expenses, advisory and net income
fees, provision for loss, and provision for asset impairment totaling $1.8 million, $2.2 million,
and $3.5 million for 2004, 2003 and 2002, respectively. Excluded from operating segment assets are
assets of $59.3 million at December 31, 2004, $50.8 million at December 31, 2003, and $15.4 million
at December 31, 2002, which are not identifiable with an operating segment. There are no
intersegment revenues and expenses and all business is conducted in the United States.
Presented below is the operating income of each operating segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
2004 (as restated) |
|
Land |
|
|
Properties |
|
|
Apartments |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rents |
|
$ |
|
|
|
$ |
1,244 |
|
|
$ |
4,661 |
|
|
$ |
5,905 |
|
Property operating expenses |
|
|
|
|
|
|
673 |
|
|
|
2,456 |
|
|
|
3,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
|
|
|
$ |
571 |
|
|
$ |
2,205 |
|
|
$ |
2,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
$ |
|
|
|
$ |
294 |
|
|
$ |
446 |
|
|
$ |
740 |
|
Interest |
|
|
996 |
|
|
|
874 |
|
|
|
1,700 |
|
|
|
3,570 |
|
Real estate improvements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
12,998 |
|
|
|
18,370 |
|
|
|
31,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
Property Sales |
|
Land |
|
|
Properties |
|
|
Apartments |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales price |
|
$ |
63 |
|
|
$ |
11,500 |
|
|
$ |
12,900 |
|
|
$ |
24,463 |
|
Cost of sale |
|
|
47 |
|
|
|
9,134 |
|
|
|
9,809 |
|
|
|
18,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale |
|
$ |
16 |
|
|
$ |
2,366 |
|
|
$ |
3,091 |
|
|
$ |
5,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
2003 (as restated) |
|
Land |
|
|
Properties |
|
|
Apartments |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rents |
|
$ |
|
|
|
$ |
718 |
|
|
$ |
4,506 |
|
|
$ |
5,224 |
|
Property operating expenses |
|
|
|
|
|
|
389 |
|
|
|
2,942 |
|
|
|
3,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
|
|
|
$ |
329 |
|
|
$ |
1,564 |
|
|
$ |
1,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
$ |
|
|
|
$ |
456 |
|
|
$ |
360 |
|
|
$ |
816 |
|
Interest |
|
|
|
|
|
|
217 |
|
|
|
1,595 |
|
|
|
1,812 |
|
Real estate improvements |
|
|
|
|
|
|
494 |
|
|
|
|
|
|
|
494 |
|
Assets |
|
|
44 |
|
|
|
22,105 |
|
|
|
28,216 |
|
|
|
50,365 |
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
Property Sales |
|
Land |
|
|
Properties |
|
|
Apartments |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales price |
|
$ |
63 |
|
|
$ |
11,500 |
|
|
$ |
12,900 |
|
|
$ |
24,463 |
|
Cost of sale |
|
|
47 |
|
|
|
9,134 |
|
|
|
9,809 |
|
|
|
18,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale |
|
$ |
16 |
|
|
$ |
2,366 |
|
|
$ |
3,091 |
|
|
$ |
5,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
2002 |
|
Land |
|
|
Properties |
|
|
Apartments |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rents |
|
$ |
|
|
|
$ |
778 |
|
|
$ |
4,520 |
|
|
$ |
5,298 |
|
Property operating expenses |
|
|
|
|
|
|
360 |
|
|
|
2,388 |
|
|
|
2,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
|
|
|
$ |
418 |
|
|
$ |
2,132 |
|
|
$ |
2,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
$ |
|
|
|
$ |
320 |
|
|
$ |
428 |
|
|
$ |
748 |
|
Interest |
|
|
|
|
|
|
149 |
|
|
|
1,308 |
|
|
|
1,457 |
|
Real estate improvements |
|
|
|
|
|
|
240 |
|
|
|
|
|
|
|
240 |
|
Assets |
|
|
24,929 |
|
|
|
28,688 |
|
|
|
21,133 |
|
|
|
74,750 |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
Property Sales |
|
Properties |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
Sales price |
|
$ |
19,230 |
|
|
$ |
19,230 |
|
Cost of sale |
|
|
12,461 |
|
|
|
12,461 |
|
|
|
|
|
|
|
|
Gain on sale |
|
$ |
6,769 |
|
|
$ |
6,769 |
|
|
|
|
|
|
|
|
NOTE 15. DISCONTINUED OPERATIONS
Effective January 1, 2002, IORI adopted Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, which established a single
accounting model for the impairment or disposal of long-lived assets, including discontinued
operations. This statement requires that the operations related to properties that have been sold
or properties that are intended to be sold be presented as discontinued operations in the statement
of operations for all periods presented, and properties intended to be sold are to be designated as
held-for-sale on the balance sheet.
For 2004, 2003, and 2002, income (loss) from discontinued operations relates to two properties that
IORI sold during 2002, four properties sold during 2003, and five properties sold during 2004. The
following table summarizes revenue and expense information for these properties sold.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Rental |
|
$ |
1,771 |
|
|
$ |
4,581 |
|
|
$ |
5,101 |
|
Property operations |
|
|
981 |
|
|
|
3,087 |
|
|
|
3,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
790 |
|
|
|
1,494 |
|
|
|
1,519 |
|
Interest Income |
|
|
|
|
|
|
462 |
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
556 |
|
|
|
2,987 |
|
|
|
3,457 |
|
Depreciation |
|
|
323 |
|
|
|
740 |
|
|
|
1,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
879 |
|
|
|
3,727 |
|
|
|
4,574 |
|
Net income (loss) from discontinued operations |
|
|
(89 |
) |
|
|
(1,771 |
) |
|
|
(3,055 |
) |
Gain on sale of real estate |
|
|
5,473 |
|
|
|
3,824 |
|
|
|
6,769 |
|
Equity in gain on sale of real estate by equity investees |
|
|
|
|
|
|
|
|
|
|
383 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from discontinued operations |
|
$ |
5,384 |
|
|
$ |
2,053 |
|
|
$ |
4,097 |
|
|
|
|
|
|
|
|
|
|
|
49
NOTE 16. QUARTERLY DATA
The following is a tabulation of quarterly results of operations for the years 2004, 2003 and 2002
(unaudited).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
2004 (as restated) |
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rents |
|
$ |
1,448 |
|
|
$ |
1,469 |
|
|
$ |
1,428 |
|
|
$ |
1,560 |
|
Property expense |
|
|
842 |
|
|
|
764 |
|
|
|
902 |
|
|
|
621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
606 |
|
|
|
705 |
|
|
|
526 |
|
|
|
939 |
|
Interest income |
|
|
598 |
|
|
|
605 |
|
|
|
1,017 |
|
|
|
1,105 |
|
Income (loss) in equity partnerships |
|
|
(1 |
) |
|
|
11 |
|
|
|
(20 |
) |
|
|
7 |
|
Other expense |
|
|
1,820 |
|
|
|
1,453 |
|
|
|
1,274 |
|
|
|
1,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations |
|
|
(617 |
) |
|
|
(132 |
) |
|
|
249 |
|
|
|
544 |
|
Discontinued operations |
|
|
3,131 |
|
|
|
466 |
|
|
|
15 |
|
|
|
1,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
2,514 |
|
|
$ |
334 |
|
|
$ |
264 |
|
|
$ |
2,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share Net income (loss) |
|
$ |
1.81 |
|
|
$ |
0.24 |
|
|
$ |
0.19 |
|
|
$ |
1.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
2003 (as restated) |
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rents |
|
$ |
1,319 |
|
|
$ |
1,297 |
|
|
$ |
1,321 |
|
|
$ |
1,287 |
|
Property expense |
|
|
670 |
|
|
|
729 |
|
|
|
873 |
|
|
|
1,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
649 |
|
|
|
568 |
|
|
|
448 |
|
|
|
228 |
|
Recovery of A/R written off |
|
|
|
|
|
|
1,569 |
|
|
|
|
|
|
|
|
|
Interest income |
|
|
|
|
|
|
614 |
|
|
|
12 |
|
|
|
|
|
Income (loss) in equity partnerships |
|
|
(15 |
) |
|
|
|
|
|
|
(13 |
) |
|
|
21 |
|
Other expense |
|
|
1,015 |
|
|
|
1,723 |
|
|
|
1,071 |
|
|
|
979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations |
|
|
(381 |
) |
|
|
1,028 |
|
|
|
(624 |
) |
|
|
(730 |
) |
Discontinued operations |
|
|
(546 |
) |
|
|
(372 |
) |
|
|
(455 |
) |
|
|
3,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(927 |
) |
|
$ |
656 |
|
|
$ |
(1,079 |
) |
|
$ |
2,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share Net income (loss) |
|
$ |
(0.64 |
) |
|
$ |
0.46 |
|
|
$ |
(.75 |
) |
|
$ |
1.87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
2002 |
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rents |
|
$ |
1,271 |
|
|
$ |
1,280 |
|
|
$ |
1,444 |
|
|
$ |
1,303 |
|
Property expense |
|
|
557 |
|
|
|
618 |
|
|
|
854 |
|
|
|
719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
714 |
|
|
|
662 |
|
|
|
590 |
|
|
|
584 |
|
Interest income |
|
|
37 |
|
|
|
310 |
|
|
|
185 |
|
|
|
(262 |
) |
Income (loss) in equity partnerships |
|
|
(17 |
) |
|
|
48 |
|
|
|
60 |
|
|
|
771 |
|
Other expense |
|
|
2,076 |
|
|
|
1,184 |
|
|
|
724 |
|
|
|
1,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations |
|
|
(1,342 |
) |
|
|
(164 |
) |
|
|
111 |
|
|
|
(617 |
) |
Discontinued operations |
|
|
6,415 |
|
|
|
(723 |
) |
|
|
(1,352 |
) |
|
|
(243 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
5,073 |
|
|
$ |
(887 |
) |
|
$ |
(1,241 |
) |
|
$ |
(860 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share Net income (loss) |
|
$ |
3.53 |
|
|
$ |
(0.62 |
) |
|
$ |
(0.86 |
) |
|
$ |
(0.60 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
In the first quarter of 2004, the Treehouse (San Antonio) Building was sold and $3.1 million
gain on sale was recognized. In the second quarter of 2004, Treehouse (Irving) Building was sold
and $150,000 deferred gain on sale was recognized. In the third quarter of 2004, Akard Building was
sold and $427,000 gain on sale was recognized. In the fourth quarter of 2004, Frankel Land and
Yeager Building were sold. $16,000 gain was recognized on the sale of Frankel Land, and $1.9
million gain was recognized on the sale of Yeager Building.
50
NOTE 17. COMMITMENTS AND CONTINGENCIES AND LIQUIDITY
Olive Litigation. In February 1990, IORI, together with National Income Realty Trust, Continental
Mortgage and Equity Trust, which subsequently merged with and into TCI, and TCI, three real estate
entities with, at the time, the same officers, directors or trustees and advisor as IORI, entered
into a settlement (the Settlement) of a class and derivative action entitled Olive et al. v.
National Income Realty Trust et al. (the Olive Litigation), relating to the operation and
management of each of the entities. On April 23, 1990, the Court granted final approval of the
terms of the Settlement. The Settlement was modified in 1994 (the Modification), which was
amended on January 27, 1997 by Amendment to the Modification effective January 9, 1994 (the First
Amendment).
In October 2000, plaintiffs counsel asserted that a stock option agreement to purchase TCI shares
(which was entered into by IORI and an affiliate of IORI, ARI, in October 2000 with an investment
fund) breached a provision of the Modification. As a result of this assertion, IORI assigned all of
its rights to purchase the TCI shares under this stock option agreement to ARI.
The Board believes that all provisions of the Settlement, the Modification and First Amendment
terminated on April 28, 1999. However, in September 2000, the Court ruled that certain provisions
of the Modification continue to be effective after the termination date. This ruling was appealed
to the United States Court of Appeals for the Ninth Circuit by IORI and TCI.
On October 23, 2001, IORI, TCI and ARI jointly announced a preliminary agreement with the
plaintiffs legal counsel for complete settlement of all disputes in the lawsuit. In February 2002,
the court granted final approval of the proposed settlement (the Second Amendment). Under the
Second Amendment, the appeal was dismissed and ARI agreed to either (i) acquire all of the
outstanding shares of IORI and TCI not currently owned by ARI for a cash payment or shares of ARI
preferred stock or (ii) make a tender offer for all of the outstanding common shares of IORI and
TCI not currently owned by ARI. At the time, IORI had the same board as TCI and the same advisor as
TCI and ARI. Earl D. Cecil and Ted P. Stokely who served as Directors of IORI and TCI, were also
directors of ARI.
On November 15, 2002, ARI commenced, through subsidiaries, a tender offer for shares of common
stock of TCI and IORI. The price per share was $17.50 for TCI shares and $19.00 for IORI shares.
The tender offers were completed on March 19, 2003. ARI acquired 265,036 shares of IORI (which were
subsequently contributed to a subsidiary and later acquired by SWI) and 1,213,226 TCI shares. The
completion of the tender offer fulfilled the obligations under the Second Amendment and the Olive
Litigation was dismissed with prejudice.
Liquidity. Management anticipates that IORI will generate excess cash from operations in 2005 due
to increased rental rates and occupancy at its properties, however, such excess may not be
sufficient to discharge all of IORIs debt obligations as they mature. Management intends to
selectively sell income producing assets, refinance real estate and/or incur additional borrowings
against real estate to meet its cash requirements.
Other Litigation. IORI is also involved in various other lawsuits arising in the ordinary course of
business. Management is of the opinion that the outcome of these lawsuits will have no material
impact on the Companys financial condition, results of operations or liquidity.
NOTE 18. CORRECTION OF PREVIOUSLY FILED FINANCIAL STATEMENTS
The Company identified an accounting error in the financial statements related to the total Metra
transactions. The error involved the establishment of a process involving the deferral of operating
income or expense from the Metra properties until the sale of the property. The result is that the
Company concluded that changes should be made to its financial statements for the year ending
December 31, 2003 and for the year ending December 31, 2004. The resulting impact in these
financial statements was to decrease net income for the year ending December 31, 2004 by $64,000
from a reported $5,492,000 to $5,428,000, an overall decrease in net income per share by $0.04 from
a reported $3.95 per share to $3.91 per share. This decrease resulted from an increase in interest
expense of approximately $79,000, decrease of net income fee to affiliate of $13,000, and a
decrease of advisory fee to affiliate of $2,000. Total assets decreased by approximately $563,000
due to a decrease in other assets ($458,000 in 2003 and $105,000 in 2004), and total liabilities
decreased by $62,000 due to a decrease in payable to affiliate of $38,000 other liabilities of
$24,000.
The changes for the fiscal year ended December 31, 2003 were a decrease in net income by $436,000
from a reported $1,782,000 to $1,346,000, and a decrease on a per share basis from a reported $1.24
per share to $0.94 per share. This decrease resulted from an increase in interest expense of approximately $458,000,
decrease of net income fee to affiliate of $21,000, and a decrease of advisory fee to affiliate of
$1,000. Total assets decreased by approximately $51,000 due to an increase of receivable from
affiliate for $22,000 and a decrease in other assets of $73,000, and total liabilities increase by
$385,000 due to a decrease in other liabilities of $385,000.
51
SCHEDULE III
INCOME OPPORTUNITY REALTY INVESTORS, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life on |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Which Depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost |
|
|
Gross Amount |
|
|
|
|
|
|
Accumu- |
|
|
|
|
|
|
|
|
|
|
in Latest |
|
|
|
|
|
|
|
Initial Cost |
|
|
Capitalized |
|
|
Carried at End of Year(1) |
|
|
|
|
|
|
lated |
|
|
Date of |
|
|
|
|
|
|
Statement |
|
|
|
Encum- |
|
|
|
|
|
|
Building & |
|
|
Subsequent to |
|
|
|
|
|
|
Building & |
|
|
|
|
|
|
Depreci- |
|
|
Construc- |
|
|
Date |
|
|
of Operation |
|
Property/Location |
|
branches |
|
|
Land |
|
|
Improvements |
|
|
Acquisition |
|
|
Land |
|
|
Improvements |
|
|
Total |
|
|
ation |
|
|
tion |
|
|
Acquired |
|
|
is Computed |
|
(dollars in thousands)
|
Properties Held For
Investment
Apartments
Brighton Court,
Midland, TX |
|
$ |
2,843 |
|
|
$ |
339 |
|
|
$ |
3,051 |
|
|
$ |
|
|
|
$ |
339 |
|
|
$ |
3,051 |
|
|
$ |
3,390 |
|
|
$ |
344 |
|
|
|
1983 |
|
|
|
06/00 |
|
|
40 years |
Del Mar, Midland, TX |
|
|
2,725 |
|
|
|
324 |
|
|
|
2,919 |
|
|
|
|
|
|
|
324 |
|
|
|
2,919 |
|
|
|
3,243 |
|
|
|
328 |
|
|
|
1983 |
|
|
|
06/00 |
|
|
40 years |
Enclave, Midland, TX |
|
|
2,882 |
|
|
|
324 |
|
|
|
2,919 |
|
|
|
|
|
|
|
324 |
|
|
|
2,919 |
|
|
|
3,243 |
|
|
|
328 |
|
|
|
1983 |
|
|
|
06/00 |
|
|
40 years |
Meridian, Midland, TX |
|
|
4,502 |
|
|
|
1,138 |
|
|
|
4,553 |
|
|
|
|
|
|
|
1,138 |
|
|
|
4,553 |
|
|
|
5,691 |
|
|
|
569 |
|
|
|
1983 |
|
|
|
12/99 |
|
|
40 years |
Signature Place, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Midland, TX |
|
|
2,410 |
|
|
|
265 |
|
|
|
2,388 |
|
|
|
|
|
|
|
265 |
|
|
|
2,388 |
|
|
|
2,653 |
|
|
|
269 |
|
|
|
1983 |
|
|
|
06/00 |
|
|
40 years |
Sinclair Place, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Midland, TX |
|
|
2,054 |
|
|
|
221 |
|
|
|
1,990 |
|
|
|
|
|
|
|
221 |
|
|
|
1,990 |
|
|
|
2,211 |
|
|
|
224 |
|
|
|
1983 |
|
|
|
06/00 |
|
|
40 years |
Office Buildings
2010 Valley View, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmers Branch, TX |
|
|
2,426 |
|
|
|
120 |
|
|
|
479 |
|
|
|
2,979 |
|
|
|
120 |
|
|
|
3,458 |
|
|
|
3,578 |
|
|
|
1,423 |
|
|
|
1998 |
|
|
|
09/97 |
|
|
5-40 years |
Parkway Ctr, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmers Branch, TX |
|
|
1,631 |
|
|
|
333 |
|
|
|
3,511 |
|
|
|
|
|
|
|
333 |
|
|
|
3,511 |
|
|
|
3,844 |
|
|
|
88 |
|
|
|
1979 |
|
|
|
12/03 |
|
|
5-40 years |
Industrial Warehouse |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eagle Crest, Farmers
Branch, TX |
|
|
|
|
|
|
2,129 |
|
|
|
1,906 |
|
|
|
|
|
|
|
2,129 |
|
|
|
1,906 |
|
|
|
4,035 |
|
|
|
47 |
|
|
|
|
|
|
|
12/03 |
|
|
5-40 years |
Land
3 Hickory Ctr,
Farmers Branch, TX |
|
|
|
|
|
|
2,804 |
|
|
|
|
|
|
|
296 |
|
|
|
3,100 |
|
|
|
|
|
|
|
3,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
21,473 |
|
|
$ |
7,997 |
|
|
$ |
23,716 |
|
|
$ |
3,275 |
|
|
$ |
8,293 |
|
|
$ |
26,695 |
|
|
$ |
34,988 |
|
|
$ |
3,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
SCHEDULE III
(Continued)
INCOME OPPORTUNITY REALTY INVESTORS, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
(dollars in thousands)
|
Reconciliation of Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, |
|
$ |
56,367 |
|
|
$ |
82,252 |
|
|
$ |
95,190 |
|
Additions |
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions and Improvements |
|
|
|
|
|
|
15,365 |
|
|
|
677 |
|
Deductions |
|
|
|
|
|
|
|
|
|
|
|
|
Retirements |
|
|
|
|
|
|
|
|
|
|
(462 |
) |
Sale of real estate |
|
|
(21,379 |
) |
|
|
(41,250 |
) |
|
|
(13,153 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, |
|
$ |
34,988 |
|
|
$ |
56,367 |
|
|
$ |
82,252 |
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Accumulated Depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, |
|
$ |
6,002 |
|
|
$ |
7,502 |
|
|
$ |
7,875 |
|
Additions |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
1,063 |
|
|
|
1,552 |
|
|
|
1,867 |
|
Deductions |
|
|
|
|
|
|
|
|
|
|
|
|
Retirements |
|
|
|
|
|
|
|
|
|
|
|
|
Sale of real estate |
|
|
(3,445 |
) |
|
|
(3,052 |
) |
|
|
(2,240 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, |
|
$ |
3,620 |
|
|
$ |
6,002 |
|
|
$ |
7,502 |
|
|
|
|
|
|
|
|
|
|
|
53
SCHEDULE IV
INCOME OPPORTUNITY REALTY INVESTORS, INC.
MORTGAGE LOANS ON REAL ESTATE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
(dollars in thousands)
|
Balance at January 1, |
|
$ |
45,531 |
|
|
$ |
|
|
|
$ |
500 |
|
Additions |
|
|
|
|
|
|
|
|
|
|
|
|
New mortgage loans |
|
|
8,655 |
|
|
|
45,531 |
|
|
|
7,109 |
|
Interest receivable on mortgage loans |
|
|
913 |
|
|
|
|
|
|
|
|
|
Deductions |
|
|
|
|
|
|
|
|
|
|
|
|
Amounts charged off |
|
|
(188 |
) |
|
|
|
|
|
|
(1,568 |
) |
Collections of principal by IORI |
|
|
|
|
|
|
|
|
|
|
(500 |
) |
Collections of principal by affiliates |
|
|
|
|
|
|
|
|
|
|
(5,541 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, |
|
$ |
54,911 |
|
|
$ |
45,531 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
54