10-Q 1 form10q.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 2005 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: 0-6103 WATERMARK INVESTORS REALTY TRUST (Exact name of registrant as specified in its charter.) Texas 75-1372785 (State or other jurisdiction of incorporation (I.R.S. Employer Identification or organization) No.) 100 N. Tryon Street, Suite 5500, Charlotte, NC 28202 (Address of principal executive offices) (Zip Code) (704)343-9334 (Registrant's telephone number, including area code) (Former Name, Former Address and Former Fiscal Year, if changed) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date: As of March 31, 2005, there were outstanding 542,413 shares of beneficial interest of the registrant. PART I. - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The accompanying financial statements have not been audited by independent accountants, but in the opinion of management, all adjustments (which consist of normal recurring accruals) necessary for a fair presentation of results of operations, financial position and cash flows at the dates and for the periods indicated have been included. WATERMARK INVESTORS REALTY TRUST CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED MARCH 31, 2005 2004 ------------------------------------ Revenues 0 0 ------------------------------------ Property expense $2,903 $--- Professional fees 1,500 1,250 Interest expense 7,989 6,657 ------------------------------------ Total expense 12,392 7,907 ------------------------------------ Net earnings (loss) $ (12,392) $ (7,907) ==================================== Earnings (loss) per share of $ (.02) $ (.01) beneficial interest ==================================== Shares of beneficial interest used 542,413 542,413 in computing per share amounts ==================================== The accompanying notes are an integral part of these financial statements.

The accompanying notes are an integral part of these financial statements.

The accompanying notes are an integral part of these financial statements. WATERMARK INVESTORS REALTY TRUST NOTES TO FINANCIAL STATEMENTS (Unaudited) MARCH 31, 2005 Note A - Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Rule S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments were of a normal recurring nature. For further information refer to the financial statements and footnotes thereto included as Item 14 to the Annual Report on Form 10-K for Watermark Investors Realty Trust ("Watermark" or the "Trust) for the year ended December 31, 2004. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations --------------------- Watermark had no revenues for the three months ended March 31, 2005 or 2004. Liquidity and Capital Resources ------------------------------- On August 29, 2003, the Trustees voted to sell its sole parcel of real property, the Parker Road property, and a sale agreement was executed on October 16, 2003 between Watermark Texas 1, Inc., a subsidiary of Watermark, and The Peterson Group, Inc., to sell the property to the Peterson Group, Inc. for $510,000. The sales contract was filed with Watermark's Quarterly Report on Form 10-Q for the period ended September 30, 2003, and is incorporated herein by reference. The sale was originally expected to close in the first quarter of 2004, however, The Peterson Group elected in January 2004 to decide to terminate the contract. Management currently plans to continue in its efforts to effectuate a sale of the Parker Road property by Watermark Texas 1, Inc. at the first available opportunity. As of March 31, 2005, the Board has not received any offers to purchase the property. The anticipated carrying costs associated with the Parker Road property are currently limited to property taxes, insurance and maintenance. If the Board should decide to pursue a sale of the Parker Road property, the proceeds of the sale will most likely be used to pay down the Trust's debts. There are no other known material demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in Watermark's liquidity increasing or decreasing in any material way. However, in order to meet corporate expenses and the carrying costs of the Parker Road property, Watermark will have to (i) raise additional funds (possibly by selling or leasing the Parker Road property) or (ii) generate additional funds (possibly by selling or leasing the Parker Road property). There are no material commitments for capital expenditures. Liquidity and Capital Resources. -------------------------------- At March 31, 2005, existing liabilities exceed available cash by $441,731. Balance Sheet Changes. ---------------------- Assets decreased by $4,403 for the quarter. Accrued interest increased by $7,989. Inflationary Factors -------------------- In recent years, inflation has neither increased Watermark's revenues from operating assets nor beneficially affected the current value of its remaining real estate assets to any significant degree. CAUTIONARY STATEMENT RELATING TO FORWARD LOOKING STATEMENTS Certain matters discussed in this Quarterly Report on Form 10-Q contain "forward-looking statements" for purposes of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on current expectations and are not guarantees of future performance. All statements other than statements of historical facts are forward-looking statements, and can be identified by the use of forward-looking terminology such as "may," "will," "might," "would," "expect," "anticipate," "estimate," "would," "could," "should," "believe," "intend," "project," "forecast," "target," "plan," or "continue" or the negative of these words or other variations or comparable terminology, are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those projected. Because these statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. We caution you not to place undue reliance on those statements, which speak only as of the date of this report. Among the factors that could cause actual results to differ materially are: o general economic conditions, competition and the supply of and demand; o interest rate levels and the availability of financing; o potential environmental liability and other risks associated with the ownership, development and acquisition of our property; o greater than anticipated construction or operating costs; o inflationary and other general economic trends; o other risks detailed from time to time in the reports filed by us with the Securities and Exchange Commission. Except for ongoing obligations to disclose material information as required by the federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Management does not believe that Watermark has any exposure to market risk other than the risks commonly associated with ownership of real property. ITEM 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures ------------------------------------------------ Watermark's principal executive officer and principal financial officer have concluded that, as of the end of the period covered by this report, Watermark's disclosure controls and procedures (as defined in Rules13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended) were effective, based on the evaluation of these controls and procedures required by Rule13a-15(b) or 15d-15(b) of the Securities Exchange Act of 1934, as amended. Watermark's management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of Watermark's financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of Watermark; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of Watermark are being made only in accordance with authorizations of management and directors of Watermark; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Watermark's assets that could have a material effect on the financial statements. Inherent Limitations on Effectiveness of Controls ------------------------------------------------- Watermark's management, including the CEO and CFO, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Changes in Internal Control Over Financial Reporting ---------------------------------------------------- There have been no changes in our internal controls over financial reporting (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the fiscal quarter to which this report relates that have materially affect, or are reasonably likely to materially affect, our internal control over financial reporting. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS None. ITEM 5. OTHER INFORMATION (a) None. (b) None. ITEM 6. EXHIBITS a. Exhibits 31.1 Certification of the Principal Executive Officer of Watermark Investors Realty Trust, pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). 31.2 Certification of the Principal Financial Officer of Watermark Investors Realty Trust pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). 32.1 Certification of the Principal Executive Officer of Watermark Investors Realty Trust furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). 32.2 Certification of the Principal Financial Officer of Watermark Investors Realty Trust furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). WATERMARK INVESTORS REALTY TRUST SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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, on this the 16th day of May, 2005. WATERMARK INVESTORS REALTY TRUST By: /s/ David S. Givner ------------------- David S. Givner Trustee, President and Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Signature Title Date /s/ David S. Givner Trustee, President and Treasurer May 16, 2005 ------------------- (Principal Executive Officer and David S. Givner Principal Financial and Accounting Officer) /s/ Michael S. Verruto Trustee, Vice President and Secretary May 16, 2005 ---------------------- Michael S. Verruto EXHIBIT INDEX ------------- Exhibit No Description ---------- ----------- 31.1 Certification of the Principal Executive Officer of Watermark Investors Realty Trust, pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). 31.2 Certification of the Principal Financial Officer of Watermark Investors Realty Trust pursuant to Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). 32.1 Certification of the Principal Executive Officer of Watermark Investors Realty Trust furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). 32.2 Certification of the Principal Financial Officer of Watermark Investors Realty Trust furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

WATERMARK INVESTORS REALTY TRUST 10-Q