FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Quarterly or Transitional Report U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 [ ] 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 0-16116 ANGELES OPPORTUNITY PROPERTIES, LTD. (Exact name of small business issuer as specified in its charter) California 95-4052473 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 55 Beattie Place, PO Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (864) 239-1000 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the 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___ PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS a) ANGELES OPPORTUNITY PROPERTIES, LTD. CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands, except unit data) June 30, 2000 Assets Cash and cash equivalents $ 112 Receivables and deposits 227 Restricted escrows 83 Other assets 115 Investment properties: Land $ 1,018 Buildings and related personal property 7,951 8,969 Less accumulated depreciation (2,704) 6,265 $ 6,802 Liabilities and Partners' (Deficit) Capital Liabilities Accounts payable $ 27 Tenant security deposit liabilities 28 Accrued property taxes 124 Other liabilities 109 Mortgage notes payable 5,384 Partners' (Deficit) Capital: General partner $ (121) Limited partners (12,425 units issued and outstanding) 1,251 1,130 $ 6,802 See Accompanying Notes to Consolidated Financial Statements b) ANGELES OPPORTUNITY PROPERTIES, LTD. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data) Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 Revenues: Rental income $ 586 $ 586 $ 1,153 $ 1,173 Other income 38 30 61 65 Total revenues 624 616 1,214 1,238 Expenses: Operating 259 230 492 464 General and administrative 58 42 86 81 Depreciation 86 73 171 150 Interest 110 110 214 220 Property taxes 54 61 117 114 Total expenses 567 516 1,080 1,029 Net income $ 57 $ 100 $ 134 $ 209 Net income allocated to general partner (1%) $ 1 $ 1 $ 1 $ 2 Net income allocated to limited partners (99%) 56 99 133 207 $ 57 $ 100 $ 134 $ 209 Net income per limited partnership unit $ 4.51 $ 7.97 $ 10.70 $ 16.66 Distributions per limited partnership unit $ 45.23 $ -- $ 71.55 $ -- See Accompanying Notes to Consolidated Financial Statements c) ANGELES OPPORTUNITY PROPERTIES, LTD. CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL (Unaudited) (in thousands, except unit data) Limited Partnership General Limited Units Partner Partners Total Original capital contributions 12,425 $ 1 $12,425 $12,426 Partners' (deficit) capital at December 31, 1999 12,425 $ (104) $ 2,007 $ 1,903 Distributions to partners -- (18) (889) (907) Net income for the six months ended June 30, 2000 -- 1 133 134 Partners' (deficit) capital at June 30, 2000 12,425 $ (121) $ 1,251 $ 1,130 See Accompanying Notes to Consolidated Financial Statements d) ANGELES OPPORTUNITY PROPERTIES, LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Six Months Ended June 30, 2000 1999 Cash flows from operating activities: Net income $ 134 $ 209 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 171 150 Amortization of loan costs and discount 17 17 Change in accounts: Receivables and deposits 146 (3) Other assets (6) (22) Accounts payable 5 1 Tenant security deposit liabilities 1 1 Accrued property taxes (121) (119) Other liabilities (98) (9) Net cash provided by operating activities 249 225 Cash flows from investing activities: Property improvements and replacements (55) (122) Net (deposits to) withdrawals from restricted escrows (47) 33 Net cash used in investing activities (102) (89) Cash flows from financing activities: Payments on mortgage notes payable (13) (12) Distributions to partners (907) -- Net cash used in financing activities (920) (12) Net (decrease) increase in cash and cash equivalents (773) 124 Cash and cash equivalents at beginning of period 885 1,060 Cash and cash equivalents at end of period $ 112 $ 1,184 Supplemental disclosure of cash flow information: Cash paid for interest $ 202 $ 203 See Accompanying Notes to Consolidated Financial Statements e) ANGELES OPPORTUNITY PROPERTIES, LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note A - Basis of Presentation The accompanying unaudited consolidated financial statements of Angeles Opportunity Properties, Ltd. (the "Partnership" or the "Registrant") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. 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 Angeles Realty Corporation II (the "General Partner"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 2000 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2000. For further information, refer to the consolidated financial statements and footnotes thereto included in the Partnership's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1999. Principles of Consolidation The consolidated financial statements of the Partnership include its 99% limited partnership interests in New Lake Meadows LP and Lakewood AOPL Ltd. The general partner of these consolidated partnerships is the General Partner. The Partnership may remove the general partner of both of these 99% owned partnerships; therefore, the partnerships are controlled and consolidated by the Partnership. All significant interpartnership balances have been eliminated. Note B - Transfer of Control Pursuant to a series of transactions which closed on October 1, 1998 and February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust merged into Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in the General Partner. The General Partner does not believe that this transaction has had or will have a material effect on the affairs and operations of the Partnership. Note C - Transactions with Affiliated Parties The Partnership has no employees and is dependent on the General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement provides for certain payments to affiliates for services and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following transactions with the General Partner and its affiliates were incurred during the six months ended June 30, 2000 and 1999: 2000 1999 (in thousands) Property management fees (included in operating expenses) $ 61 $ 62 Reimbursement for services of affiliates (included in general and administrative expenses and investment properties) 31 26 Due from General Partner -- 15 During the six months ended June 30, 2000 and 1999, affiliates of the General Partner were entitled to receive 5% of gross receipts from both of the Partnership's properties as compensation for providing property management services. The Partnership paid to such affiliates approximately $61,000 and $62,000 for the six months ended June 30, 2000 and 1999, respectively. An affiliate of the General Partner received reimbursements of accountable administrative expense amounting to approximately $31,000 and $26,000 for the six months ended June 30, 2000 and 1999, respectively. AIMCO and its affiliates currently own 5,209 limited partnership units in the Partnership representing 41.92% of the outstanding units. A number of these units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will make one or more additional offers to acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters. As a result of its ownership of 41.92% of the outstanding units, AIMCO is in a position to significantly influence all voting decisions with respect to the Registrant. When voting on matters, AIMCO would in all likelihood vote the Units it acquired in a manner favorable to the interest of the General Partner because of their affiliation with the General Partner. Note D - Distributions During the six months ended June 30, 2000, distributions of approximately $898,000 (approximately $889,000 to the limited partners or $71.55 per limited partnership unit) were paid to the partners from cash from operations. In conjunction with the transfer of funds from certain majority-owned sub-tier limited partnerships to the Partnership, approximately $9,000 was distributed to the general partner of the majority-owned sub-tier limited partnerships. There were no distributions during the six months ended June 30, 1999. Note E - Segment Reporting Description of the types of products and services from which the reportable segment derives its revenues: The Partnership has one reportable segment: residential properties. The Partnership's residential property segment consists of two apartment complexes in the state of Texas. The Partnership rents apartment units to tenants for terms that are typically twelve months or less. Measurement of segment profit or loss: The Partnership evaluates performance based on segment profit (loss) before depreciation. The accounting policies of the reportable segment are the same as those of the Partnership as described in the Partnership's Annual Report on Form 10-KSB for the year ended December 31, 1999. Factors management used to identify the enterprise's reportable segments: The Partnership's reportable segment consists of investment properties that offer similar products and services. Although each of the investment properties is managed separately, they have been aggregated into one segment as they provide services with similar types of products and customers. Segment information for the three and six month periods ended June 30, 2000 and 1999, is shown in the tables below. The "Other" column includes Partnership administration related items and income and expense not allocated to the reportable segments. Three months ended June 30, 2000 Residential Other Totals (in thousands) Rental income $ 586 $ -- $ 586 Other income 37 1 38 Interest expense 110 -- 110 Depreciation 86 -- 86 General and administrative expense -- 58 58 Segment profit (loss) 114 (57) 57 Six months ended June 30, 2000 Residential Other Totals (in thousands) Rental income $ 1,153 $ -- $ 1,153 Other income 59 2 61 Interest expense 214 -- 214 Depreciation 171 -- 171 General and administrative expense -- 86 86 Segment profit (loss) 218 (84) 134 Total assets 6,764 38 6,802 Capital expenditures for investment properties 55 -- 55 Three months ended June 30, 1999 Residential Other Totals (in thousands) Rental income $ 586 $ -- $ 586 Other income 23 7 30 Interest expense 110 -- 110 Depreciation 73 -- 73 General and administrative expense -- 42 42 Segment profit (loss) 135 (35) 100 Six months ended June 30, 1999 Residential Other Totals (in thousands) Rental income $ 1,173 $ -- $ 1,173 Other income 50 15 65 Interest expense 220 -- 220 Depreciation 150 -- 150 General and administrative expense -- 81 81 Segment profit (loss) 275 (66) 209 Total assets 7,125 797 7,922 Capital expenditures for investment properties 122 -- 122 Note F - Legal Proceedings In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, its General Partner and several of their affiliated partnerships and corporate entities. The action purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging the acquisition of interests in certain general partner entities by Insignia Financial Group, Inc. and entities which were, at one time, affiliates of Insignia; past tender offers by the Insignia affiliates to acquire limited partnership units; the management of partnerships by the Insignia affiliates; and the Insignia Merger. The plaintiffs seek monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs have filed an amended complaint. The General Partner filed demurrers to the amended complaint which were heard February 1999. Pending the ruling on such demurrers, settlement negotiations commenced. On November 2, 1999, the parties executed and filed a Stipulation of Settlement, settling claims, subject to final court approval, on behalf of the Partnership and all limited partners who owned units as of November 3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999 from the Court, at which time the Court set a final approval hearing for December 10, 1999. Prior to the December 10, 1999 hearing, the Court received various objections to the settlement, including a challenge to the Court's preliminary approval based upon the alleged lack of authority of prior lead counsel to enter the settlement. On December 14, 1999, the General Partner and its affiliates terminated the proposed settlement. In February 2000, counsel for some of the named plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated the settlement. On June 27, 2000, the Court entered an order disqualifying them from the case. The Court will entertain applications for lead counsel which must be filed by August 4, 2000. The Court has scheduled a hearing on August 21, 2000 to address the issue of appointing lead counsel. The General Partner does not anticipate that costs associated with this case will be material to the Partnership's overall operations. The Partnership is unaware of any other pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS The matters discussed in this Form 10-QSB contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosures contained in this Form 10-QSB and the other filings with the Securities and Exchange Commission made by the Partnership from time to time. The discussions of the Partnership's business and results of operations, including forward-looking statements pertaining to such matters, does not take into account the effects of any changes to the Partnership's business and results of operation. Accordingly, actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. The Partnership's investment properties consist of two apartment complexes. The following table sets forth the average occupancy for each of the properties for the six months ended June 30, 2000 and 1999: Average Occupancy Property 2000 1999 Lake Meadows Apartments 98% 97% Garland, Texas Lakewood Apartments (1) 90% 94% Tomball, Texas (1) Occupancy at Lakewood Apartments decreased due to new apartments constructed in the area and a layoff by a major employer. Results of Operations The Partnership had net income of approximately $134,000 for the six months ended June 30, 2000, as compared to net income of approximately $209,000 for the six months ended June 30, 1999. The Partnership had net income of approximately $57,000 for the three months ended June 30, 2000, as compared to net income of approximately $100,000 for the three months ended June 30, 1999. The decrease in net income for the six months ended June 30, 2000 was due to a decrease in total revenues and an increase in total expenses. For the three months ended June 30, 2000 the decrease in net income was due to an increase in total expenses, slightly offset by an increase in total revenues. The decrease in total revenues for the six month period was due to reduced rental income. Rental income for the six month period decreased due to reduced occupancy at Lakewood Apartments partially offset by increased rental rates at Lake Meadows Apartments. For the three month period, total revenues increased due to increased other income, while rental income remained constant. The increase in other income for the three month period was due to increased interest income and increased vending and cable television income. Total expenses for the three and six month periods ended June 30, 2000 increased primarily due to increased operating, depreciation, and general and administrative expenses. In addition, general and administrative expense increased during the three month period ended June 30, 2000. The increase in operating expenses is primarily due to increases in maintenance expenses, salary increases and commissions and bonuses paid primarily at Lakewood Apartments. The increase in depreciation expense is primarily attributable to the increase in depreciable assets put into service in the last twelve months. The increase in general and administrative expenses is primarily attributable to an increase in professional fees and general partner reimbursements partially offset by reduced legal fees. Included in general and administrative expenses for the three and six months ended June 30, 2000 and 1999 are reimbursements to the General Partner allowed under the Partnership Agreement associated with its management of the Partnership. In addition, costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement are also included. As part of the ongoing business plan of the Partnership, the General Partner monitors the rental market environment of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expenses. As part of this plan, the General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the General Partner will be able to sustain such a plan. Liquidity and Capital Resources At June 30, 2000, the Partnership had cash and cash equivalents of approximately $112,000 compared to approximately $1,184,000 for the corresponding period in 1999. The net decrease in cash and cash equivalents was approximately $773,000 from the year ended December 31, 1999, and is due to approximately $920,000 and $102,000 of cash used in financing and investing activities, respectively, partially offset by approximately $249,000 of cash provided by operating activities. Cash used in financing activities consisted of distributions to the partners and, to a lesser extent, payments of principal made on the mortgage encumbering Lake Meadows Apartments. Cash used in investing activities consisted of property improvements and replacements and net deposits to restricted escrows maintained by the mortgage lenders. The Partnership invests its working capital reserves in money market accounts. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the properties to adequately maintain the physical assets and other operating needs of the Partnership and to comply with Federal, state, and local legal and regulatory requirements. Capital improvements for each of the Partnership's properties are detailed below. Lake Meadows Apartments Approximately $65,000 was budgeted for capital improvements for the year 2000 at Lake Meadows Apartments consisting primarily of carpet and vinyl replacement, interior decorations, parking lot improvements, and structural improvements. During the six months ended June 30, 2000, the Partnership completed approximately $19,000 of such budgeted capital improvements at Lake Meadows Apartments, consisting primarily of carpet and vinyl replacement, appliances, and structural upgrades. These improvements were funded from operating cash flow and replacement reserves. Lakewood Apartments Approximately $93,000 was budgeted for capital improvements for the year 2000 at Lakewood Apartments consisting primarily of carpet and tile replacement, air conditioning unit replacement, structural upgrades, and appliance replacements. During the six months ended June 30, 2000, the Partnership completed approximately $36,000 of such budgeted capital improvements at the property, consisting primarily of carpet and tile replacements, appliance replacements, air conditioning unit replacements, and office equipment. These improvements were funded from operating cash flow. The additional capital expenditures will be incurred only to the extent of cash available from operations and from the Partnership's reserves. To the extent that such budgeted capital improvements are completed, the Partnership's distributable cash flow, if any, may be adversely affected at least in the short term. The Partnership's current assets are thought to be sufficient for any near-term needs (exclusive of capital improvements) of the Partnership. The mortgage indebtedness of approximately $5,384,000, net of discount, is interest only (with respect to $3,750,000 of such indebtedness) or is being amortized over 343 months (with respect to $1,643,000 of such indebtedness) with in both instances balloon payments due at the maturity dates of October and November 2003. The General Partner will attempt to refinance such indebtedness and/or sell the properties prior to such maturity dates. If the properties cannot be refinanced or sold for a sufficient amount, the Partnership will risk losing such properties through foreclosure. During the six months ended June 30, 2000, distributions of approximately $898,000 (approximately $889,000 to the limited partners or $71.55 per limited partnership unit) were paid to the partners consisting of cash from operations. In conjunction with the transfer of funds from certain majority-owned sub-tier limited partnerships to the Partnership, approximately $9,000 was distributed to the general partner of the majority-owned sub-tier limited partnerships. There were no distributions during the six months ended June 30, 1999. The Partnership's distribution policy is reviewed on a semi-annual basis. Future cash distributions will depend on the levels of net cash generated from operations, the availability of cash reserves, and the timing of debt maturities, refinancings, and/or property sales. There can be no assurance, however, that the Partnership will generate sufficient funds from operations after required capital expenditures to permit further distributions to its partners for the remainder of 2000 or subsequent periods. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEDINGS In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, its General Partner and several of their affiliated partnerships and corporate entities. The action purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging the acquisition of interests in certain general partner entities by Insignia Financial Group, Inc. and entities which were, at one time, affiliates of Insignia; past tender offers by the Insignia affiliates to acquire limited partnership units; the management of partnerships by the Insignia affiliates; and the Insignia Merger. The plaintiffs seek monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs have filed an amended complaint. The General Partner filed demurrers to the amended complaint which were heard February 1999. Pending the ruling on such demurrers, settlement negotiations commenced. On November 2, 1999, the parties executed and filed a Stipulation of Settlement, settling claims, subject to final court approval, on behalf of the Partnership and all limited partners who owned units as of November 3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999 from the Court, at which time the Court set a final approval hearing for December 10, 1999. Prior to the December 10, 1999 hearing, the Court received various objections to the settlement, including a challenge to the Court's preliminary approval based upon the alleged lack of authority of prior lead counsel to enter the settlement. On December 14, 1999, the General Partner and its affiliates terminated the proposed settlement. In February 2000, counsel for some of the named plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated the settlement. On June 27, 2000, the Court entered an order disqualifying them from the case. The Court will entertain applications for lead counsel which must be filed by August 4, 2000. The Court has scheduled a hearing on August 21, 2000 to address the issue of appointing lead counsel. The General Partner does not anticipate that costs associated with this case will be material to the Partnership's overall operations. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report. b) Reports on Form 8-K: None filed during the quarter ended June 30, 2000. SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ANGELES OPPORTUNITY PROPERTIES, LTD. By: Angeles Realty Corporation II Its General Partner By: /s/Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/Martha L. Long Martha L. Long Senior Vice President and Controller Date: