UNITED STATES
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB/A
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _________to _________
Commission file number 0-16010
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
(Exact name of small business issuer as specified in its charter)
California 94-3004963
(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)
The issuer recently discovered that it had inadvertently omitted conformed
signatures on certain certifications included in its 10-QSB filing made November
14, 2002. Original signatures were complete and on file with the issuer at the
time the 10-QSB filing was made in November; however, due to a clerical error,
conformed signatures were not included in the electronic filing. This amendment
is being filed solely to correct this inadvertent clerical error.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 2002
Assets
Cash and cash equivalents $ 159
Receivables and deposits 8
Restricted escrows 28
Other assets 142
Investment property:
Land $ 213
Buildings and related personal property 4,861
5,074
Less accumulated depreciation (3,632) 1,442
$ 1,779
Liabilities and Partners' Deficit
Accounts payable $ 11
Tenant security deposit liabilities 44
Accrued property taxes 51
Other liabilities 138
Mortgage note payable 3,772
Partners' Deficit
General partner $ (269)
Corporate limited partner on behalf of the
Unitholders - (128,810 units issued and
outstanding) (1,968) (2,237)
$ 1,779
See Accompanying Notes to Financial Statements
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
(Restated)
Revenues:
Rental income $ 260 $ 278 $ 827 $ 826
Other income 31 25 71 84
Casualty gain -- -- 11 --
Total revenues 291 303 909 910
Expenses:
Operating 93 121 290 330
General and administrative 47 38 128 133
Depreciation 65 64 198 191
Interest 74 76 221 171
Property taxes 18 14 56 50
Loss on early extinguishment of
debt -- -- -- 35
Total expenses 297 313 893 910
Net loss $ (6) $ (10) $ 16 $ --
Net loss allocated to
general partner (1%) $ -- $ -- $ -- $ --
Net loss allocated to
limited partners (99%) (6) (10) 16 --
$ (6) $ (10) $ 16 $ --
Net loss per Unit of
Depositary Receipt $ (0.05) $ (0.08) $ 0.12 $ --
Distributions per Unit of
Depositary Receipt $ -- $ 10.34 $ 0.92 $ 13.38
See Accompanying Notes to Financial Statements
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Unitholder
Units of
Units of Depositary
Depositary General Receipt
Receipt Partner (Note A) Total
Original capital contributions 129,266 $ 1 $32,317 $32,318
Partners' deficit at
December 31, 2001 128,810 $ (268) $(1,866) $(2,134)
Distributions to partners -- (1) (118) (119)
Net income for the nine months
ended September 30, 2002 -- -- 16 16
Partners' deficit at
September 30, 2002 128,810 $ (269) $(1,968) $(2,237)
See Accompanying Notes to Financial Statements
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2002 2001
Cash flows from operating activities:
Net income $ 16 $ --
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 198 191
Amortization of loan costs 9 10
Loss on early extinguishment of debt -- 35
Casualty gain (11) --
Change in accounts:
Receivables and deposits 1 (6)
Other assets (10) 15
Accounts payable 5 (24)
Tenant security deposit liabilities 4 1
Accrued property taxes 51 50
Other liabilities 57 21
Net cash provided by operating activities 320 293
Cash flows from investing activities:
Property improvements and replacements (130) (171)
Insurance proceeds received 38 --
Net withdrawals from restricted escrows -- 153
Net cash used in investing activities (92) (18)
Cash flows from financing activities:
Payments on mortgage note payable (67) (27)
Loan costs paid -- (141)
Proceeds from mortgage note payable -- 3,875
Repayment of mortgage note payable -- (2,312)
Distributions to partners (119) (1,740)
Net cash used in financing activities (186) (345)
Net increase (decrease) in cash and cash equivalents 42 (70)
Cash and cash equivalents at beginning of period 117 165
Cash and cash equivalents at end of period $ 159 $ 95
Supplemental disclosure of cash flow information:
Cash paid for interest $ 213 $ 151
See Accompanying Notes to Financial Statements
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited financial statements of the Johnstown/Consolidated
Income Partners (the "Partnership" or "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. The Partnership's general partner is ConCap Equities, Inc.
(the "General Partner"). In the opinion of 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 nine month
periods ended September 30, 2002 are not necessarily indicative of the results
that may be expected for the fiscal year ending December 31, 2002. For further
information, refer to the financial statements and footnotes thereto included in
the Partnership's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2001. The General Partner is a subsidiary of Apartment Investment
and Management Company ("AIMCO"), a publicly traded real estate investment
trust.
Units of Depositary Receipt
Johnstown/Consolidated Depositary Corporation (the "Corporate Limited Partner"),
an affiliate of the General Partner, serves as a depositary of certain units of
depositary receipt ("Units"). The Units represent economic rights attributable
to the limited partnership interests in the Partnership and entitle the
unitholders thereof ("Unitholders") to certain economic benefits, allocations
and distributions of the Partnership. For this reason, partners' deficit is
herein represented as an interest of the Unitholders.
Accounting Standards
Effective April 1, 2002, the Partnership adopted Statement of Financial
Accounting Standards ("SFAS") No. 145, "Rescission of FASB Statements No. 4, 44
and 64". SFAS No. 4 "Reporting Gains and Losses from Extinguishment of Debt,"
required that all gains and losses from extinguishment of debt be aggregated
and, if material, classified as an extraordinary item. SFAS No. 145 rescinds
SFAS No. 4, and accordingly, gains and losses from extinguishment of debt should
only be classified as extraordinary if they are unusual in nature and occur
infrequently. Neither of these criteria applies to the Partnership. As a result,
the accompanying statements of operations have been restated to reflect the loss
on early extinguishment of debt at Cedar Brooke Apartments in 2001 (see "Note
C") in operations.
Note B - 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,
as provided for in the Partnership Agreement. The Partnership Agreement provides
for (i) certain payments to affiliates for services and (ii) reimbursement of
certain expenses incurred by affiliates on behalf of the Partnership.
The Partnership Agreement provides that the Partnership shall pay in monthly
installments to the General Partner, or an affiliate, a yearly asset management
fee equal to: (i) 3/8 of 1% of the original principal balance of mortgage loans
outstanding at the end of the month preceding the installment payment; (ii) 1/8
of 1% of the market value of guaranteed mortgage-backed securities as of the end
of the Partnership quarter immediately preceding the installment payment; and
(iii) 5/8 of 1% of the purchase price of the properties plus improvements for
managing the Partnership's assets. In the event the property was not owned at
the beginning or end of the year, such fee shall be pro-rated for the short-year
period of ownership. Under this provision, fees of approximately $34,000 and
$31,000 were paid to the General Partner and its affiliates for the nine months
ended September 30, 2002 and 2001, respectively, which are included in general
and administrative expenses and other liabilities.
During the nine months ended September 30, 2002 and 2001, affiliates of the
General Partner were entitled to receive 5% of gross receipts from the
Partnership's investment property for providing property management services.
The Partnership paid to such affiliates approximately $45,000 and $44,000 for
the nine months ended September 30, 2002 and 2001, respectively, which are
included in operating expenses.
Affiliates of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $57,000 and $154,000 for the
nine months ended September 30, 2002 and 2001, respectively. Included in these
amounts are fees related to construction management services provided by an
affiliate of the General Partner of approximately $4,000 and $110,000 for the
nine months ended September 30, 2002 and 2001, respectively. The construction
management service fees are calculated based on the additions to investment
property. These reimbursements of accountable administrative expenses are
included in general and administrative expenses and investment property.
For services provided in connection with the refinancing of Cedar Brooke
Apartments, the General Partner was paid approximately $39,000 during the nine
months ended September 30, 2001. These costs were capitalized and are included
in other assets on the balance sheet.
Beginning in 2001, the Partnership began insuring its property up to certain
limits through coverage provided by AIMCO which is generally self-insured for a
portion of losses and liabilities related to workers compensation, property
casualty and vehicle liability. The Partnership insures its property above the
AIMCO limits through insurance policies obtained by AIMCO from insurers
unaffiliated with the General Partner. During the nine months ended September
30, 2002 and 2001, the Partnership was charged by AIMCO and its affiliates
approximately $12,000 and $11,000, respectively, for insurance coverage and fees
associated with policy claims administration.
Note C - Refinancing and Loss on Early Extinguishment of Debt
On June 28, 2001, the Partnership refinanced the mortgage encumbering Cedar
Brooke Apartments. The refinancing replaced indebtedness of approximately
$2,312,000 with a new mortgage in the amount of $3,875,000. The new mortgage
carries a stated interest rate of 7.44% as compared to 7.33% on the previous
loan. Payments of principal and interest on the new mortgage loan are due
monthly until the loan matures on July 1, 2021 at which time it will be fully
amortized. The Partnership recognized a loss on the early extinguishment of debt
of approximately $35,000 due to the write-off of unamortized loan costs which is
included in operations. Total capitalized loan costs for the new mortgage were
approximately $141,000 during the nine months ended September 30, 2001.
Note D - Casualty Event
In January 2002, Cedar Brooke Apartments experienced a fire. The property
suffered damages of approximately $42,000. Insurance proceeds of approximately
$38,000 were received during the nine months ended September 30, 2002 to cover
the damages. The Partnership recognized a casualty gain of approximately $11,000
resulting from the receipt of $38,000 in insurance proceeds net of the write-off
of approximately $27,000 in undepreciated damaged assets.
Note E - 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. (the "Nuanes action") 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, among other things, the acquisition of
interests in certain General Partner entities by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia; past
tender offers by the Insignia affiliates to acquire limited partnership units;
management of the partnerships by the Insignia affiliates; and the series of
transactions which closed on October 1, 1998 and February 26, 1999 whereby
Insignia and Insignia Properties Trust, respectively, were merged into AIMCO.
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 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 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 and an appeal was taken from the order on October 5, 2000. On
December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann &
Bernstein LLP as new lead counsel for plaintiffs and the putative class.
Plaintiffs filed a third amended complaint on January 19, 2001. On March 2,
2001, the General Partner and its affiliates filed a demurrer to the third
amended complaint. On May 14, 2001, the Court heard the demurrer to the third
amended complaint. On July 10, 2001, the Court issued an order sustaining
defendants' demurrer on certain grounds. On July 20, 2001, Plaintiffs filed a
motion for reconsideration of the Court's July 10, 2001 order granting in part
and denying in part defendants' demurrer. On September 7, 2001, Plaintiffs filed
a fourth amended class and derivative action complaint. On September 12, 2001,
the Court denied Plaintiffs' motion for reconsideration. On October 5, 2001, the
General Partner and affiliated defendants filed a demurrer to the fourth amended
complaint, which was heard on December 11, 2001. On February 2, 2002, the Court
served its order granting in part the demurrer. The Court has dismissed without
leave to amend certain of the plaintiffs' claims. On February 11, 2002,
plaintiffs filed a motion seeking to certify a putative class comprised of all
non-affiliated persons who own or have owned units in the partnerships. The
General Partner and affiliated defendants oppose the motion. On April 29, 2002,
the Court held a hearing on plaintiffs' motion for class certification and took
the matter under submission after further briefing, as ordered by the court, was
submitted by the parties. On July 10, 2002, the Court entered an order vacating
the current trial date of January 13, 2003 (as well as the pre-trial and
discovery cut-off dates) and stayed the case in its entirety through November 7,
2002 so that the parties can have an opportunity to discuss settlement. On
October 30, 2002, the court entered an order extending the stay in effect
through January 10, 2003.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the General Partner and affiliated defendants
moved to strike the first amended complaint in its entirety for violating the
Court's July 10, 2001 order granting in part and denying in part defendants'
demurrer in the Nuanes action, or alternatively, to strike certain portions of
the complaint based on the statute of limitations. Other defendants in the
action demurred to the fourth amended complaint, and, alternatively, moved to
strike the complaint. On December 11, 2001, the court heard argument on the
motions and took the matters under submission. On February 4, 2002, the Court
served notice of its order granting defendants' motion to strike the Heller
complaint as a violation of its July 10, 2001 order in the Nuanes action. On
March 27, 2002, the plaintiffs filed a notice appealing the order striking the
complaint. The parties are currently in the midst of briefing that appeal.
The General Partner does not anticipate that any costs, whether legal or
settlement costs, associated with these cases 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 OPERATION
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements in certain circumstances. The matters discussed
in this report contain certain forward-looking statements, including, without
limitation, statements regarding future financial performance and the effect of
government regulations. The discussions of the Registrant's business and results
of operations, including forward-looking statements pertaining to such matters,
do not take into account the effects of any changes to the Registrant's business
and results of operations. Actual results may differ materially from those
described in the forward-looking statements and will be affected by a variety of
risks and factors including, without limitation: national and local economic
conditions; the terms of governmental regulations that affect the Registrant and
interpretations of those regulations; the competitive environment in which the
Registrant operates; financing risks, including the risk that cash flows from
operations may be insufficient to meet required payments of principal and
interest; real estate risks, including variations of real estate values and the
general economic climate in local markets and competition for tenants in such
markets; and possible environmental liabilities. Readers should carefully review
the Registrant's financial statements and the notes thereto, as well as the risk
factors described in the documents the Registrant files from time to time with
the Securities and Exchange Commission.
The Partnership's investment property consists of one apartment complex. The
following table sets forth the average occupancy of the property for each of the
nine month periods ended September 30, 2002 and 2001.
Average Occupancy
Property 2002 2001
Cedar Brooke Apartments 95% 96%
Independence, Missouri
Results of Operations
The Partnership recognized a net loss of approximately $6,000 for the three
months ended September 30, 2002, as compared to a net loss of approximately
$10,000 for the three months ended September 30, 2001. The Partnership's net
income for the nine months ended September 30, 2002 and 2001 was approximately
$16,000 and zero, respectively. The decrease in net loss for the three months
ended September 30, 2002 is due to a decrease in total expenses. The increase in
net income for the nine months ended September 30, 2002 is due to a decrease in
total expenses, as total revenues remained relatively constant for the
comparable periods. Total expenses decreased for the three months ended
September 30, 2002, as a decrease in operating expenses was slightly offset by
an increase in both general and administrative and property tax expense.
Depreciation and interest expenses remained relatively constant for the three
months ended September 30, 2002. Total expenses decreased for the nine months
ended September 30, 2002 due to decreases in both operating and general and
administrative expenses and the recognition in 2001 of a loss on early
extinguishment of debt as a result of the refinancing of the debt encumbering
Cedar Brooke Apartments (as discussed in "Liquidity and Capital Resources"),
partially offset by increases in interest, depreciation, and property tax
expenses.
The decrease in operating expense for both the three and nine months ended
September 30, 2002 is primarily due to decreases in maintenance and payroll
related expenses at the Partnership's investment property. The increase in
property tax expense is primarily due to an increase in the tax rate at Cedar
Brooke Apartments. The increase in interest expense for the nine months ended
September 30, 2002 is a result of a larger loan balance due to the refinancing
of the mortgage encumbering Cedar Brooke Apartments during 2001 (as discussed
below). The increase in depreciation expense for the nine months ended September
30, 2002 is due to an increase in depreciable assets resulting from property
improvements and replacements placed into service during the past twelve months.
General and administrative expenses increased for the three months ended
September 30, 2002, primarily due to an increase in asset management fees paid
to the General Partner as allowed under the Partnership Agreement. General and
administrative expenses decreased for the nine months ended September 30, 2002
primarily due to a decrease in professional expenses associated with the
management of the Partnership, partially offset by an increase in management
reimbursements to the General Partner as allowed under the Partnership
Agreement. Also included in general and administrative expenses at both
September 30, 2002 and 2001 are costs associated with the quarterly and annual
communications with investors and regulatory agencies and the annual audit
required by the Partnership Agreement.
The decrease in total revenues for the three months ended September 30, 2002 is
due to a decrease in rental income, partially offset by an increase in other
income. The decrease in rental income is primarily due to decreases in occupancy
and the average rental rate at the Partnership's investment property. The
increase in other income is primarily due to an increase in lease cancellation
fees. Total revenues remained relatively constant for the nine months ended
September 30, 2002, as a decrease in other income was offset by the recognition
during 2002 of a casualty gain at Cedar Brooke Apartments (as discussed below).
The decrease in other income is primarily due to a decrease in interest income
as a result of lower average cash balances maintained in interest bearing
accounts. Rental income remained relatively constant for the nine months ended
September 30, 2002, as the decrease in occupancy was offset by an increase in
the average rental rate at the property.
In January 2002, Cedar Brooke Apartments experienced a fire. The property
suffered damages of approximately $42,000. Insurance proceeds of approximately
$38,000 were received during the nine months ended September 30, 2002 to cover
the damages. The Partnership recognized a casualty gain of approximately $11,000
resulting from the receipt of $38,000 in insurance proceeds net of the write-off
of approximately $27,000 in undepreciated damaged assets.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of its investment property 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 September 30, 2002, the Partnership had cash and cash equivalents of
approximately $159,000, compared to approximately $95,000 at September 30, 2001.
The increase in cash and cash equivalents of approximately $42,000, from the
Partnership's fiscal year ended December 31, 2001, is due to approximately
$320,000 of cash provided by operating activities, partially offset by
approximately $186,000 of cash used in financing activities and approximately
$92,000 of cash used in investing activities. Cash used in investing activities
consisted of property improvements and replacements, partially offset by
insurance proceeds received related to the casualty at Cedar Brooke Apartments.
Cash used in financing activities consisted primarily of distributions to
partners and, to a lesser extent, payments of principal on the mortgage
encumbering the Partnership's property. The Partnership invests its working
capital reserves in interest bearing 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 investment property 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. The General Partner
monitors developments in the area of legal and regulatory compliance and is
studying new federal laws, including the Sarbanes-Oxley Act of 2002. The
Sarbanes-Oxley Act of 2002 mandates or suggests additional compliance measures
with regard to governance, disclosure, audit and other areas. In light of these
changes, the Partnership expects that it will incur higher expenses related to
compliance, including increased legal and audit fees. Capital improvements
planned for the Partnership's property are discussed below.
For 2002, the Partnership has budgeted approximately $137,000 for capital
improvements at Cedar Brooke Apartments, consisting primarily of a water
submetering project, parking area improvements and appliance and floor covering
replacements. During the nine months ended September 30, 2002, the Partnership
completed approximately $130,000 of capital improvements at Cedar Brooke
Apartments, consisting primarily of construction related to the fire at Cedar
Brooke Apartments, a water submetering project, and appliance and floor covering
replacements. These improvements were funded from operations and insurance
proceeds. Additional improvements may be considered and will depend on the
physical condition of the property as well as replacement reserves and
anticipated cash flow generated by the property.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership 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. On June 28, 2001,
the Partnership refinanced the mortgage encumbering Cedar Brooke Apartments. The
refinancing replaced indebtedness of approximately $2,312,000 with a new
mortgage in the amount of $3,875,000. The new mortgage carries a stated interest
rate of 7.44% as compared to 7.33% on the previous loan. Payments of principal
and interest on the new mortgage loan are due monthly until the loan matures on
July 1, 2021 at which time it will be fully amortized. The Partnership
recognized a loss on the early extinguishment of debt of approximately $35,000
due to the write off of unamortized loan costs, which is included in operations.
Pursuant to the Partnership Agreement, the term of the Partnership is scheduled
to expire on December 31, 2017. Accordingly, prior to such date the Partnership
will need to either sell its investment property or extend the term of the
Partnership.
The Partnership distributed the following amounts during the nine months ended
September 30, 2002 and 2001 (in thousands, except per unit data):
Nine Months Per Unit Nine Months Per Unit
Ended of Ended of
September 30, Depositary September 30, Depositary
2002 Receipt 2001 Receipt
Refinancing
Proceeds (1) $ 49 $ 0.38 $1,345 $10.34
Operations 70 0.54 395 3.04
$ 119 $ 0.92 $1,740 $13.38
(1) From the June 2001 refinancing of Cedar Brooke Apartments.
Future cash distributions will depend on the levels of net cash generated from
operations, the availability of working capital reserves, and the timing of the
debt maturity, refinancing and/or property sale. The Partnership's cash
available for distribution is reviewed on a monthly basis. There can be no
assurance, however, that the Partnership will generate sufficient funds from
operations, after required capital expenditures, to permit any additional
distributions to its partners during the remainder of 2002 or subsequent
periods.
Other
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 70,189 limited partnership units in
the Partnership representing 54.49% of the outstanding Units at September 30,
2002. 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
acquire additional units of limited partnership interest in the Partnership in
exchange for cash or a combination of cash and units in the operating
partnership of AIMCO either through private purchases or tender offers. Under
the Partnership Agreement, unitholders holding a majority of the Units are
entitled to take action with respect to a variety of matters which would include
voting on certain amendments to the Partnership Agreement and voting to remove
the General Partner. As a result of its ownership of 54.49% of the outstanding
Units, AIMCO is in a position to control all voting decisions with respect to
the Partnership. Although the General Partner owes fiduciary duties to the
limited partners of the Partnership, the General Partner also owes fiduciary
duties to AIMCO as its sole stockholder. As a result, the duties of the General
Partner, as general partner, to the Partnership and its limited partners may
come into conflict with the duties of the General Partner to AIMCO, as its sole
stockholder.
Critical Accounting Policies and Estimates
The financial statements are prepared in accordance with accounting principles
generally accepted in the United States which require the Partnership to make
estimates and assumptions. The Partnership believes that of its significant
accounting policies, the following may involve a higher degree of judgment and
complexity.
Impairment of Long-Lived Assets
Investment property is recorded at cost, less accumulated depreciation, unless
considered impaired. If events or circumstances indicate that the carrying
amount of a property may be impaired, the Partnership will make an assessment of
its recoverability by estimating the undiscounted future cash flows, excluding
interest charges, of the property. If the carrying amount exceeds the aggregate
future cash flows, the Partnership would recognize an impairment loss to the
extent the carrying amount exceeds the fair value of the property.
Real property investments are subject to varying degrees of risk. Several
factors may adversely affect the economic performance and value of the
Partnership's investment properties. These factors include changes in the
national, regional and local economic climate; local conditions, such as an
oversupply of multifamily properties; competition from other available
multifamily property owners and changes in market rental rates. Any adverse
changes in these factors could cause an impairment in the Partnership's assets.
Revenue Recognition
The Partnership generally leases apartment units for twelve-month terms or less.
Rental income attributable to leases is recognized monthly as it is earned. The
Partnership will offer rental concessions during particularly slow months or in
response to heavy competition from other similar complexes in the area.
Concessions are charged to income as incurred.
ITEM 3. CONTROLS AND PROCEDURES
The principal executive officer and principal financial officer of the General
Partner, who are the equivalent of the Partnership's principal executive officer
and principal financial officer, respectively, have, within 90 days of the
filing date of this quarterly report, evaluated the effectiveness of the
Partnership's disclosure controls and procedures (as defined in Exchange Act
Rules (13a-14(c) and (15d-14(c)) and have determined that such disclosure
controls and procedures are adequate. There have been no significant changes in
the Partnership's internal controls or in other factors that could significantly
affect the Partnership's internal controls since the date of evaluation. The
Partnership does not believe any significant deficiencies or material weaknesses
exist in the Partnership's internal controls. Accordingly, no corrective actions
have been taken.
PART II - OTHER INFORMATION
ITEM 1. 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. (the "Nuanes action") 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, among other things, the acquisition of
interests in certain General Partner entities by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia; past
tender offers by the Insignia affiliates to acquire limited partnership units;
management of the partnerships by the Insignia affiliates; and the series of
transactions which closed on October 1, 1998 and February 26, 1999 whereby
Insignia and Insignia Properties Trust, respectively, were merged into AIMCO.
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 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 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 and an appeal was taken from the order on October 5, 2000. On
December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann &
Bernstein LLP as new lead counsel for plaintiffs and the putative class.
Plaintiffs filed a third amended complaint on January 19, 2001. On March 2,
2001, the General Partner and its affiliates filed a demurrer to the third
amended complaint. On May 14, 2001, the Court heard the demurrer to the third
amended complaint. On July 10, 2001, the Court issued an order sustaining
defendants' demurrer on certain grounds. On July 20, 2001, Plaintiffs filed a
motion for reconsideration of the Court's July 10, 2001 order granting in part
and denying in part defendants' demurrer. On September 7, 2001, Plaintiffs filed
a fourth amended class and derivative action complaint. On September 12, 2001,
the Court denied Plaintiffs' motion for reconsideration. On October 5, 2001, the
General Partner and affiliated defendants filed a demurrer to the fourth amended
complaint, which was heard on December 11, 2001. On February 2, 2002, the Court
served its order granting in part the demurrer. The Court has dismissed without
leave to amend certain of the plaintiffs' claims. On February 11, 2002,
plaintiffs filed a motion seeking to certify a putative class comprised of all
non-affiliated persons who own or have owned units in the partnerships. The
General Partner and affiliated defendants oppose the motion. On April 29, 2002,
the Court held a hearing on plaintiffs' motion for class certification and took
the matter under submission after further briefing, as ordered by the court, was
submitted by the parties. On July 10, 2002, the Court entered an order vacating
the current trial date of January 13, 2003 (as well as the pre-trial and
discovery cut-off dates) and stayed the case in its entirety through November 7,
2002 so that the parties can have an opportunity to discuss settlement. On
October 30, 2002, the court entered an order extending the stay in effect
through January 10, 2003.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the General Partner and affiliated defendants
moved to strike the first amended complaint in its entirety for violating the
Court's July 10, 2001 order granting in part and denying in part defendants'
demurrer in the Nuanes action, or alternatively, to strike certain portions of
the complaint based on the statute of limitations. Other defendants in the
action demurred to the fourth amended complaint, and, alternatively, moved to
strike the complaint. On December 11, 2001, the court heard argument on the
motions and took the matters under submission. On February 4, 2002, the Court
served notice of its order granting defendants' motion to strike the Heller
complaint as a violation of its July 10, 2001 order in the Nuanes action. On
March 27, 2002, the plaintiffs filed a notice appealing the order striking the
complaint. The parties are currently in the midst of briefing that appeal.
The General Partner does not anticipate that any costs, whether legal or
settlement costs, associated with these cases will be material to the
Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
3.1 Certificate of Limited Partnership, as amended to date,
incorporated herein by reference to the Partnership's
Annual Report on Form 10-KSB for the year ended December
31, 1991.
3.2 Amended and Restated Partnership Agreement dated July
16, 1986 is incorporated by reference to Exhibit A to
the Prospectus of the Registration dated June 20, 1986
as filed with the Commission pursuant to Rule 424(b)
under the Act.
99 Certification of Chief Executive Officer and Chief
Financial Officer
b) Reports on Form 8-K:
None filed during the quarter ended September 30, 2002.
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.
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
By: CONCAP EQUITIES, INC.
Its General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Thomas C. Novosel
Thomas C. Novosel
Senior Vice President
and Chief Accounting Officer
Date: January 9, 2003
CERTIFICATION
I, Patrick J. Foye, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of
Johnstown/Consolidated Income Partners;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/Patrick J. Foye
Patrick J. Foye
Executive Vice President of ConCap Equities,
Inc., equivalent of the chief executive officer
of the Partnership
CERTIFICATION
I, Paul J. McAuliffe, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of
Johnstown/Consolidated Income Partners;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/Paul J. McAuliffe
Paul J. McAuliffe
Executive Vice President and Chief Financial
Officer of ConCap Equities, Inc., equivalent of
the chief financial officer of the Partnership
Exhibit 99
Certification of CEO and CFO
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-QSB of Johnstown/Consolidated
Income Partners (the "Partnership"), for the quarterly period ended September
30, 2002 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), Patrick J. Foye, as the equivalent of the chief executive
officer of the Partnership, and Paul J. McAuliffe, as the equivalent of the
chief financial officer of the Partnership, each hereby certifies, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Partnership.
/s/Patrick J. Foye
Name: Patrick J. Foye
Date: November 13, 2002
/s/Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: November 13, 2002
This certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Partnership for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.