UNITED STATES
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 0-13808
HOUSING PROGRAMS LIMITED
(A California Limited Partnership)
California 95-3906167
(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)
Explanatory Note
This document amends the Form 10-QSB for the quarter ended September 30, 2002 to
include financial statements that have been reviewed by an independent
accountant as required by Rule 10-01(d) of Regulation S-X. This document is
accompanied by the certifications required by the Sarbanes-Oxley Act of 2002 and
Rules 13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934,
as amended.
HOUSING PROGRAMS LIMITED
(a California limited partnership)
INDEX TO FORM 10-QSB/A
FOR THE QUARTER ENDED SEPTEMBER 30, 2002
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheet
September 30, 2002 1
Statements of Operations
Three and Nine Months Ended September 30, 2002 and 2001 2
Statement of Partners' Deficiency
Nine Months Ended September 30, 2002 3
Statements of Cash Flows
Nine Months Ended September 30, 2002 and 2001 4
Notes to Financial Statements 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION 11
ITEM 3. CONTROLS AND PROCEDURES 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURES 16
CERTIFICATIONS 17
EXHIBIT 19
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOUSING PROGRAMS LIMITED
(a California limited partnership)
BALANCE SHEET
SEPTEMBER 30, 2002
(Unaudited)
ASSETS
Investments in limited partnerships (Note 3) $ --
Receivable from limited partnership 3,633
Cash and cash equivalents 975
Total assets $ 4,608
LIABILITIES AND PARTNERS' DEFICIENCY
Liabilities:
Notes payable (Note 1) $ 4,600,000
Accrued fees due to affiliates (Note 4) 1,212,203
Accrued interest payable (Note 1) 7,215,813
Accounts payable 176,514
Advances due to affiliates (Note 4) 45,935
13,250,465
Commitments and Contingencies (Notes 4 and 5)
Partners' deficiency:
General partners (383,207)
Limited partners (12,862,650)
(13,245,857)
Total liabilities and partners' deficiency $ 4,608
The accompanying notes are an integral part of these financial statements.
HOUSING PROGRAMS LIMITED
(a California limited partnership)
STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
interest income $ 2,351 $ 1,288 $ 2,452 $ 7,315
operating Expenses:
Management fees - partners (Note 4) 49,797 49,797 149,391 150,396
General and administrative (Note 4) 17,634 27,758 38,163 57,216
Legal and accounting 8,717 18,906 44,659 64,195
Interest 110,149 109,250 326,952 327,750
Total operating expenses 186,297 205,711 559,165 599,557
Loss from Partnership operations (183,946) (204,423) (556,713) (592,242)
Equity in loss of limited partnerships
(Note 3) -- -- (30,462) (96,589)
Gain on sale of limited partnership
interest (Note 3) -- -- -- 65,000
Distributions from limited partnerships
recognized as income (Note 3) -- -- 11,343 11,201
Net loss $(183,946) $(204,423) $(575,832) $(612,630)
Net loss to general partners (1%) $ (1,839) $ (2,044) $ (5,758) $ (6,126)
Net loss to limited partners (99%) (182,107) (202,379) (570,074) (606,504)
$(183,946) $(204,423) $(575,832) $(612,630)
Net loss per limited partnership
interest (Note 2) $ (15) $ (16) $ (46) $ (49)
The accompanying notes are an integral part of these financial statements.
HOUSING PROGRAMS LIMITED
(a California limited partnership)
STATEMENT OF PARTNERS' DEFICIENCY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(Unaudited)
General Limited
Partners Partners Total
Partnership interests 12,368
Partners' deficiency,
January 1, 2002 $ (377,449) $(12,292,576) $(12,670,025)
Net loss for the nine months
ended September 30, 2002 (5,758) (570,074) (575,832)
Partners' deficiency,
September 30, 2002 $ (383,207) $(12,862,650) $(13,245,857)
The accompanying notes are an integral part of these financial statements.
HOUSING PROGRAMS LIMITED
(a California limited partnership)
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Unaudited)
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(575,832) $(612,630)
Adjustments to reconcile net loss to net cash used in
operating activities:
Gain on sale of limited partnership interest -- (65,000)
Equity in loss of limited partnerships 30,462 96,589
Decrease in due from escrow -- 15,000
Increase (decrease) in:
Accrued interest payable 326,952 327,750
Accounts payable and accrued expenses 35,311 19,974
Accrued fees due to affiliates 163,632 (80,487)
Net cash used in operating activities (19,475) (298,804)
Cash flows from investing activities:
Proceeds from sale of partnership interests -- 65,000
Advances to properties (3,633) (96,589)
Capital contributions to limited partnerships (30,462) --
Net cash used in investing activities (34,095) (31,589)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Operating advances from affiliates 45,935 --
NET DECREASE IN CASH AND CASH EQUIVALENTS (7,635) (330,393)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,610 372,546
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 975 $ 42,153
The accompanying notes are an integral part of these financial statements.
HOUSING PROGRAMS LIMITED
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
NOTE 1 - GOING CONCERN
The accompanying unaudited financial statements have been prepared assuming
Housing Programs Limited (the "Partnership") will continue as a going concern.
The Partnership continues to generate recurring operating losses and suffers
from a lack of cash as well as a partner's deficiency. In addition, the
Partnership is in default on notes payable and related accrued interest payable
that matured in December 1999.
Two of the Partnership's investments, Evergreen and Plaza Village, involved
purchases of partnership interests from partners who subsequently withdrew from
the operating partnership. The Partnership is obligated for non-recourse notes
payable of $4,600,000 to the sellers of the partnership interests, bearing
interest at 9.5 percent. The notes matured in December 1999. These obligations
and the related interest are collaterized by the Partnership's investment in the
local limited partnerships and are payable only out of cash distributions from
the local limited partnerships, as defined in the notes. Unpaid interest was due
at maturity of the notes.
All notes payable and related accrued interest payable, aggregating $11,815,813
as of September 30, 2002, became payable prior to September 30, 2002. The
Partnership has not made any payments and is in default under the terms of the
notes. Management is attempting to negotiate extensions of the maturity dates on
the notes payable. (See Note 5)
As a result of the above, there is substantial doubt about the Partnership's
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible future effects of the recoverability and
classification of assets or amounts and classifications of liabilities that may
result from these uncertainties.
NOTE 2 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The information contained in the following notes to the financial statements is
condensed from that which would appear in the annual audited financial
statements; accordingly, the financial statements included herein should be
reviewed in conjunction with the financial statements and related notes thereto
contained in the Partnership's annual report for the year ended December 31,
2001. Accounting measurements at interim dates inherently involve greater
reliance on estimates than at year end. The results of operations for the
interim periods presented are not necessarily indicative of the results for the
entire year.
In the opinion of the Partnership, the accompanying unaudited financial
statements contain all adjustments (consisting primarily of normal recurring
accruals) necessary to present fairly the financial position of the Partnership
at September 30, 2002 and the results of operations and changes in cash flows
for the three and nine months ended September 30, 2002 and 2001.
Organization
The Partnership was organized under the California Uniform Limited Partnership
Act on May 15, 1984. The Partnership was formed to invest primarily in other
limited partnerships that own or lease and operate federal, state or local
government-assisted housing projects. These other limited partnerships are
referred to as "local limited partnerships". The general partners of the
Partnership are National Partnership Investments Corp. ("NAPICO" or the
"Corporate General Partner"), Coast Housing Investment Associates (CHIA), a
limited partnership, and Housing Programs Corporation II.
The general partners have a one percent interest in profits and losses of the
Partnership. The limited partners have the remaining 99 percent interest which
is allocated in proportion to their respective individual investments. NAPICO is
the corporate general partner of the Partnership.
On December 3, 2001, Casden Properties Inc., entered into a merger agreement and
certain other transaction documents with Apartment Investment and Management
Company, a Maryland corporation ("AIMCO") and certain of its subsidiaries,
pursuant to which, on March 11, 2002, AIMCO acquired Casden Properties Inc. and
its subsidiaries, including 100% of the stock of NAPICO. Prior to March 11,
2002, Casden Properties Inc. owned a 95.25% economic interest in NAPICO, with
the balance owned by Casden Investment Corporation ("CIC"). CIC, which is wholly
owned by Alan I. Casden, owned 95% of the voting common stock of NAPICO prior to
March 11, 2002.
Basis of Presentation
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States.
Method of Accounting for Investment in Limited Partnerships
The investments in local limited partnerships are accounted for on the equity
method. Acquisition, selection fees and other costs related to the acquisition
of the projects have been capitalized to the investment account and amortized by
the straight line method over the estimated lives of the underlying assets,
which is generally 30 years.
Net Loss Per Limited Partnership Interest
Net loss per limited partnership interest was computed by dividing the limited
partners' share of net loss by the number of limited partnership interests
outstanding during the period. The number of limited partnership interests was
12,368 for the periods presented.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and money market mutual funds. The
Partnership has its cash and cash equivalents on deposit primarily with one
money market mutual fund. Such cash and cash equivalents are uninsured.
Impairment of Long-Lived Assets
The Partnership reviews long-lived assets to determine if there has been any
permanent impairment whenever events or changes in circumstances indicate that
the carrying value of the asset may not be recoverable. If the sum of the
expected future cash flows is less than the carrying value of the assets, the
Partnership recognizes an impairment loss.
Recent Accounting Pronouncements
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN46"),
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.
FIN46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN46 is effective
for all new variable interest entities created or acquired after January 31,
2003. For variable interest entities created or acquired prior to February 1,
2003, the provisions of FIN46 must be applied for the first interim or annual
period beginning after June 15, 2003. The Partnership is currently evaluating
the effect that the adoption of FIN46 will have on its results of operations and
financial condition.
NOTE 3 - INVESTMENTS IN LIMITED PARTNERSHIPS
As of September 30, 2002, the Partnership holds limited partnership interests in
seven limited partnerships (the "Local Limited Partnerships"). The Local Limited
Partnerships as of September 30, 2002, own residential low income rental
projects consisting of 1,153 apartment units. The mortgage loans for these
projects are payable to or insured by various government agencies.
The Partnership, as a limited partner, does not exercise control over the
activities and operations, including refinancing or selling decisions, of the
Local Limited Partnerships. Accordingly, the Partnership accounts for its
investments in the Local Limited Partnerships using the equity method. The
Partnership is allocated profits and losses of the Local Limited Partnerships
based upon its respective ownership percentage of 99%. Distributions of surplus
cash from operations from most of the Local Limited Partnerships are restricted
by the Local Limited Partnerships' Regulatory Agreements with the United States
Department of Housing and Urban Development ("HUD"). These restrictions limit
the distribution to a portion, generally less than 10%, of the initial invested
capital. The excess surplus cash is deposited into a residual receipts reserve,
of which the ultimate realization by the Partnership is uncertain as HUD
frequently retains it upon sale or dissolution of the Local Partnership. The
Partnership is allocated profits and losses and receives distributions from
refinancings and sales in accordance with the Local Limited Partnerships'
partnership agreements. These agreements usually limit the Partnership's
distributions to an amount substantially less than its ownership percentage in
the Local Partnership.
The individual investments are carried at cost plus the Partnership's share of
the Local Limited Partnership's profits less the Partnership's share of the
Local Limited Partnership's losses, distributions and impairment charges. See
"Note 2 - Organization and Summary of Significant Accounting Policies" for a
description of the impairment policy. The Partnership is not legally liable for
the obligations of the Local Limited Partnerships and is not otherwise committed
to provide additional support to them. Therefore, it does not recognize losses
once its investment in each of the Local Limited Partnerships reaches zero.
Distributions from the Local Limited Partnerships are accounted for as a
reduction of the investment balance until the investment balance is reduced to
zero. When the investment balance has been reduced to zero, subsequent
distributions received are recognized as income in the accompanying statements
of operations.
For those investments where the Partnership has determined that the carrying
value of its investments approximates the estimated fair value of those
investments, the Partnership's policy is to recognize equity in income of the
Local Limited Partnerships only to the extent of distributions received and
amortization of acquisition costs from those Local Limited Partnerships.
Therefore, the Partnership limits its recognition of equity earnings to the
amount it expects to ultimately realize.
As of September 30, 2002, the investment balance in all of the Local Limited
Partnerships had been reduced to zero.
The following are unaudited combined estimated statements of operations for the
three and nine months ended September 30, 2002 and 2001 for the local limited
partnerships in which the Partnership has investments:
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
Revenues
Rental and other $ 1,885,000 $ 1,892,000 $ 5,655,000 $ 5,676,000
Expenses
Depreciation 374,000 362,000 1,122,000 1,086,000
Interest 242,000 242,000 726,000 726,000
Operating 1,402,000 1,339,000 4,206,000 4,017,000
2,018,000 1,943,000 6,054,000 5,829,000
Net loss $ (133,000) $ (51,000) $ (399,000) $ (153,000)
NAPICO, or one of its affiliates, is the general partner and property management
agent for certain of the local limited partnerships included above. During the
nine months ended September 30, 2002 and 2001, affiliates of the Corporate
General Partner were paid approximately $40,000 and $30,000, respectively, for
providing property management services.
Under recent adopted law and policy, the United States Department of Housing and
Urban Development ("HUD") has determined not to renew the Housing Assistance
Payment ("HAP") Contracts on a long term basis on the existing terms. In
connection with renewals of the HAP Contracts under such new law and policy, the
amount of rental assistance payments under renewed HAP Contracts will be based
on market rentals instead of above market rentals, which may be the case under
existing HAP Contracts. The payments under the renewed HAP Contracts may not be
in an amount that would provide sufficient cash flow to permit owners of
properties subject to HAP Contracts to meet the debt service requirements of
existing loans insured by the Federal Housing Administration of HUD ("FHA")
unless such mortgage loans are restructured. In order to address the reduction
in payments under HAP Contracts as a result of this new policy, the Multi-family
Assisted Housing Reform and Affordability Act of 1997 ("MAHRAA") provides for
the restructuring of mortgage loans insured by the FHA with respect to
properties subject to the Section 8 program. Under MAHRAA, an FHA-insured
mortgage loan can be restructured into a first mortgage loan which will be
amortized on a current basis and a low interest second mortgage loan payable to
FHA which will only be payable on maturity of the first mortgage loan. This
restructuring results in a reduction in annual debt service payable by the owner
of the FHA-insured mortgage loan and is expected to result in an insurance
payment from FHA to the holder of the FHA-insured loan due to the reduction in
the principal amount. MAHRAA also phases out project-based subsidies on selected
properties serving families not located in rental markets with limited supply,
converting such subsidies to a tenant-based subsidy.
When the HAP Contracts are subject to renewal, there can be no assurance that
the local limited partnerships in which the Partnership has an investment will
be permitted to restructure its mortgage indebtedness under MAHRAA. In addition,
the economic impact on the Partnership of the combination of the reduced
payments under the HAP Contracts and the restructuring of the existing
FHA-insured mortgage loans under MAHRAA is uncertain.
During the nine months ended September 30, 2001, the Partnership sold its
interest in one local limited partnership for net proceeds of $65,000. The
Partnership recognized a gain from the sale equal to the net proceeds received
because it had no investment balance related to this partnership.
NOTE 4 - FEES AND EXPENSES DUE TO GENERAL PARTNERS
Under the terms of the Restated Certificate and Agreement of the Limited
Partnership, the Partnership is obligated to pay to the general partners an
annual management fee equal to 0.5 percent of the original invested assets of
the local limited partnerships. Invested assets is defined as the costs of
acquiring project interests including the proportionate amount of the mortgage
loans related to the Partnership's interests in the capital accounts of the
respective local limited partnerships. For the nine months ended September 30,
2002 and 2001, $149,391 and $150,396, respectively, has been expensed. The
unpaid balance at September 30, 2002 is $1,197,962.
The Partnership reimburses NAPICO for certain expenses. The reimbursement to
NAPICO was $14,241 (unpaid at September 30, 2002) and $15,710 for the nine
months ended September 30, 2002 and 2001, respectively, and is included in
general and administrative expenses.
The Corporate General Partner has advanced the Partnership funds to assist in
paying for normal operating expenses. These advances do not accrue interest.
During the nine months ended September 30, 2002, the Corporate General Partner
advanced $45,935 for such purposes.
As of September 30, 2002, the fees and expenses due the general partners
exceeded the Partnership's cash. The general partners, during the forthcoming
year, are not expected to demand payment of amounts due in excess of such cash
or such that the Partnership would not have sufficient operating cash; however,
the Partnership will remain liable for all such amounts.
NOTE 5 - CONTINGENCIES
On August 27, 1998, two investors holding an aggregate of eight units of limited
partnership interests in Real Estate Associates Limited III (an affiliated
partnership in which NAPICO is the corporate general partner) and two investors
holding an aggregate of five units of limited partnership interests in Real
Estate Limited Associates VI (another affiliated partnership in which NAPICO is
the corporate general partner) commenced an action in the United States District
Court for the Central District of California against NAPICO and certain other
defendants. The complaint alleged that the defendants breached their fiduciary
duty to the limited partners of certain NAPICO managed partnerships and violated
securities laws by making materially false and misleading statements in the
consent solicitation statements sent to the limited partners of such
partnerships relating to approval of the transfer of partnership interests in
limited partnerships, owning certain of the properties, to affiliates of Casden
Properties Inc., organized by an affiliate of NAPICO. The plaintiffs sought
equitable relief, as well as compensatory damages and litigation related costs.
On August 4, 1999, one investor holding one unit of limited partnership interest
in the Partnership commenced a virtually identical action in the United States
District Court for the Central District of California against the Partnership,
NAPICO and certain other entities. The second action was subsumed in the first
action, and was certified as a class action. On August 21, 2001, plaintiffs
filed a supplemental complaint, which added new claims, including a rescission
of the transfer of partnership interests and an accounting. The matter was tried
in October and November 2002. In November 2002, the jury returned special
verdicts against NAPICO and certain other defendants in the amount of
approximately $25.2 million for violations of securities laws and against NAPICO
for approximately $67.3 million for breaches of fiduciary duty. In addition, the
jury awarded the plaintiffs punitive damages against NAPICO of approximately
$92.5 million. NAPICO and the other defendants have submitted motions seeking to
set aside the verdict in its entirety, with oral argument scheduled for March
2003. While the matter is not yet final and no judgment has been entered, the
matter is the responsibility of the former shareholders of Casden Properties
Inc. pursuant to the documents related to AIMCO's acquisition of Casden
Properties Inc., which was completed in March 2002.
The holder of a purchase money promissory note issued by Cloverleaf limited
partnership, one of the Partnership's investments, in the amount of $845,000
plus accrued interest payable of $1,130,000 as of September 30, 2002, filed a
foreclosure action against the Cloverleaf limited partnership. The Partnership
and other defendants have answered the complaint and intend to vigorously defend
this action. The Partnership has no investment balance related to this Local
Partnership.
The holders of three cash flow notes, with an aggregate principal balance of
$3,825,000, issued by Oshtemo Limited Dividend Housing Association, one of the
Partnership's investments, filed a suit on June 18, 2002 to reduce the notes to
judgment and foreclosure on the Partnership's interest in this local limited
partnership. As of September 30, 2002, the parties had reached a settlement
which requires the local limited partnership to refinance the property by March
31, 2003. The proceeds from the refinancing will be used to settle the
outstanding notes. The suit has been stayed until March 31, 2003, pending
consummation of the settlement. The Partnership has no investment balance
related to this local limited partnership.
NAPICO is a plaintiff in various lawsuits and has also been named as defendant
in other lawsuits arising from transactions in the ordinary course of business.
In the opinion of NAPICO, the claims will not result in any material liability
to the Partnership.
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments," requires disclosure of fair value information
about financial instruments, when it is practicable to estimate that value. The
notes payable are collateralized by the Partnership's investments in investee
limited partnerships, which account for the Partnership's primary source of
revenues, are subject to various government rules, regulations and restrictions
which make it impracticable to estimate the fair value of the notes and related
accrued interest payable. It is impracticable to estimate the fair value of the
amounts due to affiliates due to their related party nature. The carrying amount
of other assets and liabilities reported on the balance sheets that require such
disclosure approximates fair value due to their short-term maturity.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 Corporate 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.
Liquidity and Capital Resources
The Partnership's primary sources of funds include interest income on money
market accounts and distributions from local limited partnerships in which the
Partnership has invested. It is not expected that any of the local limited
partnerships in which the Partnership has invested will generate cash flow
sufficient to provide for distributions to the Partnership's limited partners in
any material amount.
The accompanying unaudited financial statements have been prepared assuming the
Partnership will continue as a going concern. The Partnership continues to
generate recurring operating losses and suffers from a lack of cash as well as a
partners' deficiency. In addition, the Partnership is in default on notes
payable and related accrued interest payable that matured in December 1999.
Two of the Partnership's investments, Evergreen and Plaza Village, involved
purchases of partnership interests from partners who subsequently withdrew from
the operating partnership. The Partnership is obligated for non-recourse notes
payable of $4,600,000 to the sellers of the partnership interests, bearing
interest at 9.5 percent. The notes matured in December 1999. These obligations
and the related interest are collaterized by the Partnership's investment in the
local limited partnerships and are payable only out of cash distributions from
the local limited partnerships, as defined in the notes. Unpaid interest was due
at maturity of the notes.
All notes payable and related accrued interest payable, aggregating $11,815,813
as of September 30, 2002, became payable prior to September 30, 2002. The
Partnership has not made any payments and is in default under the terms of the
notes. Management is attempting to negotiate extensions of the maturity dates on
the notes payable.
As a result of the above, there is substantial doubt about the Partnership's
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible future effects of the recoverability and
classification of assets or amounts and classifications of liabilities that may
result from these uncertainties.
Results of Operations
Partnership revenues consist primarily of interest income earned on investment
of funds. The Partnership also receives distributions from the local limited
partnerships in which it has invested.
Except for investing cash in money market funds, the Partnership's investments
consist entirely of interests in other local limited partnerships owning
government-assisted housing projects. Available cash not invested in local
limited partnerships is invested in these money market funds to provide interest
income as reflected in the statements of operations. These funds can be
converted to cash to meet obligations as they arise. The Partnership intends to
continue investing available funds in this manner.
An annual management fee is payable to the general partners of the Partnership
and is calculated at 0.5 percent of the Partnership's invested assets. The
management fee is paid to the general partners for their continuing management
of partnership affairs. The fee is payable beginning with the month following
the Partnership's initial investment in a local limited partnership. Management
fees were $149,391 and $150,396 for the nine months ended September 30, 2002 and
2001, respectively.
In accordance with the Partnership Agreement, the Corporate General Partner has
advanced the Partnership funds to assist in paying for normal operating
expenses. These advances do not accrue interest. During the nine months ended
September 30, 2002, the Corporate General Partner advanced $45,935 for such
purposes.
Operating expenses, other than management fees and interest expense, consist of
legal and accounting fees for services rendered to the Partnership and
administrative expenses, which were generally consistent for the periods
presented. Legal and accounting fees were $44,659 and $64,195 for the nine
months ended September 30, 2002 and 2001, respectively. General and
administrative expenses were $38,163 and $57,216 for the periods ended September
30, 2002 and 2001, respectively.
The Partnership, as a limited partner, does not exercise control over the
activities and operations, including refinancing or selling decisions of the
Local Limited Partnerships. Accordingly, the Partnership accounts for its
investment in the Local Limited Partnerships using the equity method. Thus the
individual investments are carried at cost plus the Partnership's share of the
Local Limited Partnership's profits less the Partnership's share of the Local
Limited Partnership's losses and distributions and impairment charges. However,
since the Partnership is not legally liable for the obligations of the Local
Limited Partnerships, or is not otherwise committed to provide additional
support to them, it does not recognize losses once its investment in each of the
Local Limited Partnerships reaches zero. Distributions from the Local Limited
Partnerships are accounted for as a reduction of the investment balance until
the investment balance is reduced to zero. Subsequent distributions received are
recognized as income in the accompanying statements of operations. For those
investments where the Partnership has determined that the carrying value of its
investments approximates the estimated fair value of those investments, the
Partnership's policy is to recognize equity in income of the Local Limited
Partnerships only to the extent of distributions received and amortization of
acquisition costs from those Local Limited Partnerships. During the nine months
ended September 30, 2002 and 2001, the Partnership recognized equity in loss of
$30,462 and $96,589, respectively, from Local Limited Partnerships. During the
nine months ended September 30, 2002 and 2001, the Partnership received $11,343
and $11,201, respectively, in distributions from Local Limited Partnerships,
that were recognized as income in the statements of operations since the
Partnership's investment balances have been reduced to zero.
Under recent adopted law and policy, the United States Department of Housing and
Urban Development ("HUD") has determined not to renew the Housing Assistance
Payment ("HAP") Contracts on a long term basis on the existing terms. In
connection with renewals of the HAP Contracts under such new law and policy, the
amount of rental assistance payments under renewed HAP Contracts will be based
on market rentals instead of above market rentals, which may be the case under
existing HAP Contracts. The payments under the renewed HAP Contracts may not be
in an amount that would provide sufficient cash flow to permit owners of
properties subject to HAP Contracts to meet the debt service requirements of
existing loans insured by the Federal Housing Administration of HUD ("FHA")
unless such mortgage loans are restructured. In order to address the reduction
in payments under HAP Contracts as a result of this new policy, the Multi-family
Assisted Housing Reform and Affordability Act of 1997 ("MAHRAA") provides for
the restructuring of mortgage loans insured by the FHA with respect to
properties subject to the Section 8 program. Under MAHRAA, an FHA-insured
mortgage loan can be restructured into a first mortgage loan which will be
amortized on a current basis and a low interest second mortgage loan payable to
FHA which will only be payable on maturity of the first mortgage loan. This
restructuring results in a reduction in annual debt service payable by the owner
of the FHA-insured mortgage loan and is expected to result in an insurance
payment from FHA to the holder of the FHA-insured loan due to the reduction in
the principal amount. MAHRAA also phases out project-based subsidies on selected
properties serving families not located in rental markets with limited supply,
converting such subsidies to a tenant-based subsidy.
When the HAP Contracts are subject to renewal, there can be no assurance that
the local limited partnerships in which the Partnership has an investment will
be permitted to restructure its mortgage indebtedness under MAHRAA. In addition,
the economic impact on the Partnership of the combination of the reduced
payments under the HAP Contracts and the restructuring of the existing
FHA-insured mortgage loans under MAHRAA is uncertain.
During the nine months ended September 30, 2001, the Partnership sold its
interest in one local limited partnership for net proceeds of $65,000. The
Partnership recognized a gain from the sale equal to the net proceeds received
because it had no investment balance related to this partnership.
ITEM 3. CONTROLS AND PROCEDURES
The principal executive officer and principal financial officer of the Corporate
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 amended 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
On August 27, 1998, two investors holding an aggregate of eight units of limited
partnership interests in Real Estate Associates Limited III (an affiliated
partnership in which NAPICO is the corporate general partner) and two investors
holding an aggregate of five units of limited partnership interests in Real
Estate Limited Associates VI (another affiliated partnership in which NAPICO is
the corporate general partner) commenced an action in the United States District
Court for the Central District of California against NAPICO and certain other
defendants. The complaint alleged that the defendants breached their fiduciary
duty to the limited partners of certain NAPICO managed partnerships and violated
securities laws by making materially false and misleading statements in the
consent solicitation statements sent to the limited partners of such
partnerships relating to approval of the transfer of partnership interests in
limited partnerships, owning certain of the properties, to affiliates of Casden
Properties Inc., organized by an affiliate of NAPICO. The plaintiffs sought
equitable relief, as well as compensatory damages and litigation related costs.
On August 4, 1999, one investor holding one unit of limited partnership interest
in the Partnership commenced a virtually identical action in the United States
District Court for the Central District of California against the Partnership,
NAPICO and certain other entities. The second action was subsumed in the first
action, and was certified as a class action. On August 21, 2001, plaintiffs
filed a supplemental complaint, which added new claims, including a rescission
of the transfer of partnership interests and an accounting. The matter was tried
in October and November 2002. In November 2002, the jury returned special
verdicts against NAPICO and certain other defendants in the amount of
approximately $25.2 million for violations of securities laws and against NAPICO
for approximately $67.3 million for breaches of fiduciary duty. In addition, the
jury awarded the plaintiffs punitive damages against NAPICO of approximately
$92.5 million. NAPICO and the other defendants have submitted motions seeking to
set aside the verdict in its entirety, with oral argument scheduled for March
2003. While the matter is not yet final and no judgment has been entered, the
matter is the responsibility of the former shareholders of Casden Properties
Inc. pursuant to the documents related to AIMCO's acquisition of Casden
Properties Inc., which was completed in March 2002.
The holder of a purchase money promissory note issued by Cloverleaf limited
partnership, one of the Partnership's investments, in the amount of $845,000
plus accrued interest payable of $1,130,000 as of September 30, 2002, filed a
foreclosure action against the Cloverleaf limited partnership. The Partnership
and other defendants have answered the complaint and intend to vigorously defend
this action. The Partnership has no investment balance related to this Local
Partnership.
The holders of three cash flow notes, with an aggregate principal balance of
$3,825,000, issued by Oshtemo Limited Dividend Housing Association, one of the
Partnership's investments, filed a suit on June 18, 2002 to reduce the notes to
judgment and foreclosure on the Partnership's interest in this local limited
partnership. As of September 30, 2002, the parties had reached a settlement
which requires the local limited partnership to refinance the property by March
31, 2003. The proceeds from the refinancing will be used to settle the
outstanding notes. The suit has been stayed until March 31, 2003, pending
consummation of the settlement. The Partnership has no investment balance
related to this local limited partnership.
NAPICO is a plaintiff in various lawsuits and has also been named as defendant
in other lawsuits arising from transactions in the ordinary course of business.
In the opinion of NAPICO, the claims will not result in any material liability
to the Partnership.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 3, Restated Certificate and Agreement of Limited
Partnership dated May 15, 1984 filed with the Securities and
Exchange Commission Form S-11 No. 2-92352, which is hereby
incorporated by reference.
Exhibit 99, Certification of Chief Executive Officer and Chief
Financial Officer.
b) Reports on Form 8-K:
Current Report on Form 8-K dated August 29, 2002 and filed on
September 6, 2002, disclosing the dismissal of Deloitte &
Touche LLP as the Partnership's certifying auditor and the
appointment of Ernst & Young LLP, as the certifying auditor
for the year ending December 31, 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.
HOUSING PROGRAMS LIMITED
(a California limited partnership)
By: National Partnership Investments Corp.
Corporate General Partner
By: /s/David R. Robertson
David R. Robertson
President and Chief Executive Officer
By: /s/Brian H. Shuman
Brian H. Shuman
Senior Vice President and
Chief Financial Officer
Date: March 5, 2003
CERTIFICATION
I, David R. Robertson, certify that:
1. I have reviewed this quarterly report on Form 10-QSB/A of Housing Programs
Limited;
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: March 5, 2003
/s/ David R. Robertson
David R. Robertson
President and Chief Executive Officer of
National Partnership Investments Corp.,
equivalent of the chief executive officer of
the Partnership
CERTIFICATION
I, Brian H. Shuman, certify that:
1. I have reviewed this quarterly report on Form 10-QSB/A of Housing Programs
Limited;
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: March 5, 2003
/s/ Brian H. Shuman
Brian H. Shuman
Senior Vice President and Chief Financial
Officer of National Partnership Investments
Corp., 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/A of Housing Programs
Ltd. (the "Partnership"), for the quarterly period ended September 30, 2002 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), David R. Robertson, as the equivalent of the chief executive officer
of the Partnership, and Brian H. Shuman, 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/ David R. Robertson
Name: David R. Robertson
Date: March 5, 2003
/s/ Brian H. Shuman
Name: Brian H. Shuman
Date: March 5, 2003
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.