FORM 10-QSB.--QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 QUARTERLY OR TRANSITIONAL REPORT U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 [ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT For the transition period from .........to......... Commission file number 0-11766 ANGELES PARTNERS XI (Exact name of small business issuer as specified in its charter) California 95-3788040 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) One Insignia Financial Plaza Greenville, South Carolina 29602 (Address of principal executive offices) (Zip Code) (864) 239-1000 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS a) ANGELES PARTNERS XI CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands, except unit data) March 31, 1997 Assets Cash and cash equivalents: Unrestricted $ 628 Restricted--tenant security deposits 537 Accounts receivable, net of allowance of $31 185 Escrow for taxes 122 Other assets 549 Investment in, and advances of $164 to, Joint Venture 119 Investment properties: Land $ 3,998 Buildings and related personal property 25,037 29,035 Less accumulated depreciation (16,168) 12,867 $ 15,007 Liabilities and Partners' Deficit Liabilities Accounts payable $ 253 Due to affiliates 518 Tenant security deposits 539 Other liabilities 519 Notes payable 31,275 Partners' Deficit General partners $ (496) Limited partners (39,637 units issued and outstanding) (17,601) (18,097) $ 15,007 <FN> See Accompanying Notes to Consolidated Financial Statements b) ANGELES PARTNERS XI CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data) Three Months Ended March 31, 1997 1996 Revenues: Rental income $ 1,669 $ 1,622 Other income 62 81 Total revenues 1,731 1,703 Expenses: Operating 447 502 General and administrative 40 53 Maintenance 134 145 Depreciation 373 373 Interest 726 780 Property taxes 179 177 Total expenses 1,899 2,030 Equity in loss of Joint Venture (44) (86) Net loss $ (212) $ (413) Loss allocated to general partners (1%) $ (2) $ (4) Loss allocated to limited partners (99%) (210) (409) Net loss $ (212) $ (413) Net loss per limited partnership unit $ (5.30) $ (10.27) See Accompanying Notes to Consolidated Financial Statements c) ANGELES PARTNERS XI CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT (Unaudited) (in thousands, except unit data) Limited Partnership General Limited Units Partners Partners Total Original capital contributions 40,000 $ 30 $ 40,000 $ 40,030 Partners' deficit at December 31, 1996 39,637 $ (494) $ (17,391) $ (17,885) Net loss for the three months ended March 31, 1997 -- (2) (210) (212) Partners' deficit at March 31, 1997 39,637 $ (496) $ (17,601) $ (18,097) <FN> See Accompanying Notes to Consolidated Financial Statements d) ANGELES PARTNERS XI CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Three Months Ended March 31, 1997 1996 Cash flows from operating activities: Net loss $ (212) $ (413) Adjustments to reconcile net loss to net cash provided by operating activities: Equity in loss of Joint Venture 44 86 Depreciation 373 373 Amortization of loan costs 27 21 Change in accounts: Restricted cash (16) (2) Accounts receivable (21) 2 Escrows for taxes 57 -- Other assets (3) (7) Accounts payable (390) (111) Tenant security deposit liabilities 28 7 Accrued taxes -- 8 Due to affiliates 30 27 Other liabilities 174 233 Net cash provided by operating activities 91 224 Cash flows from investing activities: Property improvements and replacements (107) (273) Advances to Joint Venture (7) (117) Net cash used in investing activities (114) (390) Cash flows from financing activities: Loan costs (11) -- Payment on mortgage notes payable -- (92) Net cash used in financing activities (11) (92) Net decrease in unrestricted cash and cash equivalents (34) (258) Unrestricted cash and cash equivalents at beginning of period 662 870 Unrestricted cash and cash equivalents at end of period $ 628 $ 612 Supplemental disclosure of cash flow information: Cash paid for interest $ 535 $ 632 See Accompanying Notes to Consolidated Financial Statements e) ANGELES PARTNERS XI NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE A - BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of Angeles Realty Corporation II (the "Managing General Partner"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 1997, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 1997. For further information, refer to the financial statements and footnotes thereto included in Angeles Partners XI's (the "Partnership's") annual report on Form 10-KSB for the fiscal year ended December 31, 1996. Certain reclassifications have been made to the 1996 information to conform to the 1997 presentation. NOTE B - TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement provides for payments to affiliates for services and as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following expenses owed to the Managing General Partner and affiliates during the three months ended March 31, 1997 and 1996, were paid or accrued: 1997 1996 (in thousands) Property management fees $86 $84 Reimbursement for services of affiliates, 33 50 including $518,000 accrued at March 31, 1997 The Partnership insures its properties under a master policy through an agency and insurer unaffiliated with the Managing General Partner. An affiliate of the Managing General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the current year's master policy. The current agent assumed the financial obligations to the affiliate of the Managing General Partner, who receives payments on these obligations from the agent. The amount of the Partnership's insurance premiums accruing to the benefit of the affiliate of the Managing General Partner by virtue of the agent's obligations is not significant. In November 1992, Angeles Acceptance Pool, L.P. ("AAP"), a Delaware limited partnership was organized to acquire and hold the obligations evidencing the working capital loan previously provided to the Partnership by Angeles Capital Investments, Inc. ("ACII"). Angeles Corporation ("Angeles") is the 99% limited partner of AAP and Angeles Acceptance Directives, Inc. ("AAD"), an affiliate of the Managing General Partner, was, until April 14, 1995, the 1% General Partner of AAP. On April 14, 1995, as part of a settlement of claims between affiliates of the Managing General Partner and Angeles, AAD resigned as general partner of AAP and simultaneously received a 1/2% limited partner interest in AAP. An affiliate of Angeles now serves as the general partner of AAP. This working capital loan funded the Partnership's operating deficits in prior years. This loan, the principal and accrued interest which totaled $1,996,000, was extinguished with the proceeds from the refinancing of the Partnership's investment property in 1996. Total debt and accrued interest forgiven was $296,000. Total interest expense for this loan was $37,000 for the three months ended March 31, 1996. Angeles Mortgage Investment Trust ("AMIT") provided financing of $6,969,000 plus related accrued interest to the Partnership. This indebtedness was extinguished when the Partnership's investment property was refinanced. As a result of the refinance, AMIT forgave $398,000 of debt and accrued interest. Concurrent with the refinancing, the Partnership borrowed $875,000 from AMIT, which is secured by the Fox Run Apartments and the Partnership's general partner interest in the Princeton Meadows Golf Course Joint Venture ("Joint Venture"). Total interest expense to AMIT was $24,000 and $225,000 for the three months ended March 31, 1997 and 1996, respectively. In addition, AMIT provides financing to the Joint Venture in the amount of $1,567,000, which is secured by the Joint Venture's sole investment property know as the Princeton Meadows Golf Course. Total interest expense was $49,000 and $52,000 for the three months ended March 31, 1997 and 1996, respectively. Accrued interest was $17,000 at March 31, 1997. MAE GP Corporation ("MAE GP"), an affiliate of the Managing General Partner, owns 1,675,113 Class B Shares of AMIT. The terms of the Class B Shares provide that they are convertable, in whole or in part, into Class A Shares on the basis of 1 Class A Share for every 49 Class B Shares (however, in connection with the settlement agreement described in the following paragraph, MAE GP has agreed not to convert the Class B Shares so long as AMIT's option is outstanding). These Class B Shares entitle MAE GP to receive 1% of the distributions of net cash distributed by AMIT. These Class B Shares also entitle MAE GP to vote on the same basis as Class A Shares, providing MAE GP with approximately 39% of the total voting power of AMIT (unless and until converted to Class A Shares, in which case the percentage of the vote controlled represented by the shares held by MAE GP would approximate 1.3% of the vote). Between the date of acquisition of these shares (November 24, 1992) and March 31, 1995, MAE GP declined to vote these shares. Since that date, MAE GP voted its shares at the 1995 and 1996 annual meetings in connection with the election of trustees and other matters. MAE GP has not exerted and continues to decline to exert any management control over or participate in the management of AMIT. MAE GP may choose to vote these shares as it deems appropriate in the future. In addition, Insignia Properties, L.P. ("IPLP"), an affiliate of the Managing General Partner and an affiliate of Insignia Financial Group, Inc. ("Insignia"), which provides property management and partnership administration services to the Partnership, owns 96,800 Class A Shares of AMIT at March 31, 1997. These Class A Shares represent approximately 2.2% of the total voting power of AMIT. As part of a settlement of certain disputes with AMIT, MAE GP granted to AMIT an option to acquire the Class B shares owned by it. This option can be exercised at the end of 10 years or when all loans made by AMIT to partnerships affiliated with MAE GP as of November 9, 1994 (which is the date of execution of a definitive Settlement Agreement) have been paid in full, but in no event prior to November 9, 1997. In connection with such settlement, AMIT delivered to MAE GP cash in the sum of $250,000 at closing (which occurred April 14, 1995) as payment for the option. If and when the option is exercised, AMIT will be required to remit to MAE GP an additional $94,000. Simultaneously with the execution of the option and as part of the settlement, MAE GP executed an irrevocable proxy in favor of AMIT, the result of which is that MAE GP is permitted to vote the Class B Shares on all matters except those involving transactions between AMIT and MAE GP affiliated borrowers or the election of any MAE GP affiliate as an officer or trustee of AMIT. On those matters, MAE GP is obligated to deliver to the AMIT trustees, in their capacity as trustees of AMIT, proxies with regard to the Class B Shares instructing such trustees to vote said Class B Shares in accordance with the vote of the majority of the Class A Shares voting to be determined without consideration of the votes of "Excess Class A Shares" (as defined in Section 6.13 of the Declaration of Trust of AMIT). On April 3, 1997, Insignia and AMIT entered into a non-binding agreement in principle contemplating, among other things, a business combination of AMIT and Insignia Properties Trust, an entity owned 98% by Insignia and its affiliates ("IPT"). It is anticipated that the resulting combined entity would be owned approximately 82% by Insignia and its affiliates and 18% by the pre-combination AMIT shareholders (including MAE GP and IPLP). The proposed transaction is contingent upon, among other things, satisfactory review of the business, operations, properties and assets of AMIT and IPT, the negotiation and execution of definitive agreements and the approval of the proposed transaction by the trustees and shareholders of each of AMIT and IPT. NOTE C - INVESTMENT IN JOINT VENTURE The Partnership owns a 41.1% interest in the Joint Venture. The Partnership accounts for its interest in the Joint Venture using the equity method of accounting. The balance sheet of the Joint Venture is summarized as follows: March 31, 1997 (in thousands) Assets Cash $ 125 Other assets 222 Investment property, net 1,889 Total $ 2,236 Liabilities and Partners' Deficit Notes payable to AMIT $ 1,567 Other liabilities 775 Partners' deficit (106) Total $ 2,236 The statements of operations of the Joint Venture are summarized as follows: Three Months Ended March 31, 1997 1996 (in thousands) Revenues $ 196 $ 115 Costs and expenses (302) (324) Net loss $ (106) $ (209) The Partnership's equity interest in the loss of the Joint Venture for the three months ended March 31, 1997, and March 31, 1996, was $44,000 and $86,000, respectively. The Princeton Meadows Golf Course property had an underground fuel storage tank that was removed in 1992. This fuel storage tank caused contamination to the area. Management installed monitoring wells in the area where the tank was formerly buried. Some samples from these wells indicated lead and phosphorous readings that were higher than the range prescribed by the New Jersey Department of Environmental Protection ("DEP"). The Joint Venture notified DEP of the findings when they were first discovered. However, DEP had not given any directives as to corrective action until late 1995. In November 1995, representatives of the Joint Venture and the New Jersey DEP met and developed a plan of action to clean-up the contamination site at Princeton Meadows Golf Course. The Joint Venture has engaged an engineering firm to conduct consulting and compliance work and a second firm to perform the field work necessary for the clean-up. The Joint Venture has recorded a liability of $199,000 for the costs of the clean-up. The contracts have been executed and field work has been completed with the expected completion date of the compliance work to be sometime in late 1997. The Managing General Partner believes the balance of $36,000 in the liability recorded is sufficient to cover all costs associated with this incident. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The Partnership's investment properties consist of one apartment complex. The following table sets forth the average occupancy of the property for the three months ended March 31, 1997 and 1996: Average Occupancy 1997 1996 Fox Run Apartments Plainsboro, New Jersey 93% 95% The Partnership incurred a net loss of $212,000 for the three months ended March 31, 1997, as compared to a net loss of $413,000 for the three months ended March 31, 1996. The decrease in the net loss is due to an increase in revenue, a decrease in expenses and a decrease in equity in loss of the Joint Venture. Fox Run Apartments' increased rental income is the result of increased rental rates for the three months ended March 31, 1997, versus the three months ended March 31, 1996, which was only partially offset by a slight decrease in average occupancy. This increase in rental income was partially offset by a decrease in other income, due to a decrease in lease cancellation fees at Fox Run Apartments. Operating expense decreased primarily due to decreases in utility expenses at Fox Run Apartments. The harsh winter of 1995 to early 1996 in the Northeast caused increased gas usage in 1996. The decrease in general and administrative expenses for the three months ended March 31, 1997, as compared to the three months ended March 31, 1996, can be attributed to the timing of postage and printing fees for the year end mailings. Interest expense decreased as a result of the refinance of the debt secured by the Fox Run Apartments property in December 1996. The Partnership has a 41.1% investment in the Princeton Meadows Golf Course Joint Venture. For the three months ended March 31, 1997, the Partnership realized equity in loss of the Joint Venture of $44,000 as compared to $86,000 for the three months ended March 31, 1996. The decreased loss at Princeton Meadows Golf Course can be attributed to an increase in revenue. These revenue increases are the result of maintenance upgrades at the golf course that have improved the appearance of the property. The completion of these upgrades in 1996 lead to a decrease in expenses for the period ended March 31, 1997. Included in maintenance expense for the three months ended March 31, 1997, is $6,000 of major repairs and maintenance mainly comprised of construction oversight costs and window coverings. For the three months ended March 31, 1996, included in maintenance expense is $5,000 of major repairs and maintenance mainly comprised of tennis court repairs and window coverings. The Managing General Partner continues to monitor the rental market environment at its investment property to assess the feasibility of increasing rents, to maintain or increase the occupancy level and to protect the Partnership from increases in expense. The Managing General Partner expects to be able, at a minimum, to continue protecting the Partnership from the burden of inflation- related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, rental concessions and rental reductions needed to offset softening market conditions could affect the ability to sustain this plan. At March 31, 1997, the Partnership had unrestricted cash and cash equivalents of $628,000 as compared to $612,000 at March 31, 1996. Net cash provided by operating activities for the three months ended March 31, 1997, decreased as compared to the three months ended March 31, 1996, due to a larger decrease in accounts payable due to payments of expenses that were accrued for at December 31, 1996. Net cash used in investing activities decreased primarily due to a decrease in property improvements and replacements and a decrease in advances to the Joint Venture. The decrease in cash used in financing activities is caused by a decrease in payments on mortgage notes payable, partially offset by loan costs incurred in 1997 relating to the refinance. 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 property to adequately maintain the physical assets and other operating needs of the Partnership. Such assets are currently thought to be sufficient for any near-term needs of the Partnership. The mortgage indebtedness of $31,275,000 matures January 2002, at which time the property will either be sold or refinanced. Future cash distributions will depend on the levels of net cash generated from operations, refinancings, property sales and the availability of cash reserves. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Registrant is unaware of any pending or outstanding litigation that is not of a routine nature. The Managing General Partner of the Registrant believes that all such pending or outstanding litigation will be resolved without a material adverse effect upon the business, financial condition, or operations of the Partnership. ITEM 2. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: Exhibit 27 is filed as an exhibit to this report. b) Reports on Form 8-K: None filed during the three months ended March 31, 1997. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ANGELES PARTNERS XI By: Angeles Realty Corporation II Managing General Partner By: /s/Carroll D. Vinson Carroll D. Vinson President By: /s/Robert D. Long, Jr. Robert D. Long, Jr. Vice President/CAO Date: May 12, 1997