FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 QUARTERLY OR TRANSITIONAL REPORT U. S. Securities and Exchange Commission Washington, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period to Commission file number 0-9136 ANGELES PARTNERS VIII (Exact name of small business issuer as specified in its charter) California 95-3264317 (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) (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 VIII CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands, except unit data) March 31, 1999 Assets Cash and cash equivalents $ 280 Receivables and deposits 536 Other assets 124 Investment properties: Land $ 543 Buildings and related personal property 15,123 15,666 Less accumulated depreciation (11,302) 4,364 $ 5,304 Liabilities and Partners' Deficit Liabilities Accounts payable $ 75 Tenant security deposit liabilities 78 Accrued property taxes 540 Accrued interest 2,655 Other liabilities 55 Due to affiliates 349 Notes payable, $1,721 in default 16,587 Partners' Deficit General partner $ (184) Limited partners (11,855 units issued (14,851) (15,035) and outstanding) $ 5,304 See Accompanying Notes to Consolidated Financial Statements b) ANGELES PARTNERS VIII CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data) Three Months Ended March 31, 1999 1998 Revenues: Rental income $ 928 $ 916 Other income 56 50 Total revenues 984 966 Expenses: Operating 404 383 General and administrative 49 36 Depreciation 170 168 Interest 477 472 Property taxes 115 126 Total expenses 1,215 1,185 Net loss $ (231) $ (219) Net loss allocated to general partner (1%) $ (2) $ (2) Net loss allocated to limited partners (99%) (229) (217) $ (231) $ (219) Net loss per limited partnership unit $(19.47) $(18.29) See Accompanying Notes to Consolidated Financial Statements c) ANGELES PARTNERS VIII CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT (Unaudited) For the Three Months Ended March 31, 1999 (in thousands, except unit data) Limited Partnership General Limited Units Partner Partners Total Original capital contributions 12,000 $ 121 $ 12,000 $ 12,121 Partners' deficit at December 31, 1998 11,759 $ (182) $ (14,622) $ (14,804) Net loss for the three months ended March 31, 1999 -- (2) (229) (231) Partners' deficit at March 31, 1999 11,759 $ (184) $ (14,851) $ (15,035) See Accompanying Notes to Consolidated Financial Statements d) ANGELES PARTNERS VIII CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Three Months Ended March 31, 1999 1998 Cash flows from operating activities: Net loss $ (231) $ (219) Adjustments to reconcile net loss to net cash provided by operating activities: cash provided by operating activities: Depreciation 170 168 Amortization of loan costs 14 14 Change in accounts: Receivables and deposits (133) (119) Other assets (19) 10 Accounts payable 12 68 Tenant security deposit liabilities 3 4 Accrued property taxes 105 126 Accrued interest 138 119 Other liabilities 6 (7) Due to affiliates 35 26 Net cash provided by operating activities 100 190 Cash flows from investing activities: Property improvements and replacements (61) (72) Net cash used in investing activities (61) (72) Cash flows from financing activities: Payments on notes payable (76) (68) Net cash used in financing activities (76) (68) Net (decrease) increase in cash and cash equivalents (37) 50 Cash and cash equivalents at beginning of period 317 328 Cash and cash equivalents at end of period $ 280 $ 378 Supplemental disclosure of cash flow information: Cash paid for interest $ 326 $ 339 See Accompanying Notes to Consolidated Financial Statements ANGELES PARTNERS VIII NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 1999 NOTE A - GOING CONCERN The accompanying consolidated financial statements have been prepared assuming Angeles Partners VIII (the "Partnership") will continue as a going concern. The Partnership has incurred recurring operating losses and continues to suffer from inadequate liquidity. In addition, the Partnership is in default on a portion of its mortgage notes payable and does not generate sufficient cash flows to meet current debt-service requirements on its subordinated debt. The Partnership incurred an operating loss of approximately $231,000 for the three months ended March 31, 1999, and Angeles Realty Corporation (the "General Partner") expects this trend to continue. The Partnership realized net cash from operations of approximately $100,000; however, interest of approximately $138,000 was accrued during the three months ended March 31, 1999 on a note payable and on the second mortgage securing one of the Partnership's investment properties. The Partnership's second mortgage to Angeles Mortgage Investment Trust ("AMIT") in the amount of approximately $3,372,000, including accrued interest of approximately $2,022,000, which is secured by Bercado Shores Apartments, has been in default since 1993 due to nonpayment of interest and the maturity of the note in 1995. This indebtedness is recourse to the Partnership and the estimated fair value of this property is less than the total of its first and second mortgages. This property remains subject to foreclosure under the terms of the second mortgage agreement. Pursuant to a series of transactions, affiliates of the General Partner acquired ownership interests in AMIT. On September 17, 1998, AMIT was merged with and into Insignia Properties Trust ("IPT"), which was the sole shareholder of the General Partner. On February 26, 1999, IPT was merged into Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. As a result, AIMCO is the current holder of the AMIT debt. The Partnership has initiated discussions to negotiate a work-out with AIMCO. AIMCO has indicated that it is reviewing its options with respect to this second mortgage including, seeking to obtain a deed-in-lieu of foreclosure with respect to Bercado Shores Apartments. To the extent the second mortgage would be foreclosed upon or deeded to AIMCO pursuant to a deed-in-lieu of foreclosure, the Partnership would remain liable for any deficiency. The Partnership's note payable of approximately $572,000, including accrued interest of approximately $201,000, due to Angeles Acceptance Pool, L.P. ("AAP") matured in November of 1997. The Partnership is currently in negotiations with the lender and hopes to either extend this note or settle the liability at a reduced amount. There can be no assurance that these negotiations with the lenders will be successful. If the Partnership is unable to successfully complete its negotiations with either or both of the lenders, the Partnership will be required to explore other alternatives, including filing for protection under Chapter 11 of the Federal Bankruptcy Code, or it is likely that the Partnership's properties will be lost through foreclosure. No other sources of additional financing are apparent and the General Partner currently has not developed alternative plans to remedy the liquidity problems the Partnership is currently experiencing. The General Partner anticipates that Brittany Point will generate sufficient cash flows for the next twelve months to meet its operating expenses, debt service requirements and to fund capital expenditures. The General Partner anticipates that Bercado Shores will generate sufficient cash flows for the next twelve months to cover its operating expenditures, however it is not expected to be able to completely fund desired capital expenditures or to pay its scheduled debt service on its second mortgage to AIMCO. The Partnership's plan is to fund these items to the extent of available cash flow. The Partnership will fund its administrative expenses for the next twelve months by using cash on hand at March 31, 1999, and cash flow generated during 1999. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classification of liabilities that may result from this uncertainty. NOTE B - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-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 the General Partner, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 1999, are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. For further information, refer to the consolidated financial statements and footnotes thereto included in the Partnership's annual report on Form 10-KSB for the year ended December 31, 1998. Principles of Consolidation The consolidated financial statements of the Partnership include its 99% limited partnership interests in Brittany Point AP VIII, L.P. and Brittany Point GP, L.P. The Partnership may remove the general partner of Brittany Point AP VIII, L.P. and Brittany Point GP, L.P.; therefore, these partnerships are controlled and consolidated by the Partnership. All significant interpartnership balances have been eliminated. NOTE C - TRANSFER OF CONTROL Pursuant to a series of transactions which closed on October 1, 1998 and February 26, 1999, Insignia Financial Group, Inc. and IPT merged into Apartment Investment and Management Company, a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired a 100% ownership interest of the General Partner. The General Partner does not believe that this transaction will have a material effect on the affairs and operations of the Partnership. NOTE D - TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no employees and is dependent on the General Partner and its affiliates for the management and administration of all partnership activities. The Partnership Agreement provides for (i) certain payments to affiliates of the General Partner for services and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following payments were paid or accrued to the General Partner and its affiliates during the three months ended March 31, 1999 and 1998, respectively: 1999 1998 (in thousands) Property management fees, included in $52 $49 operating expenses Reimbursement for services of affiliates, included in operating and general and administrative expenses 36 29 Included in "Reimbursements for services of affiliates" is approximately $3,000 in construction oversight costs for the three months ended March 31, 1998. No such costs were incurred for the three months ended March 31, 1999. During the three months ended March 31, 1999 and 1998, affiliates of the General Partner were entitled to receive 5% of gross receipts from all of the Partnership's properties for providing property management services. The Partnership paid to such affiliates $52,000 and $49,000 for the three months ended March 31, 1999 and 1998, respectively. Affiliates of the General Partner were entitled to or received reimbursements of accountable administrative expenses amounting to approximately $36,000 and $29,000 for the three months ended March 31, 1999 and 1998, respectively. In June 1990, AMIT provided secondary financing on the Partnership's investment properties. Total indebtedness was $2,920,386 at March 31, 1999, of which $1,350,000 is in default at March 31, 1999 (see "Note A"). Total interest expense related to this debt was approximately $189,000 and $170,000 for the three years ended March 31, 1999 and 1998, respectively. Accrued interest related to this debt was approximately $2,361,000 at March 31, 1999. As discussed in "Note A", AIMCO is now the holder of the AMIT debt. In November 1992, AAP, a Delaware limited partnership which now controls the working capital loan previously provided by Angeles Capital Investment, Inc. ("ACII"), was organized. Angeles Corporation ("Angeles") is the 99% limited partner of AAP and Angeles Acceptance Directives, Inc.("AAD"), which is wholly- owned by IPT, 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 General Partner and Angeles, AAD resigned as general partner of AAP and simultaneously received a .5% limited partner interest in AAP. An affiliate of Angeles now serves as the general partner of AAP. This indebtedness, which is included in notes payable, was approximately $371,000 at March 31, 1999 and is in default due to non-payment upon maturity in November 1997 (see "Note A"). Interest is accruing monthly at prime plus 0.75% (9.25%, average rate at March 31, 1999). Total interest expense for this loan was approximately $7,000 and $9,000 for each of the three months ended March 31, 1999 and 1998, respectively. Total accrued interest for this loan was approximately $201,000 at March 31, 1999. NOTE E - SEGMENT INFORMATION Description of the types of products and services from which the reportable segment derives its revenues: The Partnership has one reportable segment: residential properties. The Partnership's residential property segment consists of two apartment complexes in Mishawaka, Indiana and Huntsville, Alabama. The Partnership rents apartment units to tenants for terms that are typically twelve months or less. Measurement of segment profit or loss: The Partnership evaluates performance based on net income. The accounting policies of the reportable segment are the same as those described in the summary of significant accounting policies in the Partnership's annual report on Form 10-KSB for the year ended December 31, 1998. Factors management used to identify the enterprise's reportable segment: The Partnership's reportable segment consists of investment properties that offer similar products and services. Although each of the investment properties is managed separately, they have been aggregated into one segment as they provide services with similar types of products and customers. Segment information for the three months ended March 31, 1999 and 1998 (in thousands) is shown in the tables below. The "Other" column includes partnership administration related items and income and expense not allocated to the reportable segment. 1999 Residential Other Totals Rental income $ 928 $ -- $ 928 Other income 55 1 56 Interest expense 470 7 477 Depreciation 170 -- 170 General and administrative expense -- 49 49 Segment loss (176) (55) (231) Total assets 5,129 175 5,304 Capital expenditures for investment properties 61 -- 61 1998 Residential Other Totals Rental income $ 916 $ -- $ 916 Other income 48 2 50 Interest expense 463 9 472 Depreciation 168 -- 168 General and administrative expense -- 36 36 Segment loss (176) (43) (219) Total assets 5,249 276 5,525 Capital expenditures for investment properties 72 -- 72 NOTE F - LEGAL PROCEEDINGS In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, the General Partner and several of their affiliated partnerships and corporate entities. The complaint purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging the acquisition by Insignia Financial Group, Inc. ("Insignia") and entities which were, at the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain general partner entities, past tender offers by Insignia Affiliates as well as a recently announced agreement between Insignia and AIMCO. The complaint seeks 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 during February 1999. No ruling on such demurrers has been received. The General Partner does not anticipate that costs associated with this case, if any, 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 matters discussed in this Form 10-QSB contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosures contained in this Form 10-QSB and the other filings with the Securities and Exchange Commission made by the Registrant from time to time. The discussion of the Registrant's business and results of operations, including forward-looking statements pertaining to such matters, does not take into account the effects of any changes to the Registrant's business and results of operation. Accordingly, actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. The Partnership's investment properties consist of two apartment complexes. The following table sets forth the average occupancy of the properties for the three months ended March 31, 1999 and 1998: Average Occupancy 1999 1998 Bercado Shores Apartments Mishawaka, Indiana 90% 93% Brittany Point Apartments Huntsville, Alabama 95% 91% The increase in occupancy at Brittany Point Apartments is attributable to an increase in concessions offered to attract new tenants. Results of Operations The Partnership realized a net loss of approximately $231,000 for the three months ended March 31, 1999, compared to a net loss of approximately $219,000 for the three months ended March 31, 1998. The increase in net loss is the result of an increase in total expenses, partially offset by an increase in total revenues. Total revenues increased primarily due to an increase in rental income. The increase in rental income is primarily attributable to an increase in average annual rental rates at both of the Partnership's properties and an increase in occupancy at Brittany Point. Total expenses increased primarily due to increases in operating and general and administrative expenses, which was partially offset by a decrease in property taxes. The increase in operating expense is primarily attributable to increases in advertising and contract services at Brittainy Point and increases in utilities and salaries and related expenses at Bercado Shores. In addition, maintenance expense increased at Bercado Shores due to repair expenses exceeding insurance proceeds relating to a windstorm, which occurred in the fourth quarter of 1998. These increases in expenses were partially offset by a decrease in tax service fees, which were paid in 1998 to defend a tax appeal at Bercado Shores. The increase in general and administrative expense is primarily due to an increase in reimbursement for services of affiliates and legal expense. Property taxes decreased due to the successful appeal of tax rates at Bercado Shores in 1998. Included in general and administrative expenses for each of the three month periods ended March 31, 1999 and 1998 are reimbursements to the General Partner allowed under the Partnership Agreement associated with its management of the Partnership. In addition, costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement are also included. As part of the ongoing business plan of the Partnership, the General Partner monitors the rental market environment of each of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expenses. As part of this plan, the General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the General Partner will be able to sustain such a plan. Liquidity and Capital Resources At March 31, 1999, the Partnership had cash and cash equivalents of approximately $280,000 as compared to approximately $378,000 at March 31, 1998. Cash and cash equivalents decreased approximately $37,000 for the period ended March 31, 1999, from the Registrant's fiscal year end and is primarily due to $76,000 of cash used in financing activities and $61,000 of cash used in investing activities, which was partially offset by $100,000 of cash provided by operating activities (of which $138,000 represents accrued interest owed on notes payable). Cash used in financing activities consisted of principal payments made on mortgages encumbering the Partnership's properties. Cash used in investing activities consisted of property improvements and replacements for both of the Partnership's properties. The Partnership invests its working capital reserves in money market accounts. With respect to the Partnership's two apartment complexes, the sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the properties to adequately maintain the physical assets and other operating needs of the Registrant and to comply with Federal, state, and local legal and regulatory requirements. The General Partner anticipates that Brittany Point will generate sufficient cash flows for the next twelve months to meet its operating expenses, debt service requirements and to fund capital expenditures. The General Partner anticipates that Bercado Shores will generate sufficient cash flows for the next twelve months to cover its operating expenditures, however it is not expected to be able to completely fund desired capital expenditures or to pay its scheduled debt service on its second mortgage to AIMCO. The Partnership's plan is to fund these items to the extent of available cash flow. The Partnership will fund its administrative expenses for the next twelve months by using cash on hand at March 31, 1999, and cash flow generated during 1999. Capital improvements planned for each of the Registrant's properties are detailed below. Bercado Shores Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the General Partner on interior improvements, it is estimated that the property requires approximately $1,404,000 of capital improvements over the near term. Complete capital improvements planned for 1999 have yet to be determined. As of March 31, 1999, the Partnership has started approximately $28,000 of capital improvements at the property, consisting primarily of appliance and flooring replacements. These improvements were funded from operating cash flow. Brittany Point Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the General Partner on interior improvements, it is estimated that the property requires approximately $301,000 of capital improvements over the near term. Capital improvements planned for 1999 include, but are not limited to, carpet and vinyl replacement, landscaping and parking lot upgrades, recreational facility enhancements, roof replacement, and structural improvements. Such improvements are expected to cost approximately $366,000. As of March 31, 1999, the Partnership completed approximately $33,000 of capital improvements at the property, consisting primarily of flooring, appliance and heating unit replacements. These improvements were funded from operating cash flow. The additional capital improvements planned for 1999 at the Partnership's properties will be made only to the extent of cash available from operations and Partnership reserves. With respect to the Partnership as a whole the sufficiency of existing liquid assets to meet future debt requirements is directly related to the level of recourse and non-recourse debt at the Partnership level. The Partnership's second mortgage to Angeles Mortgage Investment Trust ("AMIT") in the amount of $1,350,000 plus accrued interest, which is secured by Bercado Shores Apartments, has been in default since 1993 due to nonpayment of interest and the maturity of the note in 1995. This indebtedness is recourse to the Partnership and the estimated fair value of this property is less than the total of its first and second mortgages. This property remains subject to foreclosure under the terms of the second mortgage agreement. Pursuant to a series of transactions, affiliates of the General Partner acquired ownership interests in AMIT. On September 17, 1998, AMIT was merged with and into Insignia Properties Trust ("IPT"), which was the sole shareholder of the General Partner. On February 26, 1999, IPT was merged into AIMCO, a publicly traded real estate investment trust. As a result, AIMCO is the current holder of the AMIT note. The Partnership has initiated discussions to negotiate a work-out with AIMCO. AIMCO has indicated that it is reviewing its options with respect to this second mortgage including, seeking to obtain a deed-in-lieu of foreclosure with respect to Bercado Shores Apartments. To the extent the second mortgage would be foreclosed upon or deeded to AIMCO pursuant to a deed-in-lieu of foreclosure, the Partnership would remain liable for any deficiency. The Partnership's note payable of approximately $572,000, including accrued interest of approximately $201,000, due to Angeles Acceptance Pool, L.P. ("AAP") matured in November of 1997. The Partnership is currently in negotiations with the lender and hopes to either extend this note or settle the liability at a reduced amount. There can be no assurance that these negotiations with the lenders will be successful. If the Partnership is unable to successfully complete its negotiations with either or both of the lenders, the Partnership will be required to explore other alternatives, including the filing for protection under Chapter 11 of the Federal Bankruptcy Code, or it is likely that the Partnership's properties will be lost through foreclosure. No other sources of additional financing are apparent and the General Partner currently has not developed alternative plans to remedy the liquidity problems the Partnership is currently experiencing. 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 on the recoverability and classification of assets or amounts and classifications of liabilities that may result from these uncertainties. There were no distributions paid for the three months ended March 31, 1999 or 1998. Future cash distributions will depend on the levels of net cash generated from operations, the availability of cash reserves, and the timing of debt maturities, refinancings and/or property sales. The Registrant's distribution policy will be reviewed on a quarterly basis. However, based on the current financial condition and the default on the AMIT mortgage and the AAP note, it is unlikely that a distribution will be made by the Registrant in the foreseeable future. Potential Tender Offer On October 1, 1998, Insignia Financial Group, Inc. merged into AIMCO, a real estate investment trust, whose Class A Common Shares are listed on the New York Stock Exchange. As a result of such merger, AIMCO and AIMCO Properties, L.P., a Delaware limited partnership and the operating partnership of AIMCO ("AIMCO OP") acquired indirect control of the General Partner. AIMCO and its affiliates currently own 0.204% of the limited partnership interests in the Partnership. AIMCO is presently considering whether it will engage in an exchange offer for additional limited partnership interests in the Partnership. There is a substantial likelihood that, within a short period of time, AIMCO OP will offer to acquire additional limited partnership interests in the Partnership for cash or preferred units or common units of limited partnership interests in AIMCO OP. While such an exchange offer is possible, no definite plans exist as to when or whether to commence such an exchange offer, or as to the terms of any such exchange offer, and it is possible that none will occur. A registration statement relating to these securities has been filed with the Securities and Exchange Commission but has not yet become effective. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This Form 10-KSB shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such state. Year 2000 Compliance General Description of the Year 2000 Issue and the Nature and Effects of the Year 2000 on Information Technology (IT) and Non-IT Systems The Year 2000 issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. The Partnership is dependent upon the General Partner and its affiliates for management and administrative services ("Managing Agent"). Any of the computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Over the past two years, the Managing Agent has determined that it will be required to modify or replace significant portions of its software and certain hardware so that those systems will properly utilize dates beyond December 31, 1999. The Managing Agent presently believes that with modifications or replacements of existing software and certain hardware, the Year 2000 issue can be mitigated. However, if such modifications and replacements are not made, or not completed in time, the Year 2000 issue could have a material impact on the operations of the Partnership. The Managing Agent's plan to resolve Year 2000 issues involves four phases: assessment, remediation, testing, and implementation. To date, the Managing Agent has fully completed its assessment of all the information systems that could be significantly affected by the Year 2000, and has begun the remediation, testing and implementation phases on both hardware and software systems. Assessments are continuing in regards to embedded systems. The status of each is detailed below. Status of Progress in Becoming Year 2000 Compliant, Including Timetable for Completion of Each Remaining Phase Computer Hardware: During 1997 and 1998, the Managing Agent identified all of the computer systems at risk and formulated a plan to repair or replace each of the affected systems. In August 1998, the mainframe system used by the Managing Agent became fully functional. In addition to the mainframe, PC-based network servers, routers and desktop PCs were analyzed for compliance. The Managing Agent has begun to replace each of the non-compliant network connections and desktop PCs and, as of March 31, 1999, had completed approximately 75% of this effort. The total cost to the Managing Agent to replace the PC-based network servers, routers and desktop PCs is expected to be approximately $1.5 million of which $1.3 million has been incurred to date. The remaining network connections and desktop PCs are expected to be upgraded to Year 2000 compliant systems by July 31, 1999. Computer Software: The Managing Agent utilizes a combination of off-the-shelf, commercially available software programs as well as custom-written programs that are designed to fit specific needs. Both of these types of programs were studied, and implementation plans written and executed with the intent of repairing or replacing any non-compliant software programs. During 1998, the Managing Agent began converting the existing property management and rent collection systems to its management properties Year 2000 compliant systems. The estimated additional costs to convert such systems at all properties, is $200,000, and the implementation and the testing process is expected to be completed by July 31, 1999. The final software area is the office software and server operating systems. The Managing Agent has upgraded all non-compliant office software systems on each PC and has upgraded 80% of the server operating systems. The remaining server operating systems are planned to be upgraded to be Year 2000 compliant by July 31, 1999. Operating Equipment: The Managing Agent has operating equipment, primarily at the property sites, which needed to be evaluated for Year 2000 compliance. In September 1997, the Managing Agent began taking a census and inventory of embedded systems (including those devices that use time to control systems and machines at specific properties, for example elevators, heating, ventilating, and air conditioning systems, security and alarm systems, etc.). The Managing Agent has chosen to focus its attention mainly upon security systems, elevators, heating, ventilating and air conditioning systems, telephone systems and switches, and sprinkler systems. While this area is the most difficult to fully research adequately, management has not yet found any major non-compliance issues that put the Managing Agent at risk financially or operationally. The Managing Agent intends to have a third-party conduct an audit of these systems and report their findings by July 31, 1999. Any of the above operating equipment that has been found to be non-compliant to date has been replaced or repaired. To date, these have consisted only of security systems and phone systems. As of March 31, 1999 the Managing Agent has evaluated approximately 86% of the operating equipment for the Year 2000 compliance. The total cost incurred for all properties managed by the Managing Agent as of March 31, 1999 to replace or repair the operating equipment was approximately $400,000. The Managing Agent estimates the cost to replace or repair any remaining operating equipment is approximately $325,000, which is expected to be completed by August 30, 1999. The Managing Agent continues to have "awareness campaigns" throughout the organization designed to raise awareness and report any possible compliance issues regarding operating equipment within its enterprise. Nature and Level of Importance of Third Parties and Their Exposure to the Year 2000 The Managing Agent continues to conduct surveys of its banking and other vendor relationships to assess risks regarding their Year 2000 readiness. The Managing Agent has banking relationships with three major financial institutions, all of which have indicated their compliance efforts will be complete before May 1999. The Managing Agent has updated data transmission standards with two of the three financial institutions. The Managing Agent's contingency plan in this regard is to move accounts from any institution that cannot be certified Year 2000 compliant by June 1, 1999. The Partnership does not rely heavily on any single vendor for goods and services, and does not have significant suppliers and subcontractors who share information systems (external agent). To date the Partnership is not aware of any external agent with a Year 2000 compliance issue that would materially impact the Partnership's results of operations, liquidity, or capital resources. However, the Partnership has no means of ensuring that external agents will be Year 2000 compliant. The Managing Agent does not believe that the inability of external agents to complete their Year 2000 remediation process in a timely manner will have a material impact on the financial position or results of operations of the Partnership. However, the effect of non-compliance by external agents is not readily determinable. Costs to Address Year 2000 The total cost of the Year 2000 project to the Managing Agent is estimated at $3.5 million and is being funded from operating cash flows. To date, the Managing Agent has incurred approximately $2.8 million ($0.6 million expensed and $2.2 million capitalized for new systems and equipment) related to all phases of the Year 2000 project. Of the total remaining project costs, approximately $0.5 million is attributable to the purchase of new software and operating equipment, which will be capitalized. The remaining $0.2 million relates to repair of hardware and software and will be expensed as incurred. The Partnership's portion of these costs are not material. Risks Associated with the Year 2000 The Managing Agent believes it has an effective program in place to resolve the Year 2000 issue in a timely manner. As noted above, the Managing Agent has not yet completed all necessary phases of the Year 2000 program. In the event that the Managing Agent does not complete any additional phases, certain worst case scenarios could occur. The worst case scenarios could include elevators, security and heating, ventilating and air conditioning systems that read incorrect dates and operate with incorrect schedules (e.g., elevators will operate on Monday as if it were Sunday). Although such a change would be annoying to residents, it is not business critical. In addition, disruptions in the economy generally resulting from Year 2000 issues could also adversely affect the Partnership. The Partnership could be subject to litigation for, among other things, computer system failures, equipment shutdowns or failure to properly date business records. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. Contingency Plans Associated with the Year 2000 The Managing Agent has contingency plans for certain critical applications and is working on such plans for others. These contingency plans involve, among other actions, manual workarounds and selecting new relationships for such activities as banking relationships and elevator operating systems. 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. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, the General Partner and several of their affiliated partnerships and corporate entities. The complaint purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging the acquisition by Insignia Financial Group, Inc. ("Insignia") and entities which were, at the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain general partner entities, past tender offers by Insignia Affiliates as well as a recently announced agreement between Insignia and AIMCO. The complaint seeks 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 during February 1999. No ruling on such demurrers has been received. The General Partner does not anticipate that costs associated with this case, if any, will be material to the Partnership's overall operations. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report. b) Reports on Form 8-K: None filed during the quarter ended March 31, 1999. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ANGELES PARTNERS VIII LIMITED PARTNERSHIP By: Angeles Realty Corporation General Partner By: /s/ Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/ Carla R. Stoner Carla R. Stoner Senior Vice President - Finance and Administration Date: May 17, 1999