FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 QUARTERLY OR TRANSITIONAL REPORT U.S. Securities and Exchange Commission Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of 1934 For the transition period from to Commission file number 0-10273 CONSOLIDATED CAPITAL PROPERTIES III (Exact name of small business issuer as specified in its charter) California 94-2653686 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 55 Beattie Place, P.O. Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (864) 239-1000 Issuer's telephone number Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the 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) CONSOLIDATED CAPITAL PROPERTIES III CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands, except unit data) June 30, 1999 Assets Cash and cash equivalents $ 1,239 Receivables and deposits 223 Restricted escrows 92 Other assets 197 Investment properties: Land $ 507 Buildings and related personal property 9,877 10,384 Less accumulated depreciation (7,153) 3,231 Investment in discontinued operations 1,394 $ 6,376 Liabilities and Partners' Capital (Deficit) Liabilities Accounts payable $ 46 Tenant security deposit liabilities 95 Accrued property taxes 82 Other liabilities 148 Mortgage notes payable 4,200 Partners' Capital (Deficit) General partners' $ (1,884) Limited partners' (158,582 units issued and outstanding) 3,689 1,805 $ 6,376 See Accompanying Notes to Consolidated Financial Statements b) CONSOLIDATED CAPITAL PROPERTIES III CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data) Three Months Ended Six Months Ended June 30, June 30, 1999 1998 1999 1998 Revenues: Rental income $ 727 $ 677 $ 1,421 $ 1,363 Other income 62 62 110 115 Total revenues 789 739 1,531 1,478 Expenses: Operating 358 382 734 730 General and administrative 57 62 144 124 Depreciation 118 104 223 203 Interest 84 85 169 170 Property taxes 45 45 91 89 Total expenses 662 678 1,361 1,316 Income before discontinued operations 127 61 170 162 Income from discontinued operations 113 118 221 224 Net income $ 240 $ 179 $ 391 $ 386 Net income allocated to general partners (4%) $ 10 $ 7 $ 16 $ 15 Net income allocated to limited partners (96%) 230 172 375 371 $ 240 $ 179 $ 391 $ 386 Per limited partnership unit: Income before discontinued operations $ .77 $ .37 $ 1.03 $ .98 Income from discontinued operations .68 .71 1.33 1.36 Net income $ 1.45 $ 1.08 $ 2.36 $ 2.34 Distribution per limited partnership unit $ -- $ -- $ 12.48 $ -- See Accompanying Notes to Consolidated Financial Statements c) CONSOLIDATED CAPITAL PROPERTIES III CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) (Unaudited) (in thousands, except unit data) Limited Partnership General Limited Units Partners Partners Total Original capital contributions 158,945 $ 1 $79,473 $79,474 Partners' (deficit) capital at December 31, 1998 158,582 $(1,894) $ 5,293 $ 3,399 Distribution to partners -- (6) (1,979) (1,985) Net income for the six months ended June 30, 1999 -- 16 375 391 Partners' (deficit) capital at June 30, 1999 158,582 $(1,884) $ 3,689 $ 1,805 See Accompanying Notes to Consolidated Financial Statements d) CONSOLIDATED CAPITAL PROPERTIES III CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Six Months Ended June 30, 1999 1998 Cash flows from operating activities: Net income $ 391 $ 386 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 223 225 Amortization of lease commissions and loan costs 15 28 Change in accounts: Receivables and deposits (78) (109) Other assets (14) (5) Investment in discontinued operations 17 -- Accounts payable (4) (80) Tenant security deposit liabilities 9 13 Accrued property taxes 82 112 Other liabilities (10) 1 Net cash provided by operating activities 631 571 Cash flows from investing activities: Property improvements and replacements (151) (217) Net (deposits to) receipts from restricted escrows (14) 18 Net cash used in investing activities (165) (199) Cash flows used in financing activities: Distribution to partners (1,985) -- Net (decrease) increase in cash and cash equivalents (1,519) 372 Cash and cash equivalents at beginning of period 2,758 2,038 Cash and cash equivalents at end of period $ 1,239 $ 2,410 Supplemental disclosure of cash flow information: Cash paid for interest $ 154 $ 154 See Accompanying Notes to Consolidated Financial Statements e) CONSOLIDATED CAPITAL PROPERTIES III NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Consolidated Capital Properties III (the "Partnership" or "Registrant") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of ConCap Equities, Inc. (the "General Partner"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 1999, are not necessarily indicative of the results that may be expected for the fiscal year ending 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 fiscal year ended December 31, 1998. Consolidation The consolidated financial statements of the Partnership include the accounts of ConCap Village Green Associates, Ltd. The Partnership owns a 99% interest in this partnership, and it has the ability to control the major operating and financial policies of this partnership. All inter-entity transactions have been eliminated. Certain reclassifications have been made to the 1998 information to conform to the 1999 presentation. NOTE B - TRANSFER OF CONTROL Pursuant to a series of transactions which closed on October 1, 1998 and February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust merged into Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in the General Partner. The General Partner does not believe that this transaction will have a material effect on the affairs and operations of the Partnership. NOTE C - TRANSACTIONS WITH AFFILIATED PARTNERS 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 Limited Partnership Agreement ("Partnership Agreement") provides for payments to affiliates of the General Partner for property management services based on a percentage of revenue; for a partnership management fee equal to 9% of the total distributions made to limited partners from cash flow from operations; and for reimbursements of certain expenses incurred by affiliates of the General Partner on behalf of the Partnership. The following payments were paid to affiliates of the General Partner during each of the six month periods ended June 30, 1999 and 1998, respectively: 1999 1998 (in thousands) Property management fees (included in operating expenses) $ 76 $ 95 Reimbursement for services of affiliates (included in investment properties, and operating and general and administrative expenses) 61 77 Partnership management fees (included in general and administrative expenses) 15 -- During the six months ended June 30, 1999 and 1998, affiliates of the General Partner were entitled to receive 5% of gross receipts from all of Registrant's residential properties as compensation for providing property management services. The Registrant paid to such affiliates approximately $76,000 and $72,000 for the six months ended June 30, 1999 and 1998, respectively. During the six months ended June 30, 1998, affiliates of the General Partner were entitled to varying percentages of gross receipts from the Registrant's commercial property as compensation for providing property management services. These services were performed by affiliates of the General Partner during the six months ended June 30, 1998 and were approximately $23,000. Effective October 1, 1998 (the effective date of the Insignia Merger (see "Note B")), the services for the commercial property were provided by an unrelated party. An affiliate of the General Partner received reimbursement of accountable administrative expenses amounting to approximately $61,000 and $77,000 for the six months ended June 30, 1999 and 1998, respectively, including approximately $4,000 and $5,000, respectively, of construction oversight costs. The Limited Partnership Agreement ("Partnership Agreement") provides for a special management fee equal to 9% of the total distributions made to the limited partners from cash flow from operations to be paid to the General Partner for executive and administrative management services. Under this provision of the Partnership Agreement, a fee of approximately $15,000 was paid to the General Partner during the six months ended June 30, 1999. No similar management fee was paid to the General Partner during the corresponding period in 1998. Additionally, the Partnership paid approximately $8,000 during the six months ended June 30, 1998, to an affiliate of the General Partner for lease commissions at the Partnership's commercial property. These lease commissions are included in other assets and are amortized over the terms of the respective leases. Effective October 1, 1998, lease commissions were paid to an unrelated party. On May 19, 1999, AIMCO Properties, L.P., an affiliate of the General Partner commenced a tender offer to purchase up to 46,436.36 (approximately 29.28% of the total outstanding units) units of limited partnership interest in the Partnership for a purchase price of $64 per unit. The offer expired on July 30, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 3,777.50 units. As a result, AIMCO and its affiliates currently own 61,485.50 units of limited partnership interest in the Partnership representing approximately 38.77% of the total outstanding units. It is possible that AIMCO or its affiliates will make one or more additional offers to acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. NOTE D - DISTRIBUTIONS During the six months ended June 30, 1999, a cash distribution was paid totaling approximately $1,985,000 (approximately $1,979,000 to the limited partners or $12.48 per limited partnership unit) to the partners, of which approximately $159,000 was attributable to cash flow from operations and approximately $1,826,000 represented a return of capital. No distributions were paid during the six months ended June 30, 1998. Subsequent to June 30, 1999, a distribution of approximately $219,000 (approximately $210,000 to the limited partners or $1.32 per limited partnership unit) was paid from cash flow from operations. NOTE E - SEGMENT INFORMATION The Partnership has two reportable segments: residential properties and commercial properties. The Partnership's residential property segment consists of three apartment complexes in Florida and Kentucky. The Partnership rents apartment units to tenants for terms that are typically twelve months or less. The commercial property segment consists of an office building located in Salt Lake City, Utah. This property leases space to a variety of tenants at terms ranging from one to five years. On July 8, 1999, the commercial property was sold to an unrelated party. Therefore, the commercial segment is reflected as discontinued operations (see "Note G" for further discussion regarding the sale). The Partnership evaluates performance based on net income. The accounting policies of the reportable segments are the same as those described in the Partnership's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998. The Partnership's reportable segments are investment properties that offer different products and services. The reportable segments are each managed separately because they provide distinct services with different types of products and customers. Segment information for the six months ended June 30, 1999 and 1998, is shown in the tables below. The "Other" column includes Partnership administration related items and income and expense not allocated to the reportable segments (in thousands). 1999 Residential Commercial Other Totals (discontinued) Rental income $1,421 $ -- $ -- $1,421 Other income 90 -- 20 110 Interest expense 169 -- -- 169 Depreciation 223 -- -- 223 General and administrative expense -- -- 144 144 Income from discontinued operations -- 221 -- 221 Segment profit (loss) 294 221 (124) 391 Total assets 4,332 1,394 650 6,376 Capital expenditures for investment properties 151 -- -- 151 1998 Residential Commercial Other Totals (discontinued) Rental income $1,363 $ -- $ -- $1,363 Other income 67 -- 48 115 Interest expense 170 -- -- 170 Depreciation 203 -- -- 203 General and administrative expense -- -- 124 124 Income from discontinued operations -- 224 -- 224 Segment profit (loss) 238 224 (76) 386 Total assets 3,972 1,330 2,279 7,581 Capital expenditures for investment properties 187 30 -- 217 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 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 have filed an amended complaint. The General Partner has 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. NOTE G - SUBSEQUENT EVENT On July 8, 1999, Professional Plaza Office Building, located in Salt Lake City, Utah, was sold to an unaffiliated party for $3,600,000. After payment of closing expenses, the net sales proceeds received by the Partnership were approximately $3,498,000. For financial statement purposes, the sale resulted in a gain of approximately $2,233,000, which will be recognized during the third quarter. The sale transaction is summarized as follows (amounts in thousands): Net sales price, net of selling costs $ 3,498 Net real estate (1) (1,215) Net other assets (50) Gain on sale of real estate 2,233 (1) Real estate at cost, net of accumulated depreciation of approximately $3,183,000. The following unaudited proforma information reflects the operations of the Partnership for the six months ended June 30, 1999, as if Professional Plaza Office Building had been sold January 1, 1998. 1999 1998 (in thousands, except per unit data) Revenues $1,531 $1,478 Net income 170 162 Income per limited partnership unit 1.03 0.98 Professional Plaza was the only property in the commercial segment of the Partnership. Due to the subsequent sale of the property, the net assets of the property have been classified as "Investment in Discontinued Operations" as of June 30, 1999, on the consolidated balance sheet. This classification was also made as of December 31, 1998, for the consolidated statement of cash flow. The net income of the property has been classified as "Income from Discontinued Operations" for the three and six month periods ended June 30, 1999 and 1998. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS The matters discussed in this Form 10-QSB contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosures contained in this Form 10-QSB and the other filings with the Securities and Exchange Commission made by the Registrant from time to time. The discussions 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 operations. 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 three apartment complexes and one commercial property. The following table sets forth the average occupancy of the properties for the six months ended June 30, 1999 and 1998: Average Occupancy 1999 1998 Professional Plaza Office Building 91% 96% Salt Lake City, UT (1) Ventura Landing Apartments 93% 95% Orlando, FL Village Green Apartments 94% 99% Altamonte Springs, FL West Chase Apartments 95% 84% Lexington, KY (1) Property was sold on July 8, 1999. The decrease in occupancy at Ventura Landing is due to tighter market conditions in the Orlando market area. The property's average occupancy has improved 3% since March 31, 1999, due to increased marketing efforts. The decrease in occupancy at Village Green is due to new apartment construction filling the market in Altamonte Springs. The increase in occupancy at West Chase is due to increased concessions offered late in 1998. Results of Operations The Registrant's net income for the six months ended June 30, 1999, was approximately $391,000 as compared to approximately $386,000 for the six months ended June 30, 1998. The Registrant's net income for the three months ended June 30, 1999, was approximately $240,000 compared to net income of approximately $179,000 for the three months ended June 30, 1998. For the six months ended June 30, 1999, the increase in net income was due to increased total revenues partially offset by increased total expenses. For the three months ended June 30, 1999, the increase in net income was due to increased total revenue and decreased total expense. Total revenues increased primarily due to increased rental income. Rental income increased primarily due to increased average rental rates at Ventura Landing and Village Green and improved occupancy at West Chase, which were partially offset by reduced occupancy at Village Green and Ventura Plaza and reduced rental rates at West Chase. Total expenses for the six months ended June 30, 1999, increased due to increased depreciation and general and administrative expenses. Depreciation expense increased due to capital improvements completed during the second half of 1998 that are now being depreciated. General and administrative expense increased due to increased legal expenses due to the settlement of the Everest Lawsuit as disclosed in the Partnership's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998, and to a partnership management fee paid during the six months ended June 30, 1999, related to a distribution consisting of cash from operations. There were no operating distributions during the six months ended June 30, 1998, so no partnership management fee was paid during such periods. Included in general and administrative expenses at both June 30, 1999 and 1998, are management reimbursements to the General Partner allowed under the Partnership Agreement. Costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement also are included. Total expenses for the three months ended June 30, 1999, decreased due to decreased operating expense which offset the increase in depreciation expense. Operating expense for the three months ended June 30, 1999, decreased primarily due to decreased maintenance expenses at Ventura Landing and Village Green. Subsequent to June 30, 1999, Professional Plaza Office Building, located in Salt Lake City, Utah, was sold to an unaffiliated party for $3,600,000. After payment of closing expenses, the net sales proceeds received by the Partnership were approximately $3,498,000. For financial statement purposes, the sale resulted in a gain of approximately $2,233,000, which will be recognized during the third quarter of 1999. Professional Plaza was the only property in the commercial segment of the Partnership. Due to the subsequent sale of the property, the net assets of the property have been classified as "Investment in Discontinued Operations" as of June 30, 1999, on the consolidated balance sheet. This classification was also made as of December 31, 1998, for the consolidated statement of cash flow. The net income of the property has been classified as "Income from Discontinued Operations" for the three and six month periods ended June 30, 1999 and 1998. 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 As of June 30, 1999, the Partnership held cash and cash equivalents of approximately $1,239,000 compared to approximately $2,410,000 at June 30, 1998. The decrease in cash and cash equivalents of approximately $1,519,000 from the Partnership's year ended December 31, 1998, is due primarily to approximately $1,985,000 of cash used in financing activities, and to a lesser extent, to approximately $165,000 of cash used in investing activities, partially offset by approximately $631,000 of cash provided by operating activities. Cash used in investing activities consisted primarily of property improvements and replacements and, to a lessor extent, deposits to escrow accounts maintained by the mortgage lender. Cash used in financing activities consisted of a distribution paid to the partners. The Registrant invests its working capital reserves in a money market account. 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. Capital improvements planned at the Partnership's properties for 1999 are detailed below. Ventura Landing During the six months ended June 30, 1999, the Partnership completed approximately $105,000 of capital improvements, consisting primarily of carpet and vinyl replacement, plumbing improvements, appliances, counter top replacement, outside lighting, and other structural improvements. These improvements were funded from cash provided by operations. 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 $302,000 of capital improvements over the next few years. Capital improvements budgeted for, but not limited to, approximately $298,000, which includes certain of the required improvements, are planned for 1999, including carpet and vinyl replacement, parking lot improvements, light fixtures, roof replacement and other structural improvements. Village Green During the six months ended June 30, 1999, the Partnership completed approximately $20,000 of capital improvements, consisting primarily of carpet and vinyl replacement and appliances. These improvements were funded from Partnership reserves. 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 $282,000 of capital improvements over the next few years. Capital improvements budgeted for, but not limited to, approximately $299,000, which includes certain of the required improvements, are planned for 1999, including carpet and vinyl replacement, air conditioning units, fencing, exterior painting, parking lot improvements, and other structural improvements. West Chase During the six months ended June 30, 1999, the Partnership completed approximately $26,000 of capital improvements, consisting primarily of carpeting and vinyl replacement, and plumbing improvements. These improvements were funded from cash provided by operations. 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 $302,000 of capital improvements over the next few years. Capital improvements budgeted for, but not limited to, approximately $250,000, which includes certain of the required improvements, are planned for 1999, including carpet and vinyl replacement, heating units, plumbing, landscaping, roof replacement and other building improvements. Professional Plaza Office Building During the six months ended June 30, 1999, the Partnership did not incur any expenditures for capital improvements at the property. This property was sold July 8, 1999. The capital expenditures will be incurred only if cash is available from operations or from Partnership reserves. To the extent that such budgeted capital improvements are completed, the Registrant's distributable cash flow, if any, may be adversely affected at least in the short term. The Registrant's current assets are thought to be sufficient for any near-term needs (exclusive of capital improvements) of the Registrant. The mortgage indebtedness of $4,200,000 requires interest only payments with the principal balance due in November 2003. The General Partner will attempt to refinance such indebtedness and/or sell the properties prior to the maturity date. If the properties cannot be refinanced or sold for a sufficient amount, the Registrant may risk losing such properties through foreclosure. During the six months ended June 30, 1999, the Registrant made a distribution of approximately $1,985,000 (approximately $1,979,000 to the limited partners, $12.48 per limited partnership unit) of which approximately $1,826,000 (approximately $1,827,000 to the limited partners, $11.52 per limited partnership unit) represented a return of capital and approximately $159,000 (approximately $152,000 to the limited partners, $.96 per limited partnership unit) was from cash flow from operations. Subsequent to June 30, 1999, a distribution of approximately $219,000 (approximately $210,000 to the limited partners, $1.32 per limited partnership unit) was paid from cash flow from operations. No distributions were paid during the six months ended June 30, 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, property sales, and/or refinancings. The Registrant's distribution policy is reviewed on a semi-annual basis. There can be no assurance, however, that the Registrant will generate sufficient funds from operations after required capital expenditures to permit further distributions to its partners in 1999 or subsequent periods. Tender Offer On May 19, 1999, AIMCO Properties, L.P., an affiliate of the General Partner commenced a tender offer to purchase up to 46,436.36 (approximately 29.28% of the total outstanding units) units of limited partnership interest in the Partnership for a purchase price of $64 per unit. The offer expired on July 30, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 3,777.50 units. As a result, AIMCO and its affiliates currently own 61,485.50 units of limited partnership interest in the Partnership representing approximately 38.77% of the total outstanding units. It is possible that AIMCO or its affiliates will make one or more additional offers to acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. 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 main computer system used by the Managing Agent became fully functional. In addition to the main computer system, 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 June 30, 1999, had completed approximately 90% 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 September 30, 1999. The completion of this process is scheduled to coincide with the release of a compliant version of the Managing Agent's operating system. 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. In April, 1999 the Managing Agent embarked on a data center consolidation project that unifies its core financial systems under its Year 2000 compliant system. The estimated completion date for this project is October, 1999. 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 testing process was completed in June, 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 90% of the server operating systems. The remaining server operating systems are planned to be upgraded to be Year 2000 compliant by September, 1999. The completion of this process is scheduled to coincide with the release of a compliant version of the Managing Agent's operating system. 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. A pre-assessment of the properties by the Managing Agent has indicated no Year 2000 issues. A complete, formal assessment of all the properties by the Managing Agent is in process and will be completed in September, 1999. Any operating equipment that is found non-compliant will be repaired or replaced. The total cost incurred for all properties managed by the Managing Agent as of June 30, 1999 to replace or repair the operating equipment was approximately $75,000. The Managing Agent estimates the cost to replace or repair any remaining operating equipment is approximately $125,000. 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 July, 1999. The Managing Agent has updated data transmission standards with all of the 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 September 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 $2.9 million ($0.7 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 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 have filed an amended complaint. The General Partner has 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 June 30, 1999. 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. CONSOLIDATED CAPITAL PROPERTIES III By: CONCAP EQUITIES, INC. Its General Partner By: /s/ Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/ Carla R. Stoner Carla R. Stoner Executive Vice President Finance and Administration Date: August 11, 1999