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 June 30, 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.) 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) ANGELES PARTNERS VIII CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands, except unit data) June 30, 1999 Assets Cash and cash equivalents $ 286 Receivables and deposits 299 Other assets 138 Investment properties: Land $ 543 Buildings and related personal property 15,192 15,735 Less accumulated depreciation (11,482) 4,253 $ 4,976 Liabilities and Partners' Deficit Liabilities Accounts payable $ 156 Tenant security deposit liabilities 77 Accrued property taxes 247 Accrued interest 2,798 Other liabilities 47 Due to affiliates 355 Notes payable, $1,721 in default 16,510 Partners' Deficit General partner $ (186) Limited partners (11,759 units issued (15,028) and outstanding) (15,214) $ 4,976 See Accompanying Notes to Consolidated Financial Statements b) ANGELES PARTNERS VIII 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 $ 945 $ 927 $ 1,873 $ 1,843 Other income 53 58 109 108 Total revenues 998 985 1,982 1,951 Expenses: Operating 388 442 792 825 General and administrative 22 44 71 80 Depreciation 180 168 350 336 Interest 481 476 958 948 Property taxes 106 5 221 131 Total expenses 1,177 1,135 2,392 2,320 Net loss $ (179) $ (150) $ (410) $ (369) Net loss allocated to general partner (1%) $ (2) $ (2) $ (4) $ (4) Net loss allocated to limited partners (99%) (177) (148) (406) (365) $ (179) $ (150) $ (410) $ (369) Net loss per limited partnership unit $(15.05) $(12.52) $(34.52) $(30.81) See Accompanying Notes to Consolidated Financial Statements c) ANGELES PARTNERS VIII CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT (Unaudited) (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 six months ended June 30, 1999 -- (4) (406) (410) Partners' deficit at June 30, 1999 11,759 $ (186) $ (15,028) $ (15,214) See Accompanying Notes to Consolidated Financial Statements d) ANGELES PARTNERS VIII CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Six Months Ended June 30, 1999 1998 Cash flows from operating activities: Net loss $ (410) $ (369) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 350 336 Amortization of loan costs 28 28 Change in accounts: Receivables and deposits 104 (122) Other assets (47) 8 Accounts payable 93 96 Tenant security deposit liabilities 2 6 Accrued property taxes (188) 14 Accrued interest 281 244 Other liabilities (2) 6 Due to affiliates 41 54 Net cash provided by operating activities 252 301 Cash flows used in investing activities: Property improvements and replacements (130) (110) Cash flows used in financing activities: Payments on notes payable (153) (138) Net (decrease) increase in cash and cash equivalents (31) 53 Cash and cash equivalents at beginning of period 317 328 Cash and cash equivalents at end of period $ 286 $ 381 Supplemental disclosure of cash flow information: Cash paid for interest $ 650 $ 676 Supplemental disclosure of non-cash activities: For the six months ended June 30, 1998, both accounts payable and property improvements and replacements were adjusted by approximately $37,000 for non- cash activities. See Accompanying Notes to Consolidated Financial Statements ANGELES PARTNERS VIII NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) June 30, 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 $410,000 for the six months ended June 30, 1999, and Angeles Realty Corporation (the "General Partner") expects this trend to continue. The Partnership realized net cash from operations of approximately $252,000; however, interest of approximately $281,000 was accrued during the six months ended June 30, 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 $3,508,000, including accrued interest of approximately $2,158,000, 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's note payable of approximately $580,000, including accrued interest of approximately $209,000, 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. 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 June 30, 1999, and cash flow generated during 1999. 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 Partnership's financial statements have expressed an exception as to the Partnership's ability to continue as a going concern since 1992. The Partnership's debt that is held by AIMCO has been in payment default since 1993. Such holder has informed the General Partner of its intention to exercise remedies with respect to all or a portion of such indebtedness imminently, and such exercise will result in the Partnership's loss of its properties, the loss by limited partners of their investment in the Partnership, and certain adverse tax consequences to the limited partners. The General Partner has determined that the use by the Partnership of its limited resources to contest the exercise of such remedies would most likely be futile. Accordingly, the General Partner intends to execute settlement documents to effect the exercise of such remedies in a manner that is cost effective to the Partnership. While the description set forth below is a general description of adverse tax consequences that a limited partner may suffer as a result of the exercise of such remedies, each limited partner should consult with his or her own tax advisor to determine his or her particular tax consequences. A transfer of the Partnership's properties in satisfaction of indebtedness will result in the deemed sale or exchange of the properties, thereby resulting in taxable gain to the extent that the amount of the indebtedness exceeds the tax basis (which has been reduced because of prior years depreciation deductions) of the properties. This taxable gain will pass through to the limited partners, thereby effectively resulting in the recapture of prior years depreciation deductions. This may result in income tax liability to the limited partners without any distribution of cash from the Partnership. 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 and six month periods ended June 30, 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. Certain reclassifications have been made to the 1998 information to conform to the 1999 presentation. 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 AIMCO, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 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 six months ended June 30, 1999 and 1998, respectively: 1999 1998 (in thousands) Property management fees, included in operating expenses $102 $98 Reimbursement for services of affiliates, included in operating and general and administrative expenses 44 65 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 the Partnership's properties for providing property management services. The Partnership paid to such affiliates approximately $102,000 and $98,000 for the six months ended June 30, 1999 and 1998, respectively. Affiliates of the General Partner were entitled to or received reimbursements of accountable administrative expenses amounting to approximately $44,000 and $65,000 for the six months ended June 30, 1999 and 1998, respectively. Included in these expenses is approximately $3,000 and $12,000 in construction oversight costs for the six months ended June 30, 1999 and 1998, respectively. In June 1990, AMIT provided secondary financing on the Partnership's investment properties. Total indebtedness was approximately $2,920,000 at June 30, 1999, of which approximately $1,350,000 is in default at June 30, 1999 (see "Note A"). Total interest expense related to this debt was approximately $384,000 and $345,000 for the six months ended June 30, 1999 and 1998, respectively. Accrued interest related to this debt was approximately $2,497,000 at June 30, 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 June 30, 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% (8.50%, average rate at June 30, 1999). Total interest expense for this loan was approximately $15,000 and $17,000 for the six months ended June 30, 1999 and 1998, respectively. Total accrued interest for this loan was approximately $209,000 at June 30, 1999. See "Note A" for a discussion of the current status of such indebtedness. 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 six months ended June 30, 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 $ 1,873 $ -- $ 1,873 Other income 106 3 109 Interest expense 943 15 958 Depreciation 350 -- 350 General and administrative expense -- 71 71 Segment loss (327) (83) (410) Total assets 4,818 158 4,976 Capital expenditures for investment properties 130 -- 130 1998 Residential Other Totals Rental income $ 1,843 $ -- $ 1,843 Other income 103 5 108 Interest expense 931 17 948 Depreciation 336 -- 336 General and administrative expense -- 80 80 Segment loss (277) (92) (369) Total assets 5,144 282 5,426 Capital expenditures for investment properties 110 -- 110 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 six months ended June 30, 1999 and 1998: Average Occupancy 1999 1998 Bercado Shores Apartments Mishawaka, Indiana 90% 94% Brittany Point Apartments Huntsville, Alabama 95% 91% The decrease in occupancy at Bercado Shores is primarily due to the cash flow problems at the property which has affected the property's ability to fund all of the required capital expenditures (see "Note A"). As a result, this has affected the property's lease renewals and its ability to attract new tenants. 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's net loss for the six months ended June 30, 1999 was approximately $410,000 compared to approximately $369,000 for the corresponding period in 1998. The Partnership recorded a net loss of approximately $179,000 for the three months ended June 30, 1999 compared to a net loss of approximately $150,000 for the corresponding period in 1998. The increase in net loss for the three and six months ended June 30, 1999 compared to the corresponding periods in 1998 is the result of an increase in total expenses, partially offset by a slight increase in total revenues. Total expenses increased primarily due to an increase in property tax expense. During the second quarter of 1998, Bercado Shores successfully appealed an increase in its property tax assessment value. The property received a credit on its 1998 property tax bill, a portion of which related to the 1997 tax year. The full amount of the credit was applied against property tax expense for the six months ended June 30, 1998 resulting in a lower than normal expense for that period. The increase in total expenses is slightly offset by an increase in total revenues due to an increase in rental income. Rental income increased due to an increase in annual rental rates at both properties and an increase in occupancy at Brittany Point, which more than offset the decline in occupancy at Bercado Shores. Included in general and administrative expenses for each of the six month periods ended June 30, 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 June 30, 1999, the Partnership had cash and cash equivalents of approximately $286,000 as compared to approximately $381,000 at June 30, 1998. Cash and cash equivalents decreased approximately $31,000 for the six months ended June 30, 1999 from the Registrant's fiscal year end. This decrease was primarily due to approximately $153,000 of net cash used in financing activities and approximately $130,000 of cash used in investing activities, which is partially offset by approximately $252,000 of cash provided by operating activities. Cash used in financing activities consisted of payments of principal made on the mortgages encumbering the Registrant's properties. Cash used in investing activities consisted of property improvements and replacements. The Registrant 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 June 30, 1999 and cash flow generated during 1999 (see "Note A"). 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 next few years. Total amount of capital improvements planned for 1999 have yet to be determined. As of June 30, 1999, the Partnership has started approximately $54,000 of capital improvements at the property which include certain of the required improvements and consist 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 next few years. The Partnership has budgeted for 1999, but is not limited to, capital improvements of approximately $366,000 which include certain of the required improvements and consist of carpet and vinyl replacement, landscaping and parking lot upgrades, recreational facility enhancements, roof replacement, and structural improvements. As of June 30, 1999, the Partnership completed approximately $76,000 of capital improvements at the property consisting primarily of flooring, appliance and heating and air/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 of approximately $2,158,000, 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. 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's note payable of approximately $580,000, including accrued interest of approximately $209,000, 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. 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. The Partnership's financial statements have expressed an exception as to the Partnership's ability to continue as a going concern since 1992. The Partnership's debt that is held by AIMCO has been in payment default since 1993. Such holder has informed the General Partner of its intention to exercise remedies with respect to all or a portion of such indebtedness imminently, and such exercise will result in the Partnership's loss of its properties, the loss by limited partners of their investment in the Partnership, and certain adverse tax consequences to the limited partners. The General Partner has determined that the use by the Partnership of its limited resources to contest the exercise of such remedies would most likely be futile. Accordingly, the General Partner intends to execute settlement documents to effect the exercise of such remedies in a manner that is cost effective to the Partnership. While the description set forth below is a general description of adverse tax consequences that a limited partner may suffer as a result of the exercise of such remedies, each limited partner should consult with his or her own tax advisor to determine his or her particular tax consequences. A transfer of the Partnership's properties in satisfaction of indebtedness will result in the deemed sale or exchange of the properties, thereby resulting in taxable gain to the extent that the amount of the indebtedness exceeds the tax basis (which has been reduced because of prior years depreciation deductions) of the properties. This taxable gain will pass through to the limited partners, thereby effectively resulting in the recapture of prior years depreciation deductions. This may result in income tax liability to the limited partners without any distribution of cash from the Partnership. There were no distributions paid for the six months ended June 30, 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 and the imminent exercise of remedies thereon, it is unlikely that a distribution will be made by the Registrant in the foreseeable future. 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 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 June 30, 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: August 12, 1999