SECURITIES AND EXCHANGE COMMISSION
Washington, DC
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FORM 10-Q/A
(AMENDMENT NO. 1)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-17412
Secured Income L.P.
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(Exact name of Registrant as specified in its charter)
Delaware 06-1185846
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State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)
599 West Putnam Avenue
Greenwich, Connecticut 06830
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(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (203) 869-0900
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.
Yes X No
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EXPLANATORY NOTE
This amendment to Registrant's Form 10-Q for the quarterly period ended
September 30, 2002 is being filed solely to insert Part I, Item 4, Controls and
Procedures and the Sarbanes Oxley Act of 2002 Section 302 Certifications, each
as set forth herein.
SECURED INCOME L.P. AND SUBSIDIARIES
Part I - Financial Information
Table of Contents
Page
Item 1 Financial Statements ----
Consolidated Balance Sheets 3
Consolidated Statements of Earnings 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3 Quantitative and Qualitative Disclosure about Market Risk 8
Item 4 Controls and Procedures 9
2
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30,
2002 December 31,
(Unaudited) 2001
------------ ------------
ASSETS
Property and equipment (net of accumulated
depreciation of $21,731,161 and $20,598,397) $ 23,002,676 $ 24,135,440
Cash and cash equivalents 4,502,381 4,831,075
Restricted assets and funded reserves 719,162 518,969
Tenant security deposits 545,769 556,712
Accounts receivable 64,947 37,493
Prepaid expenses 520,326 629,621
Intangible assets, net of accumulated amortization 2,146,361 2,231,247
------------ ------------
$ 31,501,622 $ 32,940,557
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities
Mortgages payable $ 41,492,613 $ 41,833,655
Accounts payable and accrued expenses 384,800 203,385
Tenant security deposits payable 537,286 555,626
Due to general partners and affiliates 217,181 359,226
Deferred revenue 104,598 104,598
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42,736,478 43,056,490
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Partners' deficit
Limited partners (9,981,829) (9,400,723)
General partners (1,253,027) (715,210)
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(11,234,856) (10,115,933)
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$ 31,501,622 $ 32,940,557
============ ============
See notes to consolidated financial statements.
3
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2002 2002 2001 2001
---------- ---------- ---------- ----------
REVENUE
Rental $2,029,549 $6,173,360 $2,094,335 $6,172,435
Interest 26,480 72,086 38,998 112,174
---------- ---------- ---------- ----------
TOTAL REVENUE 2,056,029 6,245,446 2,133,333 6,284,609
---------- ---------- ---------- ----------
EXPENSES
Administrative and management 208,321 615,368 190,879 536,535
Operating and maintenance 395,069 1,071,945 332,990 1,033,100
Taxes and insurance 355,240 1,046,855 318,790 964,475
Financial 453,698 1,355,341 511,669 1,687,139
Depreciation and amortization 405,884 1,217,650 412,521 1,237,567
---------- ---------- ---------- ----------
TOTAL EXPENSES 1,818,212 5,307,159 1,766,849 5,458,816
---------- ---------- ---------- ----------
NET EARNINGS $ 237,817 $ 938,287 $ 366,484 $ 825,793
========== ========== ========== ==========
NET EARNINGS ATTRIBUTABLE TO
Limited partners $ 235,439 $ 600,137 $ -- $ --
General partners 2,378 338,150 366,484 825,793
---------- ---------- ---------- ----------
$ 237,817 $ 938,287 $ 366,484 $ 825,793
========== ========== ========== ==========
NET EARNINGS ALLOCATED
PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ .24 $ .61 $ -- $ --
========== ========== ========== ==========
See notes to consolidated financial statements.
4
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Unaudited)
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 938,287 $ 825,793
Adjustments to reconcile net earnings to net cash provided
by operating activities
Depreciation and amortization 1,217,650 1,237,567
Increase in restricted assets and funded reserves (200,193) (187,898)
Decrease in tenant security deposits 10,943 1,668
Decrease (increase) in accounts receivable (27,454) 41,745
Decrease in prepaid expenses 109,295 113,391
Increase (decrease) in accounts payable and accrued expenses 181,415 (217,750)
Increase (decrease) in tenant security deposits payable (18,340) 27,101
Decrease in due to general partners and affiliates (142,045) (142,001)
----------- -----------
Net cash provided by operating activities 2,069,558 1,699,616
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CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to partners (2,057,210) (621,310)
Principal payments on mortgages (341,042) (342,470)
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Net cash used in financing activities (2,398,252) (963,780)
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Net increase (decrease) in cash and cash equivalents (328,694) 735,836
Cash and cash equivalents at beginning of period 4,831,075 4,320,459
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,502,381 $ 5,056,295
=========== ===========
SUPPLEMENTAL INFORMATION
Financial expenses paid $ 1,302,517 $ 1,688,718
=========== ===========
See notes to consolidated financial statements.
5
SECURED INCOME L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(Unaudited)
1. The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information. They do not
include all information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial
statements. The results of operations are impacted significantly by the
results of operations of the Carrollton and Columbia Partnerships, which is
provided on an unaudited basis during interim periods. Accordingly, the
accompanying consolidated financial statements are dependent on such
unaudited information. In the opinion of the General Partners, the
consolidated financial statements include all adjustments necessary to
reflect fairly the results of the interim periods presented. All
adjustments are of a normal recurring nature. No significant events have
occurred subsequent to December 31, 2001 and no material contingencies
exist which would require additional disclosure in the report under
Regulation S-X, Rule 10-01 paragraph A-5.
The results of operations for the nine months ended September 30, 2002 are
not necessarily indicative of the results to be expected for the entire
year.
2. Additional information, including the audited December 31, 2001
Consolidated Financial Statements and the Summary of Significant Accounting
Policies, is included in the Partnership's Annual Report on Form 10-K for
the fiscal year ended December 31, 2001 on file with the Securities and
Exchange Commission.
6
SECURED INCOME L.P. AND SUBSIDIARIES
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Partnership's primary sources of funds are rents generated by the Operating
Partnerships and interest derived from investments and deposits, a portion of
which are restricted in accordance with the terms of the mortgages of the
Operating Partnerships. The Partnership's investments are highly illiquid.
The Partnership is not expected to have access to additional sources of
financing. Accordingly, if unforeseen circumstances arise that cause an
Operating Partnership to require additional capital, potential sources from
which such capital needs will be able to be satisfied (other than reserves)
would be additional equity contributions of the Operating General Partners or
other equity reserves, if any, which could adversely impact the operating cash
flow of the Operating Partnerships.
Although the Partnership generated cash from operations during the nine months
ended September 30, 2002, cash and cash equivalents decreased by approximately
$329,000 primarily as a result of the Columbia Partnership's distribution to its
general partners of 2001 cash flows in excess of the 8% preferred return under
the terms of the Columbia Partnership's partnership agreement. Mortgages payable
decreased due to principal amortization of approximately $341,000. Property and
equipment decreased by approximately $1,133,000 due to depreciation, while
intangible assets decreased by approximately $85,000 due to amortization.
Property and equipment and intangible assets are expected to decrease annually
as the cost of these assets is allocated to future periods over their remaining
estimated service lives. Prepaid expenses decreased and accounts payable and
accrued expenses increased in the ordinary course of operations. Due to related
parties decreased primarily as a result of the Carrollton Partnership's
utilization of 2001 cash flow to pay amounts accrued as of December 31, 2001.
The Partnership anticipates making a distribution on or about November 15, 2002
of approximately $.40 per Unit to Unit holders of record as of September 30,
2002. Distributions of approximately $.40 per Unit to Unit holders of record as
of June 30, 2002 and March 31, 2002 were made in August 2002 and May 2002,
respectively. The Partnership made quarterly distributions in May, August and
November 2001 and in March 2002 totaling $1,577,991, resulting from cash flow
generated by the Operating Partnerships. Such distribution represents an
annualized return to the limited partners of approximately 8% for the year ended
December 31, 2001. The Partnership intends to make quarterly distributions on an
ongoing basis, subject to the operating results of the Operating Partnerships;
the Operating Partnerships' results from operations is highly contingent upon
the interest rates of the Columbia Partnership's low-floater mortgage and the
strength of their respective rental markets. There can be no assurance that the
Operating Partnerships will continue to generate cash flow sufficient to make
quarterly distributions or that future distributions will be in any specific
amounts. The events of September 11, 2001 have increased the risk that the
operations of the Properties may be adversely impacted as a result of the effect
of these events on the economy in general and because the Properties are located
in New York City and near Washington, D.C.
Results of Operations
Nine Months Ended September 30, 2002
During the nine months ended September 30, 2002, the Columbia Partnership and
the Carrollton Partnership generated income from operating activities, before
financial expenses, of approximately $2,620,000 and approximately $944,000,
respectively. Mortgage principal payments during the period for the Columbia
Partnership and the Carrollton Partnership were approximately $227,000 and
approximately $114,000, respectively. After considering the respective mandatory
mortgage principal payments and required deposits to mortgage escrows, among
other things, the Complexes generated combined cash flow of approximately
$1,777,000 during the nine months ended September 30, 2002. There can be no
assurance that the level of cash flow generated by the Complexes during the nine
months ended September 30, 2002 will continue in future periods.
7
SECURED INCOME L.P. AND SUBSIDIARIES
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Results of operations for the nine months ended September 30, 2002 were
comparable to the nine months ended September 30, 2001. Rental revenue during
the three months ended September 30, 2002 is low as compared to both the three
months ended September 30, 2001 and the nine months ended September 30, 2002 as
a result of excessive residential vacancies experienced by the Columbia
Partnership resulting from lease expirations in July and August of 2002, many of
which were not renewed. The events of September 11, 2001 and the resulting
impact on the Manhattan economy have led to an increase in vacancies and a
decrease in average rent escalations upon lease renewals as compared to the
prior year, as well as an increase in concessions. Columbia management reports
that aggressive marketing strategies (which include rental concessions) continue
to be employed in an effort to maintain high occupancy levels; management
further reports that only 4 units are expected to be vacant as of December 1,
2002. Operating and maintenance expenses increased for the third quarter of 2002
as compared to the first six months of 2002 primarily as a result of scheduled
repairs and improvements. Although administrative and management expenses for
the nine months ended September 30, 2002 are higher compared to the nine months
ended September 30, 2001, the expenses are consistent with the total for the
year ended December 31, 2001. Financial expenses decreased primarily as a result
of a decrease in the weighted average interest rate on the Columbia
Partnership's first mortgage from approximately 2.97% for the first nine months
of 2001 to approximately 1.47% for the first nine months of 2002.
As of September 30, 2002, the occupancy of Fieldpointe Apartments (Carrollton)
was approximately 95% and the occupancy of The Westmont (Columbia) was
approximately 94% as to residential units and 100% as to commercial space. The
future operating results of the Complexes will be extremely dependent on market
conditions and therefore may be subject to significant volatility.
Nine Months Ended September 30, 2001
During the nine months ended September 30, 2001, the Columbia Partnership and
the Carrollton Partnership generated income from operating activities, before
financial expenses, of approximately $2,808,000 and approximately $950,000,
respectively. Mortgage principal payments during the period for the Columbia
Partnership and the Carrollton Partnership were approximately $235,000 and
approximately $107,000, respectively. After considering the respective mandatory
mortgage principal payments and required deposits to mortgage escrows, among
other things, the Complexes generated combined cash flow of approximately
$1,663,000 during the nine months ended September 30, 2001. As of September 30,
2001, the occupancy of Fieldpointe Apartments was approximately 98% and the
occupancy of The Westmont was approximately 99% as to residential units and 100%
as to commercial space.
Critical Accounting Policies and Estimates
The financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America, which requires Registrant to
make certain estimates and assumptions. A summary of significant accounting
policies is disclosed in Note 1 to the consolidated financial statements which
are included in Registrant's annual report on Form 10-K for the year ended
December 31, 2001. The following section is a summary of certain aspects of
those accounting policies that may require subjective or complex judgments and
are most important to the portrayal of Registrant's financial condition and
results of operations. Registrant believes that there is a low probability that
the use of different estimates or assumptions in making these judgments would
result in materially different amounts being reported in the consolidated
financial statements.
o Registrant records its real estate assets at cost less accumulated
depreciation and, if there are indications that impairment exists,
adjusts the carrying value of those assets in accordance with SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
Item 3 Quantitative and Qualitative Disclosure about Market Risk
The Partnership has market risk sensitivity with regard to financial instruments
concerning potential interest rate fluctuations in connection with the low
floater rates associated with the Columbia Partnership's first mortgage.
Accordingly, a fluctuation in the low-floater interest rates of .25% would have
a $60,500 annualized impact on the Partnership's results of operations.
8
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
a. Within the 90 days prior to the date of this report, the Chief Executive
Officer and Chief Financial Officer of Wilder Richman Resources Corporation,
the General Partner of the Partnership, carried out an evaluation of the
effectiveness of the Partnership's "disclosure controls and procedures" (as
defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15(d)-14(c)).
Based on that evaluation, the Chief Executive Officer and Principal Financial
Officer have concluded that as of the date of the evaluation, the Partnership's
disclosure controls and procedures were adequate and effective in timely
alerting them to material information relating to the Partnership required to be
included in the Partnership's periodic SEC filings.
Changes in internal controls
b. There were no significant changes in the Partnership's internal controls or
in other factors that could significantly affect the Partnership's internal
controls subsequent to the date of that evaluation.
9
SECURED INCOME L.P. AND SUBSIDIARIES
Part II - Other Information
Item 1 Legal Proceedings
Registrant is not aware of any material legal proceedings.
Item 2 Changes in Securities
None
Item 3 Defaults upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 99.1 Certification of Chief Executive Officer
Exhibit 99.2 Certification of Chief Financial Officer
b. Reports on Form 8-K
None
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SECURED INCOME L.P.
By: Wilder Richman Resources
Corporation General Partner
Date: February 13, 2003 /s/ Richard Paul Richman
------------------------------------
Richard Paul Richman
President, Chief Executive Officer
and Director
Date: February 13, 2003 /s/ Neal Ludeke
-----------------------------------
Neal Ludeke
Chief Financial Officer
11
CERTIFICATIONS
I, Richard Paul Richman, certify that:
1. I have reviewed this quarterly report on Form 10-Q, as amended, of Secured
Income L.P. (the "Company");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Company as of, and for, the periods presented in this
quarterly report;
4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date (the "Evaluation Date") within 90 days prior
to the filing date of this quarterly report; and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee
of the Company's board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for
the Company's auditors any material weaknesses in internal controls;
and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
controls; and
6. The Company's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the Evaluation Date, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 13, 2003 By: Richard Paul Richman
-------------------------------------
Richard Paul Richman
Chief Executive Officer of Wilder
Richman Resources Corporation, a
general partner of the Company
12
I, Neal Ludeke, certify that:
1. I have reviewed this quarterly report on Form 10-Q, as amended, of Secured
Income L.P. (the "Company");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Company as of, and for, the periods presented in this
quarterly report;
4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have;
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date (the "Evaluation Date") within 90 days prior
to the filing date of this quarterly report; and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee
of the Company's board of directors (or persons performing the equivalent
function);
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for
the Company's auditors any material weaknesses in internal controls;
and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
controls; and
6. The Company's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the Evaluation Date, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 13, 2003 By: /s/ Neal Ludeke
---------------------------------
Neal Ludeke
Chief Financial Officer of Wilder
Richman Resources Corporation, a
general partner of the Company
13