FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended
March 31, 2003
Commission File Number: 0-24906
Larchdale Ownership Company, Ltd.
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(Exact name of registrant as specified in its charter)
California 95-3932760
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(State or other jurisdiction of (I.R.S. Employer
corporation or organization) Identification No.)
6355 Topanga Canyon Blvd., Suite 435, Woodland Hills, CA 91367
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(Address of Principal executive offices)
(818) 346-0509
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(Registrant's telephone number, including area code)
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(Former Name, former address, and former fiscal year,
if changed since last report)
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 such filing
requirements for the past 90 days. Yes X No_____
LARCHDALE OWNERSHIP COMPANY, LTD.
(A California Limited Partnership)
Page Number
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Part I - Financial Information
Balance Sheets March 31, 2003 (Unaudited)
and December 31, 2002 3
Statement of Operations and Computation
of Net Income (Loss) per Partnership Interest
(Unaudited) for the Three Months ended
March 31, 2003 and 2002 4
Statement of Cash Flows (Unaudited)
for the Three Months Ended
March 31, 2003 and 2002 5
Notes to Unaudited Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Part II - Other Information 9
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LARCHDALE OWNERSHIP COMPANY, LTD.
(A California Limited Partnership)
Balance Sheets
March 31, 2003 (Unaudited) and December 31, 2002
March 31, December 31,
2002 2001
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ASSETS
PROPERTY AT COST
Land $ 1,679,198 $ 1,679,198
Buildings and improvements 12,081,160 12,081,160
Furniture and fixtures 410,845 410,845
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14,171,203 14,171,203
Less accumulated depreciation 12,246,577 12,234,987
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1,924,626 1,936,216
CASH 94,900 83,037
LOAN FEES -
net of accumulated amortization of
$220,554 at March 31, 2003 and
$211,490 at December 31, 2002 141,999 151,063
PREPAID EXPENSES AND OTHER ASSETS 378,993 349,787
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$ 2,540,518 $ 2,520,103
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LIABILITIES AND PARTNERS' CAPITAL
NOTE PAYABLE $13,164,736 $13,208,318
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 209,342 224,028
ADVANCE DUE TO AFFILIATE 1,011,000 1,100,000
TENANT SECURITY DEPOSITS 175,069 173,292
PARTNERS' CAPITAL (DEFICIT) (12,019,629) (12,185,535)
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$ 2,540,518 $ 2,520,103
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LARCHDALE OWNERSHIP COMPANY, LTD.
(A California Limited Partnership)
Statement of Operations
(Unaudited)
Three Months Ended
March 31, March 31,
2003 2002
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REVENUES
Rental Income $ 1,051,757 $1,031,382
Other Income 38,669 30,948
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1,090,426 1,062,330
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EXPENSES
Interest 304,125 314,564
Depreciation and amortization 20,654 176,742
Repairs and maintenance 199,167 154,415
Utilities 91,301 117,780
Salaries and related expenses 115,920 127,261
Management and administrative fee 65,400 63,954
Property taxes 57,663 55,990
Professional services 19,474 16,372
Insurance 36,367 19,638
Administrative costs 6,651 4,099
Advertising and promotion 7,798 5,610
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924,520 1,056,425
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NET INCOME (LOSS) $ 165,906 $ 5,905
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Net income (loss) per weighted number of
limited partnership interests outstanding
(35,371 at March 31, 2003 and 2002) $ 4.69 $ 0.17
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LARCHDALE OWNERSHIP COMPANY, LTD.
(A California Limited Partnership)
Statement of Cash Flows
(Unaudited)
Three Months Ended
March 31,
2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) from operations $ 165,906 $ 5,905
Adjustments to reconcile net loss to
net cash provided (used) by operating
activities:
Depreciation and amortization 20,654 176,742
(Increase) decrease in:
Prepaid expenses and other assets (29,206) (9,634)
Increase (decrease) in:
Accounts payable and accrued expenses (14,686) 19,773
Accrued interest to affiliate 11,000 40,050
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Net cash provided (used) by
operating activities 153,668 232,836
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in note payable (43,582) (40,162)
Advance due to affiliate (100,000)
Increase (decrease) in tenant security deposits 1,777 4,137
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Net cash provided (used) by financing activities (141,805) (36,025)
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Net increase (decrease) in cash 11,863 196,811
Cash beginning of year 83,037 131,034
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Cash at end of period $ 94,900 $ 327,845
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LARCHDALE OWNERSHIP COMPANY, LTD.
(A California Limited Partnership)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1 - FINANCIAL STATEMENTS
The balance sheet as of March 31, 2003, the statement of operations for the
three months ended March 31, 2003 and 2002, and the statement of cash flows for
the three month periods then ended have been prepared by the partnership without
audit. In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position at
March 31, 2003, and for all periods presented, have been made.
NOTE 2 - INCOME TAXES
The net loss reported for financial reporting purposes is different from that
reported for tax purposes, for the three months ended March 31, 2003, as shown
below:
Net income for financial statements
reporting purposes $ 165,906
Tax depreciation difference 3,457
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Net income for income tax reporting purposes $ 169,363
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Management's Discussion and Analysis of Financial
Condition and Results of Operation
Liquidity and Capital Resources
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The Partnership's primary source of liquidity has been funds from operations,
proceeds from the initial capitalization, and the exercise of warrants in 1986
and 1987. With the completion of the 1987 warrant offering, the Partnership is
fully capitalized. Future capital requirements are expected to be primarily
provided by operations.
On November 10, 1986, the Partnership obtained a new loan of $12,750,000 from an
institutional third-party lender. The note bears interest at a variable rate of
225 basis points over the 11th District Federal Home Loan Bank cost of funds,
with a floor of 10%.
In May 1992, the Partnership completed a modification of the payment terms of
the loan for a one-year period commencing with the payment due January 1, 1992.
Under the terms of the modification, monthly interest only payments were made at
the reduced rate of 5%, with the difference between interest at the full rate
and the reduced payment rate added to the principal amount of the loan. In
addition, payments for property taxes were impounded by the lender on a monthly
basis. After the end of the modification period, the Partnership made partial
monthly payments until April 6, 1993 when payment in full of past due amounts
was made and the loan reverted to its unmodified terms.
In May 1994, the Partnership completed a second modification of the loan payment
terms for a one-year period commencing on November 1, 1993. Under the terms of
the second modification, monthly interest only payments were paid at the reduced
rate of 9%, with the difference between interest at the full rate of 10% and the
reduced payment rate added to the principal amount of the loan. In addition,
payments for property taxes were impounded by the lender on a monthly basis. In
March 1995, the modification was extended for a one-year period commencing on
November 1, 1994.
Starting with the payment due on November 1, 1995, the modification expired and
monthly payments at the full rate of 10% per annum plus principal amortization
were required under the original terms of the note. However, the lender
continued to bill the Partnership under the terms of the modification and the
Partnership paid the amounts as billed. The Partnership contacted the lender in
September 1996 to initiate negotiations to resolve the billing disparity, which
had accumulated to $281,000 and the problems of the property taxes due starting
in September 1996 and the deferred maintenance of the property. In December
1996, the lender agreed to accept $11,800,000 as payment in full on its loan
under the conditions, among others, that payment be received before April 15,
1997, that the property taxes be paid, and that the loan be purchased by a third
party independent of the Partnership. The purchase price was reduced by the
principal portion of the monthly payments made from January 1, 1997 through the
purchase date. The property taxes were paid by the Partnership in December 1996.
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On February 28, 1997, the Partnership completed the refinancing of the property
and paid off the existing loan, which had a balance at closing of $13,245,725
with a cash payment of $11,767,496 for a gain of $1,481,229. The Partnership
paid a fee of $50,000 to a third party to purchase the existing loan from the
lender and subsequently sell the loan to the Partnership and a fee of $25,213 to
a consultant for assistance in making the initial contact with the appropriate
lender representative. In addition, the Partnership paid a fee of $140,602 to
the general partner, LMH Realty, Inc., equal to 10% of the net gain of
$1,406,016 for success in the negotiating of the loan discount and arranging the
third party purchase of the loan. The Partnership recognized the remaining gain
of $1,265,414 in 1997.
The loan was purchased and the refinancing completed with funds from a new loan
to the Partnership of $14,000,000 at 8.20% per annum maturing on March 1, 2007
with monthly principal and interest payments of $104,686. The Partnership paid
fees to the lender and loan broker of $280,000, loan costs, title insurance,
transfer taxes and recording fees of $50,996, and estimated legal fees of
$25,000. The new loan provided for reserves for the initial two monthly
payments, property taxes and insurance. In addition, the new lender held a
reserve of $493,000 for deferred property maintenance items. After the payment
of $11,767,496 to the prior lender, the Partnership received net proceeds from
the refinancing of $1,316,015.
In September 1997, the Partnership completed the pay off of advances due to an
affiliate of the general partner of $664,596 plus accrued interest of $430,295.
As of the date of this Report, the Partnership does not foresee any trends,
demands, commitments, events, or uncertainties which are reasonably likely to
result in a material increase or decrease in the Partnership's liquidity.
Results of Operations
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The growth in the rental market slowed during the first quarter of 2003 with
rental collections increasing only 2.6% over the first quarter of 2002.
Vacancies have increased as tenants purchased homes at low mortgage interest
rates and new apartment construction added to the supply of housing. In
addition, harsh winter weather and a cautious economy restrained demand for
apartments.
Depreciation costs decreased as a result of the original purchase cost of
property acquired in 1984 becoming fully depreciated during 2002.
Repairs and maintenance costs increased in the first quarter of 2003 over the
same quarter of 2002 as the result of higher turnover costs related to
increasing vacancies. In addition, costs were incurred for snow removal in 2003
that were not incurred in 2002.
Insurance costs increased because of substantially higher premiums for property
and liability insurance.
The partnership made regular monthly interest payments as well as a $100,000
principal payment on the advance due to an affiliate of the general partner,
reducing the principal balance to $1,000,000 plus accrued interest of $11,000 at
March 31, 2003.
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Part II
Other Information
Item 1 - Legal Proceedings
Not Applicable
Item 2 - Change in Securities
Not Applicable
Item 3 - Default Upon Senior Securities
Not Applicable
Item 4 - Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5 - Other Information
Not Applicable
Item 6 - Exhibits and Reports on Form 8-K
Exhibit 99.14 - Certification
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SIGNATURE
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.
LARCHDALE OWNERSHIP COMPANY, LTD.
By:/s/L. Mark Hammerschmitt
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L. Mark Hammerschmitt, President
LMH REALTY, INC.
GENERAL PARTNER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following person on behalf of the
Partnership in the capacity and on the date indicated.
Signature Title Date
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/s/L. Mark Hammerschmitt
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L. Mark Hammerschmitt, President Managing April 25, 2003
LMH Realty, Inc. General Partner
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CERTIFICATION PURSUANT TO SECTION
302 OF THE SARBANES OXLEY ACT
I, L. Mark Hammerschmitt, certify that:
1. I have reviewed this quarterly report on Form 10QSB of Larchdale Ownership
Company, Ltd.;
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
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers 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 registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
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 registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); 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 registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant'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 registrant's internal controls; and
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6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: April 25, 2003
By:/s/L. Mark Hammerschmitt
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L. Mark Hammerschmitt, President
LMH REALTY, INC.
GENERAL PARTNER
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