SECURITIES AND EXCHANGE COMMISSION Washington, DC ------------------------- FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2005 OR |_| 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 0-17412 Secured Income L.P. ------------------- (Exact name of Registrant as specified in its charter) Delaware 06-1185846 - ---------------------------------------- ----------------------- State or other jurisdiction of (IRS Employer incorporation or organization Identification No.) 340 Pemberwick Road Greenwich, Connecticut 06831 - ------------------------------------------------ -------------------- (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 |_| Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X| SECURED INCOME L.P. AND SUBSIDIARIES Part I - Financial Information Table of Contents Item 1 Financial Statements Page 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 9 Item 4 Controls and Procedures 9 2 SECURED INCOME L.P. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, 2005 December 31, (Unaudited) 2004 ------------ ------------ ASSETS Property and equipment (net of accumulated depreciation of $25,481,785 and $25,109,102) $ 19,406,630 $ 19,779,313 Cash and cash equivalents 3,162,549 3,189,581 Restricted assets and funded reserves 1,552,406 1,130,638 Tenant security deposits 595,923 583,295 Accounts receivable 26,116 21,695 Due from affiliate 28,677 Prepaid expenses 486,838 892,000 Intangible assets, net of accumulated amortization 1,849,395 1,877,691 ------------ ------------ $ 27,079,857 $ 27,502,890 ============ ============ LIABILITIES AND PARTNERS' DEFICIT Liabilities Mortgages payable $ 40,104,343 $ 40,255,090 Accounts payable and accrued expenses 245,609 270,883 Tenant security deposits payable 580,469 576,439 Due to general partners and affiliates 22,990 Deferred revenue 68,736 68,736 ------------ ------------ 40,999,157 41,194,138 ------------ ------------ Partners' deficit Limited partners (12,227,784) (12,003,510) General partners (1,691,516) (1,687,738) ------------ ------------ (13,919,300) (13,691,248) ------------ ------------ $ 27,079,857 $ 27,502,890 ============ ============ See notes to consolidated financial statements. 3 SECURED INCOME L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS THREE MONTHS ENDED MARCH 31, 2005 AND 2004 (Unaudited) 2005 2004 ------------ ------------ REVENUE Rental $ 2,114,940 $ 2,025,130 Interest 14,135 6,203 ------------ ------------ TOTAL REVENUE 2,129,075 2,031,333 ------------ ------------ EXPENSES Administrative and management 258,909 220,093 Operating and maintenance 316,359 315,762 Taxes and insurance 524,514 482,194 Financial 457,128 416,657 Depreciation and amortization 400,979 401,984 ------------ ------------ TOTAL EXPENSES 1,957,889 1,836,690 ------------ ------------ NET EARNINGS $ 171,186 $ 194,643 ============ ============ NET EARNINGS ATTRIBUTABLE TO Limited partners $ 169,474 $ 192,697 General partners 1,712 1,946 ------------ ------------ $ 171,186 $ 194,643 ============ ============ NET EARNINGS ALLOCATED PER UNIT OF LIMITED PARTNERSHIP INTEREST $ .17 $ .20 ============ ============ See notes to consolidated financial statements. 4 SECURED INCOME L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2005 AND 2004 (Unaudited) 2005 2004 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 171,186 $ 194,643 Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation and amortization 400,979 401,984 Increase in restricted assets and funded reserves (421,768) (511,796) Increase in tenant security deposits (12,628) (9,322) Decrease (increase) in accounts receivable (4,421) 2,911 Decrease in prepaid expenses 405,162 439,807 Decrease in accounts payable and accrued expenses (25,274) (132,906) Increase in tenant security deposits payable 4,030 18,873 Decrease in due to general partners and affiliates (22,990) (13,708) ------------ ------------ Net cash provided by operating activities 494,276 390,486 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Repayment of advance to affiliate 28,677 Capital expenditures (45,757) ------------ ------------ Net cash provided by (used in) investing activities 28,677 (45,757) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Distributions to partners (399,238) (393,748) Principal payments on mortgages (150,747) (139,922) ------------ ------------ Net cash used in financing activities (549,985) (533,670) ------------ ------------ NET DECREASE IN CASH AND CASH EQUIVALENTS (27,032) (188,941) Cash and cash equivalents at beginning of period 3,189,581 3,729,130 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,162,549 $ 3,540,189 ============ ============ SUPPLEMENTAL INFORMATION Financial expenses paid $ 486,028 $ 387,670 ============ ============ See notes to consolidated financial statements. 5 SECURED INCOME L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2005 (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, (collectively, the "Operating 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, 2004 and no material contingencies exist which would require additional disclosure in the report under Regulation S-X, Rule 10-01 paragraph A-5. The Partnership is considering the sale of the underlying properties of the Operating Partnerships. It is possible that those sales could be consummated within approximately four to six months. If those transactions are consummated, understanding that there is a reasonable possibility that they may not be consummated at all, the operations of the Partnership would cease. It is the Partnership's understanding that certain approvals may be required by the lenders and others. Even if a sale of the properties can be successfully negotiated, there can be no assurance that all required approvals to the sales can be obtained. The preliminary offers indicate that the carrying amount of these long-lived assets is recoverable based on applying the standard accounting tests for impairment. However, since the offers are still preliminary, the assets continue to be classified as held and used assets in the accompanying balance sheets. The results of operations for the three months ended March 31, 2005 are not necessarily indicative of the results to be expected for the entire year. 2. Additional information, including the audited December 31, 2004 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, 2004 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, certain 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 contingencies arise that cause an Operating Partnership to require capital in addition to that contributed by the Partnership and any equity of the Operating General Partners, 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 affect the distribution from the Operating Partnerships to the Partnership of operating cash flow and any sale or refinancing proceeds. Although the Partnership generated cash from operations during the three months ended March 31, 2005, cash and cash equivalents decreased by approximately $27,000 primarily as a result of a distribution to the limited partners. Mortgages payable decreased due to principal amortization of approximately $151,000. Property and equipment decreased by approximately $373,000 due to depreciation, while intangible assets decreased by approximately $28,000 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 restricted assets and funded reserves increased in the ordinary course of operations. The Partnership intends to make a distribution on or about May 15, 2005 of approximately $.40 per Unit to Unit holders as of March 31, 2005. In addition, the Partnership made quarterly distributions to the limited partners in May, August and November 2004 and in March 2005 totaling $1,574,990. Such distributions represent an annualized return to the limited partners of approximately 8% for the year ended December 31, 2004. The Partnership's ability to make quarterly distributions on an ongoing basis is subject to the operating results of the Operating Partnerships, which are highly contingent upon the interest rates of the Columbia Partnership's low-floater mortgage and the strength of their respective rental markets. Accordingly, 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. Wilder Richman Resources Corporation ("WRRC"), one of the general partners of Registrant, is aware of several recent tender offers to purchase Units of Secured Income L.P. The prices offered in the tender offers ranged from $23.30 per Unit to $34.00 per Unit. The sales of the two properties owned by the Operating Partnerships are currently being negotiated, and WRRC believes that Unit holders may realize greater value through a sale of the properties and a liquidation of the Partnership. WRRC also believes that, barring unforeseen issues, a sale of the properties could be accomplished within approximately four to six months. WRRC cannot provide any assurance that one or both of the properties can be sold at prices that would result in Unit prices higher than those offered in the tender offers, or that a sale can be completed at a price that would be acceptable to the Partnership. If those transactions are consummated, understanding that there is a reasonable possibility that they may not be consummated at all, the operations of Registrant would cease. It is Registrant's understanding that certain approvals may be required by the lenders and others. Even if a sale of the properties can be successfully negotiated, there can be no assurance that all required approvals to the sales can be obtained. The preliminary offers indicate that the carrying amount of these long-lived assets is recoverable based on applying the standard accounting tests for impairment. However, since the offers are still preliminary, the assets continue to be classified as held and used assets in the accompanying balance sheets. 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 Three Months Ended March 31, 2005 During the three months ended March 31, 2005, the Columbia Partnership's and the Carrollton Partnership's operations resulted in net earnings of approximately $127,000 and approximately $93,000, respectively. The Columbia Partnership's earnings include financial expenses and depreciation and amortization of approximately $307,000 and approximately $293,000, respectively, while the Carrollton Partnership's earnings include financial expenses and depreciation and amortization of approximately $150,000 and approximately $100,000, respectively. Accordingly, the Columbia Partnership and the Carrollton Partnership generated earnings from operating activities prior to financial expenses and depreciation and amortization of approximately $727,000 and approximately $343,000, respectively. Mortgage principal payments during the period for the Columbia Partnership and the Carrollton Partnership were approximately $106,000 and approximately $45,000, 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 $452,000 during the three months ended March 31, 2005. There can be no assurance that the level of cash flow generated by the Complexes during the three months ended March 31, 2005 will continue in future periods. Results of operations for the three months ended March 31, 2005 are comparable to the three months ended March 31, 2004. Administrative and management expenses have increased in part as a result of costs incurred by the Partnership in connection with the tender offers noted above. Financial expenses have increased primarily as a result of the weighted average interest rate on the Columbia Partnership's first mortgage increasing from approximately .93% for the first three months of 2004 to approximately 1.78% for the first three months of 2005. As of March 31, 2005, the occupancy of Fieldpointe Apartments (Carrollton) was approximately 93% and the occupancy of The Westmont (Columbia) was approximately 99% as to residential units and approximately 88% as to commercial space as a result of one of the commercial tenants breaking its lease in the second quarter of 2003. A termination fee of approximately $221,000, representing approximately eighteen months of rent for such space, was received and escrowed with the lender; such escrow will not be released until the earlier of the expiration of the original lease term or such time as the space is leased to another tenant. Any prospective tenant must be approved by the lender; the space has not been rented as of May 2005. The future operating results of the Complexes will be extremely dependent on market conditions and therefore may be subject to significant volatility. Three Months Ended March 31, 2004 During the three months ended March 31, 2004, the Columbia Partnership's and the Carrollton Partnership's operations resulted in net earnings of approximately $166,000 and approximately $47,000, respectively. The Columbia Partnership's earnings include financial expenses and depreciation and amortization of approximately $264,000 and approximately $292,000, respectively, while the Carrollton Partnership's earnings include financial expenses and depreciation and amortization of approximately $153,000 and approximately $102,000, respectively. Accordingly, the Columbia Partnership and the Carrollton Partnership generated earnings from operating activities prior to financial expenses and depreciation and amortization of approximately $722,000 and approximately $302,000, respectively. Mortgage principal payments during the period for the Columbia Partnership and the Carrollton Partnership were approximately $98,000 and approximately $42,000, 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 $424,000 during the three months ended March 31, 2004. As of March 31, 2004, the occupancy of Fieldpointe Apartments (Carrollton) was approximately 96% and the occupancy of The Westmont (Columbia) was approximately 96% as to residential units and 88% as to commercial space (see discussion above). 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Critical Accounting Policies and Estimates The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which requires the Partnership to make certain estimates and assumptions. 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 the Partnership's financial condition and results of operations. The Partnership 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. The Partnership 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 Statement of Financial Accounting Standards 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. Item 4. Controls and Procedures As of March 31, 2005, under the direction of the Chief Executive Officer and Chief Financial Officer, Registrant evaluated the effectiveness of its disclosure controls and procedures and internal controls over financial reporting and concluded that (i) Registrant's disclosure controls and procedures were effective as of March 31, 2005, and (ii) no changes occurred during the quarter ended March 31, 2005, that materially affected, or are reasonably likely to materially affect, such internal controls. 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 Unregistered Sales of Equity Securities and Use of Proceeds 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 Exhibit 31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer Exhibit 31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer Exhibit 32.1 Section 1350 Certification of Chief Executive Officer Exhibit 32.2 Section 1350 Certification of Chief Financial Officer 10 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized on the 16th day of May 2005. SECURED INCOME L.P. By: Wilder Richman Resources Corporation, General Partner By: /s/Richard Paul Richman ------------------------------------------------------------- Richard Paul Richman - Chief Executive Officer By: /s/Neal Ludeke ------------------------------------------------------------- Neal Ludeke - Chief Financial Officer By: WRC-87A Corporation, General Partner By: /s/Richard Paul Richman ------------------------------------------------------------- Richard Paul Richman - Executive Vice President and Treasurer 11