-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Imz9ZaDLZwDiexDSSjFLsqoLYIUjAy0886ewj7epAIWgYSyaJenR6Gtfy2Hf7FpZ 1Dw9BC3xSayte4OiX9x9jw== 0000889812-99-001544.txt : 19990518 0000889812-99-001544.hdr.sgml : 19990518 ACCESSION NUMBER: 0000889812-99-001544 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTEGRATED RESOURCES HIGH EQUITY PARTNERS SERIES 85 CENTRAL INDEX KEY: 0000730067 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 133239107 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14438 FILM NUMBER: 99626064 BUSINESS ADDRESS: STREET 1: 411 WEST PUTNAM AVE CITY: GREENWICH STATE: CT ZIP: 06830 BUSINESS PHONE: 2038627000 MAIL ADDRESS: STREET 1: 411 WEST PUTNAM AVENUE CITY: GREENWICH STATE: CT ZIP: 06830 FORMER COMPANY: FORMER CONFORMED NAME: HIGH EQUITY PARTNERS SERIES 85 DATE OF NAME CHANGE: 19850626 FORMER COMPANY: FORMER CONFORMED NAME: RESOURCES HIGH EQUITY PARTNERS DATE OF NAME CHANGE: 19850203 10-Q 1 QUARTERLY REPORT - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 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, 1999 Commission file number 0-14438 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 A CALIFORNIA LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) CALIFORNIA 13-3239107 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 411 West Putnam Avenue, Greenwich, CT 06830 (Address of principal executive offices) (203) 862-7444 (Registrant's telephone number, including area code) None (Former name, former address and former fiscal year, if changed since last report) Indicate by check 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 ____ - -------------------------------------------------------------------------------- INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q - MARCH 31, 1999 INDEX Page No. Part I. Financial Information: Balance Sheets - March 31, 1999 and December 31, 1998 3 Statements of Operations -- Three Months Ended March 31, 1999 and 1998 4 Statement of Partners' Equity -- Three Months Ended March 31, 1999 5 Statements of Cash Flows -- Three Months Ended March 31, 1999 and 1998 6 Notes to Financial Statements 7 - 12 Management's Discussion and Analysis of Financial Condition and Results of Operations 13 - 15 Part II. Other Information: Legal Proceedings, Exhibits and Reports on Form 8-K 16 2 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q-MARCH 31, 1999 BALANCE SHEETS March 31, 1999 December 31, 1998 -------------- ----------------- ASSETS Real estate - net $ 32,332,828 $ 32,518,352 Cash and cash equivalents 7,571,079 6,301,641 Other assets 1,930,463 1,847,273 Receivables 128,303 147,423 ------------- ------------- $ 41,962,673 $ 40,814,689 ============= ============= LIABILITIES AND PARTNERS' EQUITY Accounts payable and accrued expenses $ 2,063,498 $ 1,265,264 Distributions payable 395,799 395,799 Due to affiliates 266,002 362,440 ------------- ------------- 2,725,299 2,023,503 ------------- ------------- Commitments and contingencies PARTNERS' EQUITY: Limited partners' equity (400,010 units issued and outstanding) 37,274,555 36,850,676 General partners' equity 1,962,819 1,940,510 ------------- ------------- 39,237,374 38,791,186 ------------- ------------- $ 41,962,673 $ 40,814,689 ============= ============= See notes to financial statements 3 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q-MARCH 31, 1999 STATEMENTS OF OPERATIONS For the Three Months Ended March 31, -------------------------- 1999 1998 ---------- ---------- Rental Revenue $2,868,073 $2,590,545 ---------- ---------- Costs and Expenses: Operating expenses 833,350 836,815 Depreciation and amortization 336,096 329,293 Partnership management fee 211,409 227,043 Administrative expenses 703,310 225,750 Property management fee 85,505 76,584 ---------- ---------- 2,169,670 1,695,485 ---------- ---------- Income before interest and other income 698,403 895,060 Interest income 61,294 26,201 Other income 82,290 3,200 ---------- ---------- Net income $ 841,987 $ 924,461 ========== ========== Net income attributable to: Limited partners $ 799,888 $ 878,238 General partners 42,099 46,223 ---------- ---------- Net income $ 841,987 $ 924,461 ========== ========== Net income per unit of limited partnership interest (400,010 units outstanding) $ 2.00 $ 2.20 ========== ========== See notes to financial statements 4 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q-MARCH 31, 1999 STATEMENT OF PARTNERS' EQUITY General Limited Partners' Partners' Equity Equity Total ---------- ----------- ----------- Balance, January 1, 1999 $1,940,510 $36,850,676 $38,791,186 Net income for the three months ended March 31, 1999 42,099 799,888 841,987 Distributions as a return of capital for the three months ended March 31, 1999 ($ .94 per limited partnership unit) (19,790) (376,009) (395,799) ---------- ----------- ----------- Balance, March 31, 1999 $1,962,819 $37,274,555 $39,237,374 ========== =========== =========== See notes to financial statements 5 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q-MARCH 31, 1999 STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, --------------------------- 1999 1998 ---------- ---------- Cash Flows From Operating Activities: Net income $ 841,987 $ 924,461 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 336,096 329,293 Straight-line adjustment for stepped lease rentals 8,519 1,000 Changes in assets and liabilities: Accounts payable and accrued expenses 798,234 341,097 Receivables 19,120 33,865 Due to affiliates (96,438) (91,841) Other assets (146,801) (22,801) ---------- ---------- Net cash provided by operating activities 1,760,717 1,515,074 ---------- ---------- Cash Flows From Investing Activities: Improvements to real estate (95,480) (438,329) ---------- ---------- Cash Flows From Financing Activities: Distributions to partners (395,799) (395,799) ---------- ---------- Increase In Cash And Cash Equivalents 1,269,438 680,946 Cash And Cash Equivalents, Beginning of Year 6,301,641 4,350,887 ---------- ---------- Cash And Cash Equivalents, End of Quarter $7,571,079 $5,031,833 ========== ========== See notes to financial statement 6 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q-MARCH 31, 1999 NOTES TO FINANCIAL STATEMENTS l. GENERAL The accompanying financial statements, notes and discussions should be read in conjunction with the financial statements, related notes and discussions contained in the Partnership's annual report on Form 10-K for the year ended December 31, 1998. The financial information contained herein is unaudited; however, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of such financial information have been included. Results of operations for the three months ended March 31, 1999 are not necessarily indicative of the results to be expected for the entire year. 2. SIGNIFICANT ACCOUNTING POLICIES Impairment of Assets The Partnership evaluates the recoverability of the net carrying value of its real estate and related assets at least annually, and more often if circumstances dictate. If this review indicates that the carrying value of the property may not be recoverable, the Partnership estimates the future cash flows expected to result from the use of the property and its eventual disposition, generally over a five-year holding period. In performing this review, management takes into account, among other things, the existing occupancy, the expected leasing prospects of the property and the economic situation in the region where the property is located. If the sum of the expected future cash flows, undiscounted, is less than the carrying amount of the property, the Partnership recognizes an impairment loss, and reduces the carrying amount of the asset to its estimated fair value. Fair value is the amount at which the asset could be bought or sold in a current transaction between willing parties, that is, other than in a forced or liquidation sale. Management estimates fair value using discounted cash flows or market comparables, as most appropriate for each property. Independent certified appraisers are utilized to assist management, when warranted. Impairment write-downs recorded by the Partnership do not affect the tax basis of the assets and are not included in the determination of taxable income or loss. Because the expected cash flows used to evaluate the recoverability of the assets and their fair values are based upon projections of future economic events, such as property occupancy rates, rental rates, operating cost inflation and market capitalization rates, the amounts ultimately realized at disposition may differ materially from the net carrying values at the balance sheet dates. The cash flows and market comparables used in this process are based on good faith estimates and assumptions developed by management. Unanticipated events and circumstances may occur and some assumptions may not materialize; therefore, actual results may materially vary from the estimates. The Partnership may in the future provide additional write-downs, which could be material, if real estate markets or local economic conditions change. 7 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q-MARCH 31, 1999 NOTES TO FINANCIAL STATEMENTS 3. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES The Managing General Partner of the Partnership, Resources High Equity, Inc. is a wholly-owned subsidiary of Presidio Capital Corp., ("Presidio"). Presidio AGP Corp., which is a wholly-owned subsidiary of Presidio is the Associate General Partner (together with the Managing General Partner, the "General Partners"). The General Partners and affiliates of the General Partners are also engaged in businesses related to the acquisition and operation of real estate. Presidio is also the parent of other corporations (and affiliated with other entities) that are or may in the future be engaged in businesses that may be in competition with the Partnership. Accordingly, conflicts of interest may arise between the Partnership and such other businesses. Subject to the right of the limited partners under the Limited Partnership Agreement, Presidio controls the Partnership through its indirect ownership of the General Partners. Effective July 31, 1998, Presidio is indirectly controlled by NorthStar Capital Investment Corp., a Maryland corporation. Presidio has a management agreement with NorthStar Presidio Management Company LLC ("NorthStar Presidio"), an affiliate of NorthStar Capital Investment Corp., pursuant to which NorthStar Presidio provides the day-to-day management of Presidio and its direct and indirect subsidiaries and affiliates, including the Partnership. For the three months ended March 31, 1999, reimbursable expenses incurred by NorthStar Presidio related to the Partnership amounted to approximately $25,500. The Partnership has a property management services agreement with Resources Supervisory Management Corp. ("Resources Supervisory"), an affiliate of the General Partners, to perform certain functions relating to the management of the properties of the Partnership. A portion of the property management fees were paid to unaffiliated management companies which are engaged for the purpose of performing the management functions for certain properties. For the quarters ended March 31, 1999 and 1998, Resources Supervisory was entitled to receive $85,505 and $76,584 respectively, of which $68,412 and $65,229 was paid to unaffiliated management companies, respectively, for property management services and the balance was retained by Resources Supervisory. For the administration of the Partnership, the Managing General Partner is entitled to receive reimbursement of expenses up to a maximum of $150,000 per year. For the quarters ended March 31, 1999 and 1998, the Managing General Partner received $37,500. For managing the affairs of the Partnership, the Managing General Partner is also entitled to receive an annual partnership management fee equal to 1.05% of the amount of original gross proceeds paid or allocable to the acquisition of property by the Partnership, as adjusted for the properties sold. For the quarters ended March 31, 1999 and 1998, the Managing General Partner received $211,409 and $227,043, respectively. 8 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q-MARCH 31, 1999 NOTES TO FINANCIAL STATEMENTS 3. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED) The General Partners are allocated 5% of the net income of the Partnership, which amounted to $42,099 and $46,223 for the quarters ended March 31, 1999 and 1998, respectively. They are also entitled to receive 5% of distributions, which amounted to $19,790 and for each of the quarters ended March 31, 1999 and 1998. During the liquidation stage of the Partnership, the Managing General Partner or an affiliate may be entitled to receive certain fees, which are subordinated to the limited partners receiving their original invested capital and certain specified minimum returns on their investment. All fees received by the General Partners are subject to certain limitations as set forth in the Partnership Agreement. From July 1996 through March 12, 1998, Millennium Funding II Corp., a wholly owned indirect subsidiary of Presidio, purchased 39,123 units of the Partnership from various limited partners. In connection with a tender offer for units of the Partnership made on March 12, 1998 (the "Offer") by Olympia Investors, L.P. ("Olympia"), Olympia and Presidio entered into an agreement dated March 6, 1998 (the "Agreement"). Subsequent to the expiration of the offer, Olympia announced that it had accepted for payment 31,132 units properly tendered pursuant to the Offer. Pursuant to the Agreement, Presidio purchased 50% of those units owned by Olympia as a result of the Offer, or 15,566 units, for $101.81 per unit. Presidio may be deemed to beneficially own the remaining units owned by Olympia as a consequence of the Agreement. Subsequent to the expiration of the tender offer described above, Millennium Funding II Corp. purchased an additional 17,785 limited partnership units from August 1998 through May 1999. The total number of units purchased by Millennium Funding II Corp. represents approximately 18.1% of the outstanding limited partnership units of the Partnership. 4. REAL ESTATE The following table is a summary of the Partnership's real estate as of: March 31, 1999 December 31, 1998 -------------- ------------------ Land $ 10,370,965 $10,370,965 Building and improvements 36,886,200 36,790,720 ------------ ----------- 47,257,165 47,161,685 Less: Accumulated depreciation (14,924,337) (14,643,333) ------------ ----------- $ 32,332,828 $32,518,352 ============ =========== 9 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q-MARCH 31, 1999 NOTES TO FINANCIAL STATEMENTS 5. DISTRIBUTIONS PAYABLE March 31, 1999 December 31, 1998 -------------- ----------------- Limited partners ($.94 per unit) $ 376,009 $ 376,009 General partners 19,790 19,790 ---------- --------- $ 395,799 $ 395,799 ========== ========= Such distributions were paid in the subsequent quarters. 6. DUE TO AFFILIATES March 31, 1999 December 31, 1998 -------------- ----------------- Partnership management fee $ 211,409 $ 211,409 Property management fee 17,093 113,531 Non-accountable expense reimbursement 37,500 37,500 ---------- --------- $ 266,002 $ 362,440 ========== ========= Such amounts were paid in the subsequent quarters. 10 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q-MARCH 31, 1999 NOTES TO FINANCIAL STATEMENTS 7. COMMITMENTS AND CONTINGENCIES In May 1993, limited partners in High Equity Partners L.P. - Series 86 ("HEP-86"), an affiliated partnership, commenced an action (the "Action") in the Superior Court for the State of California for the County of Los Angeles (the "Court") on behalf of a purported class consisting of all the purchasers of limited partnership interests in HEP-86. On April 7, 1994 the plaintiffs were granted leave to file an amended complaint on behalf of a class consisting of all the purchasers of limited partnership interests in HEP-86, the Partnership, and High Equity Partners L.P. - Series 88 ("HEP-88"), another affiliated partnership (collectively, the "HEP Partnerships"). In November 30, 1995, the original plaintiffs and intervening plaintiffs filed a consolidated class and derivative action complaint (the "Consolidated Complaint") alleging various state law class and derivative claims, including claims for breach of fiduciary duty; breach of contract; unfair and fraudulent business practices under California Bus. & Prof. Code Section 17200; negligence; dissolution, accounting, receivership and removal of general partner; fraud; and negligent misrepresentation. The Consolidated Complaint alleges, among other things, that the general partners of the HEP Partnerships (collectively, "HEP General Partners") caused a waste of the HEP Partnerships' assets by collecting management fees General Partners diminished the value of the limited partners' equity in the HEP partnerships assets by collecting management fees in lieu of pursuing a strategy to maximize the value of the investments owned by the investors in the HEP Partnerships, that the HEP General Partners breached their duty of loyalty and due care to the investors by expropriating management fees from the HEP Partnerships without trying to run the HEP Partnerships for the purposes for which they were intended; that the HEP General Partners were acting improperly to entrench themselves in their position of control over the HEP Partnerships and that their actions prevented non-affiliated entities from making and completing tender offers to purchase units of limited partnership interest in the HEP Partnerships (collectively, the "HEP Units"); that, by refusing to seek the sale of the HEP Partnerships' properties, the HEP General Partners diminished the value of the investors' equity in the HEP Partnerships; that the HEP General Partners took heavily overvalued asset management fees; and that HEP Units were sold and marketed through the use of false and misleading statements. In early 1996, the parties submitted a proposed settlement to the Court (the "Proposed Settlement"), which contemplated a reorganization of the three HEP Partnerships into a single real estate investment trust, pursuant to which approximately 85% of the shares of the real estate investment trust would have been allocated to investors in the three HEP Partnerships (assuming each of the HEP Partnerships participated in the reorganization), and approximately 15% of the shares would have been allocated to the HEP General Partners. As a consequence, the Proposed Settlement would, among other things, have approximately tripled the HEP General Partners' equity interests in the HEP Partnerships. In late 1996, the California Department of Corporations informed the Court of the conclusion that the Proposed Settlement was unfair, 11 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q-MARCH 31, 1999 NOTES TO FINANCIAL STATEMENTS 7. COMMITMENTS AND CONTINGENCIES (CONTINUED) and, in early 1997, the Court declined to grant final approval of the Proposed Settlement because the Court was not persuaded that the Proposed Settlement was fair, adequate or reasonable as to the proposed class. In July 1997, the plaintiffs filed an amended complaint, which generally asserts the same claims as the earlier Consolidated Complaint but contains more detailed factual assertions and eliminates some claims they had previously asserted. The HEP General Partners challenged the amended complaint on legal grounds and filed demurrers and a motion to strike. In October 1997, the Court granted substantial portions of the HEP General Partners' motions. Thereafter, the HEP General Partners served answers denying the allegations and asserting numerous defenses. In February 1998, the Court certified three separate plaintiff classes consisting of the current owners of record of HEP Units (but excluding all defendants or entities related to such defendants), and appointed class counsel and liaison counsel. In mid-1998, the parties actively engaged in negotiations concerning a possible settlement of the Action. In September 1998, the parties reached an agreement in principle, and, during the following months, negotiated a more formal settlement stipulation (the "Settlement Stipulation"), which they executed in December 1998. The Settlement Stipulation was submitted to the Court for preliminary approval in early January 1999. In February 1999, the Court gave preliminary approval to the Settlement Stipulation and directed that notice of the proposed settlement be sent to the previously certified class. The proposed settlement contemplates (I) amendments to the Partnership Agreement that would modify the existing fee structure; (II) a tender offer whereby the General Partners would purchase up to 6.7% of the units from limited partners; and (III) that the General Partners will use their best efforts to effect a reorganization of the HEP Partnerships into REIT's or other publicly traded entities. At a hearing held on April 29, 1999, the Court approve the proposed settlement in its entirety and directed entry of judgement to that effect. The settlement is subject to a number of conditions. There can be no assurance that such conditions will be fulfilled. The General Partners believe that each of the claims asserted in the Action are meritless and, if for any reason a final settlement pursuant to the Settlement Stipulation is not consummated, intend to continue to vigorously defend the Action. At a hearing held on April 29, 1999, the Court also awarded a total of $2.5 million in attorneys' fees and reimbursement of expenses to Class and objectors' counsel. Of that total, $875,000 is to be paid by the General Partners and the balance by the HEP Partnerships. The Limited Partnership Agreement provides for indemnification of the General Partners and their affiliates in certain circumstances. The Partnership has agreed to reimburse the General Partners for their actual costs incurred in defending this litigation and the costs of preparing settlement materials. Through March 31, 1999, the Partnership paid the General Partners a total of $1,034,510 for these costs. 12 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q-MARCH 31, 1999 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES Working capital reserves are temporarily invested in short-term instruments and, together with cash flow from operations, are expected to be sufficient to fund future capital improvements to the Partnership's properties. As of March 31, 1999 total working capital reserves amounted to approximately $2,587,000. The Partnership intends to distribute to its partners less than all of its future cash flow from operations in order to assure adequate reserves for capital improvements and capitalized lease procurement costs. During the three months ended March 31, 1999, cash and cash equivalents increased $1,269,438 as a result of cash provided by operations in excess of capital expenditures and distributions to partners. The Partnership's primary source of funds is cash flow from the operation of its properties (principally rents received from tenants less property operating expenses) which amounted to $1,760,717 for the three months ended March 31, 1999. The Partnership used $95,480 for capital expenditures related to capital and tenant improvements to the properties and $395,799 for distributions to partners for the three months ended March 31, 1999. The Partnership expects to continue to utilize a portion of its cash flow from operations to pay for various capital and tenant improvements to the properties and leasing commissions. Although no additional properties are under contract for sale, future cash flows will exclude cash flow from the Westbrook property (sold in 1998) which amounted to approximately $38,000 in 1998. Capital and tenant improvements and leasing commissions may in the future exceed the Partnership's cash flow from operations. In that event, the Partnership would utilize its remaining working capital reserves, reduce distributions, or sell one or more properties. Except as discussed above, management is not aware of any other trends, events, commitments or uncertainties that will have a significant impact on liquidity. RESULTS OF OPERATIONS The Partnership experienced a decrease in net income for the three months ended March 31, 1999 as compared to the same period in the prior year. The decrease was due to higher costs and expenses, partially offset by increases in rental revenues and higher interest and other income during the three months ended March 31, 1999. Rental revenues increased during the three months ended March 31, 1999 compared to 1998 at Southport and Seattle Tower due to higher overall rental rates at the properties. These increases were partially offset by lower revenues during the three months ended March 31, 1999 due to the sale of the Westbrook property in 1998. 13 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q-MARCH 31, 1999 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Costs and expenses increased during the three months ended March 31, 1999 compared to the same period in 1998, primarily due to an increase in administrative expenses as higher legal fees related to the ongoing litigation and possible reorganization of the Partnership were incurred in 1999 as compared to 1998. In addition, the Partnership experienced higher depreciation expense due to real estate improvements in 1998 and an increase in property management fees due to higher revenues, as previously discussed. These increases were partially offset by lower operating expenses and partnership management fees as a result of the Westbrook sale in 1998. Interest income increased during the three months ended March 31, 1999 due to higher cash balances during the first three months of 1999. Other income increased during the three ended March 31, 1999 as compared to the same period in 1998 due to a greater number of investor transfers, on which the Partnership earns a transfer fee. Inflation is not expected to have a material impact on the Partnership's operations or financial position. LEGAL PROCEEDINGS The Partnership is a party to certain litigation. See Note 7 to the financial statements for a description thereof. FORWARD-LOOKING STATEMENTS When used in this quarterly report on Form 10-Q, the words "believes," "anticipates," "expects" and similar expressions are intended to identify forward-looking statements. Statements looking forward in time are included in this quarterly report on Form 10-Q pursuant to the "safe harbor" provision on the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially, including, but not limited to, those set forth in "management's discussion and analysis of financial condition and results of operations." Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Partnership undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. 14 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q-MARCH 31, 1999 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS YEAR 2000 COMPLIANCE The Year 2000 compliance issue concerns the inability of computerized information systems and equipment to accurately calculate, store or use a date after December 31, 1999, as a result of the year being stored as a two digit number. This could result in a system failure or miscalculations causing disruptions of operations. The Partnership and its Manager (NorthStar Presidio Management Co., LLC) recognize the importance of ensuring that its business operations are not disrupted as a result of Year 2000 related computer system and software issues. The manager has assessed its internal computer information systems and is now taking the further steps necessary to remediate these systems so that they will be Year 2000 compliant. In connection therewith, the manager installed a new fully compliant accounting and reporting system in December 1998. Further, the Manager anticipates that the internal computer systems will be fully Year 2000 compliant by the end of the third quarter of 1999. The Manager is also currently reviewing other systems and programs of its unaffiliated third party service providers, in order to insure compliance. This process is expected to be completed during the third quarter of 1999. Further, the Manager and these service providers are currently evaluating and assessing those computer systems not related to information technology. These systems, that generally operate in a building include, without limitation, telecommunication systems, security systems (such as card-access door lock systems), energy management systems and elevator systems. As a result of the technology used in this type of equipment, it is possible that this equipment may not be repairable, and accordingly may require complete replacement. Because this assessment is ongoing, the total cost of bringing all systems and equipment into Year 2000 compliance has not been fully quantified. Based upon available information, the Manager does not believe that these costs will have a material adverse effect on the Partnership's business, financial condition or results. However, it is possible that there could be adverse consequences to the Partnership as a result of Year 2000 issues that are outside the Partnership's control. The Manager is in the preliminary stages of evaluating these issues and will be developing contingency plans. 15 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q-MARCH 31, 1999 Part II. - Other Information Item 1 - Legal Proceedings (a) See Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes to Financial Statements - Note 7 which is herein incorporated by reference. Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits: There were no exhibits filed. (b) Reports on Form 8-K: None 16 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 FORM 10-Q-MARCH 31, 1999 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. Integrated Resources High Equity Partners, Series 85, A California Limited Partnership By: Resources High Equity, Inc., Managing General Partner Dated: May 12, 1999 By: /S/ Allan Rothschild -------------------- Allan Rothschild President (Duly Authorized Officer) Dated: May 12, 1999 By: /S/ Lawrence Schachter ---------------------- Lawrence Schachter Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 17 EX-27 2 FINANCIAL DATA SCHEDULE
5 The schedule contains summary information extracted from the financial statements of the March 31, 1999 Form 10-Q Integrated Resources High Equity Partners, Series 85 and is qualified in its entirety by reference to such financial statements. 3-MOS DEC-31-1999 MAR-31-1999 7,571,079 0 128,303 0 0 0 0 0 41,962,673 0 0 0 0 0 39,237,374 41,962,673 0 2,868,073 0 833,350 1,336,320 0 0 841,987 0 841,987 0 0 0 841,987 0 0
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