-----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, QgZCPUh6KDR2LtW+H5fAASDUPX4dc3R/JE9SAT62e4uJzwNl2iU+MvuQoBp7AHLm B6a/M/9YRbgt5yTr+uR4NQ== 0000711642-00-000108.txt : 20000418 0000711642-00-000108.hdr.sgml : 20000418 ACCESSION NUMBER: 0000711642-00-000108 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 20000417 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INVESTORS FIRST STAGED EQUITY L P CENTRAL INDEX KEY: 0000768834 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 363310965 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: SEC FILE NUMBER: 000-14470 FILM NUMBER: 603505 BUSINESS ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 10QSB/A 1 2ND QUARTER 10-QSB/A FORM 10-QSB/A--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Quarterly or Transitional Report U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-QSB/A (MarkOne) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period.........to......... Commission file number 0-14470 INVESTORS FIRST-STAGED EQUITY L.P. (Exact name of small business issuer as specified in its charter) Delaware 36-3310965 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 55 Beattie Place, PO Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (864) 239-1000 Issuer's telephone number Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No PART I - FINANCIAL INFORMATION (This document amends the Form 10-QSB for the quarter ended June 30, 1999, due to the reversal of the extraordinary gain on early extinguishment of debt.) ITEM 1. FINANCIAL STATEMENTS a) INVESTORS FIRST-STAGED EQUITY L.P. CONSOLIDATED BALANCE SHEET (in thousands, except unit data) (Unaudited) June 30, 1999 Assets Cash and cash equivalents $ 1,602 Receivables and deposits 747 Restricted escrows 663 Other assets 1,501 Investment properties: Land $ 8,402 Buildings and related personal property 40,175 48,577 Less accumulated depreciation (26,907) 21,670 $ 26,183 Liabilities and Partners' Deficit Liabilities Accounts payable $ 70 Accrued interest 406 Tenant security deposit liabilities 485 Other liabilities 90 Advances from affiliates of General Partner 326 Mortgage notes payable 42,444 Partners' Deficit General partner $ (358) Limited partners (16,261.152 units issued and outstanding) (17,280) (17,638) $ 26,183 See Accompanying Notes to Consolidated Financial Statements b) INVESTORS FIRST-STAGED EQUITY L.P. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except unit data) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, 1999 1998 1999 1998 Revenues: Rental income $ 2,166 $ 2,013 $ 4,285 $ 3,991 Other income 70 99 144 185 Total revenues 2,236 2,112 4,429 4,176 Expenses: Operating 669 667 1,305 1,332 General and administrative 34 70 91 139 Depreciation 484 464 958 928 Interest 818 838 1,631 1,666 Property taxes 133 114 243 227 Total expenses 2,138 2,153 4,228 4,292 Income (loss) before extraordinary item 98 (41) 201 (116) Extraordinary item - gain on early extinguishment of debt -- -- -- 10 Net income (loss) $ 98 $ (41) $ 201 $ (106) Net income (loss) allocated to general partner (1%) $ 1 $ -- $ 2 $ (1) Net income (loss) allocated to limited partners (99%) 97 (41) 199 (105) Net income (loss) $ 98 $ (41) $ 201 $ (106) Net income (loss) per limited partnership unit: Income (loss) before extraordinary item $ 5.97 $ (2.52) $ 12.24 $ (7.06) Extraordinary item -- -- -- .61 Net income (loss) $ 5.97 $ (2.52) $ 12.24 $ (6.45)
See Accompanying Notes to Consolidated Financial Statements c) INVESTORS FIRST-STAGED EQUITY L.P. CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT (in thousands, except unit data) (Unaudited)
Limited Partnership General Limited Units Partner Partners Total Partners' deficit at December 31, 1998 16,261 $ (360) $ (17,479) $ (17,839) Net income for the six months ended June 30, 1999 -- 2 199 201 Partners' deficit at June 30, 1999 16,261 $ (358) $ (17,280) $ (17,638)
See Accompanying Notes to Consolidated Financial Statements d) INVESTORS FIRST-STAGED EQUITY L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited)
Six Months Ended June 30, 1999 1998 Cash flows from operating activities: Net income (loss) $ 201 $ (106) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Extraordinary gain on early extinguishment of debt -- (10) Depreciation 958 928 Amortization of loan costs and leasing commissions 83 96 Change in accounts: Receivables and deposits (9) 13 Other assets (32) (69) Accounts payable (9) (14) Accrued interest 14 194 Tenant security deposit liabilities 17 30 Other liabilities (20) (3) Net cash provided by operating activities 1,203 1,059 Cash flows from investing activities: Property improvements and replacements (111) (356) Net (deposits to) withdrawals from restricted escrows (139) 329 Lease commissions paid (34) -- Net cash used in investing activities (284) (27) Cash flows from financing activities: Payment of loan costs -- (106) Payments on mortgage notes payable (501) (726) Advances to affiliates -- 2 Net cash used in financing activities (501) (830) Net increase in cash and cash equivalents 418 202 Cash and cash equivalents at beginning of period 1,184 2,640 Cash and cash equivalents at end of period $ 1,602 $ 2,842 Supplemental disclosure of cash flow information: Cash paid for interest $ 1,557 $ 1,394
See Accompanying Notes to Consolidated Financial Statements INVESTORS FIRST-STAGED EQUITY L.P. e) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note A - Basis of Presentation The accompanying unaudited consolidated financial statements of Investors First-Staged Equity L.P. (the "Partnership" or "Registrant") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of MAERIL, Inc. (the "General Partner"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 1999, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 1999. For further information, refer to the consolidated financial statements and footnotes thereto included in the Partnership's annual report on Form 10-KSB for the fiscal year ended December 31, 1998. Principles of Consolidation The Partnership's consolidated financial statements include the accounts of its 99.99% limited partnership interests in Serramonte, LP, VMS Apartments Portfolio II and VMS Apartments Portfolio III. The General Partner of the consolidated partnership is MAERIL, Inc. MAERIL, Inc., may be removed by the Registrant; therefore, the consolidated partnership is controlled and consolidated by the Registrant. All significant interpartnership balances have been eliminated. Note B - Transfer of Control Pursuant to a series of transactions which closed on October 1, 1998 and February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust merged into Apartment Investment and Management Company, ("AIMCO") a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in the General Partner. The General Partner does not believe that this transaction will have a material effect on the affairs and operations of the Partnership. Note C - Transactions with Affiliates and Related Parties The Partnership has no employees and is dependent on the General Partner and its affiliates for the management and administration of all partnership activities. The Partnership Agreement provides for certain payments to affiliates for services and as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. During the six months ended June 30, 1999 and 1998, affiliates of the General Partner were entitled to receive 5% of gross receipts from all of the Registrant's residential properties for providing property management services. The Registrant paid to such affiliates approximately $113,000 and $126,000 for the six months ended June 30, 1999 and 1998, respectively. For the six months ended June 30, 1999 and 1998, affiliates of the General Partner were entitled to receive varying percentages of gross receipts from the Registrant's commercial property for providing property management services. The Registrant paid to such affiliates $5,000 and $57,000 for the six months ended June 30, 1999 and 1998, respectively. Effective October 1, 1998 (the effective date of the Insignia Merger) a significant portion of these services for the commercial property were provided by an unrelated party. An affiliate of the General Partner received reimbursements of accountable administrative expenses amounting to approximately $57,000 and $76,000 for the six months ended June 30, 1999 and 1998, respectively. During the six months ended June 30, 1998 the Partnership paid affiliates of the General Partner approximately $40,000 for loan costs which were capitalized and are included in other assets in the accompanying Consolidated Balance Sheet. These loan costs related to the refinancing of the investment properties. In prior years the Partnership was advanced funds from a former General Partner in order to meet its existing obligations. Interest accrues on these advances at rates agreed to by the Partnership and the former General Partner. The interest rates at June 30, 1999 ranged from 4.70% to 9.50%. The unpaid balance on these advances at June 30, 1999 and the related accrued interest is $326,000 and $143,000, respectively. On May 13, 1999, AIMCO Properties, L.P., an affiliate of the General Partner commenced a tender offer to purchase up to 7,317.52 (45.00% of the total outstanding units) units of limited partnership interest in the Partnership for a purchase price of $183 per unit. The offer expired on June 29, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 2,366.93 units. As a result, AIMCO and its affiliates currently own 2,366.93 units of limited partnership interest in the Partnership representing 14.56% of the total outstanding units. It is possible that AIMCO or its affiliate will make one or more additional offers to acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. Note D - Segment Reporting Description of the types of products and services from which the reportable segment derives its revenues: The Partnership has two reportable segments: residential properties and commercial properties. The Partnership's residential property segment consists of two apartment complexes located in California. The Partnership rents apartment units to tenants for terms that are typically twelve months or less. The commercial property segment consists of office space located in Serramonte, California. This property leases space to management, restaurant, and dental enterprises at terms ranging from month to month to ten years. Measurement of segment profit or loss: The Partnership evaluates performance based on net income. The accounting policies of the reportable segments are the same as those of the Partnership as described in the Partnership's annual report on Form 10-KSB for the year ended December 31, 1998. Factors management used to identify the enterprise's reportable segment: The Partnership's reportable segments consist of investment properties that offer different products and services. The reportable segments are each managed separately because they provide distinct services with different types of products and customers. Segment information for the six months ended June 30, 1999 and 1998 is shown in the tables below. The "Other" column includes Partnership administration related items and income and expense not allocated to reportable segments.
1999 Residential Commercial Other Totals Rental income $ 2,715 $ 1,570 $ -- $ 4,285 Other income 118 14 12 144 Interest expense 1,094 537 -- 1,631 Depreciation 716 242 -- 958 General and administrative expenses -- -- 91 91 Segment profit (loss) 31 249 (79) 201 Total assets 17,177 8,328 678 26,183 Capital expenditures 93 18 -- 111
1998 Residential Commercial Other Totals Rental income $ 2,458 $ 1,533 $ -- $ 3,991 Other income 118 10 57 185 Interest expense 1,123 543 -- 1,666 Depreciation 712 216 -- 928 General and administrative expenses -- -- 139 139 Gain on extraordinary item 10 -- -- 10 Segment profit (loss) (296) 272 (82) (106) Total assets 17,927 8,109 2,360 28,396 Capital expenditures 128 228 -- 356
Note E - Legal Proceedings The Partnership is unaware of any pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS The matters discussed in this Form 10-QSB contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosures contained in this Form 10-QSB and the other filings with the Securities and Exchange Commission made by the Registrant from time to time. The discussions of the Registrant's business and results of operations, including forward-looking statements pertaining to such matters, does not take into account the effects of any changes to the Registrant's business and results of operations. Accordingly, actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. The Partnership's investment properties consist of two apartment complexes and one commercial property. The following table sets forth the average occupancy for these properties for the six months ended June 30, 1999 and 1998: 1999 1998 Rivercrest Village Apartments Sacramento, California 91% 89% Richardson Highlands Apartments Marin City, California 99% 99% Serramonte Plaza Daly City, California 97% 96% Results of Operations The Registrant's net income for the three and six months ended June 30, 1999 was approximately $98,000 and $201,000, respectively, as compared to a net loss of approximately $41,000 and $106,000 for the three and six months ended June 30, 1998. The increase in net income was due to an increase in total revenues and a decrease in total expenses. The increase in total revenues was the result of an increase in rental income, which was primarily attributable to the increase in occupancy and average rental rates at all of the Registrant's investment properties. The increase in rental income was partially offset by a decrease in other income. Other income decreased primarily due to an overall decrease in the cash balance of the Partnership as a whole. Total expenses decreased for the three and six months ended June 30, 1999 as a result of decreases in both general and administrative and interest expenses, which was partially offset by an increase in depreciation and property taxes expense. Depreciation expense increased as a result of the significant capital improvements put in service during 1998. Property tax expense increased as a result of an increase in the tax rate for Rivercrest Village Apartments. Operating expense remained relatively constant for the three months ended June 30, 1999, but decreased for the six months ended June 30, 1999. The decrease for the six months ended June 30, 1999 was attributable to a decrease in insurance expense. Insurance expense decreased due to the change in insurance carriers at the Registrant's investment properties during the fourth quarter of 1998 which resulted in lower insurance premiums. Interest expense decreased due to principal payments made on the properties first and second mortgages. General and administrative expense decreased as a result of a decrease in professional expenses and general costs of the Partnership. Included in general and administrative expenses for the six months ended June 30, 1999 and 1998 are management reimbursements to the General Partner allowed under the Partnership Agreement. In addition, cost associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement are also included. As part of the ongoing business plan of the Partnership, the General Partner monitors the rental market environment of each of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expenses. As part of this plan, the General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the General Partner will be able to sustain such a plan. Liquidity and Capital Resources At June 30, 1999, the Registrant had cash and cash equivalents of approximately $1,602,000 as compared to approximately $2,842,000 at June 30, 1998. Cash and cash equivalents increased approximately $418,000 for the six months ended June 30, 1999 from the Registrant's fiscal year end, primarily due to approximately $1,203,000 of cash provided by operating activities, which was partially offset by approximately $501,000 of cash used in financing activities and approximately $284,000 of cash used in investing activities. Cash used in financing activities consisted of principal payments on the mortgages encumbering the Registrant's properties. Cash used in investing activities consisted of property improvements and replacements, net deposits to the escrow accounts maintained by the mortgage lender and the payment of lease commissions. The Registrant invests its working capital reserves in money market accounts. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the properties to adequately maintain the physical assets and other operating needs of the Partnership and to comply with Federal, state and local legal and regulatory requirements. Capital improvements planned for each of the Registrant's properties are detailed below. Rivercrest Village Apartments Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the General Partner on interior improvements, it is estimated that the property requires approximately $365,000 of capital improvements over the next few years. Capital improvements budgeted for, but not limited to, approximately $467,000 are planned for 1999 at this property which include certain of the required improvements and consist of clubhouse renovations, carpet replacement and other interior improvements. As of June 30, 1999 approximately $25,000 of capital improvements have been incurred consisting primarily of appliance and floor covering replacements. Richardson Highlands Apartments Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the General Partner on interior improvements, it is estimated that the property requires approximately $213,000 of capital improvements over the next few years. Capital improvements budgeted for, but not limited to, approximately $213,000 are planned for 1999 at this property which include certain of the required improvements and consist of balcony and stairway replacement and repairs, carpet, cabinet, countertop and roof replacements, parking lot repairs and other building improvements. As of June 30, 1999 approximately $68,000 of capital improvements have been incurred consisting primarily of interior improvements, appliance and floor covering replacement, balconies and parking area improvements. Serramonte Plaza Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the General Partner on interior improvements, it is estimated that the property requires approximately $1,000,000 of capital improvements over the next few years. Capital improvements budgeted for, but not limited to, approximately $423,000 are planned for 1999 at this property which include certain of the required improvements and consist of door and entrance way and parking lot repairs and tenant improvements. As of June 30, 1999 approximately $18,000 of capital improvements have been incurred consisting primarily of tenant improvements. The additional capital improvements will be incurred only if cash is available from operations or Partnership reserves. To the extent that such budgeted capital improvements are completed, the Registrant's distributable cash flow, if any, may be adversely affected at least in the short term. The Registrant's current assets are thought to be sufficient for any near-term needs (exclusive of capital improvements) of the Registrant. The mortgage indebtedness of approximately $42,444,000 matures from January 2000 until January 2008, with balloon payments due at maturity, at which time the properties will either be refinanced and/or sold. Agreements connected with the second mortgages for Richardson Highlands and Rivercrest Village allow for the lender to receive fifty percent of any residual proceeds from the sale or refinancing of the properties after the payment of all mortgage notes payable and other liabilities. No cash distributions were paid during the six months ended June 30, 1999 and 1998. The Registrant's distribution policy is reviewed on a quarterly basis. Future cash distributions will depend on the levels of net cash generated from operations, the availability of cash reserves, debt refinancing, and/or property sales. There can be no assurance, however, that the Registrant will generate sufficient funds from operations after required capital expenditures, to permit distributions to its partners in 1999. Tender Offer On May 13, 1999, AIMCO Properties, L.P., an affiliate of the General Partner commenced a tender offer to purchase up to 7,317.52 (45.00% of the total outstanding units) units of limited partnership interest in the Partnership for a purchase price of $183 per unit. The offer expired on June 29, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 2,366.93 units. As a result, AIMCO and its affiliates currently own 2,366.93 units of limited partnership interest in the Partnership representing 14.56% of the total outstanding units. It is possible that AIMCO or its affiliate will make one or more additional offers to acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. Year 2000 Compliance General Description of the Year 2000 Issue and the Nature and Effects of the Year 2000 on Information Technology (IT) and Non-IT Systems The Year 2000 issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. The Partnership is dependent upon the General Partner and its affiliates for management and administrative services ("Managing Agent"). Any of the computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Over the past two years, the Managing Agent has determined that it will be required to modify or replace significant portions of its software and certain hardware so that those systems will properly utilize dates beyond December 31, 1999. The Managing Agent presently believes that with modifications or replacements of existing software and certain hardware, the Year 2000 issue can be mitigated. However, if such modifications and replacements are not made, or not completed in time, the Year 2000 issue could have a material impact on the operations of the Partnership. The Managing Agent's plan to resolve Year 2000 issues involves four phases: assessment, remediation, testing, and implementation. To date, the Managing Agent has fully completed its assessment of all the information systems that could be significantly affected by the Year 2000, and has begun the remediation, testing and implementation phases on both hardware and software systems. Assessments are continuing in regards to embedded systems. The status of each is detailed below. Status of Progress in Becoming Year 2000 Compliant, Including Timetable for Completion of Each Remaining Phase Computer Hardware: During 1997 and 1998, the Managing Agent identified all of the computer systems at risk and formulated a plan to repair or replace each of the affected systems. In August 1998, the main computer system used by the Managing Agent became fully functional. In addition to the main computer system, PC-based network servers, routers and desktop PCs were analyzed for compliance. The Managing Agent has begun to replace each of the non-compliant network connections and desktop PCs and, as of June 30, 1999, had completed approximately 90% of this effort. The total cost to the Managing Agent to replace the PC-based network servers, routers and desktop PCs is expected to be approximately $1.5 million of which $1.3 million has been incurred to date. The remaining network connections and desktop PCs are expected to be upgraded to Year 2000 compliant systems by September 30, 1999. The completion of this process is scheduled to coincide with the release of a compliant version of the Managing Agent's operating system. Computer Software: The Managing Agent utilizes a combination of off-the-shelf, commercially available software programs as well as custom-written programs that are designed to fit specific needs. Both of these types of programs were studied, and implementation plans written and executed with the intent of repairing or replacing any non-compliant software programs. In April, 1999 the Managing Agent embarked on a data center consolidation project that unifies its core financial systems under its Year 2000 compliant system. The estimated completion date for this project is October, 1999. During 1998, the Managing Agent began converting the existing property management and rent collection systems to its management properties Year 2000 compliant systems. The estimated additional costs to convert such systems at all properties, is $200,000, and the implementation and testing process was completed in June, 1999. The final software area is the office software and server operating systems. The Managing Agent has upgraded all non-compliant office software systems on each PC and has upgraded 90% of the server operating systems. The remaining server operating systems are planned to be upgraded to be Year 2000 compliant by September, 1999. The completion of this process is scheduled to coincide with the release of a compliant version of the Managing Agent's operating system. Operating Equipment: The Managing Agent has operating equipment, primarily at the property sites, which needed to be evaluated for Year 2000 compliance. In September 1997, the Managing Agent began taking a census and inventory of embedded systems (including those devices that use time to control systems and machines at specific properties, for example elevators, heating, ventilating, and air conditioning systems, security and alarm systems, etc.). The Managing Agent has chosen to focus its attention mainly upon security systems, elevators, heating, ventilating and air conditioning systems, telephone systems and switches, and sprinkler systems. While this area is the most difficult to fully research adequately, management has not yet found any major non-compliance issues that put the Managing Agent at risk financially or operationally. A pre-assessment of the properties by the Managing Agent has indicated no Year 2000 issues. A complete, formal assessment of all the properties by the Managing Agent is in process and will be completed in September, 1999. Any operating equipment that is found non-compliant will be repaired or replaced. The total cost incurred for all properties managed by the Managing Agent as of June 30, 1999 to replace or repair the operating equipment was approximately $75,000. The Managing Agent estimates the cost to replace or repair any remaining operating equipment is approximately $125,000. The Managing Agent continues to have "awareness campaigns" throughout the organization designed to raise awareness and report any possible compliance issues regarding operating equipment within its enterprise. Nature and Level of Importance of Third Parties and Their Exposure to the Year 2000 The Managing Agent continues to conduct surveys of its banking and other vendor relationships to assess risks regarding their Year 2000 readiness. The Managing Agent has banking relationships with three major financial institutions, all of which have indicated their compliance efforts will be complete before July, 1999. The Managing Agent has updated data transmission standards with all of the financial institutions. The Managing Agent's contingency plan in this regard is to move accounts from any institution that cannot be certified Year 2000 compliant by September 1, 1999. The Partnership does not rely heavily on any single vendor for goods and services, and does not have significant suppliers and subcontractors who share information systems (external agent). To date the Partnership is not aware of any external agent with a Year 2000 compliance issue that would materially impact the Partnership's results of operations, liquidity, or capital resources. However, the Partnership has no means of ensuring that external agents will be Year 2000 compliant. The Managing Agent does not believe that the inability of external agents to complete their Year 2000 remediation process in a timely manner will have a material impact on the financial position or results of operations of the Partnership. However, the effect of non-compliance by external agents is not readily determinable. Costs to Address Year 2000 The total cost of the Year 2000 project to the Managing Agent is estimated at $3.5 million and is being funded from operating cash flows. To date, the Managing Agent has incurred approximately $2.9 million ($0.7 million expensed and $2.2 million capitalized for new systems and equipment) related to all phases of the Year 2000 project. Of the total remaining project costs, approximately $0.5 million is attributable to the purchase of new software and operating equipment, which will be capitalized. The remaining $0.2 million relates to repair of hardware and software and will be expensed as incurred. The Partnership's portion of these costs are not material. Risks Associated with the Year 2000 The Managing Agent believes it has an effective program in place to resolve the Year 2000 issue in a timely manner. As noted above, the Managing Agent has not yet completed all necessary phases of the Year 2000 program. In the event that the Managing Agent does not complete any additional phases, certain worst case scenarios could occur. The worst case scenarios could include elevators, security and heating, ventilating and air conditioning systems that read incorrect dates and operate with incorrect schedules (e.g., elevators will operate on Monday as if it were Sunday). Although such a change would be annoying to residents, it is not business critical. In addition, disruptions in the economy generally resulting from Year 2000 issues could also adversely affect the Partnership. The Partnership could be subject to litigation for, among other things, computer system failures, equipment shutdowns or failure to properly date business records. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. Contingency Plans Associated with the Year 2000 The Managing Agent has contingency plans for certain critical applications and is working on such plans for others. These contingency plans involve, among other actions, manual workarounds and selecting new relationships for such activities as banking relationships and elevator operating systems. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report. b) Reports on Form 8-K: None filed during the quarter ended June 30, 1999. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INVESTORS FIRST-STAGED EQUITY L.P. (Registrant) By: VMS Realty Investment II, its General Partner By: /s/Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/Carla R. Stoner Carla R. Stoner Senior Vice President Finance and Administration Date: EX-27 2 2ND QUARTER 10-QSB/A
5 This schedule contains summary financial information extracted from Investors First-Staged Equity 1999 Second Quarter 10-QSB/A and is qualified in its entirety by reference to such 10-QSB/A filing. 0000768834 Investors First-Staged Equity 1,000 12-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 1,602 0 747 0 0 0 48,577 (26,907) 26,183 0 42,444 0 0 0 (17,638) 26,183 0 4,429 0 0 4,228 0 1,631 0 0 0 0 0 0 201 12.24 0 Registrant has an unclassified balance sheet. Multiplier is 1.
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