-----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, M5Y3bulOAlA5v8NzqS2aZ8xOztxJ6d339XSmWwWR4IJhL4jgxyvP5hwCrPZELm1p OWmDybg+ykhKE009ltnzWg== 0000812431-97-000001.txt : 19970319 0000812431-97-000001.hdr.sgml : 19970319 ACCESSION NUMBER: 0000812431-97-000001 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970318 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: JOHNSTOWN CONSOLIDATED INCOME PARTNERS 2 CENTRAL INDEX KEY: 0000812431 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 943032501 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-16682 FILM NUMBER: 97558638 BUSINESS ADDRESS: STREET 1: ONE INSIGNIA FINANCIAL PLAZA STREET 2: PO BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8032391591 MAIL ADDRESS: STREET 1: ONE INSIGNIA FINANCIAL PLAZA STREET 2: PO BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 10KSB 1 FORM 10-KSB--ANNUAL OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) FORM 10-KSB [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the fiscal year ended December 31, 1996 or [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period.........to......... Commission file number 0-16682 JOHNSTOWN/CONSOLIDATED INCOME PARTNERS/2 (Name of small business issuer in its charter) California 94-3032501 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Insignia Financial Plaza, P.O. Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (Zip Code) Issuer's telephone number (864) 239-1000 Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Units of Depositary Receipts (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 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 Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] State issuer's revenues for its most recent fiscal year: $438,000 State the aggregate market value of the voting partnership interests held by non-affiliates computed by reference to the price at which the partnership interests were sold, or the average bid and asked prices of such partnership interests, as of December 31, 1996: Market value information for the Registrant's partnership interests is not available. Should a trading market develop for these interests, it is management's belief that such trading would not exceed $25,000,000. PART I ITEM 1.DESCRIPTION OF BUSINESS Johnstown/Consolidated Income Partners/2 (the "Partnership" or "Registrant") was organized on March 9, 1987, as a limited partnership under the California Revised Limited Partnership Act. On June 19, 1987, the Partnership registered with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933 (File No. 33-13348) and commenced a public offering for sale of $100 million of Units. The Units represent economic rights attributable to the limited partnership interests in the Partnership and entitle the holders thereof (hereinafter referred to as "Unitholders") to the economic benefits attributable to equity interests in the Partnership and to participate in certain allocations and distributions of the Partnership. The limited partner of the Partnership is Johnstown/Consolidated Depositary Corporation/2 (the "Corporate Limited Partner"), an affiliate of the General Partner (as hereinafter defined). The Corporate Limited Partner serves as depositary for the Units pursuant to a Depositary Agreement (herein so called) entered into with the Partnership. The Partnership subsequently filed a Form 8-A Registration Statement with the SEC and registered the Units under the Securities Exchange Act of 1934 (File No. 0- 16682) on June 11, 1988. The offering closed in October 1988, with 68,854 Units sold at $100 each, or gross proceeds of approximately $6.9 million to the Partnership. The Partnership had retired a total of 1,040 Units as of December 31, 1996. The Partnership gave no consideration for the Units retired. By the end of fiscal year 1988, approximately 74% of the proceeds raised had been invested in a mortgage loan (a joint loan in which the Partnership owned a two-thirds undivided interest with an affiliated limited partnership) and a real estate acquisition, development and construction lending ("ADC") arrangement. Of the remaining 26%, 11% was required for organizational and offering expenses, sales commissions and acquisition fees, and 15% was retained in Partnership reserves for working capital, as required by the Partnership Agreement herein so called. The General Partner of the Partnership is ConCap Equities, Inc., a Delaware corporation (the "General Partner" or "CEI"). The principal place of business for the Partnership and for the General Partner is One Insignia Financial Plaza, Greenville, South Carolina 29602. The Partnership's primary business and only industry segment is real estate related operations. The Partnership was formed to invest in mortgage loans originated or purchased by the Partnership and to acquire, own, operate and ultimately dispose of income-producing real properties for the benefit of its Unitholders. The Partnership was formed with the intention of investing at least one-third but not more than two-thirds of the Partnership's net capital proceeds in non-leveraged or low-leveraged commercial and residential real estate and to devote at least one-third but not more than two-thirds of such net capital proceeds to making or purchasing mortgage loans. By August 1988, the Partnership had completed its investing activities and had acquired a two-thirds undivided interest in a mortgage loan which the Partnership foreclosed on in September 1991, and an ADC arrangement which was subsequently repaid in 1989. At December 31, 1996, the Partnership's only asset was a two-thirds undivided interest in a mini-warehouse located in Lauderhill, Florida. As of December 31, 1996, the Partnership's working capital reserves were in excess of 3% of Net Invested Capital as required by its Partnership Agreement. See "Item 6 - Management's Discussion and Analysis or Plan of Operations", for discussion of Partnership liquidity and capital resources. The real estate business is highly competitive. The Registrant's real property investment is subject to competition from similar types of properties in the vicinity in which it is located and the Partnership is not a significant factor in its industry. In addition, various limited partnerships have been formed by related parties to engage in business which may be competitive with the Registrant. The Registrant has no employees. Management and administrative services are performed by affiliates of Insignia Financial Group, Inc. ("Insignia"), an affiliate of the General Partner. The property manager is responsible for the day-to-day operations of the property owned by the Partnership. The General Partner has also selected affiliates of Insignia to provide real estate advisory and asset management services to the Partnership. As advisor, such affiliates provide all partnership accounting and administrative services, investment management, and supervisory services over property management and leasing. For a further discussion of property and partnership management, see "Item 12." Upon the Partnership's formation in 1987, Consolidated Capital Equities Corporation ("CCEC") was the sole Corporate General Partner, and Johnstown/Consolidated Depositary Corporation/2, a wholly-owned subsidiary of CCEC, was the sole limited partner. In 1988, through a series of transactions, Southmark Corporation ("Southmark") acquired a controlling interest in CCEC. In December 1988, CCEC filed for reorganization under Chapter 11 of the United States Bankruptcy Code. In 1990, as part of CCEC's reorganization plan, CEI acquired CCEC's general partner interests in the Partnership and in 15 other affiliated public limited partnerships (the "Affiliated Partnerships"), acquired the stock of the Corporate Limited Partner, and CEI replaced CCEC as managing general partner in all 16 partnerships. The selection of CEI as the sole managing general partner was approved by a majority of the Unitholders in the Partnership and by the limited partners in each of the Affiliated Partnerships pursuant to a solicitation of the Unitholders and limited partners dated August 10, 1990. As part of this solicitation, the Unitholders also approved an amendment to the Partnership Agreement to limit changes of control of the Partnership. All of CEI's outstanding stock is owned by GII Realty, Inc. In December 1994, the parent of GII Realty, Inc., entered into a transaction (the "Insignia Transaction") in which, an affiliate of Insignia, acquired an option (exercisable in whole or in part from time to time) to purchase all of the stock of GII Realty, Inc. and, pursuant to a partial exercise of such option, acquired 50.5% of that stock. As a part of the Insignia Transaction, the Insignia affiliate also acquired all of the outstanding stock of Partnership Services, Inc., an asset management entity and Insignia acquired all of the outstanding stock of Coventry Properties, Inc., a property management entity. In addition, confidentiality, non-competition, and standstill arrangements were entered into between certain of the parties. Those arrangements, among other things, prohibit GII Realty's former sole shareholder from purchasing Partnership Units for a period of three years. On October 24, 1995, the Insignia affiliate exercised the remaining portion of its option to purchase all of the remaining outstanding capital stock of GII Realty, Inc. ITEM 2.DESCRIPTION OF PROPERTY The Partnership originally acquired an ADC arrangement and a two-thirds undivided interest in a mortgage loan. The ADC arrangement was repaid in 1989. The Partnership foreclosed on its two-thirds undivided interest in the property securing the mortgage loan in 1991. As of December 31, 1996, the Partnership owns a two-thirds undivided interest in the mini-warehouse noted below: Date of Property Purchase Type of Ownership Use Florida #6 Mini-Warehouse 11/01/90 Fee ownership 61,121 sq. ft. Lauderhill, Florida storage facility SCHEDULE OF INVESTMENT PROPERTY HELD FOR SALE: (in thousands) Net Carrying Property Value Florida #6 Mini-Warehouse $1,701 See "Note A" of the Financial Statements included in "Item 7" for a description of the Partnership's former depreciation policy. Effective December 31, 1996, the Partnership's investment property was classified as investment property held for sale. Accordingly, the property has been recorded at the lower of carrying amount or fair value less costs to sell and no additional depreciation expense will be recorded during the period the assets are held for sale. SCHEDULE OF RENTAL RATES AND OCCUPANCY: Average Annual Rental Rates Average (Per sq. ft.) Occupancy Property 1996 1995 1996 1995 Florida #6 Mini-Warehouse $11.04 $10.44 90% 90% As noted under "Item 1. Description of Business", the real estate industry is highly competitive. The General Partner believes that the Florida #6 Mini- Warehouse is adequately insured. SCHEDULE OF REAL ESTATE TAXES AND RATES: The Partnership's two-thirds share of real estate taxes and rates in 1996 for the property were (dollar amounts in thousands): 1996 1996 Billing Rate Florida #6 Mini-Warehouse $51 2.4% ITEM 3. LEGAL PROCEEDINGS The Registrant is unaware of any pending or outstanding litigation that is not of a routine nature. The General Partner of the Registrant believes that all such pending or outstanding litigation will be resolved without a material adverse effect upon the business, financial condition, or operations of the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On September 20, 1996, the General Partner distributed a consent solicitation to the Limited Partners to modify the Partnership Agreement for a certain proposal (the "Proposal") as described in the proxy statement. The Registrant filed a definitive Schedule 14A Information Statement with the Securities and Exchange Commission concurrent with the distribution of the consent solicitation. The General Partner formulated the Proposal to amend the Partnership Agreement to authorize the General Partner to sell all or substantially all of the Partnership's assets to unaffiliated entities pursuant to a binding agreement to be entered into on or before June 30, 1997, at a price of not less than $2,000,000. A consequence of the closing of such a sale would likely be the dissolution and termination of the Partnership. On November 22, 1996, the proposal was adopted with a majority of the outstanding units approving the proposal. The Unitholders voted 53% in favor of the matter, 5% opposed or abstained and 42% did not respond. The General Partner is currently in negotiations to sell the Florida #6 Mini-Warehouse. It is not certain that these negotiations will be successful. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS (A) No established public trading market for the Partnership's Units exists nor is one expected to develop. (B) Title of Class Number of Unitholders of Record Units of Depositary Receipts 598 as of December 31, 1996 (C) The following table sets forth a summary of distributions to the partners during the years ended December 31, 1996 and 1995 (amounts in thousands): Years Ended December 31, 1996 1995 Distributions to partners -- $ 200 In September 1995, the Partnership distributed cash flow from operations of approximately $198,000 or $2.92 per Unit to Unitholders of record as of September 1, 1995, and paid a corresponding general partner distribution of $2,000. Cumulative distributions to the Unitholders since the inception of the Partnership totaled approximately $5.3 million at December 31, 1996. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS Results of Operations The Partnership realized net income of approximately $124,000 for the year ended December 31, 1996, compared to net income of approximately $147,000 for the year ended December 31, 1995. Rental income increased for the year ended December 31, 1996, compared to the year ended December 31, 1995, due to increased rental rates at the Partnership's investment property as noted above in "Item 2". Other income decreased due to the non-recurring nature of the dividends received on the Partnership's investment in Southmark Preferred Stock during 1995. Operating expenses decreased for the year ended December 31, 1996, compared to the year ended December 31, 1995, due to reduced personnel costs. Maintenance expense decreased due to reduced yard and grounds contract fees. Property tax expense increased due to an increase in the assessed value of the property. During 1995, the Partnership received a liquidating dividend of approximately $93,000 from Southmark. During the fourth quarter of 1995, approximately $32,000 was credited to the investment in stock account. The remaining stock balance is included in prepaid and other assets at December 31, 1996, at its estimated market value of approximately $3,000. As part of the ongoing business plan of the Partnership, the General Partner monitors the rental market environment of its investment property 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 December 31, 1996, the Partnership held cash and cash equivalents of approximately $633,000 compared to approximately $424,000 at December 31, 1995. Net cash provided by operating activities decreased primarily due to the Partnership receiving no dividend income from the Southmark stock in 1996, partially offset by increased rental income and reduced expenses as discussed above. Net cash provided by investing activities decreased as a result of the Partnership investing in shorter term cash equivalents during 1996 rather than longer term securities. Net cash used in financing activities decreased due to the absence of partner distributions for the year ended December 31, 1996. The Partnership is required by the Partnership Agreement to maintain working capital for contingencies of not less than 3% of Net Invested Capital as defined in the Partnership Agreement. In the event expenditures are made from these reserves, operating revenue shall be allocated to such reserves to the extent necessary to maintain the foregoing level. Reserves, including cash and cash equivalents totalling approximately $633,000 at December 31, 1996, exceeded the Partnership's reserve requirement of approximately $73,000. 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 property to adequately maintain the physical assets and meet other operating needs of the Partnership. Such assets are currently thought to be sufficient for any near-term needs of the Partnership. Future cash distributions will depend on the levels of net cash generated from operations, capital expenditure requirements, a property sale and the availability of cash reserves. As part of the Partnership's ongoing attempt to maximize the return to the Unitholders, the General Partner is currently in negotiations to sell the commercial property in which it has invested. Currently, disposition is not considered imminent. Additionally, other investing parties are involved who must be consulted before such a transaction can be approved. For the year ended December 31, 1996, no cash distributions were declared or paid compared to cash distributions of approximately $200,000 during the year ended December 31, 1995. ITEM 7. FINANCIAL STATEMENTS JOHNSTOWN/CONSOLIDATED INCOME PARTNERS/2 LIST OF FINANCIAL STATEMENTS Report of Independent Auditors Balance Sheet - December 31, 1996 Statements of Operations - Years ended December 31, 1996 and 1995 Statements of Changes in Partners- Capital (Deficit) - Years ended December 31, 1996 and 1995 Statements of Cash Flows - Years ended December 31, 1996 and 1995 Notes to Financial Statements Report of Ernst & Young LLP, Independent Auditors The Partners Johnstown Consolidated Income Partners/2 We have audited the accompanying balance sheet of Johnstown Consolidated Income Partners/2 as of December 31, 1996, and the related statements of operations, changes in partners- capital (deficit) and cash flows for each of the two years in the period ended December 31, 1996. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Johnstown Consolidated Income Partners/2 as of December 31, 1996, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP Greenville, South Carolina January 24, 1997 JOHNSTOWN/CONSOLIDATED INCOME PARTNERS/2 BALANCE SHEET December 31, 1996 (in thousands, except unit data) Assets Cash and cash equivalents $ 633 Accounts receivable 4 Escrow for taxes 6 Other assets 7 Investment property held for sale 1,701 $2,351 Liabilities and Partners' Capital (Deficit) Liabilities Accounts payable $ 2 Other liabilities 25 Partners' Capital (Deficit) General partner $ (37) Corporate limited partners - on behalf of the Unitholders - (67,814 Units issued and outstanding) 2,361 2,324 $2,351 See Accompanying Notes to Financial Statements JOHNSTOWN/CONSOLIDATED INCOME PARTNERS/2 STATEMENTS OF OPERATIONS (in thousands, except unit data) Years Ended December 31, 1996 1995 Revenues: Rental income $ 400 $ 372 Other income 38 100 Total revenues 438 472 Expenses: Operating 87 97 General and administrative 80 82 Maintenance 17 21 Depreciation 79 80 Property taxes 51 45 Total expenses 314 325 Net income $ 124 $ 147 Net income allocated to general partners (1%) $ 1 $ 1 Net income allocated to limited partners (99%) 123 146 $ 124 $ 147 Net income per Unit of Depositary Receipt $ 1.81 $ 2.15 See Accompanying Notes to Financial Statements JOHNSTOWN/CONSOLIDATED INCOME PARTNERS/2 STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) (in thousands, except unit data) Unitholders Units of Units of Depositary General Depositary Receipt Partner Receipt Total Original capital contributions 68,854 $ 1 $ 6,885 $ 6,886 Partners' capital (deficit) at December 31, 1994 67,814 (37) 2,290 2,253 Distributions -- (2) (198) (200) Net income for the year ended December 31, 1995 -- 1 146 147 Partners' capital (deficit) at December 31, 1995 67,814 (38) 2,238 2,200 Net income for the year ended December 31, 1996 -- 1 123 124 Partners' capital (deficit) at December 31, 1996 67,814 $ (37) $ 2,361 $ 2,324 See Accompanying Notes to Financial Statements JOHNSTOWN/CONSOLIDATED INCOME PARTNERS/2 STATEMENTS OF CASH FLOWS (in thousands, except unit data) Years Ended December 31, 1996 1995 Cash flows from operating activities: Net income $ 124 $ 147 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 79 80 Change in accounts: Accounts receivable 6 (7) Escrow for taxes 2 (4) Other assets 3 37 Accounts payable (3) 2 Other liabilities (1) 15 Net cash provided by operating activities 210 270 Cash flows from investing activities: Property improvements and replacements (1) (1) Purchase of investments -- (453) Proceeds from sale of investments -- 656 Net cash (used in) provided by investing activities (1) 202 Cash flows used in financing activities: Distributions to partners -- (200) Net increase in cash and cash equivalents 209 272 Cash and cash equivalents at beginning of year 424 152 Cash and cash equivalents at end of year $ 633 $ 424 See Accompanying Notes to Financial Statements JOHNSTOWN/CONSOLIDATED INCOME PARTNERS/2 NOTES TO FINANCIAL STATEMENTS December 31, 1996 NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Johnstown/Consolidated Income Partners/2 (the "Partnership" or "Registrant"), a California limited partnership, was formed on March 9, 1987, to acquire and operate commercial and residential properties and to invest in mortgage loans and mortgage-backed securities. As of December 31, 1996, the Partnership operates one commercial property located in Lauderhill, Florida. Consolidated Capital Equities Corporation ("CCEC"), a Colorado corporation, the former general partner, and Johnstown/Consolidated Depositary Corporation/2 (the "Corporate Limited Partner"), an affiliate of the general partner which serves as depositary of certain Units of Depositary Receipt ("Units"), contributed $1,000 and $100,000, respectively. The Units represent economic rights attributable to the limited partnership interests in the Partnership and entitle the holders thereof ("Unitholders") to certain economic benefits, allocations and distributions of the Partnership. Upon the Partnership's formation in 1987, CCEC was the general partner. In December 1988, CCEC filed for reorganization under Chapter 11 of the United States Bankruptcy Code. In 1990, as part of CCEC's reorganization plan, ConCap Equities, Inc., a Delaware corporation (the "General Partner" or "CEI") acquired CCEC's general partner interests in the Partnership and in 15 other affiliated public limited partnerships (the "Affiliated Partnerships"), acquired the stock of the Corporate Limited Partner, and CEI replaced CCEC as managing general partner in all 16 partnerships. All of CEI's outstanding stock is owned by GII Realty, Inc. In December 1994, the parent of GII Realty, Inc., entered into a transaction (the "Insignia Transaction") in which an affiliate of Insignia Financial Group, Inc. ("Insignia") acquired an option (exercisable in whole or in part from time to time) to purchase all of the stock of GII Realty, Inc. and, pursuant to a partial exercise of such option, acquired 50.5% of that stock. As a part of the Insignia Transaction, this Insignia affiliate also acquired all of the outstanding stock of Partnership Services, Inc., an asset management entity and Insignia acquired all of the outstanding stock of Coventry Properties, Inc., a property management entity. In addition, confidentiality, non-competition, and stand still arrangements were entered into between certain of the parties. Those arrangements, among other things, prohibit GII Realty's former sole shareholder from purchasing Partnership Units for a period of three years. On October 24, 1995, the Insignia affiliate exercised the remaining portion of its option to purchase all of the remaining outstanding capital stock of GII Realty, Inc. The principal place of business for the Partnership and for the General Partner is One Insignia Financial Plaza, Greenville, South Carolina 29602. Investment Properties Prior to 1995, investment properties were carried at the lower of cost or estimated fair value, which was determined using the higher of the property's non-recourse debt amount, when applicable, or the net operating income of the investment property capitalized at a rate deemed reasonable for the type of property. During 1995, the Partnership adopted "FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The effect of adoption was not material. During the fourth quarter of 1996, the partners voted to market the property for sale for not less than $2 million for the Partnership's portion. In accordance with "FASB No. 121" at December 31, 1996, the Partnership has classified its investment property as held for sale. The property has been recorded at the lower of carrying amount or fair value less costs to sell. Depreciation Buildings and improvements were depreciated on the straight-line basis over an estimated useful life of 3 to 20 years. Effective December 31, 1996, the property was classified as investment property held for sale and no additional depreciation expense will be recorded during the period the assets are held for sale. Cash and Cash Equivalents Cash and cash equivalents include cash on hand and in banks, demand deposits, money market funds, and certificates of deposit with original maturities of less than 90 days. At certain times the amount of cash deposited at a bank may exceed the limit on insured deposits. Reclassifications Certain reclassifications have been made to the 1995 information to conform to the 1996 presentation. Fair Value In 1995, the Partnership implemented "Statement of Financial Accounting Standards No. 107, Disclosure about Fair Value of Financial Instruments," which requires disclosure of fair value information about financial instruments for which it is practicable to estimate that value. The carrying amount of the Partnership's cash and cash equivalents approximates fair value due to their short-term nature. Rental Income The Partnership leases its commercial property under short-term month-to-month operating leases. The Partnership expects that in the normal course of business these leases will be renewed or replaced by other leases. Allocation of Net Income and Net Loss The Partnership Agreement provides for net income and net losses for both financial and tax reporting purposes to be allocated 99% to the Limited Partners and 1% to the General Partner. Advertising Costs Advertising costs of approximately $7,000 and $8,000 in 1996 and 1995, respectively, are charged to operating expense as incurred. Units of Depositary Receipts Johnstown/Consolidated Depositary Corporation (the "Corporate Limited Partner"), an affiliate of the General Partner, serves as a depositary of certain Units of Depositary Receipt ("Units"). The Units represent economic rights attributable to the limited partnership interests in the Partnership and entitle the holders thereof ("Unitholders") to certain economic benefits, allocations and distributions of the Partnership. For this reason, Partner's capital (deficit) is herein represented as an interest of the Unitholders. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. NOTE B - RELATED PARTY TRANSACTIONS The Partnership has no employees and is dependent on the General Partner and affiliates of Insignia for the management and administration of all the Partnership activities, as provided for in the partnership agreement. The Partnership has paid property management fees based upon collected gross rental revenues for property management services in each of the years ended December 31, 1996 and 1995. Property management fees of approximately $25,000 and $24,000 were paid to affiliates of the General Partner for the years ended December 31, 1996 and 1995, respectively. These fees are included in operating expenses. The Partnership Agreement also provides for reimbursement to the General Partner and its affiliates for costs incurred in connection with the administration of Partnership activities. Reimbursements for services of affiliates of approximately $29,000 and $40,000 were paid to the General Partner and its affiliates for the years ended December 31, 1996 and 1995, respectively. In July 1995, the Partnership began insuring its property under a master policy through an agency and insurer unaffiliated with the General Partner. An affiliate of the General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the current year's master policy. The current agent assumed the financial obligations to the affiliate of the General Partner who receives payment on these obligations from the agent. The amount of the Partnership's insurance premiums accruing to the benefit of the affiliate of the General Partner by virtue of the agent's obligations is not significant. NOTE C - OTHER INCOME In 1991, the Partnership (and simultaneously other affiliated partnerships) entered claims in Southmark Corporation's Chapter 11 bankruptcy proceeding. These claims related to Southmark Corporation's activities while it exercised control (directly or indirectly through its affiliates) over the Partnership. The Bankruptcy Court set the Partnership's and the other affiliated partnerships' allowed claim at an aggregate $11 million. In March 1994, the Partnership received 4,751 shares of Southmark Corporation Redeemable Series A Preferred Stock and 34,747 shares of Southmark Corporation New Common Stock with an aggregate market value on the date of receipt of approximately $35,000 and $260,000 in cash representing the Partnership's share of the recovery, based on its pro-rata share of the claims filed. During 1995, the Partnership received a liquidating dividend of approximately $93,000 from Southmark. During the fourth quarter of 1995, approximately $32,000 was credited to the investment in stock account. The remaining stock balance is included in prepaid and other assets at December 31, 1996, at its market value of approximately $3,000. NOTE D - COMMITMENT The Partnership is required by the Partnership Agreement to maintain working capital for contingencies of not less than 3% of Net Invested Capital as defined in the Partnership Agreement. In the event expenditures are made from these reserves, operating revenue shall be allocated to such reserves to the extent necessary to maintain the foregoing level. Reserves, including cash and cash equivalents totalling approximately $633,000 exceeded the Partnership's reserve requirement of approximately $73,000 at December 31, 1996. NOTE E - DISTRIBUTIONS During September 1995, the Partnership declared and paid distributions, attributable to cash flow from operations, of approximately $200,000 to the Unitholders. NOTE F - INVESTMENT PROPERTY HELD FOR SALE (in thousands) Initial Cost To Partnership (a) Buildings Net Cost and Related Reduced Personal Subsequent to Description Land Property Acquisition (a) Florida #6 Mini-Warehouse $ 650 $1,517 $ (466)(b) (a) Amounts represented the Partnership's two-thirds undivided interest in the property. Johnstown/Consolidated Income Partners, an affiliated partnership, owns the remaining one-third undivided interest in the property. (b) Effective December 31, 1996, the Partnership determined that the property was held for sale. Gross Amount at Which Carried At December 31, 1996 (a) Buildings And Related Personal Date Description Land Property Total Acquired Florida #6 Mini-Warehouse $650 $1,051 $1,701 11/01/90 (a) Amounts represented the Partnership's two-thirds undivided interest in the property. Johnstown/Consolidated Income Partners, an affiliated partnership, owns the remaining one-third undivided interest in the property. Effective December 31, 1996, the Partnership's investment property was classified as investment property held for sale. Accordingly, the property has been recorded at the lower of carrying amount or fair value less costs to sell and no additional depreciation expense will be recorded during the period the assets are held for sale. Reconciliation of "Investment Property Held for Sale" (in thousands): Years Ended December 31, 1996 1995 Investment Property Balance at beginning of year $2,186 $2,185 Property improvements 1 1 Balance at End of Year $2,187 $2,186 Accumulated Depreciation Balance at beginning of year $ 407 $ 327 Additions charged to expense 79 80 Balance at End of Year $ 486 $ 407 The aggregate cost of the real estate for Federal income tax purposes at December 31, 1996 and 1995, is approximately $2,143,000 and $2,142,000. The accumulated depreciation taken for Federal income tax purposes at December 31, 1996 and 1995, is approximately $251,000 and $203,000, respectively. NOTE G - INCOME TAXES Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Differences between the net income as reported and Federal taxable income result primarily from (1) depreciation over different methods and lives and on differing cost bases of apartment properties, (2) change in rental income received in advance. The following is a reconciliation of reported net income and Federal taxable income (in thousands, except unit data): 1996 1995 Net income as reported $ 124 $ 147 Add (deduct): Depreciation differences 31 32 Unearned income (3) 23 Other -- (3) Accruals and prepaids 14 3 Federal taxable income $ 166 $ 202 Federal taxable income per limited partnership unit $2.42 $2.96 The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities (in thousands): Net assets as reported $ 2,324 Land and buildings (44) Accumulated depreciation 235 Syndication and distribution costs 798 Other 262 Net assets - Federal tax basis $ 3,575 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT The Registrant has no officers or directors. The General Partner manages and controls the Registrant and has general responsibility and authority in all matters affecting its business. The name of the directors and executive officers of ConCap Equities, Inc. ("CEI"), the Partnership's General Partner, as of December 31, 1996, their ages and the nature of all positions with CEI presently held by them are set forth below. There are no family relationships between or among any officers and directors. Name Age Position William H. Jarrard, Jr. 50 President Ronald Uretta 41 Vice President/Treasurer Martha L. Long 37 Controller John K. Lines, Esq. 37 Vice President/Secretary Kelley M. Buechler 39 Assistant Secretary William H. Jarrard, Jr. has been President of CEI since December 1996 and Managing Director - Partnership Administration of Insignia since January 1991. Mr. Jarrard served as Managing Director - Partnership Administration and Asset Management from July 1994 until January 1996. Ronald Uretta has been Vice President/Treasurer of CEI since December 1996 and Insignia's Treasurer since January 1992. Since August 1996, he has also served as Insignia's Chief Operating Officer. He has also served as Insignia's Secretary from January 1992 to June 1994 and as Insignia's Chief Financial Officer from January 1992 to August 1994. Since September 1990, Mr. Uretta has also served as the Chief Financial Officer and Controller of Metropolitan Asset Group. Martha L. Long has been Controller of CEI since December 1996 and Senior Vice President - Finance and Controller of Insignia since January 1997. In June 1994, Ms. Long joined Insignia as its Controller, and was promoted to Senior Vice President - Finance in January 1997. Prior to that time, she was Senior Vice President and Controller of The First Savings Bank, FSB in Greenville, SC. John K. Lines, Esq. has been Secretary of CEI since December 1994 and General Counsel and Secretary of Insignia since July 1994. From May 1993 until June 1994, Mr. Lines was the Assistant General Counsel and Vice President of Ocwen Financial Corporation in West Palm Beach, Florida. From October 1991 until April 1993, Mr. Lines was a Senior Attorney with Banc One Corporation in Columbus, Ohio. From May 1984 until October 1991, Mr. Lines was employed as an associate with Squire Sanders & Dempsey in Columbus, Ohio. Kelley M. Buechler has been Assistant Secretary of CEI since December 1994 and Assistant Secretary of Insignia since 1991. During the five years prior to joining Insignia in 1991, she served in a similar capacity for U.S. Shelter. CEI is the general partner of the Partnership and 13 other Affiliated Partnerships as of December 31, 1996. ITEM 10. EXECUTIVE COMPENSATION No direct compensation was paid or payable by the Partnership to directors or officers for the year ended December 31, 1996, nor was any direct compensation paid or payable by the Partnership to directors or officers of the General Partner for the year ended December 31, 1996. The Partnership has no plans to pay any such remuneration to any directors or officers of the General Partner in the future. See "Item 7 - Financial Statements", "Note B - Related Party Transactions," for amounts of compensation and reimbursement of salaries paid by the Partnership to the General Partner and its affiliates and the former general partner and former affiliates. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security Ownership of Certain Beneficial Owners As of February, 1997, no person was known to CEI to own of record or beneficially more than 5 percent (5%) of the Units of the Partnership. (b) Beneficial Owners of Management Neither CEI nor any of the directors or officers or associates of CEI own any Units of the Partnership of record or beneficially. (c) Changes in Control Beneficial Owners of CEI As of February, 1997, the following persons were known to CEI to be the beneficial owners of more than 5 percent (5%) of its common stock: Number of Percent Name and Address CEI Shares Of Total GII Realty, Inc. 100,000 100% One Insignia Financial Plaza Greenville, SC 29602 GII Realty, Inc. is owned by an affiliate of Insignia. (See "Item 1.") ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with Current Management and Others Except for the transactions described below, neither CEI nor any of its directors, officers or associates, or any associates of any of them, has had any interest in any other transaction to which the Partnership is a party. Please refer to "Item 7 - Financial Statements", "Note B - Related Party Transactions," for the amounts and items of permissible compensation and fees paid to the General Partner and its affiliates and other related parties for the last two years. The Partnership has paid property management fees based upon collected gross rental revenues for property management services in each of the years ended December 31, 1996 and 1995, respectively. All of the above-referenced agreements with affiliates of CEI and related parties of the Partnership are subject to the conditions and limitations imposed by the Partnership Agreement. ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES 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 filed during the fourth quarter of 1996: None. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. JOHNSTOWN/CONSOLIDATED INCOME PARTNERS/2 By: CONCAP EQUITIES, INC. General Partner By: /s/William H. Jarrard, Jr. President By: /s/Ronald Uretta Ronald Uretta Vice President/Treasurer Date: March 18, 1997 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/William H. Jarrard, Jr. President William H. Jarrard, Jr. /s/Ronald Uretta Vice President/Treasurer Ronald Uretta INDEX OF EXHIBITS EXHIBIT NO. DOCUMENT DESCRIPTION 3 Certificates of Limited Partnership as amended to date (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.3 Assignment and Assumption as to Certain Property Management Services dated October 1, 1991, by and between CCMLP and ConCap Capital Company. (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.4 Construction Management Cost Reimbursement Agreement dated January 1, 1991, by and between the Partnership and The Hayman Company. (Incorporated by reference to the Annual Report on form 10-K for the year ended December 31, 1991). 10.5 Bill of Sale and Assignment dated October 23, 1990, by and between CCEC and ConCap Services Company (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.6 Investor Services Agreement dated October 23, 1990, by and between the Partnership and CCEC (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.7 Assignment and Assumption Agreement (Investor Services Agreement) dated October 23, 1990, by and between CCEC and ConCap Services Company. (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.8 Letter of Notice dated December 20, 1991, from Partnership Services, Inc. ("PSI") to the Partnership regarding the change in ownership and dissolution of ConCap Services Company whereby PSI assumed the Investor Services Agreement. (Incorporated by reference to the Annual Report on Form 10-k for the year ended December 31, 1991). 10.9 Financial Services Agreement dated October 23, 1990, by and between the Partnership and CCEC (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.10 Assignment and Assumption Agreement (Financial Services Agreement) dated October 23, 1990, by and between CCEC and ConCap Capital Company (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990.) 10.11 Letter of Notice dated December 20, 1991, from PSI to the Partnership regarding the change in ownership and dissolution of ConCap Capital Company whereby PSI assumed the Financial Services Agreement. (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.12 Property Management Agreement No. 516 dated June 1, 1993, by and between the Partnership and Coventry Properties, Inc. 10.13 Assignment and Assumption Agreement as to Certain Property Management Services dated November 17, 1993, by and between Coventry Properties, Inc. and Partnership Services, Inc. 10.14 Stock and Asset Purchase Agreement, dated December 8, 1994 (the "Gordon Agreement"), among MAE-ICC, Inc. ("MAE-ICC"), Gordon Realty Inc. ("Gordon"), GII Realty, Inc. ("GII Realty"), and certain other parties. (Incorporated by reference to Form 8-K dated December 8, 1994) 10.15 Exercise of the Option (as defined in the Gordon Agreement), dated December 8, 1994, between MAE-ICC and Gordon. (Incorporated by reference to Form 8-K dated December 8, 1994). 10.16 Exercise of the remaining portion of the option (as defined in the Gordon Agreement) dated December 8, 1994, between MAE-ICC and Gordon. (Incorporated by reference to Form 8-K dated October 24, 1995) 11 Statement regarding computation of Net Income per Limited Partnership Unit (Incorporated by reference to Note 1 of Item 8-Financial Statements of this Form 10-K). 16.1 Letter dated August 12, 1992, from Ernst & Young to the Securities and Exchange Commission regarding change in certifying accountant. (Incorporated in reference to Form 8-K dated August 6, 1992). 16.2 Letter dated May 9, 1995 from the Registrant's former independent accountant regarding its concurrence with the statements made by the Registrant regarding a change in the certifying accountant. (Incorporated by reference to Form 8-K dated May 3, 1995). EX-27 2
5 This schedule contains summary financial information extracted from Johnstown Consolidated Income Partners/2 1996 Year-End 10-KSB and is qualified in its entirety by reference to such 10-KSB filing. 0000812431 JOHNSTOWN CONSOLIDATED INCOME PARTNERS/2 1,000 12-MOS DEC-31-1996 DEC-31-1996 633 0 4 0 0 0 1,701 0 2,351 0 0 0 0 0 2,324 2,351 0 438 0 0 314 0 0 0 0 0 0 0 0 124 1.81 0 Registrant has an unclassified balance sheet. Investment property held for sale. Multiplier is 1.
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