FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to
___________
Commission file number 0-768
GARMENT CAPITOL ASSOCIATES
(Exact name of registrant as specified in its
charter)
A New York Partnership 13-6083208
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
60 East 42nd Street, New York, New York 10165
(Address of principal executive offices)
(Zip Code)
(212) 687-8700
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [ X ]. No [ ].
An Exhibit Index is located on Page 13 of this Report.
Number of pages (including exhibits) in this filing: 13<PAGE>
2.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Garment Capitol Associates
Condensed Statement of Income
(Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
Income:
Rent income, from a related
party (Note B) $ -0- $272,500 $260,780 $817,500
Dividend income 4,912 11 15,895 32
Interest income -0- 56,723 87,951 83,542
-------- -------- -------- --------
Total income 4,912 329,234 364,626 901,074
-------- -------- -------- --------
Expenses:
Interest on mortgage -0- 138,084 72,101 330,122
Interest on loan -0- -0- 74,082 -0-
Supervisory services, to a
related party (Note C) -0- 10,625 10,625 31,875
Amortization of mortgage
refinancing costs -0- 7,042 25,838 21,126
-------- -------- -------- --------
Total expenses -0- 155,751 182,646 383,123
-------- -------- -------- --------
Income from operations $ 4,912 $173,483 $181,980 $517,951
Gain on sale of property
on March 27, 1997 -0- -0- 28,361,528 -0-
-------- -------- ----------- --------
Net income for period $ 4,912 $173,483 $28,543,508 $517,951
======== ======== =========== ========
Earnings per $5,000 partici-
pation unit, based on 1,050
participation units outstand-
ing during the year $ 4.68 $ 165.22 $27,184.29 $ 493.29
======== ======== ========== ========
Distributions per $5,000 parti-
cipation unit consisted of the
following:
Income $ -0- $ 142.36 $26,666.00 $ 427.08
======== ======== ========== ========
At September 30, 1996 there were $5,250,000 of participations outstanding.
As of September 30, 1997, the investment of the Participants had been repaid
in full but the Participants continue to hold pro rata interests in Regis-
trant based on the original participanting interests.<PAGE>
3.
Garment Capitol Associates
Condensed Balance Sheet
(Unaudited)
Assets September 30, 1997 December 31, 1996
Current assets
Cash $ 205,831 $ 115,992
---------- ----------
Total current assets 205,831 115,992
---------- ----------
Real Estate
Land -0- 2,500,000
---------- ----------
Building -0- 8,000,000
Less, allowance for depreciation -0- 8,000,000
---------- ----------
-0- -0-
---------- ----------
Intangible assets
Mortgage refinancing costs -0- 107,050
Less, allowance for amortization -0- 81,212
---------- ----------
-0- 25,838
Due from lessee 3,090 2,854,624
---------- ----------
Total assets $ 208,921 $5,496,454
========== ==========
Liabilities and Capital
Current liabilities
Accrued interest payable $ -0- $ 45,790
Principal payments of first mortgage
payable within one year -0- 5,785,947
---------- ----------
Total current liabilities -0- 5,831,737
---------- ----------
Capital
Capital deficit, January 1, (335,283) (430,670)
Add, Net income:
January 1, 1997 through Sept. 30, 1997 28,543,508 -0-
January 1, 1996 through Dec. 31, 1996 -0- 693,299
---------- ----------
28,208,225 262,629
Less, Distributions:
Monthly distributions,
January 1, 1997 through Sept. 30, 1997 199,304 -0-
January 1, 1996 through Dec. 31, 1996 -0- 597,912
Distributions of sales proceeds on March
31, 1997 and July 23, 1997 27,800,000 -0-
---------- ---------
Total Distributions 27,999,304 597,912
Capital:
September 30, 1997 208,921 -0-
December 31, 1996 -0- (335,283)
---------- ----------
Total liabilities and capital:
September 30, 1997 $ 208,921
==========
December 31, 1996 $5,496,454
========== <PAGE>
<PAGE>
4.
Garment Capitol Associates
Condensed Statement of Cash Flows
(Unaudited)
January 1, 1997 January 1, 1996
through through
September 30, 1997 September 30, 1996
Cash flows from operating activities:
Net income $ 28,543,508 $ 517,951
Adjustments to reconcile net income
to cash provided by operating activities:
Amortization of mortgage refinancing costs 25,838 21,126
Gain on sale of property (28,361,528) -0-
Changes in operating liabilities:
Change in accrued interest payable (45,790) 17,706
Change in prepaid interest -0- 8,923
---------- ---------
Net cash provided by
operating activities 162,028 565,706
---------- ---------
Cash flows from investing activities:
Advances to lessee (11,899) -0-
Payments from lessee 2,863,433 -0-
Proceeds from sale of property 30,861,528 -0-
---------- ---------
Net cash provided by investing activities 33,713,062 -0-
---------- ---------
Cash flows from financing activities:
Cash distributions (27,999,304) (448,434)
Principal payments on first mortgage (5,785,947) -0-
Change in due from lessee -0- (2,093,679)
Change in first mortgage -0- 2,004,189
---------- ---------
Net cash used in financing activities (33,785,251) (537,924)
---------- ---------
Net increase in cash 89,839 27,782
Cash, beginning of period 115,992 88,199
---------- ---------
Cash, end of period $ 205,831 $ 115,981
========== =========
Cash paid for:
Interest $ 191,973 $ 312,416
========== ========= <PAGE>
Garment Capitol Associates
September 30, 1997 5.
Notes to Condensed Financial Statements (Unaudited)
Note A - Basis of Presentation
The accompanying unaudited condensed financial
statements have been prepared in accordance with the instructions
to Form 10-Q and therefore do not include all information and
footnotes necessary for a fair presentation of financial position,
results of operations and statement of cash flows in conformity
with generally accepted accounting principles. The accompanying
unaudited condensed financial statements include all adjustments
(consisting only of normal recurring accruals) which are, in the
opinion of the partners in Registrant, necessary for a fair
statement of the results for such interim periods. The partners
in Registrant believe that the accompanying unaudited condensed
financial statements and the notes thereto fairly disclose the
financial condition and results of Registrant's operations for the
periods indicated and are adequate to make the information
presented therein not misleading.
Note B - Interim Period Reporting
The results for the interim period are not necessarily
indicative of the results to be expected for a full year.
Registrant was organized on January 10, 1957. On May 1,
1957, Registrant acquired fee title to the Garment Capitol
Building (the "Building") and the land thereunder, located at
498 Seventh Avenue, New York, New York (the "Property").
Registrant's partners are Stanley Katzman, John L. Loehr and
Peter L. Malkin (collectively the "Partners"), each of whom also
acts as an agent for holders of participations in their respective
partnership interests in Registrant (the "Participants").
Registrant does not operate the Property. Registrant
leased the Property to 498 Seventh Avenue Associates (the
"Original Lessee") under a net operating lease (the "Operating
Lease") which commenced as of May 1, 1957 and was scheduled to
expire on April 30, 2007.
In 1994 and 1995, the Original Lessee made capital calls
on its partners in the aggregate amount of $1,300,000 to defray
certain operating expenses and improvement costs at the Property.
Despite these new capital infusions, however, the Original Lessee
concluded that to return the Property to profitability would
require a very large additional capital investment, estimated by
the Original Lessee to be as high as $16,000,000. Therefore, on
December 29, 1995, in accordance with the terms of the Operating
Lease, the Original Lessee assigned the Operating Lease to
4987 Corporation (the "New Lessee"), thereby effectively<PAGE>
Garment Capitol Associates
September 30, 1997 6.
terminating the liability of the Original Lessee and its partners
under the Operating Lease. The shares in the New Lessee are owned
by the partners in the Original Lessee.
From January 1, 1996 through the sale of the Property (see
below), the New Lessee paid Basic Rent under the Operating Lease.
Registrant in turn continued to pay (1) the monthly mortgage
payments to Apple Bank for Savings (the "Fee Mortgagee") on
Registrant's fee mortgage on the Property (the "Fee Mortgage");
(2) its monthly fee for supervisory services; and (3) monthly
distributions to the participants in Registrant.
However, after January 1, 1996, the New Lessee failed to
pay the New York City real estate and Business Improvement
District ("BID") assessments, which were due on January 1, 1996
(collectively, the "1/1/96 Real Estate Taxes"). As a result, the
New Lessee was in default under the Operating Lease as of that
date.
The New Lessee requested that Registrant forbear from
exercising its rights and remedies under the Operating Lease,
including termination of the Operating Lease, by reason of the
failure to pay the 1/1/96 Real Estate Taxes, while management of
Registrant solicited the consent of its participants to a sale of
the property (the "Solicitation"). In connection with Registrant
forbearance, the New Lessee agreed to cooperate fully with
Registrant in connection with the sale of the Property and to
continue to perform its other obligations under the Operating
Lease, including payment of the Basic Rent, to enable Registrant
to continue its monthly distributions to the Participants and to
pay its supervisory fee and its monthly mortgage obligation.
The failure to pay the 1/1/96 Real Estate Taxes also
constituted a breach of Registrant's obligations under the Fee
Mortgage. The Shareholders of the New Lessee (or designees on
their behalf) borrowed from the Fee Mortgagee a sum equal to the
1/1/96 Real Estate Taxes and interest thereon to the date of the
borrowing and further sums equal to the subsequent semi-annual
installments of the New York City real estate taxes and BID
assessments (together with the 1/1/96 Real Estate Taxes, the "Real
Estate Taxes") which became due. These sums were used to fund
protective advances by the Fee Mortgagee to pay the Real Estate
Taxes and interest thereon through the purchase of subordinate
participating interests in the Fee Mortgage in such amounts. As a
result, the Fee Mortgagee agreed to forbear from exercising rights
and remedies under the Fee Mortgage based on Registrant's failure
to pay (or cause to be paid by the New Lessee) the Real Estate
Taxes.
On July 26, 1996 management completed its Solicitation,
in which it expressed its belief that the Property could not be<PAGE>
Garment Capitol Associates
September 30, 1997 7.
operated on a profitable basis without significant capital
improvements; it also opined that the program to sell the Property
would permit Registrant to liquidate its investment in an orderly
fashion and avoid the necessity of raising additional capital from
the participants and others to support and renovate the Property
while avoiding litigation costs and the risk of loss of the
Property through a Fee Mortgage foreclosure.
On January 29, 1997, Registrant, having received
authorization from its participants to sell the Property, entered
into a contract of sale of the Property at a selling price of
$42,000,000. Such sale was concluded on March 27, 1997, at which
time the Fee Mortgage was paid in full and Registrant discontinued
operations. In accordance with the Solicitation, the proceeds of
sale were allocated between Registrant and the New Lessee. On
March 31, 1997, a distribution of $27,000,000 ($25,714 per $5,000
participation unit) was made to the participants out of the
proceeds of sale. However, the New Lessee's share of such
proceeds, which according to the Solicitation amounts to
approximately $6,900,000, is being held by Wien & Malkin LLP,
60 East 42nd Street, New York, New York 10165, a related party and
counsel to Registrant and Original Lessee ("Counsel"), in
connection with litigation referred to in Part II. Registrant's
receivable from the New Lessee was satisfied on March 29, 1997 by
the payment of the protective advances from proceeds of the sale
of the Property in accordance with the Solicitation. On July 23,
1997, an additional distribution of $800,000 ($761.90 per $5,000
participation unit) was made to the Participants out of the
proceeds of sale.
The balance of sale proceeds allocated to Registrant,
approximately $200,000, will be held by Counsel in a money market
fund as a reserve against legal fees and expenses in connection
with pending litigation as described in Part II.
The Original Lessee is a partnership in which Peter L.
Malkin and, subsequently, Mrs. Malkin are among the partners. The
stockholders in the New Lessee are the individuals who constituted
the partners in the Original Lessee as of December 31, 1995. The
Partners in Registrant are also members of Counsel.
Under the Operating Lease, New Lessee paid (i) annual
basic rent of $1,090,000 (the "Basic Rent") to Registrant and (ii)
additional rent equal to 50% of New Lessee's net operating profit
in excess of $200,000 for each lease year (the "Additional Rent").
Additional Rent income was recognized when earned from
the New Lessee, at the close of the lease years ending April 30.
Such income, if any, was not determinable until the New Lessee,
pursuant to the Operating Lease, rendered to Registrant a
certified report on the operation of the Property. The Operating<PAGE>
Garment Capitol Associates
September 30, 1997 8.
Lease did not provide for the New Lessee to render interim reports
to Registrant, so no Additional Rent income was reflected for the
period between the end of the lease year and the end of
Registrant's fiscal year.
New Lessee reported net loss of $1,862,412 for the lease
year ended April 30, 1996; therefore, there was no additional rent
paid for such lease year. Consequently, no additional payments
for supervisory services were paid to Counsel for the lease year
ended April 30, 1996. The reportable information for the final
lease year ended March 25, 1997 is pending review and has not yet
been determined.
Note C - Supervisory Services
Registrant paid Counsel for supervisory services and
disbursements (i) the basic payment of $42,500 per annum ("Basic
Payment"); (ii) an additional annual basic payment of the first
$37,500 of Additional Rent paid by Lessee in any lease year
("Additional Basic Payment"); and (iii) an additional payment of
10% of all distributions to Participants in any year in excess of
the amount representing a return at the rate of 18% per annum on
their remaining cash investment in any year (the "Additional
Payment"). The Additional Basic Payment was payable in each year
only from Additional Rent received by Registrant from New Lessee.
If Additional Rent in any year was inadequate to cover the
Additional Basic Payment, such deficiency was payable in the
following year in which Additional Rent was sufficient.
No remuneration was paid during the three month period
ended September 30, 1997 by Registrant to any of the Partners as
such. Pursuant to the fee arrangements described herein,
Registrant paid Counsel $42,500 during the fiscal year ended
December 31, 1996. Registrant also paid Counsel $10,625 of the
Basic Payment for supervisory services for the three month period
ended March 31, 1997.
The supervisory services provided to Registrant by
Counsel include legal, administrative and financial services. The
legal and administrative services include acting as general
counsel to Registrant, maintaining all of its partnership records,
performing physical inspections of the Building, reviewing
insurance coverage and conducting annual partnership meetings.
Financial services included monthly receipt of rent from the New
Lessee, payment of monthly and additional distributions to the
Participants, payment of all other disbursements, confirmation of
the payment of real estate taxes, active review of financial
statements submitted to Registrant by the Lessee and financial
statements audited by and tax information prepared by Registrant's
independent certified public accountant, and distribution of such
materials to the Participants. Counsel also prepared quarterly,
annual and other periodic filings with the Securities and Exchange
Commission and applicable state authorities.<PAGE>
Garment Capitol Associates
September 30, 1997 9.
The respective interests of Messrs. Katzman, Loehr and
Malkin, if any, in Registrant arose solely from the ownership of
their respective participations in Registrant and Mr. Malkin's
interests in the New Lessee. The Partners receive no extra or
special benefit not shared on a pro rata basis with all other
Participants in Registrant or partners in the New Lessee.
However, each of the Partners, by reason of his respective
interest in Counsel, is entitled to receive his pro rata share of
payments in respect of supervisory services and in respect of any
legal fees or other remuneration paid to Counsel for legal and
supervisory services rendered to Registrant and the New Lessee.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Registrant was organized solely for the purpose of
acquiring the Property subject to the Operating Lease. Registrant
was required to pay from Basic Rent the annual charges due under
the Fee Mortgage and the Basic Payment for supervisory services,
and to distribute the balance to the Participants. Additional
Rent was distributed to the Participants after the Additional
Basic Payment and the Additional Payment was made to Counsel. See
Note C of Item 1 ("Note C"). Pursuant to the Operating Lease, the
New Lessee assumed responsibility for the condition, operation,
repair, maintenance and management of the Property. Registrant
was not required to maintain substantial reserves or otherwise
maintain liquid assets to defray any operating expenses of the
Property.
Registrant did not pay dividends. During the three
month period ended March 31, 1997, Registrant made regular monthly
distributions of $48.58 for each $5,000 participation ($582.96 per
annum for each $5,000 participation). As a result of no
Additional Rent being paid to Registrant for the lease year ended
April 30, 1996, there was no additional distribution for 1996.
There were no restrictions on Registrant's ability to make
distributions; however, the amount of such distributions,
particularly distributions of Additional Rent, depended solely on
the ability of New Lessee to make monthly payments of Basic Rent
and Additional Rent to Registrant in accordance with the terms of
the Operating Lease.
Registrant's results of operations were affected
primarily by the amount of rent payable to it under the Operating
Lease.
Liquidity and Capital Resources
Not applicable.<PAGE>
Garment Capitol Associates
September 30, 1997 10.
Inflation
Registrant believes that there has been no material
change in the impact of inflation on its operations since the
filing of its report on Form 10-K for the year ended December 31,
1996, which report and all exhibits thereto are incorporated
herein by reference and made a part hereof.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Property of Registrant is the subject of the follow-
ing pending litigation:
On October 4, 1996, the alleged holder of three partici-
pation interests in Registrant brought suit in the U.S. District
Court for the Southern District of New York against the New
Lessee, the Original Lessee, the partners in Registrant, and
Counsel. Registrant is a nominal defendant. The suit claims that
defendants violated the anti-fraud provisions of the federal
securities laws and committed breaches of fiduciary duty and fraud
in relation to the Solicitation. The suit is styled as a class
action, but the plaintiff has not applied for class certification
to date. The suit seeks to enjoin the allocation of sale proceeds
to the New Lessee approved by the Participants, money damages and
related relief. Defendants have responded to the complaint with a
motion seeking dismissal of the action in its entirety. That
motion is now pending. The complaint does not seek any relief
against Registrant, and, accordingly, Registrant's litigation
counsel is of the opinion that no loss or other unfavorable
outcome of the action against Registrant is anticipated. In
accordance with the Solicitation, sale proceeds were allocated to
repay the Fee Mortgagee the protective advances as well as all
other sums then outstanding on the Fee Mortgage. Pursuant to an
agreement between counsel for the plaintiff in the 1996 proceeding
and counsel for the defendants, net sale proceeds allocated to the
New Lessee in accordance with the formula set forth in the
Solicitation will not be distributed to the New Lessee, except
upon 30 days' notice to counsel for the plaintiff. Such allocated
proceeds are currently being held by Counsel.
On March 13, 1997, the alleged holder of a fractional
participation interest in Registrant brought suit in the U.S.
District Court for the Southern District of New York against New
Lessee, Original Lessee, Registrant's Partners and Counsel.
Registrant is a nominal defendant. The suit is essentially
similar to the legal action described in the preceding paragraph,
alleging that defendants violated the Federal proxy rules,
committed breaches of fiduciary duty and fraud in relation to the
Solicitation for the sale and forbearance program and for<PAGE>
Garment Capitol Associates
September 30, 1997 11.
liquidation of Registrant. The suit seeks to enjoin the
allocation of sale proceeds to New Lessee approved by the
Participants, money damages and related relief. Defendants have
moved to dismiss this complaint in its entirety. The complaint
does not seek any relief against Registrant, and, accordingly,
Registrant's litigation counsel is of the opinion that no loss or
other unfavorable outcome of the action against Registrant is
anticipated.
On July 24, 1997, a former holder of a 1.66% partnership
interest in the Original Lessee filed a complaint in New York
Supreme Court against Registrant, Old Lessee, New Lessee and Peter
L. Malkin, individually and as a partner in Registrant and Old
Lessee and as a shareholder of the New Lessee. As against
Registrant, the complaint alleges a claim for damages or other
relief based on the sale of the Property and the allocation of
sale proceeds to Registrant. An answer for Registrant denying all
allegations of liability and damages asserted by plaintiff has
been filed. The action is now in the pretrial discovery stage.
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits hereto are being incorporated by reference.
(b) Registrant has not filed any report on Form 8-K during
the quarter for which this report is being filed.<PAGE>
Garment Capitol Associates 12.
September 30, 1997
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.
The individual signing this report on behalf of
Registrant is Attorney-in-Fact for Registrant and each of the
Partners in Registrant, pursuant to a Power of Attorney, dated
April 10, 1996 (the "Power").
GARMENT CAPITOL ASSOCIATES
(Registrant)
By: /s/ Stanley Katzman
Stanley Katzman, Attorney-in-fact*
Dated: November 25, 1997
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed by the undersigned as
Attorney-in-Fact for each of the Partners in Registrant, pursuant
to the Power, on behalf of Registrant and as a Partner in
Registrant on the date indicated.
By: /s/ Stanley Katzman
Stanley Katzman, Attorney-in-fact*
Dated: November 25, 1997
______________________
* Mr. Katzman supervises accounting functions for
Registrant.<PAGE>
Garment Capitol Associates 13.
September 30, 1997
EXHIBIT INDEX
Number Document Page*
25 Power of Attorney dated April 10, 1996
between Stanley Katzman, Peter L. Malkin
Stanley Katzman and John L. Loehr as
Partners of Registrant and Stanley Katzman
and Richard A. Shapiro attached as Exhibit
24 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1996
and is incorporated herein by reference.
______________________
* Page references are based on a sequential numbering system.<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Balance Sheet as of September 30, 1997 and the Statement Of Income
for the period ended September 30, 1997, and is qualified in its entirety by
reference to such financial statements
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 205,831
<SECURITIES> 0
<RECEIVABLES> 3,090<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 208,921
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 208,921
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 208,921<F2>
<TOTAL-LIABILITY-AND-EQUITY> 208,921
<SALES> 260,780<F3>
<TOTAL-REVENUES> 364,626<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 36,463<F5>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 146,183
<INCOME-PRETAX> 181,980
<INCOME-TAX> 0
<INCOME-CONTINUING> 181,980
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,543,508<F6>
<EPS-PRIMARY> 27,184<F7>
<EPS-DILUTED> 27,184<F7>
<FN>
<F1>Due from lessee
<F2>Partnership capital
<F3>Rent income
<F4>Includes interest and dividend income
<F5>Supervisory services and amortization of mortgage refinancing costs
<F6>Includes gain on sale of property
<F7>Earnings per $5,000 participation unit, based on 1,050 participation
units outstanding during the period
</FN>
</TABLE>
