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 March 31, 1999
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 12 of this Report.
Number of pages (including exhibits) in this filing: 12
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Garment Capitol Associates
Condensed Statement of Income
(Unaudited)
For the Three Months
Ended March 31,
1999 1998
Income:
Basic rent income, from a
related party (Note B) $ -0- $ -0-
Dividend income 2,301 -0-
Interest income -0- -0-
--------- ----------
Total income 2,301 -0-
--------- ----------
Expenses:
Interest on mortgage -0- -0-
Supervisory services, to a
related party (Note C) -0- -0-
Amortization of mortgage
refinancing costs -0- -0-
Legal fees 4,418 -0-
--------- ----------
Total expenses 4,418 -0-
--------- ----------
Net loss for period $ (2,117) $ -0-
========= ==========
Earnings per $5,000
participation unit, based on
1,050 participation units
outstanding during the year $ (2.02) $ -0-
========= ==========
Distributions per $5,000
participation consisted of
the following:
Income $ -0- $ -0-
========= ==========
As of March 31, 1999, the investment of the Participants had been repaid in
full but the Participants continue to hold pro rata interests in Registrant
based on the original participating interests.
Garment Capitol Associates
Condensed Balance Sheet
(Unaudited)
Assets March 31, 1999 December 31, 1998
Escrow Account held by
Wien & Malkin LLP $ 205,866 $ 207,983
---------- -----------
Total Assets 205,866 207,983
========== ===========
Liabilities
Accrued legal costs reserved
re: pending litigation
concerning sale of real estate 205,866 207,983
---------- -----------
Total liabilities $ 205,866 $ 207,983
========== ===========
Capital
March 31, 1999 -0- -0-
December 31, 1998 -0- -0-
---------- -----------
Total liabilities and capital:
March 31, 1999 205,866 -0-
December 31, 1998 -0- 207,983
========== ===========
Garment Capitol Associates
Condensed Statement of Income
(Unaudited)
January 1, 1999 January 1, 1998
through through
March 31, 1999 March 31, 1998
Cash flows from operating
activities:
Net loss $ (2,117) $ -0-
Adjustments to reconcile
net income to cash provided
by operating activities:
Amortization of mortgage
refinancing costs -0- -0-
Gain on sale of property -0- -0-
Changes in operating liabilities:
Change in accrued legal cost reserve 2,117 -0-
---------- ---------
Net cash provided by
operating activities -0- -0-
---------- ---------
Cash flows from investing activities:
Advances to lessee -0- -0-
Payments from lessee -0- -0-
Proceeds from sale of property -0- -0-
---------- ---------
Net cash provided by investing
activities -0- -0-
---------- ---------
Cash flows from financing activities:
Cash distributions -0- -0-
Principal payments on first mortgage -0- -0-
---------- ---------
Net cash used in financing
activities -0- -0-
---------- ---------
Net increase in cash -0- -0-
Cash, beginning of period -0- -0-
---------- ---------
Cash, end of period -0- -0-
========== =========
January 1, 1999 January 1, 1998
through through
March 31, 1999 March 31, 1998
Cash paid for:
Interest $ -0- $ -0-
========== =========
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 Peter L.
Malkin, Thomas N. Keltner, Jr. and Richard A. Shapiro (collectively the
"Partners"), each of whom also acts as an agent for holders of
participations in their respective partnership interests in Registrant
(the "Participants"). As described below, the Property has been sold,
Registrant has been terminated for tax purposes, and distributions from
sale proceeds have been made to the Participants.
Registrant did 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 terminating the
liability of the Original Lessee and its partners under the Operating
Lease. The shares in the New Lessee were owned by the partners in the
Original Lessee, except that a substantial portion of the shares
originally owned by Peter L. Malkin is held for the benefit of members of
his family but he retains voting control.
The New Lessee had paid basic rent under the Operating Lease
through March 27, 1997, the date of the sale of the Property, as
hereinafter described. Registrant applied these rents to cover (1) its
monthly mortgage payments to the Apple Bank for Savings ("Apple Bank") on
Registrants' fee mortgage on the Property (the "Mortgage Loan"), (2) its
monthly fee for supervisory services and (3) its distributions to the
Participants in Registrant. The New Lessee did not pay the New York City
real estate taxes and Business Improvement District ("BID") assessments in
the amounts of $936,180.00 and $29,695.14, respectively, and certain other
minor assessments and charges aggregating less than $1,500, all of which
were due on January 1, 1996 or shortly thereafter. The New Lessee also
failed to pay the New York City real estate taxes and BID assessments in
the amounts of $1,053,254.50 and $28,529.26, respectively, which were due
on July 1, 1996 and $740,845.50 and $28,529.26, respectively, which were
due on January 1, 1997. As a result, although payment of the January 1,
1996 and July 1, 1996 and January 1, 1997 real estate taxes and BID
assessments has been made as described below, the New Lessee was in
default of the Operating Lease as of January 1, 1996.
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
January 1, 1996 and July 1, 1996 real estate taxes and BID assessments,
while management of Registrant solicited the consent of the Participants
to a sale of the Property (the "Solicitation"). On July 26, 1996, the
Partners mailed to the Participants a STATEMENT ISSUED BY THE AGENTS IN
CONNECTION WITH THE SOLICITATION OF CONSENTS OF THE PARTICIPANTS (the
"Statement") requesting their authorization for a sale of the Property
and forbearance in favor of the New Lessee. The details of the Partners'
proposal are provided in the Definitive Proxy Statement which was filed
with the Securities and Exchange Commission as Schedule 14-A on July 25,
1996, and is incorporated herein by reference. If Registrant did forbear,
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 Basic Rent,
to enable Registrant to continue its monthly distributions to the
Participants, pay its supervisory fee and pay its monthly mortgage
obligation. The continuation of the Operating Lease was also to serve to
insulate Registrant from third party liabilities attendant on property
operations. Because the consent solicitation program included the
continuation of the Operating Lease with the New Lessee, Registrant did
not send a notice of default under the Operating Lease based on the
failure of the New Lessee to pay the January 1, 1996 and July 1, 1996
real estate taxes and BID assessments.
Although the failure to pay the January 1, 1996, July 1, 1996
and January 1, 1997 real estate taxes and BID assessments also constituted
a breach of Registrant's obligations under the Mortgage Loan, Apple Bank
had agreed to forbear from exercising its rights and remedies during the
period of the solicitation of consents through a sale of the Property
based on arrangements consummated in March 1996 between the shareholders
of the New Lessee (or designees on their behalf) and Apple Bank to fund
the January 1, 1996 real estate taxes and BID assessments and certain
future real estate taxes and BID assessments on the Property (together
with the January 1, 1996 real estate taxes, the "Real Estate Taxes")
through protective advances under the Mortgage Loan. The shareholders
of the New Lessee (or designees on their behalf) had personally borrowed
from Apple Bank (a) on April 2, 1996, the sum of $1,012,274.18, equal to
the January 1, 1996 real estate taxes and BID assessments and interest
thereon to the date of the borrowing, and certain other minor city charges
and interest aggregating less than $1,500 and (b) on June 28, 1996, the
sum of $1,081,783.76 equal to the July 1, 1996 real estate taxes and BID
assessment and (c) on December 31, 1996, the sum of $769,374.76 equal to
the January 1, 1997 real estate taxes and BID assessment. The April 2,
1996 borrowing was used to fund a protective advance by Apple Bank to pay
the January 1, 1996 real estate taxes and BID assessments, interest
thereon and such minor charges, through the purchase of a subordinate
participating interest in the Mortgage Loan in such amount. The June 28,
1996 and December 31, 1996 borrowings were used to fund protective
advances by Apple Bank to pay, respectively, the July 1, 1996 and January
1, 1997 Real Estate Taxes and BID assessments through the purchase of
additional subordinate participating interests in the Mortgage Loan in
such amounts. Interest and principal required to be paid on the
protective advances and on any future protective advances have been paid
by the New Lessee.
On January 29, 1997, Registrant received the consent of the
Participants for the sale and forbearance program and for the liquidation
of Registrant, as described in the Statement. See Note C and Item 2 hereof
for a description of the services rendered by, and compensation paid to,
Counsel and for a discussion of certain relationships which may pose actual
or potential conflicts of interest among Registrant, Original Lessee, New
Lessee and certain of their respective affiliates.
Registrant, together with the New Lessee, entered into a
contract with George Comfort & Sons, Inc., as Agent, and Tirrem Management
Company, Inc., collectively as Purchasers, to sell the Property to the
Purchasers for $42,000,000, subject to adjustments (the "Contract of
Sale"). The sale closed as of March 27, 1997. After priority allocation
for certain payments, as more particularly described in the Statement, net
sale proceeds of $34,885,810 were allocated between Registrant and the New
Lessee pursuant to the formula described in the Statement, as approved by
the Participants. From its share of the proceeds, Registrant had made an
initial distribution on March 31, 1997 of $27,000,000 to the Participants,
and each holder of an original $10,000 Participation, as reduced to $5,000,
received an initial distribution of sale proceeds of $25,714, which
included the return of the Participant's remaining original capital
investment. 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.
Based on advice from legal counsel, the partnership was
terminated for tax purposes on November 30, 1997. At the time of
termination, Registrant was still involved in litigation. In order to
provide for the anticipated costs of the litigation and for any other
post-closing expenses, an escrow account, in the amount of $205,866, is
being held by counsel.
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 from Basic Rent and Additional Rent 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
March 31, 1999 and March 31, 1998 by Registrant to any of the Partners as
such. Legal fees for the period ended March 31, 1999 included $2,550 for
services rendered by Wien & Malkin LLP.
The supervisory services provided to Registrant by Counsel
included legal, administrative and financial services. The legal and
administrative services included acting as general counsel to Registrant,
maintaining all of its partnership and Participant 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 New 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 prepares quarterly,
annual and other periodic filings with the Securities and Exchange
Commission and applicable state authorities.
Counsel did not receive a Supervisory Fee based on sale
proceeds allocated to Registrant but has been paid for its legal services
in connection with the Statement and in connection with the sale. Counsel
has also been paid legal fees by the New Lessee for various work in 1996
and 1997.
The respective interests of Messrs. Malkin, Keltner, and
Shapiro, 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 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 purposes of acquiring
the Property subject to the Operating Lease. Registrant was required to
pay from Basic Rent the mortgage charges and supervisory services and to
distribute the balance of such Basic Rent to the Participants. Pursuant
to the Operating Lease, the holder of the leasehold interest thereunder
had sole responsibility for the condition, operation, repair, maintenance
and management of the Property. Registrant did not maintain substantial
reserves or otherwise maintain liquid assets to defray any operating
expenses of the Property. Registrant's results of operations were
affected primarily by the amount of rent payable to it under the Operating
Lease.
Registrant is aware of the following events. The Original
Lessee operated the Property at a substantial loss during the years ended
December 31, 1995 and December 31, 1994. 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.
The downturn and changes in methods of operations in the
garment industry had a major impact on the Property and its operations and
profitability. Registrant had been advised that the loss of tenants at
the Property and the related reduction in rent received were primarily due
to insolvencies affecting tenants in the garment business and reduced
demand for space.
The New Lessee had the right to abandon or assign its interest
in the Operating Lease (see Item 1 above).
As a result of the Sale, on July 23, 1997, Registrant made a
final distribution to the Participants of the remaining sales proceeds.
At the closing of the sale pursuant to the Contract of Sale, the interests
of Registrant, as lessor, and the New Lessee, as lessee, under the
Operating Lease were assigned to the purchaser, and the Operating Lease
was terminated. There were no additional regular monthly distributions
following the distribution on April 1, 1997 in respect of March 1997 rent
under the Operating Lease.
Liquidity and Capital Resources
N/A
Inflation
Inflationary trends in the economy did not directly affect
Registrant's operations, since, as noted above, Registrant did not
actively engage in the operation of the Property. Inflation may have
affected the operations of the New Lessee. The New Lessee was required to
pay Basic Rent, regardless of the results of its operations. Inflation
and other operating factors affected only the amount of Additional Rent
payable by the New Lessee, which was based on the New Lessee's net
operating profit.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Property of Registrant is the subject of the following
pending litigation:
On October 4, 1996, the alleged holder of three participation
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 responded to the complaint with a motion
seeking dismissal of the action in its entirety. The Court granted that
motion and dismissed the action by order and decision dated December 8,
1997. Upon plaintiff's appeal of that order, the U.S. Court of Appeals
affirmed in part and reversed in part the dismissal of the action. The
complaint does not seek any relief against Registrant, and, accordingly,
Registrant's litigation counsel is of the opinion that no material 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 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 responded to the complaint with a motion seeking
dismissal of the action in its entirety. The Court granted the motion
and dismissed the action by the same order and decision dated December 8,
1997 and referred to in the preceding paragraph. Upon plaintiff's appeal
of the order, the U.S. Court of Appeals affirmed in part and reversed in
part the dismissal of the action. 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, Original Lessee, New Lessee and Peter L. Malkin,
individually and as a partner or shareholder in those entities. 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.
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 Powers of Attorney, dated April 10, 1996 and May 14, 1998
(collectively, the "Power").
GARMENT CAPITOL ASSOCIATES
(Registrant)
By: /s/ Stanley Katzman
Stanley Katzman, Attorney-in-fact*
Dated: May 28, 1999
Pursuant to the requirements of the Securities Exchange Act of
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: May 28, 1999
__________________________
* Mr. Katzman supervises accounting functions for Registrant.
EXHIBIT INDEX
Number Document Page*
3 (a) Registrant's Partnership Agreement, dated
January 10, 1957, which was filed as Exhibit
No. 1 to Registrant's Registration Statement
on Form S-1 as amended (the "Registration
Statement") effective February 13, 1957 and
assigned File No. 2-13034, is incorporated
by reference as an exhibit hereto.
3 (b) Amended Business Certificate of Registrant
effective as of January 1, 1996, reflecting a
change in the partners of Registrant, which
was filed as Exhibit 3(b) to Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1995 and is incorporated by
reference as an exhibit hereto.
24 Powers of Attorney dated April 10, 1996 and
May 14, 1998 between Partners of Registrant
and Stanley Katzman and Richard A. Shapiro
which were filed as Exhibit 24 to Registrant's
10-Q for the quarter ended March 31, 1998 and
is incorporated by reference as an exhibit
hereto.
_____________________
* Page references are based on a sequential numbering system.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Balance Sheet as of March 31, 1999 and the Statement Of Income
for the year ended March 31, 1999, and is qualified in its entirety by
reference to such financial statements.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 205,866
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 205,866
<SALES> 0
<TOTAL-REVENUES> 2,301 <F1>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,418 <F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,117)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,117)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,117)
<EPS-BASIC> (2.02)
<EPS-DILUTED> (2.02)
<FN>
<F1> DIVIDEND INCOME
<F2> LEGAL FEES
</TABLE>
