FORM 10-QSB/A--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB/A
(MarkOne)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period.........to.........
Commission file number 0-14470
INVESTORS FIRST-STAGED EQUITY L.P.
(Exact name of small business issuer as specified in its charter)
Delaware 36-3310965
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
Issuer's telephone number
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
<PAGE>
PART I - FINANCIAL INFORMATION
(This document amends the Form 10-QSB for the quarter ended June 30, 1999, due
to the reversal of the extraordinary gain on early extinguishment of debt.)
ITEM 1. FINANCIAL STATEMENTS
a)
INVESTORS FIRST-STAGED EQUITY L.P.
CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
(Unaudited)
June 30, 1999
Assets
Cash and cash equivalents $ 1,602
Receivables and deposits 747
Restricted escrows 663
Other assets 1,501
Investment properties:
Land $ 8,402
Buildings and related personal property 40,175
48,577
Less accumulated depreciation (26,907) 21,670
$ 26,183
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 70
Accrued interest 406
Tenant security deposit liabilities 485
Other liabilities 90
Advances from affiliates of General Partner 326
Mortgage notes payable 42,444
Partners' Deficit
General partner $ (358)
Limited partners (16,261.152 units
issued and outstanding) (17,280) (17,638)
$ 26,183
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
b)
INVESTORS FIRST-STAGED EQUITY L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
Revenues:
<S> <C> <C> <C> <C>
Rental income $ 2,166 $ 2,013 $ 4,285 $ 3,991
Other income 70 99 144 185
Total revenues 2,236 2,112 4,429 4,176
Expenses:
Operating 669 667 1,305 1,332
General and administrative 34 70 91 139
Depreciation 484 464 958 928
Interest 818 838 1,631 1,666
Property taxes 133 114 243 227
Total expenses 2,138 2,153 4,228 4,292
Income (loss) before extraordinary item 98 (41) 201 (116)
Extraordinary item - gain on early
extinguishment of debt -- -- -- 10
Net income (loss) $ 98 $ (41) $ 201 $ (106)
Net income (loss) allocated to general
partner (1%) $ 1 $ -- $ 2 $ (1)
Net income (loss) allocated to limited
partners (99%) 97 (41) 199 (105)
Net income (loss) $ 98 $ (41) $ 201 $ (106)
Net income (loss) per limited partnership unit:
Income (loss) before extraordinary item $ 5.97 $ (2.52) $ 12.24 $ (7.06)
Extraordinary item -- -- -- .61
Net income (loss) $ 5.97 $ (2.52) $ 12.24 $ (6.45)
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
c)
INVESTORS FIRST-STAGED EQUITY L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(in thousands, except unit data)
(Unaudited)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partner Partners Total
Partners' deficit at
<S> <C> <C> <C> <C> <C> <C>
December 31, 1998 16,261 $ (360) $ (17,479) $ (17,839)
Net income for the six months
ended June 30, 1999 -- 2 199 201
Partners' deficit at
June 30, 1999 16,261 $ (358) $ (17,280) $ (17,638)
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
d)
INVESTORS FIRST-STAGED EQUITY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ 201 $ (106)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary gain on early extinguishment of debt -- (10)
Depreciation 958 928
Amortization of loan costs and leasing commissions 83 96
Change in accounts:
Receivables and deposits (9) 13
Other assets (32) (69)
Accounts payable (9) (14)
Accrued interest 14 194
Tenant security deposit liabilities 17 30
Other liabilities (20) (3)
Net cash provided by operating activities 1,203 1,059
Cash flows from investing activities:
Property improvements and replacements (111) (356)
Net (deposits to) withdrawals from restricted escrows (139) 329
Lease commissions paid (34) --
Net cash used in investing activities (284) (27)
Cash flows from financing activities:
Payment of loan costs -- (106)
Payments on mortgage notes payable (501) (726)
Advances to affiliates -- 2
Net cash used in financing activities (501) (830)
Net increase in cash and cash equivalents 418 202
Cash and cash equivalents at beginning of period 1,184 2,640
Cash and cash equivalents at end of period $ 1,602 $ 2,842
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,557 $ 1,394
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
INVESTORS FIRST-STAGED EQUITY L.P.
e)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Investors
First-Staged Equity L.P. (the "Partnership" or "Registrant") have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of MAERIL, Inc. (the "General Partner"),
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the three and
six month periods ended June 30, 1999, are not necessarily indicative of the
results that may be expected for the fiscal year ending December 31, 1999. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Partnership's annual report on Form 10-KSB for
the fiscal year ended December 31, 1998.
Principles of Consolidation
The Partnership's consolidated financial statements include the accounts of its
99.99% limited partnership interests in Serramonte, LP, VMS Apartments Portfolio
II and VMS Apartments Portfolio III. The General Partner of the consolidated
partnership is MAERIL, Inc. MAERIL, Inc., may be removed by the Registrant;
therefore, the consolidated partnership is controlled and consolidated by the
Registrant. All significant interpartnership balances have been eliminated.
Note B - Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management Company, ("AIMCO") a publicly
traded real estate investment trust, with AIMCO being the surviving corporation
(the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in
the General Partner. The General Partner does not believe that this transaction
will have a material effect on the affairs and operations of the Partnership.
Note C - Transactions with Affiliates and Related Parties
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all partnership activities.
The Partnership Agreement provides for certain payments to affiliates for
services and as reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership.
During the six months ended June 30, 1999 and 1998, affiliates of the General
Partner were entitled to receive 5% of gross receipts from all of the
Registrant's residential properties for providing property management services.
The Registrant paid to such affiliates approximately $113,000 and $126,000 for
the six months ended June 30, 1999 and 1998, respectively. For the six months
ended June 30, 1999 and 1998, affiliates of the General Partner were entitled to
receive varying percentages of gross receipts from the Registrant's commercial
property for providing property management services. The Registrant paid to such
affiliates $5,000 and $57,000 for the six months ended June 30, 1999 and 1998,
respectively. Effective October 1, 1998 (the effective date of the Insignia
Merger) a significant portion of these services for the commercial property were
provided by an unrelated party.
An affiliate of the General Partner received reimbursements of accountable
administrative expenses amounting to approximately $57,000 and $76,000 for the
six months ended June 30, 1999 and 1998, respectively.
<PAGE>
During the six months ended June 30, 1998 the Partnership paid affiliates of the
General Partner approximately $40,000 for loan costs which were capitalized and
are included in other assets in the accompanying Consolidated Balance Sheet.
These loan costs related to the refinancing of the investment properties.
In prior years the Partnership was advanced funds from a former General Partner
in order to meet its existing obligations. Interest accrues on these advances at
rates agreed to by the Partnership and the former General Partner. The interest
rates at June 30, 1999 ranged from 4.70% to 9.50%. The unpaid balance on these
advances at June 30, 1999 and the related accrued interest is $326,000 and
$143,000, respectively.
On May 13, 1999, AIMCO Properties, L.P., an affiliate of the General Partner
commenced a tender offer to purchase up to 7,317.52 (45.00% of the total
outstanding units) units of limited partnership interest in the Partnership for
a purchase price of $183 per unit. The offer expired on June 29, 1999. Pursuant
to the offer, AIMCO Properties, L.P. acquired 2,366.93 units. As a result, AIMCO
and its affiliates currently own 2,366.93 units of limited partnership interest
in the Partnership representing 14.56% of the total outstanding units. It is
possible that AIMCO or its affiliate will make one or more additional offers to
acquire additional limited partnership interests in the Partnership for cash or
in exchange for units in the operating partnership of AIMCO.
Note D - Segment Reporting
Description of the types of products and services from which the reportable
segment derives its revenues:
The Partnership has two reportable segments: residential properties and
commercial properties. The Partnership's residential property segment consists
of two apartment complexes located in California. The Partnership rents
apartment units to tenants for terms that are typically twelve months or less.
The commercial property segment consists of office space located in Serramonte,
California. This property leases space to management, restaurant, and dental
enterprises at terms ranging from month to month to ten years.
Measurement of segment profit or loss:
The Partnership evaluates performance based on net income. The accounting
policies of the reportable segments are the same as those of the Partnership as
described in the Partnership's annual report on Form 10-KSB for the year ended
December 31, 1998.
Factors management used to identify the enterprise's reportable segment:
The Partnership's reportable segments consist of investment properties that
offer different products and services. The reportable segments are each managed
separately because they provide distinct services with different types of
products and customers.
Segment information for the six months ended June 30, 1999 and 1998 is shown in
the tables below. The "Other" column includes Partnership administration related
items and income and expense not allocated to reportable segments.
<TABLE>
<CAPTION>
1999 Residential Commercial Other Totals
<S> <C> <C> <C> <C>
Rental income $ 2,715 $ 1,570 $ -- $ 4,285
Other income 118 14 12 144
Interest expense 1,094 537 -- 1,631
Depreciation 716 242 -- 958
General and administrative expenses -- -- 91 91
Segment profit (loss) 31 249 (79) 201
Total assets 17,177 8,328 678 26,183
Capital expenditures 93 18 -- 111
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1998 Residential Commercial Other Totals
<S> <C> <C> <C> <C>
Rental income $ 2,458 $ 1,533 $ -- $ 3,991
Other income 118 10 57 185
Interest expense 1,123 543 -- 1,666
Depreciation 712 216 -- 928
General and administrative expenses -- -- 139 139
Gain on extraordinary item 10 -- -- 10
Segment profit (loss) (296) 272 (82) (106)
Total assets 17,927 8,109 2,360 28,396
Capital expenditures 128 228 -- 356
</TABLE>
Note E - Legal Proceedings
The Partnership is unaware of any pending or outstanding litigation that is not
of a routine nature arising in the ordinary course of business.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time. The
discussions of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Registrant's business and results of
operations. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
The Partnership's investment properties consist of two apartment complexes and
one commercial property. The following table sets forth the average occupancy
for these properties for the six months ended June 30, 1999 and 1998:
1999 1998
Rivercrest Village Apartments
Sacramento, California 91% 89%
Richardson Highlands Apartments
Marin City, California 99% 99%
Serramonte Plaza
Daly City, California 97% 96%
Results of Operations
The Registrant's net income for the three and six months ended June 30, 1999 was
approximately $98,000 and $201,000, respectively, as compared to a net loss of
approximately $41,000 and $106,000 for the three and six months ended June 30,
1998. The increase in net income was due to an increase in total revenues and a
decrease in total expenses. The increase in total revenues was the result of an
increase in rental income, which was primarily attributable to the increase in
occupancy and average rental rates at all of the Registrant's investment
properties. The increase in rental income was partially offset by a decrease in
other income. Other income decreased primarily due to an overall decrease in the
cash balance of the Partnership as a whole.
Total expenses decreased for the three and six months ended June 30, 1999 as a
result of decreases in both general and administrative and interest expenses,
which was partially offset by an increase in depreciation and property taxes
expense. Depreciation expense increased as a result of the significant capital
improvements put in service during 1998. Property tax expense increased as a
result of an increase in the tax rate for Rivercrest Village Apartments.
Operating expense remained relatively constant for the three months ended June
30, 1999, but decreased for the six months ended June 30, 1999. The decrease for
the six months ended June 30, 1999 was attributable to a decrease in insurance
expense. Insurance expense decreased due to the change in insurance carriers at
the Registrant's investment properties during the fourth quarter of 1998 which
resulted in lower insurance premiums.
Interest expense decreased due to principal payments made on the properties
first and second mortgages. General and administrative expense decreased as a
result of a decrease in professional expenses and general costs of the
Partnership. Included in general and administrative expenses for the six months
ended June 30, 1999 and 1998 are management reimbursements to the General
Partner allowed under the Partnership Agreement. In addition, cost associated
with the quarterly and annual communications with investors and regulatory
agencies and the annual audit required by the Partnership Agreement are also
included.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of each of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expenses. As part of
this plan, the General Partner attempts to protect the Partnership from the
burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
At June 30, 1999, the Registrant had cash and cash equivalents of approximately
$1,602,000 as compared to approximately $2,842,000 at June 30, 1998. Cash and
cash equivalents increased approximately $418,000 for the six months ended June
30, 1999 from the Registrant's fiscal year end, primarily due to approximately
$1,203,000 of cash provided by operating activities, which was partially offset
by approximately $501,000 of cash used in financing activities and approximately
$284,000 of cash used in investing activities. Cash used in financing activities
consisted of principal payments on the mortgages encumbering the Registrant's
properties. Cash used in investing activities consisted of property improvements
and replacements, net deposits to the escrow accounts maintained by the mortgage
lender and the payment of lease commissions. The Registrant invests its working
capital reserves in money market accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the Partnership and to comply with Federal,
state and local legal and regulatory requirements. Capital improvements planned
for each of the Registrant's properties are detailed below.
Rivercrest Village Apartments
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the General Partner on
interior improvements, it is estimated that the property requires approximately
$365,000 of capital improvements over the next few years. Capital improvements
budgeted for, but not limited to, approximately $467,000 are planned for 1999 at
this property which include certain of the required improvements and consist of
clubhouse renovations, carpet replacement and other interior improvements. As of
June 30, 1999 approximately $25,000 of capital improvements have been incurred
consisting primarily of appliance and floor covering replacements.
Richardson Highlands Apartments
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the General Partner on
interior improvements, it is estimated that the property requires approximately
$213,000 of capital improvements over the next few years. Capital improvements
budgeted for, but not limited to, approximately $213,000 are planned for 1999 at
this property which include certain of the required improvements and consist of
balcony and stairway replacement and repairs, carpet, cabinet, countertop and
roof replacements, parking lot repairs and other building improvements. As of
June 30, 1999 approximately $68,000 of capital improvements have been incurred
consisting primarily of interior improvements, appliance and floor covering
replacement, balconies and parking area improvements.
Serramonte Plaza
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the General Partner on
interior improvements, it is estimated that the property requires approximately
$1,000,000 of capital improvements over the next few years. Capital improvements
budgeted for, but not limited to, approximately $423,000 are planned for 1999 at
this property which include certain of the required improvements and consist of
door and entrance way and parking lot repairs and tenant improvements. As of
June 30, 1999 approximately $18,000 of capital improvements have been incurred
consisting primarily of tenant improvements.
The additional capital improvements will be incurred only if cash is available
from operations or Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Registrant's distributable cash flow, if
any, may be adversely affected at least in the short term.
The Registrant's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Registrant. The mortgage
indebtedness of approximately $42,444,000 matures from January 2000 until
January 2008, with balloon payments due at maturity, at which time the
properties will either be refinanced and/or sold. Agreements connected with the
second mortgages for Richardson Highlands and Rivercrest Village allow for the
lender to receive fifty percent of any residual proceeds from the sale or
refinancing of the properties after the payment of all mortgage notes payable
and other liabilities.
No cash distributions were paid during the six months ended June 30, 1999 and
1998. The Registrant's distribution policy is reviewed on a quarterly basis.
Future cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves, debt refinancing, and/or property
sales. There can be no assurance, however, that the Registrant will generate
sufficient funds from operations after required capital expenditures, to permit
distributions to its partners in 1999.
Tender Offer
On May 13, 1999, AIMCO Properties, L.P., an affiliate of the General Partner
commenced a tender offer to purchase up to 7,317.52 (45.00% of the total
outstanding units) units of limited partnership interest in the Partnership for
a purchase price of $183 per unit. The offer expired on June 29, 1999. Pursuant
to the offer, AIMCO Properties, L.P. acquired 2,366.93 units. As a result, AIMCO
and its affiliates currently own 2,366.93 units of limited partnership interest
in the Partnership representing 14.56% of the total outstanding units. It is
possible that AIMCO or its affiliate will make one or more additional offers to
acquire additional limited partnership interests in the Partnership for cash or
in exchange for units in the operating partnership of AIMCO.
Year 2000 Compliance
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership is
dependent upon the General Partner and its affiliates for management and
administrative services ("Managing Agent"). Any of the computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made, or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
<PAGE>
The Managing Agent's plan to resolve Year 2000 issues involves four phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each is
detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the main computer system used by the Managing Agent became fully
functional. In addition to the main computer system, PC-based network servers,
routers and desktop PCs were analyzed for compliance. The Managing Agent has
begun to replace each of the non-compliant network connections and desktop PCs
and, as of June 30, 1999, had completed approximately 90% of this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date. The remaining network connections and
desktop PCs are expected to be upgraded to Year 2000 compliant systems by
September 30, 1999. The completion of this process is scheduled to coincide with
the release of a compliant version of the Managing Agent's operating system.
Computer Software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
In April, 1999 the Managing Agent embarked on a data center consolidation
project that unifies its core financial systems under its Year 2000 compliant
system. The estimated completion date for this project is October, 1999.
During 1998, the Managing Agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at all
properties, is $200,000, and the implementation and testing process was
completed in June, 1999.
The final software area is the office software and server operating systems. The
Managing Agent has upgraded all non-compliant office software systems on each PC
and has upgraded 90% of the server operating systems. The remaining server
operating systems are planned to be upgraded to be Year 2000 compliant by
September, 1999. The completion of this process is scheduled to coincide with
the release of a compliant version of the Managing Agent's operating system.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally.
A pre-assessment of the properties by the Managing Agent has indicated no Year
2000 issues. A complete, formal assessment of all the properties by the Managing
Agent is in process and will be completed in September, 1999. Any operating
equipment that is found non-compliant will be repaired or replaced.
The total cost incurred for all properties managed by the Managing Agent as of
June 30, 1999 to replace or repair the operating equipment was approximately
$75,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $125,000.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within its enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent continues to conduct surveys of its banking and other vendor
relationships to assess risks regarding their Year 2000 readiness. The Managing
Agent has banking relationships with three major financial institutions, all of
which have indicated their compliance efforts will be complete before July,
1999. The Managing Agent has updated data transmission standards with all of the
financial institutions. The Managing Agent's contingency plan in this regard is
to move accounts from any institution that cannot be certified Year 2000
compliant by September 1, 1999.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.9 million ($0.7 million expensed
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred. The
Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
<PAGE>
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
b) Reports on Form 8-K:
None filed during the quarter ended June 30, 1999.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
INVESTORS FIRST-STAGED EQUITY L.P.
(Registrant)
By: VMS Realty Investment II,
its General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Carla R. Stoner
Carla R. Stoner
Senior Vice President Finance and
Administration
Date:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Investors
First-Staged Equity 1999 Second Quarter 10-QSB/A and is qualified in its
entirety by reference to such 10-QSB/A filing.
</LEGEND>
<CIK> 0000768834
<NAME> Investors First-Staged Equity
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,602
<SECURITIES> 0
<RECEIVABLES> 747
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F1>
<PP&E> 48,577
<DEPRECIATION> (26,907)
<TOTAL-ASSETS> 26,183
<CURRENT-LIABILITIES> 0 <F1>
<BONDS> 42,444
0
0
<COMMON> 0
<OTHER-SE> (17,638)
<TOTAL-LIABILITY-AND-EQUITY> 26,183
<SALES> 0
<TOTAL-REVENUES> 4,429
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,228
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,631
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 201
<EPS-BASIC> 12.24 <F2>
<EPS-DILUTED> 0
<FN>
<F1> Registrant has an unclassified balance sheet. <F2> Multiplier is 1.
</FN>
</TABLE>
