FORM 10-QSB--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
(Mark One)
[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 from to
Commission file number 0-15758
JACQUES-MILLER INCOME FUND, L.P.-II
(Exact name of small business issuer as specified in its charter)
Delaware 62-1244325
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, Post Office 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 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
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
JACQUES-MILLER INCOME FUND, L.P.-II
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 1999
Assets
Cash and cash equivalents $ 821
Due from affiliates 2
$ 823
Liabilities and Partners' (Deficit) Capital
Liabilities
Other liabilities $ 12
Partners' (Deficit) Capital
General partner $(106)
Limited partners (12,400 units
issued and outstanding) 917 811
$ 823
See Accompanying Notes to Consolidated Financial Statements
b)
JACQUES-MILLER INCOME FUND, L.P.-II
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
Revenues:
Interest income $ 7 $ 8 $ 14 $ 17
Expenses:
General and administrative 17 14 27 38
Net loss $ (10) $ (6) $ (13) $ (21)
Net loss allocated
to general partner (1%) $ -- $ -- $ -- $ --
Net loss allocated
to limited partners (99%) (10) (6) (13) (21)
$ (10) $ (6) $ (13) $ (21)
Net loss per limited
partnership unit $ (.81) $ (.48) $ (1.05) $ (1.69)
See Accompanying Notes to Consolidated Financial Statements
c)
JACQUES-MILLER INCOME FUND, L.P.-II
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Partners' (deficit) capital
at December 31, 1998 12,400 $ (106) $ 930 $ 824
Net loss for the six
months ended June 30, 1999 -- -- (13) (13)
Partners' (deficit) capital
at June 30, 1999 12,400 $ (106) $ 917 $ 811
See Accompanying Notes to Consolidated Financial Statements
d)
JACQUES-MILLER INCOME FUND, L.P.-II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1999 1998
Cash flows from operating activities:
Net loss $ (13) $ (21)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Change in accounts:
Due from affiliates (2) --
Interest receivable -- 1
Note receivable 70 --
Other liabilities (8) (4)
Net cash provided by (used in) operating
activities 47 (24)
Net increase (decrease) in cash and cash equivalents 47 (24)
Cash and cash equivalents at beginning of period 774 789
Cash and cash equivalents at end of period $ 821 $ 765
See Accompanying Notes to Consolidated Financial Statements
e)
JACQUES-MILLER INCOME FUND, L.P.-II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Jacques-Miller
Income Fund, L.P.-II ("Partnership") 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 Jacques-Miller, Inc., (the "Corporate 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 consolidated financial statements include all
the accounts of the Partnership and a 99% limited partnership interest in
Jacques-Miller Income Fund II Special Asset Partnership ("La Plaza") L.P. All
significant interpartnership balances have been eliminated.
NOTE B - TRANSFER OF CONTROL
On December 10, 1998, Apartment Investment and Management Company ("AIMCO")
entered into an agreement with the sole shareholder of the Corporate General
Partner pursuant to which AIMCO was granted the right to elect the directors of
the Corporate General Partner. In connection with this transaction, the then
current officer and director of the Corporate General Partner resigned and AIMCO
appointed a new director who, in turn, appointed new officers of the Corporate
General Partner. The Corporate General Partner does not believe that this
transaction will have a material effect on the affairs and operations of the
Partnership.
NOTE C - NOTES RECEIVABLE FROM AFFILIATED PARTIES
Notes receivable consist of the following (in thousands):
June 30,
1999
Notes receivable $ 937
Accrued interest receivable 1,260
2,197
Provision for uncollectibles
(including approximately $1,067
of deferred interest revenue) (2,197)
$ --
The Partnership holds three notes receivable at June 30, 1999, totaling
approximately $937,000 with approximately $1,260,000 of related accrued
interest, all of which is fully reserved. Included in the provision for
uncollectibles is approximately $1,067,000 of deferred interest revenue.
Additionally, these three notes are due from related partnerships. These three
promissory notes bear interest at rates ranging from 12% to 12.5%, and are
unsecured by the related partnerships and are subordinated to the underlying
mortgages of the respective partnerships.
At the end of 1998, the Partnership agreed to accept approximately $70,000 in
full satisfaction of the Woodlawn Village Note. The outstanding balance of this
note receivable totaled approximately $501,000 including accrued interest, and
was fully reserved. The Partnership received this payment in April 1999.
One note in the amount of approximately $413,000 with accrued interest due in
the amount of approximately $344,000 (the "Catawba Club Note") matured November
1, 1997. A second note in the amount of approximately $454,000 with accrued
interest due in the amount of approximately $386,000 (the "Quail Run Note")
matured June 1, 1997. A third note in the amount of $70,000 with accrued
interest due in the amount of approximately $530,000 (the "Highridge Note")
matured May 1, 1996. All of these notes were in default at June 30, 1999. The
Partnership is currently seeking to receive full payment on, and resolution of,
these notes. Payments on these notes are restricted to excess cash flow after
payments of the first and second mortgages of the affiliated partnerships and
are dependent on excess cash flow from the properties or sales proceeds. No
payments were received in 1999 or 1998. These notes are fully reserved.
NOTE D - TRANSACTIONS WITH AFFILIATED PARTIES
Other than the notes receivable, as previously disclosed, the Partnership had
the following transactions:
An advisory agreement was signed in 1991 between the Partnership and affiliates
of the Corporate General Partner whereby these affiliates perform asset
management and property management duties at properties that are related to the
Corporate General Partner and Partnership.
On April 1, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner commenced a tender offer to purchase up to 3,100.00 (approximately
25.00% of the total outstanding units) units of limited partnership interest in
the Partnership for a purchase price of $95 per unit. The offer expired on June
30, 1999. Pursuant to the offer, AIMCO Properties, L.P., acquired 2,753.08
units. As a result, AIMCO and its affiliates currently own 2,753.08 units of
limited partnership interest in the Partnership representing 22.20% of the total
outstanding units. It is possible that AIMCO or its affiliates 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 E - SEGMENT INFORMATION
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosure about Segments of
an Enterprise and Related Information", which is effective for years beginning
after December 15, 1997. SFAS No. 131 established standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
established standards for related disclosures about products and services,
geographic areas, and major customers. As defined in SFAS No. 131, the
Partnership has only one reportable segment. Moreover, due to the very nature
of the Partnership's operations, the Corporate General Partner believes that
segment-based disclosures will not result in a more meaningful presentation than
the consolidated financial statements as currently presented.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 Partnership from time to time.
The discussion of the Partnership'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 Partnership's business and
results of operation. 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.
Results of Operations
The Partnership's net loss for the six months ended June 30, 1999, was
approximately $13,000 compared to a net loss of approximately $21,000 for the
six months ended June 30, 1998. The Partnership reported a net loss for the
three months ended June 30, 1999, of approximately $10,000 as compared to a net
loss of approximately $6,000 for the corresponding period of 1998. The decrease
in net loss for the six months ended June 30, 1999, is attributable to a
decrease in expenses partially offset by a slight decrease in revenues. The
decrease in expense is attributable to a decrease in general and administrative
expense which is primarily due to a decrease in corporate general partner
reimbursements for the three and six months ended June 30, 1999 as compared to
the same period in 1998. This decrease was partially offset by slight increases
in legal and audit expenses. The decrease in revenues is attributable to a
decrease in interest income as a result of lower average cash balances held in
interest bearing accounts. The Partnership currently holds three notes from
affiliated partnerships which require payments from excess cash flow after
payments of first and second mortgages of the affiliated partnerships(see
discussion below).
While the net loss decreased for the six months ended June 30, 1999, the net
loss for the three months ended June 30, 1999, increased compared to the
corresponding period in 1998. This increase is primarily attributable to an
increase in expenses which was partially offset by a decrease in revenue. The
increase in expenses is due to increased general and administrative expenses due
to legal expenses and audit fees incurred primarily during the second quarter.
This increase was partially offset by reduced corporate general partner
reimbursements. The decrease in revenues is attributable to a decrease in
interest income.
Liquidity and Capital Resources
At June 30, 1999, the Partnership held cash and cash equivalents of
approximately $821,000 compared to approximately $765,000 at June 30, 1998. The
net increase in cash and cash equivalents for the six months ended June 30,
1999, from the Partnership's year ended December 31, 1998, is approximately
$47,000 due to net cash provided by operating activities.
During 1998, the Partnership agreed to accept a payment of approximately $70,000
in full satisfaction of the note receivable from Woodlawn Village. The
outstanding balance of this note receivable totaled approximately $501,000,
including accrued interest, and was fully reserved. The Partnership received
this payment in April 1999.
The Partnership holds three notes receivable at June 30, 1999, totaling
approximately $937,000 with approximately $1,260,000 of related accrued
interest, all of which is fully reserved. Included in the provision for
uncollectibles is approximately $1,067,000 of deferred interest revenue.
Additionally, these three notes are due from related partnerships. These three
promissory notes are unsecured by the related partnerships and are subordinated
to the underlying mortgages of the respective partnerships.
One note in the amount of approximately $413,000 with accrued interest due in
the amount of approximately $344,000 (the "Catawba Club Note") matured November
1, 1997. A second note in the amount of approximately $455,000 with accrued
interest due in the amount of approximately $386,000 (the "Quail Run Note")
matured June 1, 1997. A third note in the amount of $70,000 with accrued
interest due in the amount of approximately $530,000 (the "Highridge Note")
matured May 1, 1996. All of these notes were in default at June 30, 1999. The
Partnership is currently seeking to receive full payment on, and resolution of,
these notes. Payments on these notes are restricted to excess cash flow after
payments of the first and second mortgages of the affiliated partnerships and
are dependent on excess cash flow from the properties or sales proceeds. No
payments were received in 1999 or 1998. These notes are fully reserved.
No distributions were made during the six months ended June 30, 1999 and 1998.
Future cash distributions will depend on the levels of net cash generated from
the collection of notes receivable and the availability of cash reserves. The
Partnership's distribution policy will be reviewed on a quarterly basis. There
can be no assurance however, that the Partnership will generate sufficient funds
from operations to permit distributions to its partners in 1999 or subsequent
periods.
Tender Offer
On April 1, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner commenced a tender offer to purchase up to 3,100.00 (approximately
25.00% of the total outstanding units) units of limited partnership interest in
the Partnership for a purchase price of $95 per unit. The offer expired on June
30, 1999. Pursuant to the offer, AIMCO Properties, L.P., acquired 2,753.08
units. As a result, AIMCO and its affiliates currently own 2,753.08 units of
limited partnership interest in the Partnership representing 22.20% of the total
outstanding units. It is possible that AIMCO or its affiliates 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 Corporate General Partner and its affiliates for
management and administrative services ("Managing Agent"). Any of the computer
programs or hardware that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made, or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the main computer system used by the Managing Agent became fully
functional. In addition to the main computer system, PC-based network servers,
routers and desktop PCs were analyzed for compliance. The Managing Agent has
begun to replace each of the non-compliant network connections and desktop PCs
and, as of June 30, 1999, had completed approximately 90% of this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date. The remaining network connections and
desktop PCs are expected to be upgraded to Year 2000 compliant systems by
September 30, 1999. The completion of this process is scheduled to coincide
with the release of a compliant version of the Managing Agent's operating
system.
Computer Software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
In April, 1999 the Managing Agent embarked on a data center consolidation
project that unifies its core financial systems under its Year 2000 compliant
system. The estimated completion date for this project is October, 1999.
During 1998, the Managing Agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at all
properties, is $200,000, and the implementation and testing process was
completed in June, 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded 90% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
September, 1999. The completion of this process is scheduled to coincide with
the release of a compliant version of the Managing Agent's operating system.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally.
A pre-assessment of the properties by the Managing Agent has indicated no Year
2000 issues. A complete, formal assessment of all the properties by the
Managing Agent is in process and will be completed in September, 1999. Any
operating equipment that is found non-compliant will be repaired or replaced.
The total cost incurred for all properties managed by the Managing Agent as of
June 30, 1999 to replace or repair the operating equipment was approximately
$75,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $125,000.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within its enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent continues to conduct surveys of its banking and other vendor
relationships to assess risks regarding their Year 2000 readiness. The Managing
Agent has banking relationships with three major financial institutions, all of
which have indicated their compliance efforts will be complete before July,
1999. The Managing Agent has updated data transmission standards with all of the
financial institutions. The Managing Agent's contingency plan in this regard is
to move accounts from any institution that cannot be certified Year 2000
compliant by September 1, 1999.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.9 million ($0.7 million expensed
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report.
b) Reports on Form 8-K:
None filed during the quarter ended June 30, 1999.
SIGNATURE
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.
JACQUES-MILLER INCOME FUND L.P.-II
By: Jacques-Miller, Inc.
Corporate General Partner
BY: /s/Patrick J. Foye
Patrick J. Foye
President and Treasurer
Date: August 12, 1999
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<LEGEND>
This schedule contains summary financial information extracted from
Jacques-Miller Income Fund LP-II 1999 Second Quarter 10-QSB and is qualified in
its entirety by reference to such 10-QSB filing.
</LEGEND>
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<NAME> JACQUES-MILLER INCOME FUND, LP-II
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