UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-Q
(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, 1996
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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 33-11907
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DIVERSIFIED HISTORIC INVESTORS IV
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2440837
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
Suite 500, 1521 Locust Street, Philadelphia, PA 19102
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 735-5001
------------------------------
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 No X
----- -----
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - June 30, 1996 (unaudited) and December
31, 1995
Consolidated Statements of Operations - Three Months and Six Months
Ended June 30, 1996 and 1995 (unaudited)
Consolidated Statements of Cash Flows - Six Months Ended June 30, 1996
and 1995 (unaudited)
Notes to Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
(1) Liquidity
As of June 30, 1996, Registrant had total unrestricted cash of
$131,905. This balance is comprised of $12,884 held by the Registrant and
$119,021 which is held by the properties in which the Registrant holds a
majority interest. The Registrant expects that the $119,021 plus the cash
generated from operations at each property and sales of the units at Commerce
Mall General Partnership ("CMGP") will be sufficient to fund the operating
expenses of the properties. The Registrant is not aware of any additional
sources of liquidity.
As of June 30, 1996, Registrant had restricted cash of $348,028
consisting primarily of funds held as security deposits, replacement reserves
and escrows for taxes and insurance. As a consequence of the restrictions as to
use, Registrant does not deem these funds to be a source of liquidity.
During 1994, the Registrant converted the property (Henderson
Riverfront Apartments) owned by 700 Commerce Mall General Partnership, a
Louisiana general partnership in which the Registrant owns a 95% interest, into
condominiums ("the Units") and began offering the Units for sale. As of June 30,
1996, 46 of the 61 units have been sold with 7 sales occurring in the second
quarter of 1996.
Historic Restoration Inc. ("HRI"), the Registrant's co-general partner
in CMGP, is to be paid a 10% conversion fee (the "Conversion fee") on the sale
of any Unit at or above the agreed-upon sales price. Such fee is payable upon
the closing of the sale of each Unit, provided that the Conversion Fee from the
sale of the first 30 units shall be deferred and paid as follows:
(i) $125,000 at the closing of the 31st unit
2
<PAGE>
(ii) the remaining portion (the "Remainder") at the rate of 5% of the
Remainder at the closing of the sale of each of the 42nd through
the 61st Units
In October 1995, the 31st unit was sold and the $125,000 was earned by HRI of
which $100,000 has been paid to HRI. In April 1995, the 42nd unit was sold and
$28,521 of the Remainder was paid to HRI during the second quarter. The
Conversion Fee and the Remainder from the sales of units 45 and 46 as well as
the $25,000 from the first 31 units which has not yet been paid to HRI are all
included in accounts payable - related party. The remaining $202,476 related to
the sale of the first 31 units is included in restricted cash. In addition, HRI
is paid a selling commission equal to 3.5% of the selling price of each Unit.
Commissions paid to HRI during the second quarters of 1996 and 1995 were $20,895
and $9,625, respectively.
(2) Capital Resources
Due to the relatively recent rehabilitations of the properties, any
capital expenditures needed are generally replacement items and are funded out
of cash from operations or replacement reserves, if any. At the Henderson
Apartments, funds will be necessary during the selling period for improvements
and repairs to common areas, individual unit upgrades, marketing, selling costs
and fees. During the second quarter of 1996 and 1995, these expenses were
approximately $55,413 and $19,519, respectively, and were funded by sales
proceeds. It is anticipated that any additional funds needed will be available
from the proceeds of sales. Other than the above, the Registrant is not aware of
any factors which would cause historical capital expenditure levels not to be
indicative of capital requirements in the future and accordingly, does not
believe that it will have to commit material resources to capital investment for
the foreseeable future.
(3) Results of Operations
During the second quarter of 1996, Registrant incurred a loss of $9,206
($1.10 per limited partnership unit) compared to income of $42,611 ($5.09 per
limited partnership unit) for the same period in 1995. For the first six months
of 1996, the Registrant incurred a net loss of $3,214 ($.38 per limited
partnership unit) compared to income of $163,492 ($19.53 per limited partnership
unit) for the same period in 1995.
Rental income decreased $45,759 from $99,622 in the second quarter of
1995 to $53,863 in the same period in 1996 and decreased $94,301 from $213,646
for the first six months 1995 to $119,345 in the same period in 1996. The
decrease in rental income for the second quarter and the first six months of
1996 from the same periods in 1995 is the result of a decrease in rental income
at Henderson due to the sale of Units, partially offset by an increase at Brass
Works due to an increase in average occupancy.
3
<PAGE>
Interest income increased $6,797 from $26,323 in the second quarter of
1995 to $33,120 in the same period in 1996 and increased $40,989 from $47,781
for the first six months 1995 to $88,770 in the same period in 1996. The
increase for both the second quarter and the first six months of 1996 from the
same periods in 1995 is the result of an increase in interest earned on notes
receivable.
Expense for rental operations increased by $34,931 from $71,905 in the
second quarter of 1995 to $106,836 in the same period in 1996 and increased
$25,812 from $170,764 for the first six months 1995 to $196,576 in the same
period in 1996. The increase for both the second quarter and the first six
months of 1996 from the same periods in 1995 is the result of an increase in
commissions and wages and salaries at Locke Mill due to a change in the
management company in September 1996, an increase in commissions at Brass Works
due to the increase in average occupancy at the property and an increase in
legal fees at the Henderson Apartments due to the sale of Units partially offset
by a decrease in maintenance expense at Brass Works.
Expense for general and administrative expenses increased $20,000 from
$54,000 for the first six months 1995 to $74,000 in the same period in 1996. The
increase is due to fees paid in the first quarter of 1996 to reimburse the
General Partner for certain goods and services rendered. None were paid in 1995.
Depreciation and amortization expense decreased $15,691 from $49,975 in
the second quarter of 1995 to $34,284 in the same period in 1996 and decreased
$21,580 from $93,085 for the first six months 1995 to $71,505 in the same period
in 1996. The decrease for the second quarter and the first six months of 1996
from the same periods in 1995 is due to the sale of Units at the Henderson
Apartments resulting in a lower balance on which depreciation is calculated.
Income recognized during the quarter at the Registrant's three
properties amounted to $22,000, compared to income of approximately $79,000 for
the same period in 1995. Included in income in the second quarter of 1996 and
1995 are gains of $72,000 and $66,000, respectively, related to the sale of
Units. For the first six months of 1996, the Registrant recognized income of
$60,000 compared to approximately $214,000 for the same period in 1995. Included
in income in the first six months of 1996 and 1995 are gains of $131,000 and
$220,000, respectively, related to the sale of Units
In the second quarter of 1996, Registrant recognized income of $22,000
at The Henderson Apartments including $12,000 of depreciation expense, compared
to income of $86,000 in the second quarter of 1995, including $23,000 of
depreciation expense. Included in income in the second quarter of 1996 and 1995
are gains of $72,000 and $66,000, respectively, related to the sale of Units.
Overall, exclusive of the gain resulting from the sale of Units, the property
would have recognized a loss of $50,000 in the second quarter of 1996 compared
to income of $20,000 in the same period on 1995. The decrease in net income is a
result of a decrease in rental income and an increase in legal fees partially
offset by an increase in interest income and an overall decrease in operating
expenses. The decrease in rental income and operating expenses and the increase
in legal fees is due to the sale of Units The increase in interest income is the
result of increase in interest earned on the notes receivable.
4
<PAGE>
For the first six months of 1996, Registrant recognized income of
$73,000 at the Henderson Apartments including $27,000 of depreciation, compared
to income of $245,000 for the same period of 1995, including $48,000 of
depreciation expense. Included in income for the first six months of 1996 and
1995 are gains of $131,000 and $220,000, respectively, related to the sale of
Units. Overall, exclusive of the gain resulting from the sale of Units, the
property would have recognized a loss of $58,000 for the first six months of
1996 compared to income of $25,000 in the same period on 1995. The decrease in
net income is a result of a decrease in rental income and an increase in
marketing expenses and legal fees partially offset by an increase in interest
income and a decrease in operating expenses. The decrease in rental income and
operating expenses and the increase in marketing expenses and legal fees is due
to the sale of Units. The increase in interest income is the result of an
increase in interest earned on the notes receivable.
In the second quarter of 1996, Registrant recognized income of $1,000
at the Brass Works, including $12,000 of depreciation expense, compared to a
loss of $9,000 including $12,000 of depreciation expense in the first quarter of
1995 and for the first six months of 1996, Registrant incurred a loss of $11,000
at the Brass Works including $24,000 of depreciation expense, compared to a loss
of $24,000 for the same period in 1995, including $24,000 of depreciation
expense. The decrease in the loss for the second quarter and the six months of
1996 from the same periods in 1995 is due to an increase rental income, a
decrease in maintenance expense partially offset by an increase in commissions.
Rental income increased due to an increase in average occupancy in the second
quarter (91% to 93%) and the first six months (86% to 93%). Maintenance
decreased due to deferred maintenance completed in the second quarter 1995 and
commissions increased due to the increase in occupancy.
In the second quarter of 1996, Registrant incurred a loss of $1,000 at
the Locke Mill Plaza, including $6,000 of depreciation expense, compared to
income of $2,000 including $6,000 of depreciation expense in the second quarter
of 1995 and for the first six months of 1996, Registrant incurred a loss of
$2,000 at the Locke Mill Plaza including $13,000 of depreciation expense,
compared to a loss of $7,000 for the same period in 1995, including $13,000 of
depreciation expense. The decrease in net income for both the second quarter and
the first six months in 1996 from the same periods in 1995 is the result of an
increase in commissions and wages and salaries due to a change in the management
company in September 1995.
5
<PAGE>
DIVERSIFIED HISTORIC INVESTORS IV INCOME FUND
---------------------------------------------
(a Pennsylvania limited partnership)
CONSOLIDATED BALANCE SHEETS
---------------------------
Assets
------
June 30, 1996 December 31, 1995
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(Unaudited)
Rental properties, at cost:
Land $ 193,815 $ 297,724
Buildings and improvements 3,284,336 4,246,803
Furniture and fixtures 21,000 21,000
----------- -----------
3,499,151 4,565,527
Less - Accumulated depreciation (1,068,158) (1,285,912)
----------- -----------
2,430,993 3,279,615
Cash and cash equivalents 131,905 346,511
Restricted cash 348,028 366,524
Notes receivable 2,854,997 2,099,457
Other assets 110,438 3,331
----------- -----------
Total $ 5,876,361 $ 6,095,438
=========== ===========
Liabilities and Partners' Equity
--------------------------------
Liabilities:
Accounts payable:
Trade 51,548 244,984
Related parties 66,916 59,725
Deferred income 55,668 81,777
Tenant security deposits 9,584 13,093
----------- -----------
Total liabilities 183,716 399,579
----------- -----------
Partners' equity 5,692,645 5,695,859
----------- -----------
Total $ 5,876,361 $ 6,095,438
=========== ===========
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
DIVERSIFIED HISTORIC INVESTORS IV
---------------------------------
(a Pennsylvania limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
For the Three Months and Six Months Ended June 30, 1996 and 1995
(Unaudited)
Three months Six months
ended June 30, ended June 30,
1996 1995 1996 1995
--------- --------- --------- ---------
Revenues:
Rental income $ 53,863 $ 99,622 $ 119,345 $ 213,646
Gain on sale of units 71,931 65,546 130,752 219,914
Interest income 33,120 26,323 88,770 47,781
--------- --------- --------- ---------
Total revenues 158,914 191,491 338,867 481,341
--------- --------- --------- ---------
Costs and expenses:
Rental operations 106,836 71,905 196,576 170,764
General and
administrative 27,000 27,000 74,000 54,000
Depreciation and
amortization 34,284 49,975 71,505 93,085
--------- --------- --------- ---------
Total costs and
expenses 168,120 148,880 342,081 317,849
--------- --------- --------- ---------
Net (loss) income ($ 9,206) $ 42,611 ($ 3,214) $ 163,492
========= ========= ========= =========
Net (loss) income per
limited partnership unit ($ 1.10) $ 5.09 ($ .38) $ 19.53
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
DIVERSIFIED HISTORIC INVESTORS IV INCOME FUND
---------------------------------------------
(a Pennsylvania limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
For the Six Months Ended June 30, 1996 and 1995
(Unaudited)
Six months ended
June 30,
1996 1995
--------- ---------
Cash flows from operating activities:
Net (loss) income ($ 3,214) $ 163,492
Adjustments to reconcile net loss to net
cash used in operating activities:
Gain on sale of units (130,752) (219,914)
Depreciation and amortization 71,505 93,085
Changes in assets and liabilities:
Decrease (increase) in restricted cash 18,496 (52,074)
(Increase) decrease in other assets (107,107) 24,979
Decrease in accounts payable - trade (193,436) (307,980)
Increase (decrease) in accounts payable -
related parties 7,191 (19,239)
Decrease in deferred income (26,109) 0
Decrease in tenant security deposits (3,509) (2,394)
--------- ---------
Net cash used in operating activities (366,935) (320,045)
--------- ---------
Cash flows from investing activities:
Capital expenditures (81,396) (57,677)
Decrease in notes receivable 183,637 8,340
Proceed from sale of units 50,088 199,872
--------- ---------
Net cash provided by investing activities 152,329 150,535
--------- ---------
Cash flows from financing activities:
Distributions to partners -0- (291,206)
--------- ---------
Net cash used in financing activities -0- (291,206)
--------- ---------
Decrease in cash and cash equivalents (214,606) (460,716)
Cash and cash equivalents at beginning of period 346,511 651,279
--------- ---------
Cash and cash equivalents at end of period $ 131,905 $ 190,563
========= =========
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
DIVERSIFIED HISTORIC INVESTORS IV INCOME FUND
---------------------------------------------
(a Pennsylvania limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements of Diversified Historic
Investors IV Income Fund (the "Registrant") and related notes have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations. The
accompanying consolidated financial statements and related notes should be read
in conjunction with the audited financial statements in Form 10-K of the
Registrant, and notes thereto, for the year ended December 31, 1995.
The information furnished reflects, in the opinion of management, all
adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the results of the interim periods presented.
9
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
To the best of its knowledge, Registrant is not party to, nor is any of
its property the subject of, any pending material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the quarter covered by this report to a
vote of security holders.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Number Document
-------------- --------
3 Registrant's Amended and Restated Certificate of
Limited Partnership and Agreement of Limited
Partnership, previously filed as part of Amendment No.
2 of Registrant's Registration Statement on Form S-11,
are incorporated herein by reference.
21 Subsidiaries of the Registrant are listed in Item 2.
Properties on Form 10-K, previously filed and
incorporated herein by reference.
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the quarter ended June 30,
1996.
10
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: August 8, 1996 DIVERSIFIED HISTORIC INVESTORS IV Income Fund
--------------
By: Dover Historic Advisors III, General Partner
By: /s/ Gerald Katzoff
------------------
GERALD KATZOFF,
Partner
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 131,905
<SECURITIES> 0
<RECEIVABLES> 2,854,997
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 110,438
<PP&E> 3,499,151
<DEPRECIATION> 1,068,158
<TOTAL-ASSETS> 5,876,361
<CURRENT-LIABILITIES> 118,464
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5,692,645
<TOTAL-LIABILITY-AND-EQUITY> 5,876,361
<SALES> 0
<TOTAL-REVENUES> 338,867
<CGS> 0
<TOTAL-COSTS> 270,576
<OTHER-EXPENSES> 71,505
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,214)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,214)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,214)
<EPS-PRIMARY> (0.38)
<EPS-DILUTED> 0.00
</TABLE>
