FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
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 0-18528
INCOME GROWTH PARTNERS, LTD. X
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0294177
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11300 Sorrento Valley Road, Suite 108, San Diego, California 92121
(Address of principal executive offices) (Zip Code)
(619) 457-2750
(Registrant's telephone number, including area code)
(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
filing requirements for the past 90 days. Yes [X] No [ ]
The number of the registrant's Original Limited Partnership Units
outstanding as of November 8, 1995 was 18,826.50. The number of the
registrant's Class A Units outstanding as of November 8, 1995 was 8,090.
-Page 1 of 14 Pages-
Exhibit Index located on sequentially numbered page 13
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
INCOME GROWTH PARTNERS, LTD. X
(A California Limited Partnership)
BALANCE SHEETS
<CAPTION>
September 30, December 31,
1995 1994
___________ ___________
(Unaudited)
<S> <C> <C>
ASSETS
Land and buildings:
Land $ 7,778,365 $ 9,378,607
Buildings and improvements 20,560,386 32,385,377
___________ ___________
28,338,751 41,763,984
Less accumulated depreciation and impairments (6,596,206) (13,240,165)
___________ ___________
21,742,545 28,523,819
Other assets:
Cash 829,738 180,696
Prepaid expenses and other assets 325,719 240,542
___________ ___________
1,155,457 421,238
___________ ___________
$22,898,002 $28,945,057
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Mortgage loans payable $22,031,569 -
Other liabilities:
Accounts payable and accrued liabilities 653,373 537,684
Accrued interest payable 78,260 -
Security deposits 167,912 207,875
___________ ___________
22,931,114 745,559
Liabilities subject to compromise:
Mortgage Loans Payable - 29,426,708
Accounts payable and accrued liabilities - 934,979
Accrued interest payable - 1,803,196
Due to affiliates - 17,028
___________ ___________
- 32,181,911
Commitments and Contingencies (Note 4)
Partners' deficit (23,112) (3,972,413)
Note receivable from general partner (10,000) (10,000)
___________ ___________
$22,898,002 $28,945,057
=========== ===========
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
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<TABLE>
INCOME GROWTH PARTNERS, LTD. X
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three months ended: For the nine months ended:
Sept 30, 1995 Sept 30, 1994 Sept 30, 1995 Sept 30, 1994
_____________ _____________ _____________ _____________
<S> <C> <C> <C> <C>
Revenues:
Rents $ 790,318 $1,016,901 $2,856,179 $3,082,431
Other 63,209 55,490 189,877 159,037
_____________ _____________ _____________ _____________
Total revenues 853,527 1,072,391 3,046,056 3,241,468
_____________ _____________ _____________ _____________
Expenses:
Interest 181,690 556,500 1,166,120 1,532,805
Operating expenses (excluding
depreciation and amortization) 469,605 507,419 1,574,919 1,662,506
Depreciation and amortization 240,616 296,230 833,077 888,691
_____________ _____________ _____________ _____________
Total expenses 891,911 1,360,149 3,574,116 4,084,002
_____________ _____________ _____________ _____________
Loss before extraordinary items (38,384) (287,758) (528,060) (842,534)
_____________ _____________ _____________ _____________
Extraordinary gain:
Disqualified interest - - 1,472,841 -
Debt forgiveness 999,146 - 999,146 -
_____________ _____________ _____________ _____________
Net income (loss) $ 960,762 $ (287,758) $1,943,927 $ (842,534)
============= ============= ============= =============
Net loss per limited partnership
unit before extraordinary gain $ (1.65) $ (15.28) $ (22.72) $ (44.75)
_____________ _____________ _____________ _____________
Income per limited partnership
unit from extraordinary gain $ 42.98 $ - $ 106.34 $ -
_____________ _____________ _____________ _____________
Net income (loss) per limited
partnership unit $ 41.33 $ (15.28) $ 83.63 $ (44.75)
============= ============= ============= =============
Weighted average limited
partnership units outstanding 23,245 18,826 23,245 18,826
============= ============= ============= =============
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
3
<PAGE>
<TABLE>
INCOME GROWTH PARTNERS, LTD. X
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30
(UNAUDITED)
<CAPTION>
1995 1994
___________ ___________
<S> <C> <C>
Cash flows from operating activities:
Net tenant revenues $3,046,056 $3,239,481
Security deposits (refunded) retained (39,963) (1,562)
Cash paid to suppliers and employees (2,479,202) (1,716,888)
Interest received - 1,987
Interest paid (1,418,215) (1,480,576)
___________ ___________
Net cash (used in) provided by
operating activities (891,324) 42,442
___________ ___________
Cash flows from financing activities:
Sale of Partnership Class A Units 2,019,241 -
Principal payments under mortgage debt (461,847) (8,250)
Amounts due to affiliates, net (17,028) 41,641
___________ ___________
Net cash provided by financing activities 1,540,366 33,391
___________ ___________
Net increase in cash 649,042 75,883
Cash and cash equivalents at beginning of period 180,696 118,281
___________ ___________
Cash and cash equivalents at end of period $ 829,738 $ 194,114
=========== ===========
Reconciliation of net income (loss) to net cash
(used in) provided by operating activities:
Net income (loss) $ 1,943,927 $ (842,534)
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating
activities:
Depreciation and amortization 833,077 888,691
Extraordinary gains (2,471,987) -
Other, primarily changes in
other assets and liabilities (1,196,341) (3,715)
___________ ___________
Net cash (used in) provided by
operating activities $ (891,324) $ 42,442
=========== ===========
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
4
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INCOME GROWTH PARTNERS, LTD. X
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1995
(UNAUDITED)
1. Basis of Financial Statement Presentation
The accompanying unaudited condensed financial statements of Income Growth
Partners, Ltd. X (the "Partnership") have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to those rules and
regulations, although the Partnership believes that the disclosures made
are adequate to make the information presented not misleading. These
condensed financial statements should be read in conjunction with the
financial statements and the notes thereto included in the Partnership's
latest audited financial statements for the year ended December 31, 1994
filed on Form 10K. These financial statements have not been audited by
independent public accountants, but include all adjustments (consisting of
normal recurring adjustments) which are, in the opinion of the general
partner, necessary for a fair presentation of the financial condition,
results of operations and cash flows for periods presented. However, these
results are not necessarily indicative of results for a full year.
Certain prior period amounts have been reclassified to conform with the
current period presentation.
The accompanying financial statements have been prepared on a going concern
basis which assumes continuity of operations and realization of assets and
liquidation of liabilities in the ordinary course of business. As a result
of the Partnership's continuing high levels of mortgage indebtedness, there
are significant uncertainties relating to the ability of the Partnership to
continue as a going concern. The financial statements do not include any
adjustments that might be necessary as a result of the outcome of the
uncertainties discussed herein.
2. Activities of the Partnership
In January, 1994, the Partnership filed a voluntary petition for relief
under Chapter 11 of the United States Code. Under Chapter 11, the
Partnership continued to conduct its business under the supervision of the
court until May 2, 1995, when the court confirmed the Partnership's plan of
Reorganization (the "Plan") and the Partnership emerged from bankruptcy.
Under Chapter 11, certain claims against the Partnership in existence prior
to the filing were stayed while the Partnership continued operations as a
debtor-in-possession. These claims, which totaled $32,181,911 are
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reflected in the December 31, 1994 balance sheet as "Liabilities subject to
compromise," as required under Statement of Position 90-7, "Financial
Reporting by Entities in Reorganization under the Bankruptcy Code" ("SOP
90-7"). Disposition of these obligations is outlined in the Plan and
reflected in the interim financial statements.
Pursuant to SOP 90-7, the Partnership did not qualify for Fresh-Start
Reporting because the holders of existing voting shares immediately before
confirmation retained more than 50% of the voting shares of the emerging
entity. According to section 41 of SOP 90-7, Entities emerging from
Chapter 11 that do not meet the criteria for Fresh-Start Reporting should
report liabilities compromised by a confirmed plan at present values of
amounts to be paid, determined at appropriate current interest rates, and
forgiveness of debt, if any, should be reported as an extraordinary item.
Accordingly, during the second quarter the Partnership recorded an
extraordinary item listed as Gain on Disqualified Interest in the amount of
$1,472,841 due to the reversal of previously accrued interest that was
disqualified by the Plan.
As of the effective date of the Plan, the Partnership had received between
$1,400,000 and $1,900,000 in cash for Class A Partnership Units.
Accordingly, under the provisions of the Plan, the Partnership was allowed
to retain ownership of the Mission Park and Shadowridge Meadows properties,
but not the Margarita Summit property. The offering was closed effective
June 30, 1995.
The Partnership cured and reinstated the loans on the Mission Park and
Shadowridge Meadows properties with payments to the lenders of $344,534 and
$556,144 respectively. The payment to the lender on the Mission Park
property was made as a full cure and reinstatement of the existing note in
accordance with the Plan and was applied against all qualified accrued
interest based on the non-default contract rate of interest in the note.
The lender was not entitled to any default interest, penalties, or late
fees or charges as a result of the bankruptcy proceedings. The remaining
principal balance after this loan was cured and reinstated was $12,316,258.
The $556,144 payment to the lender on the Shadowridge Meadows property was
a full cure and reinstatement of the loan and buydown of the amortization
term of the loan from 20 years to 30 years in accordance with the
provisions of the Plan and the existing Loan Modification Agreement in
effect on this property. Of the $556,144 paid to the lender, $476,144 was
applied towards reducing the principal balance of the loan, and the
difference was applied towards the lender's fees in accordance with the
Plan. The remaining loan balance after the buydown payment was
approximately $9,816,119.
Since the Partnership was unable to retain ownership of Margarita Summit
under the terms of the Plan, it did not cure and reinstate this loan or pay
the claim for past due real estate taxes on this property. On May 18, 1995
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the Partnership stipulated to the appointment of a receiver to take over
the day-to-day operations of the property, while the lender completed
foreclosure proceedings. Title to Margarita Summit was held by the
Partnership until the lender completed foreclosure proceedings on August 1,
1995. The accompanying financial statements include internal results of
operations for Margarita Summit through May 1995 and external operations as
reported by the receiver for the months of June and July. The lender
received all cash collateral generated by Margarita Summit during
receivership. Additionally, the accompanying financial statements reflect
the elimination of the mortgage debt, land, and building and improvements
related to Margarita Summit. As part of the foreclosure transaction, the
Partnership recorded an extraordinary gain related to forgiveness of debt
of approximately $999,000.
In June 1995 the Partnership paid the County of San Diego $19,397 to be
used in conjunction with $70,715 they were holding in suspense to
completely satisfy the defaulted property tax claim on Mission Park for the
1992 assessment. The outstanding 1993 assessment of $154,133 will continue
to accrue interest at a rate of 7% per year until paid off in accordance
with the Plan. The Partnership also paid all approved undisputed priority
claims and unsecured claims in accordance with the Plan.
3. Contingencies
Activities of the General Partner
The general partner of the Partnership also serves as the general partner
in several other real estate partnerships. To the extent that the
operation of these partnerships requires significant financial resources of
the general partner or adversely affects the liquidity of the general
partner, the general partner's ability to operate and/or manage the affairs
of the Partnership could be impaired.
Property Leverage Levels
The Partnership Agreement permitted acquisition debt in amounts of up to 80
percent of the purchase price of properties, but required that such debt be
reduced to no more than 40 percent of the aggregate purchase price of the
properties as offering proceeds from the sale of Original Units were
received. As a result of less than anticipated Original Unit sales, the
Partnership has been unable to reduce its mortgage debt to 40 percent. The
aggregate indebtedness on the Partnership's two remaining properties was
approximately 71 percent of their purchase prices as of September 30, 1995.
Therefore, mortgage principal would have to be reduced by approximately
$9.6 million to comply with the terms of the Partnership Agreement.
7
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Loan Defaults
Effective May 2, 1995 the Partnership cured and reinstated the loans on the
Mission Park and Shadowridge Meadows properties. As contemplated by the
Plan, the lender on Margarita Summit foreclosed on the property on August
1, 1995.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with the Financial
Statements and Notes thereto filed herewith.
a. Liquidity and Capital Resources
Historically, the Partnership was dependent upon proceeds from the sale of
Original Units to meet its obligations, including debt service
requirements. In 1992 the Partnership discontinued sales of Original
Units, and between 1992 and 1995 the Partnership's primary source of
liquidity has been from cash generated from operations. On May 2, 1995,
the Partnership's Plan of Reorganization became effective and by June 30,
1995, the Partnership had received approximately $2,020,000 in additional
capital to fund the Plan. After paying the creditors as outlined in the
Plan, the partnership retained approximately $700,000 from the proceeds of
the new offering in a cash reserve account to provide liquidity for short
term negative cash flows.
The Partnership is highly sensitive to interest rates because the
properties remain highly leveraged, and the interest charges on the
Partnership's debt adjust monthly with the 11th District Cost of Funds
Index. Between May 1994 and November 1995, increases in the 11th District
Cost of Funds Index totaling 1.482% have been announced. If the 11th
District Cost of Funds index continues to increase more rapidly than
projected, and the Partnership is unable to raise rents at the properties
to cover the increased debt service payments, the Partnership may have to
fund shortfalls from reserves, attempt to restructure the existing loans,
or risk losing one or both of the remaining properties.
Due to this high sensitivity to variable interest rates, the partnership is
currently pursuing refinancing opportunities that may further stabilize the
debt service on the Mission Park property. In October 1995 the partnership
made a $200,000 deposit on a loan pay-off agreement with the lender on the
Mission Park property in anticipation of such an opportunity.
The existing loans on Shadowridge Meadows and Mission Park are currently
scheduled to expire in 1998 and 1999 respectively. The Partnership may be
able to renegotiate extended loan terms with the existing lenders at that
time, or the real estate and financing markets may have improved
8
<PAGE>
sufficiently for the Partnership to consider refinancing or selling the
properties.
In the event that one or more of the properties is unable to support its
debt service and the Partnership is unable to cover operational shortfalls
from proceeds of the new offering, the Partnership may have to take one or
more alternative courses of action. The general partner would then
determine, based on its analysis of relevant economic conditions and the
status of the properties, a course of action intended to be consistent with
the best interests of the Partnership. Possible courses of action might
include, the sacrifice of one or more of the properties to reduce negative
cash flow, the sale or refinancing of one or more of the properties, the
entry into one or more joint venture partnerships with other entities, or
the filing of another bankruptcy petition.
b. Results of Operations
The Partnership had been operating the Shadowridge Meadows Apartments and
Mission Park Apartments for approximately 82 months and 73 months
respectively at September 30, 1995. The Shadowridge Meadows Apartments and
Mission Park Apartments reflected occupancy rates of 96% and 92%
respectively as of September 30, 1995, compared to 91% and 91% respectively
as of September 30, 1994.
Operating expenses, excluding depreciation, amortization, and extraordinary
items, for the three and nine month periods ended September 30, 1995 have
decreased approximately $38,000 and $88,000 respectively compared to the
same periods in 1994, primarily due to the foreclosure of the Margarita
Summit property and the elimination of related operating expenses.
Interest expense also decreased for the three and nine month periods ended
September 30, 1995 by approximately $375,000 and $367,000 respectively
compared to the same period in 1994, primarily due to the foreclosure of
the Margarita Summit property in 1995.
The Partnership has experienced frequent losses from operations primarily
due to the high degree of debt service discussed previously. Management
estimates that the Partnership may experience continued operating losses in
the future unless debt service can be restructured or reduced.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The information from note 2 of the financial statements above regarding the
bankruptcy proceedings is incorporated herein by this reference. On
January 26, 1994, a legal proceeding was brought against the Partnership
based on allegations that the Partnership was in default on the loan
secured by the Mission Park Apartments. This proceeding was stayed by the
bankruptcy, and effectively ended when the Partnership cured and reinstated
9
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the loan on the Mission Park Apartments on May 2, 1995 pursuant to the
Partnership's Plan of Reorganization.
As anticipated in the Partnership's Plan, on May 10, 1995, the lender on
the Margarita Summit property filed a Complaint for Unified Judicial
Foreclosure; For Specific Performance of Assignment of Rents Provision; For
Appointment of a Receiver; and For Injunctive Relief in the Superior Court
of the State of California, County of Riverside, in order to start the
foreclosure process on Margarita Summit, and appoint a receiver to take
over operations of the property. On May 18, 1995 the court approved a
Stipulation and Order for the Appointment of a Receiver. The lender
completed a non-judicial foreclosure by trustee's sale on August 1, 1995,
effectively ending this litigation.
There are no other pending legal proceedings which may have a material
adverse effect on the Partnership. However, the Partnership is involved in
small claims court proceedings against certain present or former tenants of
its apartment complexes with regard to landlord-tenant matters, all of
which are considered to be in the ordinary course of its business.
Item 2. Changes in Securities
The information contained in the Partnership's Second Amended Disclosure
Statement to Debtor's Second Amended Plan of Reorganization, As Revised and
Offering Memorandum for Class A Units from Exhibit 2.2 of the Partnership's
Quarterly Report on Form 10-Q for the third quarter ended September 30,
1994 is incorporated herein by this reference.
The Partnership made its first withdrawal from the Class A Units escrow
account on April 28, 1995 pursuant to its Plan of Reorganization. This
activated the 7,407 pending Class A Units at that time. The offering of
Class A Units closed on June 30, 1995 by which time the partnership had
received approximately $2,020,000 for the purchase of approximately 8,090
Class A Units.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The information contained in the Partnership's Second Amended Disclosure
Statement to Debtor's Second Amended Plan of Reorganization, As Revised and
Offering Memorandum for Class A Units from Exhibit 2.2 of the Partnership's
Quarterly Report on Form 10-Q for the third quarter ended September 30,
1994 is incorporated herein by this reference. Along with the Disclosure
Statement and Offering Memorandum, the existing limited partners received
an Equity Interest Holder Ballot for Accepting or Rejecting Debtor's Second
Amended Plan of Reorganization ("Ballot"). A copy of this Ballot was
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contained in Exhibit 2.2 on sequentially numbered page 217 therein.
Pursuant to the Bankruptcy Code, it was requested that the existing equity
interest holders complete the Ballot and return it to the Partnership's
attorneys by February 1, 1995.
By February 1, 1995 the Partnership's attorneys had received completed
Ballots from approximately 17% of the 18,826.5 holders of Original
Partnership Units. Of the votes received, approximately 89.2% of the
unitholders voted to accept the Plan, and 10.8% voted to reject the Plan.
There were no other matters submitted to a vote of the holders of Limited
Partnership Interests, through solicitation of proxies or otherwise, during
the first three quarters of 1995.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
11
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INCOME GROWTH PARTNERS, LTD. X
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.
Date: November 14, 1995
INCOME GROWTH PARTNERS, LTD. X,
a California Limited Partnership
By: Income Growth Management, Inc.
General Partner
By: Timothy C. Maurer
_______________________________
Timothy C. Maurer
Principal Financial Officer AND
Duly Authorized Officer of the Registrant
12
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EXHIBIT INDEX
Sequentially
Exhibit No. Description Numbered Page
___________ ______________________________________________ _____________
11.2 Weighted Average Partnership Units Calculation 14
13
<PAGE>
EXHIBIT 11.2
Weighted Average Partnership Units Calculation
Limited Partnership units outstanding at 12/31/94 18,826
Months
Additional Class A Units: Outstanding Weighted
___________ ________
Issued and outstanding 1/1/95-4/30/95 0 9 0
Issued and outstanding 5/1/95-5/31/95 7,407 5 37,035
Issued and outstanding 6/1/95-6/30/95 683 4 2,732
________
39,767
Divided by nine months in period 4,419
Weighted average partnership units outstanding at 9/30/95 23,245
======
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