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, 2003
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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 0-14934
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DIVERSIFIED HISTORIC INVESTORS
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2312037
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1521 Locust Street, Philadelphia, PA 19102
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 557-9800
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N/A
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - June 30, 2003 (unaudited) and
December 31, 2002
Consolidated Statements of Operations - Three Months and Six
Months Ended June 30, 2003 and 2002 (unaudited)
Consolidated Statements of Cash Flows - Six Months Ended June
30, 2003 and 2002 (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, 2003, Registrant had cash of approximately
$9,915. Cash generated from operations is used primarily to fund
operating expenses and debt service. If cash flow proves to be
insufficient, the Registrant will attempt to negotiate with the
various lenders in order to remain current on all obligations. The
Registrant is not aware of any additional sources of liquidity.
As of June 30, 2003, Registrant had restricted cash of
$78,444 consisting primarily of funds held as security deposits,
replacement reserves and escrows for taxes. As a consequence of these
restrictions as to use, Registrant does not deem these funds to be a
source of liquidity.
In recent years the Registrant has realized significant
losses, including the foreclosure of five properties and a portion of
a sixth property, due to the properties' inability to generate
sufficient cash flow to pay their operating expenses and debt service.
The Registrant has first mortgages in place in each of its remaining
three properties that are cash-flow mortgages, requiring all available
cash after payment of operating expenses to be paid to the first
mortgage holder. Therefore it is unlikely that any cash will be
available to the Registrant to pay its general and administrative
expenses, to pay debt service on the past-due subordinate mortgage
with respect to the Third Quarter or to pay any debt service on the
two accrual mortgages with respect to Wistar Alley.
It is the Registrant's intention to continue to hold the
properties until they can no longer meet the debt service requirements
(or with respect to the Third Quarter and Wistar Alley, the lender
seeks payment on the past due mortgage) and the properties are
foreclosed, or the market value of the properties increases to a point
where they can be sold at a price which is sufficient to repay the
underlying indebtedness.
Since the lenders have agreed either to forebear from
taking any foreclosure action as long as cash flow payments are made,
to accrue all debt service in lieu of payment, or have (in the case of
Third Quarter) not moved to declare a default for a substantial period
of time after the mortgage due date, the Registrant believes it is
appropriate to continue presenting its financial statements on a going
concern basis.
On October 2, 2003, the three remaining Smythe Stores
condominium units owned by the Registrant were foreclosed by the
mortgage holder.
(2) Capital Resources
Any capital expenditures needed are generally replacement
items and are funded out of cash from operations or replacement
reserves, if any. The Registrant believes that historical capital
expenditure levels are 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.
If the need for capital expenditures does arise, the first mortgage
holder for Third Quarter and Wistar Alley has agreed to fund capital
expenditures at terms similar to the first mortgage.
(3) Results of Operations
During the second quarter of 2003, Registrant incurred a
net loss of $98,763 ($8.42 per limited partnership unit) compared to a
net loss of $101,770 ($8.68 per limited partnership unit) for the same
period in 2002. For the first six months of 2003, the Registrant
incurred a net loss of $262,251 ($22.36 per limited partnership unit)
compared to a net loss of $242,452 ($20.67 per limited partnership
unit) for the same period in 2002.
Rental income decreased $2,108 from $145,316 in the
second quarter of 2002 to $143,208 in the same period in 2003. The
decrease in rental income is due to a decrease in average occupancy at
Wistar Alley (98% to 95%).
Rental income increased $2,242 from $285,128 for the
first six months of 2002 to $287,370 for the same period in 2003. The
increase in rental income is due to an increase in average rental
rates at the Third Quarter Apartments and Smythe Stores, partially
offset by a decrease in rental income at Wistar Alley due to a
decrease in average occupancy (98% to 96%).
Rental operations expense decreased $4,897 from $65,408
during the second quarter of 2002 to $60,511 in the same period of
2003. The decrease in rental operations expense from the second
quarter 2002 to the same period in 2003 is due to a decrease in
miscellaneous operating expense and leasing commissions. The decrease
in miscellaneous operating expense is due to a decrease in bank
service charges and Visa/MC/ MAC charges at the Third Quarter
Apartments combined with a decrease in bank service charges and
telephone and answering service charges at Wistar Alley. The decrease
in leasing commissions is due to a decrease in turnover of apartment
units at Smythe Stores.
Rental operations expense increased $21,672 from $163,911
during the first six months of 2002 to $185,583 in the same period of
2003. The increase in rental operations expense from the first six
months of 2002 to the same period in 2003 is due to an increase in
maintenance expense, partially offset by a decrease in miscellaneous
operating expense. The increase in maintenance expense is due to an
increase in snow removal and maintenance service at the Third Quarter
Apartments and Wistar Alley. The decrease in miscellaneous operating
expense is due to a decrease in bank service charges and Visa/MC/ MAC
charges at the Third Quarter Apartments combined with a decrease in
bank service charges and telephone and answering service charges at
Wistar Alley.
Interest expense decreased $931 from $133,206 in the
second quarter of 2002 to $132,275 in the same period in 2003 and
decreased $1,051 from $266,811 for the first six months of 2002 to
$265,760 for the same period in 2003.
The loss incurred during the second quarter at the
Registrant's properties was approximately $90,000, compared to a net
loss of approximately $93,000 for the same period in 2002. For the
first six months of 2003, the Registrant's properties incurred a net
loss of approximately $230,000 compared to a net loss of approximately
$224,000 for the same period in 2002.
In the second quarter of 2003, Registrant incurred a loss
of $48,000 at the Smythe Stores Condominium complex including $6,000
of depreciation expense, compared to a loss of $51,000 in the second
quarter of 2002, including $7,000 of depreciation expense. In the
first six months of 2003, Registrant incurred a loss of $100,000
including $13,000 of depreciation expense, compared to a loss of
$101,000 including $13,000 of depreciation expense for the same period
in 2002. The decrease in loss from the second quarter and the first
six months of 2002 compared to the same periods in 2003 is due to an
increase in rental income, combined with a decrease in leasing
commissions. The increase in rental income is due to an increase in
average rental rates. The decrease in leasing commissions is due to
the decrease in turnover of apartment units.
On October 2, 2003, the three Smythe Stores condominium
units were foreclosed by the mortgage holder.
In the second quarter of 2003, Registrant incurred a loss
of $29,000 at the Third Quarter Apartments, including $20,000 of
depreciation expense, compared a loss of $29,000 including $19,000 of
depreciation expense in the second quarter of 2002. For the first six
months of 2003, Registrant incurred a loss of $76,000, including
$39,000 of depreciation expense compared to a loss of $76,000
including $38,000 of depreciation expense for the first six months of
2002. In the second quarter and the first six months of 2002 compared
to the same periods in 2003 is an increase in maintenance expense and
utilities expense, partially offset by an increase rental income. The
increase in maintenance expense is due to an increase in snow removal
and maintenance service. The increase in utilities expense is due to
an increase in water and sewer charges. The increase in rental income
is due to an increase in average monthly rental rates.
In the second quarter of 2003, Registrant incurred a loss
of $13,000 at Wistar Alley, including $23,000 of depreciation expense,
compared to the same loss of $13,000, including $23,000 of
depreciation expense, in the second quarter of 2002. In the second
quarter of 2002 compared to the same period in 2003 is a decrease in
rental income combined with a decrease in miscellaneous operating
expense. The decrease in rental income is due to a decrease in average
occupancy (98% to 95%). The decrease in miscellaneous operating
expense is due to a decrease in bank service charges and telephone and
answering service charges.
For the first six months of 2003, Registrant incurred a
loss of $54,000 at Wistar Alley, including $46,000 of depreciation
expense, compared to a loss of $47,000, including $45,000 of
depreciation expense, for the same period in 2002. The increase in
loss from the first six months of 2002 to the same period in 2003 is
due to a decrease in rental income and an increase in maintenance
expense and utilities expense, partially offset by a decrease in
miscellaneous operating expense. Rental income decreased due to a
decrease in average occupancy (98% to 96%). The increase in
maintenance expense is due to an increase in snow removal and roof
repairs. The increase in utilities expense is due to an increase in
electricity, water and sewer charges. The decrease in miscellaneous
operating expense is due to a decrease in bank service charges and
telephone and answering service charges.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures that are
designed to ensure that information required to be disclosed in our
Securities Exchange Act of 1934 reports is recorded, processed,
summarized and reported within the time periods specified in the SEC's
rules and forms, and that such information is accumulated and
communicated to our management, including our managing partner's
principal executive officer and principal financial officer, as
appropriate, to allow timely decisions regarding required disclosure.
In designing and evaluating the disclosure controls and procedures,
our management recognized that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and our management
necessarily was required to apply its judgment in evaluating the cost-
benefit relationship of possible controls and procedures.
Under the supervision of our managing partner's principal
executive officer and principal financial officer we have carried out
an evaluation of the effectiveness of our adopted disclosure controls
and procedures as of the end of the period covered by this report.
Based upon that evaluation, our managing partner's president and
treasurer concluded that our disclosure controls and procedures are
effective.
There have been no significant changes in our internal
controls over financial reporting that has materially affected, or is
reasonably likely to materially affect, our internal control over
financial reporting during our most recent fiscal quarter.
DIVERSIFIED HISTORIC INVESTORS
(a Pennsylvania limited partnership)
CONSOLIDATED BALANCE SHEETS
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Assets
June 30, 2003 December 31, 2002
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(Unaudited)
Rental properties, at cost:
Land $ 299,612 $ 299,612
Buildings and improvements 4,506,943 4,506,943
Furniture and fixtures 195,085 184,990
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5,001,640 4,991,545
Less - accumulated depreciation (3,408,245) (3,310,439)
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1,593,395 1,681,106
Cash and cash equivalents 9,915 13,078
Restricted cash 78,444 100,176
Accounts receivable 7,259 8,996
Other assets (net of
accumulated amortization of
$36,321 and $34,158) 23,397 6,253
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Total $1,712,410 $1,809,609
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Liabilities and Partners' Equity
Liabilities:
Debt obligations $5,146,354 $5,146,354
Accounts payable:
Trade 442,801 407,473
Related parties 565,037 546,784
Interest payable 1,502,518 1,392,512
Tenant security deposits 51,800 50,095
Other liabilities 7,823 8,063
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Total liabilities 7,716,333 7,551,281
Partners' deficit (6,003,923) (5,741,672)
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Total $1,712,410 $1,809,609
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The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS
(a Pennsylvania limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
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(Unaudited)
Three months Six months
ended June 30, ended June 30,
2003 2002 2003 2002
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Revenues:
Rental income $143,208 $145,316 $287,370 $285,128
Interest income 194 194 477 475
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Total revenues 143,402 145,510 287,847 285,603
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Costs and expenses:
Rental operations 60,511 65,408 185,583 163,911
Interest 132,276 133,206 265,760 266,811
Depreciation and
amortization 49,378 48,666 98,755 97,333
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Total costs and
expenses 242,165 247,280 550,098 528,055
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Net loss ($ 98,763) ($101,770) ($262,251) ($242,452)
======== ======== ======== ========
Net loss per
limited
partnership unit: ($ 8.42) ($ 8.68) ($ 22.36) ($ 20.67)
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS
(a Pennsylvania limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
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(Unaudited)
Six months ended
June 30,
2003 2002
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Cash flows from operating activities:
Net loss ($262,251) ($242,452)
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 98,755 97,333
Changes in assets and liabilities:
Decrease in restricted cash 21,731 2,719
Decrease in accounts receivable 1,737 4,427
Increase in other assets (18,092) (5,082)
Increase (decrease) in accounts
payable - trade 35,328 (224)
Increase in accounts payable -
related parties 18,253 18,253
Increase in interest payable 110,007 106,956
(Decrease) increase in accrued
liabilities (240) 1,432
Increase in tenant security deposits 1,705 9,005
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Net cash provided by (used in)
operating activities 6,933 (7,633)
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Net cash used in investing activities:
Capital expenditures (10,095) 0
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Net cash used in investing activities (10,095) 0
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Decrease in cash and cash equivalents (3,162) (7,633)
Cash and cash equivalents at
beginning of period 13,077 12,266
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Cash and cash equivalents at end of
period $ 9,915 $ 4,633
======== ========
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS
(a Pennsylvania limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements of Diversified
Historic Investors (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 and
notes thereto of the Registrant for the year ended December 31, 2002.
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.
NOTE 2 - SUBSEQUENT EVENT
The three Smythe Stores condominium units were foreclosed on October
2, 2003 by the mortgage holder.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
To the best of its knowledge, Registrant is not a 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
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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, 2003.
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: January 12, 2004 DIVERSIFIED HISTORIC INVESTORS
----------------
By: Diversified Historic Advisors,
General Partner
By: EPK, Inc., Partner
By: /s/ Spencer Wertheimer
----------------------
SPENCER WERTHEIMER,
President and Treasurer
Exhibit 31
CERTIFICATION
I, Spencer Wertheimer, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the
quarterly period ended June 30, 2003 of Diversified Historic
Investors I;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this report;
4. I am responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) [Omission in accordance with SEC Release Nos. 33-
8238, 34-47986 and IC-26068 (June 5, 2003)] for the registrant and
have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under my
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to me by others within those entities, particularly during
the period in which this report is being prepared;
(b) [Omitted in accordance with SEC Release Nos. 33-8238, 34-
47986 and IC-26068 (June 5, 2003)];
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report my
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. I have disclosed, based on my most recent evaluation of internal
control over financial reporting, to the registrant's auditors and
the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: January 12, 2004 /s/ Spencer Wertheimer
---------------- -----------------------
Name: Spencer Wertheimer
Title: President (principal
executive officer) of the
registrant's managing
partner, EPK, Inc.
Date: January 12, 2004 /s/ Spencer Wertheimer
---------------- -----------------------
Name: Spencer Wertheimer
Title: Treasurer (principal
financial officer) of the
registrant's managing
partner, EPK, Inc.
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Diversified Historic
Investors I on Form 10-Q for the quarterly period ended June 30, 2003
as filed with the Securities and Exchange Commission on the date
hereof (the "Report"), I, Spencer Wertheimer, President and Treasurer
of the Company's managing partner, EPK, Inc., certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934, and
(2) The information contained in the Report fairly presents, in all
material respects, the , financial condition and results of operations
of the Company.
Date: January 12, 2004 /s/ Spencer Wertheimer
---------------- -----------------------
Name: Spencer Wertheimer
Title: President (principal
executive officer) of the
registrant's managing
partner, EPK, Inc.
Date: January 12, 2004 /s/ Spencer Wertheimer
---------------- -----------------------
Name: Spencer Wertheimer
Title: Treasurer (principal
financial officer) of the
registrant's managing
partner, EPK, Inc.