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 September 30, 2002
----------------------------------
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
-----------------------------------------
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.)
1521 Locust Street, Philadelphia, PA 19102
- -----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 557-9800
--------------
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 X No
------ ------
Item 1. Financial Statements.
Consolidated Balance Sheets - September 30, 2002 (unaudited) and
December 31, 2001
Consolidated Statements of Operations - Three Months and Nine
Months Ended September 30, 2002 and
2001 (unaudited)
Consolidated Statements of Cash Flows - Nine Months Ended
September 30, 2002 and
2001 (unauditied)
Notes to Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
(1) Liquidity
As of September 30, 2002, Registrant had cash of
approximately $319,701. The Registrant expects that those funds plus
the cash generated from operations at each property will be sufficient
to fund the operating expenses of the properties. The Registrant is
not aware of any additional sources of liquidity.
As of September 30, 2002, Registrant had restricted cash
of $27,172 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.
2) Capital Resources
Any capital expenditures needed are generally replacement
items and are funded out of cash from operations. 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 third quarter of 2002, Registrant incurred a
loss of $29,367 ($3.51 per limited partnership unit) compared to a
loss of $27,888 ($3.33 per limited partnership unit) for the same
period in 2001. For the first nine months of 2002, the Registrant
incurred a loss of $99,074 ($11.84 per limited partnership unit)
compared to a loss of $59,541 ($7.11 per limited partnership unit) for
the same period in 2001.
Rental income decreased $6,151 from $51,464 in the third
quarter of 2001 to $45,313 in the same period in 2002 and decreased
$3,616 from $152,096 for the first nine months of 2001 to $148,480 in
the same period in 2002. The decrease in rental income from the third
quarter of 2001, compared to the same period in 2002 is due to a
decrease in average occupancy at the Brass Works (99% to 90%) and
Locke Mill Plaza (93% to 62%). The decrease in rental income for the
first nine months of 2002 is due to a decrease in average occupancy at
the Brass Works (100% to 92%) and Locke Mill Plaza (88% to 78%).
Interest income decreased $708 from $2,109 in the third
quarter of 2001 to $1,401 in the same period in 2002 and decreased
$2,773 from $7,094 for the first nine months of 2001 to $4,321 in the
same period in 2002. The decrease in interest income for both the
third quarter and the first nine months of 2001, compared to the same
periods in 2002, is due to a decrease in money market interest rates.
Rental operations expense increased $5,878 from $28,696
in the third quarter of 2001 to $34,058 in the same period in 2002 and
increased $36,491 from $96,437 for the first nine months of 2001 to
$130,495 in the same period in 2002. The increase from the third
quarter of 2001, compared to the same period in 2002, is due to an
increase in maintenance expense, leasing commission expense and wages
and salaries expense at Locke Mill Plaza. The increase in maintenance
expense is due to the increase in apartment preparation expenses due
to the increase in turnover of apartment units. The increase in
leasing commission expense is due to the increase in turnover of
apartment units. The increase in wages and salaries is due to an
increase in payroll and related expenses. The increase from the first
nine months of 2001, compared to the same period in 2002, is due to an
increase in insurance expense and wages and salaries expense at Locke
Mill Plaza and an increase in insurance expense and leasing commission
expense, partially offset by a decrease in maintenance expense at the
Brass Works. The increase in wages and salaries expense is due to an
increase in payroll and related expenses. The increases in insurance
expense are due to an increase in insurance premiums. The increase in
leasing commission expense is due to an increase in turnover in
apartment units. The decrease in maintenance expense is due to the
decrease in exterminating and snow removal expenses.
General and administrative expenses decreased $12,000
from $30,000 in the third quarter of 2001 to $18,000 in the same
period of 2002 and for the nine months decreased $6,000 from $54,000
in the nine months of 2001 to $48,000 in the same period of 2002. The
decrease in general and administrative expense from both the third
quarter and the nine months of 2001, compared to the same periods in
2002, is due to timing differences in which the accrual of the
Registrant's administration fees were recorded in 2002. As of year
end, twelve months of administration fees were fully accrued for 2001
and 2002.
Bad debt expense of $2,861 was incurred during the second
quarter of 2002 due to the write off of tenant accounts receivable
that were deemed uncollectible.
During the third quarter of 2002, the loss incurred at
the Registrant's two properties was approximately $8,000, compared to
income of approximately $4,000 for the same period in 2001. For the
first nine months of 2002, the Registrant incurred a loss of
approximately $20,000 compared to income of approximately $3,000 for
the same period in 2001.
In the third quarter of 2002, Registrant recognized
income of $8,000 at the Brass Works, including $13,000 of depreciation
expense, compared to income of $5,000 including $12,000 of
depreciation expense in the third quarter of 2001. The increase in net
income from the third quarter of 2001, compared to the same period in
2002, is due to a decrease in maintenance expense, partially offset by
an increase in leasing commission expense. The decrease in maintenance
expense is due to a decrease in maintenance service and alarm system
service. The increase in leasing commission expense is due to an
increase in turnover of apartment units.
In the first nine months of 2002, Registrant recognized
income of $3,000 at the Brass Works, including $38,000 of depreciation
expense, compared to income of $14,000 for the same period in 2001
including $36,000 of depreciation expense. The decrease in net income
from the first nine months of 2001, compared to the same period in
2002, is due to a decrease in rental income and an increase in bad
debt expense, insurance expense and leasing commission expense,
partially offset by a decrease in maintenance expense. The decrease in
rental income is due to a decrease in average occupancy (100% to 92%).
The increase in bad debt expense is due to the write off of tenant
accounts receivable that were deemed uncollectible. The increase in
insurance expense is due to an increase in insurance premiums. The
increase in leasing commission expense is due to an increase in
turnover of apartment units. The decrease in maintenance expense is
due to the decrease in exterminating and snow removal expenses.
In the third quarter of 2002, Registrant incurred a loss
of $16,000 at Locke Mill Plaza, including $7,000 of depreciation
expense, compared to break even including $7,000 of depreciation
expense in the third quarter of 2001. For the first nine months of
2002, Registrant incurred a loss of $23,000 including $21,000 of
depreciation expense, compared to a loss of $11,000 including $20,000
of depreciation expense for the same period in 2001. The increase in
loss from the third quarter of 2001, compared to the same period in
2002, is due to a decrease in rental income and an increase
maintenance expense, leasing commission expense and wages and salaries
expense. The decrease in rental income is due to a decrease in average
occupancy (93% to 62%). The increase in maintenance expense is due to
the increase in apartment preparation expenses due to the increase in
turnover of apartment units. The increase in commission expense is
due to the increase in turnover of apartment units. The increase in
wages and salaries expense is due to an increase in payroll and
related expenses. The increase in loss from the first nine months of
2001, compared to the same period in 2002, is due to a decrease in
rental income and an increase in insurance expense and wages and
salaries expense. The decrease in rental income is due to a decrease
in average occupancy (88% to 78%). The increase in insurance expense
is due to an increase in insurance premiums, and the increase in wages
and salaries is due to an increase in payroll and related expenses.
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 IV
(a Pennsylvania limited partnership)
CONSOLIDATED BALANCE SHEETS
---------------------------
Assets
September 30, 2002 December 31, 2001
------------------ -----------------
(Unaudited)
Rental properties, at cost:
Land $ 74,324 $ 74,324
Buildings and improvements 2,246,555 2,246,555
Furniture and fixtures 44,660 44,660
---------- ----------
2,365,539 2,365,539
Less - accumulated depreciation (1,298,231) (1,227,712)
---------- ----------
1,067,308 1,137,827
Cash and cash equivalents 319,701 336,033
Restricted cash 27,172 25,042
Other assets 19,181 21,459
---------- ----------
Total $1,433,362 $1,520,361
========== ==========
Liabilities and Partners' Equity
Liabilities:
Accounts payable - trade $ 20,616 $ 16,268
Accounts payable - real
estate tax 4,803 0
Other liabilities 30,271 28,909
Tenant security deposits 13,850 12,290
---------- ----------
Total liabilities 69,540 57,467
Partners' equity 1,363,822 1,462,894
---------- ----------
Total $1,433,362 $1,520,361
========== ==========
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS IV
(a Pennsylvania limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
Three months Nine months
ended September 30, ended September 30,
2002 2001 2002 2001
---- ---- ---- ----
Revenues:
Rental income $45,313 $51,464 $148,480 $152,096
Interest income 1,401 2,109 4,321 7,094
------- ------- -------- --------
Total revenues 46,714 53,573 152,801 159,190
------- ------- -------- --------
Costs and expenses:
Rental operations 34,574 28,696 130,495 96,437
General and
administrative 18,000 30,000 48,000 54,000
Bad debt expense 0 0 2,861 0
Depreciation and
amortization 23,506 22,765 70,519 68,294
------- ------- -------- --------
Total costs
and expenses 76,080 81,461 251,875 218,731
------- ------- -------- --------
Net loss ($29,366) ($27,888) ($ 99,074) ($ 59,541)
======= ======= ======== ========
Net loss per limited
partnership unit ($ 3.51) ($ 3.33) ($ 11.84) ($ 7.11)
======= ======= ======== ========
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS IV
(a Pennsylvania limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
Nine months ended
September 30,
2002 2001
---- ----
Cash flows from operating activities:
Net loss ($ 99,074) ($ 59,541)
Adjustments to reconcile net loss to
net cash (used in) provided by
operating activities:
Depreciation and amortization 70,519 68,294
Changes in assets and liabilities:
Increase in restricted cash (2,129) (1,254)
Decrease (increase) in other assets 2,278 (1,888)
Increase in accounts payable - trade 4,348 1,249
Increase in accounts payable -
taxes 4,803 4,809
Increase (decrease) in other
liabilities 1,364 (1,298)
Increase in tenant security deposits 1,560 820
-------- --------
Net cash (used in) provided by
operating activities (16,331) 11,191
-------- --------
(Decrease) increase in cash and cash
equivalents (16,331) 11,191
Cash and cash equivalents at
beginning of period 336,032 330,149
-------- --------
Cash and cash equivalents at end of
period $319,701 $341,340
======== ========
The accompanying notes are an integral part of these financial statements.
DIVERSIFIED HISTORIC INVESTORS IV
(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 (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 and notes thereto,
in the Registrant's Annual Report on Form 10-K for the year ended
December 31, 2001.
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.
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
-------------- --------
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 September 30, 2002.
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: January 12, 2004 DIVERSIFIED HISTORIC INVESTORS IV
----------------
By: Dover Historic Advisors III, General
Partner
By: EPK, Inc., General Partner
By: /s/ Spencer Wertheimer
----------------------
SPENCER WERTHEIMER
President
Exhibit 31
CERTIFICATION
I, Spencer Wertheimer, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the
quarterly period ended September 30, 2002 of Diversified Historic
Investors IV;
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 IV on Form 10-Q for the quarterly period ended September 30,
2002 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.