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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-17651
HIGH CASH PARTNERS, L.P.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3347257
- --------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Pembroke HCP, LLC
70 East 55th Street 7th Floor
New York, New York 10022
- ------------------------------------ ---------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212-350-9900
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- --------------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
-------------------------------------
(Title of class)
Indicate by check mark whether 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 Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
-- --
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes No X
-- --
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common equity,
as of the last day of the registrant's most recently completed second fiscal
quarter:
Not applicable. There is no established market for units of limited
partnership interest in the registrant.
PART I
Item 1. Business
High Cash Partners, L.P. (the "Partnership") is a Delaware limited partnership
formed in 1986 for the primary purpose of investing in, holding, operating and
otherwise acting with respect to office buildings, shopping centers and other
commercial and industrial properties.
Recent Events
On March 3, 2003, the deed to the Partnership's sole real estate asset, the
Sierra Marketplace, a community retail shopping center located in Reno, Nevada
(the "Property"), was released to the Partnership's first mortgage lender,
Resources Accrued Mortgage Investors 2 L.P. ("RAM 2"), in lieu of foreclosure,
under the terms of the mortgage loan modification agreement (the "Mortgage Loan
Modification Agreement") entered into between the Partnership and RAM 2
effective January 31, 2001, and, as a result, the Partnership no longer has an
interest in the Property. Consequently, in accordance with the provisions of its
Amended and Restated Agreement of Limited Partnership, the Partnership intends
to discontinue operations and will proceed to wind up its business and
distribute its remaining assets to its partners.
Background
In 1989, the Partnership used all the net proceeds from its public offering of
units of limited partnership interest ("Units") to acquire the Property. The
acquisition of the Property was financed in part with the proceeds of a zero
coupon first mortgage loan in the principal amount of $6,500,000 (the "Mortgage
Loan") from RAM 2, a public limited partnership sponsored by affiliates of the
former general partners. The Mortgage Loan bore interest at the rate of 11.22%
per annum, compounded monthly and was originally scheduled to mature on February
28, 2001. The principal balance, along with deferred interest thereon, was
$27,356,117 at December 31, 2002.
Until November 1997, Levitz Furniture Corporation ("Levitz") had occupied
approximately 23% of the space of the Property (i.e., approximately 53,000 out
of approximately 233,000 square feet of net leasable area) under a lease that
extended through 2008. In November 1997, Levitz, which had filed for protection
under Chapter 11 of the Bankruptcy Code, vacated its space. Levitz ceased paying
rent to the Partnership as of April 2, 1998. The vacancy at the Levitz space
resulted in a loss of income to the Partnership and may have adversely affected
the surrounding tenants and the Partnership's ability to attract new tenants.
During 1999, in order to maximize cash flow from the Property, the Partnership
entered into a short-term lease, terminable by the Partnership upon written
notice to the tenant, for the Levitz space at an annual rent substantially less
than under the Levitz lease.
Because Pembroke HCP, LLC (the "Managing General Partner"), the managing general
partner of the Partnership, anticipated that the Partnership would be unable
either to repay or refinance the Mortgage Loan at the Mortgage Loan's original
maturity date of February 28, 2001 and in order to provide the Partnership with
additional time to attempt to maximize the Property's value, the Managing
General Partner caused the Partnership to enter into the Mortgage Loan
Modification Agreement with RAM 2 effective January 31, 2001. Under the Mortgage
Loan Modification Agreement, RAM 2 agreed to forbear, for not less than one year
and up to two years, the exercise of its rights and remedies under the Mortgage
Loan for the Partnership's failure to repay all amounts due and payable
thereunder at the original maturity date. Pursuant to the terms of the Mortgage
Loan Modification Agreement, the deed to the Property, along with a bill of
sale, assignment of leases and other conveyance documents (the "Conveyance
Documents") were placed in escrow with counsel to RAM 2. The Conveyance
Documents were not to be released to RAM 2 until the earliest to occur of
certain events specified in the Mortgage Loan Modification Agreement and March
1, 2003. Prior to March 1, 2003, the Partnership retained the right (unless
notified by RAM 2 that RAM 2 had entered into a contract to sell or convey the
Property) to satisfy the Mortgage
I-1
Loan for an amount equal to the sum of (x) the then unpaid principal balance of
the Mortgage Loan, and all accrued interest thereon and other charges due
thereunder and (y) 66% of the value of the Property in excess of the amount
described in clause (x) above, as additional interest on the Mortgage Loan. The
Mortgage Loan and the Mortgage Loan Modification Agreement are described in more
detail in Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources."
The Partnership's search for a long-term, creditworthy substitute tenant for the
Levitz space and its ability to attract additional tenants at higher rents was
impeded by the strong competition for tenants (including existing tenants whose
leases expire) among existing shopping centers in the vicinity of the Property.
In addition, a portion of the land available for development in the immediate
geographic vicinity of the Property had recently been developed by centers
predominantly occupied by large anchor tenants, which created additional
competition for the Property. This competitive factor, together with the fact
that much of the space (including the space previously occupied by Levitz) had
only limited visibility to the main thoroughfare, hindered the Partnership's
entry into a new lease of the space on terms comparable to the Levitz lease. The
Partnership's inability to enter into such a lease impaired its efforts to
increase the cash flow generated by the Property and resulted in a significant
diminution in the value of the Property.
Both prior to and after the Partnership's entry into the Mortgage Loan
Modification Agreement, the Managing General Partner sought a long-term,
creditworthy anchor tenant for the space that was previously occupied by Levitz.
The Managing General Partner also explored options for a sale or refinancing of
the Property. However, despite the Managing General Partner's continuing
efforts, the Partnership was unable to increase the value of the Property,
thereby precluding a sale or refinancing of the Mortgage Loan on terms favorable
to the Partnership.
Employees
The Partnership does not have any employees. Services were performed for the
Partnership by the Managing General Partner and certain other parties that may
be deemed to be affiliated with the Managing General Partner. Through December
31, 2000, certain property management services were performed by Pembroke Realty
Management LLC ("Pembroke Realty"); certain services were performed for Pembroke
Realty by Colliers Nevada Management, LLC, an unaffiliated management company
("Colliers"). In connection with its entering into the Mortgage Loan
Modification Agreement, the Partnership retained Kestrel Management LP
("Kestrel"), an affiliate of the then general partner of RAM 2, to manage the
Property commencing on January 2, 2001. Kestrel assumed all property management
services previously performed by Pembroke Realty and Colliers, pursuant to the
terms of a management agreement. In January 2002, responsibility for the
management of the Property was assigned by Kestrel to Pelican, LLC ("Pelican"),
an affiliate of the new general partner of RAM 2. See Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources," Item 10, "Directors and Executive Officers of
Registrant," Item 11, "Executive Compensation," Item 12, "Security Ownership of
Certain Beneficial Owners and Management," and Item 13, "Certain Relationships
and Related Transactions."
Item 2. Properties
See Item 1, "Business" above.
Item 3. Legal Proceedings
The Partnership is not a party to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of 2002.
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PART II
Item 5. Market for Registrant's Securities and Related Security Holder Matters
There is no established public trading market for the Units, and it is not
anticipated that such a market will develop.
There are certain restrictions in the Partnership's Partnership Agreement that
may limit the ability of a limited partner to transfer Units. Such restrictions
could impair the ability of a limited partner to liquidate its investment in the
event of an emergency or for any other reason.
As of March 15, 2003, there were 1,354 holders of Units, owning an aggregate of
96,472 Units.
In May 1999, October 1999, January 2000 and May 2000, the Partnership paid cash
distributions of approximately $4,100,000, $700,000, $700,000 and $750,000,
respectively, or $42.07, $7.18 $7.18, and $7.70 per Unit, respectively, to
Unitholders of record on May 11, 1999, October 20, 1999, January 1, 2000 and May
30, 2000, respectively. There were no distributions made to Unitholders during
2001 or 2002.
There are no material legal restrictions on distributions in the Partnership's
Partnership Agreement.
Item 6. Selected Financial Data
Year ended December 31,
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2002 2001 2000 1999 1998
-------------- -------------- -------------- -------------- --------------
Revenues $ 2,756,797 $ 2,746,571 $ 2,639,242 $ 2,521,650 $ 2,479,904
Net Loss $ (1,744,294) $ (1,537,134) $ (1,297,109) $ (1,147,548) $ (925,947)
Net (Loss) Per Unit (1) $ (17.90) $ (15.77) $ (13.31) $ (11.78) $ ( 9.50)
Distributions Per Unit (1) $ - $ - $ 14.88 $ 49.25 $ -
Long-term Obligations (2) $ 27,356,117 $ 26,191,497 $ 24,526,844 $ 21,935,131 $ 19,617,279
Total Assets $ 15,551,616 $ 16,146,414 $ 16,119,572 $ 16,191,090 $ 19,834,203
_________________
(1) Based upon the weighted average number of Units outstanding.
(2) Consists of the principal amount of the Mortgage Loan plus deferred
interest thereon, due on or before March 1, 2003. See Item 7,
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
II-1
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Winding up of the Partnership's Business
On March 3, 2003, the deed to the Property was released to RAM 2 in lieu of
foreclosure under the terms of the Mortgage Loan Modification Agreement entered
into between the Partnership and RAM 2 effective January 31, 2001, and, as a
result, the Partnership no longer has an interest in the Property. Consequently,
in accordance with the provisions of its Amended and Restated Agreement of
Limited Partnership, the Partnership intends to discontinue operations and will
proceed to wind up its business and distribute its remaining assets to its
partners. Although there can be no assurance as to the timing and amount of any
distributions with respect to the Units, the Partnership anticipates making
(after establishing such reserves for contingencies as the Managing General
Partner considers necessary) a liquidating distribution of approximately $5.25
per Unit during the second quarter of 2003.
Liquidity and Capital Resources
The Partnership uses undistributed cash flow from operations, which excludes
cash and other assets held by Pelican, as its primary measure of liquidity. At
December 31, 2002, cash and cash equivalents amounted to approximately $794,000,
which did not include any amount which may have been payable at such date under
the Mortgage Loan payable to RAM 2 or deferred interest thereon, which were due
on or before March 1, 2003. A portion of such cash and cash equivalents may be
used to fund operating expenses of the Partnership. All expenditures during 2002
were funded from cash flow from operations.
At December 31, 2002, the total amount outstanding on the Mortgage Loan was
$27,356,117, which included deferred interest of $20,856,117. The scheduled
maturity date of the Mortgage Loan was originally February 28, 2001, at which
time the total amount outstanding on the mortgage was approximately $25,000,000.
The Mortgage Loan and the Mortgage Loan Modification Agreement are described in
more detail below under "Mortgage Loan Modification Agreement."
Mortgage Loan Modification Agreement
Because the Managing General Partner anticipated that the Partnership would be
unable either to repay or refinance the Mortgage Loan at the Mortgage Loan's
original maturity date of February 28, 2001 and in order to provide the
Partnership with additional time to maximize the Property's value, the Managing
General Partner negotiated and caused the Partnership to enter into the Mortgage
Loan Modification Agreement with RAM 2 in order to effect a modification of the
Mortgage Loan and prevent the immediate foreclosure of the Mortgage Loan and the
consequent loss of the Property. The Mortgage Loan Modification Agreement became
effective on January 31, 2001.
Pursuant to the Mortgage Loan Modification Agreement, RAM 2 agreed to forbear
for not less than one year and up to two years (i.e., through February 28, 2003)
in the exercise of its rights and remedies under the Mortgage Loan triggered by
the Partnership's failure to repay fully all amounts due and payable thereunder
at maturity.
Under the Mortgage Loan Modification Agreement, the Conveyance Documents were
placed in escrow with counsel to RAM 2. The Conveyance Documents were not to be
released to RAM 2 until the earliest to occur of (such date referred to herein
as the "Extended Maturity Date"):
(i) any date on which any action taken or omitted to be taken by the
Partnership in bad faith, intended to hinder or impede RAM 2's
exercise of its rights or remedies under the terms of the Mortgage
Loan Modification Agreement, remained uncured for more than 10 days
after notice of same from RAM 2;
II-2
(ii) any date on or after March 1, 2002, upon the closing date of the sale
or other conveyance of the Property (a) if RAM 2 identified a bona
fide third party purchaser to acquire the Property or (b) for any
other reason deemed reasonably necessary by RAM 2 to avoid a material
economic disadvantage to it; and
(iii) March 1, 2003.
The Conveyance Documents were released to RAM 2 on March 3, 2003, and, as a
result, the Partnership no longer has an interest in the Property.
The Mortgage Loan Modification Agreement further provided that 100% of the net
operating income generated by the Property allocable to the period ended
February 28, 2001, the original maturity date of the Mortgage Loan, would be
retained by the Partnership. During 2001, the Partnership retained $451,000 of
net income allocable to the period ended February 28, 2001. From and after March
1, 2001 through the date the Conveyance Documents were released to RAM 2, the
Partnership had been entitled to receive $100,000 per annum pro-rated monthly
and paid monthly to the extent cash flow permitted and RAM 2 was entitled to
receive the balance of the net operating income generated by the Property to be
applied to current interest and the outstanding principal and deferred interest
on the Mortgage Loan. For the 12 months ended December 31, 2002, the Partnership
received approximately $91,667, and RAM 2 received approximately $1,807,000, of
net operating income generated by the Property, which was utilized to pay
interest on the Mortgage Loan.
Under the terms of the Mortgage Loan Modification Agreement, RAM 2 also agreed
to release the Partnership and its affiliates from all claims for principal or
interest due under the Mortgage Loan effective on the date that the Conveyance
Documents were released to RAM 2 or such other party as agreed to by RAM 2. Such
release is effective provided that the Partnership (i) does not become the
subject of any bankruptcy proceeding on or before one year from the date of
release of the Conveyance Documents and (ii) has not perpetrated any fraud upon
RAM 2. In addition, the Partnership became entitled to a refund of expenses
previously paid by it, to the extent that such expenses related to any time
period subsequent to February 28, 2001. During 2001, the Partnership received a
refund of approximately $25,000 for expenses previously paid by it. From and
after February 28, 2001, the Partnership has used its cash flow and cash
reserves to fund the payment of Partnership fees and expenses. To the extent not
used to pay Partnership fees and expenses, these funds will be available for
distribution to the Limited Partners. At December 31, 2002, the Partnership had
cash and cash equivalents of $794,022. The Partnership anticipates making (after
establishing such reserves for contingencies as the Managing General Partner
considers necessary) a liquidating distribution of approximately $5.25 per Unit
during the second quarter of 2003.
Under the terms of the Mortgage Loan, the Partnership had been obligated to
provide RAM 2 with a current appraisal of the Property upon RAM 2's request. If
it was determined, based upon the requested appraisal, that the sum of (i) the
principal balance of the Mortgage Loan plus all other then outstanding
indebtedness secured by the Property and (ii) all accrued and unpaid interest on
the Mortgage Loan calculated at a rate of 6.22% per annum compounded monthly
through the date of such appraisal (that sum, the "Measurement Amount"),
exceeded 85% of the appraised value of the Property, an amount equal to such
excess (the "Excess Payment") would have become immediately due and payable to
RAM 2. Any amount so paid by the Partnership would have been applied first
against accrued and unpaid interest on the Mortgage Loan, and the balance, if
any, against the principal thereof. In accordance with the terms of the Mortgage
Loan Modification Agreement, RAM 2 was entitled to request an appraisal of the
Property; however, if such appraisal indicated that no Excess Payment was due,
RAM 2 would have no further appraisal rights. RAM 2 requested that the Property
be appraised by Greenwich Realty Advisors, a real estate appraisal firm
unaffiliated with the Partnership, the Managing General Partner or RAM 2. The
appraisal, which was performed as of March 1, 2001, indicated a fair market
value of $20 million for the Property. As of March 1, 2001 the Measurement
Amount was $13,684,645. Because the Measurement Amount did not exceed 85% of the
appraised value of the Property on that date, no Excess Payment was payable to
RAM 2. Consequently, under the terms of the Mortgage Loan Modification
Agreement, RAM 2's appraisal right was extinguished.
II-3
Under the Mortgage Loan Modification Agreement, the Partnership was to retain
its interest in the Property until and unless the Conveyance Documents were
released to RAM 2 in accordance with the terms thereof. In addition, prior to
March 1, 2003, until RAM 2 notified the Partnership that it had entered into a
contract to sell or convey the Property, the Partnership retained the right to
satisfy the Mortgage Loan for an amount equal to the sum of (x) the then unpaid
principal balance of the Mortgage Loan, and all accrued interest thereon and
other charges due thereunder and (y) 66% of the value of the Property in excess
of the amount described in clause (x) above, as additional interest on the
Mortgage Loan.
In connection with the Partnership's entering into the Mortgage Loan
Modification Agreement, Lawrence J. Cohen, the sole shareholder and director of
Pembroke Companies Inc., which is the sole member and the manager of the
Managing General Partner, executed an unconditional limited guaranty of payment
in the amount of the principal balance of the Mortgage Loan, all accrued and
unpaid interest thereon and all other charges due thereunder, that will be
effective only if Mr. Cohen or his affiliates cause the Partnership to file for
bankruptcy or to commence a civil action seeking to hinder, impede or delay RAM
2's exercise of any right or remedy available to it.
Until November 1997, Levitz had occupied approximately 23% of the space of the
Property (i.e., approximately 53,000 out of approximately 233,000 square feet of
net leasable area) under a lease that extended through 2008. In November 1997,
Levitz, which had filed for protection under Chapter 11 of the Bankruptcy Code,
vacated its space. Levitz ceased paying rent to the Partnership as of April 2,
1998. The vacancy at the Levitz space resulted in a loss of income to the
Partnership and may have adversely affected the surrounding tenants and the
Partnership's ability to attract new tenants. During 1999, in order to maximize
cash flow from the Property, the Partnership entered into a short-term lease,
terminable by the Partnership upon written notice to the tenant, for the Levitz
space at an annual rent substantially less than under the Levitz lease.
The Partnership's search for a long-term, creditworthy substitute tenant for the
Levitz space and its ability to attract additional tenants at higher rents was
impeded by the strong competition for tenants (including existing tenants whose
leases expire) among existing shopping centers in the vicinity of the Property.
In addition, a portion of the land available for development in the immediate
geographic vicinity of the Property had recently been developed by centers
predominantly occupied by large anchor tenants, which created additional
competition for the Property. This competitive factor, together with the fact
that much of the space (including the space previously occupied by Levitz) had
only limited visibility to the main thoroughfare, hindered the Partnership's
entry into a new lease of the space on terms comparable to the Levitz lease. The
Partnership's inability to enter into such a lease impaired its efforts to
increase the cash flow generated by the Property and resulted in a significant
diminution in the value of the Property.
Both prior to and after the Partnership's entry into the Mortgage Loan
Modification Agreement, the Managing General Partner sought a long-term,
creditworthy anchor tenant for the space that was previously occupied by Levitz.
The Managing General Partner also explored options for a sale or refinancing of
the Property. However, despite the Managing General Partner's continuing
efforts, the Partnership was unable to increase the value of the Property,
thereby precluding a sale or refinancing of the Mortgage Loan on terms favorable
to the Partnership.
Although there can be no assurance as to the timing and amount of any
distributions with respect to the Units, the Partnership anticipates making
(after establishing such reserves for contingencies as the Managing General
Partner considers necessary) a liquidating distribution of approximately $5.25
per Unit during the second quarter of 2003.
Results of Operations
2002 vs. 2001
The Partnership realized a net loss of $1,744,294 ($17.90 per Unit) for 2002
compared to a net loss of $1,537,134 ($15.77 per Unit) for 2001, an increased
loss of $207,160. The increased loss was primarily
II-4
a result of increased costs and expenses described below, partially offset by a
small increase in revenues.
Revenues increased from 2001 to 2002 as a result of increased rental income,
offset by a decrease in interest income.
Rental income increased from 2001 to 2002 due to increased tenant reimbursement
of operating expenses, despite the inclusion of a non-recurring retroactive
billing adjustment in 2002. Interest income decreased as a result of lower
prevailing interest rates and a decrease in the level of Partnership funds
invested.
Costs and expenses increased from 2001 to 2002 due to an increase in mortgage
loan interest expense and operating expenses.
Mortgage loan interest increased due to the compounding effect of the deferral
of interest expense on the zero coupon mortgage. Operating expenses reflect the
increased costs of operating and maintaining the Property.
2001 vs. 2000
The Partnership realized a net loss of $1,537,134 ($15.77 per Unit) for 2001
compared to a net loss of $1,297,109 ($13.31 per Unit) for 2000, an increased
loss of $240,025. The increased loss was primarily a result of an increase in
mortgage loan interest expense coupled with an increase in depreciation and
amortization, partially offset by an increase in rental income.
Revenues increased from 2000 to 2001 due to increases in base rentals. Base
rentals increased as a result of scheduled increases in existing leases.
Costs and expenses increased from 2000 to 2001 primarily due to an increase in
mortgage loan interest expense coupled with an increase in the amortization
portion of depreciation and amortization.
Mortgage loan interest expense increased due to the compounding effect from the
deferral of the interest expense on the Mortgage Loan. Depreciation and
amortization increased due to the amortization of costs associated with the
Mortgage Loan Modification Agreement, and tenant leasing commissions incurred
during 2001.
Inflation
Inflation has not had a material impact on the Partnership's operations or
financial condition in recent years and is not expected to have a material
impact in the foreseeable future.
Cautionary Statement Concerning Forward-Looking Statements
This document and the documents incorporated by reference into this Form 10-K,
including Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources," contain both
historical and forward-looking statements. All statements other than statements
of historical fact are, or may be deemed to be, forward-looking statements
within the meaning of section 27A of the Securities Act of 1933 and section 21E
of the Securities Exchange Act of 1934 (the "Exchange Act"). These
forward-looking statements are not based on historical facts, but rather reflect
the Partnership's current expectations concerning future results and events.
These forward-looking statements generally can be identified by use of
statements that include phrases such as "believe," "expect," "anticipate,"
"intend," "plan," "foresee," "likely," "will" or other similar words or phrases.
Similarly, statements that describe the Partnership's objectives, plans or goals
are or may be forward-looking statements. These forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Partnership to be
II-5
different from any future results, performance and achievements expressed or
implied by these statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Partnership's financial instruments consist solely of money market accounts
maintained with international financial institutions. All of the Partnership's
accounts pay market rates of interest and are insured by federal deposit
insurance which eliminates certain of the risks associated with these
investments, except to the extent that the amounts contained in any accounts
exceed dollar limits imposed by federal deposit insurance.
II-6
Item 8. Financial Statements and Supplementary Data
INDEX
Page
Number
------
Independent Auditor's Report F-1
Financial statements:
Balance sheets F-2
Statements of operations F-3
Statement of partners' deficit F-4
Statements of cash flows F-5
Notes to financial statements F-6
Schedule II:
Valuation and qualifying accounts F-14
Schedule III:
Real estate and accumulated depreciation F-15
All other financial statement schedules are omitted because they are not
applicable or the required information is presented in the financial statements
or notes thereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
II-7
To the Partners of
High Cash Partners, L.P.
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheets of High Cash Partners, L.P. (a
limited partnership) as of December 31, 2002 and 2001, and the related
statements of operations, partners' deficit and cash flows for each of the three
years in the period ended December 31, 2002. Our audits also included the
financial statement schedules listed in the Index at Item 14(a)2. These
financial statements and the financial statement schedules are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on the financial statements and financial statement schedules based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of High Cash Partners, L.P. as of
December 31, 2002 and 2001, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2002 in conformity
with accounting principles generally accepted in the United States of America.
Also, in our opinion, such financial statement schedules, when considered in
relation to the basic financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
As discussed in Note 5 to the financial statements, on March 3, 2003, the deed
to the Partnership's sole real estate asset, the Sierra Marketplace, was
released to the Partnership's first mortgage lender, Resources Accrued Mortgage
Investors 2 L.P., in lieu of foreclosure, under the terms of the mortgage loan
modification agreement. As a result, the Partnership no longer has an interest
in the property. Consequently, in accordance with the provisions of the
Partnership's Amended and Restated Agreement of Limited Partnership, the
Partnership intends to discontinue operations and will proceed to wind up its
business and distribute its remaining assets to its partners.
/s/ Hays & Company LLP
March 20, 2003
New York, New York
F-1
HIGH CASH PARTNERS, L.P.
BALANCE SHEETS
December 31,
----------------------------------
2002 2001
ASSETS
Real estate, net $ 14,162,257 $ 14,433,815
Cash and cash equivalents 794,022 1,100,234
Other assets 281,327 441,920
Tenant receivables, net 314,010 112,339
Prepaid expenses -- 58,106
------------- ----------------
Total assets $ 15,551,616 $ 16,146,414
============= ================
LIABILITIES AND PARTNERS' DEFICIT
Liabilities
Mortgage loan payable $ 6,500,000 $ 6,500,000
Deferred interest payable 20,856,117 19,691,497
Accounts payable and accrued expenses 39,980 57,134
Tenants' security deposits payable 66,648 64,618
------------- ----------------
Total liabilities 27,462,745 26,313,249
------------- ----------------
Commitments and contingencies (Notes 3, 4, 5 and 8)
Partners' deficit
Limited partners' deficit
(96,472 units issued and outstanding) (11,792,016) (10,065,165)
General partners' deficit (119,113) (101,670)
(11,911,129) (10,166,835)
-------------- ----------------
$ 15,551,616 $ 16,146,414
============== ================
See notes to financial statements.
F-2
HIGH CASH PARTNERS, L.P.
STATEMENTS OF OPERATIONS
Year ended December 31,
---------------------------------------------------------------
2002 2001 2000
------------------ ----------------- ------------------
Revenues
Rental income $ 2,735,331 $ 2,711,685 $ 2,604,141
Interest Income 21,466 34,886 35,101
----------------- ----------------- -----------------
2,756,797 2,746,571 2,639,242
----------------- ----------------- -----------------
Cost and expenses
Mortgage loan interest 2,972,252 2,846,172 2,591,713
Operating 595,867 503,992 488,600
Depreciation and amortization 457,099 430,124 366,176
Partnership management fees 301,475 301,475 301,475
General and Administrative 91,879 121,186 111,106
Property management fees 82,519 80,756 77,281
----------------- ----------------- -----------------
4,501,091 4,283,705 3,936,351
----------------- ----------------- -----------------
Net loss $ (1,744,294) $ (1,537,134) $ (1,297,109)
================ ================ ================
Net loss attributable to
Limited partners $ (1,726,851) $ (1,521,763) $ (1,284,138)
General partners (17,443) (15,371) (12,971)
---------------- ---------------- ----------------
$ (1,744,294) $ (1,537,134) $ (1,297,109)
================ ================ ================
Net loss per unit of limited partnership
interest (96,472 units outstanding) $ (17.90) $ (15.77) $ (13.31)
================ ================ ================
See notes to financial statements.
F-3
HIGH CASH PARTNERS, L.P.
STATEMENT OF PARTNERS' DEFICIT
PERIOD FROM JANUARY 1, 2000 THROUGH DECEMBER 31, 2002
General Limited Total
Partners' Partners' Partners'
Deficit Deficit Deficit
-------------- -------------- ---------------
Balance, January 1, 2000 $ (58,828) $ (5,823,761) $ (5,882,589)
Net loss - 2000 (12,971) (1,284,138) (1,297,109)
Distributions (14,500) (1,435,503) (1,450,003)
------------- -------------- --------------
Balance, December 31, 2000 (86,299) (8,543,402) (8,629,701)
Net loss - 2001 (15,371) (1,521,763) (1,537,134)
------------- -------------- --------------
Balance, December 31, 2001 (101,670) (10,065,165) (10,166,835)
Net loss - 2002 (17,443) (1,726,851) (1,744,294)
------------- -------------- --------------
Balance, December 31, 2002 $ (119,113) $ (11,792,016) $ (11,911,129)
============= ============== =============
See notes to financial statements.
F-4
HIGH CASH PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
Year ended December 31,
--------------------------------------------------------------
2002 2001 2000
---------------- ----------------- ------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities
Net loss $(1,744,294) $(1,537,134) $(1,297,109)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities
Deferred interest expense 1,164,620 1,664,653 2,591,713
Depreciation and amortization 457,099 430,124 366,176
Changes in operating assets and liabilities
Leasing commissions paid (51,870) (51,294) (1,969)
Other assets 75,676 (269,171) (21,050)
Tenant receivables, net (201,671) (25,443) (20,264)
Prepaid expenses 58,106 (24,743) (5,227)
Accounts payable and accrued expenses (17,154) 14,604 (15,381)
Tenants' security deposits payable 2,030 (3,511) (738)
----------- ----------- -----------
Net cash (used in) provided by
operating activities (257,458) 198,085 1,596,151
----------- ----------- -----------
Cash flows from investing activities
Additions to real estate (48,754) (25,719) --
----------- ----------- -----------
Cash flows from financing activities
Deferred financing costs paid -- (175,783) --
Distributions to partners -- -- (1,450,003)
----------- ----------- -----------
Net cash used in financing activities -- (175,783) (1,450,003)
----------- ----------- -----------
Net (decrease) increase in cash and cash
equivalents (306,212) (3,417) 146,148
Cash and cash equivalents, beginning of year 1,100,234 1,103,651 957,503
----------- ----------- -----------
Cash and cash equivalents, end of year $ 794,022 $ 1,100,234 $ 1,103,651
=========== =========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 1,807,632 $ 1,181,519 $ --
=========== =========== ===========
See notes to financial statements.
F-5
HIGH CASH PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
1 ORGANIZATION
High Cash Partners, L.P. (formerly High Income Partners L.P. - Series 87)
(the "Partnership") was formed in May 1986 pursuant to the Delaware Revised
Uniform Limited Partnership Act for the purpose of acquiring and operating
real estate. As a result of the loss of its sole income producing property,
the Partnership is in the process of winding up its business and
distributing its remaining assets to its partners in accordance with its
Amended and Restated Agreement of Limited Partnership (the "Limited
Partnership Agreement"). The Partnership filed a Form S-11 registration
statement with the Securities and Exchange Commission, which became
effective on June 29, 1988, covering an offering of 400,000 limited
partnership units (subject to increase, if the Underwriter exercised its
right to sell an additional 200,000 units) at $250 per unit.
The Partnership's public offering terminated on June 29, 1990, at which
time the Partnership had accepted subscriptions for 77,901 limited
partnership units (including those units sold to the initial limited
partner) for aggregate net proceeds of $17,284,566 (gross proceeds of
$19,475,250, less organization and offering costs aggregating $2,190,684).
The Partnership received $2,500 and $1,000 for contributions to the
Partnership from the initial limited partner and the general partners,
respectively. The Partnership had committed 100% of its net proceeds
available for investment to the Sierra Marketplace acquisition, a retail
shopping center.
The Partnership sold 18,571 unregistered limited partnership units to
Integrated Resources, Inc. ("Integrated"), the former parent of the
original Managing General Partner of the Partnership, for aggregate net
proceeds of $4,120,441 (gross proceeds of $4,642,750, less organization and
offering costs aggregating $522,309). Simultaneously, Integrated sold these
units to the Partnership's three bank creditors. The sale of the
aforementioned units, effective January 1, 1991, was part of a transaction
that enabled the Partnership to repay its unsecured loans on December 19,
1990.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Leases
The Partnership accounts for its leases under the operating method. Under
this method, revenue is recognized as rentals become due, except for
stepped leases, where revenue is recognized on a straight-line basis over
the life of the lease.
Depreciation
Depreciation is computed using the straight-line method over the estimated
useful life of the property, which is approximately 40 years. The cost of
the Property represents the initial cost of the Property to the Partnership
plus acquisition and closing costs. Repairs and maintenance are charged to
operations as incurred.
Financial statements
The financial statements include only those assets, liabilities and results
of operations that relate to the business of the Partnership.
Cash and cash equivalents
F-6
The Partnership considers all short-term investments that have original
maturities of three months or less when purchased to be cash equivalents.
The Partnership's cash balances are held at various financial institutions,
however, at times, cash balances may exceed insured limits.
Fair value of financial instruments
The fair value of financial instruments is determined by reference to
market data and other valuation techniques as appropriate. The
Partnership's financial instruments consist principally of cash and cash
equivalents, tenant receivables, accounts payable and accrued expenses and
a mortgage loan payable. Tenant receivables and other assets are held by
the mortgage lender and may be applied to satisfy unpaid mortgage interest.
Unless otherwise disclosed, the fair value of financial instruments
approximates their recorded values.
Net loss and distributions per unit of limited partnership interest
Net loss and distributions per unit of limited partnership interest are
computed based upon the number of units outstanding (96,472) during the
years ended December 31, 2002, 2001 and 2000.
Deferred financing costs
Costs incurred in connection with obtaining long-term debt are capitalized
and amortized over the life of the debt.
Income taxes
No provisions have been made for federal, state and local income taxes,
since they are the personal responsibility of the partners.
The income tax returns of the Partnership are subject to examination by
federal, state and local taxing authorities. Such examinations could result
in adjustments to Partnership losses, which could affect the income tax
liability of the individual partners.
Reclassifications
Certain reclassifications have been made to the financial statements shown
for the prior years in order to conform to the current year's
classifications.
Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
3 CHANGE IN GENERAL PARTNER OWNERSHIP, CONFLICTS OF INTEREST AND
TRANSACTIONS WITH RELATED PARTIES
Until June 13, 1997, the Managing General Partner of the Partnership was
Resources High Cash, Inc. ("RHC"). RHC was, until November 3, 1994, a
wholly-owned subsidiary of Integrated, at which time, pursuant to the
consummation of Integrated's Plan of Reorganization, substantially all
F-7
the assets of Integrated, but not the stock of RHC, were sold to Presidio
Capital Corp. ("Presidio"). RHC became a wholly-owned subsidiary of XRC
Corp. ("XRC"), which is a subsidiary of Presidio. The other general partner
of the Partnership was, until June 13, 1997, Presidio AGP Corp. ("AGP"), a
Delaware Corporation that is a wholly-owned subsidiary of Presidio.
Presidio also is the parent of other entities that were, or may have been,
engaged in businesses that may have been in competition with the
Partnership. Accordingly, conflicts of interest may have arisen between the
Partnership and such other businesses.
Resources Accrued Mortgage Investors 2 L.P. ("RAM 2"), whose managing
general partner was owned by Presidio, made a zero coupon first mortgage
loan to the Partnership (Note 5). It is believed that the general partner
of RAM 2 is no longer owned by Presidio.
Effective April 1, 1991, Integrated purchased, in an arms-length
transaction from an unaffiliated third party, 8,361 limited partnership
units ("Units"). Effective January 1, 1995, pursuant to the consummation of
Integrated's Plan of Reorganization, these Units were transferred to XRC.
On June 13, 1997, RHC and AGP sold their general partnership interests in
the Partnership to Pembroke HCP LLC ("Pembroke HCP") and Pembroke AGP Corp.
("Pembroke AGP") (collectively, the "General Partners"), respectively. In
the same transaction, XRC sold its 8,361 Units to Pembroke Capital II, LLC,
an affiliate of Pembroke HCP and Pembroke AGP. Subsequently, Pembroke
Capital II LLC acquired beneficial ownership of an aggregate of an
additional 6,277 Units in the secondary market.
Following the sale on June 13, 1997, an affiliate of Pembroke HCP was
engaged to perform administrative services for the Partnership. During each
of the years ended December 31, 2002, 2001 and 2000 reimbursable expenses
paid to the affiliate by the Partnership amounted to $48,000.
The Partnership had been a party to a supervisory management agreement with
Resources Supervisory Management Corp. ("Resources Supervisory"), an
affiliate of RHC and AGP, pursuant to which Resources Supervisory performed
certain property management functions. Resources Supervisory performed such
services through June 13, 1997. Effective June 13, 1997, the Partnership
terminated this agreement and entered into a similar agreement with
Pembroke Realty Management LLC ("Pembroke Realty"), an affiliate of
Pembroke HCP and Pembroke AGP. A portion of the property management fees
payable to Resources Supervisory and Pembroke Realty was paid to
unaffiliated local management companies that had been engaged for the
purpose of performing the property management functions that were the
subject of the supervisory management agreement. No property management
fees were payable to Pembroke Realty for the year ended December 31, 2002.
For the years ended December 31, 2001 and 2000, Pembroke Realty was
entitled to receive $13,002 and $77,281, respectively, of which $10,033 and
$51,961, respectively, was paid to the unaffiliated management companies.
No leasing activity compensation was paid to Pembroke Realty for the years
ended December 31, 2002, 2001, and 2000.
In connection with its entering into the Mortgage Loan Modification
Agreement with RAM 2, which became effective on January 31, 2001, the
Partnership retained Kestrel Management LP ("Kestrel"), an affiliate of RAM
2, to perform property management functions commencing on January 2, 2001.
Kestrel assumed all management services previously performed by Pembroke
Realty and the unaffiliated management company, pursuant to the terms of a
management agreement. As compensation for its management services, Kestrel
was entitled to receive a management fee equal to 3% of the cash collected
in respect of revenues generated by the Property. For the year ended
December 31, 2001, Kestrel earned a management fee of $67,754.
F-8
In January 2002, responsibility for the management of the Property was
assigned by Kestrel to Pelican, LLC ("Pelican"), an affiliate of the
general partner of RAM 2. For the year ended December 31, 2002, Pelican
earned $82,519 in respect of property management services rendered to the
Partnership.
For managing the affairs of the Partnership, the Managing General Partner
is entitled to receive a partnership management fee in an annual amount
equal to $301,475.
The General Partners are allocated 1% of the net income or losses of the
Partnership and are also entitled to receive 1% of distributions.
4 REAL ESTATE, NET
Real estate assets represent the Partnership's principal income producing
asset, Sierra Marketplace, a community marketplace located in Reno, Nevada
(the "Property"). The Property was purchased by the Partnership on February
10, 1989, and is summarized as follows:
December 31,
-----------------------------------------------
2002 2001
------------------- --------------------
Land $ 6,667,189 $ 6,667,189
Building and improvements 13,014,698 12,965,945
------------------- -------------------
19,681,887 19,633,134
Less accumulated depreciation (5,519,630) (5,199,319)
------------------- -------------------
$ 14,162,257 $ 14,433,815
=================== ===================
Depreciation expense for the years ended December 31, 2002, 2001, and
2000 was $320,311, $314,360 and $317,938, respectively.
During 2002, each of three tenants accounted for more than 10% of the
Partnership's rental revenues. Such tenants accounted for
approximately 19%, 18% and 11% of rental revenues, with leases
expiring in 2003, 2004 and 2003, respectively.
During 2001 each of three tenants accounted for more than 10% of the
Partnership's rental revenues. Such tenants accounted for
approximately 18%, 19% and 10% of rental revenue, with leases expiring
in years 2008, 2003 and 2002, respectively.
During 2000, each of three tenants accounted for more than 10% of the
Partnership's rental revenues. Such tenants accounted for
approximately 18% 19%, and 14% of rental revenues, with leases
expiring in years 2002, 2008, and 2003, respectively.
On March 3, 2003, the deed to the Property was released to RAM 2 in
lieu of foreclosure under the terms of the Mortgage Loan Modification
Agreement, and, as a result, the Partnership no longer has an interest
in the Property (Note 5).
F-9
5 MORTGAGE LOAN PAYABLE
The mortgage loan payable (the "Mortgage Loan") represents a zero
coupon first mortgage loan held by RAM 2, a public limited partnership
sponsored by affiliates of the former general partners. The Mortgage
Loan bears interest at the rate of 11.22% per annum, compounded
monthly. The principal balance, along with deferred interest thereon,
is $27,356,117 at December 31, 2002, and aggregated approximately
$25,000,000 at its original maturity date of February 28, 2001. As of
December 31, 2002, the principal and deferred interest on the Mortgage
Loan exceeded the estimated fair market value of the Property.
Effective January 31, 2001, the Partnership entered into a mortgage
loan modification agreement (referred to in this Note 5 as the
"Modification Agreement") with RAM 2. Pursuant to the terms of the
Modification Agreement, RAM 2 agreed to forbear for not less than one
year and up to two years, in the exercise of its rights and remedies
under the Mortgage Loan triggered by the Partnership's failure to
repay fully all amounts due and payable thereunder at maturity. Under
the Modification Agreement, the deed to the Property, along with a
bill of sale, assignment of leases and other conveyance documents (the
"Conveyance Documents") were placed in escrow with counsel to RAM 2.
The Conveyance Documents were not to be released to RAM 2 until the
earliest to occur of (the "Extended Maturity Date"):
I. Any date on which any action taken or omitted to be taken by the
Partnership in bad faith, intended to hinder or impede RAM 2's
exercise of its rights or remedies under the terms of the
Modification Agreement, remained uncured for more than 10 days
after notice of same from RAM 2;
II. Any date on or after March 1, 2002, upon the closing date of the
sale or other conveyance of the Property (a) if RAM 2 identified
a bona fide third party purchaser to acquire the Property, or (b)
for any other reason deemed reasonably necessary by RAM 2 to
avoid a material economic disadvantage to it; and
III. March 1, 2003.
The Conveyance Documents were released to RAM 2 on March 3, 2003, and,
as a result, the Partnership no longer has an interest in the
Property.
The Modification Agreement further provided that from March 1, 2001
through the date that the Conveyance Documents were released to RAM 2,
the Partnership would be entitled to retain $100,000 per annum
pro-rated monthly and RAM 2 would be entitled to receive the balance
of the net operating income generated by the Property to be applied
against the outstanding principal and deferred interest on the
Mortgage Loan. For the twelve months ended December 31, 2002, the
Partnership retained approximately $91,667, and RAM 2 received
approximately $1,807,000, of net operating income generated by the
Property, which was applied to interest on the Mortgage Loan.
Under the terms of the Modification Agreement, the Partnership was to
retain its interest in the Property until and unless the Conveyance
Documents were released to RAM 2 in accordance with the terms thereof.
Prior to March 1, 2003, until RAM 2 notified the Partnership that it
had entered into a contract to sell or convey the Property, the
Partnership retained the right to satisfy the Mortgage Loan for an
amount equal to the sum of (x) the then unpaid principal balance of
the Mortgage Loan, and all accrued interest thereon and other charges
due thereunder and (y) 66% of the value of the Property in excess of
the amount described in clause (x) above, as additional interest on
the Mortgage Loan.
F-10
Under the terms of the Mortgage Loan, the Partnership had been
obligated to provide RAM 2 with a current appraisal of the Property
upon RAM 2's request. If it was determined, based upon the requested
appraisal, that the sum of (i) the principal balance of the Mortgage
Loan plus all other then outstanding indebtedness secured by the
Property and (ii) all accrued and unpaid interest on the Mortgage Loan
calculated at a rate of 6.22% per annum compounded monthly through the
date of such appraisal, exceeded 85% of the appraised value of the
Property, an amount equal to such excess (the "Excess Payment") would
become immediately due and payable to RAM 2. In accordance with the
terms of the Modification Agreement, RAM 2 was entitled to request an
appraisal of the Property; however, if such appraisal indicated that
no Excess Payment was due, RAM 2 would have no further appraisal
rights. RAM 2 requested that the Property be appraised by Greenwich
Realty Advisors, a real estate appraisal firm unaffiliated with the
Partnership, the Managing General Partner or RAM 2. The appraisal,
which was performed on March 1, 2001, indicated that an Excess Payment
was not due or payable to RAM 2 at that date. Consequently, under the
terms of the Modification Agreement, RAM 2's appraisal right was
extinguished.
6 DISTRIBUTIONS
In January 2000 and May 2000, the Partnership paid cash distributions
of approximately $700,000 and $750,000, respectively, or $7.18, and
$7.70 per Unit, respectively, to Unitholders of record on January 1,
2000 and May 30, 2000, respectively. There were no distributions made
to Unitholders during 2001 or 2002. The Partnership anticipates making
a liquidating distribution of approximately $5.25 per Unit during the
second quarter of 2003.
7 RECONCILIATION OF NET LOSS AND NET ASSETS PER FINANCIAL STATEMENTS TO
TAX BASIS
The Partnership files its tax return on an accrual basis. The
Partnership has computed depreciation for tax purposes using the
Modified Accelerated Cost Recovery System, which is not in accordance
with accounting principles generally accepted in the United States of
America. A reconciliation of net loss per financial statements to the
tax basis of accounting is as follows:
F-11
Year ended December 31,
--------------------------------------------------------
2002 2001 2000
--------------- ---------------- ---------------
Net loss per financial statements $ (1,744,294) $ (1,537,134) $ (1,297,109)
Tax depreciation and amortization in excess
of financial statement depreciation and
amortization (226,495) (145,007) (207,849)
--------------- ---------------- ---------------
Net loss per tax basis $ (1,970,789) $ (1,682,141) $ (1,504,958)
=============== ================ ===============
The differences between the Partnership's net assets per financial statements
and the tax basis of accounting are as follows:
December 31,
-----------------------------------------
2002 2001
--------------- ---------------
Net assets per financial statements $ (11,911,129) $ (10,166,835)
Cumulative tax depreciation and
amortization in excess of financial
statement depreciation (1,785,448) (1,558,953)
Write-down for impairment 6,475,500 6,475,500
Syndication costs 2,712,993 2,712,993
--------------- ---------------
Net assets per tax basis $ (4,508,084) $ (2,537,295)
=============== ===============
8 TENANT DEFAULTS
Until November 1997, Levitz Department Store ("Levitz") had occupied
approximately 23% of the space at the Property. Rent under the lease
for each of 1997 and 1996 was approximately $412,000, which was
approximately 16% of the Partnership's total rental income revenues in
each such period. In November 1997, Levitz, which had filed for
protection under Chapter 11 of the Bankruptcy Code, vacated its space.
Levitz ceased paying rent as of April 2, 1998. The Partnership pursued
a claim in the Levitz bankruptcy proceedings and was awarded a general
unsecured claim and an administrative expense claim in 2001. During
the quarter ended June 30, 2002, the Partnership received 4,127 shares
of Levitz common stock in satisfaction of its unsecured claim and
$15,000 in satisfaction of its administrative expense claim. As all
amounts due from Levitz had been previously written off, the $15,000
was recorded as Revenues during the quarter ended June 30, 2002. The
4,127 shares of Levitz common stock have no value.
During 1999, the Partnership entered into a short-term lease for the
space formerly occupied by Levitz with an existing tenant at an annual
rent substantially less than under the Levitz lease; this lease was
terminable by the Partnership upon written notice to the tenant.
F-12
In 1999, Good Guys vacated its premises and ceased paying rent under
the lease as of December 1, 2000. In April 2001, the Partnership
agreed to consent to Good Guys' sublet of its premises; in connection
with this agreement Good Guys paid all of its past due rent.
F-13
HIGH CASH PARTNERS, L.P.
Schedule II - VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
-----------------------------------
BALANCE AT BALANCE AT
BEGINNING OF PERIOD CHARGED TO COSTS CHARGED TO OTHER END OF
DESCRIPTION (A) AND EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- -------------------------------- ------------------- ---------------- ---------------- ---------- -----------
Year ended December 31, 2002
Reno, Nevada
Sierra Marketplace $ 6,475,500 $ - $ - $ - $6,475,500
============ ============== ============= ========= ===========
Year ended December 31, 2001
Reno, Nevada
Sierra Marketplace $ 6,475,500 $ - $ - $ - $6,475,500
============ ============== ============= ========= ===========
Year ended December 31, 2000
Reno, Nevada
Sierra Marketplace $ 6,475,500 $ - $ - $ - $6,475,500
============ ============== ============= ========= ===========
(A) Represents an allowance for impairment provided on the Sierra Marketplace
property during 1997.
See notes to financial statements.
F-14
HIGH CASH PARTNERS, L.P.
Schedule III - REAL ESTATE AND ACCUMMULATED DEPRECIATION
Initial Cost (1) Costs Capitalized Gross Amount at Which Carried At
---------------------- ------------------- -----------------------------------
Building Building Accumu-
and and lated
Encum- Improve- Improve- Carrying Improve- Deprecia-
Description brances Land ments ments Cost Land ments Total tion
- --------------- ---------- --------- ----------- --------- -------- --------- -------- ----------- ----------
Sierra
Marketplace
Retail Shopping
Center
Reno, Nevada $27,356,117 $6,868,859 $16,494,467 $ 719,589 $ - $6,667,189 $13,014,698 $19,681,887 $ 5,519,630
----------- ---------- ----------- --------- ------- ---------- ----------- ----------- -----------
Life on which
Depreciation in
Latest Income
Date of Date Statement is
Construction Acquired Computed
------------ ----------- ---------------
Sierra
Marketplace
Retail Shopping Straight-line
Center 10/88 2/89 method 40 years
--------- ---------- ---------------
Year ended December 31,
-------------------------------------------------------
2000 2001 2002
--------------- --------------- ---------------
(A) RECONCILATION OF REAL ESTATE OWNED
Balance at beginning of year $ 19,607,415 $ 19,607,415 $ 19,633,134
Subtractions during year
Write-down for impairment - - -
--------------- --------------- ---------------
19,607,415 19,607,415 19,633,134
Additions during
year improvements - 25,719 48,753
--------------- --------------- ---------------
Balance at end of year $ 19,607,415 $ 19,633,134 $ 19,681,887
--------------- --------------- ---------------
F-15
HIGH CASH PARTNERS, L.P.
Schedule III - REAL ESTATE AND ACCUMMULATED DEPRECIATION (CONTINUED)
(B) RECONCILIATION OF ACCUMULATED Year ended December 31,
DEPRECIATION ------------------------------------------------------
2000 2001 2002
-------------- --------------- ---------------
Balance at beginning of year $ 4,567,021 $ 4,884,959 $ 5,199,319
Additions during the year
Depreciation 317,938 314,360 320,311
--------------- --------------- ---------------
Balance at end of year $ 4,884,959 $ 5,199,319 $ 5,519,630
=============== =============== ===============
(1) The aggregate cost for income tax purposes is $26,157,387 at December 31,
2002.
See notes to financial statements.
F-16
PART III
Item 10. Directors and Executive Officers of Registrant
The Partnership has no officers or directors. Pembroke HCP, LLC, the Managing
General Partner, manages and controls substantially all the Partnership's
affairs and has general responsibility and ultimate authority in all matters
affecting its business. Pembroke AGP Corp., the Associate General Partner, in
its capacity as such, does not devote a material amount of time or attention to
the Partnership's affairs.
Based on a review of the filings under Section 16(a) of the Exchange Act, none
of the Managing General Partner, the sole member or the officers of the Managing
General Partner or the beneficial owners of more than 10% of the Units failed to
file on a timely basis reports required by Section 16(a) of the Exchange Act
during 2002 or prior years, except for the failure by Pembroke Capital II, LLC
("PC") to file reports on Forms 4 and 5 in respect of approximately 12
transactions in 1997, 1998, 1999, 2000 and 2001 resulting in PC's acquisition of
an aggregate of 6,277 Units.
Lawrence J. Cohen, age 47, is, and for more than eight years has been, the sole
shareholder and director of Pembroke Companies, Inc., which is the sole member
and the manager of each of the Managing General Partner and the Associate
General Partner. Pembroke Companies, Inc. is a privately-held investment
management company, which makes investments in, and provides management services
to, a variety of real estate-related businesses.
Item 11. Executive Compensation
The Partnership is not required to pay, and has not paid, the officers, the
manager or the sole member of the Managing General Partner or the Associate
General Partner, or the officers or directors of the sole member of the Managing
General Partner or the Assistant General Partner. Certain officers and directors
of the former managing general partner of the Partnership received compensation
from the former managing general partner or its affiliates (but not from the
Partnership) for services performed for various affiliated entities, which may
have included services performed for the Partnership; in addition, certain
individuals affiliated with the Managing General Partner receive compensation
from the Managing General Partner or its affiliates (but not from the
Partnership) for services performed for various affiliated entities, which may
have included services for the Partnership. See Item 13, "Certain Relationships
and Related Transactions."
Item 12. Security Ownership of Certain Beneficial Owners and Management
PC and Equity Resources Fund XIV Limited Partnership ("ERF") are the only
persons known by the Partnership to be the beneficial owners of more than 5% of
the Units. The Partnership believes PC and ERF beneficially own 14,638 Units and
8,998 Units, respectively, which are 15.2% and 9.3%, respectively, of the
outstanding Units. Mr. Cohen is the sole member of PC, and, therefore, he may be
deemed to be the beneficial owner of PC's 14,638 Units. See Item 10, "Directors
and Executive Officers of Registrant" above. The address of each of PC and Mr.
Cohen is Pembroke Companies, Inc., 70 East 55th Street, New York, New York
10022. The address of ERF is 14 Story Street, Cambridge, Massachusetts 02138.
III-1
Item 13. Certain Relationships and Related Transactions
During 2002, the General Partners and their respective affiliates received
compensation or payments for services from or with respect to the Partnership as
follows:
Name Capacity in Which Served Compensation
Pembroke HCP, LLC Managing General Partner $ 301,475 (1)
Pembroke AGP, LLC Associate General Partner - (2)
(1) Represents a partnership management fee earned by the Managing General
Partner. Under the Partnership's Partnership Agreement, .99% of the net
income, net loss and distributions of the Partnership are allocated to the
Managing General Partner. For 2002, $19,923 of the Partnership's tax loss
was allocated to the Managing General Partner.
(2) Under the Partnership Agreement, .01% of the Partnership's net income, net
loss and distributions are allocated to the Associate General Partner. For
2002, $202 of the Partnership's tax loss was allocated to the Associate
General Partner.
Item 14. Controls and Procedures
Within 90 days prior to the date of this report, the Managing General Partner
carried out an evaluation, under the supervision and with the participation of
Lawrence J. Cohen, the President, chief executive officer and chief financial
officer of the Managing General Partner's sole member, Pembroke Companies Inc.,
of the effectiveness of the design and operation of the Partnership's disclosure
controls and procedures. Based on that evaluation, Mr. Cohen concluded that the
Partnership's disclosure controls and procedures are effective in timely
alerting him to material information required to be disclosed by the Partnership
in reports that it files or submits under the Securities Exchange Act of 1934.
There have been no significant changes in the Partnership's internal controls or
in other factors that could significantly affect those controls subsequent to
the date of their last evaluation.
III-2
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements: See "Index to Financial Statements" in
Item 8 above.
(a)(2) Financial Statement Schedules: See "Index to Financial
Statements" in Item 8 above.
(a)(3) Exhibits:
3. (a) Second Amended and Restated Partnership Agreement
("Partnership Agreement") of Registrant, incorporated by
reference to Exhibit 3D to Amendment No. 2 to Registrant's
Registration Statement on Form S-11 filed on June 24, 1988
(Reg. No. 33-6412) (hereinafter the "Form S-11").
(b) Amended and Restated Certificate of Limited Partnership of
Registrant, incorporated by reference to Exhibit 3C to the
Form S-11.
(c) Amendment to Partnership Agreement, incorporated by
reference to Supplement No. 1 dated August 19, 1988 to
Registrant's Prospectus filed pursuant to Rules 424(b) and
424(c) (Reg. No. 33-6412).
10. (a) Management Services Agreement between Registrant and
Resources Property Management Corp., incorporated by
reference to Exhibit 1 OB to Amendment No. 2 to the Form
S-11.
(b) Acquisition and Disposition Services Agreement among
Registrant, Realty Resources Inc., and Resources High Cash,
Inc., incorporated by reference to Exhibit 10.(b) of
Registrant's Report on Form 10-K for the year ended December
31, 1988 (hereinafter the "1988 10-K").
(c) Agreement among Resources High Cash, Inc., Integrated
Resources, Inc. and Fourth Group Partners, incorporated by
reference to Exhibit 10.(c) of the 1988 10-K.
(d) Agreement of Purchase and Sale between Sierra Virginia, Inc.
and Nevada Corp., incorporated by reference to Exhibit 10A
to Registrant's Form 8 with respect to Registrant's current
report on Form 8-K dated February 10, 1989.
(e) Registered Note by Registrant to RAM 2 in connection with
the purchase of Sierra Marketplace, incorporated by
reference to Exhibit 10B to Registrant's Form 8 with respect
to Registrant's current report on Form 8-K dated February
10, 1989, incorporated by reference to Exhibit 10(f) of
Registrant's Report on Form 10-K for the year ended December
31, 1989 (hereinafter the "1989 10-K").
(f) Settlement Agreement, dated October 17, 1990 among
Registrant, Integrated, First Interstate Bank of Denver
N.A., First Interstate Bank of Washington, N.A. and First
American National Bank, Incorporated, incorporated by
reference to Exhibit 10(a) to Registrant's Current Report on
Form 8-K dated December 19, 1990.
IV-1
(g) Supervisory Management Agreement dated as of November 1,
1991 between Registrant and Resources Supervisory Management
Corporation incorporated by reference to Exhibit 10(g) to
Registrant's Report on Form 10K for the year ended December
31, 1991.
(h) Management Agreement dated as of November 1, 1991 among
Registrant, Resources Supervisory Management Corp. and CB
Commercial Real Estate Group, Inc., incorporated by
reference to Exhibit 10(h) to Registrant's Report on Form
10-K for the year ended December 31, 1991.
(i) Exclusive Leasing Listing Agreement dated as of January 1,
1993 between Resources Supervisory Management Corp. and CB
Commercial Real Estate Group, Inc., incorporated by
reference to Exhibit 10(i) to Registrant's Report on Form
10-K for the year ended December 31, 1993.
(j) First Amendment to Exclusive Leasing Listing Agreement dated
as of January 1, 1994 between Resources Supervisory
Management Corp. and CB Commercial Real Estate Group, Inc.,
incorporated by reference to Exhibit 100) to Registrant's
Report on Form 10-K for the year ended December 31, 1993.
(k) Second Amendment to Management Agreement dated as of January
1, 1994 between Resources Supervisory Management Corp. and
CB Commercial Real Estate Group, Inc., incorporated by
reference to Exhibit 10(k) to Registrant's Report on Form
10-K for the year ended December 31, 1993.
(l) Management Agreement dated September 22, 1999 between
Pembroke Supervisory Management, LLC and Colliers Nevada
Management, LLC, incorporated by reference to Exhibit 10.1
to Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1999.
(m) Exclusive Leasing Listing Agreement dated September 9, 1999
between Pembroke Supervisory Management, LLC and Colliers
Nevada Management, LLC, incorporated by reference to Exhibit
10.2 to Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1999.
(n) Mortgage Loan Modification Agreement dated December 21, 2000
between Registrant and Resources Accrued Mortgage Investors
2 L.P., incorporated by reference to Exhibit 10.1 to
Registrant's Current Report on Form 8-K dated February 8,
2001.
99 (a) Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (attached).
(b) Reports on Form 8-K filed during the fourth quarter of 2002
and through the date of this Form 10-K filing:
(a) March 3, 2003 - Items 2 and 7, disclosing the release of the
Registrant's deed to Sierra Marketplace to Resources Accrued
Mortgage Investors 2 L.P. ("RAM 2"), in lieu of foreclosure,
under the terms of the Mortgage Loan Modification Agreement
dated December 21, 2000 between Registrant and RAM 2.
IV-2
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
HIGH CASH PARTNERS, L.P.
By: Pembroke HCP, LLC
Managing General Partner
By: Pembroke Companies, Inc.
Managing Member
Dated: March 28, 2003 By: /s/ Lawrence J. Cohen
------------------------
Lawrence J. Cohen
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Registrant and in
the capacities (with respect to the Managing General Partner) and on the date
indicated.
Dated: March 28, 2003 /s/ Lawrence J. Cohen
----------------------
Lawrence J. Cohen
CERTIFICATION
I, Lawrence J. Cohen, certify that:
1. I have reviewed this annual report on Form 10-K of High Cash Partners,
L.P.;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 28, 2003 By: /s/ Lawrence J. Cohen
-------------------------
Lawrence J. Cohen,
President, chief executive officer and chief
financial officer of Pembroke Companies, Inc.,
the sole member of Pembroke HCP, LLC, the
managing general partner of High Cash Partners,
L.P.