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EX-31.1 - SECURED INCOME L Pv192442_ex31-1.htm
EX-32.1 - SECURED INCOME L Pv192442_ex32-1.htm
EX-31.2 - SECURED INCOME L Pv192442_ex31-2.htm
EX-32.2 - SECURED INCOME L Pv192442_ex32-2.htm

SECURITIES AND EXCHANGE COMMISSION
Washington, DC
 


FORM 10-Q
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended June 30, 2010

OR

¨  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _________ to _________

Commission File Number 0-17412

Secured Income L.P.
(Exact Name of Registrant as Specified in its Charter)

Delaware
 
06-1185846
State or Other Jurisdiction of
 
(IRS Employer
Incorporation or Organization
 
Identification No.)
     
340 Pemberwick Road
   
Greenwich, Connecticut
 
06831
(Address of Principal Executive Offices)
  
Zip Code

Registrant's Telephone Number, Including Area Code:  (203) 869-0900

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 ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).

Yes  ¨   No ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  ¨  Accelerated Filer  ¨  Non-Accelerated Filer ¨  Smaller Reporting Company  x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨  No x

As of August 4, 2010, there are 984,369 units of limited partnership interest outstanding.
 
 
 

 

SECURED INCOME L.P. AND SUBSIDIARY

Part I - Financial Information.
 
Table of Contents
     
Page
Item 1.
Financial Statements
   
       
 
Consolidated Balance Sheets
 
3
       
 
Consolidated Income Statements
 
4
       
 
Consolidated Statements of Cash Flows
 
5
       
 
Notes to Consolidated Financial Statements
 
6
       
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
7
       
Item 3.
Quantitative and Qualitative Disclosure about Market Risk
 
9
       
Item 4.
Controls and Procedures
 
9
       
Item 4T.      
Internal Control Over Financial Reporting
  
9
 
 
2

 

SECURED INCOME L.P. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

   
June 30,
   
December 31,
 
   
2010
   
2009
 
             
ASSETS
           
             
Property and equipment, net of accumulated depreciation
  $ 2,499,005     $ 2,704,139  
Cash and cash equivalents
    475,891       797,648  
Mortgage escrow deposits
    926,793       758,880  
Investment in bond
    97,370          
Tenant security deposits
    51,773       63,022  
Interest and accounts receivable
    2,317          
Prepaid expenses
    117,721       214,801  
Intangible assets, net of accumulated amortization
    271,020       281,877  
                 
    $ 4,441,890     $ 4,820,367  
                 
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
               
                 
Liabilities
               
                 
Mortgage payable
  $ 7,897,032     $ 8,019,780  
Accounts payable and accrued expenses
    85,768       101,773  
Tenant security deposits payable
    40,603       52,116  
Due to affiliates
    29,224       18,365  
                 
      8,052,627       8,192,034  
                 
Partners' equity (deficit)
               
                 
Limited partners
    452,991       693,098  
General partners
    (3,878,249 )     (3,878,310 )
Noncontrolling interest
    (183,864 )     (186,455 )
Accumulated other comprehensive loss
    (1,615 )        
                 
      (3,610,737 )     (3,371,667 )
                 
    $ 4,441,890     $ 4,820,367  

See notes to consolidated financial statements.
 
 
3

 

SECURED INCOME L.P. AND SUBSIDIARY

CONSOLIDATED INCOME STATEMENTS
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2010 AND 2009
(UNAUDITED)

   
Three Months
   
Six Months
   
Three Months
   
Six Months
 
   
Ended
   
Ended
   
Ended
   
Ended
 
   
June 30, 2010
   
June 30, 2010
   
June 30, 2009
   
June 30, 2009
 
                         
REVENUE
                       
                         
Rental
  $ 670,136     $ 1,305,103     $ 662,371     $ 1,285,892  
Interest
    779       1,033       260       1,368  
                                 
TOTAL REVENUE
    670,915       1,306,136       662,631       1,287,350  
                                 
EXPENSES
                               
                                 
Administrative and management
    121,696       249,389       128,139       249,850  
Operating and maintenance
    171,301       307,958       158,498       300,502  
Taxes and insurance
    117,009       236,067       113,954       231,668  
Financial
    131,709       264,584       135,588       272,263  
Depreciation and amortization
    107,996       215,991       104,169       208,339  
                                 
TOTAL EXPENSES
    649,711       1,273,989       640,348       1,262,622  
                                 
NET INCOME
    21,204       32,147       22,283       24,728  
                                 
Other comprehensive loss
    (1,615 )     (1,615 )                
                                 
COMPREHENSIVE INCOME
  $ 19,589     $ 30,532     $ 22,283     $ 24,728  
                                 
NET INCOME ATTRIBUTABLE TO
                               
                                 
Limited partners
  $ 19,653     $ 29,260     $ 21,152     $ 23,012  
General partners
    199       296       213       232  
Noncontrolling interest
    1,352       2,591       918       1,484  
                                 
    $ 21,204     $ 32,147     $ 22,283     $ 24,728  
                                 
NET INCOME ALLOCATED PER UNIT OF
                               
LIMITED PARTNERSHIP INTEREST
  $ .02     $ .03     $ .02     $ .02  

See notes to consolidated financial statements.

 
4

 

SECURED INCOME L.P. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(UNAUDITED)

   
2010
   
2009
 
             
CASH FLOWS FROM OPERATING ACTIVITIES
           
             
Net income
  $ 32,147     $ 24,728  
Adjustments to reconcile net income to net cash provided
               
by operating activities
               
Depreciation and amortization
    215,991       208,339  
Increase in mortgage escrow deposits
    (167,913 )     (96,688 )
Decrease in tenant security deposits
    11,249       87,854  
Amortization of premium on investment in bond
    205          
Decrease (increase) in interest and accounts receivable
    (567 )     172  
Decrease in prepaid expenses
    97,080       48,477  
Increase (decrease) in accounts payable and accrued expenses
    (16,005 )     15,454  
Decrease in tenant security deposits payable
    (11,513 )     (20,932 )
Increase in due to affiliates
    10,859       9,182  
                 
Net cash provided by operating activities
    171,533       276,566  
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
                 
Investment in bond
    (100,940 )        
                 
Net cash used in investing activities
    (100,940 )        
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
                 
Distributions to partners
    (269,602 )     (43,190 )
Principal payments on mortgage
    (122,748 )     (115,513 )
                 
Net cash used in financing activities
    (392,350 )     (158,703 )
                 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    (321,757 )     117,863  
                 
Cash and cash equivalents at beginning of period
    797,648       1,495,589  
                 
CASH AND CASH EQUIVALENTS AT END OF PERIOD
  $ 475,891     $ 1,613,452  
                 
SIGNIFICANT NONCASH INVESTING ACTIVITIES
               
                 
Unrealized loss on investment in bond
  $ 1,615          
                 
SUPPLEMENTAL INFORMATION
               
                 
Financial expenses paid
  $ 286,050     $ 294,214  

See notes to consolidated financial statements.
 
5

 
SECURED INCOME L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
(UNAUDITED)

1.
Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information.  They do not include all information and footnotes required by GAAP for complete financial statements.  The results of operations are impacted significantly by the results of operations of the Carrollton Partnership (“Carrollton”), which are provided on an unaudited basis during interim periods.  Accordingly, the accompanying unaudited consolidated financial statements are dependent on such unaudited information.  In the opinion of the General Partners of the Partnership, the accompanying unaudited consolidated financial statements include all adjustments necessary to reflect fairly the results of operations and cash flows for the interim periods presented.  All adjustments are of a normal recurring nature.  The results of operations for the six months ended June 30, 2010 are not necessarily indicative of the results that may be expected for the entire year.

Certain prior period balances have been reclassified to conform to the current period presentation.

 
Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2010-06, “Improving Disclosures about Fair Value Measurements” (“ASU 2010-06”), amending Accounting Standards Codification (“ASC”) Topic 820 to increase disclosure requirements regarding recurring and nonrecurring fair value measurements.  The Partnership adopted ASU 2010-06 for the period ended June 30, 2010, except for the disclosures about activity in Level 3 fair value measurements which will be effective for the Partnership’s fiscal year beginning January 1, 2011.  The adoption of ASC Topic 820 did not have a material impact on the Partnership’s consolidated financial statements and is not expected to have a material impact on the Partnership’s consolidated financial statements once fully implemented.

2.
Investment in Bond

The Partnership carries its investment in bond as available-for-sale because such investment is used to facilitate and provide flexibility for its obligations.  Investment in bond is reflected in the accompanying unaudited consolidated balance sheet as of June 30, 2010 at estimated fair value and is classified within Level 1 of the fair value hierarchy of the guidance on Fair Value Measurements as defined in ASC Topic 820.  Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Partnership has the ability to access.  The unrealized loss of $1,615 is reflected as accumulated other comprehensive loss in the accompanying unaudited consolidated financial statements as of and for the six months ended June 30, 2010.

As of June 30, 2010, certain information concerning investment in bond is as follows:

Description and maturity
 
Amortized
cost
   
Gross
unrealized
gain
   
Gross
unrealized
loss
   
Estimated
fair value
 
                         
Corporate debt security
                       
After ten years
  $ 98,985     $     $ (1,615 )   $ 97,370  

3.
Additional Information

Additional information, including the audited December 31, 2009 Consolidated Financial Statements and the Organization and Summary of Significant Accounting Policies, is included in the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 2009 on file with the Securities and Exchange Commission.

 
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SECURED INCOME L.P. AND SUBSIDIARY

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations.

Liquidity and Capital Resources

Fieldpointe, the operating complex owned by the Carrollton Partnership (“Carrollton”) remains on the market for sale as the Carrollton general partners continue to receive inquiries; however, given the current real estate market, the Carrollton general partners believe the likelihood that an acceptable offer might be received in the near term is not probable.  The Carrollton general partners cannot accurately predict the direction of the real estate market, and there can be no assurance that an acceptable offer will be received or that a sale will be consummated.  Notwithstanding the foregoing, if a sale of Fieldpointe were to occur, Registrant intends to distribute the net proceeds received to its partners, less a reasonable reserve, in accordance with the terms and conditions of Registrant’s Partnership Agreement.  At such time, Registrant intends to dissolve.

Registrant made a distribution on March 31, 2010 in the amount of approximately $0.25 per Unit to Unit holders of record as of December 31, 2009.  Registrant anticipates that an additional distribution may be made in the first quarter of 2011.  The ability to make such distribution, and the amount of such distribution, if any, will depend on Fieldpointe’s cash flow and reserve levels, among other things.  There can be no certainty as to the payment of future distributions or the amount and timing thereof.

Registrant's primary source of funds is currently rents generated by Fieldpointe.  Registrant's investment is considered highly illiquid.

In the event a sale of Fieldpointe does not take place, Registrant is not expected to have access to additional sources of financing.  Accordingly, if unforeseen contingencies arise that cause Fieldpointe to require capital in addition to that contributed by Registrant and any equity of Carrollton’s general partners, potential sources from which such capital needs will be able to be satisfied (other than reserves) would be additional equity contributions or voluntary loans from Carrollton’s general partners (which general partners are not required to fund such amounts) or other reserves, if any, which could adversely impact distributions from Carrollton to Registrant of operating cash flow and any sale or refinancing proceeds.

Registrant formerly held an interest in Columbia Westmont Associates, L.P. (“Columbia”), which sold its underlying property in 2006.  After an appeal, Columbia received a real estate tax refund for a prior year in the amount of approximately $998,000, which amount is net of professional fees incurred in connection with the appeal.  Registrant and the general partners of Columbia are currently undergoing discussions and seeking guidance in an effort to determine how the funds received should be characterized and applied under the terms of Columbia’s partnership agreement, and the amount, if any, that should be paid to Registrant and the other partners of Columbia.

Results of Operations

Although Registrant generated cash from operations during the six months ended June 30, 2010, cash and cash equivalents decreased by approximately $322,000 during the period, primarily as a result of distributions to partners and Registrant’s investment in a bond.  Property and equipment decreased as a result of depreciation expense.  Mortgage escrow deposits increased while prepaid expenses decreased in the ordinary course of operations.  Mortgage payable decreased as a result of principal payments on Carrollton’s mortgage.

The discussion below refers primarily to the operations of Carrollton and not to that of Registrant as a whole.

 
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SECURED INCOME L.P. AND SUBSIDIARY

Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued).

Six Months Ended June 30, 2010

During the six months ended June 30, 2010, Carrollton's operations resulted in net income of approximately $110,000, which includes financial expenses and depreciation and amortization of approximately $264,000 and approximately $213,000, respectively.  Accordingly, Carrollton generated income from operating activities prior to financial expenses and depreciation and amortization of approximately $587,000.  Mortgage principal payments during the period were approximately $123,000.  After considering the mandatory mortgage principal payments and required deposits to mortgage escrows, among other things, Fieldpointe generated cash flow of approximately $180,000 during the six months ended June 30, 2010.  There can be no assurance that the level of cash flow generated by Fieldpointe during the six months ended June 30, 2010 will continue in future periods.

Registrant’s results of operations as a whole for the six months ended June 30, 2010 are comparable to the six months ended June 30, 2009.

As of June 30, 2010, the occupancy of Fieldpointe was approximately 97%.  In the event a sale of Fieldpointe does not take place, the future operating results of Fieldpointe will be extremely dependent on market conditions and therefore may be subject to significant volatility.

Six Months Ended June 30, 2009

During the six months ended June 30, 2009, Carrollton's operations resulted in net income of approximately $105,000, which includes financial expenses and depreciation and amortization of approximately $272,000 and approximately $205,000, respectively.  Accordingly, Carrollton generated income from operating activities prior to financial expenses and depreciation and amortization of approximately $582,000.  Mortgage principal payments during the period were approximately $116,000.  After considering the mandatory mortgage principal payments and required deposits to mortgage escrows, among other things, Fieldpointe generated cash flow of approximately $175,000 during the six months ended June 30, 2009.  As of June 30, 2009, the occupancy of Fieldpointe was approximately 93%.

Critical Accounting Policies and Estimates

The accompanying unaudited consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which requires Registrant to make certain estimates and assumptions.  The following section is a summary of certain aspects of those accounting policies that may require subjective or complex judgments and are most important to the portrayal of Registrant’s consolidated financial condition and results of operations.  Registrant believes that there is a low probability that the use of different estimates or assumptions in making these judgments would result in materially different amounts being reported in the accompanying unaudited consolidated financial statements.

Registrant records its real estate assets at cost less accumulated depreciation and, if there are indications that impairment exists, adjusts the carrying value of those assets in accordance with Accounting Standards Codification (“ASC”) Topic 360; Subtopic 10.  In accordance with ASC Topic 360; Subtopic 10, long-lived assets, primarily property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable.  Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable.  For long-lived assets, Registrant recognizes an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and estimated fair value.  No such adjustment for impairment loss is required as of June 30, 2010.

 
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SECURED INCOME L.P. AND SUBSIDIARY

Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued).

Forward-Looking Information

As a cautionary note, with the exception of historical facts, the matters discussed in this quarterly report on Form 10-Q are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”).  Forward-looking statements may relate to, among other things, current expectations, forecasts of future events, future actions, future performance generally, business development activities, capital expenditures, strategies, the outcome of contingencies, future financial results, financing sources and availability and the effects of regulation and competition.  Words such as “anticipate,” “expect,” “intend,” “plan,” “seek,” “estimate” and other words and terms of similar meaning in connection with discussions of future operating or financial performance signify forward-looking statements.  Registrant may also provide written forward-looking statements in other materials released to the public.  Such statements are made in good faith by Registrant pursuant to the “Safe Harbor” provisions of the Reform Act.  Registrant undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future events or otherwise.  Such forward-looking statements involve known risks, uncertainties and other factors that may cause Registrant’s actual results of operations or actions to be materially different from future results of operations or actions expressed or implied by the forward-looking statements.

Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2010-06, “Improving Disclosures about Fair Value Measurements” (“ASU 2010-06”), amending ASC Topic 820 to increase disclosure requirements regarding recurring and nonrecurring fair value measurements.  Registrant adopted ASU 2010-06 for the period ended June 30, 2010, except for the disclosures about activity in Level 3 fair value measurements which will be effective for Registrant’s fiscal year beginning January 1, 2011.  The adoption of ASC Topic 820 did not have a material impact on Registrant’s consolidated financial statements and is not expected to have a material impact on Registrant’s consolidated financial statements once fully implemented.

Item 3.   Quantitative and Qualitative Disclosure About Market Risk.

The market value of Registrant’s investment in bond is subject to fluctuation based upon changes in interest rates relative to the investment’s maturity date and the associated bond rating.  Since Registrant’s investment in bond is callable in 2013, the value of such investment may be adversely impacted in an environment of rising interest rates in the event Registrant decides to liquidate the investment prior to its call date.  Although Registrant may utilize the investment to pay for its operating expenses, it otherwise intends to hold such investment to its call date.  Therefore, Registrant does not anticipate any material adverse impact in connection with such investment.

Item 4.   Controls and Procedures.

Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed by Registrant in reports that Registrant files or submits under the Exchange Act is recorded, processed, summarized and timely reported as provided in SEC rules and forms.  Registrant periodically reviews the design and effectiveness of its disclosure controls and procedures, including compliance with various laws and regulations that apply to its operations.  Registrant makes modifications to improve the design and effectiveness of its disclosure controls and procedures, and may take other corrective action, if its reviews identify a need for such modifications or actions.  In designing and evaluating the disclosure controls and procedures, Registrant recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Registrant has carried out an evaluation, under the supervision and the participation of its management, including the Chief Executive Officer and Chief Financial Officer of Wilder Richman Resources Corporation (“WRRC”), one of Registrant’s general partners, of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act), as of the three months ended June 30, 2010.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer of WRRC concluded that Registrant’s disclosure controls and procedures were effective as of June 30, 2010.

Item 4T.  Internal Control Over Financial Reporting.

There were no changes in Registrant’s internal control over financial reporting during the three months ended June 30, 2010 that have materially affected, or are reasonably likely to materially affect, Registrant’s internal control over financial reporting.

 
9

 

SECURED INCOME L.P. AND SUBSIDIARY

Part II - Other Information.

Item 1.      Legal Proceedings.

None.

Item 1A.   Risk Factors.


Item 2.      Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.      Defaults Upon Senior Securities.

None.

Item 4.      Removed and Reserved.

Item 5.      Other Information.

None.

Item 6.      Exhibits.

Exhibit 31.1 - Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
Exhibit 31.2 - Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
Exhibit 32.1 - Section 1350 Certification of Chief Executive Officer.
Exhibit 32.2 - Section 1350 Certification of Chief Financial Officer.
 
 
10

 

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 on the 4th day of August 2010.

 
SECURED INCOME L.P.
   
 
By:
Wilder Richman Resources Corporation, General Partner
     
   
By:
/s/Richard Paul Richman
     
Richard Paul Richman
     
Chief Executive Officer
       
   
By:
/s/James Hussey
     
James Hussey
     
Chief Financial Officer
     
 
By:
WRC-87A Corporation, General Partner
     
   
By:
/s/Richard Paul Richman
     
Richard Paul Richman
     
Executive Vice President and Treasurer

 
11