10-Q 1 f10q_secondquarter-cap.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ----- EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2002 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ----- EXCHANGE ACT OF 1934 Commission File Number 0-18491 CAPITAL MORTGAGE PLUS L.P. (Exact name of registrant as specified in its charter) Delaware 13-3502020 --------------------------- ----------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 625 Madison Avenue, New York, New York 10022 -------------------------------------- -------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 421-5333 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Item 1. Financial Statements CAPITAL MORTGAGE PLUS L.P. (a limited partnership) STATEMENTS OF FINANCIAL CONDITION

See Accompanying Notes to Financial Statements. 2 CAPITAL MORTGAGE PLUS L.P. (a limited partnership) STATEMENTS OF INCOME (Unaudited)

See Accompanying Notes to Financial Statements. 3 CAPITAL MORTGAGE PLUS L.P. (a limited partnership) STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) (Unaudited)

See Accompanying Notes to Financial Statements. 4 CAPITAL MORTGAGE PLUS L.P. (a limited partnership) STATEMENTS OF CASH FLOWS (Unaudited)

5 CAPITAL MORTGAGE PLUS L.P. (a limited partnership) STATEMENTS OF CASH FLOWS (Unaudited) (continued)

See Accompanying Notes to Financial Statements. 6 CAPITAL MORTGAGE PLUS L.P. (a limited partnership) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2002 (Unaudited) Note 1 - General The unaudited financial statements have been prepared on the same basis as the audited financial statements included in the Partnership's Annual Report on Form 10-K for the year ended December 31, 2001. In the opinion of the General Partner, the accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position of the Partnership as of September 30, 2002, the results of operations for the three and nine months ended September 30, 2002 and 2001 and its cash flows for the nine months ended September 30, 2002 and 2001. However, the operating results for the nine months ended September 30, 2002 may not be indicative of the results for the year. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Partnership's Annual Report on Form 10-K for the year ended December 31, 2001. 7 CAPITAL MORTGAGE PLUS L.P. (a limited partnership) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2002 (Unaudited) Note 2 - Investments in Loans Information relating to investments in the Mortgages and equity loans as of September 30, 2002 is as follows:

CAPITAL MORTGAGE PLUS L.P. (a limited partnership) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2002 (Unaudited) (A) Base Interest on the Mortgages is that amount that is insured/co-insured by the Department of Housing and Urban Development ("HUD") and is being shown net of servicing fees. (B) Default Interest is the minimum amount due over the base rate, and is not contingent upon cash flow. This interest is secured by partnership interests in the borrower. (C) Annual Yield is the amount over the default rate and is contingent upon property cash flow. (D) Cash Flow Participation is the percent of cash flow due to the Partnership after payment of the Annual Yield and is contingent upon property cash flow. (E) The Investments in Loans amount reflects the unpaid balance of the Mortgages and the unamortized balance of the equity loans in the amounts of $20,523,202 and $202,060, respectively, at September 30, 2002 and $20,651,303 and $351,069, respectively, at December 31, 2001. 9 CAPITAL MORTGAGE PLUS L.P. (a limited partnership) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2002 (Unaudited)

The Mortenson Manor and Windemere Mortgages are co-insured by HUD and Related Mortgage Corporation ("RMC"), an affiliate of the General Partner. The Fieldcrest III and Holly Ridge II Mortgages are insured by HUD. In addition to the interest rate payable during the post-construction periods, the Partnership will be entitled to payment of 30% of cash flow remaining after payment of the permanent loan interest and accrued interest if any, and certain amounts from sales or refinancing proceeds. The equity loans are non-interest bearing and are secured by the assignment of the owner/developers' interests in the projects. The equity loans are not insured by HUD or any other party and, for financial statement reporting purposes, are considered to be premiums paid to obtain the Mortgages. These premiums are amortized over the average expected lives of the respective Mortgages. 10 CAPITAL MORTGAGE PLUS L.P. (a limited partnership) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2002 (Unaudited) At September 30, 2002, all of the loans due to the Partnership are current with respect to their Federal Housing Authority ("FHA") Mortgage obligations. Mortenson has not paid an aggregate of approximately $718,000 of default interest due for the years ended December 31, 1995 to December 31, 2001 and the nine months ended September 30, 2002; Windemere has not paid its default interest of an aggregate of approximately $565,000 for the nine months ended September 30, 2002 and the years ended December 31, 2001, 2000, 1999 and 1996; and Hollyridge has not paid its default interest of an aggregate of approximately $13,000 for the nine months ended September 30, 2002, resulting in an aggregate allowance for uncollectability relating to the default interest amounting to approximately $1,296,000 and $1,165,000 at September 30, 2002 and December 31, 2001, respectively. The current allowance is reflected in provision for bad debts on the statements of income. Note 3 - Related Parties The costs incurred to related parties for the three and nine months ended September 30, 2002 and 2001 were as follows:

11 CAPITAL MORTGAGE PLUS L.P. (a limited partnership) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2002 (Unaudited) (a) A Partnership management fee for managing the affairs of the Partnership equal to .5% per annum of invested assets is payable out of cash flow to the General Partner. At September 30, 2002 and December 31, 2001 a balance of approximately $0 and $32,000 was due to the General Partners for these fees. (b) The General Partner and its affiliates perform services for the Partnership which include, but are not limited to: accounting and financial management, registrar, transfer and assignment functions, asset management, investor communications, printing services and other administrative services. The amount of reimbursement from the Partnership is limited by the provisions of the Partnership Agreement. An affiliate of the General Partner performs asset monitoring services for the Partnership. These asset monitoring services include site visits and evaluations of the performance of the properties securing the loans. Fees owed to the General Partner amounting to approximately $55,000 and $41,000 were accrued and unpaid as of September 30, 2002 and December 31, 2001, respectively. RMC is a co-insurer on the Mortenson and Windemere mortgage loans in which the Partnership has invested. RMC is entitled to a mortgage insurance premium which is paid by the mortgagors. Note 4 - Subsequent Event It is anticipated that during November 2002, distributions of approximately $402,000 and $8,000 will be paid to BACs holders and the General Partner, respectively, representing the 2002 third quarter distribution. On October 31, 2002, Mortenson II Associates L.P. (the "Owner"), the owner of Mortenson II Apartments ("Mortenson"), prepaid the outstanding FHA Co-Insured Mortgage Loan (the "Mortgage Loan") and equity loan (the "Equity Loan") in full. The Mortgage Loan and the Equity Loan were secured by a mortgage on the Mortenson property and partnership interests in the Owner. The outstanding debt repaid early to the Partnership totaled $5,934,489, including the $4,543,011 outstanding balance of the Mortgage Loan, the $577,885 Equity Loan and $813,593 of additional interest due pursuant to the loan documents. 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Capital Resources and Liquidity ------------------------------- Sources of Partnership funds included interest earned on (1) investments in mortgage loans and (2) the working capital reserve. During the nine months ended September 30, 2002, cash and cash equivalents of the Partnership increased by approximately $58,000 due to cash provided by operating activities of approximately $1,160,000 and collections of principal on mortgage loans of approximately $128,000 less distributions paid to Partners of approximately $1,230,000. Amortization of approximately $163,000 is included in the adjustments to reconcile the net income to cash provided by operating activities. A distribution of approximately $1,205,000 was made to the limited partners or BACs holders during the nine months ended September 30, 2002. A total of approximately $25,000 was distributed to the General Partner during the nine months ended September 30, 2002. Management is not aware of any trends or events, commitments or uncertainties that will impact liquidity in a material way. Management believes the only impact would be from laws that have not yet been adopted. All base interest and the principal of the Partnership's investments in mortgage loans are insured or co-insured by HUD and additionally two loans are coinsured by a private mortgage lender (which is an affiliate of the General Partner). The Partnership's investments in uninsured non-interest bearing equity loans (which represented approximately 10% of the Partnership's portfolio when originated) are secured by a Partnership interest in properties which are diversified by location so that if one area of the United States is experiencing downturns in the economy, the remaining properties may be experiencing upswings. However, the geographic diversification of the portfolio may not protect against a general downturn in the national economy. Critical Accounting Policies ---------------------------- The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which requires Registrant to make certain estimates and assumptions. A summary of significant accounting policies is disclosed in Note 2 to the financial statements which are included in Registrant's annual report on Form 10-K for the year ended December 31, 2001. 13 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 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 financial statements. o Interest income on the mortgage loans consist of contingent and non-contingent interest as defined in the mortgage notes and other additional interest agreements. Non-contingent interest consists of base and default interest, which is recognized as earned. Contingent interest is based on the development's cash flows and is recognized when received. o If the interest receivable exceeds the estimated value derived by management, Registrant adjusts the allowance account to reflect its estimated fair value. o The equity loans are considered to be premiums paid to obtain the Mortgages and are amortized over the average expected lives of the respective Mortgages. Results of Operations --------------------- Three and nine months ended September 30, 2002 compared with the three and nine -------------------------------------------------------------------------------- months ended September 30, 2001 ------------------------------- Results of operations for the three and nine months ended September 30, 2002 and 2001 consisted primarily of interest income earned from investment in mortgage loans of approximately $465,000 and $481,000 and $1,398,000 and $1,464,000, respectively. Temporary investments decreased approximately $6,000 and $21,000 for the three and nine months ended September 30, 2002 as compared to the same periods in 2001, primarily due to lower interest rates on investment account balances. General and administrative increased approximately $10,000 for the nine months ended September 30, 2002 as compared to the same period in 2001, primarily due to an increase in printing and legal expenses in 2002. General and administrative-related parties increased approximately $16,000 and $36,000 for the three and nine months ended September 30, 2002 as compared to the same periods in 2001, primarily due to an increase in expenses reimbursements due to the General Partner for asset monitoring and overhead. 14 A provision for bad debts of approximately $44,000 and $132,000 was charged to operations for the three and nine months ended September 30, 2002, representing the 2001 and 2002 Guaranteed Interest due for Mortenson, the 2002 Guaranteed Interest due for Windemere and the 2002 Guaranteed Interest due for Hollyridge, none of which is expected to be paid. Item 3. Quantitative and Qualitative Disclosures about Market Risk None. Item 4. Controls and Procedures The Principal Executive Officer and Principal Financial Officer of CIP Associates, Inc., the general partner of Capital Mortgage Plus L.P. (the "Partnership"), has evaluated the Partnership's disclosure controls and procedures relating to the Partnership's quarterly report on Form 10-Q for the period ending September 30, 2002 as filed with the Securities and Exchange Commission and has judged such controls and procedures to be effective as of September 30, 2002 (the "Evaluation Date"). There have been no significant changes in the internal controls or in other factors that could significantly affect internal controls relating to the Partnership since the Evaluation Date. 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings - None Item 2. Changes in Securities and Use of Proceeds - None Item 3. Defaults Upon Senior Securities - None Item 4. Submission of Matters to a Vote of Security Holders - None Item 5. Other Information - None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 99.1Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Current report on Form 8-K - No reports on form 8-K were filed during the quarter ended September 30, 2002. 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CAPITAL MORTGAGE PLUS L.P. By: CIP ASSOCIATES, INC. General Partner Date: November 7, 2002 By:/s/ Alan P. Hirmes ------------------ Alan P. Hirmes Senior Vice President (Principal Executive and Financial Officer) Date: November 7, 2002 By:/s/ Glenn F. Hopps ------------------ Glenn F. Hopps Treasurer (Principal Accounting Officer) CERTIFICATION I, Alan P. Hirmes, Principal Executive Officer and Principal Financial Officer of CIP Associates, Inc., (the "General Partners"), the general partner of Capital Mortgage Plus L.P. (the "Partnership"), hereby certify that: 1. I have reviewed this quarterly report on Form 10-Q for the period ending September 30, 2002 of the Partnership; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Partnership as of, and for, the periods presented in this quarterly report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15-d-14) for the Partnership and I have: a) designed such disclosure controls and procedures to ensure the material information relating to the Partnership is made known to me, particularly during the period in which this quarterly report was being prepared; b) evaluated the effectiveness of the Partnership's disclosure controls and procedures as of September 30, 2002 (the "Evaluation Date"); and c) presented in this quarterly report my conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. I have disclosed, based on my most recent evaluation, to the Partnership's auditors and to the boards of directors of the General Partners: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Partnership's ability to record, process, summarize and report financial data and have identified for the Partnership'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 Partnership's internal controls; and 6. I have indicated in this quarterly 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. Pursuant to the requirements of the Securities Exchange Act of 1934, the Partnership has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. By: /s/ Alan P. Hirmes ------------------ Alan P. Hirmes Principal Executive Officer and Principal Financial Officer November 7, 2002 CERTIFICATION PURSUANT TO 18.U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Capital Mortgage Plus L.P. (the "Partnership") on Form 10-Q for the period ending September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Alan P. Hirmes, Principal Executive Officer and Principal Financial Officer of CIP Associates, Inc., the general partner of the Partnership, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Partnership. /s/ Alan P. Hirmes ---------------------- Alan P. Hirmes Principal Executive Officer and Principal Financial Officer November 7, 2002

CAPITAL MORTGAGE PLUS L P 10-Q