10-Q 1 e91966.txt -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2002 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.) High Cash Partners, L.P. c/o Pembroke Companies Inc 70 East 55th Street 7th Floor New York, New York 10022 (Address of principal executive offices) (212) 350-9900 (Registrant's telephone number, including area code) None (Former name, former address and former fiscal year, if changed since last report) Indicate by checkmark 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 --- --- -------------------------------------------------------------------------------- HIGH CASH PARTNERS, L.P. FORM 10-Q - September 30, 2002 INDEX PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS BALANCE SHEETS - September 30, 2002 and December 31, 2001...........1 STATEMENTS OF OPERATIONS - For the three and nine months ended September 30, 2002 and 2001...................................2-3 STATEMENT OF PARTNERS' DEFICIT - For the nine months ended September 30, 2002..............................................4 STATEMENTS OF CASH FLOWS - For the nine months ended September 30, 2002 and 2001.....................................5 NOTES TO FINANCIAL STATEMENTS.......................................6 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........................10 ITEM 4 - CONTROLS AND PROCEDURES.......................................15 PART II - OTHER INFORMATION ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K..............................16 SIGNATURES....................................................................17 This report contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Those statements appear in a number of places herein and include statements regarding the intent, belief or current expectations of the Partnership, primarily with respect to the future operating performance of the Partnership or related developments. Any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results and developments may differ from those described in the forward-looking statements as a result of various factors, many of which are beyond the control of the Partnership. PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS HIGH CASH PARTNERS, L.P. BALANCE SHEETS

See notes to financial statements. 1 HIGH CASH PARTNERS, L.P. STATEMENTS OF OPERATIONS (unaudited)

See notes to financial statements. 2 HIGH CASH PARTNERS, L.P. STATEMENTS OF OPERATIONS (unaudited)

See notes to financial statements. 3 HIGH CASH PARTNERS, L.P. STATEMENT OF PARTNERS' DEFICIT (unaudited)

See notes to financial statements. 4 HIGH CASH PARTNERS, L.P. STATEMENTS OF CASH FLOWS (unaudited)

See notes to financial statements. 5 HIGH CASH PARTNERS, L.P. NOTES TO FINANCIAL STATEMENTS (unaudited) 1. BASIS OF PRESENTATION The accompanying financial statements have been prepared assuming that High Cash Partners, L.P. (the "Partnership") will continue as a going concern. However, if the Partnership is unable to refinance or otherwise restructure its outstanding indebtedness to Resources Accrued Mortgage Investors 2 L.P. ("RAM 2") prior to the Extended Maturity Date (as hereinafter defined), the Partnership will lose its entire interest in its sole real estate asset (See Note 3). These circumstances raise substantial doubt as to the Partnership's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. 2. INTERIM FINANCIAL INFORMATION The summarized financial information contained herein is unaudited; however, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of such financial information have been included. The accompanying financial statements, footnotes and discussions should be read in conjunction with the financial statements, related footnotes and discussions contained in the Partnership's Annual Report on Form 10-K for the year ended December 31, 2001. The results of operations for the three and nine months ended September 30, 2002 are not necessarily indicative of the results to be expected for the full year ending December 31, 2002. 3. MORTGAGE LOAN PAYABLE The mortgage loan payable (the "Mortgage Loan") represents a first mortgage loan held by RAM 2, a public limited partnership sponsored by affiliates of the former general partners of the Partnership. The Mortgage Loan bears interest at the rate of 11.22% per annum, compounded monthly and did not require payment until its original maturity date of February 28, 2001. The principal balance, along with deferred interest thereon, was $26,908,432 at September 30, 2002, and aggregated approximately $25,000,000 at its original maturity date of February 28, 2001. Because the Partnership believed that it would be unable either to repay or refinance the Mortgage Loan at its original maturity date of February 28, 2001, the Managing General Partner negotiated and caused the Partnership to enter into a mortgage loan modification agreement (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 Partnership's sole real estate asset (the "Property"). The Partnership entered into the Mortgage Loan Modification Agreement with RAM 2 effective January 31, 2001. Pursuant to the terms of 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 6 to repay all amounts due and payable thereunder at its original maturity date of February 28, 2001. Under 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 will not be released to RAM 2 until the earliest to occur of the following dates (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, remains uncured for more than 10 days after notice thereof 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 identifies 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. Unless the Partnership is able to arrange alternate financing or a sale of the Property, the Conveyance Documents can be released to RAM 2 at any time on or before March 1, 2003, at and after which the Partnership will no longer have any interest in the Property; however, there can be no assurance that RAM 2 will not foreclose earlier under the other terms of the Mortgage Loan Modification Agreement, as set forth above. The Mortgage Loan Modification Agreement further provides that, from March 1, 2001, until such time as the Conveyance Documents have been released, the Partnership will be entitled to receive $100,000 per annum pro-rated monthly and paid monthly to the extent cash flow generated by the Property permits and RAM 2 will be entitled to receive the balance of the net operating income generated by the Property to be applied against current interest and the outstanding principal and deferred interest on the Mortgage Loan. For the three months ended September 30, 2002, the Partnership retained $25,000 of operating cash flow and applied $461,485 to current interest incurred under the Mortgage Loan. For the nine months ended September 30, 2002, the Partnership retained $75,000 of operating cash flow and applied $1,483,068 to current interest incurred under the Mortgage Loan. Under the terms of the Mortgage Loan Modification Agreement, the Partnership will retain its interest in the Property until and unless the Conveyance Documents are released to RAM 2 in accordance with the terms thereof. Prior to March 1, 2003, until RAM 2 notifies the Partnership that it has entered into a contract to sell or convey the Property, the Partnership will have 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. If the Mortgage Loan is satisfied, the Conveyance Documents will be returned to the Partnership. If the Partnership is unable to refinance or otherwise restructure this outstanding indebtedness prior to the Extended Maturity Date, the Partnership will lose its entire interest in the Property. Under the terms of the Mortgage Loan, the Partnership was obligated to provide RAM 2 with a then current appraisal of the Property upon RAM 2's request. If it was 7 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 Mortgage Loan Modification Agreement, shortly after the Mortgage Loan Modification Agreement was entered into, RAM 2 requested an appraisal of the Property by a real estate appraisal firm unaffiliated with the Partnership, Pembroke HCP, LLC, its managing general partner (the "Managing General Partner") or RAM 2. The appraisal, which was performed as of 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 Mortgage Loan Modification Agreement, RAM 2 has no further appraisal right pursuant to the terms of the Mortgage Loan. Since the Mortgage Loan Modification was entered into, the Managing General Partner has continued to seek a long-term, creditworthy anchor tenant for the space that was originally occupied by Levitz. (See Item 2 below.) However, the search for such a tenant has thus far been unsuccessful. The inability to enter into an attractive lease for this space has significantly impaired the value of the Property. Although an appraisal has not been obtained for the Property since March 1, 2001, the Managing General Partner does not believe that the present fair market value of the Property exceeds the outstanding balance of the Mortgage Loan. Accordingly, it is highly unlikely that the Partnership will be able to either refinance the Mortgage Loan or sell the Property for an amount sufficient to satisfy the Mortgage Loan prior to its extended maturity date of March 1, 2003. In addition, RAM 2 has indicated that it is not prepared to further extend or to restructure the Mortgage Loan. The Managing General Partner will continue to pursue an appropriate anchor tenant; however, under the circumstances, the likelihood that such a tenant will be secured sufficiently in advance of the extended maturity date on the Mortgage Loan to enable the Property to be sold or refinanced is highly doubtful. As a result, it is anticipated that the Conveyance Documents will be released to RAM 2 and that the Partnership will lose its interest in the Property on or about March 1, 2003. Limited Partners of the Partnership should consult with their tax advisors as to the tax consequences to them of the loss of the Property at that time. After the Conveyance Documents are released to RAM 2 and the Partnership no longer has any interest in the Property, the Managing General Partner expects to terminate and dissolve the Partnership in accordance with the provisions of the Partnership's Amended and Restated Agreement of Limited Partnership. 4. CHANGE IN GENERAL PARTNER OWNERSHIP, CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES On June 13, 1997, Resources High Cash, Inc. ("RHC") and Presidio AGP Corp. ("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 Corp. ("XRC"), the parent company of RHC, 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 additional 6,257 Units in the secondary market. Prior to the sale of the general partnership interests in the Partnership to Pembroke HCP and Pembroke AGP, Wexford Management LLC had performed management and 8 administrative services for AGP, XRC and XRC's direct and indirect subsidiaries, as well as for the Partnership. Following the sale, an affiliate of Pembroke HCP was engaged to perform administrative services for the Partnership. During each of the quarters ended September 30, 2002 and 2001, $12,000 in reimbursable payroll expenses were paid to the affiliate of Pembroke HCP for services performed during the quarter. 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. No property management fees were payable to Pembroke Realty for the quarters ended September 30, 2002 or 2001. No leasing activity compensation was paid to Pembroke Realty for the quarters ended September 30, 2002 or 2001. 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 companies, 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 general partner of RAM 2. For the quarter ended September 30, 2002, Pelican was entitled to receive $20,569 in respect of property management services rendered to the Partnership. For managing the affairs of the Partnership, the Managing General Partner is entitled to a partnership management fee equal to $75,369 per quarter. For each of the quarters ended September 30, 2002 and September 30, 2001, the Managing General Partner received a partnership management fee of $75,369. The General Partners are allocated 1% of the net income or losses of the Partnership, which amounted to losses of $4,463 and $3,769 in the quarters ended September 30, 2002 and 2001, respectively. They also are entitled to receive 1% of the distributions of the Partnership. 5. REAL ESTATE Real estate, which is the Partnership's sole asset, is summarized as follows: September 30, 2002 (unaudited) December 31, 2001 ------------------ ----------------- Land $ 6,667,189 $ 6,667,189 Building and improvements 13,014,699 12,965,945 ------------------ ----------------- 19,681,888 19,633,134 Accumulated depreciation (5,439,063) (5,199,319) ------------------ ----------------- $ 14,242,825 $ 14,433,815 ================== ================= 9 The land, building and improvements that comprise the Partnership's sole real estate asset collateralize a mortgage loan payable. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. However, if the Partnership is unable to refinance or otherwise restructure its outstanding indebtedness to Resources Accrued Mortgage Investors 2 L.P. ("RAM 2") prior to the Extended Maturity Date, the Partnership will lose its entire interest in its sole real estate asset. These circumstances raise substantial doubt as to the Partnership's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Partnership's sole real estate asset (the "Property") is a community shopping center located in Reno, Nevada containing approximately 233,000 square feet of net leasable area. The Partnership uses undistributed cash flow from operations as its primary measure of liquidity. As of September 30, 2002, working capital reserves amounted to approximately $1,037,000 which does not include any amount which may be currently payable under the Partnership's mortgage loan (the "Mortgage Loan") payable to RAM 2 or deferred interest thereon. Such reserves may be used to fund capital expenditures, insurance, real estate taxes and loan payments. All expenditures made during the quarter ended September 30, 2002 were funded from operations. At September 30, 2002, the total amount outstanding on the Mortgage Loan was $26,908,432, which included deferred interest of $20,408,432. 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. Pursuant to the Mortgage Loan Modification Agreement, RAM 2 has 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 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") have been placed in escrow with counsel to RAM 2. The Conveyance Documents will not 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, remains 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 identifies 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 10 (iii) March 1, 2003. Unless the Partnership is able to arrange alternate financing or a sale of the Property, the Conveyance Documents can be released to RAM 2 at any time on or before March 1, 2003, at and after which the Partnership will no longer have any interest in the Property; however, there can be no assurance that RAM 2 will not foreclose earlier under the other terms of the Mortgage Loan Modification Agreement, as set forth above. The Mortgage Loan Modification Agreement further provides that 100% of the net operating income generated by the Property allocable to the period ending February 28, 2001, the original maturity date of the Mortgage Loan, will be retained by the Partnership. From and after March 1, 2001 until such time as the Conveyance Documents have been released, the Partnership will be entitled to receive $100,000 per annum pro-rated monthly and paid monthly to the extent cash flow permits and RAM 2 will be 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 three months ended September 30, 2002, the Partnership retained $25,000 of operating cash flow and applied $461,485 to current interest incurred under the Mortgage Loan. For the nine months ended September 30, 2002, the Partnership retained $75,000 of operating cash flow and applied $1,483,068 to current interest incurred under the Mortgage Loan. From and after March 1, 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. However, there can be no assurance that the Partnership will have excess cash available, or that future distributions will be made to the Limited Partners. At September 30, 2002, the Partnership had cash and cash equivalents of $876,854. In addition, RAM 2 has 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 are released to RAM 2 or such other party as agreed to by RAM 2. Such release will be 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. Under the terms of the Mortgage Loan, the Partnership was obligated to provide RAM 2 with a then 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 become immediately due and payable to RAM 2. Any amount so paid by the Partnership would be 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. Shortly after the Mortgage Loan Modification Agreement was entered into, RAM 2 requested that the Property be appraised by 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 11 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 or is payable to RAM 2. Consequently, under the terms of the Mortgage Loan Modification Agreement, RAM 2 has no further appraisal right thereunder. Under the terms of the Mortgage Loan Modification Agreement, the Partnership will retain its interest in the Property until and unless the Conveyance Documents are released to RAM 2 in accordance with the terms thereof. In addition, the Partnership retained the right to repay the Mortgage Loan in accordance with its terms on any date prior to March 1, 2001. Thereafter, and prior to March 1, 2003, until RAM 2 notifies the Partnership that it has entered into a contract to sell or convey the Property, the Partnership will have 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. If the Mortgage Loan is satisfied, the Conveyance Documents will be returned to the Partnership. Since the Mortgage Loan Modification was entered into, the Managing General Partner has continued to seek a long-term, creditworthy anchor tenant for the space that was originally occupied by Levitz. (See Item 2 below.) However, the search for such a tenant has thus far been unsuccessful. The inability to enter into an attractive lease for this space has significantly impaired the value of the Property. Although an appraisal has not been obtained for the Property since March 1, 2001, the Managing General Partner does not believe that the present fair market value of the Property exceeds the outstanding balance of the Mortgage Loan. Accordingly, it is highly unlikely that the Partnership will be able to either refinance the Mortgage Loan or sell the Property for an amount sufficient to satisfy the Mortgage Loan prior to its extended maturity date of March 1, 2003. In addition, RAM 2 has indicated that it is not prepared to further extend or to restructure the Mortgage Loan. The Managing General Partner will continue to pursue an appropriate anchor tenant; however, under the circumstances, the likelihood that such a tenant will be secured sufficiently in advance of the extended maturity date on the Mortgage Loan to enable the Property to be sold or refinanced is highly doubtful. As a result, it is anticipated that the Conveyance Documents will be released to RAM 2 and that the Partnership will lose its interest in the Property on or about March 1, 2003. Limited Partners of the Partnership should consult with their tax advisors as to the tax consequences to them of the loss of the Property at that time. After the Conveyance Documents are released to RAM 2 and the Partnership no longer has any interest in the Property, the Managing General Partner expects to terminate and dissolve the Partnership in accordance with the provisions of the Partnership's Amended and Restated Agreement of Limited Partnership. 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, has 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. 12 Until November 1997, Levitz Furniture Corporation ("Levitz") had occupied approximately 23% of the space of the Partnership's property (i.e., approximately 53,000 out of approximately 233,000 square feet of net leasable area). 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 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. The vacancy at the Levitz space resulted in a loss of income to the Partnership. This vacancy may have adversely affected the surrounding tenants and the Partnership's ability to attract new tenants, particularly in light of the limited visibility those tenants have to the main thoroughfare. See "Real Estate Market" below. The Partnership is actively seeking a long-term, creditworthy substitute tenant for the Levitz space. However, the Partnership has not thus far been successful in its search and there can be no assurance the Partnership will, significantly in advance of the Extended Maturity Date of the Mortgage Loan, succeed in finding a long-term, creditworthy substitute tenant on terms comparable to those under the Levitz lease. In addition, if a substitute tenant is procured, the Partnership expects to have to make capital expenditures to secure such tenant. During 1999, the Partnership entered into a short-term lease for the Levitz space with a then existing tenant at an annual rent substantially less than under the Levitz lease. The Partnership has the right to terminate this lease upon written notice in the event that the Partnership secures a long-term, creditworthy tenant for the space. The level of leasing activity cannot be predicted, particularly in light of the Levitz situation, and, therefore, the amount of further capital expenditures arising from leasing activity is uncertain. There can be no assurance the Partnership will have sufficient liquidity to make such capital expenditures. Real Estate Market The market value of the Property reflects real estate market conditions in the vicinity of Property. Recently built shopping centers in the vicinity have increased competition for tenants. This competitive factor, together with the fact that much of the unleased space in the Partnership's property (including the Levitz space) has only limited visibility to the main thoroughfare has hindered the lease-up of new space. 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. 13 Results of Operations Three Months Ended September 30, 2002 Compared to Three Months Ended September 30, 2001 The Partnership realized a net loss of $446,306 ($4.58 per Unit) for the three months ended September 30, 2002 compared to a net loss of $376,906 ($3.87 per Unit) for the corresponding 2001 period, an increased loss of $69,400. The increased loss was primarily the result of an overall increase in costs and expenses. Costs and expenses increased from 2001 to 2002 as a result of increased mortgage loan interest, operating, depreciation and amortization, as well as general and administrative expenses. Mortgage loan interest increased due to the compounding effect from the deferral of interest on the Mortgage Loan. Operating expenses reflect the addition of one salaried clerical employee paid by the Property. Depreciation and amortization increased as a result of capitalized costs incurred. The increase in general and administrative reflects higher professional costs than those incurred during the corresponding period in 2001. Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30, 2001 The Partnership realized a net loss of $1,264,914 ($12.98 per Unit) for the nine months ended September 30, 2002 compared to a net loss of $1,106,494 ($11.36 per Unit) for the corresponding 2001 period, an increased loss of $158,420. The increased loss was the result of decreased revenues combined with increased costs and expenses. Revenues decreased from 2001 to 2002 due to decreases in rental income and interest income. Rental income decreased from 2001 to 2002 because rental income recorded for the corresponding period in 2001 reflected the inclusion of rental income relating to a prior period due to a non-recurring retroactive billing adjustment effected during the quarter ended June 30, 2001. Interest income decreased as a result of lower available interest rates and a decrease in the level of available funds invested. Costs and expenses increased from 2001 to 2002 as a result of increased mortgage loan interest, operating and depreciation and amortization expenses. General and administrative expenses decreased. Mortgage loan interest increased due to the compounding effect from the deferral of interest on the Mortgage Loan. Operating expenses reflect the addition of one salaried clerical employee paid by the Property. Depreciation and amortization increased as a result of capitalized costs incurred. General and administrative expenses decreased as a result of decreased legal costs; the legal costs incurred in connection with the Mortgage Loan Modification Agreement during 2001 represented a one-time non-recurring expense. Certification The certification by Lawrence J. Cohen, the President, chief executive officer and chief financial officer of Pembroke Companies Inc., which is the sole member and the 14 manager of the Managing General Partner, of this report on Form 10-Q, as required by section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), accompanies this report on Form 10-Q as correspondence. ITEM 4 - 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. 15 PART II - OTHER INFORMATION ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: None (b) Reports on Form 8-K: None 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. HIGH CASH PARTNERS, L.P. By: Pembroke HCP, LLC Managing General Partner By: Pembroke Companies, Inc. Managing Member Dated: November 14, 2002 By: /s/ Lawrence J. Cohen -------------------------------- President and Principal Financial and Accounting Officer 17 CERTIFICATION I, Lawrence J. Cohen, certify that: 1. I have reviewed this quarterly report on Form 10-Q of High Cash Partners, L.P.; 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 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 registrant as of, and for, the periods presented in this quarterly 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 quarterly 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 quarterly report (the "Evaluation Date"); and c) presented in this quarterly 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 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. Date: November 14, 2002 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. 18

HIGH CASH PARTNERS L P 10-Q