10-Q 1 f10q_june2004-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 June 30, 2004 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 ----- ----- Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes No X ----- ----- PART I - FINANCIAL INFORMATION 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 JUNE 30, 2004 (Unaudited) Note 1 - General The unaudited financial statements have been prepared on the same basis as the audited financial statements included in Capital Mortgage Plus L.P.'s (the "Partnership") Annual Report on Form 10-K for the year ended December 31, 2003. In the opinion of CIP Associates, Inc, a Delaware Corporation (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 June 30, 2004, the results of operations for the three and six months ended June 30, 2004 and 2003 and its cash flows for the six months ended June 30, 2004 and 2003. However, the operating results for the three and six months ended June 30, 2004 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, 2003. The Partnership was formed to invest in insured or guaranteed mortgage investments. The Partnership has invested in first mortgage construction and permanent loans ("Mortgages") to finance multifamily residential rental properties developed by unaffiliated entities. The Partnership has also invested in uninsured equity loans ("Equity Loans") made directly to developers of developments on which the Partnership holds a Mortgage. 7 CAPITAL MORTGAGE PLUS L.P. (a limited partnership) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2004 (Unaudited) Note 2 - Investments in Mortgage Loans Information relating to investments in the Mortgages and Equity Loans as of June 30, 2004 is as follows:

8 CAPITAL MORTGAGE PLUS L.P. (a limited partnership) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2004 (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 $15,753,094 and $40,400, respectively, at June 30, 2004 and $15,823,007 and $68,916, respectively, at December 31, 2003. 9 CAPITAL MORTGAGE PLUS L.P. (a limited partnership) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2004 (Unaudited)

The Windemere Mortgage is 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 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 properties. 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. At June 30, 2004, all of the loans due to the Partnership are current with respect to their Federal Housing Authority ("FHA") Mortgage obligations. Windemere has not paid its default interest of an aggregate of approximately 10 CAPITAL MORTGAGE PLUS L.P. (a limited partnership) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2004 (Unaudited) $782,000 for the six months ended June 30, 2004 and the years ended December 31, 2003, 2002, 2001, 2000, 1999 and 1996. Hollyridge has not paid its default interest of an aggregate of approximately $118,000 for the six months ended June 30, 2004 and the years ended December 31, 2003 and 2001. As a result, an allowance for uncollectability relating to the default interest amounted to approximately $822,000 and $760,000 at June 30, 2004 and December 31, 2003, respectively. The allowance has been 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 six months ended June 30, 2004 and 2003 were as follows:

11 CAPITAL MORTGAGE PLUS L.P. (a limited partnership) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2004 (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 June 30, 2004 and December 31, 2003, a balance of approximately $24,000 and $0 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 $38,000 and $19,000 were accrued and unpaid as of June 30, 2004 and December 31, 2003, respectively. RMC is a co-insurer on the Windemere Mortgage in which the Partnership has invested. RMC is entitled to a mortgage insurance premium which is paid by the mortgagor. Note 4 - Subsequent Event It is anticipated that during August 2004, distributions of approximately $233,000 and $5,000 will be paid to Beneficial Assignment Certificate ("BAC") holders and the General Partner, respectively, representing the 2004 second quarter distribution. 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 and Equity Loans and (2) the working capital reserve. During the six months ended June 30, 2004, cash and cash equivalents of the Partnership increased by approximately $171,000 due to cash provided by operating activities of approximately $583,000 and collections of principal on mortgage loans of approximately $70,000 less distributions paid to Partners of approximately $482,000. Amortization of approximately $36,000 is included in the adjustments to reconcile the net income to cash provided by operating activities. Distributions of approximately $472,000 were made to the limited partners or BACs holders during the six months ended June 30, 2004. A total of approximately $10,000 was distributed to the General Partner during the six months ended June 30, 2004. 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 Mortgages are insured or co-insured by HUD and additionally one Mortgage is 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 partnership interests in these properties. Due to the prepayment of two of the Partnership's original investments in Mortgages and Equity Loans, the portfolio is not diversified by location around the United States. Thus, the Partnership may not be protected 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 the Partnership 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 the Partnership's annual report on Form 10-K for the year ended December 31, 2003. 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 Partnership's financial condition and results of operations. The Partnership believes that there is a low probability 13 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 Mortgages 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 on the effective interest method. Contingent interest is based on the underlying property's cash flows and is recognized when received. o If the interest receivable exceeds the estimated value derived by management, the Partnership 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 six months ended June 30, 2004 compared with the three and six months -------------------------------------------------------------------------------- ended June 30, 2003 ------------------- Results of operations for the three and six months ended June 30, 2004 and 2003 consisted primarily of interest income earned from investment in Mortgages of approximately $366,000 and $368,000 and $732,000 and $749,000, respectively. Interest income from temporary investments decreased approximately $9,000 for the six months ended June 30, 2004 as compared to the same period in 2003 primarily due to lower cash and cash equivalents balance earning interest. General and administrative increased approximately $3,000 and $16,000 for the three and six months ended June 30, 2004 as compared to the same periods in 2003, primarily due to an underaccrual of accounting in 2003 and an increase in legal expense associated with the Paco Development, L.L.C. tender offer in 2004. General and administrative-related parties increased approximately $7,000 and $10,000 for the three and six months ended June 30, 2004 as compared to the same periods in 2003, primarily due to increased expense reimbursements due to the General Partner for asset monitoring and overhead. 14 Amortization expense decreased approximately $8,000 and $16,000 for the three and six months ended June 30, 2004 as compared to the same periods in 2003, primarily due to the Equity Loan of Fieldcrest being fully amortized as of December 31, 2003. A provision for bad debts of approximately $31,000 and $62,000 was charged to operations for the three and six months ended June 30, 2004, representing the 2004 default interest due for Windemere, none of which is expected to be paid. Item 3. Quantitative and Qualitative Disclosures about Market Risk The Partnership does not have any market risk sensitive instruments. Item 4. Controls and Procedures (a) Evaluation of Disclosure Controls and Procedures ------------------------------------------------ The Principal Executive Officer and Principal Financial Officer of CIP Associates, Inc., the general partner of the Partnership, has evaluated the effectiveness of the Partnership's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended ("Exchange Act") as of the end of the period covered by this report. Based on such evaluation, such officer has concluded that, as of the end of such period, the Partnership's disclosure controls and procedures are effective. (b) Internal Control over Financial Reporting ----------------------------------------- There have not been any changes in Partnership's internal control over financial reporting during the period to which this report relates that have materially affected, or are reasonably likely to materially affect, the Partnership's internal control over financial reporting. 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: 31.1 Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a). 32.1 Certification Pursuant to Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Title 18 of the United States Code (18 U.S.C. 1350). (b) Current report 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. CAPITAL MORTGAGE PLUS L.P. By: CIP ASSOCIATES, INC. General Partner Date: August 10, 2004 By: /s/ Alan P. Hirmes ------------------ Alan P. Hirmes Senior Vice President (Principal Executive and Financial Officer) Date: August 10, 2004 By: /s/ Glenn F. Hopps ------------------ Glenn F. Hopps Treasurer (Principal Accounting Officer) Exhibit 31.1 CERTIFICATION PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a) I, Alan P. Hirmes, Principal Executive Officer and Principal Financial Officer of CIP Associates, Inc., (the "General Partner"), 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 June 30, 2004 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-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Partnership and I have: a) designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Partnership, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this quarterly report was being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and c) evaluated the effectiveness of the Partnership's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this quarterly report based on such evaluation; and d) disclosed in this quarterly report any change in the Partnership's internal control over financial reporting that occurred during the period ending June 30, 2004 that has materially affected, or is reasonably likely to materially affect, the Partnership's internal control over financial reporting; and 5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Partnership's auditors and to the boards of directors of the General Partners: a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Partnership's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Partnership's internal control over financial reporting. Date: August 10, 2004 By: /s/ Alan P. Hirmes ------------------ Alan P. Hirmes Principal Executive Officer and Principal Financial Officer Exhibit 32.1 CERTIFICATION PURSUANT TO RULE 13a-14(b) OR RULE 15d-14(b) AND SECTION 1350 OF TITLE 18 OF THE UNITED STATES CODE (18 U.S.C. 1350) In connection with the Quarterly Report of Capital Mortgage Plus L.P. (the "Partnership") on Form 10-Q for the period ending June 30, 2004 as filed with the Securities and Exchange Commission ("SEC") 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. A signed original of this written statement required by Section 906 been provided to the Partnership and will be retained by the Partners and furnished to the SEC or its staff upon request. By: /s/ Alan P. Hirmes ------------------ Alan P. Hirmes Principal Executive Officer and Principal Financial Officer August 10, 2004

CAPITAL MORTGAGE PLUS L P 10-Q