FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2002

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 0-768

GARMENT CAPITOL ASSOCIATES

(Exact name of registrant as specified in its charter)

A New York Partnership 13-6083208

(State or other jurisdiction of (I.R.S. Employer

incorporation or organization) Identification No.)

60 East 42nd Street, New York, New York 10165

(Address of principal executive offices)

(Zip Code)

(212) 687-8700

(Registrant's telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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 [ ].

An Exhibit Index is located on Page 12 of this Report.

Number of pages (including exhibits) in this filing: 12

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Garment Capitol Associates

Condensed Statements of Income

(Unaudited)

For the Three Months

Ended March 31,

2002 2001

Income:

Basic rent income, from a

related party (Note B) $ -0- $ -0-

Dividend income 751 2,281

--------- ----------

Total income 751 2,281

--------- ----------

Expenses:

Interest on mortgage -0- -0-

Supervisory services, to a

related party (Note C) -0- -0-

Amortization of mortgage

refinancing costs -0- -0-

Fees, to a related party

(Note D) 751 2,281

--------- ----------

Total expenses 751 2,281

--------- ----------

Net income for period $ -0- $ -0-

========= ==========

Earnings per $5,000

participation unit, based on

1,050 participation units

outstanding during the period $ -0- $ -0-

========= ==========

Distributions per $5,000

participation consisted of

the following:

Income $ -0- $ -0-

========= ==========

As of March 31, 2002, the investment of the Participants had been repaid in full but the Participants continue to hold pro rata interests in Registrant based on the original participating interests.

Garment Capitol Associates

Condensed Balance Sheets

(Unaudited)

Assets March 31, 2002 December 31, 2001

Escrow Account held by

Wien & Malkin LLP $ 166,369 $ 165,618

---------- -----------

Total Assets 166,369 165,618

========== ===========

Liabilities

Accrued legal costs reserved

re: pending litigation

concerning sale of real estate 166,369 165,618

---------- -----------

Total liabilities $ 166,369 $ 165,618

========== ===========

Capital

March 31, 2002 -0- -0-

December 31, 2001 -0- -0-

---------- -----------

Total liabilities and capital:

March 31, 2002 166,369 -0-

December 31, 2001 -0- 165,618

========== ===========

Garment Capitol Associates

Condensed Statements of Cash Flow

(Unaudited)

January 1, 2002 January 1, 2001

through through

March 31, 2002 March 31, 2001

Cash flows from operating

activities:

Net loss $ -0- $ -0-

Adjustments to reconcile

net income to net cash provided

by (used in) operating activities:

Amortization of mortgage

refinancing costs -0- -0-

Gain on sale of property -0- -0-

Changes in operating liabilities:

Change in accrued legal cost reserve 751 (434)

---------- ---------

Net cash provided by (used in)

operating activities 751 (434)

---------- ---------

Cash flows from investing activities:

Advances to lessee -0- -0-

Payments from lessee -0- -0-

Proceeds from sale of property -0- -0-

---------- ---------

Net cash provided by investing

activities -0- -0-

---------- ---------

Cash flows from financing activities:

Cash distributions -0- -0-

Principal payments on first mortgage -0- -0-

---------- ---------

Net cash used in financing

activities -0- -0-

---------- ---------

Net increase (decrease) in cash 751 (434)

Cash, beginning of period 165,618 165,357

---------- ---------

Cash, end of period 166,369 164,923

========== =========

Notes to Condensed Financial Statements (Unaudited)

Note A Organization and basis of Presentation

In the opinion of management, the accompanying unaudited condensed financial statements reflect all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position of Registrant as of March 31, 2002, its results of operations and cash flows for the three months ended March 31, 2002 and 2001. Information included in the condensed balance sheet as of December 31, 2001 has been derived from the audited balance sheet included in Registrant's, Form 10-K for the year ended December 31, 2001 (the "10-K") previously filed with the Securities and Exchange Commission (the "SEC"). Pursuant to rules and regulations of the SEC, certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted from these financial statements unless significant changes have taken place since the end of the most recent fiscal year. Accordingly, these unaudited condensed financial statements should be read in conjunction with the financial statements, notes to financial statements and the other information in the 10-K. The results of operations for the three months ended March 31, 2002 are not necessarily indicative of the results to be expected for the full year.

Note B Interim Period Reporting

Registrant was organized on January 10, 1957. On May 1, 1957, Registrant acquired fee title to the Garment Capitol Building (the "Building") and the land thereunder, located at 498 Seventh Avenue, New York, New York (the "Property"). Registrant's members are Peter L. Malkin, Thomas N. Keltner, Jr. and Richard A. Shapiro (collectively the "Members"), each of whom also acts as an agent for holders of participations in their respective partnership interests in Registrant (the "Participants"). As described below, the Property has been sold, Registrant has been terminated for tax purposes, and distributions from sale proceeds have been made to the Participants.

Registrant did not operate the Property. Registrant leased the Property to 498 Seventh Avenue Associates (the "Original Lessee") under a net operating lease (the "Operating Lease") which commenced as of May 1, 1957 and was scheduled to expire on April 30, 2007.

In 1994 and 1995, the Original Lessee made capital calls on its partners in the aggregate amount of $1,300,000 to defray certain operating expenses and improvement costs at the Property. Despite these new capital infusions, however, the Original Lessee concluded that to return the Property to profitability would require a very large additional capital investment, estimated by the Original Lessee to be as high as $16,000,000. Therefore, on December 29, 1995, in accordance with the terms of the Operating Lease, the Original Lessee assigned the Operating Lease to 4987 Corporation (the "New Lessee"), thereby effectively terminating the liability of the Original Lessee

and its partners under the Operating Lease. The shares in the New Lessee were owned by the partners in the Original Lessee, except that a substantial portion of the shares originally owned by Peter L. Malkin is held for the benefit of members of his family, as to which shares he retains voting control.

The New Lessee had paid basic rent under the Operating Lease through March 27, 1997, the date of the sale of the Property, as hereinafter described. Registrant applied these rents to cover (1) its monthly mortgage payments to the Apple Bank for Savings ("Apple Bank") on Registrants' fee mortgage on the Property (the "Mortgage Loan"), (2) its monthly fee for supervisory services and (3) its distributions to the Participants in Registrant. The New Lessee did not pay the New York City real estate taxes and Business Improvement District ("BID") assessments in the amounts of $936,180.00 and $29,695.14, respectively, and certain other minor assessments and charges aggregating less than $1,500, all of which were due on January 1, 1996 or shortly thereafter. The New Lessee also failed to pay the New York City real estate taxes and BID assessments in the amounts of $1,053,254.50 and $28,529.26, respectively, which were due on July 1, 1996 and $740,845.50 and $28,529.26, respectively, which were due on January 1, 1997. As a result, although payment of the January 1, 1996 and July 1, 1996 and January 1, 1997 real estate taxes and BID assessments has been made as described below, the New Lessee was in default of the Operating Lease as of January 1, 1996.

The New Lessee requested that Registrant forbear from exercising its rights and remedies under the Operating Lease, including termination of the Operating Lease, by reason of the failure to pay the January 1, 1996 and July 1, 1996 real estate taxes and BID assessments, while management of Registrant solicited the consent of the Participants to a sale of the Property (the "Solicitation"). On July 26, 1996, the Partners mailed to the Participants a STATEMENT ISSUED BY THE AGENTS IN CONNECTION WITH THE SOLICITATION OF CONSENTS OF THE PARTICIPANTS (the "Statement") requesting their authorization for a sale of the Property and forbearance in favor of the New Lessee in the form of the Definitive Proxy Statement which was filed with the Securities and Exchange Commission as Schedule 14-A on July 25, 1996, and is incorporated herein by reference. If Registrant did forbear, the New Lessee agreed to cooperate fully with Registrant in connection with the sale of the Property and to continue to perform its other obligations under the Operating Lease, including payment of Basic Rent, to enable Registrant to continue its monthly distributions to the Participants, pay its supervisory fee and pay its monthly mortgage obligation. The continuation of the Operating Lease was also to serve to insulate Registrant from third party liabilities attendant on property operations. Because the consent solicitation program included the continuation of the Operating Lease with the New Lessee, Registrant did not send a notice of default under the Operating Lease based on the failure of the New Lessee to pay the January 1, 1996 and July 1, 1996 real estate taxes and BID assessments.

Although the failure to pay the January 1, 1996, July 1, 1996 and January 1, 1997 real estate taxes and BID assessments also constituted a breach of Registrant's obligations under the Mortgage Loan, Apple Bank had agreed to forbear from exercising its rights and

remedies during the period of the solicitation of consents through a sale of the Property based on arrangements consummated in March 1996 between the shareholders of the New Lessee (or designees on their behalf) and Apple Bank to fund the January 1, 1996 real estate taxes and BID assessments and certain future real estate taxes and BID assessments on the Property (together with the January 1, 1996 real estate taxes, the "Real Estate Taxes") through protective advances under the Mortgage Loan. The shareholders of the New Lessee (or designees on their behalf) had personally borrowed from Apple Bank (a) on April 2, 1996, the sum of $1,012,274.18, equal to the January 1, 1996 real estate taxes and BID assessments and interest thereon to the date of the borrowing, and certain other minor city charges and interest aggregating less than $1,500 and (b) on June 28, 1996, the sum of $1,081,783.76 equal to the July 1, 1996 real estate taxes and BID assessment and (c) on December 31, 1996, the sum of $769,374.76 equal to the January 1, 1997 real estate taxes and BID assessment. The April 2, 1996 borrowing was used to fund a protective advance by Apple Bank to pay the January 1, 1996 real estate taxes and BID assessments, interest thereon and such minor charges, through the purchase of a subordinate participating interest in the Mortgage Loan in such amount. The June 28, 1996 and December 31, 1996 borrowings were used to fund protective advances by Apple Bank to pay, respectively, the July 1, 1996 and January 1, 1997 Real Estate Taxes and BID assessments through the purchase of additional subordinate participating interests in the Mortgage Loan in such amounts. Interest and principal required to be paid on the protective advances and on any future protective advances have been paid by the New Lessee.

On January 29, 1997, Registrant received the consent of the Participants for the sale and forbearance program and for the liquidation of Registrant, as described in the Statement. See Note C and Item 2 hereof for a description of the services rendered by, and compensation paid to, Supervisor and for a discussion of certain relationships which may pose actual or potential conflicts of interest among Registrant, Original Lessee, New Lessee and certain of their respective affiliates.

Registrant, together with the New Lessee, entered into a contract with George Comfort & Sons, Inc., as Agent, and Tirrem Management Company, Inc., collectively as Purchasers, to sell the Property to the Purchasers for $42,000,000, subject to adjustments (the "Contract of Sale"). The sale closed as of March 27, 1997. After priority allocation for certain payments, as more particularly described in the Statement, net sale proceeds of $34,885,810 were allocated between Registrant and the New Lessee pursuant to the

formula described in the Statement, as approved by the Participants. From its share of the proceeds, Registrant had made an initial

distribution on June 30, 1997 of $27,000,000 to the Participants, and each holder of an original $10,000 Participation, as reduced to $5,000, received an initial distribution of sale proceeds of $25,714, which included the return of the Participant's remaining original capital investment. On July 23, 1997, an additional distribution of

$800,000 ($761.90 per $5,000 participation unit) was made to the Participants out of the proceeds of sale.

Based on advice from legal counsel, the partnership was terminated for tax purposes on November 30, 1997. At the time of termination, Registrant was still involved in litigation. In order to provide for the anticipated costs of the litigation and for any other post-closing expenses, an escrow account, in the amount of $166,369

is being held by Supervisor.

Note C - Supervisory Services

Registrant's supervisory fee arrangement with Supervisor provided for (i) the basic payment of $42,500 per annum ("Basic Payment"); (ii) an additional annual basic payment of the first $37,500 of Additional Rent paid by Lessee in any lease year ("Additional Basic Payment"); and (iii) an additional payment of 10% of all distributions to Participants in any year from Basic Rent and Additional Rent in excess of the amount representing a return at the rate of 18% per annum on their remaining cash investment in any year (the "Additional Payment"). The Additional Basic Payment was payable in each year only from Additional Rent received by Registrant from New Lessee. If Additional Rent in any year was inadequate to cover the Additional Basic Payment, such deficiency was payable in the following year in which Additional Rent was sufficient.

No remuneration was paid during the current fiscal year by Registrant to any of the Members as such. Fees for the period ended March 31, 2002 included $751 for services rendered by Wien & Malkin LLP, a related party.

The supervisory services provided to Registrant by Supervisor include, but are not limited to, providing or coordinating counsel to Registrant, maintaining all of its entity and Participant records, performing physical inspections of the Building, reviewing insurance coverage, conducting annual supervisory review meetings, receipt of monthly rent from Net Lessee, payment of monthly and additional distributions to the Participants, payment of all other disbursements, confirmation of the payment of real estate taxes, and active review of financial statements submitted to Registrant by Net Lessee and financial statements audited by and tax information prepared by Registrant's independent certified public accountant, and distribution of such materials to the Participants. Supervisor also prepares quarterly, annual and other periodic filings with the Securities and Exchange Commission and applicable state authorities.

Supervisor did not receive a Supervisory Fee based on sale proceeds allocated to Registrant but has been paid for its services in connection with the Statement and in connection with the sale and other post-sale special services. Supervisor has also been paid fees by the New Lessee for various work during and after the sale.

The respective interests of Messrs. Malkin, Keltner, and Shapiro, if any, in Registrant and New Lessee arose solely from the ownership of their respective participations in Registrant and Mr. Malkin's family's interests in New Lessee. The Members receive no extra or special benefit not shared on a pro rata basis with all other Participants in Registrant or partners in the New Lessee. However, each of the Members, by reason of his respective interest in Supervisor, is entitled to receive his share of payments in respect of supervisory services and in respect of any fees or other remuneration paid to Supervisor for special and supervisory services rendered to Registrant and the New Lessee.

Note D Fees

During the three months ended March 31, 2002, fees of $751

were paid to the firm of Wien & Malkin LLP, a related party.

Item 2. Management's Discussion and Analysis of

Financial Condition and Results of Operations.

Registrant was organized solely for the purposes of acquiring the Property subject to the Operating Lease. Registrant was required to pay from Basic Rent the mortgage charges and supervisory services and to distribute the balance of such Basic Rent to the Participants. Pursuant to the Operating Lease, the holder of the leasehold interest thereunder had sole responsibility for the condition, operation, repair, maintenance and management of the Property. Registrant did not maintain substantial reserves or otherwise maintain liquid assets to defray any operating expenses of the Property. Registrant's results of operations were affected primarily by the amount of rent payable to it under the Operating Lease.

Registrant is aware of the following events. The

Original Lessee operated the Property at a substantial loss during the years ended December 31, 1995 and December 31, 1994. In 1994 and 1995, the Original Lessee made capital calls on its partners in the aggregate amount of $1,300,000 to defray certain operating expenses and improvement costs at the Property.

The downturn and changes in methods of operations in the garment industry had a major impact on the Property and its operations and profitability. Registrant had been advised that the loss of tenants at the Property and the related reduction in rent received were primarily due to insolvency's affecting tenants in the garment business and reduced demand for space.

The New Lessee had the right to abandon or assign its interest in the Operating Lease (see Item 1 above).

As a result of the Sale, on July 23, 1997, Registrant made a final distribution to the Participants of the remaining sales proceeds. At the closing of the sale pursuant to the Contract of Sale, the interests of Registrant, as lessor, and the New Lessee, as lessee, under the Operating Lease were assigned to the purchaser, and the Operating Lease was terminated. There were no additional regular monthly distributions following the distribution on April 1, 1997 in respect of March 1997 rent under the Operating Lease.

Liquidity and Capital Resources

N/A

Inflation

Inflationary trends in the economy did not directly affect Registrant's operations, since, as noted above, Registrant did not actively engage in the operation of the Property. Inflation may have affected the operations of the New Lessee. The New Lessee was required to pay Basic Rent, regardless of the results of its operations. Inflation and other operating factors affected only the amount of Additional Rent payable by the New Lessee, which was based on the New Lessee's net operating profit.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

The Property of Registrant is the subject of the following pending litigation:

On October 4, 1996, the alleged holder of three participation interests in Registrant brought suit in the U.S. District Court for the Southern District of New York against the New Lessee, the Original Lessee, the partners in Registrant, and Supervisor. Registrant was a nominal defendant. The suit claims that defendants violated the anti-fraud provisions of the federal securities laws and committed breaches of fiduciary duty and fraud in relation to the Solicitation. The suit is a class action. The suit seeks to enjoin the allocation of sale proceeds to the New Lessee approved by the Participants, money damages and related relief. Defendants responded to the complaint with a motion seeking dismissal of the action in its entirety. The Court granted that motion and dismissed the action by order and decision dated December 8, 1997.

Upon plaintiff's appeal of that order, the U.S. Court of Appeals affirmed in part and reversed in part the dismissal of the action. By Order dated August 11, 1999, plaintiff's derivative claims were dismissed. The case was certified as a class action by order dated February 1, 2000 and was tried to the court (Baer, J.) and a trial jury beginning on September 18, 2000. On September 27, 2000, the trial jury returned a verdict for all defendants on all claims.

Plaintiff made a motion for judgment notwithstanding the verdict and for a new trial. By opinion and order dated January 17, 2001, the court denied plaintiff's motion for judgment notwithstanding the verdict and for a new trial, and plaintiff filed appeals from the jury verdict and the denial of those motions. By opinion dated February 26, 2002 the Court of appeals affirmed the judgment dismissing the complaint in all respects.

The complaint does not seek any relief against Registrant, and, accordingly, Registrant's litigation counsel is of the opinion that no material loss or other unfavorable outcome of the action against Registrant is anticipated. In accordance with the Solicitation, sale proceeds were allocated to repay the Fee Mortgagee protective advances as well as all other sums then outstanding on the Fee Mortgage. Pursuant to an agreement between counsel for the plaintiff in the 1996 proceeding and counsel for the defendants, net sale proceeds allocated to the New Lessee in accordance with the formula set forth in the Solicitation would not be distributed to the New Lessee, except upon 30 days' notice to counsel for the plaintiff. The required 30-day notice was given to counsel for the plaintiff on October 2, 2000, and a portion of such sales proceeds have been used to pay fees and expenses associated with the litigation.

On March 13, 1997, the alleged holder of a fractional participation interest in Registrant brought suit in the U.S. District Court for the Southern District of New York against New Lessee, Original Lessee, Registrant's Partners and Supervisor. Registrant was a defendant. The suit is essentially similar to the legal action described in the preceding paragraph, alleging that defendants violated the Federal proxy rules, committed breaches of fiduciary duty and fraud in relation to the Solicitation for the sale and forbearance program and for liquidation of Registrant. The suit seeks to enjoin the allocation of sale proceeds to New Lessee approved by the Participants, money damages and related relief. Defendants responded to the complaint with a motion seeking dismissal of the action in its entirety. The Court granted the motion and dismissed the action by the same order and decision dated December 8, 1997 and referred to in the preceding paragraph. Upon plaintiff's appeal of the order, the U.S. Court of Appeals affirmed in part and reversed in part the dismissal of the action. By Order dated August 11, 1999, plaintiff's derivative claims were dismissed. The case was certified as a class action by order dated February 1, 2000 and was tried to the Court (Baer, J.) and a trial jury returned a verdict for all defendants on all claims. Plaintiff made a motion for judgement notwithstanding the verdict and for a new trial.By opinion and order dated January 17, 2001, the court denied plaintiff's motion for judgement notwithstanding the verdict and for a new trial, and plaintiff has filed appeals from the jury verdict and the denial of those motions. By opinion dated February 26, 2002, the Court of Appeals affirmed the judgment dismissing the complaint in all respects.

Registrant's litigation counsel is of the opinion that no loss or other unfavorable outcome of the action against Registrant is anticipated.

Item 6. Exhibits and Reports on Form 8-K.

(a) The exhibits hereto are being incorporated by reference.

(b) Registrant has not filed any report on Form 8-K during the quarter for which this report is being filed.

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.

The individual signing this report on behalf of Registrant is Attorney-in-Fact for Registrant and each of the Partners in Registrant, pursuant to Powers of Attorney, dated April 10, 1996 and May 14, 1998 (collectively, the "Power").

GARMENT CAPITOL ASSOCIATES

(Registrant)

By: /s/ Stanley Katzman

Stanley Katzman, Attorney-in-fact*

Date: May 20, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the undersigned as Attorney-in-Fact for each of the Partners in Registrant, pursuant to the Power, on behalf of Registrant and as a Partner in Registrant on the date indicated.

By: /s/ Stanley Katzman

Stanley Katzman, Attorney-in-fact*

Date: May 20, 2002

__________________________

* Mr. Katzman supervises accounting functions for Registrant.

EXHIBIT INDEX

Number Document Page*

3 (a) Registrant's Partnership Agreement, dated January 10, 1957, which was filed as Exhibit No. 1 to Registrant's Registration Statement on Form S-1 as amended (the "Registration Statement") effective February 13, 1957 and assigned File No. 2-13034, is incorporated by reference as an exhibit hereto.

3 (b) Amended Business Certificate of Registrant effective as of January 1, 1996, reflecting a change in the partners of Registrant, which was filed as Exhibit 3(b) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 and is incorporated by reference as an exhibit hereto.

24 Powers of Attorney dated April 10, 1996

and May 14, 1998 between Partners of Registrant and Stanley Katzman and Richard A. Shapiro which were filed as Exhibit 24 to Registrant's 10-Q for the quarter ended June 30, 1998 and is incorporated by reference as an exhibit hereto.

_____________________

* Page references are based on a sequential numbering system.