<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
-------------------
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 0-12651
-------
UNIVERSITY REAL ESTATE FUND 10, LTD.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 95-3776748
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Crescent Court, Suite 1300, Dallas, Texas 75201
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(214) 871-3933
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former address, 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
------- -------
1
<PAGE>
UNIVERSITY REAL ESTATE FUND 10, LTD.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1995
Page
----
Part I - Financial Information
Item 1 - Condensed Financial Statements:
(a) Condensed Balance Sheets as of September 30, 1995
and December 31, 1994 3
(b) Condensed Statements of Operations for the three and
nine months ended September 30, 1995 and 1994 4
(c) Condensed Statements of Cash Flows for the nine months
ended September 30, 1995 and 1994 5
(d) Notes to Condensed Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II - Other Information
Item 3 - Defaults on Partnership Debt 9
Item 6 - Exhibits and Reports on Form 8-K 9
Signatures (pursuant to General Instruction E) 10
All other items called for by the instructions are omitted as they are
either inapplicable, not required, or the information is included in
the Condensed Financial Statements or Notes thereto.
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
- ------- ------------------------------
(a) UNIVERSITY REAL ESTATE FUND 10, LTD.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
1995 December 31,
(Unaudited) 1994
------------- -------------
<S> <C> <C>
ASSETS
- ------
Real estate investments:
Buildings and improvements $ - $ 10,327,271
Less: Accumulated depreciation - (5,075,247)
------------ ------------
- 5,252,024
------------ ------------
Note receivable 640,000 -
Accrued interest receivable 4,866 -
------------ ------------
644,866 -
------------ ------------
Cash and cash equivalents 24,943 94,721
Account receivable - 57,111
Prepaid expenses and other assets 5,250 147,684
Deferred financing expenses, net of
accumulated amortization of $1,600,000
and $1,510,286 at September 30, 1995
and December 31, 1994, respectively 388,762 478,476
------------ ------------
$ 1,063,821 $ 6,030,016
============ ============
LIABILITIES AND PARTNERS' DEFICIT
- ---------------------------------
Mortgage notes payable $ - $ 4,350,021
Accounts payable and accrued expenses 153,298 311,642
Commissions payable, affiliate 221,052 221,052
Operating advances payable, affiliate 5,875,156 6,288,024
Security deposits - 3,149
15% Nonrecourse general obligation
promissory notes payable 69,009,949 61,794,154
------------ ------------
75,259,455 72,968,042
------------ ------------
Partners' Deficit:
General Partner (4,589,372) (4,226,492)
Limited Partners - 30,000 limited
partnership units authorized; 20,247 and
20,376 limited partnership units issued
and outstanding at September 30, 1995
and December 31, 1994, respectively (69,606,262) (62,711,534)
------------ ------------
(74,195,634) (66,938,026)
------------ ------------
$ 1,063,821 $ 6,030,016
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE>
(b) UNIVERSITY REAL ESTATE FUND 10, LTD.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ - $ 469,175 $ 359,409 $ 1,733,579
Interest 11,809 1,583 28,991 10,371
Other income 3,927 72,839 3,927 72,839
----------- ----------- ----------- -----------
Total revenues 15,736 543,597 392,327 1,816,789
----------- ----------- ----------- -----------
Expenses:
Interest 2,606,319 2,410,295 7,619,474 6,962,577
Depreciation and amortization - 118,040 78,735 351,465
Property taxes - 15,778 12,806 57,626
Other property operating
expenses (3,342) 27,313 208,193 641,927
Amortization of deferred
financing expenses 29,904 29,904 89,714 89,714
General and administrative 34,598 340,416 124,482 515,501
----------- ----------- ----------- -----------
Total expenses 2,667,479 2,941,746 8,133,404 8,618,810
----------- ----------- ----------- -----------
Loss from operations (2,651,743) (2,398,149) (7,741,077) (6,802,021)
Other income:
Gain on disposition of real
estate - 48,000 1,015,404 1,127,551
----------- ----------- ----------- -----------
Loss before extraordinary item (2,651,743) (2,350,149) (6,725,673) (5,674,470)
Extraordinary item - loss from
liquidation of debt - - (531,935) -
----------- ----------- ----------- -----------
Net loss $(2,651,743) $(2,350,149) $(7,257,608) $(5,674,470)
=========== =========== =========== ===========
Net loss allocated to general
partners $ (132,587) $ (117,507) $ (362,880) $ (283,723)
Net loss allocated to limited
partners (2,519,156) (2,232,642) (6,894,728) (5,390,747)
----------- ----------- ----------- -----------
Net loss $(2,651,743) $(2,350,149) $(7,257,608) $(5,674,470)
=========== =========== =========== ===========
Net loss per limited partnership
unit $(124.41) $(109.38) $(339.66) $(263.86)
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE>
(c) UNIVERSITY REAL ESTATE FUND 10, LTD.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Cash received from tenants $ 413,371 $ 1,700,611
Cash paid to suppliers and affiliates (236,595) (1,023,893)
Cash received from other income 3,927 72,839
Interest received 24,125 10,371
Interest paid (841,319) (415,493)
Property taxes paid (89,641) (79,867)
----------- -----------
Net cash provided by (used in) operating activities (726,132) 264,568
----------- -----------
Cash flows from investing activities:
Additions to real estate investments (31,191) (50,137)
Proceeds from settlement of Spring Oaks wrap-note - 772,509
Proceeds received from the disposition of
real estate investments 5,579,884 197,524
----------- -----------
Net cash provided by investing activities 5,548,693 919,896
----------- -----------
Cash flows from financing activities:
Proceeds from mortgage notes payable - 1,100,000
Payments on mortgage notes payable (4,892,339) (1,111,621)
Payments on operating advances, affiliates - (2,011,368)
----------- -----------
Net cash used in financing activities (4,892,339) (2,022,989)
----------- -----------
Net decrease in cash and cash equivalents (69,778) (838,525)
Cash and cash equivalents at beginning of period 94,721 1,110,511
----------- -----------
Cash and cash equivalents at end of period $ 24,943 $ 271,986
=========== ===========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Mortgage note and accrued interest payable
retired in connection with the disposition
of the note receivable $ - $ 3,225,000
========== ===========
Note receivable received as proceeds in
disposition of real estate $ 640,000 $ -
========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE>
UNIVERSITY REAL ESTATE FUND 10, LTD.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Reconciliation of Net Loss to Net Cash Provided by
Operating Activities
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Net loss $(7,257,608) $(5,674,470)
----------- -----------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Gain on disposition of real estate (1,015,404) (1,127,551)
Loss from liquidation of debt 531,935 -
Expenses paid by purchaser - 26,621
Depreciation 78,735 351,465
Amortization of discount on mortgage notes payable 10,383 47,301
Amortization of deferred financing expenses 89,714 97,214
Changes in assets and liabilities:
Accrued interest on note receivable (4,866) -
Accounts receivable 57,111 (29,915)
Prepaid expenses and other assets 142,434 25,883
Accounts payable and accrued expenses (158,344) (21,523)
Accrued interest on operating advances payable, affiliate (412,868) 344,836
Security deposits (3,149) (3,052)
Accrued interest on promissory notes 7,215,795 6,227,759
----------- -----------
Total adjustments 6,531,476 5,939,038
----------- -----------
Net cash provided by (used in) operating activities $ (726,132) $ 264,568
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
6
<PAGE>
(d) UNIVERSITY REAL ESTATE FUND 10, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the nine months ended September 30, 1995 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1995. For further information, refer to the consolidated
financial statements and footnotes thereto included in the annual report on Form
10-K for University Real Estate Fund 10, Ltd. (the "Partnership") for the year
ended December 31, 1994. The December 31, 1994 condensed balance sheet was
derived from audited numbers.
Certain reclassifications have been made to the 1994 balances to conform to the
1995 presentation.
NOTE 2 - GOING CONCERN
- ----------------------
The financial statements have been prepared assuming that the Partnership will
continue as a going concern. The Partnership has suffered recurring losses from
operations and has a net Partner's deficit. Additionally, the Partnership has
defaulted on the 15% Nonrecourse General Obligation Promissory Notes Payable.
These conditions raise substantial doubt about 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.
NOTE 3 - TRANSACTIONS WITH AFFILIATES
- -------------------------------------
The general partner of the Partnership is University Special Partners, Ltd.
("USP" or the "General Partner"), a Colorado limited partnership. The general
partner of USP is Southmark Investment Group, Inc., a wholly-owned subsidiary of
Southmark Corporation ("Southmark"). On March 9, 1993, Southmark and several of
its affiliates (including the General Partner) entered into an Asset Purchase
Agreement with SHL Acquisition Corp. III, a Texas corporation, and its permitted
assigns (collectively "SHL") to acquire various general and limited partnership
interests, among other things, owned by Southmark and its affiliates. On
December 16, 1993, SHL entered into an Assignment of Rights and Option Agreement
with Hampton Realty Partners, L.P. ("Hampton"), a Texas limited partnership,
whereby Hampton acquired the right to purchase the option assets, among other
things, subject to the approval of the Limited Partners. On December 30, 1994,
Hampton entered into an Assignment and Assumption of Option Agreement with JKD
Financial Management, Inc. ("JKD"), a Texas corporation, whereby, among other
things, JKD obtained the right to acquire Hampton's right to acquire the general
partner interest in the Partnership. JKD currently oversees the management of
the Partnership.
Affiliates of the General Partner had advanced funds to the Partnership in order
to meet past working capital requirements. These advances, were sold by the
General Partner on March 9, 1993 in connection with the Asset Purchase Agreement
with SHL. On December 16, 1993, Hampton acquired these advances, among other
things, in an Assignment of Rights and Option Agreement with SHL. These
advances are unsecured, due on demand and accrue interest at a rate equal to the
prime lending rate plus 1%. During the nine months ended September 30, 1995,
the Partnership paid $756,000 to Hampton as repayment of accrued interest on
operating advances, of which $750,000 was from the sales proceeds received on
the sale of Valley Bank Tower.
NOTE 4 - NONRECOURSE GENERAL OBLIGATION PROMISSORY NOTES
- --------------------------------------------------------
Payments on the 15% Nonrecourse General Obligation Promissory Notes Payable due
since December 31, 1988, remain in default. As of September 30, 1995, default
interest of $55,347,949 was due and unpaid.
7
<PAGE>
NOTE 5 - SALE OF VALLEY BANK TOWER
- ----------------------------------
In February 1995, the Partnership sold the Valley Bank Tower to West Washington
Associates, LLC, an affiliate of Fiore Inns, Inc. The sale included all of the
Partnership's right, title and interest pursuant to the ground lease and the
leasehold estate and improvements thereon commonly known as Valley Bank Tower.
The net proceeds from the sale, after repayment of the underlying mortgage
obligations and expenses of the sale, were as follows:
1) A promissory note receivable of $640,000 with quarterly interest only
payments at 7.5% per annum, commencing May 24, 1995. All unpaid principal
and interest is due on February 25, 1998. The principal on the note may
not be voluntarily prepaid in whole or in part prior to February 25, 1996.
2) Cash of $838,146.
A payment of $750,000 was made to Hampton out of the sales proceeds as repayment
of accrued interest on operating advances during the quarter ended March 31,
1995.
The Partnership realized a gain on the sale of Valley Bank Tower of $1,015,404
and a loss from liquidation of debt of $531,935.
NOTE 6 - LOSS PER LIMITED PARTNERSHIP UNIT
- ------------------------------------------
Net loss per limited partnership unit is computed by dividing the net loss
allocated to the limited partners by the weighted average number of limited
partnership units outstanding.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Weighted average number of limited
partnership units outstanding 20,249 20,411 20,299 20,430
======== ======== ======== ========
Net loss per limited partnership unit:
Loss before extraordinary item $(124.41) $(109.38) $(314.77) $(263.86)
Extraordinary item (loss) - - (24.89) -
-------- -------- -------- --------
Net loss per limited partnership unit $(124.41) $(109.38) $(339.66) $(263.86)
======== ======== ======== ========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The Partnership's net loss for the nine months ended September 30, 1995 was
$7,257,608, of which $2,651,743 was for the third quarter. Corresponding
amounts for 1994 were $5,674,470 and $2,350,149, respectively. Total revenues
for the nine months ended September 30, 1995 were $392,327 versus $1,816,789 for
the same period in 1994. The decrease in total revenues in 1995 is primarily
attributable to the sale of the Partnership's last remaining operating property,
Valley Bank Tower, in February 1995.
Total expenses for the nine months ended September 30, 1995 were $8,133,404
versus $8,618,810 for the same period in 1994. Interest expense increased to
$7,619,474 for the nine months ended September 30, 1995 as compared to
$6,962,577 for the same period in 1994. This increase is primarily due to an
increase in interest expense on the increasing principal balance of the 15%
Nonrecourse General Obligation Promissory Notes Payable, on which no payments
have been made since 1988. Other operating expenses decreased due to the
disposition of real estate investments. In addition, the Partnership reported a
gain on the sale of Valley Bank Tower of $1,015,404 and a loss from liquidation
of debt of $531,935.
8
<PAGE>
Should the Partnership's resources not be adequate for current needs, the
Partnership would require other sources of working capital. No such sources
have been identified. The Partnership has no established lines of credit from
outside sources. Accordingly, continued operation of the Partnership is
dependent on the Partnership being able to generate cash from the collection of
the note receivable or receipt of financial support from affiliates. It is
anticipated that the Partnership will be dissolved after the collection of the
note receivable. Neither the General Partner and its affiliates nor Hampton and
its assigns have any obligation to provide financial support to the Partnership.
Payments on the 15% Nonrecourse General Obligation Promissory Notes Payable,
suspended since December 31, 1988, are likely to remain suspended. In addition,
no distributions will be made to partners. Any funds generated from operations
will be used to reduce outstanding debt other than the 15% Nonrecourse General
Obligation Promissory Notes Payable.
These conditions raise substantial doubt about the Partnership's ability to
continue as a going concern. The financial statements have been prepared
assuming the Partnership will continue as a going concern and do not reflect any
adjustments that might result from the outcome of these uncertainties.
PART II - OTHER INFORMATION
ITEM 3. DEFAULTS ON PARTNERSHIP DEBT
----------------------------
The Partnership did not make the required quarterly principal and interest
payment due September 30, 1995 on the 15% Nonrecourse General Obligation
Promissory Notes Payable. All quarterly payments due from December 31, 1988
through the date of this filing remain in default. As of September 30, 1995,
default interest of $55,347,949 was due and unpaid.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits.
Exhibit
Number Description
------ -----------
3. and 4. Limited Partnership Agreement (Incorporated by reference to
Registration Statement No. 2-74914 on Form S-11 filed by
Registrant).
4.1 Trust Indenture Agreement (Incorporated by reference to Exhibit
4.1 to Registration Statement 2-74914 on Form S-11 Filled by
Registrant).
11. Statement regarding computation of net loss per limited
partnership unit: net loss per limited partnership unit is
computed by dividing net loss allocated to the Limited Partners
by the weighted average number of limited partnership units
outstanding. The weighted average number of limited partnership
units outstanding was 20,299 at September 30, 1995 and 20,428 at
December 31, 1994.
(b) Reports on Form 8-K. A report on Form 8-K dated July 18, 1995 was filed
during the quarter ended September 30, 1995, and relating to Item 4
(Changes in Registrant's Certifying Accountant) of such forms, was filed
during the current quarter. (Incorporated by reference to Form 8-K -
Current Report for the period ended September 30, 1995, as filed with the
Securities and Exchange Commission on July 20, 1995.)
9
<PAGE>
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.
UNIVERSITY REAL ESTATE FUND 10, LTD.
By: UNIVERSITY SPECIAL PARTNERS, LTD.
General Partner
By: SOUTHMARK INVESTMENT GROUP, INC.
a General Partner
November 10, 1995 By: /s/ GLEN ADAMS
- -------------------------- ------------------------------------------
Date Glen Adams, President
Southmark Investment Group, Inc.
November 10, 1995 By: /s/ CHARLES B. BREWER
- -------------------------- -------------------------------------------
Date Charles B. Brewer, Executive Vice President
and Principal Financial Officer
Southmark Investment Group, Inc.
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 24,943
<SECURITIES> 0
<RECEIVABLES> 644,866
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 35,059
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,063,821
<CURRENT-LIABILITIES> 153,298
<BONDS> 75,106,157
<COMMON> 0
0
0
<OTHER-SE> (74,195,634)
<TOTAL-LIABILITY-AND-EQUITY> 1,063,821
<SALES> 0
<TOTAL-REVENUES> 392,327
<CGS> 0
<TOTAL-COSTS> 220,999
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,619,474
<INCOME-PRETAX> (7,741,077)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,741,077)
<DISCONTINUED> 1,015,404
<EXTRAORDINARY> (531,935)
<CHANGES> 0
<NET-INCOME> (7,257,608)
<EPS-PRIMARY> (339.66)
<EPS-DILUTED> 0
</TABLE>
