<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 2000
--------------------------------------------------------------
Commission file number 0-13563
---------------------------------------------------------
DAMSON/BIRTCHER REALTY INCOME FUND - I
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 13-3264491
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
27611 La Paz Road, P.O. Box 30009, Laguna Niguel, California 92607-0009
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(949) 643-7700
--------------------------------------------------------------------------------
(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 12(g), 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding twelve 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
--- ---
<PAGE> 2
DAMSON/BIRTCHER REALTY INCOME FUND-I
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED JUNE 30, 2000
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Net Assets in Liquidation - June 30, 2000
(Unaudited)and December 31, 1999 (Audited)........................ 3
Statements of Changes of Net Assets in Liquidation -
Three and Six Months Ended June 30, 2000 and 1999 (Unaudited)..... 4
Notes to Financial Statements (Unaudited)......................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................... 12
Item 3. Quantitative and Qualitative Market Risk Disclosures.............. 18
PART II. OTHER INFORMATION................................................. 18
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DAMSON/BIRTCHER REALTY INCOME FUND-I
STATEMENTS OF NET ASSETS IN LIQUIDATION
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------- -----------
(unaudited)
<S> <C> <C>
ASSETS (Liquidation Basis):
---------------------------
Properties $ -- $ 5,980,000
Cash and cash equivalents 7,115,000 10,137,000
Cash held in escrow 301,000 512,000
Accounts receivable, net 33,000 18,000
Other assets 33,000 38,000
---------- -----------
Total Assets 7,482,000 16,685,000
---------- -----------
LIABILITIES (Liquidation Basis):
--------------------------------
Accounts payable and accrued liabilities 31,000 134,000
Accrued expenses for liquidation 242,000 429,000
---------- -----------
Total Liabilities 273,000 563,000
---------- -----------
Net Assets in Liquidation $7,209,000 $16,122,000
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
DAMSON/BIRTCHER REALTY INCOME FUND-I
STATEMENTS OF CHANGES OF NET ASSETS IN LIQUIDATION
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
2000 1999 2000 1999
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net assets in liquidation at beginning
of period $ 7,117,000 $ 30,926,000 $ 16,122,000 $ 30,796,000
Increase (decrease) during period:
Operating activities:
Property operating income (loss), net (62,000) 800,000 (144,000) 1,466,000
Interest income 42,000 3,000 144,000 7,000
General and administrative expenses -- (244,000) -- (451,000)
Interest expense on mortgage payable -- (55,000) -- (111,000)
Leasing commissions -- (55,000) -- (66,000)
----------- ------------ ------------ ------------
(20,000) 449,000 -- 845,000
----------- ------------ ------------ ------------
Liquidating activities:
Gain on sale of real estate 151,000 -- 151,000 --
Liquidation expenses (39,000) -- (64,000) --
Adjustment to the carrying value
of real estate -- (1,717,000) -- (1,717,000)
Distributions to partners -- (314,000) (9,000,000) (580,000)
----------- ------------ ------------ ------------
112,000 (2,031,000) (8,913,000) (2,297,000)
----------- ------------ ------------ ------------
Net increase (decrease) in assets
in liquidation 92,000 (1,582,000) (8,913,000) (1,452,000)
----------- ------------ ------------ ------------
Net assets in liquidation at end of period $ 7,209,000 $ 29,344,000 $ 7,209,000 $ 29,344,000
=========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
(1) Accounting Policies
The financial statements of Damson/Birtcher Realty Income Fund-I (the
"Partnership") included herein have been prepared by the General
Partner, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. These financial statements include
all adjustments which are of a normal recurring nature and, in the
opinion of the General Partner, are necessary for a fair presentation.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted, pursuant to the
rules and regulations of the Securities and Exchange Commission. These
financial statements should 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, 1999.
Sale of the Properties
The Partnership sold five of its six remaining properties during the
year ended December 31, 1999. The Partnership's sold Terracentre, its
last property, on May 31, 2000 (see Note 5).
Liquidation Basis of Accounting
On February 18, 1997, the Partnership mailed a Consent Solicitation to
the Limited Partners which sought their consent to dissolve the
Partnership and sell and liquidate all of its remaining properties as
soon as practicable, consistent with selling the Partnership's
properties to the best advantage under the circumstances. A majority in
interest of the Limited Partners consented by March 14, 1997. As a
result, the Partnership adopted the liquidation basis of accounting as
of March 31, 1997. The liquidation basis of accounting is appropriate
when liquidation appears imminent, the Partnership can no longer be
classified as a going concern and the net realizable values of the
Partnership's assets are reasonably determinable. The difference
between the adoption of the liquidation basis of accounting as of March
14, 1997 and March 31, 1997 was not material.
Under the liquidation basis of accounting, assets are stated at their
estimated net realizable values and liabilities are stated at their
anticipated settlement amounts. The valuation of assets and liabilities
necessarily requires many estimates and assumptions, and there are
substantial uncertainties in carrying out the dissolution of the
Partnership. The actual values upon dissolution and costs associated
therewith could be higher or lower than the amounts recorded.
Segment Reporting
The Partnership adopted Statement of Financial Accounting Standards No.
131, "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 requires, among other items, that a
public business enterprise report a measure of segment profit or loss,
certain specific revenue and expense items, segment assets, information
about the revenues derived from the enterprise's products or services
and major customers. SFAS 131 also requires
5
<PAGE> 6
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
(1) Accounting Policies (Cont'd.)
Segment Reporting (Cont'd.)
that the enterprise report descriptive information about the way that
the operating segments were determined and the products and services
provided by the operating segments. Given that the Partnership is in
the process of liquidation, the Partnership has identified only one
operating business segment which is the business of asset liquidation.
The adoption of SFAS 131 did not have an impact on the Partnership's
financial reporting.
Rental income from FISERV, Inc. (formerly d.b.a. Citicorp CIR, Inc.)
totaled $255,000 for the three months ended June 30, 1999, or
approximately 18% of the Partnership's total rental income. For the six
months ended June 30 1999, such rental income amounted to $516,000 or
19% of the Partnership's total rental income. Oakpointe Business
Center, which FISERV, Inc. formerly occupied was sold in September
1999.
Earnings Per Unit
The Partnership Agreement does not designate investment interests in
units. All investment interests are calculated on a "percent of
Partnership" basis, in part to accommodate original reduced rates on
sales commissions for subscriptions in excess of certain specified
amounts.
A Limited Partner who was charged a reduced sales commission or no
sales commission was credited with proportionately larger Invested
Capital and therefore had a disproportionately greater interest in the
capital and revenues of the Partnership than a Limited Partner who paid
commissions at a higher rate. As a result, the Partnership has no set
unit value as all accounting, investor reporting and tax information is
based upon each investor's relative percentage of Invested Capital.
Accordingly, earnings or loss per unit is not presented in the
accompanying financial statements.
(2) Transactions with Affiliates
The Partnership has no employees and, accordingly, the General Partner
and its affiliates perform services on behalf of the Partnership in
connection with administering the affairs of the Partnership. The
General Partner and affiliates are reimbursed for their general and
administrative costs actually incurred and associated with services
performed on behalf of the Partnership. For the three months ended June
30, 2000 and 1999, the Partnership incurred approximately $49,000 and
$52,000, respectively. Such costs were $62,000 and $85,000 for the six
months there ended.
An affiliate of the General Partner provides property management
services with respect to the Partnership's properties and receives a
fee for such services not to exceed 3% of the gross receipts from the
properties under management. Such fees amounted to approximately $4,000
and $42,000 for the three months ended June 30, 2000 and 1999 and
$10,000 and $85,000 for the six months there ended. In addition, an
affiliate of the General Partner received $21,000 and $85,000 for
6
<PAGE> 7
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
(2) Transactions with Affiliates (Cont'd.)
the three months ended June 30, 2000 and 1999, respectively, as
reimbursement of costs of on-site property management personnel and
other reimbursable costs. For the six months there ended, such
reimbursements were $43,000 and $171,000, respectively.
As previously reported, on June 24, 1993, the Partnership completed its
solicitation of written consents from its Limited Partners. A majority
in interest of the Partnership's Limited Partners approved each of the
proposals contained in the Information Statement dated May 5, 1993.
Those proposals were implemented by the Partnership as contemplated by
the Information Statement as amendments to the Partnership Agreement,
and are reflected in these financial statements as such.
The amended Partnership Agreement provides for the Partnership's
payment to the General Partner of an annual asset management fee equal
to .35% for 2000 and .45% for 1999 of the aggregate appraised value of
the Partnership's properties. Appraised value was determined by the
General Partner's estimate of fair value. Such fees for the three
months ended June 30, 2000 and 1999, amounted to $9,000 and $39,000,
respectively. For the six months there ended, such fees were $9,000 and
$79,000, respectively. Since the Partnership has sold all of its
properties, the Partnership no longer pays an asset management fee.
The amended Partnership Agreement provides for the Partnership's
payment to the General Partner of a property disposition fee if and to
the extent that the sale price of the property in question, net of any
brokerage commissions (but not other costs of sale), exceeds the
appraised value of the property as of January 1993. For the three and
six months ended June 30, 2000, a fee of $130,000 was earned and paid
on the sale of Terracentre.
In addition, the amended Partnership Agreement provides for payment to
the General Partner of a leasing fee for services rendered in
connection with leasing space in a Partnership property after the
expiration or termination of leases. Fees for leasing services for the
three months ended June 30, 2000 and 1999, amounted to $0 and $17,000,
respectively. For the six months there ended, such fees were $0 and
$18,000, respectively.
(3) Commitments and Contingencies
Litigation
So far as is known to the General Partner, neither the Partnership nor
its properties are subject to any material pending legal proceedings,
except for the following:
Bigelow/Diversified Secondary Partnership's Fund 1990 Litigation
On March 25, 1997, a limited partner named Bigelow/Diversified
Secondary Partnership Fund 1990 L.P. filed a purported class action
lawsuit in the Court of Common Pleas of Philadelphia County against
Damson/Birtcher Partners, Birtcher
7
<PAGE> 8
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENT - UNAUDITED (Cont'd.)
(3) Commitments and Contingencies (Cont'd.)
Litigation (Cont'd.)
Bigelow/Diversified Secondary Partnership's Fund 1990 Litigation
(Cont'd.)
Investors, Birtcher/Liquidity Properties, Birtcher Investments, L.F.
Special Fund II, L.P., L.F. Special Fund I, L.P., Arthur Birtcher,
Ronald Birtcher, Robert Anderson, Richard G. Wollack and Brent R.
Donaldson alleging breach of fiduciary duty and breach of contract and
seeking to enjoin the Consent Solicitation dated February 18, 1997. On
April 18, 1997, the court denied the plaintiff's motion for a
preliminary injunction. On June 10, 1997, the court dismissed the
plaintiff's complaint on the basis of lack of personal jurisdiction and
forum non conveniens.
On June 13, 1997, the Partnership's affiliated partnerships,
Damson/Birtcher Realty Income Fund-II and Real Estate Income Partners
III, and their general partner, Birtcher/Liquidity Properties, filed a
complaint for declaratory relief in the Court of Chancery in Delaware
against Bigelow/Diversified Secondary Partnership Fund 1990 L.P. The
complaint seeks a declaration that the vote that the limited partners
of Damson/Birtcher Realty Income Fund-II and Real Estate Income
Partners III took pursuant to the respective consent solicitations
dated February 18, 1997 was effective to dissolve the respective
partnerships and complied with applicable law, that the actions of the
General Partner in utilizing the consent solicitations to solicit the
vote of the limited partners did not breach any fiduciary or
contractual duty to such limited partners, and an award of costs and
fees to the plaintiffs. The defendant has answered the complaint. The
parties have initiated discovery. No motions are pending at this time.
In September 1998, Bigelow/Diversified Secondary Partnership 1990
informed the Partnership that it was filing suit in the Delaware
Chancery Court against Damson/Birtcher Partners, Birtcher Investors,
Birtcher Liquidity Properties, Birtcher Investments, BREICORP, LF
Special Fund I, LP, LF Special Fund II. LP, Arthur Birtcher, Ronald
Birtcher, Robert Anderson, Richard G. Wollack and Brent R. Donaldson
alleging a purported class action on behalf of the limited partners of
Damson/Birtcher Realty Income Fund-I, Damson/Birtcher Realty Income
Fund-II and Real Estate Income Partners III alleging breach of
fiduciary duty and incorporating the allegations set forth in the
previously dismissed March 25, 1997 complaint filed in the Court of
Chancery of Philadelphia County. Plaintiff has engaged in preliminary
discovery and the parties have held settlement discussions.
In March 2000, defendants informed the Court and plaintiff that they
would bring a Motion for Summary Judgment against the named plaintiff
based upon the allegations set forth in plaintiff's complaint. On April
14, 2000, Bigelow/Diversified Secondary Partnership Fund 1990 filed a
First Amended Class Action and Derivative Complaint against
Damson/Birtcher Partners, Birtcher Investors, Birtcher/Liquidity
Properties, Birtcher Partners, Birtcher Properties, Birtcher Ltd.,
Birtcher Investments, BREICORP, L.F. Special Fund II, L.P., L.F.
Special Fund I, L.P., Liquidity Fund Asset Management, Inc., Arthur
Birtcher,
8
<PAGE> 9
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENT - UNAUDITED (Cont'd.)
(3) Commitments and Contingencies (Cont'd.)
Litigation (Cont'd.)
Bigelow/Diversified Secondary Partnership's Fund 1990 Litigation
(Cont'd.)
Ronald Birtcher, Robert Anderson, Richard G. Wollack and Brent R.
Donaldson, the Partnership, Damson/Birtcher Realty Income Fund-II and
Real Estate Income Partners III, alleging breach of fiduciary duty,
breach of contract, and a derivative claim for breach of fiduciary
duty. Defendants have answered the First Amended Complaint.
Rex Garton, et al. v. Damson/Birtcher Partners, et al.
This action was filed on September 25, 1998 in the District Court of
Oklahoma County for the State of Oklahoma against the Partnership's
general partner, Damson/Birtcher Partners, other related defendants and
numerous unrelated defendants. Damson/Birtcher Partners and other
related defendants were brought into the action in late December 1998,
when they were served with the Second Amended Petition. The other
related defendants are Birtcher Partners, Birtcher Properties, The
Birtcher Group, Birtcher American Properties, Arthur B. Birtcher,
Ronald E. Birtcher, LF Special Fund II, L.P., and Liquidity Fund Asset
Management Inc., but The Birtcher Group and Birtcher American
Properties were served with process and did not appear in the action.
The Partnership itself is not named as a defendant. The case is a class
action brought on behalf of investors in the Partnership who purchased
limited partnership interests from May 7, 1984 to September 17, 1985.
The Second Amended Petition alleges breach of contract, intentional and
negligent misrepresentation, breach of fiduciary duties, and violations
of various Oklahoma and federal statutes in connection with the sale of
the limited partnership interests. Plaintiff seeks unspecified
compensatory damages and $10 million in punitive damages.
Damson/Birtcher Partners and the related defendants removed the case to
the United States District Court for the Western District of Oklahoma,
and filed a motion to dismiss the case for lack of personal
jurisdiction or, alternatively, to transfer the action to the United
States District Court for the Central District of California, for the
convenience of the parties and witnesses and in the interests of
justice. Plaintiff moved to remand the case back to the Oklahoma state
court. The court denied plaintiff's motion for removal, and took
defendant's motion to dismiss or transfer under submission pending
receipt of additional information the court ordered plaintiff to
provide. On March 29, 2000, the court entered its order granting
defendant's motion to dismiss the case for lack of personal
jurisdiction, and dismissed the case.
Madison Partnership and ISA Partnership Litigation
Partnership Liquidity Investors filed a purported class and derivative
action in the California Superior Court in Orange County, California
against Damson Birtcher Partners, Birtcher/Liquidity Properties,
Birtcher Partners, Birtcher Investors, Birtcher Investments, Birtcher
Limited, Breicorp LP Special Fund II,
9
<PAGE> 10
NOTES TO FINANCIAL STATEMENT - UNAUDITED (Cont'd.)
(3) Commitments and Contingencies (Cont'd.)
Litigation (Cont'd.)
Madison Partnership and ISA Partnership Litigation (Cont'd.)
L.P., Liquidity Fund Asset Management, Inc., Robert M. Anderson, Brent
R. Donaldson, Arthur B. Birtcher, Ronald E. Birtcher, and Richard G.
Wollack, Defendants, and Damson/Birtcher Realty Income Fund-I,
Damson/Birtcher Realty Income Fund-II, and Real Estate Income Partners
III, Nominal Defendants. The complaint asserts claims for breach of
fiduciary duty and breach of contract. The gravamen of the complaint is
that the General Partners of these limited partnerships have not
undertaken all reasonable efforts to expedite liquidation of the
Partnerships' properties and to maximize the returns to the
Partnerships' limited partners. The complaint seeks unspecified
monetary damages, attorneys' fees and litigation expenses, and an order
for dissolution of the partnerships and appointment of an independent
liquidating trustee. The Partnership moved to stay or dismiss the case
on the grounds that the pending Bigelow class action, discussed above,
raises essentially the same claims. The court granted the Partnership's
motion and ordered a stay of the litigation pending re-evaluation at a
May 23, 2000 status conference. The court lifted the stay on May 23,
2000. Plaintiffs have initiated document discovery. A status conference
is currently scheduled for September 8, 2000.
(4) Accrued Expenses for Liquidation
Accrued expenses for liquidation as of June 30, 2000, include estimates
of costs to be incurred in carrying out the dissolution and liquidation
of the Partnership. These costs include estimates of legal fees,
accounting fees, tax preparation and filing fees, other professional
services and the general partner's liability insurance. During the
three months ended June 30, 2000, the Partnership incurred $153,000 of
such expenses. At June 30, 2000, the General Partner re-evaluated the
estimated costs to wind up and dissolve the Partnership given the
uncertainty involved with the ongoing litigation. The provision for
liquidation expenses was accordingly increased by an additional $39,000
to reflect the revised estimates.
The actual costs could vary significantly from the related provisions
due to the uncertainty related to the length of time required to
complete the liquidation and dissolution and the complexities which may
arise in disposing of the Partnership's remaining assets. The accrued
expenses for liquidation do not take into consideration the possible
outcome of the ongoing litigation. Such costs are unknown and are not
estimable at this time.
(5) Gain on Sale of Real Estate
On May 31, 2000, the Partnership sold Terracentre, in Denver, Colorado
to Robert E. Collawn ("Collawn"), a Denver real estate developer and
operator, for $6,500,000. The Partnership realized a gain on the sale
of $151,000, in excess of its carrying value, after deducting for
closing costs and prorations totaling
10
<PAGE> 11
DAMSON/BIRTCHER REALTY INCOME FUND-I
NOTES TO FINANCIAL STATEMENT - UNAUDITED (Cont'd.)
(5) Gain on Sale of Real Estate (Cont'd.)
approximately $294,000. Collawn is not affiliated in any way with the
Partnership, its General Partner or the General Partner's affiliates.
The Partnership was represented by a third-party broker in the
transaction. The broker was paid $227,500 from the sale proceeds. The
General Partner earned and was paid a disposition fee of $130,000 in
connection with the transaction. Collawn will not hire the General
Partner or any affiliate to perform asset management or property
management services for this property.
11
<PAGE> 12
DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
Since the completion of its acquisition program in September 1985, the
Partnership has been engaged in the operation of its properties. The
Partnership's original objective had been to hold its properties as
long-term investments. However, an Information Statement, dated May 5,
1993, mandated that the General Partner seek a vote of the Limited
Partners no later than December 31, 1996, regarding prompt liquidation
of the Partnership in the event that properties with appraised values
as of January 1993 which constituted at least one half of the aggregate
appraised values of all Partnership properties as of that date were not
sold or under contract for sale by the end of 1996. Given the mandate
of the May 5, 1993 Information Statement, as of December 31, 1995, the
General Partner decided to account for the Partnership's properties as
assets held for sale, instead of for investment. In a Consent
Solicitation dated February 18, 1997, the Partnership solicited and
received the consent of the Limited Partners on March 14, 1997 to
dissolve the Partnership and sell and liquidate all of its remaining
properties as soon as practicable, consistent with selling the
Partnership's properties to the best advantage under the circumstances.
The Partnership's properties were held for sale throughout 1999 and
five of its six remaining properties were sold by year-end. The
Partnership's remaining property was sold on May 31, 2000.
In November 1998, the Partnership entered into a definitive Purchase
and Sale Agreement with Abbey Investments, Inc. to sell all the
Partnership's properties for a range between $34,500,000 and
$36,000,000, depending on final occupancy rates at the time of closing.
However, in January 1999, the agreement was terminated because Abbey
had requested a material reduction in the purchase price (approximately
11%), which the Partnership did not agree to.
On April 30, 1999, the Partnership and Praedium Performance Fund IV
("Praedium") executed a Purchase and Sale Agreement to sell all of the
Partnership's properties except Terracentre to Praedium for
$31,700,000. Praedium deposited $243,100 into escrow, pending
completion of its due diligence inspection and review. Praedium's
contingency period expired on June 14, 1999. During and after the
contingency period, Praedium, in a series of negotiations with the
Partnership, sought reductions in the purchase price of each of the
properties and declined to include the Cornerstone, Ladera-I and
Certified in its offers. During this time, the General Partner
negotiated with Praedium, and also sought other purchasers for the
properties, both individually and as a group. Finally, in late July
1999, the Partnership declined Praedium's offer to purchase only
Cornerstone, Oakpointe and Washington Tech for a materially reduced
purchase price and terminated its dealings with Praedium.
Sale of the Properties
During the three month period ended September 30, 1999, the Partnership
sold four of its six properties in two separate transactions, and
subsequently sold The Cornerstone on October 15, 1999 and Terracentre
on May 31, 2000, as set forth below:
12
<PAGE> 13
DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Liquidity and Capital Resources (Cont'd.)
Sale of the Properties (Cont'd)
Ladera-I
On September 22, 1999, the Partnership sold Ladera-I shopping center,
in Albuquerque, New Mexico to CA New Mexico, LLC, a wholly-owned
subsidiary of CenterAmerica Trust ("CenterAmerica"), a Houston-based
real estate investment trust that is not affiliated in any way with the
Partnership, its General Partner or any of its principals or
affiliates. The sale price was $4,424,000.
CenterAmerica and the Partnership were each represented by third-party
brokers in the transaction. The brokers were paid an aggregate $186,800
from the sale proceeds. The General Partner was not paid a disposition
fee in connection with the transaction. CenterAmerica did not hire the
General Partner or any affiliate to perform asset management or
property management services for this property.
The Rubin Pachulsky Dew Transaction
On September 23, 1999, the Partnership sold Certified Warehouse and
Distribution Center, in Salt Lake City, Utah, Oakpointe Business
Center, in Arlington Heights, Illinois, and Washington Technical
Center, in Renton, Washington to Rubin Pachulsky Dew Properties, LLC
("Rubin Pachulsky Dew") for $5,100,000, $5,600,000 and $3,950,000,
respectively, or an aggregate purchase price of $14,650,000. Rubin
Pachulsky Dew is a third-party real estate investment entity that is
not affiliated in any way with the Partnership, its General Partner or
any of its principals or affiliates.
Rubin Pachulsky Dew was represented by a third-party broker in the
transaction. The broker was paid $146,500 from the sale proceeds. Since
the sale price of Washington Technical Center exceeded the January 1,
1993 appraised value ($3,400,000), pursuant to the 1993 Amendment of
the Partnership Agreement, the General Partner earned and was paid a
property disposition fee of $98,750 in connection with the sale of that
property.
Rubin Pachulsky Dew has hired an affiliate of Birtcher as property
manager for the properties for a fee that is approximately the same as
the fee the Partnership previously paid to the General Partner for
property management. In addition, Rubin Pachulsky Dew has hired an
affiliate of Birtcher to provide certain asset management services for
the properties, and will pay an incentive fee approximately equal to
10% of the profits, if any, after Rubin Pachulsky Dew has received a
15% cumulative annual return on its investment. The incentive fee, if
earned, is not payable until the last property is sold or four years
from date of purchase, whichever comes first. The property management
agreement is cancelable at any time upon 60 days notice, but the
incentive fee will survive termination of the contract.
13
<PAGE> 14
DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Liquidity and Capital Resources (Cont'd.)
Sale of the Properties (Cont'd)
The Rubin Pachulsky Dew Transaction (Cont'd.)
A portion of the proceeds from the sale of the properties to Rubin
Pachulsky Dew continues to be held in escrow. A sum equal to two and
one-half percent of the purchase price was held back as a potential
source of payment for any claims that may arise related to a
Partnership breach of certain representations and warranties related to
the sale (expiring on September 23, 2000) and for any litigation costs
that may arise (released to the Partnership on March 23, 2000). The
remaining cash held in escrow relates to holdbacks for tenant
improvements and tax prorations. The cash held in escrow has been
included in the calculation of loss on sale of real estate.
The Cornerstone
On October 15, 1999, Damson/Birtcher Realty Income Fund-I (the
"Partnership") sold The Cornerstone shopping center, in Tempe, Arizona
to GDA Real Estate Services, LLC ("GDA"), a Denver-based real estate
developer and operator that is not affiliated in any way with the
Partnership, its General Partner or the General Partner's affiliates,
for a sale price of $8,500,000.
GDA was represented by two third-party brokers in the transaction. The
brokers were paid $170,000 from the sale proceeds. The General Partner
was not paid a disposition fee in connection with the transaction. GDA
will not hire the General Partner or any affiliate to perform asset
management or property management services for this property.
Terracentre
On March 24, 1999, the Partnership signed a Purchase and Sale Agreement
to sell Terracentre for $6,450,000 to Halcyon Real Estate, Inc.
("Halcyon"), a local Denver real estate development company. During its
due diligence period Halcyon asked to extend its contingency period to
address zoning and land-use changes with the city of Denver (it
apparently wanted to change the site from office to residential
condominium use). The General Partner did not accept the request for
extension. Halcyon thereupon asked to reduce the purchase price from
$6,450,000 to $4,500,000. The Partnership rejected this request and
terminated its dealings with Halcyon.
On June 18, 1999, the Partnership entered into a Purchase and Sale
Agreement to sell Terracentre to Charles Callaway ("Callaway"), an
unaffiliated Denver real estate developer and operator, for $6,450,000.
The purchaser deposited $200,000 into escrow on June 21, 1999, all but
$50,000 of which was refundable pending completion of its due diligence
investigation. Unfortunately, at a Denver city council meeting on
August 10, 1999, certain council members discussed condemning
Terracentre in order to expand the adjacent convention center. The
Callaway
14
<PAGE> 15
DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Liquidity and Capital Resources (Cont'd.)
Sale of the Properties (Cont'd)
Terracentre (Cont'd.)
transaction was subsequently terminated and the deposit returned. On
November 2, 1999, Denver voters approved a referendum in favor of
expanding the convention center.
On May 31, 2000, the Partnership sold Terracentre, in Denver, Colorado
to Robert E. Collawn ("Collawn"), a Denver real estate developer and
operator, for $6,500,000. Collawn is not affiliated in any way with the
Partnership, its General Partner or the General Partner's affiliates.
The Partnership was represented by a third-party broker in the
transaction. The broker was paid $227,500 from the sale proceeds. The
General Partner earned and was paid a disposition fee of $130,000 in
connection with the transaction. Collawn did not hire the General
Partner or any affiliate to perform asset management or property
management services for this property.
The Partnership realized approximately $6,206,000, in cash proceeds
from the sale of Terracentre, after deducting for closing costs and
prorations totaling approximately $294,000.
Other Matters
Regular distributions through the year ended December 31, 1999,
represented net cash flow generated from the operation of the
Partnership's properties and interest earned on the temporary
investment of working capital, net of capital reserve requirements. On
December 8, 1999, the Partnership made a special distribution of
$13,300,000, representing a portion of the proceeds from the sale of
five of its six remaining properties. Another special distribution of
$9,000,000 was made on March 1, 2000. This last special distribution
arose out of discussions with the named plaintiffs and their lawyers in
the purported class action lawsuits. It represents the culmination of
further, private discussions with representatives of Grape Investors,
the holder of the largest investor position in the Partnership. Grape
Investors has agreed that for a period of 24 months, it will not
involve itself in any way or support any effort to seek, or cause
anyone else to seek, the addition of new general partners, the
appointment of a receiver, or the removal of the General Partner. Grape
Investors also has agreed to either abstain or vote against any such
action or proposal.
As of May 31, 2000, the Partnership has sold all of its operating
properties. Two lawsuits remain pending against the Partnership and its
General Partner and certain of its affiliates that seek, among other
things, unspecified monetary damages. Since these cases are in the
preliminary discovery phase, there is unavoidable uncertainty regarding
their ultimate resolution. The Partnership
15
<PAGE> 16
DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Liquidity and Capital Resources (Cont'd.)
Other Matters (Cont'd.)
Agreement mandates that the General Partner provide for all of the
Partnership's liabilities and obligations, including contingent
liabilities, before distributing liquidation proceeds to its partners.
Therefore, the amount and timing of any distribution of liquidation
proceeds will be determined by the General Partner in light of these
and other relevant considerations. Due to these uncertainties, it is
possible that future distributions may be limited to a liquidating
distribution upon Partnership wind down should funds be available at
that time.
Year 2000
As of December 31, 1999, the Partnership's accounting systems and the
investor services system used to track the limited partners' interests,
distributions and tax information were tested and appeared to be free
of year 2000 bugs. The Partnership's remaining property was also
reviewed utilizing the Building Owners and Managers Association
("BOMA") industry standards as a guideline for necessary corrections
and those corrections were successful. As of June 30, 2000, the
Partnership did not experience any significant issues or problems
relating to year 2000. The cost of the Partnership's accounting systems
upgrade was borne by the General Partner and was not reimbursed by the
Partnership.
Results of Operations for the Three Months Ended June 30, 2000
Because the Partnership has been liquidating its assets, a
quarter-to-quarter comparison of the results of operations is not
practical. As the Partnership's assets (properties) were sold, the
results of operations have been generated from a smaller asset base,
and therefore are not comparable. The Partnership completed the sale of
five of its six remaining properties in three separate transactions
during 1999 and sold its last property on May 31, 2000. The
Partnership's operating results have been reflected on the Statements
of Changes of Net Assets in Liquidation.
For the three months ended June 30, 2000, the Partnership incurred an
$62,000 net operating loss from the operation of its remaining
property. The loss, when compared to the property operating income of
$800,000 for the three months ended June 30, 1999, was primarily
attributable to the sale of five of the Partnership's properties in
September and October 1999 and the sale of Terracentre in May 2000.
Interest income resulted from the temporary investment of Partnership
working capital. For the three months ended June 30, 2000, interest
income was approximately $42,000. The increase in interest income was
reflective of the increased cash and cash equivalent balances that were
generated from the sale of the properties.
Accrued expenses for liquidation as of June 30, 2000, include estimates
of costs
16
<PAGE> 17
DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Results of Operations for the Three Months Ended June 30, 2000
(Cont'd.)
to be incurred in carrying out the dissolution and liquidation of the
Partnership. These costs include estimates of legal fees, accounting
fees, tax preparation and filing fees, and other professional services.
During the three months ended June 30, 2000, the Partnership incurred
$153,000 of such expenses. At June 30, 2000, the General Partner
re-evaluated the estimated costs to wind up and dissolve the
Partnership given the uncertainty involved with the ongoing litigation.
The provision for liquidation expenses was accordingly increased by an
additional $39,000 to reflect the revised estimates. The allowance for
accrued expenses for liquidation does not, however, reflect any costs
of the ongoing litigation due to the uncertainty associated with those
matters.
Liquidation expenses incurred for the three months ended June 30, 2000,
include charges of $58,000 from the General Partner and its affiliates
for services rendered in connection with administering the affairs of
the Partnership and operating the Partnership's properties. Also
included in liquidation expenses incurred for the three months ended
June 30, 2000, are direct charges of $66,000, relating to audit fees,
tax preparation fees, legal fees and professional services, costs
incurred in providing information to the Limited Partners and other
miscellaneous costs.
Interest expense in 1999 resulted from interest on the first deed of
trust on Certified Distribution Center. That mortgage was retired on
September 23, 1999 with the sale of Certified Distribution Center to
Rubin Pachulsky Dew.
17
<PAGE> 18
DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 3. QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES
As of June 30, 2000, the Partnership had cash equivalents of $6,933,000
invested in interest-bearing certificates of deposit. These investments
are subject to interest rate risk due to changes in interest rates upon
maturity. Declines in interest rates over time would reduce Partnership
interest income.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
So far as is known to the General Partner, neither the Partnership nor
its properties are subject to any material pending legal proceedings,
except for the following:
Bigelow Diversified Secondary Partnership Fund 1990 litigation
On March 25, 1997, a limited partner named Bigelow/Diversified
Secondary Partnership Fund 1990 L.P. filed a purported class action
lawsuit in the Court of Common Pleas of Philadelphia County against
Damson/Birtcher Partners, Birtcher Investors, Birtcher/Liquidity
Properties, Birtcher Investments, L.F. Special Fund II, L.P., L.F.
Special Fund I, L.P., Arthur Birtcher, Ronald Birtcher, Robert
Anderson, Richard G. Wollack and Brent R. Donaldson alleging breach of
fiduciary duty and breach of contract and seeking to enjoin the Consent
Solicitation dated February 18, 1997. On April 18, 1997, the court
denied the plaintiff's motion for a preliminary injunction. On June 10,
1997, the court dismissed the plaintiff's complaint on the basis of
lack of personal jurisdiction and forum non conveniens.
On June 13, 1997, the Partnership's affiliated partnerships,
Damson/Birtcher Realty Income Fund-II and Real Estate Income Partners
III, and their general partner, Birtcher/Liquidity Properties, filed a
complaint for declaratory relief in the Court of Chancery in Delaware
against Bigelow/Diversified Secondary Partnership Fund 1990 L.P. The
complaint seeks a declaration that the vote that the limited partners
of Damson/Birtcher Realty Income Fund-II and Real Estate Income
Partners III took pursuant to the respective consent solicitations
dated February 18, 1997 was effective to dissolve the respective
partnerships and complied with applicable law, that the actions of the
General Partner in utilizing the consent solicitations to solicit the
vote of the limited partners did not breach any fiduciary or
contractual duty to such limited partners, and an award of costs and
fees to the plaintiffs. The defendant has answered the complaint. The
parties have initiated discovery. No motions are pending at this time.
In September 1998, Bigelow/Diversified Secondary Partnership 1990
informed the Partnership that it was filing suit in the Delaware
Chancery Court against Damson/Birtcher Partners, Birtcher Investors,
Birtcher Liquidity Properties, Birtcher Investments, BREICORP, LF
Special Fund I, LP, LF Special Fund II. LP, Arthur Birtcher, Ronald
Birtcher, Robert Anderson, Richard G. Wollack and Brent R. Donaldson
alleging a purported class action on behalf of the limited partners of
Damson/Birtcher Realty Income Fund-I, Damson/Birtcher Realty Income
Fund-II and Real Estate Income Partners III alleging breach of
fiduciary duty and
18
<PAGE> 19
DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 1. LEGAL PROCEEDINGS (Cont'd.)
Bigelow Diversified Secondary Partnership Fund 1990 litigation
(Cont'd.)
incorporating the allegations set forth in the previously dismissed
March 25, 1997 complaint filed in the Court of Chancery of Philadelphia
County. Plaintiff has engaged in preliminary discovery and the parties
have held settlement discussions.
In March 2000, defendants informed the Court and plaintiff that they
would bring a Motion for Summary Judgment against the named plaintiff
based upon the allegations set forth in plaintiff's complaint. On April
14, 2000, Bigelow/Diversified Secondary Partnership Fund 1990 filed a
First Amended Class Action and Derivative Complaint against
Damson/Birtcher Partners, Birtcher Investors, Birtcher/Liquidity
Properties, Birtcher Partners, Birtcher Properties, Birtcher Ltd.,
Birtcher Investments, BREICORP, L.F. Special Fund II, L.P., L.F.
Special Fund I, L.P., Liquidity Fund Asset Management, Inc., Arthur
Birtcher, Ronald Birtcher, Robert Anderson, Richard G. Wollack and
Brent R. Donaldson, the Partnership, Damson/Birtcher Realty Income
Fund-II and Real Estate Income Partners III, alleging breach of
fiduciary duty, breach of contract, and a derivative claim for breach
of fiduciary duty. Defendants have answered the First Amended
Complaint.
Rex Garton, et al. v. Damson/Birtcher Partners, et al.
This action was filed on September 25, 1998 in the District Court of
Oklahoma County for the State of Oklahoma against the Partnership's
general partner, Damson/Birtcher Partners, other related defendants and
numerous unrelated defendants. Damson/Birtcher Partners and other
related defendants were brought into the action in late December 1998,
when they were served with the Second Amended Petition. The other
related defendants are Birtcher Partners, Birtcher Properties, The
Birtcher Group, Birtcher American Properties, Arthur B. Birtcher,
Ronald E. Birtcher, LF Special Fund II, L.P., and Liquidity Fund Asset
Management Inc., but The Birtcher Group and Birtcher American
Properties were served with process and did not appear in the action.
The Partnership itself is not named as a defendant. The case is a class
action brought on behalf of investors in the Partnership who purchased
limited partnership interests from May 7, 1984 to September 17, 1985.
The Second Amended Petition alleges breach of contract, intentional and
negligent misrepresentation, breach of fiduciary duties, and violations
of various Oklahoma and federal statutes in connection with the sale of
the limited partnership interests. Plaintiff seeks unspecified
compensatory damages and $10 million in punitive damages.
Damson/Birtcher Partners and the related defendants removed the case to
the United States District Court for the Western District of Oklahoma,
and filed a motion to dismiss the case for lack of personal
jurisdiction or, alternatively, to transfer the action to the United
States District Court for the Central District of California, for the
convenience of the parties and witnesses and in the interests of
justice. Plaintiff moved to remand the case back to the Oklahoma state
court. The court denied plaintiff's motion for removal, and took
defendant's motion to dismiss or transfer under submission pending
receipt of additional information the court ordered plaintiff to
provide. On March 29, 2000, the court entered its order granting
defendant's motion to dismiss the case for lack of personal
jurisdiction, and dismissed the case.
19
<PAGE> 20
DAMSON/BIRTCHER REALTY INCOME FUND-I
ITEM 1. LEGAL PROCEEDINGS (Cont'd.)
Madison Partnership and ISA Partnership Litigation
Partnership Liquidity Investors filed a purported class and derivative
action in the California Superior Court in Orange County, California
against Damson Birtcher Partners, Birtcher/Liquidity Properties,
Birtcher Partners, Birtcher Investors, Birtcher Investments, Birtcher
Limited, Breicorp LP Special Fund II, L.P., Liquidity Fund Asset
Management, Inc., Robert M. Anderson, Brent R. Donaldson, Arthur B.
Birtcher, Ronald E. Birtcher, and Richard G. Wollack, Defendants, and
Damson/Birtcher Realty Income Fund-I, Damson/Birtcher Realty Income
Fund-II, and Real Estate Income Partners III, Nominal Defendants. The
complaint asserts claims for breach of fiduciary duty and breach of
contract. The gravamen of the complaint is that the General Partners of
these limited partnerships have not undertaken all reasonable efforts
to expedite liquidation of the Partnerships' properties and to maximize
the returns to the Partnerships' limited partners. The complaint seeks
unspecified monetary damages, attorneys' fees and litigation expenses,
and an order for dissolution of the partnerships and appointment of an
independent liquidating trustee. The Partnership moved to stay or
dismiss the case on the grounds that the pending Bigelow class action,
discussed above, raises essentially the same claims. The court granted
the Partnership's motion and ordered a stay of the litigation pending
re-evaluation at a May 23, 2000 status conference. The court lifted the
stay on May 23, 2000. Plaintiffs have initiated document discovery. A
status conference is currently scheduled for September 8, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 - Financial Data Schedule
(b) Reports on Form 8-K:
Form 8-K filed on June 13, 2000 reporting the sale of
Terracentre, incorporated herein by reference.
20
<PAGE> 21
DAMSON/BIRTCHER REALTY INCOME FUND-I
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.
<TABLE>
<S> <C>
DAMSON/BIRTCHER REALTY INCOME FUND-I
By: DAMSON/BIRTCHER PARTNERS By: BIRTCHER PARTNERS,
(General Partner) a California general partnership
By: BIRTCHER INVESTMENTS,
a California general partnership,
General Partner of Birtcher Partners
By: BIRTCHER LIMITED,
a California limited partnership,
General Partner of Birtcher Investments
By: BREICORP,
a California corporation,
formerly known as Birtcher
Real Estate Inc., General
Partner of Birtcher Limited
Date: August 11, 2000 By: /s/Robert M. Anderson
-------------------------
Robert M. Anderson
Executive Director
BREICORP
By: LF Special Fund II, L.P.,
a California limited partnership
By: Liquidity Fund Asset Management, Inc.,
a California corporation, General
Partner of LF Special Fund II, L.P.
Date: August 11, 2000 By: /s/ Brent R. Donaldson
-------------------------------------
Brent R. Donaldson
President
Liquidity Fund Asset Management, Inc.
</TABLE>
21
<PAGE> 22
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
27 Financial Data Schedule
