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 March 31, 1998
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Commission file number 0-14276
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SIERRA PACIFIC DEVELOPMENT FUND III
(A LIMITED PARTNERSHIP)
State of California 33-0043953
- ------------------------------------------ ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
5850 San Felipe, Suite 450
Houston, Texas 77057
- ------------------------------------------ ------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (713) 706-6271
--------------------------------------------
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__.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following financial statements are submitted in the next pages:
Page number
-----------
Consolidated Balance Sheets - March 31, 1998 and December 31, 1997 4
Consolidated Statements of Operations - For the Three Months Ended March
31, 1998 and 1997 5
Consolidated Statements of Changes in Partners' Equity - From June 5, 1984
(inception of the Partnership) to December 31, 1997 and for the Three
Months Ended March 31, 1998 6
Consolidated Statements of Cash Flows - For the Three Months Ended
March 31, 1998 and 1997 7
Notes to Consolidated Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(a) OVERVIEW
The following discussion should be read in conjunction with the Partnership's
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Form 10-Q.
The Partnership currently owns a 65.49% interest in the Sierra Vista Partnership
which operated the Sierra Vista property (the "Property"). The Property was sold
in October 1997. The Partnership's remaining real estate investment is an 11.41%
minority interest in Sorrento I Partners ("SIP"), which operates the Sierra
Sorrento I property.
2
<PAGE>
(b) RESULTS OF OPERATIONS
No rental income was recorded for the three months ended March 31, 1998 due to
the sale of the Property in October 1997. Rental income for the corresponding
period in the prior year amounted to $142,000
Operating expenses for the three months ended March 31, 1998 were $21,000,
compared to $111,000 for the same period in the prior year. Operating expenses
for the quarter primarily consisted of accounting and auditing costs and other
professional fees incurred during the period.
The Partnership's share of income (loss) from investment in SIP was ($1,000) for
the three months ended March 31, 1998 compared to $3,000 for the corresponding
period in the prior year.
(c) LIQUIDITY AND CAPITAL RESOURCES
In October 1997, the Partnership sold the Sierra Vista property for $5,630,000.
The Partnership received cash of $2,141,000 from the sale of the Property and
the secured loan was paid. In accordance with the Sierra Vista Partners joint
venture agreement, these proceeds were distributed to Sierra Mira Mesa Partners
("SMMP"). Under the terms of the agreement, SMMP receives preferential cash
distributions of available "Distributable Funds" from the sale of the property
to the extent of its capital contributions. SMMP had made net contributions of
$3,335,000 to the Partnership through the sale date.
As of March 31, 1998, the Partnership is in a liquid position. Total cash and
current receivables amount to $9,000 compared to $7,000 of accrued and other
liabilities.
The Partnership's primary capital requirements will be for the continued
development and operation of the Sorrento I property. It is anticipated that
these requirements will be funded from the operations of the property and the
Partnership's joint venture partner, SMMP. As required, SMMP either advances or
contributes cash to meet the Partnership's requirements. SMMP has adequate
resources to make the necessary advances during the foreseeable future.
3
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND III
(A Limited Partnership)
CONSOLIDATED BALANCE SHEETS
March 31, 1998 and December 31, 1997
March 31, December 31,
1998 1997
--------- ------------
ASSETS
Cash and cash equivalents ...................... $ 2,763 $ 14,602
Accounts receivable ............................ 6,137 6,137
--------- ---------
Total Assets ................................... $ 8,900 $ 20,739
========= =========
LIABILITIES AND PARTNERS' EQUITY
Accrued and other liabilities .................. $ 6,550 $ 4,660
Due to affiliates .............................. 7,123 0
Investment in unconsolidated
joint venture ................................ 335,086 333,783
--------- ---------
Total Liabilities .............................. 348,759 338,443
--------- ---------
Minority interest in consolidated
joint venture ................................ 49,767 56,963
--------- ---------
Partners' equity:
General Partner .............................. (389,626) (374,667)
Limited Partners:
60,000 units authorized,
36,521 issued and outstanding .............. 0 0
--------- ---------
Total Partners' equity ......................... (389,626) (374,667)
--------- ---------
Total Liabilities and Partners' equity ......... $ 8,900 $ 20,739
========= =========
Unaudited
See Accompanying Notes
4
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND III
(A Limited Partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 1998 and 1997
1998 1997
-------- ---------
REVENUES:
Rental income ................................. $ 0 $ 141,806
-------- ---------
Total revenues ........................... 0 141,806
-------- ---------
EXPENSES:
Operating expenses ............................ 20,852 111,210
Depreciation and amortization ................. 0 152,249
Interest ...................................... 0 147,244
-------- ---------
Total costs and expenses ................. 20,852 410,703
-------- ---------
LOSS BEFORE PARTNERSHIP'S SHARE OF
UNCONSOLIDATED JOINT VENTURE
(LOSS) INCOME ................................ (20,852) (268,897)
-------- ---------
PARTNERSHIP'S SHARE OF UNCONSOLIDATED
JOINT VENTURE (LOSS) INCOME .................. (1,303) 2,626
-------- ---------
LOSS BEFORE MINORITY INTEREST'S SHARE
OF CONSOLIDATED JOINT VENTURE LOSS ........... (22,155) (266,271)
-------- ---------
MINORITY INTEREST'S SHARE OF
CONSOLIDATED JOINT VENTURE LOSS ............... 7,196 126,516
-------- ---------
NET LOSS ........................................ $(14,959) $(139,755)
======== =========
Net loss per limited partnership unit ........... $ 0 $ (3.83)
======== =========
Unaudited
See Accompanying Notes
5
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND III
(A Limited Partnership)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
From June 5, 1984 (Inception of Partnership) to December 31, 1997
and for the Three Months Ended March 31, 1998
<TABLE>
<CAPTION>
Limited Partners Total
----------------------- General Partners'
Per Unit Total Partner Equity
-------- ------------ ------------ ------------
<S> <C> <C> <C>
Proceeds from sale of
partnership units ................... $ 250.00 $ 9,222,500 $ 9,222,500
Underwriting commissions
and other organization expenses ..... (37.00) (1,364,985) (1,364,985)
Repurchase of 369 partnership units (0.18) (85,005) (85,005)
Cumulative net income (loss)
(to December 31, 1997) .............. (201.63) (7,363,663) $ (353,145) (7,716,808)
Cumulative distributions
(to December 31, 1997) .............. (11.19) (408,847) (21,522) (430,369)
--------- ------------ ------------ ------------
Partners' equity - January 1, 1997 0 0 (374,667) (374,667)
Net loss .............................. 0 0 (14,959) (14,959)
--------- ------------ ------------ ------------
Partners' equity - March 31, 1998 ..... $ 0 $ 0 $ (389,626) $ (389,626)
========= ============ ============ ============
</TABLE>
Unaudited
See Accompanying Notes
6
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND III
(A Limited Partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1998 and 1997
1998 1997
-------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .............................................. $(14,959) $(139,755)
Adjustments to reconcile net loss
to cash (used in) provided by operating activities:
Depreciation and amortization ....................... 0 152,249
Partnership's share of unconsolidated
joint venture loss (income) ....................... 1,303 (2,626)
Minority interest in consolidated
joint venture loss ................................ (7,196) (126,516)
Decrease in rent receivable ......................... 0 48,982
Decrease in other receivables ....................... 0 1,261
Increase in other assets ............................ 0 (3,952)
Increase in accrued and other liabilities ........... 1,890 210,975
-------- ---------
Net cash (used in) provided by operating activities . (18,962) 140,618
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property additions ..................... 0 (238,119)
-------- ---------
Net cash used in investing activities ............... 0 (238,119)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan from affiliate ................................. 7,123 101,823
-------- ---------
Net cash provided by financing activities ........... 7,123 101,823
-------- ---------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS ................................ (11,839) 4,322
CASH AND CASH EQUIVALENTS
Beginning of period .................................. 14,602 97,439
-------- ---------
CASH AND CASH EQUIVALENTS
End of period ........................................ $ 2,763 $ 101,761
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest .............. $ 0 $ 40,000
======== =========
Unaudited
See Accompanying Notes
7
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND III
(A LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------
1. ORGANIZATION
In April 1993, the Partnership created a general partnership (Sorrento I
Partners) with Sierra Mira Mesa Partners ("SMMP") to facilitate cash
contributions by SMMP for the continued development and operation of the Sierra
Sorrento I property. In February 1994, the Partnership formed a joint venture
with SMMP known as Sierra Vista Partners to facilitate cash contributions by
SMMP for the continued development and operation of the Sierra Vista property.
The Partnership Agreements of Sorrento I Partners and Sierra Vista Partners (the
"Agreements") were amended effective January 1, 1995 to consider both
contributions and distributions when calculating each partners' percentage
interest at January 1 of each year as called for by the Agreements. Accordingly,
on January 1, 1998, the Partnership's interest in Sorrento I Partners was
increased from 11.31% to 11.41% and the Partnerships's interest in Sierra Vista
Partners was increased from 52.95% to 65.49% to reflect 1997 contributions and
distributions.
In October 1997, the Sierra Vista property was sold for $5,630,000. The
Partnership received cash proceeds of $2,141,000 from the sale and the purchaser
assumed the Partnership's debt on the property. In accordance with the joint
venture agreement, these proceeds were distributed to SMMP. Under the terms of
the agreement, SMMP receives preferential cash distributions of available
"Distributable Funds" from the sale of the property to the extent of its capital
contributions. SMMP had made net contributions of $3,335,000 to the Partnership
through the sale date.
The Partnership's remaining real estate investment is an 11.41% minority
interest in the Sierra Sorrento I property. Because the Partnership owns less
than 50% of this property, it records its interest in Sorrento I Partners as an
investment in an unconsolidated joint venture using the equity method of
accounting. Thus, the Sierra Sorrento I property is not reflected as an asset on
the Partnership's balance sheet nor is the debt on this property reflected in
the balance sheet.
2. BASIS OF FINANCIAL STATEMENTS
The accompanying unaudited consolidated condensed financial statements include
the accounts of the Partnership and Sierra Vista Partners, a majority owned
joint venture at March 31, 1998. All significant intercompany balances and
transactions have been eliminated in consolidation.
UNAUDITED
8
<PAGE>
Sierra Pacific Development
Fund III Notes to Consolidated Financial Statements
Page two
In the opinion of the Partnership's management, these unaudited financial
statements reflect all adjustments which are necessary for a fair presentation
of its financial position at March 31, 1998 and results of operations and cash
flows for the periods presented. All adjustments included in these statements
are of a normal and recurring nature. These financial statements should be read
in conjunction with the financial statements and notes thereto contained in the
Annual Report of the Partnership for the year ended December 31, 1997.
3. RELATED PARTY TRANSACTIONS
In 1994, all of the common stock of TCP, Inc. was purchased by Finance Factors,
Inc. from Carlsberg Management Company ("CMC"). TCP, Inc. owns all of the common
stock of S-P Properties, Inc., the General Partner of the Partnership. CMC
continued to manage the affairs of the Partnership through March 31, 1995.
Included in the financial statements for the three months ended March 31, 1998
and 1997 are affiliate transactions as follows:
March 31
--------------------------
1998 1997
------------- ------------
Management fees $ 0 $ 10,900
Administrative fees 0 15,140
Construction supervision fees 0 56,444
4. INVESTMENT IN UNCONSOLIDATED JOINT VENTURE
Sorrento I Partners ("SIP") was formed on April 1, 1993 between the Partnership
and Sierra Mira Mesa Partners, an affiliate, to develop and operate the real
property known as Sierra Sorrento I (the "Property"), an industrial building
located in San Diego, California. At March 31, 1998, the Partnership has a
11.41% equity interest with its contribution of Sierra Sorrento I and the
related debt. This investment is stated at cost and is adjusted for the
Partnership's share in earnings or losses and cash contributions to or
distributions from the joint venture (equity method).
UNAUDITED
9
<PAGE>
Sierra Pacific Development Fund III
Notes to Consolidated Financial Statements
Page three
Summarized income statement information for SIP for the three months ended March
31, 1998 and 1997 follows:
March 31
------------------------
1998 1997
----------- ------------
Rental income $ 70,909 $ 70,909
Total revenue 70,909 70,909
Operating expenses 35,685 15,432
Net (loss) income (11,416) 6,102
5. PARTNERS' EQUITY
Equity and net income (loss) per limited partnership unit is determined by
dividing the Limited Partners' share of the Partnership's equity and net income
(loss) by the number of limited partnership units outstanding, 36,521.
UNAUDITED
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following Exhibits are filed herewith pursuant to Rule 601 of
Regulation S-K.
Exhibit
Number Description of Exhibit
- ------------ ----------------------------------
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report be signed on its behalf by the
undersigned thereunto duly authorized.
SIERRA PACIFIC DEVELOPMENT FUND III
a Limited Partnership
S-P PROPERTIES, INC.
General Partner
Date: MAY 4, 1998 /s/ THOMAS N. THURBER
----------- --------------------------------
Thomas N. Thurber
President and Director
Date: MAY 4, 1998 /s/ G. ANTHONY EPPOLITO
----------- --------------------------------
G. Anthony Eppolito
Chief Accountant
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM SIERRA PACIFIC DEVELOPMENT FUND III MARCH 31, 1998 FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,763
<SECURITIES> 0
<RECEIVABLES> 6,137
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,900
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,900
<CURRENT-LIABILITIES> 13,673
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (389,626)
<TOTAL-LIABILITY-AND-EQUITY> 8,900
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 20,852
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (14,959)
<INCOME-TAX> 0
<INCOME-CONTINUING> (14,959)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,959)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
