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 September 30, 1998
-----------------------------------
Commission file number 0-14276
-----------------------------------
SIERRA PACIFIC DEVELOPMENT FUND III
(A LIMITED PARTNERSHIP)
State of California 33-0043953
------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
5850 San Felipe, Suite 450
Houston, Texas 77057
------------------------------- -------------------------------
(Address of principal executive (Zip Code)
offices)
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 - September 30, 1998 and December
31, 1997 4
Consolidated Statements of Operations - For the Nine Months
Ended September 30, 1998 and 1997 and for the Three Months
Ended September 30, 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 Nine Months Ended September 30,
1998 6
Consolidated Statements of Cash Flows - For the Nine
Months Ended September 30, 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 nine months ended September 30, 1998 due
to the sale of the Property in October 1997. Rental income for the corresponding
period in the prior year amounted to $567,000. The Partnership received an
unanticipated $94,000 associated with the refinance of the Property in 1997.
These funds were recorded as other income in the second quarter.
Operating expenses for the nine months and three months ended September 30, 1998
consisted primarily of accounting and auditing costs and other administrative
expenses.
(c) LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Partnership is in a liquid position with cash of
$2,000 and no current liabilities.
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.
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
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
----------------------------------------
September 30, December 31,
1998 1997
--------- ---------
ASSETS
Cash and cash equivalents ...................... $ 1,904 $ 14,602
Accounts receivable ............................ 0 6,137
Due from affiliate ............................. 74,756 0
--------- ---------
Total Assets ................................... $ 76,660 $ 20,739
========= =========
LIABILITIES AND PARTNERS' EQUITY
Accrued and other liabilities .................. $ 0 $ 4,660
Investment in unconsolidated
joint venture ................................ 333,812 333,783
--------- ---------
Total Liabilities .............................. 333,812 338,443
--------- ---------
Minority interest in consolidated
joint venture ................................ 77,869 56,963
--------- ---------
Partners' equity (deficit):
General Partner .............................. (335,021) (374,667)
Limited Partners:
60,000 units authorized,
36,521 issued and outstanding .............. 0 0
--------- ---------
Total Partners' equity (deficit) ............... (335,021) (374,667)
--------- ---------
Total Liabilities and Partners' equity ......... $ 76,660 $ 20,739
========= =========
UNAUDITED
SEE ACCOMPANYING NOTES
4
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND III
(A LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
----------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
----------------------- --------------------
1998 1997 1998 1997
-------- ----------- ------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Rental income .............................. $ 0 $ 566,780 $ 0 $ 190,530
Interest income ............................ 0 633 0 633
Other income ............................... 93,656 0 0 0
-------- ----------- ------- ---------
Total revenues ........................ 93,656 567,413 0 191,163
-------- ----------- ------- ---------
EXPENSES:
Operating expenses ......................... 33,075 418,057 4,360 161,214
Depreciation and amortization .............. 0 464,427 0 157,410
Interest ................................... 0 299,404 0 74,654
-------- ----------- ------- ---------
Total costs and expenses .............. 33,075 1,181,888 4,360 393,278
-------- ----------- ------- ---------
INCOME (LOSS) BEFORE PARTNERSHIP'S SHARE
OF UNCONSOLIDATED JOINT VENTURE
(LOSS) INCOME ............................. 60,581 (614,475) (4,360) (202,115)
-------- ----------- ------- ---------
PARTNERSHIP'S SHARE OF UNCONSOLIDATED
JOINT VENTURE (LOSS) INCOME ............... (29) 2,465 456 2,447
-------- ----------- ------- ---------
INCOME (LOSS) BEFORE MINORITY INTEREST'S
SHARE OF CONSOLIDATED JOINT VENTURE
(INCOME) LOSS ............................. 60,552 (612,010) (3,904) (199,668)
-------- ----------- ------- ---------
MINORITY INTEREST'S SHARE OF
CONSOLIDATED JOINT VENTURE
(INCOME) LOSS .............................. (20,906) 289,110 1,505 95,095
-------- ----------- ------- ---------
NET INCOME (LOSS) ............................ $ 39,646 $ (322,900) $(2,399) $(104,573)
======== =========== ======= =========
Net income (loss) per limited partnership unit $ 0 $ (8.84) $ 0 $ (2.86)
======== =========== ======= =========
</TABLE>
UNAUDITED
SEE ACCOMPANYING NOTES
5
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND III
(A LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
FROM JUNE 5, 1984 (INCEPTION OF PARTNERSHIP) TO DECEMBER 31, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
-----------------------------------------------------------------
<TABLE>
<CAPTION>
Limited Partners Total
---------------------- General Partners'
Per Unit Total Partner Equity
------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Proceeds from sale of
partnership units ........................... $ 250.0 $ 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 (deficit) - January 1, 1997 .. 0 0 (374,667) (374,667)
Net income .................................... 0 0 39,646 39,646
------- ----------- --------- -----------
Partners' equity (deficit) - September 30, 1998 $ 0 $ 0 $(335,021) $ (335,021)
======= =========== ========= ===========
</TABLE>
UNAUDITED
SEE ACCOMPANYING NOTES
6
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND III
(A LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
-----------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
-------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................... $ 39,646 $ (322,900)
Adjustments to reconcile net income (loss)
to cash provided by (used in) operating activities:
Depreciation and amortization ...................... 0 464,427
Partnership's share of unconsolidated
joint venture loss (income) ...................... 29 (2,465)
Minority interest in consolidated
joint venture income (loss) ...................... 20,906 (289,110)
Decrease in rent receivable ........................ 0 30,341
Decrease in other receivables ...................... 6,137 1,261
Increase in other assets ........................... 0 (288,091)
(Decrease) increase in accrued and other liabilities (4,660) 100,228
-------- -----------
Net cash provided by (used in) operating activities 62,058 (306,309)
-------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property additions .................... 0 (364,963)
-------- -----------
Net cash used in investing activities .............. 0 (364,963)
-------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Funding of note payable secured by property ........ 0 3,050,000
Principal payments on notes payable ................ 0 (3,416,399)
Loan to affiliate .................................. (74,756) 0
Loan from affiliate ................................ 0 946,065
-------- -----------
Net cash (used in) provided by financing activities (74,756) 579,666
-------- -----------
NET DECREASE IN CASH
AND CASH EQUIVALENTS ............................... (12,698) (91,606)
CASH AND CASH EQUIVALENTS
Beginning of period ................................. 14,602 97,439
-------- -----------
CASH AND CASH EQUIVALENTS
End of period ....................................... $ 1,904 $ 5,833
======== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest ............. $ 0 $ 293,934
======== ===========
</TABLE>
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 September 30, 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 September 30, 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 nine months ended September 30,
1998 and 1997 are affiliate transactions as follows:
September 30
------------------
1998 1997
------ -------
Management fees ......................................... $ 0 $35,395
Administrative fees ..................................... 0 56,972
Construction supervision
fees .................................................... 0 56,444
Leasing fees ............................................ 0 71,821
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 September 30, 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 nine months ended
September 30, 1998 and 1997 follows:
September 30
-----------------------------
1998 1997
--------- --------
Rental income .......................... $ 211,414 $212,727
Total revenue .......................... 211,414 212,727
Operating expenses ..................... 72,069 62,941
Net (loss) income ...................... (258) 5,726
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: NOVEMBER 1, 1998 /S/ THOMAS N. THURBER
-----------------------
Thomas N. Thurber
President and Director
Date: NOVEMBER 1, 1998 /S/ G. ANTHONY EPPOLITO
-----------------------
G. Anthony Eppolito
Chief Accountant
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM SIERRA PACIFIC DEVELOPMENT FUND III SEPTEMBER 30, 1998 FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,904
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 76,660
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 76,660
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (335,021)
<TOTAL-LIABILITY-AND-EQUITY> 76,660
<SALES> 0
<TOTAL-REVENUES> 93,656
<CGS> 0
<TOTAL-COSTS> 33,075
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 39,646
<INCOME-TAX> 0
<INCOME-CONTINUING> 39,646
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,646
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
