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, 1999
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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
incorporation or organization) Identification Number)
5850 San Felipe, Suite 450
Houston, Texas 77057
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(Address of principal executive (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 - September 30, 1999 and December 31, 1998 5
Consolidated Statements of Operations - For the Nine Months Ended
September 30, 1999 and 1998 and For the Three Months Ended
September 30, 1999 and 1998 6
Consolidated Statements of Changes in Partners' Equity - From
June 5, 1984 (inception of the Partnership) to December 31, 1998
and for the Nine Months Ended September 30, 1999 7
Consolidated Statements of Cash Flows - For the Nine Months Ended
September 30, 1999 and 1998 8
Notes to Consolidated Financial Statements 9
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 66.68% 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 11.88%
minority interest in Sorrento I Partners ("SIP"), which operates the Sierra
Sorrento I property.
(b) RESULTS OF OPERATIONS
The Partnership recorded other income of $11,907 during the first quarter of
1999 as a result of a refund associated with prior year operations. No rental
income has been generated since the sale of the Property in 1997.
2
<PAGE>
Operating expenses for the nine months ended September 30, 1999 consisted
primarily of accounting and auditing costs. Operating expenses for the nine
months ended September 30, 1999 decreased by $18,498, principally due to
professional fees and other administrative expenses incurred during the same
period in 1998. No operating expenses were incurred in the third quarter of
1999.
The Partnership's share of loss from investment in SIP was $4,779 for the nine
months ended September 30, 1999 compared to $29 for the same period in 1998.
(c) LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Partnership is in an illiquid position with cash
of $665 and current liabilities of $2,400.
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.
(d) YEAR 2000 COMPLIANCE
The Year 2000 Compliance issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Partnership's computer programs that have time-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities. As a result,
many companies' software and computer systems may need to be upgraded or
replaced in order to comply with Year 2000 requirements.
The total cost to the Partnership of activities associated with Year 2000
Compliance is not anticipated to be material to its financial position or
results of operations in any given year. In January 1999, the Partnership began
utilizing a new software program to maintain books and records. The new software
program is Year 2000 compliant.
The total amount of potential risk that would be reasonably likely to result
from Year 2000 failures cannot presently be estimated. In the event the
Partnership does not properly identify Year 2000 issues in a timely manner,
there can be no assurance that Year 2000 issues will not materially affect the
Partnership's results.
The Partnership's contingency plan should systems fail due to the Year 2000 date
change is to temporarily convert to a manual system. The Partnership believes it
could temporarily operate on a manual system without adversely impacting
operations.
3
<PAGE>
The preceding Year 2000 discussion contains various forward-looking statements
which represent the Partnership's beliefs or expectations regarding future
events. All forward-looking statements involve a number of risks and
uncertainties that could cause the actual results to differ materially from
projected results.
4
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND III
(A LIMITED PARTNERSHIP)
CONSOLIDATED BALANCE SHEETS
September 30, 1999 and December 31, 1998
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ ------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ...................... $ 665 $ 935
------------------ ------------------
Total Assets ................................... $ 665 $ 935
================== ==================
LIABILITIES AND PARTNERS' EQUITY
Due to affiliate ............................... $ 2,400 $ 0
Investment in unconsolidated
joint venture ................................ 337,775 332,996
------------------ ------------------
Total Liabilities .............................. 340,175 332,996
------------------ ------------------
Minority interest in consolidated
joint venture ................................ 4,091 4,981
------------------ ------------------
Partners' equity (deficit):
General Partner .............................. (343,601) (337,042)
Limited Partners:
60,000 units authorized,
36,521 issued and outstanding .............. 0 0
------------------ ------------------
Total Partners' equity (deficit) ............... (343,601) (337,042)
------------------ ------------------
Total Liabilities and Partners' equity ......... $ 665 $ 935
================== ==================
</TABLE>
UNAUDITED
SEE ACCOMPANYING NOTES
5
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND III
(A LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Other income ......................... $ 11,907 $ 93,656 $ 0 $ 0
-------- -------- -------- --------
Total revenues .................. 11,907 93,656 0 0
-------- -------- -------- --------
EXPENSES:
Operating expenses ................... 14,577 33,075 0 4,360
-------- -------- -------- --------
Total expenses .................. 14,577 33,075 0 4,360
-------- -------- -------- --------
(LOSS) INCOME BEFORE PARTNERSHIP'S SHARE
OF UNCONSOLIDATED JOINT VENTURE
(LOSS) INCOME ....................... (2,670) 60,581 0 (4,360)
-------- -------- -------- --------
PARTNERSHIP'S SHARE OF UNCONSOLIDATED
JOINT VENTURE (LOSS) INCOME ......... (4,779) (29) (4,097) 456
-------- -------- -------- --------
(LOSS) INCOME BEFORE MINORITY INTEREST'S
SHARE OF CONSOLIDATED JOINT VENTURE
LOSS (INCOME) ....................... (7,449) 60,552 (4,097) (3,904)
-------- -------- -------- --------
MINORITY INTEREST'S SHARE OF
CONSOLIDATED JOINT VENTURE
LOSS (INCOME) ........................ 890 (20,906) 0 1,505
-------- -------- -------- --------
NET (LOSS) INCOME ...................... $ (6,559) $ 39,646 $ (4,097) $ (2,399)
======== ======== ======== ========
</TABLE>
UNAUDITED
SEE ACCOMPANYING NOTES
6
<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, 1998
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIMITED PARTNERS TOTAL
-------------------------- GENERAL PARTNERS'
PER UNIT TOTAL PARTNER EQUITY
----------- ----------- ----------- -----------
<S> <C> <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, 1998) ...................... (201.63) (7,363,663) $ (315,520) (7,679,183)
Cumulative distributions
(to December 31, 1998) ...................... (11.19) (408,847) (21,522) (430,369)
----------- ----------- ----------- -----------
Partners' equity (deficit) - January 1, 1999 .. 0 0 (337,042) (337,042)
Net loss ...................................... 0 0 (6,559) (6,559)
----------- ----------- ----------- -----------
Partners' equity (deficit) - September 30, 1999 $ 0 $ 0 $ (343,601) $ (343,601)
=========== =========== =========== ===========
</TABLE>
UNAUDITED
SEE ACCOMPANYING NOTES
7
<PAGE>
SIERRA PACIFIC DEVELOPMENT FUND III
(A LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
1999 1998
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income .................................... $ (6,559) $ 39,646
Adjustments to reconcile net (loss) income
to cash (used in) provided by operating activities:
Partnership's share of unconsolidated
joint venture loss ............................... 4,779 29
Minority interest's share of consolidated
joint venture (loss) income ...................... (890) 20,906
Decrease in other receivables ...................... 0 6,137
Decrease in accrued and other liabilities .......... 0 (4,660)
-------- --------
Net cash (used in) provided by operating activities (2,670) 62,058
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan from affiliate ................................ 2,400 0
Loan to affiliate .................................. 0 (74,756)
-------- --------
Net cash provided by (used in) financing activities 2,400 (74,756)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS .............. (270) (12,698)
CASH AND CASH EQUIVALENTS
Beginning of period ................................. 935 14,602
-------- --------
CASH AND CASH EQUIVALENTS
End of period ....................................... $ 665 $ 1,904
======== ========
UNAUDITED
SEE ACCOMPANYING NOTES
8
<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, 1999, the Partnership's interest in Sorrento I Partners was
increased from 11.41% to 11.88% and the Partnerships's interest in Sierra Vista
Partners was increased from 65.49% to 66.68% to reflect 1998 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 11.88% 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, 1999. All significant intercompany balances and
transactions have been eliminated in consolidation.
UNAUDITED
9
<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, 1999 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, 1998.
3. 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, 1999, the Partnership has a
11.88% 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).
Summarized income statement information for SIP for the nine months ended
September 30, 1999 and 1998 follows:
SEPTEMBER 30
-------------------
1999 1998
-------- --------
Rental income $212,727 $211,414
Total revenue 212,727 211,414
Operating expenses 74,261 72,069
Net loss 41,077 258
4. 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: OCTOBER 29, 1999 /S/ THOMAS N. THURBER
---------------- -----------------------------
Thomas N. Thurber
President and Director
Date: OCTOBER 29, 1999 /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, 1999 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-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 665
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 665
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 665
<CURRENT-LIABILITIES> 2,400
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (343,601)
<TOTAL-LIABILITY-AND-EQUITY> 665
<SALES> 0
<TOTAL-REVENUES> 11,907
<CGS> 0
<TOTAL-COSTS> 14,577
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,559)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,559)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,559)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
