FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 2-93874
KFP 85-LTD.
(Exact name of registrant as specified in its charter)
FLORIDA 59-2433930
(State of organization) (I.R.S. employer identification no.)
ONE SOUTHEAST THIRD AVENUE, 11TH FLOOR, MIAMI, FLORIDA 33131
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code (305) 371-3592
NOT APPLICABLE
(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 to be
filed by Section 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 ninety days.
Yes X No
1
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KFP 85-LTD.
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
--------
Item 1 - Financial statements (unaudited):
Balance Sheets
March 31, 1998 and December 31, 1997................... 3
Statements of Operations
For the three months ended March 31, 1998 and 1997..... 4
Statement of Partners' Equity
For the three months ended March 31, 1998.............. 5
Statements of Cash Flows
For the three months ended March 31, 1998 and 1997..... 6
Notes to Financial Statements............................. 8
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 10
PART II - OTHER INFORMATION
Items 1 through 6......................................... 12
Signatures................................................ 13
2
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KFP 85-LTD.
BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
March 31,
1998 December 31,
ASSETS (UNAUDITED) 1997
- ------ ----------- ----
<S> <C> <C>
Cash and interest-bearing deposits $ 210,747 $ 210,373
Escrow deposits 129,573 91,888
Accounts receivable, net of allowance
for doubtful accounts of $35,078 and
$27,199 in 1998 and 1997,
respectively 32,034 26,644
Mortgage notes receivable, net of
allowance for uncollectible amounts
of $14,000 in 1998 and 1997 388,663 391,850
Rental properties, at lower of cost or
market, less accumulated depreciation 3,432,696 3,475,752
Land and land development, at cost
less accumulated depreciation 552,839 552,839
Other assets 122,767 132,683
----------- -----------
Total assets $ 4,869,319 $ 4,882,029
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Accounts payable $ 15,101 $ 6,895
Accrued liabilities 182,396 150,326
Tenant security deposits 47,268 42,812
Note and mortgage payable 4,438,792 4,456,922
----------- -----------
Total liabilities 4,683,557 4,656,955
----------- -----------
CONTINGENCIES (Note 5)
PARTNERS' EQUITY:
General partners (121,536) (120,750)
Limited partners; 8,000 limited
partnership units authorized;
7,940 units issued and outstanding 307,298 345,824
----------- -----------
Total partners' equity 185,762 225,074
----------- -----------
Total liabilities and
partners' equity $4,869,319 $4,882,029
========== ==========
</TABLE>
The accompanying notes to financial statements are an
integral part of these balance sheets.
3
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KFP 85-LTD.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
REVENUES:
Rental income $ 211,972 $ 226,568
Real estate sales - 892,250
Interest income 9,011 9,379
Other income 9,092 36,944
------------- ------------
Total revenues 230,075 1,165,141
------------- ------------
EXPENSES:
Interest and financing costs 115,987 124,233
Property expenses 76,326 70,257
Cost of real estate sold - 812,881
Selling, administration and other 34,018 30,345
Depreciation and amortization 43,056 47,740
------------- ------------
Total expenses 269,387 1,085,456
------------- ------------
Net income (loss) $ (39,312) $ 79,685
============= ============
PER UNIT AMOUNTS TO LIMITED
PARTNERS:
Net income (loss) after allocations
to General Partners of $(786) and
$1,594, respectively $ (4.85) $ 9.84
============= ============
Weighted average units outstanding 7,940 7,940
============= ============
</TABLE>
The accompanying notes to financial statements are an
integral part of these statements.
4
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KFP 85-LTD.
STATEMENT OF PARTNERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
GENERAL LIMITED
PARTNERS' EQUITY (DEFICIT) PARTNERS PARTNERS TOTAL
- -------------------------- -------- -------- -----
December 31, 1997 $(120,750) $345,824 $225,074
Net loss (786) (38,526) (39,312)
--------- -------- --------
March 31, 1998 $(121,536) $307,298 $185,762
========= ======== ========
The accompanying notes to financial statements are an
integral part of this statement.
5
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KFP 85-LTD.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(39,312) $ 79,685
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
Operating activities-
Depreciation and amortization 43,056 47,740
Gain on sale of real estate - (79,369)
Provision for doubtful accounts 7,879 -
Changes in assets and liabilities:
Increase in escrow deposits (37,685) (62,090)
(Increase) decrease in accounts receivable (13,269) 10,259
Decrease in other assets 9,916 5,326
Increase (decrease) in accounts payable 8,206 (19,538)
Increase in accrued liabilities 32,070 12,615
Increase (decrease) in tenant security
deposits 4,456 (10,757)
-------- ----------
Net cash provided by (used in)
Operating activities 15,317 (16,129)
-------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments received on mortgage notes 3,187 2,776
Proceeds from sale of real estate, net of
closing costs - 74,476
-------- ---------
Net cash provided by investing activities 3,187 77,252
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes and mortgages payable (18,130) (22,085)
--------- ----------
NET INCREASE IN CASH AND
INTEREST-BEARING DEPOSITS 374 39,038
CASH AND INTEREST-BEARING DEPOSITS,
BEGINNING OF THE PERIOD 210,373 145,585
-------- ---------
CASH AND INTEREST-BEARING DEPOSITS,
END OF THE PERIOD $210,747 $ 184,623
======== =========
</TABLE>
(Continued)
6
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KFP 85-LTD.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
(Continued)
1998 1997
---- ----
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest $115,446 $129,177
======== ========
SUPPLEMENTAL DISCLOSURE OF
NONCASH FINANCING ACTIVITIES:
Purchase money mortgage loan
satisfied at closing $ - $752,500
======== ========
The accompanying notes to financial statements are an
integral part of these statements.
7
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KFP 85-LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
(1) BASIS OF PRESENTATION:
The balance sheet as of December 31, 1997, which has been derived from audited
statements, and the unaudited interim financial statements included herein, have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and note disclosures normally included
in annual financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to those rules and regulations,
although the Partnership believes that the disclosures made are adequate to make
the information presented not misleading. It is suggested that these financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Partnership's annual report on Form 10-K as of December
31, 1997.
In the opinion of the Partnership, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position of the Partnership
as of March 31, 1998 and December 31, 1997, the results of operations for the
three-month periods ended March 31, 1998 and 1997, partners' equity for the
three-month period ended March 31, 1998 and cash flows for the three-month
periods ended March 31, 1998 and 1997.
(2) RELATED PARTY TRANSACTIONS:
Property management fees paid to Keyes Asset Management, Inc. for management of
various rental properties, totaled $8,250 and $9,740 for the three months ended
March 31, 1998 and 1997, respectively, and are included in property expenses in
the accompanying statements of operations.
During the three months ended March 31, 1998 and 1997, $3,347 and $6,878,
respectively, was paid to Keyes Asset Management, Inc. representing commissions
for leasing vacant space at various rental properties. These amounts are
included in other assets in the accompanying balance sheets and the amount of
leasing commissions paid are amortized over the respective life of each lease.
On January 31, 1997, the Partnership paid a selling commission of $26,767 to
Keyes Asset Management, Inc. in conjunction with the sale of Charlotte Commerce
Center, one of the commercial properties in the Partnership's investment
portfolio. This amount is included in the cost of real estate sold in the
accompanying statements of operations.
8
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(3) NOTE AND MORTGAGE PAYABLE:
Note and mortgage payable was as follows:
March 31, December 31,
1998 1997
---- ----
Mortgage loan secured by Northpark Commerce
Center, bearing interest at 10.375%, payable in
monthly installments of $44,525 representing
principal and interest, due May 1, 2017. $4,438,792 $4,456,922
========== ==========
(4) DISPOSITION:
On January 31, 1997, the Partnership sold Charlotte Commerce Center located in
Altamonte Springs, Seminole County, Florida for a total of $892,250. The book
value of the Center was $747,608 which was net of a 1989 reduction of $35,959 in
the Center's carrying value. Expenses related to the sale of the Center totaled
$65,273 which included a real estate sales commission of $53,535, one-half of
which was paid to Keyes Asset Management, Inc. The Partnership's net gain on
this disposition was $79,369. At closing, the Partnership received cash of
$21,358 which was net of selling expenses, 1995 and 1996 real estate taxes,
tenant security deposits, the outstanding purchase money mortgage balance and
accrued interest.
(5) LIQUIDITY:
The Partnership sustained significant losses in each of the last three fiscal
years. Operations of the Partnership provided cash of $15,317 during the three
months ended March 31, 1998. As of March 31, 1998, cash and interest-bearing
deposits were estimated to be sufficient to pay the Partnership's current
accounts payable and accrued liabilities. The Partnership also had escrow
balances of $129,573 available to pay future real estate taxes and property
insurance.
9
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KFP 85-LTD.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
MATERIAL CHANGES IN FINANCIAL CONDITION
During the quarter ended March 31, 1998, the Partnership's cash and
interest-bearing deposits increased by $374 compared to an increase of $39,038
for the first quarter of 1997. The larger increase in cash and interest-bearing
deposits for 1997 was primarily attributable to the sale of Charlotte Commerce
Center in January 1997.
Net cash provided by operations during the first quarter of 1998 amounted to
$15,317 compared to $16,129 used in operations in the first quarter of 1997. The
increase in cash provided by operations in 1998 was primarily attributable to a
smaller amount of funds being deposited into the escrow account. During the
first quarter of 1998, $37,685 of operating cash was used to increase escrow
deposits compared to $62,090 in 1997. The Partnership's escrow deposits may be
used to pay future real estate taxes and insurance for Northpark Commerce
Center. The increase in cash provided by operations in 1998 was also affected by
changes in tenant security deposits and accounts payable. In 1997, tenant
security deposits of $10,757 were paid to the purchaser of Charlotte Commerce
Center while in 1998 the Partnership received $4,456 of security deposits from
tenants of Northpark Commerce Center. In 1997, accounts payable declined by
$19,538 compared to an increase of $8,206 in 1998.
There were no cash distributions to partners during the first quarter of 1998 or
1997.
Principal payments of the Northpark Commerce Center note and mortgage totaled
$18,130 during the first quarter of 1998. During the quarter ended March 31,
1997, principal payments of notes and mortgages amounted to $22,085, excluding
the payoff of the Charlotte Commerce Center mortgage of $752,500 which took
place at closing. For the remainder of 1998, the Partnership anticipates it will
make principal payments from the Partnership's general funds of approximately
$57,300 on the Northpark note and mortgage.
The Partnership does not intend to acquire any additional properties for its
investment portfolio. From time to time, the Partnership may be required to make
certain tenant improvements at Northpark Commerce Center in order to retain or
attract tenants to space that is vacant.
Other than those items discussed above, the Partnership does not anticipate any
material changes to its financial condition during the remainder of 1998.
10
<PAGE>
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Rental and other income, when combined, decreased approximately 16% in the first
quarter of 1998 compared to the same period of 1997. This decline was primarily
attributable to the disposal of two rental properties: Charlotte Commerce Center
which closed in the first quarter of 1997; and four condominium warehouse units
at LeJeune Industrial Park which closed in the third quarter of 1997.
Interest income declined slightly during the first quarter of 1998 compared to
the same period in 1997. The small decline in interest income was due primarily
to a decrease in mortgage notes receivable balances. In prior years, mortgage
notes were accepted when the Partnership sold LeJeune Industrial Park
condominium units and interest earned on mortgage balances decline as principal
payments are received by the Partnership.
Partnership expenses, excluding cost of real estate sold, decreased in the first
quarter of 1998 from 1997 levels primarily due to the sales in 1997 of Charlotte
Commerce Center and LeJeune Industrial Park. This decrease was partially offset
by approximately $16,000 of costs incurred in the first quarter of 1998 for
planned improvements and repairs to the paved areas at Northpark Commerce
Center.
During the first quarter of 1997, the Partnership sold Charlotte Commerce Center
for $892,250. After taking into consideration the Center's net book value of
$747,608 and selling expenses of $65,273, the Partnership realized a net gain of
$79,369 in the first quarter of 1997. There were no comparable sales of
Partnership property during the first quarter of 1998.
The Partnership intends to actively market the sale of the properties remaining
in its investment portfolio. It is not known if, or when, prospective purchasers
might be obtained for any or all of its properties. Until such time as the
properties are sold and closed, the properties will continue to be leased and
operated by the Partnership.
For the three remaining quarters of 1998, the Partnership anticipates that
revenues and expenses will continue to be lower when compared to the same
periods of 1997. However, for the remainder of 1998, the Partnership does not
anticipate that revenues or expenses will vary materially from the first three
months.
11
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KFP 85-LTD.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) 27 Financial Data Schedule
(b) None
12
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KFP 85-LTD.
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.
KFP 85-Ltd.
(Registrant)
By: KPA, Inc.
Managing General Partner
Date: MAY 20, 1998 By: /S/ TIMOTHY D. PAPPAS
---------------------- ---------------------
Timothy D. Pappas,
Vice President, Treasurer and
Principal Accounting Officer
13
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 210,747
<SECURITIES> 0
<RECEIVABLES> 67,112
<ALLOWANCES> (35,078)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,546,523
<DEPRECIATION> (2,113,827)
<TOTAL-ASSETS> 4,869,319
<CURRENT-LIABILITIES> 0
<BONDS> 4,438,792
0
0
<COMMON> 0
<OTHER-SE> 185,762
<TOTAL-LIABILITY-AND-EQUITY> 4,869,319
<SALES> 0
<TOTAL-REVENUES> 230,075
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 153,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 115,987
<INCOME-PRETAX> (39,312)
<INCOME-TAX> 0
<INCOME-CONTINUING> (39,312)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (39,312)
<EPS-PRIMARY> (4.85)
<EPS-DILUTED> (4.85)
</TABLE>
