<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 March 31, 1999
---------------------------------------------------------------
Commission file number 0-14633
----------------------------------------------------------
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3294820
- --------------------------------------------------------------------------------
(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-II, LIMITED PARTNERSHIP
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 1999
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Net Assets in Liquidation - March 31, 1999
(Unaudited) and December 31, 1998 (Audited)..................... 3
Statements of Changes of Net Assets in Liquidation -
Three Months Ended March 31, 1999 and 1998(Unaudited)........... 4
Notes to Financial Statements (Unaudited)....................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................... 9
Item 3. Quantitative and Qualitative Market Risk Disclosures............ 11
PART II. OTHER INFORMATION............................................... 12
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DAMSON/BIRTCHER REALTY INCOME FUND-II
STATEMENTS OF NET ASSETS IN LIQUIDATION
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS (Liquidation Basis):
Properties $23,693,000 $23,587,000
Investment in Cooper Village Partners 3,403,000 3,375,000
Cash and cash equivalents 1,571,000 1,564,000
Accounts receivable, net 56,000 20,000
Other assets 11,000 20,000
----------- -----------
Total Assets 28,734,000 28,566,000
----------- -----------
LIABILITIES (Liquidation Basis):
Accounts payable and accrued liabilities 705,000 685,000
Accrued expenses for liquidation 129,000 129,000
----------- -----------
Total Liabilities 834,000 814,000
----------- -----------
Net Assets in Liquidation $27,900,000 $27,752,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
STATEMENTS OF CHANGES OF NET ASSETS IN LIQUIDATION
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net assets in liquidation at beginning of period $ 27,752,000 $ 27,394,000
Increase (decrease) during period:
Operating activities:
Property operating income, net 723,000 836,000
Equity in earnings of Cooper Village Partners 109,000 89,000
Interest income 15,000 22,000
Leasing commissions (102,000) --
General and administrative expenses (166,000) (156,000)
------------ ------------
579,000 791,000
Liquidating activities-distributions to partners (431,000) (711,000)
------------ ------------
Net increase in assets in liquidation 148,000 80,000
------------ ------------
Net assets in liquidation at end of period $ 27,900,000 $ 27,474,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
(1) Accounting Policies
The financial statements of Damson/Birtcher Realty Income Fund-II,
Limited Partnership (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, 1998.
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 13, 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 13, 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 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 Iomega Corporation totaled $324,000 and $312,000 for
the three months ended March 31, 1999 and 1998, respectively, or
approximately 28% and 24%, respectively, of the Partnership's total
rental income. Rental income from Delta Dental Corporation totaled
$149,000 and $221,000 for the three months ended March 31, 1999 and
1998, respectively, or approximately 12% and 16%, respectively, of the
Partnership's total rental income.
Sale of the Properties
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 $32,250,000 and
$33,000,000, 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, which the
Partnership did not agree to.
5
<PAGE> 6
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
(1) Accounting Policies (Cont'd.)
Sale of the Properties (Cont'd.)
On March 25, 1999, the Partnership signed a letter of intent with
Praedium Performance Fund IV ("Praedium") to sell all of its properties
except its interest in Cooper Village to Praedium for $29,000,000.
Praedium is a New York-based investment firm affiliated with CS First
Boston. Praedium is not affiliated in any way with the Partnership or
the General Partner, or any of the General Partner's principals or
affiliates. Praedium will hire Birtcher or an affiliate as asset manager
for the properties, and pay an annual fee equal to .30% of the value of
the assets for asset management services. Also, Praedium will hire
Birtcher or an affiliate as property manager for these assets for a fee
that is approximately the same as the current fees paid to the General
Partner for property management.
On April 30, 1999, Praedium and the Partnership executed a definitive
Purchase and Sale Agreement for the price and on the terms contemplated
in the letter of intent, and Praedium deposited $222,400 into escrow.
The Agreement is subject to customary contingencies, including due
diligence inspection and review, approval of title conditions, receipt
of tenant estoppels and the like, and is subject to formal approval by
Praedium's "Investment Committee." Praedium's deposit is fully
refundable during the contingency period. The contingency period
currently expires on June 14, 1999, with closing of the transaction
currently scheduled for July 14, 1999.
The Partnership is also in early-stage negotiations, with unrelated
potential purchasers, to sell its interest in Cooper Village Shopping
Center (co-owned with an affiliated partnership) for a price that is
expected to range between approximately $3,480,000 and $3,770,000
(representing the Partnership's 58% interest).
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 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 March
31, 1999 and 1998 the Partnership incurred approximately $26,000 and
$26,000, respectively, of such expenses.
6
<PAGE> 7
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
(2) Transactions with Affiliates (Cont'd.)
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 6% of the gross receipts from the
properties under management provided that leasing services are
performed, otherwise not to exceed 3%. Such fees amounted to
approximately $36,000 and $47,000, respectively, for the three months
ended March 31, 1999 and 1998. In addition, an affiliate of the General
Partner received $32,000 and $24,000 for the three months ended March
31, 1999 and 1998, respectively, as reimbursement of costs of on-site
property management personnel and other reimbursable expenses.
Leasing fees for the three months ended March 31, 1999 and 1998,
included charges of $51,000 and $4,000, respectively, from the General
Partner and its affiliates for leasing services rendered in connection
with leasing space in a Partnership property after expiration or
termination of leases.
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 .45%
for 1999 and .55% for 1998 of the aggregate appraised value of the
Partnership's properties as determined by independent appraisal in
January of 1998 and by the General Partner's estimate of fair value in
January 1999. Such fees for the three months ended March 31, 1999 and
1998, amounted to $29,000 and $40,000, respectively.
In addition to the aforementioned, the General Partner was also paid
$20,000 and $20,000, related to the Partnership's portion (58%) of asset
management fees, property management fees, leasing fees, reimbursement
of on-site property management personnel and other reimbursable expenses
for Cooper Village Partners for the three months ended March 31, 1999
and 1998, 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 Fund 1990 litigation
On March 25, 1997, a limited partner named Bigelow/Diversified Secondary
Partnership Fund 1990 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,
7
<PAGE> 8
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
3) Commitments and Contingencies (Cont'd.)
Litigation (Cont'd.)
Bigelow Diversified Secondary Partnership Fund 1990 litigation (Cont'd.)
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, its affiliated partnership, 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 the Partnership and Real
Estate Income Partners III took pursuant to the respective consent
solicitations dated February 18, 1997 were 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. No motions are pending at
this time.
Madison Partnership and ISA Partnership Litigation
On April 2, 1999, Madison Partnership Liquidity Investors XVI, LLC and
ISA 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 has yet to respond to
the complaint, but intends to present a vigorous defense.
(4) Accrued Expenses for Liquidation
Accrued expenses for liquidation as of March 31, 1999, includes
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 and other
professional services. 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.
8
<PAGE> 9
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
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 December 1988, the
Partnership has been primarily 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, at 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, to dissolve the
Partnership and gradually settle and close the Partnership's business
and dispose of and convey the Partnership's property as soon as
practicable, consistent with obtaining reasonable value for the
properties. The Partnership's properties were held for sale throughout
1998 and continue to be held for sale.
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 purchase price ranging between
$32,250,000 and $33,000,000, 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,
which the Partnership did not agree to.
On March 25, 1999, the Partnership signed a letter of intent with
Praedium Performance Fund IV ("Praedium") to sell all of its properties
except its interest in Cooper Village to Praedium for $29,000,000.
Praedium is a New York-based investment firm affiliated with CS First
Boston. Praedium is not affiliated in any way with the Partnership or
the General Partner, or any of the General Partner's principals or
affiliates. Praedium will hire Birtcher or an affiliate as asset manager
for the properties, and pay an annual fee equal to .30% of the value of
the assets for asset management services. Also, Praedium will hire
Birtcher or an affiliate as property manager for these assets for a fee
that is approximately the same as the current fees paid to the General
Partner for property management.
On April 30, 1999, Praedium and the Partnership executed a definitive
Purchase and Sale Agreement for the price and on the terms contemplated
in the letter of intent, and Praedium deposited $222,400 into escrow.
The Agreement is subject to customary contingencies, including due
diligence inspection and review, approval of title conditions, receipt
of tenant estoppels and the like, and is subject to formal approval by
Praedium's "Investment Committee." Praedium's deposit is fully
refundable during the contingency period. The contingency period
currently expires on June 14, 1999, with closing of the transaction
currently scheduled for July 14, 1999.
Although there can be no assurance that the proposed sales of the
properties will be completed, if the sales are completed at the stated
prices, the limited partners will receive total aggregate sale proceeds
of approximately $616 per $1,000 (including Cooper Village at
$3,480,000) originally invested in the Partnership.
9
<PAGE> 10
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Liquidity and Capital Resources (Cont'd.)
The General Partner's estimate of sales proceeds does not take into
account the expenditure of Partnership cash reserves, operating expenses
or net income or loss of the Partnership for any period prior to the
time the remaining properties are sold, which could affect the amount of
sales proceeds available for distribution. Therefore, the actual
proceeds to be received by the limited partners may vary materially, up
or down, from the estimate.
The Partnership is also in early-stage negotiations, with unrelated
potential purchasers, to sell its interest in Cooper Village Shopping
Center (co-owned with an affiliated partnership) for a price that is
expected to range between approximately $3,480,000 and $3,770,000.
Regular distributions through March 31, 1999 represent cash flow
generated from operations of the Partnership's properties and interest
earned on the temporary investment of working capital net of capital
improvement reserve requirements. Future cash distributions will be made
principally to the extent of cash flow attributable to operations and
sales of the Partnership's properties and interest earned on the
investment of capital reserve, after providing for capital reserve and
payment for capital improvements to the Partnership's properties.
Other Matters
The Partnership is in the process of liquidating its remaining assets
It is anticipated that a sale of those assets will occur on or before
January 1, 2000. It is the opinion of the General Partner that the value
of those assets is not subject to any valuation risk as a result of year
2000 issues, other than general economic climate issues that may arise.
Based on current information, the cost of addressing potential year 2000
problems is not expected to have a material adverse impact on the
Partnership's financial position, results of operations or cash flows in
future periods. As of March 31, 1999, the investor services system used
to track the limited partners' interests, distributions and tax
information has been tested and appears to be free of year 2000 bugs.
The Partnership's properties are under review utilizing the Building
Owners and Managers Association ("BOMA") industry standards as a
guideline for necessary corrections and the Partnership's accounting
systems are scheduled for a software upgrade to correct any year 2000
issues in July of 1999. The cost of the upgrades will be borne by the
General Partner and will not be reimbursed by the Partnership. In
addition, the General Partner has made inquiries of its banks, all of
which indicate that any problems have been addressed adequately by those
institutions.
Even if attempts to correct any deficiencies in the Partnership's
software are unsuccessful, the General Partner anticipates that in the
short run it could convert its systems to standard spreadsheet or data
base programs at nominal cost.
Results of Operations for the Three Months Ended March 31, 1999
Because the Partnership is in the process of liquidating its remaining
assets, a comparison of the results of operations is not practical. As
the Partnership's assets (properties) are sold, the results of
operations will be generated from a smaller asset base, and are
therefore not comparable. The Partnership's operating results have been
reflected on the Statements of Changes of Net Assets in Liquidation.
For the three months ended March 31, 1999, the Partnership generated
$723,000 of net operating income from operation of its properties
(exclusive of Cooper Village Partners). The decrease in net operating
income for the three months ended March 31, 1999, as compared to the
same period in 1998, was due to several factors. At Creekridge, rental
income decreased by $66,000 as a result of Delta Dental's lease
expiration on February 28, 1999. At Lakeland, revenue was lower than
1998 due to the collection of an early lease termination fee in 1998. At
Kennedy, operating expense recoveries were $16,000 lower than what was
recognized in 1999.
Interest income resulted from the temporary investment of Partnership
working capital. For the three months ended March 31, 1999, interest
income was approximately $15,000.
General and administrative expenses for the three months ended March 31,
1999 include charges of $107,000 from the General Partner and its
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Results of Operations for the Three Months Ended March 31, 1999
(Cont'd.)
affiliates for services rendered in connection with administering the
affairs of the Partnership and operating the Partnership's properties.
Also included in general and administrative expenses for the three
months ended March 31, 1999 are direct charges of $59,000 relating to
audit fees, tax preparation fees, legal and professional fees, insurance
expenses, costs incurred in providing information to the Limited
Partners and other miscellaneous costs.
The increase in leasing commissions for the three months ended March 31,
1999, as compared to the corresponding period in 1998, was primarily
attributable to the successful negotiation of a 42,203 square foot lease
at Creekridge to replace Delta Dental.
Accrued expenses for liquidation as of March 31, 1999, includes
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 and other
professional services. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES
Not applicable because the Partnership does not have any financial
instruments subject to market risk.
11
<PAGE> 12
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
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 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, its affiliated partnership, 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 the Partnership and Real
Estate Income Partners III took pursuant to the respective consent
solicitations dated February 18, 1997 were 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. No motions are pending at
this time.
Madison Partnership and ISA Partnership Litigation
On April 2, 1999, Madison Partnership Liquidity Investors XVI, LLC and
ISA 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 has yet to respond to
the complaint, but intends to present a vigorous defense.
12
<PAGE> 13
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
27 - Financial Data Schedule
b) Reports on Form 8-K:
None filed in quarter ended March 31, 1999.
13
<PAGE> 14
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
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.
DAMSON/BIRTCHER REALTY INCOME FUND-II
By: BIRTCHER/LIQUIDITY By: BIRTCHER INVESTORS,
PROPERTIES a California limited partnership
(General Partner)
By: BIRTCHER INVESTMENTS,
a California general partnership,
General Partner of Birtcher Investors
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: May 14, 1999 By: /s/Robert M. Anderson
----------------------------------
Robert M. Anderson
Executive Director
BREICORP
By: LF Special Fund I, L.P.,
a California limited partnership
By: Liquidity Fund Asset Management, Inc.,
a California corporation, General
Partner of LF Special Fund I, L.P.
Date: May 14, 1999 By: /s/ Brent R. Donaldson
------------------------------------------
Brent R. Donaldson
President
Liquidity Fund Asset Management, Inc.
14
<PAGE> 15
DAMSON/BIRTCHER REALTY INCOME FUND-II, LIMITED PARTNERSHIP
EXHIBIT INDEX
a) Exhibits:
27 - Financial Data Schedule
b) Reports on Form 8-K:
None filed in quarter ended March 31, 1999.
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENT OF
NET ASSETS IN LIQUIDATION OF DAMSON BIRTCHER REALTY INCOME FUND II AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,571,000
<SECURITIES> 0
<RECEIVABLES> 56,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,638,000
<PP&E> 23,693,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 28,734,000
<CURRENT-LIABILITIES> 834,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 27,900,000
<TOTAL-LIABILITY-AND-EQUITY> 28,734,000
<SALES> 0
<TOTAL-REVENUES> 0<F1>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0<F1>
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0<F1>
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>STATEMENT OF OPERATION IS NOT PRESENTED IN LIQUIDATION BASIS OF ACCOUNTING.
</FN>
</TABLE>
