<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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 0-16865
Nantucket Island Associates Limited Partnership
(Exact name of small business issuer as specified in its charter)
Massachusetts 04-2948435
- --------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Five Cambridge Center, Cambridge, MA 02142-1493
- --------------------------------------- ------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (617) 234-3000
-----------------------------
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
--- ---
1 of 12
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NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10-QSB MARCH 31, 1999
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets (Unaudited)
(In thousands, except unit data)
<TABLE>
<CAPTION>
March 31, December 31,
Assets 1999 1998
--------------------- ---------------------
<S> <C> <C>
Cash and cash equivalents $ 100 $ 100
Restricted cash 2,025 1,691
Accounts receivable 84 82
Real estate tax escrow and other current assets 400 485
--------------------- ---------------------
Total current assets 2,609 2,358
Property and equipment, net of accumulated depreciation
of $7,216 (1999) and $7,176 (1998) 18,112 18,520
Deferred rent receivable 339 279
Deferred costs, net of accumulated amortization of
$968 (1999) and $933 (1998) 645 680
--------------------- ---------------------
Total assets $ 21,705 $ 21,837
===================== =====================
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Accounts payable and other liabilities $ 822 $ 948
Current maturity of long-term debt 278 278
Related party note payable 1,300 1,300
--------------------- ---------------------
Total current liabilities 2,400 2,526
Long-term debt 11,675 11,746
--------------------- ---------------------
Total liabilities 14,075 14,272
--------------------- ---------------------
Commitments and Contingencies
Partners' equity:
Limited partners equity; 785 units authorized,
issued, and outstanding 18,758 18,813
General partners' (deficit) (11,128) (11,248)
--------------------- ---------------------
Total partners' equity 7,630 7,565
--------------------- ---------------------
Total liabilities and partners' equity $ 21,705 $ 21,837
===================== =====================
</TABLE>
See notes to consolidated financial statements.
2 of 12
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10-QSB MARCH 31, 1999
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
(In thousands, except unit data) For the Three Months Ended
March 31, 1999 March 31, 1998
--------------------- ---------------------
<S> <C> <C>
Revenue:
Commercial rental operations $ 738 $ 627
Boat basin operations - 37
--------------------- ---------------------
Total revenue 738 664
--------------------- ---------------------
Operating expenses:
Commercial rental 72 56
Real estate taxes and insurance 182 289
General and administrative 51 304
Marketing and promotion 1 104
Repairs and maintenance 20 421
Utilities 11 92
Other - 198
Management fees 83 82
Amortization 25 61
Depreciation 143 146
--------------------- ---------------------
Total operating expenses 588 1,753
--------------------- ---------------------
Income (loss) from operations 150 (1,089)
--------------------- ---------------------
Other income (expense):
Interest income 25 57
Other income - 27
Interest expense (233) (586)
Gain on sale of property 123 -
--------------------- ---------------------
Total other (expense), net (85) (502)
--------------------- ---------------------
Net income (loss) $ 65 $ (1,591)
===================== =====================
Net income (loss) allocated to general partners $ 120 $ (80)
===================== =====================
Net loss allocated to limited partners $ (55) $ (1,179)
===================== =====================
Net loss allocated to preferred limited partners $ - $ (332)
===================== =====================
Net Loss per Limited Partnership Unit $ (70.06) $ (1,501.91)
===================== =====================
Net Loss per Limited Partnership Preferred Unit $ - $ (422.93)
===================== =====================
</TABLE>
See notes to consolidated financial statements.
3 of 12
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10 - QSB MARCH 31, 1999
Consolidated Statement of Changes in Partners' Equity (Deficit) (Unaudited)
(In thousands, except unit data)
<TABLE>
<CAPTION>
Units of Investor
Limited Limited General Total
Partnership Partners' Partners' Partners'
Interest Equity Deficit Equity
------------------ ---------------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
Balance - January 1, 1999 785 $ 18,813 $ (11,248) $ 7,565
Net income - (55) 120 65
------------------ ---------------------- ------------------- ---------------------
Balance - March 31, 1999 785 $ 18,758 $ (11,128) $ 7,630
================== ====================== =================== =====================
</TABLE>
See notes to consolidated financial statements.
4 of 12
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10-QSB MARCH 31, 1999
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
(In thousands) For the Three Months Ended
March 31, 1999 March 31, 1998
--------------------- ---------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 65 $ (1,591)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 178 244
Gain on sale of property (123) -
Changes in assets and liabilities:
Accounts receivable (2) (134)
Real estate tax escrow and other current assets 85 269
Deferred rent receivable (60) 84
Accounts payable and other liabilities (126) 1,459
--------------------- ---------------------
Net cash provided by operating activities 17 331
--------------------- ---------------------
Cash Flows from Investing Activities:
Expenditures for property and equipment (2) (459)
(Increase) decrease in restricted cash reserves (334) 243
Net proceeds from sale of property 390 -
--------------------- ---------------------
Net cash provided by (used in) investing activities 54 (216)
--------------------- ---------------------
Cash Flows from Financing Activities:
Principal payments on long-term debt (71) (115)
--------------------- ---------------------
Cash used in financing activities (71) (115)
--------------------- ---------------------
Net change in cash and cash equivalents - -
Cash and cash equivalents, beginning of period 100 175
--------------------- ---------------------
Cash and cash equivalents, end of period $ 100 $ 175
===================== =====================
Supplemental Disclosure of Cash Flow Information -
Cash paid for interest $ 208 $ 552
===================== =====================
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10 - QSB MARCH 31, 1999
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General
The accompanying financial statements, footnotes and discussions should be
read in conjunction with the financial statements, related footnotes and
discussions contained in the Partnership's Annual Report on Form 10-KSB for
the year ended December 31, 1998.
The financial information contained herein is unaudited. In the opinion of
management, all adjustments necessary for a fair presentation of such
financial information have been included. All adjustments are of a normal
recurring nature. Certain amounts have been reclassified to conform to the
March 31, 1999 presentation. The balance sheet at December 31, 1998 was
derived from audited financial statements at such date.
Income and losses of the Partnership from operations are allocated 95% to
the limited partners and 5% to the General Partner. Income from a
non-terminating capital transaction is allocated first, to each partner who
has received or will receive a distribution out of capital proceeds; and
second, to any partner having a negative balance in their capital account.
2. Related Party Transactions
The following transactions with affiliates of the General Partner were
charged to expense during the three month periods ended March 31, 1999 and
1998:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
-------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
Partnership administration fee $ 71,000 $ 67,000
Management fee 11,000 14,000
Reimbursement for administration expenses 23,000 10,000
Interest expense 19,000 -
Rent - 5,000
</TABLE>
3. Sale of Properties
On January 13, 1999 the Partnership sold to an unaffiliated third party the
property located at 82 Easton Street for approximately $400,000. The
Partnership incurred closing costs of approximately $10,000. The carrying
value of the property sold was approximately $267,000 and the Partnership
realized a gain of approximately $123,000.
6 of 12
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NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10 - QSB MARCH 31, 1999
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Segment Information
The Partnership had two reportable segments, hotel operations and
commercial rental operations. The hotel properties were sold on June 10,
1998. The Partnership evaluates performance based on net operating income,
which is income from operations before depreciation, amortization,
interest, gain on sale of properties, extraordinary and non-operating
items.
Segment information for the period ended March 31, 1999 and 1998, is shown
in the tables below (in thousands).
<TABLE>
<CAPTION>
Commercial Hotel
Operations Operations Other Total
---------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Period Ended March 31, 1999:
Revenue $ 738 $ - $ - $ 738
Depreciation 143 - - 143
Amortization 25 - - 25
Asset management fees - - 71 71
Income (loss) from operations 221 - (71) 150
Identifiable assets 21,705 - - 21,705
Capital expenditures 2 - - 2
Period Ended March 31, 1998:
Revenue $ 627 $ 37 $ - $ 664
Depreciation 146 - - 146
Amortization 29 32 - 61
Asset management fees - - 67 67
Income (loss) from operations 47 (1,069) (67) (1,089)
Identifiable assets 20,383 38,972 - 59,355
Capital expenditures - 459 - 459
</TABLE>
7 of 12
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10 - QSB MARCH 31, 1999
Item 2. Management's Discussion and Analysis or Plan of Operation
The matters discussed in this Form 10-QSB contain certain
forward-looking statements and involve risks and uncertainties
(including changing market conditions, competitive and regulatory
matters, etc.) detailed in the disclosures contained in this Form
10-QSB and the other filings with the Securities and Exchange
Commission made by the Registrant from time to time. The discussion of
the Registrant's liquidity, capital resources and results of
operations, including forward-looking statements pertaining to such
matters, does not take into account the effects of any changes to the
Registrant's operations. Accordingly, actual results could differ
materially from those projected in the forward-looking statements as a
result of a number of factors, including those identified herein.
This item should be read in conjunction with financial statements and
other items contained elsewhere in the report.
Liquidity and Capital Resources
The Registrant requires cash to pay operating expenses, debt service
payments and capital improvements.
On January 13, 1999 the Registrant sold to an unaffiliated third party
the property located at 82 Easton Street for approximately $400,000.
The Registrant incurred closing costs of approximately $10,000. The
carrying value of the property sold was approximately $267,000 and the
Registrant realized a gain of approximately $123,000. The rest of the
commercial rental properties owned by the Registrant are not currently
being marketed for sale, as the General Partner believes that the
rental market will continue to improve and that marketing the
commercial rental properties today would be premature.
The level of liquidity based upon the Registrant's cash and cash
equivalents experienced no changes as compared to December 31, 1998,
due to restrictions imposed by the lender on the amount of unrestricted
cash available. The Registrant's $17,000 provided by operating
activities and $54,000 provided by investing activities was offset by
$71,000 used in investing activities. Investing activities consisted of
$390,000 of proceeds from the sale of a property and $334,000 increase
in restricted reserves used for capital improvements and operating
deficits and $2,000 of improvements to real estate. Financing
activities consisted of principal payments on long term debt of
$71,000. At March 31, 1999 the Registrant's unrestricted cash reserves
were $100,000 and the restricted cash balance was $2,025,000, as
compared to, $100,000 of cash and $1,691,000 of restricted cash at
December 31, 1998. The unrestricted cash and restricted cash reserves
are invested in money market accounts.
As owner of the commercial properties along the wharf, the Registrant
is responsible for maintaining the bulkheads. The Registrant
anticipates spending approximately $3,000,000 over the next five years
for bulkhead replacement. The Registrant expects to utilize cash flow
from operations to fund these improvements.
The Registrant has received a letter from the U.S. Department of
Justice relating to potential non-compliance with the American
Disabilities Act (the "Act"). After review of the commercial properties
8 of 12
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NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10 - QSB MARCH 31, 1999
Item 6. Management's Discussion and Analysis or Plan of Operation (Continued)
Liquidity and Capital Resources (Continued)
compliance with the Act, the Registrant agreed that certain
modifications are required. The cost and time period of these
modifications cannot be determined at this time. The Managing General
partner does not believe these costs will have a material adverse
effect on the Registrant.
The mortgage loan encumbering the Registrant's properties was
refinanced upon the sale of the properties in June 1998 and matures in
June 2001, with a balloon payment of approximately $11,264,000.
Pursuant to the terms of the new loan, Sherburne is prohibited from
making any distributions to its partners (including the Registrant)
except for distributions by Sherburne to the Registrant from funds from
operations of such amounts necessary to pay the Registrant's
administrative fees, expenses and reimbursements, as well as the
General Partner's legal fees associated with Sherburne's properties. It
is anticipated that any cash flow from operations that is not used for
improvements to properties, will be utilized as a reserve towards
refinancing the debt, which matures in June 2001.
Results of Operations
The Registrant experienced net income of $65,000 for the three months
ended March 31, 1999, as compared to a net loss of $1,591,000 for 1998,
primarily due to the sale of the hotel properties in 1998. Due to the
seasonal nature of the business, no income was earned from hotel and
restaurant operations for the period ended March 1998, but the
Registrant incurred expenses to maintain these facilities, during such
period.
Total revenue increased by $74,000 for the three months ended March 31,
1999, as compared to 1998 due to an increase in rental rates on
commercial rental lease renewals.
Operating expenses decreased by $1,165,000 for the three months ended
March 31, 1999, as compared to 1998, due to the sale of the hotel
properties.
Interest expense decreased by $353,000, due to the reduction in the
mortgage principal balance. Other income decreased by $27,000 due to
the sale of the hotel properties. Interest income decreased by $32,000
due to a decrease in restricted cash available for investment.
Year 2000
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. The
Registrant is dependent upon the Managing General Partner and its
affiliates for management and administrative services. Any computer
programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in 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.
9 of 12
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NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10 - QSB MARCH 31, 1999
Item 6. Management's Discussion and Analysis or Plan of Operation (Continued)
Year 2000 (Continued)
During the first half of 1998, the Managing General Partner and its
affiliates completed their assessment of the various computer software
and hardware used in connection with the management of the Registrant.
This review indicated that significantly all of the computer programs
used by the Managing General Partner and its affiliates are
off-the-shelf "packaged" computer programs which are easily upgraded to
be Year 2000 compliant. In addition, to the extent that custom programs
are utilized by the Managing General Partner and its affiliates, such
custom programs are Year 2000 compliant.
Following the completion of its assessment of the computer software and
hardware, the Managing General Partner and its affiliates began
upgrading those systems which required upgrading. To date,
significantly all of these systems have been upgraded. The Registrant
has to date not borne, nor is it expected that the Registrant will
bear, any significant costs in connection with the upgrade of those
systems requiring remediation. It is expected that all systems will be
remediated, tested and implemented during the first half of 1999.
To date, the Managing General Partner is not aware of any external
agent with a Year 2000 issue that would materially impact the
Registrant's results of operations, liquidity or capital resources.
However, the Managing General Partner has no means of ensuring that
external agents will be Year 2000 compliant. The Managing General
Partner does not believe that the inability of external agents to
complete their Year 2000 resolution process in a timely manner will
have a material impact on the financial position or results of
operations of the Registrant. However, the effect of non-compliance by
external agents is not readily determinable.
10 of 12
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10 - QSB MARCH 31, 1999
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
(b) Reports on Form 8K: No report on Form 8-K was filed during the
period.
11 of 12
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10 - QSB MARCH 31, 1999
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BY: THREE WINTHROP PROPERTIES, INC.
-------------------------------
Managing General Partner
BY: /s/ Michael L. Ashner
--------------------------
Michael L. Ashner
Chief Executive Officer
BY: /s/ Thomas Staples
--------------------------
Thomas Staples
Chief Financial Officer
Dated: May 13, 1999
12 of 12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from Nantucket
Island Associates Limited Partnership and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,125,000 <F1>
<SECURITIES> 0
<RECEIVABLES> 84,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,609,000
<PP&E> 25,328,000
<DEPRECIATION> 7,216,000
<TOTAL-ASSETS> 21,705,000
<CURRENT-LIABILITIES> 2,400,000
<BONDS> 11,675,000
<COMMON> 0
0
0
<OTHER-SE> 7,630,000
<TOTAL-LIABILITY-AND-EQUITY> 21,705,000
<SALES> 0
<TOTAL-REVENUES> 738,000
<CGS> 0
<TOTAL-COSTS> 588,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 233,000
<INCOME-PRETAX> 65,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 65,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65,000
<EPS-PRIMARY> (70.06)
<EPS-DILUTED> (70.06)
<FN>
<F1>Cash includes $2,025,000 of restricted cash
</FN>
</TABLE>
