<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 September 30, 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
--- ---
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<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10-QSB SEPTEMBER 30, 1999
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets (Unaudited)
(In thousands, except unit data)
<TABLE>
<CAPTION>
September 30, December 31,
Assets 1999 1998
--------------------- ---------------------
<S> <C> <C>
Cash and cash equivalents $ 100 $ 100
Restricted cash 3,036 1,691
Accounts receivable 69 82
Real estate tax escrow and other current assets 590 485
--------------------- ---------------------
Total current assets 3,795 2,358
Property and equipment, net of accumulated depreciation
of $7,502 (1999) and $7,176 (1998) 17,872 18,520
Deferred rent receivable 370 279
Deferred costs, net of accumulated amortization of
$1,036 (1999) and $933 (1998) 576 680
--------------------- ---------------------
Total assets $ 22,613 $ 21,837
===================== =====================
Liabilities and Partners' Equity
Accounts payable and other liabilities $ 861 $ 948
Current maturity of long-term debt 282 278
Related party note payable 1,300 1,300
--------------------- ---------------------
Total current liabilities 2,443 2,526
Long-term debt 11,531 11,746
--------------------- ---------------------
Total liabilities 13,974 14,272
--------------------- ---------------------
Commitments
Partners' equity:
Limited partners equity, 785 units authorized, issued,
and outstanding 19,698 18,813
General partners' (deficit) (11,059) (11,248)
--------------------- ---------------------
Total partners' equity 8,639 7,565
--------------------- ---------------------
Total liabilities and partners' equity $ 22,613 $ 21,837
===================== =====================
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10-QSB SEPTEMBER 30, 1999
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
(In thousands, except unit data) For the Nine Months Ended
September 30, September 30,
1999 1998
--------------------- ---------------------
<S> <C> <C>
Revenue:
Hotel operations $ - $ 761
Restaurant operations - 409
Commercial rental operations 3,531 3,266
Boat basin operations - 167
--------------------- ---------------------
Total revenue 3,531 4,603
--------------------- ---------------------
Operating expenses:
Hotel - 447
Restaurant - 595
Commercial rental 258 241
Boat basin - 129
Other - 135
Real estate taxes and insurance 538 669
General and administrative 238 730
Marketing and promotion 12 290
Repairs and maintenance 113 877
Utilities 32 159
Management fees 281 302
Amortization 74 139
Depreciation 430 420
--------------------- ---------------------
Total operating expenses 1,976 5,133
--------------------- ---------------------
Income (loss) from operations 1,555 (530)
--------------------- ---------------------
Other income (expense):
Interest income 82 137
Other income - 180
Interest expense (705) (1,375)
Gain on sale of properties 142 2,928
--------------------- ---------------------
Total other (expense) income, net (481) 1,870
--------------------- ---------------------
Net income before extraordinary loss 1,074 1,340
Extraordinary loss on extinguishment of debt - (403)
--------------------- ---------------------
Net income $ 1,074 $ 937
===================== =====================
Net income (loss) allocated to general partners $ 189 $ (100)
===================== =====================
Net income (loss) allocated to limited partners $ 885 $ (1,247)
===================== =====================
Net income allocated to preferred limited partners $ - $ 2,284
===================== =====================
Net income (loss) per limited partnership unit:
Income (loss) before extraordinary item $ 1,127.39 $ (1,207.64)
Extraordinary item - loss on extinguishment of debt - (380.89)
--------------------- ---------------------
Net income (loss) $ 1,127.39 $ (1,588.53)
===================== =====================
Net income per preferred limited partnership unit:
Income before extraordinary item $ - $ 3,016.56
Extraordinary item - loss on extinguishment of debt - (107.01)
--------------------- ---------------------
Net income $ - $ 2,909.55
===================== =====================
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10-QSB SEPTEMBER 30, 1999
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
(In thousands, except unit data) For the Three Months Ended
September 30, September 30,
1999 1998
--------------------- ---------------------
<S> <C> <C>
Revenue:
Hotel operations $ - $ -
Restaurant operations - -
Commercial rental operations 2,070 1,969
Boat basin operations - -
--------------------- ---------------------
Total revenue 2,070 1,969
--------------------- ---------------------
Operating expenses:
Hotel - -
Restaurant - -
Commercial rental 98 95
Boat basin - -
Other - -
Real estate taxes and insurance 170 161
General and administrative 125 109
Marketing and promotion 4 2
Repairs and maintenance 28 43
Utilities 10 8
Management fees 115 109
Amortization 25 25
Depreciation 144 140
--------------------- ---------------------
Total operating expenses 719 692
--------------------- ---------------------
Income from operations 1,351 1,277
--------------------- ---------------------
Other income (expense):
Interest income 33 14
Interest expense (241) (263)
Gain on sale of properties 19 -
--------------------- ---------------------
Total other (expense) income, net (189) (249)
--------------------- ---------------------
Net income $ 1,162 $ 1,028
===================== =====================
Net income allocated to general partners $ 76 $ 54
===================== =====================
Net income allocated to limited partners $ 1,086 $ 974
===================== =====================
Net income per limited partnership unit $ 1,383.44 $ 1,240.76
===================== =====================
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10 - QSB SEPTEMBER 30, 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 - 885 189 1,074
----------------- ---------------------- ------------------- ----------------------
Balance - September 30, 1999 785 $ 19,698 $ (11,059) $ 8,639
================= ====================== =================== ======================
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10-QSB SEPTEMBER 30, 1999
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
(In thousands) For the Nine Months Ended
September 30, September 30,
1999 1998
--------------------- ---------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 1,074 $ 937
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 533 638
Gain on sale of properties (142) (2,928)
Extraordinary loss on extinguishment of debt - 403
Provision for bad debts - (40)
Changes in assets and liabilities:
Accounts receivable 13 207
Inventories - 35
Real estate tax escrow and other current assets (105) 535
Deferred rent receivable (91) 124
Accounts payable and other liabilities (87) (1,010)
--------------------- ---------------------
Net cash provided by (used in) operating activities 1,195 (1,099)
--------------------- ---------------------
Cash Flows from Investing Activities:
Expenditures for property and equipment (49) (824)
(Increase) decrease in restricted cash reserves (1,345) 3,145
Net proceeds from sale of properties 410 36,540
--------------------- ---------------------
Net cash (used in) provided by investing activities (984) 38,861
--------------------- ---------------------
Cash Flows from Financing Activities:
Related party note payable - 1,300
Satisfaction of mortgage payable - (23,140)
Proceeds from mortgage refinancing - 12,000
Principal payments on long-term debt (211) (268)
Deferred costs paid at refinancing - (191)
Distribution to partners - (27,538)
--------------------- ---------------------
Net cash (used in) financing activities (211) (37,837)
--------------------- ---------------------
Net decrease in cash and cash equivalents - (75)
Cash and cash equivalents, beginning of period 100 175
--------------------- ---------------------
Cash and cash equivalents, end of period $ 100 $ 100
===================== =====================
Supplemental Disclosure of Cash Flow Information -
Cash paid for interest $ 624 $ 1,393
===================== =====================
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10 - QSB SEPTEMBER 30, 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 except for as described in note 3. Certain
amounts have been reclassified to conform to the September 30, 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.
The results of operations for the three and nine months ended September
30, 1999 and 1998 are not indicative of the results to be expected for
the full year, due to the seasonal nature of the Partnership's business
and the sale of properties.
2. Related Party Transactions
The following transactions with affiliates of the General Partner were
charged to expense during the nine month periods ended September 30,
1999 and 1998:
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
-------------------------
1999 1998
---- ----
<S> <C> <C>
Asset management fee $ 214,000 $ 201,000
Management fee 67,000 70,000
Reimbursement for administration expenses 41,000 39,000
Interest expense 58,000 24,000
Rent - 9,000
</TABLE>
3. Sale of Property
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.
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<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10 - QSB SEPTEMBER 30, 1999
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Sale of Property (Continued)
On June 30, 1999 the Partnership sold to an unaffiliated third party
the property located at 20 Wanoma Way, Nantucket, Massachusetts for
approximately $20,000.
4. Contingent Purchase Price Payments
Contingent Purchase Price Payments were not required on the sale of
properties described in Note 3. Based on the fair value of the
remaining properties the Partnership believes that it will not be
obligated to make any Contingent Purchase Price Payments upon sale of
the remaining properties.
5. Restricted Cash
Restricted cash at September 30, 1999 and December 31, 1998, represents
funds provided for and maintained by the Partnership, pursuant to the
mortgage note payable agreement, to meet future capital requirements,
debt service payments and operational needs.
6. Contingent Rents
The Partnership recognizes contingent rental income when earned.
Contingent rental income was not material during the period ended
September 30, 1999 and 1998.
7. New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"). The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair
value. SFAS 133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate and assess the effectiveness of transactions that
receive hedge accounting.
SFAS 133 is effective for fiscal years beginning after June 15, 1999. A
company may also implement the Statement as of the beginning of any
fiscal quarter after issuance (that is, fiscal quarters beginning June
16, 1998 and thereafter). SFAS 133 cannot be applied retroactively.
SFAS 133 must be applied to (a) derivative, instruments and (b) certain
derivative instruments embedded in hybrid contracts that were issued,
acquired, or substantively modified after December 31, 1997. The
adoption of SFAS 133 is not expected to have a material effect on the
financial statements of the Partnership.
8 of 17
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10 - QSB SEPTEMBER 30, 1999
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. 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 periods ended September 30, 1999 and 1998,
is shown in the tables below (in thousands). The "Other" column
includes partnership administrative items and income and expense not
allocated to a reportable segment.
<TABLE>
<CAPTION>
Commercial Hotel
Operations Operations Other Total
---------- ---------- ----- -----
<S> <C> <C> <C> <C>
Period Ended September 30, 1999:
Revenue $ 3,531 $ - $ - $ 3,531
Depreciation 430 - - 430
Amortization 74 - - 74
Asset management fees - - 214 214
Income (loss) from operations 1,769 - (214) 1,555
Identifiable assets 22,613 - - 22,613
Capital expenditures 49 - - 49
Period Ended September 30, 1998:
Revenue $ 3,266 $ 1,337 $ - $ 4,603
Depreciation 420 - - 420
Amortization 82 57 - 139
Asset management fees - - 201 201
Income (loss) from operations 1,548 (1,877) (201) (530)
Identifiable assets 21,933 - - 21,933
Capital expenditures 5 819 - 824
</TABLE>
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<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10 - QSB SEPTEMBER 30, 1999
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Legal Proceedings
Frederic D. Nemer et al., vs. Winthrop Securities Co., Inc., et al.,
Superior Court, Suffolk County, Massachusetts, Civil Action No.
98-5536C.
In October 1998, plaintiffs filed an action in Massachusetts state
court as a purported class and derivative action on behalf of
themselves and limited partners in Nantucket Island Associates Limited
Partnership [the "Partnership"] against the Partnership and certain
affiliates. The October 1998 complaint was never served upon any of the
defendants. In July 1999, plaintiffs filed and served an Amended Class
Action Complaint which purports to allege class and derivative claims
against the Partnership and its affiliates (the "Winthrop Defendants"),
as well as certain unaffiliated defendants, seeking damages and
equitable relief. The Amended Class Action Complaint purported to
allege claims for unjust enrichment, violation of the Massachusetts
securities laws, breach of fiduciary duty, gross negligence, fraud and
deceit, civil conspiracy, intentional and negligent misrepresentation,
violation of the Massachusetts consumer protection statute, breach of
contract and breach of covenant. Plaintiffs had contended in substance
that in connection with a 1996 offering of preferred limited
partnership units in the Partnership and a 1998 sale of property, the
Winthrop Defendants preferred their own interests to those of the
limited partners in the Partnership. Plaintiffs also alleged that
events and information occurring in 1996 and 1998 caused them to be
misled as to the terms of the original 1987 offering of limited
partnership units in the Partnership.
On October 27, 1999, the court held a pretrial conference at which
plaintiffs' counsel failed to appear. The court therefore dismissed the
Amended Class Action Complaint in its entirety.
Lewis Jacobs et al., vs. Winthrop Financial Associates, et al., United
States District Court for the District of Massachusetts, Civil Action
No. 99CV11363WGY.
In June 1999, plaintiffs filed an action in the United States District
Court for the District of Massachusetts as a purported class action on
behalf of themselves and limited partners in Nantucket Island
Associates Limited Partnership [the "Partnership"] against certain
affiliates of the Partnership. Plaintiffs' complaint purports to allege
class claims for fraud under the federal securities laws, breach of
fiduciary duty, breach of contract, and unjust enrichment. Plaintiffs
contend in substance that in connection with a 1996 offering of
preferred limited partnership units in the Partnership and a 1998 sale
of property, the defendants preferred their own interests to those of
the limited partners in the Partnership. Plaintiffs seek an unspecified
amount of damages and an accounting.
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<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10 - QSB SEPTEMBER 30, 1999
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Legal Proceedings (Continued)
The defendants flied a motion to dismiss in response to the complaint,
arguing that the plaintiffs had failed to state a claim for violation
of federal securities laws, and that the court should decline to
exercise supplemental jurisdiction over the state law claims included
in the complaint. The court heard argument on that motion on October
20, 1999, and granted the motion to dismiss. The court indicated its
intention to hold its decision for 30 days to permit the plaintiffs to
appeal, and thereafter to remand the state law claims to Massachusetts
state court.
Discovery has not commenced. The defendants believe the claims are
without merit and intend to contest this action.
Richard Anisfield, et. al., vs. Three Winthrop Properties, Inc. et.
al., Court of Chancery for New Castle County, Delaware, CA. No.
17379NC.
In August 1999, the plaintiffs brought suit, as a class action, against
the general partner of the Partnership and one of its affiliates
alleging breach of fiduciary duty in connection with the rights
offering as described in the preceding paragraphs. In September 1999,
the defendants filed a motion to stay the action pending the outcome of
the two actions identified above. That motion has not yet been briefed
or argued. The defendants believe the claims are without merit and
intend to contest this action.
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<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10 - QSB SEPTEMBER 30, 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. On June 30, 1999 the Registrant sold to an unaffiliated
third party the property located at 20 Wanoma Way, Nantucket, for
approximately $20,000. The remaining commercial rental properties
owned by the Registrant are not currently being marketed for sale, as
the General Partner believes that the Nantucket retail market for
these properties 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 at September 30, 1999 as compared
to December 31, 1998, due to restrictions imposed by the lender on
the amount of unrestricted cash available. The Registrant's
$1,195,000 provided by operating activities was offset by $984,000
used in investing activities and $211,000 used in financing
activities. Investing activities consisted of $410,000 of proceeds
from the sale of properties, a $1,345,000 increase in restricted
reserves to be used for capital improvements and future potential
operating deficits and $49,000 of improvements to real estate.
Financing activities consisted of principal payments on long term
debt of $211,000. At September 30, 1999 the Registrant's unrestricted
cash reserves were $100,000 and the restricted cash balance was
$3,036,000, 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
either proceeds, if any, from a potential refinancing of the
Registrant's properties (as discussed below) or cash flow from
operations to fund these improvements.
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NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10 - QSB SEPTEMBER 30, 1999
Item 6. Management's Discussion and Analysis or Plan of Operation (Continued)
Liquidity and Capital Resources (Continued)
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 compliance with the Act, the Registrant agreed that
certain modifications are required. 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 remaining properties
was refinanced upon the sale of certain of its properties in June
1998 and matures in June 2001, with a balloon payment of
approximately $11,264,000. Pursuant to the terms of the 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. The Registrant is currently
seeking to refinance this loan and obtain additional financing to
fund bulkhead replacement. There can be no assurance that the
Registrant will be successful in obtaining replacement refinancing.
It is anticipated that any cash flow from operations that is not used
for improvements to properties, will be held as Partnership reserves.
Results of Operations
The Registrant generated net income of $1,074,000 for the nine months
ended September 30, 1999, as compared to net income before
extraordinary loss of $1,340,000 for 1998. Income decreased as a
result of the sale of Sherburne's properties in June 1998 and January
1999. The remaining commercial properties, had an overall increase in
operating income of $221,000 for the nine months ended September 30,
1999, as compared to 1998.
Total revenue decreased by $1,072,000 for the nine months ended
September 30, 1999, as compared to 1998 due to the above referenced
sale of the properties. The income from the remaining commercial
properties increased by $265,000 for the nine-month comparable period
due to an increase in percentage rent and rental rates.
Operating expenses decreased by $3,157,000 for the nine months ended
September 30, 1999 as compared to 1998 due to the sale of the
properties while the remaining commercial properties operating
expenses remained relatively constant.
Interest expense decreased by $670,000 due to the reduction in the
mortgage principal balance. Other income decreased by $180,000 due to
the sale of the properties. Interest income decreased by $55,000 due
to an overall decrease in cash available for investments.
13 of 17
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10 - QSB SEPTEMBER 30, 1999
Item 6. Management's Discussion and Analysis or Plan of Operation (Continued)
Results of Operations (Continued)
The results of operations in future periods may differ from the
results of operations for the period ended September 30, 1999 as
weather conditions could adversely affect operating results due to
the short seasonal nature of the business. Inflation and changing
economic conditions could also affect occupancy levels, rental rates
and operating expenses.
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.
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.
To date, the Managing General Partner is not aware of any external
agent with the 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.
14 of 17
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10 - QSB SEPTEMBER 30, 1999
Part II - Other Information
Item 1. Legal Proceedings
Frederic D. Nemer et al., vs. Winthrop Securities Co., Inc., et al.,
Superior Court, Suffolk County, Massachusetts, Civil Action No.
98-5536C.
In October 1998, plaintiffs filed an action in Massachusetts state
court as a purported class and derivative action on behalf of
themselves and limited partners in Nantucket Island Associates
Limited Partnership [the "Partnership"] against the Partnership and
certain affiliates. The October 1998 complaint was never served upon
any of the defendants. In July 1999, plaintiffs filed and served an
Amended Class Action Complaint which purports to allege class and
derivative claims against the Partnership and its affiliates (the
"Winthrop Defendants"), as well as certain unaffiliated defendants,
seeking damages and equitable relief. The Amended Class Action
Complaint purported to allege claims for unjust enrichment, violation
of the Massachusetts securities laws, breach of fiduciary duty, gross
negligence, fraud and deceit, civil conspiracy, intentional and
negligent misrepresentation, violation of the Massachusetts consumer
protection statute, breach of contract and breach of covenant.
Plaintiffs had contended in substance that in connection with a 1996
offering of preferred limited partnership units in the Partnership
and a 1998 sale of property, the Winthrop Defendants preferred their
own interests to those of the limited partners in the Partnership.
Plaintiffs also alleged that events and information occurring in 1996
and 1998 caused them to be misled as to the terms of the original
1987 offering of limited partnership units in the Partnership.
On October 27, 1999, the court held a pretrial conference at which
plaintiffs' counsel failed to appear. The court therefore dismissed
the Amended Class Action Complaint in its entirety.
Lewis Jacobs et al., vs. Winthrop Financial Associates, et al.,
United States District Court for the District of Massachusetts, Civil
Action No. 99CV11363WGY.
In June 1999, plaintiffs filed an action in the United States
District Court for the District of Massachusetts as a purported class
action on behalf of themselves and limited partners in Nantucket
Island Associates Limited Partnership [the "Partnership"] against
certain affiliates of the Partnership. Plaintiffs' complaint purports
to allege class claims for fraud under the federal securities laws,
breach of fiduciary duty, breach of contract, and unjust enrichment.
Plaintiffs contend in substance that in connection with a 1996
offering of preferred limited partnership units in the Partnership
and a 1998 sale of property, the defendants preferred their own
interests to those of the limited partners in the Partnership.
Plaintiffs seek an unspecified amount of damages and an accounting.
The defendants flied a motion to dismiss in response to the
complaint, arguing that the plaintiffs had failed to state a claim
for violation of federal securities laws, and that the court should
decline to exercise supplemental jurisdiction over the state law
claims included in the complaint. The court heard argument on that
motion on October 20, 1999, and granted the motion to dismiss. The
court indicated its intention to hold its decision for 30 days to
permit the plaintiffs to appeal, and thereafter to remand the state
law claims to Massachusetts state court.
15 of 17
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10 - QSB SEPTEMBER 30, 1999
Part II - Other Information (Continued)
Item 1. Legal Proceedings (Continued)
Discovery has not commenced. The defendants believe the claims are
without merit and intend to contest this action.
Richard Anisfield, et. al., vs. Three Winthrop Properties, Inc. et.
al., Court of Chancery for New Castle County, Delaware, CA. No.
17379NC.
In August 1999, the plaintiffs brought suit, as a class action,
against the general partner of the Partnership and one of its
affiliates alleging breach of fiduciary duty in connection with the
rights offering as described in the preceding paragraphs. In
September 1999, the defendants filed a motion to stay the action
pending the outcome of the two actions identified above. That motion
has not yet been briefed or argued. The defendants believe the claims
are without merit and intend to contest this action.
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.
16 of 17
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10 - QSB SEPTEMBER 30, 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: November 8, 1999
17 of 17
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,136,000<F1>
<SECURITIES> 0
<RECEIVABLES> 69,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,795,000
<PP&E> 25,374,000
<DEPRECIATION> (7,502,000)
<TOTAL-ASSETS> 22,613,000
<CURRENT-LIABILITIES> 2,443,000
<BONDS> 11,531,000
0
0
<COMMON> 0
<OTHER-SE> 8,639,000
<TOTAL-LIABILITY-AND-EQUITY> 22,613,000
<SALES> 0
<TOTAL-REVENUES> 3,531,000
<CGS> 0
<TOTAL-COSTS> 1,976,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 705,000
<INCOME-PRETAX> 1,074,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,074,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,074,000
<EPS-BASIC> 1,127.39
<EPS-DILUTED> 1,127.39
<FN>
<F1>Cash includes $3,036,000 of restricted cash
</FN>
</TABLE>
