FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period _______________ to _______________
Commission File Number 33-24235
SECURED INVESTMENT RESOURCES FUND, L.P. III
(Exact name of registrant as specified in its charter)
Missouri 48-6291172
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1100 Main, Suite 2100, Kansas City, Missouri 64105
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, (816) 421-4670
including area code
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests ("Units")
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 such shorter periods 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>
SECURED INVESTMENT RESOURCES FUND, L.P. III
Index
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets -- June 30, 1999
and December 31, 1998 3-4
Consolidated Statements of Operations -- Three & Six
Months Ended June 30, 1999 and 1998 5
Consolidated Statements of Partners' Deficit --
Six Months Ended June 30, 1999 and
the Years Ended December 31, 1998 and 1997 6
Consolidated Statements of Cash Flows -- Six
Months Ended June 30, 1999 and 1998 7
Notes to Consolidated Financial Statements 9-10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 11-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of
Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
SECURED INVESTMENT RESOURCES FUND, L.P. III
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30, December 31,
1999 1998
(In thousands)
ASSETS
INVESTMENT PROPERTIES $7,049 $7,221
----- -----
RESTRICTED DEPOSITS 186 155
----- -----
CASH 255 130
----- -----
OTHER ASSETS
Rents and other receivables, less
allowance of $26 in 1999 5 2
Prepaid expenses, deposits and other 16 20
Debt issuance costs, net of
accumulated amortization of
$190 in 1999 and $158
in 1998 132 163
----- -----
153 185
----- -----
TOTAL ASSETS $ 7,643 $ 7,691
======= =======
See notes to consolidated financial statements.
3
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
CONSOLIDATED BALANCE SHEETS--CONT'D.
June 30, December 31,
1999 1998
(In thousands except unit information) (Unaudited)
LIABILITIES AND PARTNERS' DEFICIT
Mortgage debt $ 7,929 $ 7,963
Accounts payable and
accrued expenses 134 48
Accrued management fees - General Partners 7 18
Accrued interest 60 60
Unearned revenue 8 26
Tenant security deposits 78 71
------ ------
TOTAL LIABILITIES 8,216 8,186
------ ------
PARTNERS' DEFICIT
General Partners (4 units authorized
and outstanding)
Capital contributions 2 2
Partners' deficit (45) (44)
------ ------
(43) (42)
------ ------
Limited Partners (60,000 units authorized;
9,685 units outstanding)
Capital contributions 3,915 3,915
Partners' deficit (4,445) (4,368)
------ ------
(530) (453)
------ ------
TOTAL PARTNERS' DEFICIT (573) (495)
------ ------
TOTAL LIABILITIES & PARTNERS' DEFICIT $ 7,643 $ 7,691
======= =======
See notes to consolidated financial statements.
4
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Six Months Ended Three Months Ended
(In thousands except per unit June 30, June 30,
information)
REVENUES 1999 1998 1999 1998
- -------- ---- ---- ---- ----
Rents $ 910 $ 975 $ 458 $ 493
Other Income 41 -- 23 --
--- --- --- ---
951 975 481 493
OPERATING AND
ADMINISTRATIVE EXPENSES
Property operating expenses 319 279 166 142
General and administrative expenses 19 17 8 12
Professional services 55 67 26 33
Management Fees 58 47 28 24
Depreciation and Amortization 225 212 113 106
--- --- --- ---
676 622 341 317
--- --- --- ---
NET OPERATING INCOME 275 353 140 176
NON-OPERATING EXPENSES
Interest Expense (357) (376) (179) (189)
Interest Income 4 10 3 5
--- --- --- ---
(353) (367) (176) (184)
--- --- --- ---
PARTNERSHIP GAIN (LOSS)
BEFORE EXTRAORDINARY ITEM (78) (13) (36) (8)
EXTRAORDINARY ITEM
Debt Forgiveness -- 779 -- --
--- --- --- ---
PARTNERSHIP GAIN (LOSS) $(78) $ 766 $ (36) $ (8)
==== ===== ===== =====
Allocation of gain (loss):
General Partners (1) 8 (1) (1)
Limited Partners (77) 758 (35) (7)
--- --- --- ---
$ (78) $ 766 $ (36) $ (8)
==== ===== ===== =====
Partnership gain (loss) per
limited partnership unit $(7.95) $78.27 $(3.61) $(.72)
===== ===== ===== =====
See notes to consolidated financial statements.
5
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
CONSOLIDATED STATEMENTS OF PARTNERSHIP DEFICIT
Six Months Ended June 30, 1999 (Unaudited)
and the Years Ended December 31, 1998 and 1997
General Limited
Partners Partners Total
-------- -------- -----
(In thousands)
Balances at January 1, 1997 (48) (1,037) (1,085)
Partnership gain (loss) (2) (202) (204)
---- ---- ----
Balances at December 31, 1997 (50) (1,239) (1,289)
Partnership gain (loss) 8 786 794
---- ---- ----
Balances at December 31, 1998 (42) (453) (495)
Partnership gain (loss) (1) (77) (78)
---- ---- ----
Balances at June 30, 1999 (43) (530) (573)
==== ==== ====
See notes to consolidated financial statements.
6
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended
June 30,
(In thousands) 1999 1998
---- ----
OPERATING ACTIVITIES
Partnership gain (loss) $ (78) $ 766
Adjustments to reconcile partnership gain
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 225 212
Extraordinary Item -- (779)
Provision for losses on rents
and other receivables 26 (5)
Changes in assets and liabilities:
Rent and other receivables (29) (3)
Prepaid expenses, deposits, and other 4 14
Accounts payable and
accrued expenses 75 1
Accrued interest -- (11)
Unearned revenue (18) (3)
Tenant security deposits 7 (6)
--- ---
NET CASH PROVIDED BY
OPERATING ACTIVITIES 212 186
--- ---
INVESTING ACTIVITIES
Purchase of and improvements to
investment properties (22) (81)
Restricted Reserve Funds (31) (31)
--- ---
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (53) (112)
--- ---
FINANCING ACTIVITIES
Note Receivable from Related Party -- (4)
Principal payments on long-term debt (34) (98)
--- ---
NET CASH (USED IN)
FINANCING ACTIVITIES (34) (102)
--- ---
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 125 (28)
CASH AND CASH EQUIVALENTS BEGINNING
OF PERIOD 130 317
CASH AND CASH EQUIVALENTS END
OF PERIOD $ 255 $ 289
===== =====
See notes to consolidated financial statements.
7
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
NOTES TO FINANCIAL STATEMENTS (Unaudited)
June 30, 1999
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions for Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six month period ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999. For further information, refer to the financial statements
and footnotes thereto included in the Partnership's annual report on Form 10-K
for the year ended December 31, 1998.
NOTE 1--MORTGAGES PAYABLE
Non-Recourse mortgage debt consists of the following:
June 30, December 31,
1999 1998
Real Estate Mortgages:
Greenhills Bicycle Club Apartments $7,929,000 $7,963,000
Interest expense totaled $357,000 and $376,000 during the first six months of
1999 and 1998, respectively.
8
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1--MORTGAGES PAYABLE--CONT'D
Mortgage payable, bank, original balance of $8,100,000 payable in monthly
installments of $65,000 including principal and interest. Due August 2001 with
interest at 9%; collateralized by investment property.
The carrying value for the above mortgage payable approximates fair value.
NOTE 2--RELATED PARTY TRANSACTIONS
Through December 31, 1998, SPECS, Inc., a Kansas corporation in which the
individual General Partner has a majority interest, received property management
fees of 5% of the monthly gross receipts for providing property management
services. SPECS, Inc. also performed various professional services for the
Partnership, primarily tax accounting, audit preparation, SEC 10-Q and 10-K
preparation, and investor services.
On January 1, 1999, the Partnership entered into a new property management
agreement with Maxus Properties, Inc. (Maxus). Under this agreement, Maxus will
provide management and other services for the Partnership similar to those
services described above. Maxus will be entitled to receive a management fee of
5% of the monthly gross receipts.
Amounts paid by the Partnership to Maxus Properties, Inc. and SPECS, Inc. are
as follows:
Six Months Ended
June 30,
1999 1998
---- ----
Property Management Fee $50,000 $47,000
The General Partners are entitled to receive a Partnership management fee
equal to 5% of total operating cash flows (as defined) for managing the normal
operations of the Partnership. The Partnership incurred $7,000 of expense
through June 30,1999 for the partnership management fees. The Partnership
incurred partnership management fee expense of $18,000 for the year ended
December 31, 1998. There was no partnership management fee due for the year
ended December 31, 1997.
NOTE 3--CASH DISTRIBUTIONS
No distributions have been made since July, 1990. Future distributions, if
any, will be made from excess cash flow not needed for working capital purposes.
9
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 4 - EXTRAORDINARY ITEM
During the three months ended March 31, 1998, the Partnership realized a gain
of $779,000 as the result of the foreclosure by the mortgage holder on the KC
Club Apartments in satisfaction of the related debt.
Under the terms of the foreclosure, net assets with a net book value of
$3,143,000 were surrendered to the KC Club Apartments mortgage holder and the
Partnership was relieved of the mortgage obligation amounting to $3,922,000. The
resulting gain amounted to $779,000.
NOTE 5-- ADDITIONAL CASH FLOW INFORMATION
June 30,
(In thousands) 1999 1998
---- ----
Noncash Investing and Financing Activities
Assets exchanged for the forgiveness of debt ------ $3,405
Debt forgiven in exchange for assets ------ (4,251)
Additional Cash Payment Information
Interest Paid 358 376
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Total revenues for the first six months decreased $24,000 (2.6%) when compared
to the same period in 1998. The majority of the decrease is due to lower
occupancy caused in part by increased competition from a newly constructed 624
unit apartment complex located three miles from the Greenhills Bicycle Club
Apartments. An increase in bad debt expense was offset by an increase in the
charges for break lease fees and damage reimbursement.
Operating expenses for the first six months of 1999 increased $40,000 (14.3%)
compared to the same period in 1998. Of the total increase, $8,000 relates to
increased payroll expenses as the maintenance supervisor position filled in 1999
was not filled in 1998. Utility expenses increased $20,000 due to increased
usage of utilities in vacant units, as well as a rate increase. $12,000 of the
increase is due to increased property taxes.
Professional service expense decreased $12,000 (17.9%) compared to the first six
months of 1998. The majority of the decrease is due to a decrease in legal fees
related to the foreclosure of the KC Club Apartments and other Partnership
related matters from 1998. The decrease in fees related to the foreclosure of
the KC Club Apartments and other Partnership related matters was partially
offset by an increase in accounting and legal fees related to the filing of the
1996 and 1997 SEC forms 10-K for the Partnership.
Management fee expense for the first six months increased by $11,000 (23.4%)
compared to the same period in 1998. The increase is partially due to management
fees for the Greenhills Bicycle Club Apartments taken by SPECS, Inc. in January,
1999 , relating to the period ending December 31, 1998. $7,000 of the increase
is due to accrued partnership management fees due to the General Partners.
The Partnership anticipates that the operating results for the first six months
will be representative of the results for the remaining portion of the year.
Liquidity and Capital Resources
During the first six months of 1999, $212,000 of working capital was provided by
operations, $53,000 was used for investing activities and $34,000 was used for
financing activities.
Based upon the above, the General Partners feel that adequate working capital is
available to maintain the solvency of this entity. In addition, the General
Partners also anticipate that 1999 cash flow from operations will continue to
improve because of strong occupancy, rental rate increases and stabilized
expenses.
The General Partners have determined it prudent to discontinue cash
distributions until such time that adequate working capital and capital
improvements reserves are in place.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Year 2000:
Management is in the process of evaluating the risks associated with potential
Year 2000 computer problems. It is our opinion that the potential on-site Year
2000 problems at the Greenhills Bicycle Club apartments will not have a material
impact on property operations. The computer and on-site software utilized in the
day to day operations of the property have been upgraded as of January 12, 1999
at a cost of approximately $4,000 with Year 2000 compliant software. No
additional material expenditures are planned at this time for Year 2000
compliance. There are no known non-information technology systems (elevators,
fire alarms, security systems etc.) on-site that would be impacted by a Year
2000 problem. There are no elevators, central fire alarm systems or central
security systems on the property. Management believes that the mission critical
systems are prepared for the Year 2000, and non-critical systems are being
evaluated.
Management believes the worst case scenario that could impact property
operations would be if third-party utility providers (electricity and water)
failed to provide services to the property due to a Year 2000 problem in their
systems. Management has contacted the utility providers, and has received and
reviewed their plans to address potential Year 2000 issues. Management believes
the likelihood of the utility companies' failure to provide services is remote,
and as such, management has not developed contingency plans to deal with this
possibility. Management believes that if the utility companies fail to provide
services, the failure will by system-wide, and not confined to the property, and
therefore the investment value of the property will not be impacted.
(Remainder of this page left blank intentionally)
12
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES
Inapplicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Please refer to Item 6(b) hereof.
Item 5. OTHER INFORMATION
Inapplicable.
Item 6. EXHIBIT AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
A Form 8-K was filed on July 27, 1999 (SEC File no. 000-18475),
reporting the limited partners' approval of the assignment of
James R. Hoyt's and SIR Partners III, L.P.'s general partner
interests to Nichols Resources, Ltd. ("Nichols"), and the
appointment of Nichols as successor Managing Partner or the
Registrant, such Form 8-K incorporated herein by reference.
13
<PAGE>
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.
SECURED INVESTMENT RESOURCES FUND, L.P. III
A Missouri Limited Partnership
(Registrant)
By: Nichols Resources, Ltd.
as General Partner
/s/ Christine A. Robinson
Christine A. Robinson
President (Principal Financial and Chief
Accounting Officer)
Date: August 13, 1999
14
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 255,000
<SECURITIES> 0
<RECEIVABLES> 31,000
<ALLOWANCES> (26,000)
<INVENTORY> 0
<CURRENT-ASSETS> 462,000
<PP&E> 11,228,000
<DEPRECIATION> 4,179,000
<TOTAL-ASSETS> 7,643,000
<CURRENT-LIABILITIES> 287,000
<BONDS> 7,929,000
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,643,000
<SALES> 0
<TOTAL-REVENUES> 951,000
<CGS> 0
<TOTAL-COSTS> 672,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 357,000
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (78,000)
<EPS-BASIC> (7.95)
<EPS-DILUTED> 0
</TABLE>
