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 March 31, 1998
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___ No X
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
Index
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets -- March 31, 1998
and December 31, 1997 3-4
Consolidated Statements of Operations -- Three
Months Ended March 31, 1998 and 1997 5
Consolidated Statements of Partnership Deficit --
Three Months Ended March 31, 1998 and
the Years Ended December 31, 1997 and 1996 6
Consolidated Statements of Cash Flows -- Three
Months Ended March 31, 1998 and 1997 7
Notes to Consolidated Financial Statements 8-9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of
Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
SECURED INVESTMENT RESOURCES FUND, L.P. III
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1998 1997
(Unaudited)
ASSETS
INVESTMENT PROPERTIES
Land and buildings $ 9,949,757 $14,591,003
Furniture, fixtures and equipment 1,118,225 1,516,980
----------- -----------
11,067,982 16,107,983
Less accumulated depreciation (3,701,590) (5,273,994)
----------- -----------
7,366,392 10,833,989
RESTRICTED DEPOSIT
Restricted Reserve Fund 108,778 93,553
----------- -------------
108,778 93,553
OTHER ASSETS
Cash 332,579 317,315
Rents and other receivables, less
allowance of $4,600 in 1998 and
$27,950 in 1997 1,166 7,347
Prepaid expenses, deposits and other 12,519 30,695
Due from related parties (Note C)
Note Receivable 87,637 85,694
Syndication Costs 21,751 21,751
Debt issuance costs, net of
accumulated amortization of
$110,693 in 1998 and $94,880
in 1997 210,846 226,659
----------- -------------
666,498 689,461
----------- -------------
TOTAL ASSETS $ 8,141,668 $ 11,617,003
=========== ============
See notes to consolidated financial statements.
3
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
CONSOLIDATED BALANCE SHEETS--CONT'D.
March 31, December 31,
1998 1997
(Unaudited)
LIABILITIES AND PARTNERSHIP DEFICIT
Mortgage debt (Note B) $ 8,407,253 $ 12,344,460
Accounts payable and
accrued expenses 90,949 300,653
Accrued interest 68,288 141,133
Unearned revenue 11,707 14,449
Tenant security deposits 79,292 105,913
----------- ------------
TOTAL LIABILITIES 8,657,489 12,906,608
----------- ------------
PARTNERSHIP DEFICIT
General Partner
Capital contributions 2,000 2,000
Partnership deficit (44,313) (52,051)
----------- ------------
(42,313) (50,051)
----------- ------------
Limited Partner
Capital contributions 3,915,084 3,915,084
Partnership deficit (4,388,592) (5,154,638)
------------ ------------
(473,508) (1,239,554)
------------ ------------
TOTAL PARTNERSHIP DEFICIT (515,821) (1,289,605)
------------ ------------
$ 8,141,668 $ 11,617,003
=========== ============
See notes to consolidated financial statements.
4
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended
March 31,
1998 1997
REVENUES
Rents $ 482,719 $ 698,950
Interest and other investment income 4,107 19,476
--------- ---------
486,826 718,426
--------- ---------
OPERATING AND
ADMINISTRATIVE EXPENSES
Property operating
expenses 137,513 258,960
General and
administrative
expenses 4,772 13,074
Professional services 33,966 20,968
Management Fees 23,593 34,298
Depreciation and Amortization 105,833 150,220
--------- ---------
305,677 477,520
--------- ---------
NET OPERATING INCOME 181,149 240,906
--------- ---------
NON-OPERATING EXPENSES
Interest 186,385 289,200
--------- ---------
PARTNERSHIP GAIN (LOSS)
BEFORE EXTRAORDINARY ITEM (5,236) (48,294)
--------- ---------
EXTRAORDINARY ITEM
Debt Forgiveness 779,020 ----
--------- ----------
PARTNERSHIP GAIN (LOSS) $ 773,784 $ (48,294)
========= ==========
Allocation of gain (loss):
General Partners 7,738 (483)
Limited Partners 766,046 (47,811)
-------- ----------
$ 773,784 $ (48,294)
========= =========
Partnership gain (loss) per
limited partnership
unit $ 79.10 $ (4.94)
======= =======
See notes to consolidated financial statements.
5
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
CONSOLIDATED STATEMENTS OF PARTNERSHIP DEFICIT
Three Months Ended March 31, 1998 (Unaudited)
and the Years Ended December 31, 1997 and 1996
General Limited
Partners Partners Total
Balances at January 1, 1996 (44,229) (663,193) (707,422)
Partnership gain (loss) (3,780) (374,227) (378,007)
----------- ----------- -----------
Balances at December 31, 1996 (48,009) (1,037,420) (1,085,429)
Partnership gain (loss) (2,042) (202,134) (204,176)
----------- ----------- -----------
Balances at December 31, 1997 (50,051) (1,239,554) (1,289,605)
Partnership gain (loss) 7,738 766,046 773,784
----------- ----------- -----------
Balances at March 31, 1998 $ (42,313) $ (473,508) $ (515,821)
=========== =========== ===========
See notes to consolidated financial statements.
6
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended
March 31,
1998 1997
OPERATING ACTIVITIES
Partnership gain (loss) $ 773,784 $ (48,294)
Adjustments to reconcile partnership gain
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 105,832 142,718
Extraordinary Item (779,020)
Provision for losses on rents
and other receivables (4,600) 15,950
Changes in assets and liabilities:
Rent and other receivables 5,314 (20,946)
Prepaid expenses, deposits, and other 6,521 12,798
Accounts payable and
accrued expenses 24,217 (12,837)
Accrued interest (3,078) 44,663
Unearned revenue (674) (4,184)
Tenant security deposits (3,238) 2,924
--------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 125,058 132,792
--------- ---------
INVESTING ACTIVITIES
Purchase of and improvements to
investment properties (10,435) (10,036)
Restricted Reserve Funds (15,225) (14,457)
Interest earned on certificate
of accrual on Treasury Security -- (17,629)
--------- ---------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (25,660) (42,122)
--------- ---------
FINANCING ACTIVITIES
Note Receivable from Related Party (1,943) (1,776)
Principal payments on long-term debt (82,192) (11,297)
--------- ---------
NET CASH (USED IN)
FINANCING ACTIVITIES (84,135) (13,073)
--------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 15,263 77,597
CASH AND CASH EQUIVALENTS BEGINNING
OF PERIOD 317,315 82,985
--------- ---------
CASH AND CASH EQUIVALENTS END
OF PERIOD $ 332,578 $ 160,582
========= =========
See notes to consolidated financial statements.
7
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
NOTES TO FINANCIAL STATEMENTS (Unaudited)
March 31, 1998
NOTE A--BASIS OF PRESENTATION
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 three month period ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998. General disclosures in the text of the notes are rounded to
the nearest thousand dollars. 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, 1997.
NOTE B--MORTGAGE DEBT
Non-recourse mortgage debt consists of the following:
March 31, December 31,
1998 1997
Collateralized by Investment Property:
First Mortgages:
Greenhills Bicycle Club Apartments $ 8,010,088 $ 8,025,084
KC Club Apartments ---- 3,922,211
Second Mortgage:
Greenhills Bicycle Club
Apartments 397,165 397,165
---------- -----------
$ 8,407,253 $ 12,344,460
=========== ============
Interest expense totaled $186,000 and $289,000 during the first quarter of 1998
and 1997, respectively.
KC Club Apartments
- ------------------
The cash generated from operations for the KC Club Apartments was
insufficient to service the mortgage under the current payment requirements. The
Managing General Partner had ongoing negotiations with the lender concerning a
complete restructure of the mortgage and related debt service. The negotiations
were unsuccessful and on January 7, 1998 the property was lost to foreclosure.
(Described in Note E.)
8
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE C--RELATED PARTY TRANSACTIONS
SPECS, Inc., a Kansas Corporation in which James R. Hoyt, a general
partner, is a shareholder, receives property management fees for providing
property management services. SPECS, Inc. also performs various professional
services for the Partnership, primarily tax accounting, audit preparation, SEC
10-Q and 10-K preparation, and investor services. Property management fees paid
by the Partnership to SPECS, Inc. are as follows:
March 31,
1998 1997
Property management fees $ 25,593 $ 34,298
Amounts due from related parties consist of
the following:
March 31, December 31,
1998 1997
General Partners -- Excess
Syndication Costs $ 21,751 $ 21,751
Secured Investment Resources
Fund, L.P. 87,637 85,694
-------- --------
$109,388 $107,445
======== ========
NOTE D--CASH DISTRIBUTIONS
No distributions have been made since July 1990. Future distributions will only
be made from excess cash flow not needed for working capital reserves.
NOTE E - EXTRAORDINARY ITEMS
Gain on forgiveness of debt:
A gain on forgiveness of debt of $779,000 was included as an extraordinary
item in the January 1998 consolidated financial statements of the Partnership.
The gain was due to forgiveness of debt related to the foreclosure of the KC
Club Apartments (described in note B). The assets and liabilities as of January
7, 1998 that were applicable to the foreclosed property approximated the
following:
Investment properties, net of accumulated depreciation $3,388,000
Other assets 84,000
Mortgage payable, including accrued interest (3,992,000)
Other Liabilities (259,000)
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Total revenues for the first three months decreased $232,000 (32.2%) when
compared to the same period in 1997. The majority of the decrease ($206,000) is
due to the loss of rental revenue caused by the foreclosure of the KC Club
Apartments. Rental revenue for the first three months at the Greenhills Bicycle
Club Apartments increased $3,000 (0.6%) when compared to the same period in
1997. Interest revenue decreased $15,000 (78.9%) from 1997. The decrease in
interest revenue was caused by the August 1997 sale of the Treasury certificate
of accrual, held by the partnership as collateral for the KC Club Apartments.
Property operating expenses for the first three months of 1998 decreased
$121,000 (46.9%) compared to the same period in 1997. Of the total decrease,
$107,000 relates to the foreclosure of the KC Club Apartments. Operating
expenses at the Greenhills Bicycle Club decreased by $14,000. The decrease is
due primarily to a reduction in payroll, utilities and maintenance expenses.
Professional service expense increased $13,000 (62.0%) compared to the first
three months of 1997. The majority of the increase is due to legal fees in
connection with the foreclosure of the KC Club Apartments and other partnership
related matters.
Management fee expense for the first three months decreased by $11,000 (31.2%)
compared to the same period in 1997. The decrease is due to the foreclosure of
the KC Club Apartments. Management fees for the Greenhills Bicycle Club
Apartments increased slightly from 1997, due to the increase in rental revenue.
General and administrative property operating expenses decreased $8,000 (63.5%)
when compared to the first three months of last year. General and administrative
expenses for the first three months of 1998 decreased $6,000 due to the
foreclosure of the KC Club Apartments. General and administrative expenses at
the Greenhills Bicycle Club Apartments decreased $2,000 for the same period.
Interest expense decreased $103,000 (35.6%) and depreciation and amortization
expense decreased $44,000 (29.5%) when compared to the first three months of
last year. The decrease in interest expense and depreciation and amortization
expense due to the foreclosure of the KC Club Apartments is $93,000 and $46,000,
respectively.
Liquidity and Capital Resources
During the first three months of 1998, $125,000 of cash was provided by
operations, $26,000 was used in investing activities and $84,000 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 1998 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.
10
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
a) Foreclosure:
The Partnership was in negotiations with the mortgage holder on KC Club
Apartments concerning a restructure of that debt. More favorable interest rates
and possible principal write downs were under consideration. Due to the
inability to restructure the debt, on January 7, 1998 the property was lost to
foreclosure.
The assets and liabilities as of January 7, 1998 that were applicable to the
foreclosed property approximated the following:
Investment properties, net of accumulated depreciation $3,388,000
Other assets 84,000
Mortgage payable, including accrued interest (3,992,000)
Other liabilities (259,000)
Rental revenue for the KC Club Apartments for the year ended December 31, 1997
was $853,000 while operating expenses (including interest) were $1,160,000.
b) Change in control:
Nichols Resources, Ltd,. a general partner of the Registrant ("Nichols"), has
filed a civil action against SIR Partners III, L.P., also a general partner of
the Registrant ("SIR Partners III"), James R. Hoyt, the current Managing General
Partner of the Partnership ("Hoyt"), the Hoyt Group, Ltd. And Hoyt S.
Partnership, L.P. in the Circuit Court of Jackson County, Missouri on January
27, 1998. Nichols alleges in the petition that the defendants (i) failed to make
the books and records of the Registrant available to Nichols as required by law
and the Registrant's limited partnership agreement, (ii) breached a settlement
agreement that had been entered between, among other, Nichols, Hoyt and certain
Hoyt affiliates pursuant to which Hoyt had agreed to effectuate a change in
management of the properties of the Registrant as requested by Nichols. The
relief sought by Nichols was (i) a preliminary order in mandamus directing Hoyt
and his affiliates to file an answer to the petition or take a judgement by
default, (ii) damages, both actual and punitive, along with interest, costs and
attorneys' fees, (iii) a restraining order and an injunction restraining and
enjoining Hoyt and his affiliates from selling any asset of the Registrant
without the consent of the limited partners and the co-general partners of the
Registrant and (iv) a judgment that Nichols is entitled to inspect the books and
records of the Registrant and that the change in management of the assets of the
Registrant be effected. The Registrant does not believe that the lawsuit will
have a material effect on the operations of the Registrant.
11
<PAGE>
Item 2. CHANGES IN SECURITIES
Inapplicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
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
None
12
<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: March 3, 1999
13
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<LEGEND>
Unaudited.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 332,579
<SECURITIES> 0
<RECEIVABLES> 5,766
<ALLOWANCES> (4,600)
<INVENTORY> 0
<CURRENT-ASSETS> 666,498
<PP&E> 11,067,982
<DEPRECIATION> (3,701,590)
<TOTAL-ASSETS> 8,141,668
<CURRENT-LIABILITIES> 250,236
<BONDS> 8,407,253
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,141,668
<SALES> 0
<TOTAL-REVENUES> 486,826
<CGS> 0
<TOTAL-COSTS> 199,844
<OTHER-EXPENSES> 105,833
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 186,385
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 779,020
<CHANGES> 0
<NET-INCOME> 773,784
<EPS-PRIMARY> 79.10
<EPS-DILUTED> 0
</TABLE>
