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 September 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 -- September 30, 1999
and December 31, 1998 3-4
Consolidated Statements of Operations -- Three & Nine
Months Ended September 30, 1999 and 1998 5
Consolidated Statements of Partners' Deficit --
Nine Months Ended September 30, 1999 and
the Years Ended December 31, 1998 and 1997 6
Consolidated Statements of Cash Flows -- Nine
Months Ended September 30, 1999 and 1998 7
Notes to Consolidated Financial Statements 8-10
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)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
(In thousands)
ASSETS
INVESTMENT PROPERTIES $6,970 $7,221
------ ------
RESTRICTED DEPOSITS 203 155
------ ------
CASH 344 130
------ ------
OTHER ASSETS
Rents and other receivables -- 2
Prepaid expenses, deposits and other 7 20
Debt issuance costs, net of
accumulated amortization of
$205 in 1999 and $158
in 1998 116 163
------ ------
123 185
------ ------
TOTAL ASSETS $7,640 $7,691
====== ======
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
CONSOLIDATED BALANCE SHEETS--CONT'D.
<TABLE>
<CAPTION>
September December
1999 1998
(In thousands except unit information) (Unaudited)
<S> <C> <C>
LIABILITIES AND PARTNERS' DEFICIT
Mortgage payable $ 7,912 $ 7,963
Accounts payable and
accrued expenses 147 48
Accrued management fees - General Partners 10 18
Accrued interest 60 60
Unearned revenue 3 26
Tenant security deposits 79 71
------- -------
TOTAL LIABILITIES 8,211 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 (4,443) (4,368)
------- -------
(528) (453)
TOTAL PARTNERS' DEFICIT (571) (495)
------- -------
TOTAL LIABILITIES & PARTNERS' DEFICIT $ 7,640 $ 7,691
======= =======
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
(In thousands except per unit information) September 30, September 30,
<S> <C> <C> <C> <C>
1999 1998 1999 1998
REVENUES
Rents 1,377 1,382 488 468
Other Income 82 70 39 30
----- ----- ----- -----
1,459 1,452 527 498
----- ----- ----- -----
OPERATING AND
ADMINISTRATIVE EXPENSES
Property operating expenses 396 348 150 139
General and administrative expenses 119 108 38 43
Professional services 69 122 14 55
Management fees 86 72 36 24
Depreciation and amortization 338 318 112 105
----- ----- ----- -----
NET OPERATING INCOME 1,008 968 350 366
NON-OPERATING INCOME (EXPENSE)
Interest Expense (535) (561) (178) (187)
Interest Income 8 12 3 3
----- ----- ----- -----
527 549 175 184
----- ----- ----- -----
PARTNERSHIP GAIN (LOSS) (76) (65) 2 (52)
BEFORE EXTRAORDINARY ITEM ----- ----- ----- -----
EXTRAORDINARY ITEM
Gain on forgiveness of debt -- 779 -- --
Gain on early extinguishment of debt -- 197 -- 197
----- ----- ----- -----
-- 911 -- 197
----- ----- ----- -----
PARTNERSHIP GAIN (LOSS) $ (76) $ 911 $ 2 $ 145
===== ======= ======= =======
Allocation of gain (loss):
General Partners (1) 9 -- 1
Limited Partners (75) 902 2 144
----- ----- ----- -----
$ (76) $ 911 $ 2 $ 145
===== ======= ======= =======
Partnership gain (loss) per
limited partnership unit $ (7.85) $ 93.15 $ .21 $ 14.86
===== ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
CONSOLIDATED STATEMENTS OF PARTNERSHIP DEFICIT
Nine Months Ended September 30, 1999 (Unaudited)
and the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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) (75) (76)
------ ------ ------
Balances at September 30, 1999 $ (43) $ (528) $ (571)
====== ====== ======
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
<S> <C> <C>
(In thousands) 1999 1998
OPERATING ACTIVITIES
Partnership gain (loss) (76) 911
Adjustments to reconcile partnership gain
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 338 317
Extraordinary Item -- (976)
Changes in assets and liabilities:
Rent and other receivables 2 (20)
Prepaid expenses, deposits, and other 13 12
Accounts payable and
accrued expenses 91 36
Accrued interest -- (11)
Unearned revenue (23) (3)
Tenant security deposits 8 (8)
----- -----
NET CASH PROVIDED BY
OPERATING ACTIVITIES 353 258
----- -----
INVESTING ACTIVITIES
Purchase of and improvements to
investment properties (40) (114)
Restricted Reserve Funds (48) (46)
Excess Syndication Costs -- 22
----- -----
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (88) (138)
----- -----
FINANCING ACTIVITIES
Note Receivable from Related Party -- 85
Principal payments on mortgage debt (51) (313)
----- -----
NET CASH (USED IN)
FINANCING ACTIVITIES (51) (228)
----- -----
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 214 (108)
CASH AND CASH EQUIVALENTS BEGINNING
OF PERIOD 130 317
----- -----
CASH AND CASH EQUIVALENTS END $ 344 $ 209
OF PERIOD ===== =====
</TABLE>
See notes to consolidated financial statements
7
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
NOTES TO FINANCIAL STATEMENTS (Unaudited)
September 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 nine month period ended September 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:
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
1999 1998
Real Estate Mortgages:
Greenhills Bicycle Club Apartments $7,912,000 $7,963,000
</TABLE>
Interest expense totaled $535,000 and $561,000 during the first nine 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
former 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 is
providing management and other services for the Partnership similar to those
services described above. Maxus receives 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:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
<S> <C> <C>
1999 1998
---- ----
Property Management Fee $ 76,000 $ 72,000
Partnership Management Fee $ 10,000 $ ---
</TABLE>
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 $10,000 of expense
through September 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 nine months ended September, 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
<TABLE>
<CAPTION>
September 30,
<S> <C> <C>
(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 535 643
</TABLE>
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Total revenues for the first nine months increased $7,000 (.5%) when compared to
the same period in 1998. The majority of the increase is due to an increase in
other income. An increase in bad debt expense was offset by an increase in the
charges for break lease fees and damage reimbursement.
Property operating expenses for the first nine months of 1999 increased $48,000
(13.8%) compared to the same period in 1998. Of the total increase, $8,000
relates to increased payroll expenses, because the maintenance supervisor
position filled in 1999 was not filled in 1998. Utility expenses increased
$22,000 due to increased usage of utilities in vacant units, as well as a rate
increase. $18,000 of the increase is due to increased property taxes.
Professional service expense decreased $53,000 (43.4%) compared to the first
nine 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 Form 10-K's for the Partnership with the Securities and Exchange
Commission.
Management fee expense for the first nine months increased by $14,000 (19.4%)
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. $10,000 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 nine months
will be representative of the results for the remaining portion of the year.
Liquidity and Capital Resources
During the first nine months of 1999, $353,000 of working capital was provided
by operations, $88,000 was used for investing activities and $51,000 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
None.
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.
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: November 12, 1999
14
<PAGE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<LEGEND>
Unaudited.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 344,000
<SECURITIES> 0
<RECEIVABLES> 32,000
<ALLOWANCES> (32,000)
<INVENTORY> 0
<CURRENT-ASSETS> 554,000
<PP&E> 11,246,000
<DEPRECIATION> 4,276,000
<TOTAL-ASSETS> 7,640,000
<CURRENT-LIABILITIES> 299,000
<BONDS> 7,912,000
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,640,000
<SALES> 0
<TOTAL-REVENUES> 1,459,000
<CGS> 0
<TOTAL-COSTS> 1,000,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 535,000
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (76,000)
<EPS-BASIC> (7.85)
<EPS-DILUTED> 0
</TABLE>
