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, 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 -- March 31, 1999
and December 31, 1998 3-4
Consolidated Statements of Operations -- Three
Months Ended March 31, 1999 and 1998 5
Consolidated Statements of Partnership Deficit --
Three Months Ended March 31, 1999 and
the Years Ended December 31, 1998 and 1997 6
Consolidated Statements of Cash Flows -- Three
Months Ended March 31, 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 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of
Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
SECURED INVESTMENT RESOURCES FUND, L.P. III
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1999 1998
(Unaudited)
ASSETS
INVESTMENT PROPERTIES $7,138,000 $7,220,000
---------- ----------
RESTRICTED DEPOSITS 170,000 155,000
---------- ----------
CASH 212,000 130,000
---------- ----------
OTHER ASSETS
Rents and other receivables, less
allowance of $13,000 in 1999 0 2,000
Prepaid expenses, deposits and other 5,000 20,000
Debt issuance costs, net of
accumulated amortization of
$174,000 in 1999 and $159,000
in 1998 148,000 163,000
---------- ----------
153,000 185,000
---------- ----------
TOTAL ASSETS $7,673,000 $7,690,000
========== ==========
See notes to consolidated financial statements.
3
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
CONSOLIDATED BALANCE SHEETS--CONT'D.
March 31, December 31,
1999 1998
(Unaudited)
LIABILITIES AND PARTNERSHIP DEFICIT
Mortgage payable $ 7,946,000 $ 7,963,000
Accounts payable and
accrued expenses 110,000 48,000
Accrued management fees - General Partners 22,000 18,000
Accrued interest 60,000 60,000
Unearned revenue 4,000 26,000
Tenant security deposits 69,000 71,000
--------- ---------
TOTAL LIABILITIES 8,211,000 8,186,000
--------- ---------
PARTNERS' DEFICIT
General Partners (4 units authorized
and outstanding)
Capital contributions 2,000 2,000
Partnership deficit (44,000) (44,000)
--------- ---------
(42,000) (42,000)
--------- ---------
Limited Partners (60,000 units authorized;
9685 units outstanding)
Capital contributions 3,915,000 3,915,000
Partnership deficit (4,411,000) (4,369,000)
--------- ---------
(496,000) (454,000)
--------- ---------
TOTAL PARTNERSHIP DEFICIT (538,000) (496,000)
--------- ---------
TOTAL LIABILITIES & PARTNERS' DEFICIT $ 7,673,000 $ 7,690,000
=========== ===========
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,
1999 1998
REVENUES
Rents $ 452,000 $ 483,000
Other income 18,000 --
------- -------
470,000 483,000
------- -------
OPERATING AND
ADMINISTRATIVE EXPENSES
Property operating expenses 153,000 137,000
General and administrative expenses 11,000 5,000
Professional services 29,000 34,000
Management fees 30,000 24,000
Depreciation and amortization 112,000 106,000
------- -------
335,000 306,000
------- -------
NET OPERATING INCOME 135,000 177,000
------- -------
NON-OPERATING INCOME (EXPENSE)
Interest expense (178,000) (186,000)
Interest income 1,000 4,000
------- -------
(177,000) (182,000)
------- -------
PARTNERSHIP GAIN (LOSS)
BEFORE EXTRAORDINARY ITEM (42,000) (5,000)
------- -------
EXTRAORDINARY ITEM
Debt forgiveness -- 779,000
------- -------
PARTNERSHIP GAIN (LOSS) $ (42,000) $ 774,000
========= =========
Allocation of gain (loss):
General partners (0) 8,000
Limited partners (42,000) 766,000
------- -------
$ (42,000) $ 774,000
========= =========
Partnership gain (loss) per
limited partnership unit $ (4.34) $ 79.10
========= =========
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, 1999 (Unaudited)
and the Years Ended December 31, 1998 and 1997
General Limited
Partners Partners Total
Balances at January 1, 1997 (48,000) (1,038,000) (1,086,000)
Partnership gain (loss) (2,000) (202,000) (204,000)
------ -------- --------
Balances at December 31, 1997 (50,000) (1,240,000) (1,290,000)
Partnership gain (loss) 8,000 786,000 794,000
------ -------- --------
Balances at December 31, 1998 (42,000) (454,000) (496,000)
Partnership gain (loss) (--) (42,000) (42,000)
------ -------- --------
Balances at March 31, 1999 $ (42,000) $ (496,000) $ (538,000)
=========== =========== ===========
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,
1999 1998
OPERATING ACTIVITIES
Partnership gain (loss) $ (42,000) $ 774,000
Adjustments to reconcile partnership gain
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 112,000 106,000
Extraordinary item -- (779,000)
Changes in assets and liabilities:
Rent and other receivables 2,000 1,000
Prepaid expenses, deposits, and other 15,000 6,000
Accounts payable and
accrued expenses 66,000 24,000
Accrued interest -- (3,000)
Unearned revenue (22,000) (1,000)
Tenant security deposits (2,000) (3,000)
------ ------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 129,000 125,000
------ ------
INVESTING ACTIVITIES
Purchase of and improvements to
investment properties (15,000) (11,000)
Net change in restricted deposits (15,000) (15,000)
------ ------
NET CASH USED IN
INVESTING ACTIVITIES (30,000) (26,000)
------ ------
FINANCING ACTIVITIES
Note Receivable from related party 0 (2,000)
Principal payments on long-term debt (17,000) (82,000)
------ ------
NET CASH USED IN
FINANCING ACTIVITIES (17,000) (84,000)
------ ------
INCREASE IN CASH AND
CASH EQUIVALENTS 82,000 15,000
CASH AND CASH EQUIVALENTS BEGINNING
OF PERIOD 130,000 318,000
------ ------
CASH AND CASH EQUIVALENTS END
OF PERIOD $ 212,000 $ 333,000
========= =========
See notes to consolidated financial statements
7
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
NOTES TO FINANCIAL STATEMENTS (Unaudited)
March 31, 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.
All dollar amounts have been rounded to the nearest thousand. 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, 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--MORTGAGE PAYABLE
Non-Recourse mortgage debt consists of the following:
March 31, December 31,
1999 1998
Real Estate Mortgage:
Greenhills Bicycle Club Apartments (A) $7,946,000 $7,963,000
Interest expense totaled $178,000 and $186,000 during the first three months of
1999 and 1998, respectively.
(A) Mortgage payable, bank, original balance of $8,100,000, payable in monthly
installments of $65,174 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.
8
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
NOTES TO FINANCIAL STATEMENTS (Unaudited)
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.
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. Maxus will be
entitled to receive a management fee of 5% of the monthly gross receipts.
Amounts paid by the Partnership to SPECS, Inc. and Maxus Properties, Inc. are as
follows:
Three Months Ended
March 31,
1999 1998
---- ----
Property Management Fee 30,000 $ 24,000
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 has accrued $5,000 through March
31,1999 for Partnership management fees. The Partnership accrued no expense for
Partnership management fees for the quarter ended March 31, 1998.
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.
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.
9
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. III
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 5-- ADDITIONAL CASH FLOW INFORMATION
March 31,
1999 1998
---- ----
Noncash Investing and Financing Activities
- ------------------------------------------
Net assets surrendered in exchange for debt
forgiveness in foreclosure transaction 3,143,000
Additional Cash Payment Information
- -----------------------------------
Interest Paid 179,000 259,000
(Remainder of this page left blank intentionally)
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Total revenues for the first three months decreased $13,000 (2.7%) 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 charges
for break lease fees and damage reimbursement.
Property operating expenses for the first three months of 1999 increased $16,000
(11.7%) compared to the same period in 1998. Of the total increase, $5,000
relates to expenditures for landscaping, repair and replacement of items needed
to make vacant units ready for occupancy. Utility expenses increased $8,000
primarily due to increased usage of utilities in vacant units.
General and administrative expenses increased $6,000 (120.0%) when compared to
the first three months of last year. The increase was due primarily to a change
in the classification of expenses between the general and administrative,
professional service and property operating expense categories.
Professional service expense decreased $5,000 (14.7%) compared to the first
three 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 legal 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 Form 10-K for the Partnership.
Management fee expense for the first three months increased by $6,000 (25.0%)
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. In addition, 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 has accrued $5,000 through March 31,1999 for
the partnership management fees. The Partnership paid partnership management
fees of $18,000 for the year ended December 31, 1998. There was no partnership
management fee due for the year ended December 31, 1997.
The Partnership anticipates that the operating results for the first three
months will be representative of the results for the remaining portion of the
year.
Liquidity and Capital Resources
During the first three months of 1999, $129,000 of working capital was provided
by operations, $30,000 was used by investing activities and $17,000 was used for
financing activities.
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 1999 cash flow from operations will continue to
improve because of stable occupancy 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 has evaluated 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 a 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, 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
As reported in the Partnership's quarterly report on Form 10-Q for the quarter
ended September 30, 1998, on July 21, 1998, Nichols Resources Ltd., a general
partner of the Partnership ("Nichols"), Bond Purchase, L.L.C. ("Bond") and David
L. Johnson ("Johnson ") and other affiliates of Johnson, along with the
Partnership, SIR Partners III, L.P., General Partner of the Partnership ("SIR
Partners III"), SPECS, Inc., the company which previously provided the
Partnership management and investor services ("SPECS") and James R. Hoyt,
Managing General Partner of the Partnership ("Hoyt"), entered into a certain
Settlement Agreement and Mutual Release (the "Agreement"). The Agreement settled
a dispute which had arisen between Nichols, SIR Partners III and Hoyt, general
partners of the Partnership over the proper course of action to be taken for the
Partnership. This dispute resulted in the filing of a civil action in the
Circuit Court of Jackson County, Missouri.
Pursuant to the Agreement, Nichols has (i) paid $100,000 in cash to SIR Partners
III and Hoyt, $21,751 of which was paid by Hoyt to the Partnership to pay a
receivable owed by affiliates of the Partnership for unpaid excess syndication
costs and expenses and (ii) dismissed the civil actions filed. In exchange for
the $100,000 in cash and the dismissal of the civil actions, SIR Partners III
and Hoyt have agreed (i) to transfer their General Partnership interests to
Nichols and (ii) to withdraw as Managing General Partner and general partners.
Under the Partnership's Amended and Restated Agreement of Limited Partnership
dated December 6, 1988 (the "Partnership Agreement"), such transfers and
withdrawals are subject to the majority vote of the Partnership's limited
partners (the "Limited Partners"). Hoyt and SIR Partners III have also agreed
that Nichols, as general partner of the Partnership, shall have the right to
designate the management company to manage the assets of the Partnership and to
execute all documents to effectuate the release of the current management
contract. As indicated above, Maxus Properties, Inc. has been hired as the
Partnership's new management company.
Nichols, as a general partner of the Partnership, has called for a vote without
a meeting of the limited partners, filed a consent statement with the Securities
and Exchange Commission and is soliciting proxies from the Limited Partners to
seek approval from the Limited Partners to the transfer of the general
partnership interests, the withdrawal of Hoyt and SIR Partners III as general
partners of the Partnership and the replacement of Hoyt as Managing General
Partner in favor of Nichols. Hoyt and SIR Partners III have agreed to use their
best efforts to assist in obtaining approval from the limited partners of the
withdrawal of Hoyt and SIR Partners III as General Partners of the partnership.
In the event the majority approval is obtained, Nichols will be the sole general
partner of the Partnership.
(Remainder of this page left blank intentionally)
13
<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
14
<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: May 14, 1999
15
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Unaudited.
</LEGEND>
<MULTIPLIER> 1
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 212,000
<SECURITIES> 0
<RECEIVABLES> 13,000
<ALLOWANCES> (13,000)
<INVENTORY> 0
<CURRENT-ASSETS> 387,000
<PP&E> 11,220,000
<DEPRECIATION> 4,082,000
<TOTAL-ASSETS> 7,673,000
<CURRENT-LIABILITIES> 265,000
<BONDS> 7,946,000
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,673,000
<SALES> 0
<TOTAL-REVENUES> 470,000
<CGS> 0
<TOTAL-COSTS> 335,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 177,000
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (42,000)
<EPS-PRIMARY> 4.34
<EPS-DILUTED> 0
</TABLE>
