<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period 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 from ______ to ______
Commission File Number 0-24683
BRUNNER COMPANIES INCOME PROPERTIES L.P. III
(Exact name of registrant as specified in its charter)
Delaware 31-1266850
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3632 Wheeler Road
P.O. Box 204227
Augusta, Georgia 30917-204227
(Address of principal executive offices)
(706) 863-0823
(Registrant's telephone number, including area code)
(Former address since last report)
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 [ ]
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
Title Outstanding
Class A Units 850,900 June 30, 1999
Class B Units 8,600
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
BRUNNER COMPANIES INCOME PROPERTIES L.P. III
BALANCE SHEET
(in thousands, except unit data)
<TABLE>
<CAPTION>
June 30, 1999 Dec. 31, 1998
(unaudited) (audited)
--------- -------
<S> <C> <C> <C>
Assets
Cash and cash equivalents $ 700 $ 884
Accounts receivable - net -- 122
Other assets -- 198
Investment properties - net 10,651 10,765
------- -------
$11,351 $11,969
======= =======
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable and accrued expenses $ 172 $ 452
Tenant security deposits 14 16
Mortgage notes payable 11,393 11,393
------- -------
11,579 11,861
Partners' Capital (Deficit)
General partner's (63) (59)
Class A limited partners' - (850,900 units issued and
outstanding) (180) 149
Class B limited partners' - (8,600 units issued and
outstanding) 15 (228) 18 108
-------- ------- -------
$11,351 $11,969
======= =======
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE> 3
BRUNNER COMPANIES INCOME PROPERTIES L.P. III
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------
1999 1998
---- ----
<S> <C> <C>
Revenues:
Rental income $ 216 $ 827
Other income 37 510
-------- --------
Total revenues 253 1,337
-------- --------
Expenses:
Operating 76 148
General and administrative 79 52
Depreciation 113 210
Interest 6 536
Property taxes 29 50
Write-downs to net realizable value 286 --
-------- --------
Total expenses 589 996
-------- --------
Net income (loss) $ (336) $ 341
======== ========
Net income (loss) allocated to general partner (1%) $ (4) $ 4
Net income (loss) allocated to Class A limited
partners (98.01%) (329) 334
Net income (loss) allocated to Class B limited
partners (.99%) (3) 3
-------- --------
$ (336) $ 341
======== ========
Net income (loss) per Class A limited partnership $ (.39) $ .39
unit ======== ========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE> 4
BRUNNER COMPANIES INCOME PROPERTIES L.P. III
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Limited Partners'
-------------------------
General
-------
Partner's Class A Class B Total
--------- ------- -------- -------
<S> <C> <C> <C> <C>
Original capital contributions $ 1 $ 8,420 $ 86 $ 8,507
======= ======= ======= =======
Partners' capital (deficit) at
December 31, 1998 $ (59) $ 149 $ 18 $ 108
Net loss for the six months ended
June 30, 1999 (4) (329) (3) (336)
------- ------- ------- -------
Partners' capital (deficit) at
June 30, 1999 $ (63) $ (180) $ 15 $ (228)
======= ======= ======= =======
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE> 5
BRUNNER COMPANIES INCOME PROPERTIES L.P. III
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(336) $ 341
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
Depreciation 113 210
Amortization of loan costs and leasing commissions 1 8
Change in accounts:
Receivables 122 96
Other assets 198 3
Accounts payable and accrued expenses (280) (80)
Tenant security deposits (2) 1
----- -------
Net cash provided by (used in) operating activities: (184) 579
----- -------
Cash flows from investing activities:
Property improvements and replacements -- (5)
Lease commissions paid -- (99)
----- -------
Net cash used in investing activities -- (104)
----- -------
Cash flows from financing activities:
Mortgage principal payments -- (128)
----- -------
Net cash used in financing activities -- (128)
----- -------
Net increase (decrease) in cash and cash equivalents (184) 347
Cash and cash equivalents at beginning of period 884 837
----- -------
Cash and cash equivalents at end of period $ 700 $ 1,184
===== =======
Supplemental disclosure of cash flow information:
Cash paid for interest $ 6 $ 537
===== =======
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE> 6
BRUNNER COMPANIES INCOME PROPERTIES, L.P. III
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited financial statements of Brunner Companies Income
Properties L.P. III (the "Partnership") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Item 310(b)of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
As discussed herein at Management's Discussion and Analysis or Plan of
Operation (Item 2), receivers have been appointed at the request of the
Partnership's lenders to manage the Partnership's investment properties pending
resolution of ongoing foreclosure proceedings. Pursuant to the terms of those
receiverships, the receivers have been granted authority to collect all rents
and to pay all expenses arising from the ordinary operation of the investment
properties. Pursuant to the terms of the notes and mortgages securing the
Partnership's loans, rents collected by the receivers are applied to the
partnership's payment obligations. As a result, these unaudited financial
statements do not reflect any activities of the receivers, including, but not
limited to, any revenues the properties have earned or any expenses they have
incurred. Furthermore, it is anticipated that any cash balance remaining with
the receivers will be the property of the lenders.
Based on the Partnership's current financial condition, including the
appointment of the receivers and ongoing foreclosure proceedings, certain
Partnership assets have been expensed. The following is a summary of those
expenses (in thousands), the total of which has been reported on the
Partnership's statement of operations for the six months ended June 30, 1999 as
"Write-downs to net realizable value":
<TABLE>
<S> <C>
Accounts receivable $119
Other assets, including net lease commissions of $139 167
----
$286
====
</TABLE>
As further discussed herein at Management's Discussion and Analysis or Plan or
Operation (Item 2), the carrying amounts of the Partnership's investment
properties exceed their appraised values. Additionally, the Partnership's
mortgage notes payable balances, which are nonrecourse, exceed the carrying
amounts of the Partnership's investment properties. As the lender is limited to
foreclosure of the properties for satisfaction of the mortgage notes payable
balances, no impairment has been made to the Partnership's investment
properties. No adjustment has been made to the Partnership's mortgage notes
payable from that at the end of fiscal year 1998. Furthermore, accounts payable
and accrued expenses of $172,000 and tenant security deposits of $14,000 have
not been adjusted as the ultimate settlement amounts of these liabilities is
undeterminable. The Partnership's certifying accountants issued their audit
opinion on the December 31, 1998 financial statements noting a substantial
doubt about the Partnership's ability to continue as a going concern. The
accompanying financial statements do not include any adjustments which might
result from the outcome of that uncertainty.
Operating results for the six month period ended June 30, 1999, are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 1999. For further information, refer to the financial
statements and footnotes thereto included in the Partnership's annual report on
Form 10-KSB for the fiscal year ended December 31, 1998.
Certain reclassifications have been made to the 1998 information to conform to
the 1999 presentation.
Note B - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
partnership activities. All of the outstanding stock of the Managing General
Partner is owned by BCIP I & III, LLC, an affiliate of Hull/Storey Development,
LLC ("Hull/Storey"). The partnership agreement provides for payments to
affiliates for property management services based on a percentage of revenue
and for reimbursement of certain expenses incurred by affiliates on behalf of
the Partnership. The following payments were
<PAGE> 7
made to affiliates of the Managing General Partner during the six months ended
June 30, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Property management fees (included in
operating expenses) $9 $38
Reimbursement for services of affiliates
(included in general and administrative expenses) $2 $25
</TABLE>
Additionally, the Partnership paid approximately $12,543 and $97,000 during the
six months ended June 30, 1999 and 1998, respectively to an affiliate of the
Managing General Partner for lease commissions related to new leases at the
Partnership's properties. The 1999 lease commissions were expensed whereas, the
1998 lease commissions were included in "Other assets" and amortized over the
terms of the respective leases. As of June 30, 1999 unamortized lease
commissions of $139,000 were written-down to their net realizable value.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The Partnership's investment properties consist of two retail centers (the
"Centers"). The properties have not been under the control and management of
the Partnership since the last report, as hereinafter explained. The following
table sets forth the average occupancy of the properties for the six months
ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Average
Occupancy
1999 1998
---- ----
<S> <C> <C>
Gateway Plaza, 74% 56%
Mt. Sterling, Kentucky
Highpoint Village 99% 93%
Bellefontaine, Ohio
</TABLE>
In January 1999, the Managing General Partner elected to stop making mortgage
payments because the Managing General Partner believed the debt collateralizing
the Centers exceeded the market values of those properties. The lender declared
the entire indebtedness immediately due and payable and instituted foreclosure
proceedings in the Court of Common Pleas of Logan County, Ohio, and the
Montgomery Circuit Court of the Commonwealth of Kentucky. A receiver was
appointed for Highpoint Village Shopping Center effective February 4, 1999, and
a receiver was appointed for Gateway Plaza Shopping Center effective March 16,
1999. The receivers for the respective properties have collected the rent for
both properties, with the exception of the sum of $216,000 which was collected
by the Managing General Partner. No expenses for the Centers have been paid by
the Managing General Partner since the receivers were appointed.
An MAI appraisal of Highpoint Village Shopping Center indicated an appraised
value of $6,100,000 and an MAI appraisal of Gateway Plaza Shopping Center
indicated an appraised value of $3,750,000, for combined appraised values in
the sum of $9,850,000. Attempts by the Managing General Partner for the lender
to discount its debt in the sum of $11,390,000, plus interest, have been
unsuccessful. The lender has been unwilling to discount its debt or materially
restructure the same on terms favorable to the Partnership.
On June 30, 1999, the Partnership held cash and cash equivalents of
approximately $700,000. As a possible settlement with the lender, the Managing
General Partner has consented to a foreclosure of both properties and payment
to the lender of the sum of $125,000 in satisfaction of all claims against the
Partnership, including any claim for rents collected after appointment of the
receivers and security deposits held by the Partnership. The foreclosures of
the properties will result in a dissolution of the Partnership and the Managing
General Partner intends to distribute the balance of any cash held by the
Partnership after payment of the settlement to the lender, accounting fees,
legal fees and miscellaneous
<PAGE> 8
Partnership debts. An estimate of the amount of cash to be distributed to
partners is unknown at this time.
Year 2000
The "Year 2000 Issue" has arisen because many existing computer programs and
chip-based embedded technology systems use only the last two digits to refer to
a year, and therefore do not properly recognize a year that begins with "20"
instead of the familiar "19". If not corrected, many computer applications
could fail or create erroneous results. The following disclosure provides
information regarding the current status of the Partnership's Year 2000
compliance program.
The Partnership processes its records on computer hardware and software systems
maintained by Hull/Storey Development, LLC ("Hull/Storey"), the management
company retained by the General Partner of the Partnership. Hull/Storey has
adopted a compliance program because it recognizes the importance of minimizing
the number and seriousness of any disruptions that may occur as a result of the
Year 2000 issue. Hull/Storey compliance program includes an assessment of its
hardware and software computer systems and embedded systems.
Hull/Storey has invested in the implementation and maintenance of accounting
and reporting systems and equipment that are intended to enable the Partnership
to provide adequately for its information and reporting needs and which are
also Year 2000 compliant. Substantially all of Hull/Storey's in-house systems
have already been certified as Year 2000 compliant through testing and other
mechanisms and Hull/Storey has not delayed any systems projects due to the Year
2000 Issue. Hull/Storey is in the process of engaging a third party to review
its Year 2000 in-house compliance. The Managing General Partner believes that
future costs associated with Year 2000 issues for Hull/Storey's in-house
systems will be insignificant and will therefore not impact the Partnership's
business, financial condition and results of operations.
Other
Certain items discussed in this quarterly report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership to be materially different from any future
results, performance, or achievements expressed or implied by such forward-
looking statements. Such forward-looking statements speak only as of the date
of this quarterly report. The Partnership expressly disclaims any obligation or
undertaking to release publicly any updates of revisions to any forward-looking
statements contained herein to reflect any change in the Partnership's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
<PAGE> 9
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27, Financial Data Schedule, (for SEC purposes only), is filed
as an exhibit to this report.
(b) Reports on Form 8-K:
A form 8-K/A was filed with the Securities and Exchange Commission on
April 12, 1999. This filing amended the previous 8-K/A filed on March
31, 1999 to disclose that there were no disagreements with the
Company's prior independent auditor, Ernst and Young, LLP within the
two-year period ended December 31, 1997 and the interim period of
January 1, 1998 through December 18, 1998, on matters of accounting
principles or practices, financial statement disclosure, or auditing
scope or procedure. Nor did the prior independent auditor's reports on
the financial statements for the two-year period ended December 31,
1997 contain an adverse opinion or a disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope or
accounting principles.
<PAGE> 10
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BRUNNER COMPANIES INCOME PROPERTIES L.P. III
By: Brunner Management Limited Partnership
Its General Partner
By: 104 Management, Inc.
Its Managing General Partner
By: /s/ James M. Hull
----------------------------
James M. Hull
President and Director
By: /s/ Deborah Mosley
----------------------------
Deborah Mosley
Chief Accounting Officer
Date: August 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 700
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 10,651
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,351
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (228)
<TOTAL-LIABILITY-AND-EQUITY> 11,351
<SALES> 253
<TOTAL-REVENUES> 253
<CGS> 0
<TOTAL-COSTS> 589
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (336)
<INCOME-TAX> 0
<INCOME-CONTINUING> (336)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (336)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
