<PAGE> 1
FORM 10-QSB
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 September 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 September 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>
Sept. 30, 1999 Dec. 31, 1998
(unaudited) (audited)
----------- ---------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 690 $ 884
Accounts receivable - net 4 122
Other assets -- 198
Investment properties - net --- 10,765
--------- ---------
$ 694 $ 11,969
========= =========
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable and accrued expenses $ 139 $ 452
Tenant security deposits -- 16
Mortgage notes payable -- 11,393
--------- ---------
139 11,861
Partners' Capital (Deficit)
General partner's (55) (59)
Class A limited partners' - (850,900 units issued and
outstanding) 588 149
Class B limited partners' - (8,600 units issued and
outstanding) 22 555 18 108
----- --------- ----- ---------
$ 694 $ 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>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Rental income $ -- $ 324 $ 216 $ 1,151
Other income 72 27 46 537
--------- --------- --------- ---------
Total revenues 72 351 262 1,688
--------- --------- --------- ---------
Expenses:
Operating $ -- 139 74 287
General and administrative 31 21 110 73
Depreciation -- 207 113 317
Interest -- 268 6 804
Property taxes -- 25 29 75
Write-downs to net realizable value -- -- 225 --
--------- --------- --------- ---------
Total expenses 31 560 557 1,556
--------- --------- --------- ---------
Income (loss) before extraordinary gains 41 (209) $ (295) $ 132
--------- --------- --------- ---------
Extraordinary gain from foreclosure 742 -- 742 --
--------- --------- --------- ---------
Net income (loss) 783 (209) $ 447 $ 132
--------- --------- --------- ---------
Net income (loss) allocated to general
partner (1%) 8 (2) $ 4 $ 1
Net income (loss) allocated to Class A
limited partners (98.01%) 767 (205) 439 130
Net income (loss)allocated to Class B
limited partners (.99%) 8 (2) 4 1
--------- --------- --------- ---------
$ 783 $ (209) $ 447 $ 132
--------- --------- ========= =========
Net income (loss) per Class A limited
partnership unit $ .48 $ (.24) $ .53 $ .15
--------- --------- ========= =========
</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 income for the nine months ended
Sept 30, 1999 4 439 4 447
--------- --------- --------- ---------
Partners' capital (deficit) at
Sept 30, 1999 $ (55) $ 588 $ 22 $ 555
========= ========= ========= =========
</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>
Nine Months
Ended
Sept 30,
--------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 447 $ 132
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 113 317
Amortization of loan costs and leasing commissions 1 13
Change in accounts:
Receivables 118 54
Other assets 198 (9)
Accounts payable and accrued expenses (313) (47)
Tenant security deposits (16) 7
--------- ---------
Net cash provided by operating activities: 548 467
--------- ---------
Cash flows from investing activities:
Property improvements and replacements -- (30)
Lease commissions paid -- (111)
Surrender of property on foreclosure 10,651 --
--------- ---------
Net cash provided by (used in) investing activities 10,651 (141)
--------- ---------
Cash flows from financing activities:
Mortgage principal payments -- (195)
Satisfaction of mortgage on foreclosure (11,393) --
--------- ---------
Net cash used in financing activities (11,393) (195)
--------- ---------
Net increase (decrease) in cash and cash equivalents (194) 131
Cash and cash equivalents at beginning of period 884 837
--------- ---------
Cash and cash equivalents at end of period $ 690 $ 968
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 6 $ 803
========= =========
</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 were 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 were 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 were 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 the foreclosures, certain Partnership assets,
including accounts receivable and other assets were expensed during the second
quarter of 1999 and reported on the Partnership's statement of operations as
"write-downs to net realizable value".
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 exceeded their appraised values. Additionally, the Partnership's
mortgage notes payable balances, which were nonrecourse, exceeded the carrying
amounts of the Partnership's investment properties. 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. Pursuant to the foreclosures during the third
quarter of 1999, the Partnership's investment properties were written-off in
satisfaction of the mortgage notes payable on the properties and an
extraordinary gain of approximately $742,000 has been reported in the
Partnership's statement of operations for the nine months ended September 30,
1999. Furthermore, during the third quarter of 1999, pursuant to terms agreed
upon by the lender, certain other liabilities including security deposits,
accrued interest payable, and accrued property taxes were adjusted to the total
amount owed in satisfaction of these liabilities to the lender.
Operating results for the nine month period ended September 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 made to affiliates of the Managing
General Partner during the nine months ended September 30, 1999 and 1998 (in
thousands):
<PAGE> 7
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Property management fees (included in
operating expenses) $ 9 $ 53
Reimbursement for services of affiliates
(included in general and administrative expenses) $ 2 $ 35
</TABLE>
Additionally, the Partnership paid approximately $12,542 and $109,000 during
the nine months ended September 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. During the second quarter of 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 consisted of two retail centers (the
"Centers"). The properties were not under the control and management of the
Partnership since the appointment of the receivers, as hereinafter explained.
The following table sets forth the average occupancy of the properties for the
nine months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Average
Occupancy
1999 1998
---- ----
<S> <C> <C>
Gateway Plaza, 74% 55%
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 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 were paid by the
Managing General Partner after 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, were
unsuccessful. The lender was unwilling to discount its debt or materially
restructure the same on terms favorable to the Partnership.
On September 30, 1999, the Partnership held cash and cash equivalents of
approximately $690,000. As a 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 $125,000 has been
included in the Partnership's liabilities of $139,000 at September 30, 1999.
The foreclosure of Gateway Plaza was completed in August 1999 and the
foreclosure of Highpoint Village should be completed in November 1999. 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 Partnership debts. An estimate of
the amount of cash to be distributed to partners is unknown at this time.
<PAGE> 8
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's 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:
<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: November 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 690
<SECURITIES> 0
<RECEIVABLES> 4
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 694
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 555
<TOTAL-LIABILITY-AND-EQUITY> 694
<SALES> 216
<TOTAL-REVENUES> 262
<CGS> 0
<TOTAL-COSTS> 557
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (295)
<INCOME-TAX> 0
<INCOME-CONTINUING> (295)
<DISCONTINUED> 0
<EXTRAORDINARY> 742
<CHANGES> 0
<NET-INCOME> 447
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
