10QSB 1 mrpr03q210q.txt MAXUS REAL PROPERTY INVESTORS-FOUR, L.P. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE --- ACT OF 1934 For the quarter period ended May 31, 2003 -------------------- 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 000-11023 --------- MAXUS REAL PROPERTY INVESTORS-FOUR, L.P. --------------------------------------- (Exact name of small business issuer as specified in its charter) Missouri 43-1250566 ----------- ------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 104 Armour Road, North Kansas City, Missouri 64116 ---------------------------------------------------- (Address of principal executive offices) Registrant's telephone number, including area code (816) 303-4500 ---------------- 1 INDEX Page PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS: Balance Sheets 3 Statements of Operations 4 Statements of Cash Flows 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 7 ITEM 3. CONTROLS AND PROCEDURES 9 PART II - OTHER INFORMATION 9 ITEM 1. LEGAL PROCEEDINGS 9 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 9 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 9 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9 ITEM 5. OTHER INFORMATION 10 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10 SIGNATURES 11 EXHIBIT INDEX 14 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MAXUS REAL PROPERTY INVESTORS - FOUR, L.P. (A LIMITED PARTNERSHIP) BALANCE SHEETS May 31, November 30, 2003 2002 (Unaudited) ASSETS: Investment property Land $ 1,014,000 1,014,000 Buildings and improvements 16,070,000 15,940,000 ----------- ----------- 17,084,000 16,954,000 Less accumulated depreciation 10,764,000 10,456,000 ----------- ----------- Total investment property 6,320,000 6,498,000 Cash and cash equivalents 812,000 911,000 Prepaid expenses 33,000 86,000 Deferred expenses, less accumulated amortization 78,000 82,000 Income tax deposit 18,000 18,000 ----------- ----------- Total assets $ 7,261,000 7,595,000 =========== =========== LIABILITIES AND PARTNERS' DEFICIT: Liabilities: Mortgage notes payable $ 9,900,000 9,900,000 Accounts payable and accrued expenses 233,000 232,000 Real estate taxes payable 71,000 126,000 Refundable tenant deposits 71,000 75,000 ----------- ----------- Total liabilities 10,275,000 10,333,000 Partners' deficit (3,014,000) (2,738,000) ----------- ----------- Total liabilities and partners' deficit $ 7,261,000 7,595,000 =========== ===========
3 MAXUS REAL PROPERTY INVESTORS - FOUR, L.P. (A LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Six Months Ended May 31, May 31, May 31, May 31, 2003 2002 2003 2002 Revenues: Rental $ 651,000 668,000 1,333,000 1,324,000 Other 57,000 60,000 108,000 122,000 -------- -------- --------- --------- Total revenues 708,000 728,000 1,441,000 1,446,000 -------- -------- --------- --------- Expenses: Depreciation and amortization 156,000 154,000 312,000 304,000 Repairs and maintenance 71,000 82,000 143,000 168,000 Real estate taxes 48,000 34,000 84,000 69,000 Professional fees 20,000 29,000 48,000 96,000 Utilities 40,000 33,000 68,000 60,000 Property management fees - related parties 47,000 43,000 91,000 87,000 Other 139,000 116,000 242,000 229,000 -------- -------- -------- --------- Total expenses 521,000 491,000 988,000 1,013,000 -------- -------- -------- --------- Net operating income 187,000 237,000 453,000 433,000 -------- -------- -------- --------- Interest Interest income (12,000) (11,000) (14,000) (20,000) Interest expense 184,000 184,000 369,000 369,000 -------- --------- -------- --------- Net income $ 15,000 64,000 98,000 84,000 ======== ========= ======== ========= Net income allocation: General partner $ --- 1,000 2,000 2,000 Limited partners 15,000 63,000 96,000 82,000 -------- --------- -------- --------- $ 15,000 64,000 98,000 84,000 ======== ========= ======== ========= Limited partners' data: Net income per unit $ 1.29 5.18 8.22 6.74 ======== ========= ======== ========= Weighted average limited partnership units outstanding 11,596 12,173 11,679 12,173 ======== ========= ======== =========
4 MAXUS REAL PROPERTY INVESTORS-FOUR, L.P. (A LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended May 31, May 31, 2003 2002 Cash flows from operating activities: Net income $ 98,000 84,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 312,000 304,000 Changes in accounts affecting operations: Accounts receivable --- 30,000 Prepaid expenses 53,000 21,000 Accounts payable and accrued expenses 1,000 (45,000) Real estate taxes payable (55,000) (68,000) Refundable tenant deposits (4,000) (6,000) Income tax deposit --- 91,000 --------- --------- Net cash provided by operating activities 405,000 411,000 --------- --------- Cash flows from investing activities: Capital expenditures (130,000) (143,000) --------- --------- Cash flows from financing activities: Distributions (232,000) (243,000) Repurchase of Partnership Units (142,000) --- -------- --------- Net cash used in financing activities (374,000) (243,000) -------- --------- Net increase (decrease) in cash (99,000) 25,000 Cash and cash equivalents, beginning of period 911,000 1,048,000 -------- --------- Cash and cash equivalents, end of period $ 812,000 1,073,000 ======== ========= Supplemental disclosure of cash flow information - cash paid during the period for interest $ 368,000 369,000 ========= =========
5 MAXUS REAL PROPERTY INVESTORS-FOUR, L.P. (A LIMITED PARTNERSHIP) NOTES TO UNAUDITED FINANCIAL STATEMENTS SIX MONTHS ENDED MAY 31, 2003 AND 2002 (1) Summary of Significant Accounting Policies Refer to the financial statements of Maxus Real Property Investors - Four, L.P., formerly known as Nooney Real Property Investors - Four, L.P. (the "Partnership" or the "Registrant"), for the year ended November 30, 2002, which are contained in the Partnership's Annual Report on Form 10-KSB, for a description of the accounting policies which have been continued without change. Also, refer to the footnotes to those statements for additional details of the Partnership's financial condition and results of operations. The details in those notes have not changed except as a result of normal transactions in the interim. In the opinion of the general partner, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at May 31, 2003 and for all periods presented have been made. The results for the three and six month periods ended May 31, 2003 are not necessarily indicative of the results that may be expected for the entire year. Certain reclassifications have been made to the prior period amounts to conform to the current period presentation. (a) Description of Business The Partnership is a limited partnership organized under the laws of the State of Missouri on February 9, 1982. The Partnership was organized to invest primarily in income-producing real properties such as shopping centers, office buildings and other commercial properties, apartment buildings, warehouses, and light industrial properties. The Partnership's portfolio is comprised of a 402-unit apartment building located in West St. Louis County, Missouri (Woodhollow Apartments). (b) Basis of Accounting The financial statements include only those assets, liabilities, and results of operations of the partners which relate to the business of Maxus Real Property Investors-Four, L.P. The statements do not include assets, liabilities, revenues or expenses attributable to the partners' individual activities. No provision has been made for federal and state income taxes since these taxes are the responsibility of the partners. (2) Repurchase of Partnership Interests On May 23, 2003, the Partnership commenced an odd-lot offer to purchase up to 3,468 of the Registrant's limited partnership units from limited partners holding 12 units or fewer (the "Offer"). The Offer expired on June 27, 2003. In connection with the Offer, the Registrant redeemed 100 limited partnership units of the Registrant at $430 per unit. The redemptions of units held by ten limited partners, totaling 55 units, are being held pending receipt of all necessary documents to satisfy the Registrant's redemption requirements. Previously, the Partnership commenced an odd-lot offer to purchase up to 3,840 of the Registrant's limited partnership units from limited partners holding 12 units or fewer, which expired on December 31, 2002. At that time, the Registrant redeemed 332 limited partnership units at $430 per unit. As a result, as of July 1, 2003 there are 11,496 outstanding limited partnership units. 6 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION This 10-QSB contains forward-looking information (as defined in the Private Securities Litigation Reform Act of 1995) that involves risk and uncertainty, including trends in the real estate investment market, general market conditions, projected leasing and sales, and future prospects for the Partnership. Actual results could differ materially from those contemplated by such statements. CRITICAL ACCOUNTING POLICIES Refer to the Financial Statements of the Partnership for the year ended November 30, 2002, which are contained in the Partnership's Annual Report in Form 10-KSB, for a description of the accounting policies, which have been continued without change, unless otherwise noted herein. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect amounts reported in the accompanying financial statements. The most significant assumptions and estimates relate to revenue recognition for leases, treatment of capital expenditures, depreciable lives of investment property, capital expenditures and the valuation of investment property. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates. Revenue Recognition The Partnership leases its property pursuant to operating leases with terms generally of six or twelve months. Rental income is recognized when received; this method approximates recognition using the straight-line method over the related lease term. Investment Property Useful Lives The Partnership is required to make subjective assessments as to the useful lives of its property for the purposes of determining the amount of depreciation to reflect on an annual basis with respect to the property. These assessments have a direct impact on the Partnership's net income. Investment property is depreciated over its estimated useful life of 30 years using the straight-line method. Furnishings and appliances are depreciated from 5 to 7 years using the straight-line method. Capital Expenditures For reporting purposes, the Partnership capitalizes all carpet, vinyl, appliance, and HVAC replacements. The Partnership expenses all other expenditures that total less than $10,000. Expenditures over $10,000 and expenditures related to contracts over $10,000 are evaluated individually for capitalization. Impairment of Investment Property Values The Partnership is required to make subjective assessments as to whether there are impairments in the value of its investment property. Management's estimates of impairment in the value of the investment property have a direct impact on the Partnership's net income. The Partnership follows the provisions of Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". The Partnership assesses the carrying value of its long-lived asset whenever events or changes in circumstances indicate that the carrying amount of the underlying asset may not be recoverable. Certain factors that may occur and indicate that an impairment exists include, but are not limited to: significant underperformance relative to projected future operating results; significant changes in the manner of the use of the asset; and significant adverse industry or market economic trends. If the carrying value of the property may not be recoverable based upon the existence of one or more of the above indicators of impairment, management measures the impairment based on projected discounted cash flows using a discount rate determined by management to be commensurate with the risk inherent in the Partnership, compared to the property's current carrying value. 7 LIQUIDITY AND CAPITAL RESOURCES Cash as of May 31, 2003 was $812,000, a decrease of $99,000 from November 30, 2002. Cash provided from operating activities for the six months ended May 31, 2003 was $405,000, which is consistent with results from the same period in 2002. Investing activities used $130,000 due to investment in property improvements including roof replacements of $62,000 and HVAC replacements of $25,000. Cash used in financing activities was $374,000, comprised of $232,000 of distributions of $10 per limited partner unit, which were paid in January and April of 2003, and $142,000 to repurchase 332 limited partner units. Contractual Obligations The mortgage note payable is secured by Woodhollow Apartments and calls for monthly interest payments of $61,000, with interest fixed at 7.45%. The principal balance is due December 1, 2010. In the event of prepayment by the Partnership, the note requires a substantial prepayment penalty. Management believes the Partnership's current cash position and the property's ability to provide operating cash flow should enable the Partnership to fund anticipated capital expenditures and meet debt obligations. RESULTS OF OPERATIONS For the three and six month periods ended May 31, 2003, the Partnership's revenues were $708,000 and $1,441,000, respectively. Revenues decreased by $20,000 (2.7%) and $5,000 (.4%) respectively for the three and six-month periods ended May 31, 2003 as compared to the same periods ended May 31, 2002. This decrease was primarily due to an increase in vacancy loss of $24,000 and $10,000 for the three and six-month periods ended May 31, 2003, respectively. For the three and six month periods ended May 31, 2003, the Partnership's operating expenses were $521,000 and $988,000, respectively. Expenses increased by $30,000 (6.1%) for the three-month period ended May 31, 2003 as compared to the same period ended May 31, 2002. The increase in expenses was primarily due to an increase in real estate taxes of $14,000, insurance expense (other expenses) of $27,000, and utilities of $7,000, offset by a decrease in professional fees of $9,000 and repairs and maintenance of $11,000. Expenses decreased $25,000 (2.5%) for the six-month period ended May 31, 2003 as compared to the same period ended May 31, 2002. The decrease in expenses was primarily due to a decrease in repairs and maintenance of $25,000 and professional fees of $48,000 offset by an increase in insurance expense (other expenses) of $37,000 and taxes of $15,000. The decrease in professional fees was the result of a property tax study completed in 2002. This expense was not recurring in nature and did not recur in 2003. The increase in insurance expense is primarily due to a rate increase in 2003. Woodhollow was 94% occupied at May 31, 2003. Based on industry information, the average occupancy of the sub-market Woodhollow competes with is in the low to mid 90% range. In 2002, unemployment rose above 6% in the St. Louis area for the first time since 1993. The rate is expected to continue to stay at higher levels until the end of 2003. Interest rates remain low, which normally increases losses of tenants who move out of apartments when they purchase homes. Economic development is expected to continue in St. Louis, with various projects such as new retail developments and an airport expansion being planned. These developments may lead to a decrease in the unemployment rate. INFLATION The effects of inflation did not have a material impact upon the Registrant's operations in fiscal 2002 and are not expected to materially affect the Registrant's operations in 2003. OFF-BALANCE SHEET ARRANGEMENTS The Partnership does not have any "off-balance sheet arrangements" as defined in Item 303 (c) of Regulations S-B promulgated under the Securities Exchange Act of 1934, as amended. 8 ITEM 3: CONTROLS AND PROCEDURES Under the supervision and with the participation of the management of Maxus Capital Corp., the Partnership's managing general partner, including Maxus Capital Corp.'s Chief Executive Officer and Chief Financial Officer, the Registrant has established a system of controls and other procedures designed to ensure that information required to be disclosed in its periodic reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's ruled and forms. These disclosure controls and procedures have been evaluated under the direction of the Chief Executive Officer and Chief Financial Officer within the last 90 days. Based on such evaluations, the Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures are effective. There have been no significant changes in the system of internal controls or in other factors that could significantly affect internal controls subsequent to the evaluation by the Chief Executive Officer and Chief Financial Officer. PART II. OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS O. BRUCE MILLS V. MAXUS CAPITAL CORP. AND MAXUS REAL PROPERTY INVESTORS-FOUR L.P., CASE NO. 01CC-004237, CIRCUIT COURT OF ST. LOUIS COUNTY, MISSOURI On April 30, 2003, the Registrant settled the only remaining issue in this case with Mills. The terms of the settlement are confidential. The settlement did not require the Registrant or its General Partner to make any payment to Mills. Moreover, the Court's judgment against Mills on all claims remains in place. The judgment, however, was amended on May 2, 2003 in order to release to Mills the $7,000 bond he had posted to secure a preliminary injunction. The amended judgment also vacated the preliminary injunction in this case. With these actions by the parties and the Court this matter is now concluded. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On May 23, 2003, the Partnership commenced an odd-lot offer to purchase up to 3,468 of the Registrant's limited partnership units from limited partners holding 12 units or fewer (the "Offer"). The Offer expired on June 27, 2003. In connection with the Offer, the Registrant redeemed 100 limited partnership units of the Registrant at $430 per unit. The redemptions of units held by ten limited partners, totaling 55 units, are being held pending receipt of all necessary documents to satisfy the Registrant's redemption requirements. Previously, the Partnership commenced an odd-lot offer to purchase up to 3,840 of the Registrant's limited partnership units from limited partners holding 12 units or fewer, which expired on December 31, 2002. At that time, the Registrant redeemed 332 limited partnership units at $430 per unit. As a result, as of July 1, 2003 there are 11,496 outstanding limited partnership units. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 9 ITEM 5. OTHER INFORMATION The Board of Directors of the Partnership's general partner (Maxus Capital Corp.) declared cash distributions of $10 per limited partnership unit, payable to holders of record as of January 1, 2003, April 1, 2003, and July 1, 2003 that were paid on January 10, 2003 and April 10, 2003, and July 10, 2003 respectively. The Partnership anticipates continuing such quarterly distributions, at least in the near future. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits See Exhibit Index on Page 14 (b) Reports on Form 8-K No reports on Form 8-K were filed by the Registrant during the second quarter of 2003. 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. MAXUS REAL PROPERTY INVESTORS-FOUR, L.P. By: MAXUS CAPITAL CORP. General Partner Dated: July 14, 2003 By: /s/ Danley K. Sheldon --------------------- Danley K. Sheldon President and Chief Executive Officer (Principal Executive Officer) Dated: July 14, 2003 By: /s/ John W. Alvey ----------------- John W. Alvey Vice President, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) 11 CERTIFICATION OF THE QUARTERLY REPORT OF MAXUS REAL PROPERTY INVESTORS-FOUR, L.P. I, Danley K. Sheldon, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Maxus Real Property Investors-Four, L.P.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: July 14, 2003 /s/ Danley K. Sheldon --------------------------- Danley K. Sheldon President and Chief Executive Officer of Maxus Capital Corp., General Partner of the Registrant 12 CERTIFICATION OF THE QUARTERLY REPORT OF MAXUS REAL PROPERTY INVESTORS-FOUR, L.P. I, John W. Alvey, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Maxus Real Property Investors-Four, L.P.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: July 14, 2003 /s/ John W. Alvey ----------------- John W. Alvey Vice President, Treasurer, and Chief Financial Officer of Maxus Capital Corp., General Partner of the Registrant 13 EXHIBIT INDEX Exhibit Number Description 3.1 Amended and Restated Agreement and Certificate of Limited Partnership dated April 7, 1982 is incorporated by reference to the Form 10-K for the year ended November 30, 1999 filed by the Registrant under the Securities Act of 1933 (File No. 000-11023) 3.2 Amendment of Certificate of Limited Partnership dated December 21, 1999 is incorporated by reference to the Form 8-K filed by the Registrant on January 21, 2000 under the Securities Act of 1933 (File No. 000-11023) 99.1 Certification of Chief Executive Officer Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification of Chief Financial Officer Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002.