10-Q 1 dsiviii907.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q /_x_/ Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended September 30, 2007. /___/ Transition report pursuant to Section 13 or 15(d) of the Securities Act of 1934 for the transition period from ______________ to ________________. Commission File Number 2-90168 DSI REALTY INCOME FUND VIII, A California Limited Partnership (Exact name of registrant as specified in its charter) California_______________________________________33-0050204 (State or other jurisdiction of (I.R.S. Employer incorporation) Identification No.) 6700 E. Pacific Coast Hwy., Long Beach, California 90803 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code-(562)493-8881 _________________________________________________________________ Former name, former address and former fiscal year, if changed 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__. PART I - FINANCIAL INFORMATION Item 1. Financial Statements. DSI REALTY INCOME FUND VIII (A Limited Partnership) BALANCE SHEETS(UNAUDITED) SEPTEMBER 30, 2007 AND DECEMBER 31, 2006 September 30, December 31, 2007 2006 ASSETS CASH AND CASH EQUIVALENTS $ 808,327 $ 678,999 PROPERTY, NET 2,020,842 2,033,534 INVESTMENT IN REAL ESTATE JOINT VENTURE 197,935 191,500 OTHER ASSETS 120,014 96,700 ---------- ---------- TOTAL $3,147,118 $3,000,733 ========== ========== LIABILITIES AND PARTNERS' EQUITY LIABILITIES Distribution to Partners $ 242,424 $ 242,424 Incentive management fee payable to general partners 31,827 50,214 Property management fee payable - 11,072 Customer deposits and other liabilities 134,975 108,374 Capital lease obligation 23,009 35,170 ---------- ---------- Total liabilities 432,235 447,254 ---------- ---------- PARTNERS' EQUITY (DEFICIT): General Partners (77,418) (79,032) Limited Partners (24,000 limited partnership units outstanding at September 30, 2007 and December 31, 2006 2,792,301 2,632,511 ---------- ---------- Total partners' equity 2,714,883 2,553,479 ---------- ---------- TOTAL $3,147,118 $3,000,733 ========== ========== See accompanying notes to financial statements (unaudited). STATEMENTS OF INCOME (UNAUDITED) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 September 30, September 30, 2007 2006 REVENUES: Rental $ 516,064 $ 532,876 ---------- ---------- EXPENSES: Operating 184,972 215,547 General and administrative 49,875 49,751 ---------- ---------- Total expenses 234,847 265,298 ---------- ---------- OPERATING INCOME 281,217 267,578 OTHER INCOME Net income from discontinued operations 47,219 Interest 189 187 ---------- ---------- INCOME BEFORE EQUITY IN INCOME OF REAL ESTATE JOINT VENTURE 281,406 314,984 EQUITY IN INCOME OF REAL ESTATE JOINT VENTURE 36,163 29,577 ---------- ---------- NET INCOME $ 317,569 $ 344,561 ========== ========== AGGREGATE NET INCOME ALLOCATED TO: Limited partners $ 314,393 $ 341,115 General partners 3,176 3,446 ---------- ---------- TOTAL $ 317,569 $ 344,561 ========== ========== NET INCOME PER LIMITED PARTNERSHIP UNIT $ 13.10 $ 14.21 ========== ========== LIMITED PARTNERSHIP UNITS USED IN PER UNIT CALCULATION 24,000 24,000 ====== ====== See accompanying notes to financial statements (unaudited). STATEMENTS OF INCOME (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 September 30, September 30, 2007 2006 REVENUES: Rental $1,559,513 $1,608,921 ---------- ---------- EXPENSES: Operating 569,572 593,357 General and administrative 200,662 200,399 ---------- ---------- Total expenses 770,234 793,756 ---------- ---------- OPERATING INCOME 789,279 815,165 OTHER INCOME Net income from discontinued operations 0 138,863 Interest 563 560 ---------- ---------- INCOME FROM CONTINUING OPERATIONS BEFORE EQUITY IN INCOME OF REAL ESTATE JOINT VENTURE 789,842 954,588 EQUITY IN INCOME OF REAL ESTATE JOINT VENTURE 98,835 83,807 ---------- ---------- NET INCOME $ 888,677 $1,038,395 ========== ========== AGGREGATE NET INCOME ALLOCATED TO: Limited partners $ 879,790 $1,028,011 General partners 8,887 10,384 ---------- ---------- TOTAL $ 888,677 $1,038,395 ========== ========== NET INCOME PER LIMITED PARTNERSHIP UNIT $ 36.66 $ 42.83 ========== ========== LIMITED PARTNERSHIP UNITS USED IN PER UNIT CALCULATION 24,000 24,000 ====== ====== See accompanying notes to consolidated financial statements (unaudited) STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIT)(UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 GENERAL LIMITED PARTNERS PARTNERS TOTAL BALANCE AT JANUARY 1, 2007 ($79,032) $2,632,511 $2,553,479 NET INCOME 8,887 879,790 888,677 DISTRIBUTIONS (7,273) (720,000) (727,273) -------- ---------- ---------- BALANCE AT SEPTEMBER 30, 2007 ($77,418) $2,792,301 $2,714,883 ======== ========== ========== See accompanying notes to consolidated financial statements (unaudited). STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 September 30, September 30, 2007 2006 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 888,677 $1,038,395 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 12,692 20,118 Equity in earnings of real estate joint venture (98,835) (83,807) Changes in assets and liabilities: Increase in other assets (23,314) - (Decrease)Increase in incentive management fee payable to general partners (18,387) 6,363 Decrease in property management fee payable (11,072) (1,188) Increase in customer deposits and other liabilities 26,598 18,661 Distributions from real estate joint venture 92,400 82,500 -------- -------- Net cash provided by operating activities 868,759 1,081,042 -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES - Distributions to partners (727,273) (818,181) Payments on capital lease obligations (12,158) (17,181) --------- -------- Net cash used in financing activities (739,431) (835,362) --------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS 129,328 245,680 CASH AND CASH EQUIVALENTS: At beginning of period 678,999 599,338 --------- --------- At end of period $ 808,327 $ 845,018 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - Cash paid for interest $ 814 $ 2,133 ========= ========= NON CASH FINANCING ACTIVITIES Distributions due partners included in partners' equity $ 242,424 $ 272,727 ========= ========= See accompanying notes to financial statements(unaudited). DSI REALTY INCOME FUND VIII (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. GENERAL DSI Realty Income Fund VIII (the "Partnership"), a limited partnership, has two general partners (DSI Properties, Inc., and Diversified Investors Agency) and limited partners owning 24,000 limited partnership units. The Partnership was formed under the California Uniform Limited Partnership Act for the primary purpose of acquiring and operating real estate. The Partnership has acquired four mini-storage facilities located in Stockton, El Centro, Huntington Beach, and Lompoc, California. The Partnership has also entered into a joint venture with DSI Realty Income Fund IX, through which the Partnership has a 30% interest in a mini-storage facility in Aurora, Colorado (see Note 3). All facilities were acquired from Dahn Corporation ("Dahn"). Dahn is not affiliated with the Partnership. Dahn is affiliated with other partnerships in which DSI Properties, Inc. is a general partner (see Note 7). The accompanying interim financial statements have been prepared by the Company's management in accordance with accounting principles generally accepted in the United States of America ("GAAP") and in conjunction with the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regu- lations. Accordingly, the interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying interim financial statements reflect all adjustments of a normal and recurring nature which are considered necessary for a fair presentation of the results for the interim periods presented. However, the results of operations for the interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2007. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2006. 2. PROPERTY The Partnership owns four mini-storage facilities located in Stockton, El Centro, Lompoc and Huntington Beach, California. The total cost of property and accumulated depreciation is as follows: September 30, December 31, 2007 2006 Land $ 1,969,877 $ 1,969,877 Buildings and improvements 6,047,200 6,047,200 Rental trucks under capital lease 70,047 70,047 ------------ ------------ Total 8,087,124 8,087,124 Less: Accumulated Depreciation ( 6,066,282) ( 6,053,590) ------------ ------------ Property - Net $ 2,020,842 $ 2,033,534 ============ ============ 3. INVESTMENT IN REAL ESTATE JOINT VENTURE The Partnership is involved in a joint venture with DSI Realty Income Fund IX through which the Partnership has a 30% interest in a mini-storage facility in Aurora, Colorado. Under the terms of the joint venture agreement, the Partnership is entitled to 30% of the profits and losses of the venture and owns 30% of the mini-storage facility as a tenant in common with DSI Realty Income Fund IX, which has the remaining 70% interest in the venture. Summarized income statement information for the joint venture for the three and nine months ended September 30, 2007 and 2006 is as follows: Three months Nine months ended September 30, ended September 30, 2007 2006 2007 2006 Revenue $163,241 $167,733 $522,619 $490,959 Operating Expenses 61,376 88,974 193,168 211,602 -------- -------- -------- -------- Net Income $101,865 $ 78,759 $329,451 $279,357 ======== ======== ======== ======== The Partnership accounts for its investment in the real estate joint venture under the equity method of accounting. 4. NET INCOME PER LIMITED PARTNERSHIP UNIT Net income per limited partnership unit is calculated by dividing the net income allocated to the limited partners by the number of limited partnership units outstanding during the period. 5. ALLOCATION OF PROFITS AND LOSSES AND GENERAL PARTNERS' INCENTIVE MANAGEMENT FEE Under the Agreement of limited Partnership, the general partners are to be allocated 1% of the net profits or losses from operations, and the limited partners are to be allocated the balance of the net profits or losses from operations in proportion to their limited partnership interests. The General Partners are also entitled to receive a percentage, based on a predetermined formula, of any cash distribution from the sale, other disposition or refinancing of the project. In addition, the General Partners are entitled to receive an incentive management fee for supervising the operations of the Partnership. The fee is to be paid in an amount equal to 9% per annum of the cash available for distribution on a cumulative basis, calculated as cash generated from operations less capital expenditures. 6. DISCONTINUED OPERATIONS In accordance with SFAS No. 144, "Business Combinations," the net income and the net gain on disposition of a mini-storage facility located in Pittsburg, California, which was sold on October 20, 2006, is reflected in the statement of income as discontinued operations for the quarter ended September 30, 2006. The mini-storage facility was sold for the sale price of $3,285,000. In November 2006, the proceeds in the amount of $2,796,788 were distributed to the limited partners. The net gain on the sale of the facility is $2,475,318, which is net of fees paid to the general partners in accordance with the partnership agreement amounting to $488,140. The following table summarized the revenue and expense components that comprise discontinued operations. Three months ended Nine months ended September 30, September 30, 2006 2006 Revenue-Rental $ 95,883 $287,288 Expenses: Operating 49,346 148,425 General and administrative 0 0 -------- -------- Total expenses $ 49,346 $148,425 -------- -------- Income from discontinued operations $ 46,537 $138,863 ======== ======== 7. RELATED-PARTY TRANSACTIONS The Partnership has entered into a management agreement with Dahn to operate its mini-storage facilities. The management agreement provides for a management fee equal to 5% of gross revenue from operations, which is defined as the entire amount of all receipts from the renting or leasing of storage compartments and sale of locks. The management agreement is renewable annually. Dahn earned management fees equal to $25,803 and $26,643, for the three month periods ended September 30, 2007 and 2006, respectively, and $77,975 and $80,446 for the nine month period ended September 30, 2007 and 2006, respectively. Amounts payable to Dahn at September 30, 2007 and December 31, 2006, were $ -0- and $11,072, respectively. In 2004, the Partnership entered into truck lease agreements with KMD Trucks, LLC ("KMD"). The president of Dahn, Brian Dahn, is also a member of KMD. Trucks are leased under 48-month leases with total monthly payments in the amount of $1,500. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. We are pleased to enclose the Partnership's unaudited financial statements for the period ended September 30, 2007. The following is Management's discussion and analysis of the Partnership's financial condition and results of its operations. For the three-month periods ended September 30, 2007 and 2006, total revenues decreased 3.2% from $532,876 to $516,064 and total expenses decreased 11.5% from $265,298 to $234,847 and other income decreased from $47,406 to $189 due to the absence of income from discontinued operations of the Pittsburg property, and equity in income of the real estate joint venture increased 22.3% from $29,577 to $36,163. As a result, net income decreased 7.8% from $344,561 to $317,569 for the three-month period ended September 30, 2007, as compared to the same period in 2006. Rental revenue decreased as a result of lower unit rental rates. Occupancy levels for the Partnership's four mini-storage facilities averaged 81.2% for the three-month period ended September 30, 2007 as compared to 81.4% for the same period in 2006. The Partnership is continuing its marketing efforts to attract and keep new tenants in its various mini-storage facilities. Operating expenses decreases approximately $30,600 (14.2%) as a result of decreases in advertising, re- pairs and maintenance, legal, depreciation and salaries and wages expenses, partially offset by an increase in real estate tax expense. General and administrative expenses remained constant. Equity in income from the real estate joint venture increased as a result of the higher net income at that facility. For the nine-month periods ended September 30, 2007, and 2006, total revenues decreased 3.1% from $1,608,921 to $1,559,513 and total expenses decreased 3.0% from $793,756 to $770,234 and other income decreased from $139,423 to $563 due to the absence of income from discontinued operations of the Pittsburg property and equity in income of the real estate joint venture increased 17.9% from $83,807 to $98,835. As a result, net income decreased 14.4% from $1,038,395 to $888,677 for the nine-month period ended September 30, 2007, as compared to the same period in 2006. Rental revenue decreased as a result of lower occupancy and unit rental rates. Operating expenses decreased approx- imately $23,800 (4.0%) primarily as a result of decreases in advertising, repairs and maintenance, salaries and wages, depreciation and workers compen- sation insurance expenses, partially offset by increases in legal and real estate tax expenses. General and administrative expenses remained relatively constant. Equity in income from the real estate joint venture increased as a result of the higher net income at that facility. On October 20, 2006 escrow closed on the sale of the Partnerships' mini- storage facility in Pittsburg, California. Net income from that property for the prior year three and nine-month periods ended September 30, 2006 is shown under other income as net income from discontinued operations in order not to distort comparisons with current operating activities. The General Partners will continue their policy of funding continuing improvement and maintenance of Partnership properties with cash generated from operations. The Partnership's resources appear to be adequate to meet its needs. The General Partners anticipate distributions to the Limited Partners to remain at the current level for the foreseeable future. Item 3. Quantitative and Qualitative Disclosures About Market Risk NONE Item 4. CONTROLS AND PROCEDURES The Partnership evaluated the effectiveness of its disclosure controls and procedures. This evaluation was performed by the Partnership's Controller with the assistance of the Partnership's President and the Chief Executive Officer. These disclosure controls and procedures are designed to ensure that the information required to be disclosed by the Partnership in its periodic reports filed with the Securities and Exchange Commission (the Commission) is recorded, processed, summarized and reported, within the time periods specified by the Commission's rules and forms, and that the inform- ation is communicated to the certifying officers on a timely basis. Based on this evaluation, the Partnership concluded that its disclosure controls and procedures were effective. There have been no significant changes in the Partnership's internal controls or in other factors that could significantly affect the internal controls subsequent to the date of their evaluation. PART II - OTHER INFORMATION Item 1. Legal Proceedings Registrant is not a party to any material pending legal proceedings. Item 1A. Risk Factors Please refer to the risk factors disclosed by the partnership in response to Item 1A, part I of the Form 10-K filed on March 30, 2007. There has been no material change to the risk factors disclosed therein. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds NONE Item 3. Defaults Upon Senior Securities NONE Item 4. Submission of Matters to a Vote of Security Holders NONE Item 5. Other Information NONE Item 6. Exhibits NONE SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: November 14, 2007 DSI REALTY INCOME FUND VIII A California Limited Partnership (Registrant) By____\s\ Robert J. Conway_____ DSI Properties, Inc., as General Partner by ROBERT J. CONWAY, President and Chief Financial Officer SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: November 14, 2007 DSI REALTY INCOME FUND VIII A California Limited Partnership (Registrant) By__\s\ Robert J. Conway________ DSI Properties, Inc., as General Partner by ROBERT J. CONWAY, President and Chief Financial Officer CERTIFICATIONS I, Robert J. Conway, certify that: 1. I have reviewed this report on Form 10-Q for the quarter ended September 30, 2007 of DSI Realty Income Fund VIII; 2. Based on my knowledge, this 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 cover- ed by this report. 3. Based on my knowledge, the financial statements and other financial information included in this 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 report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our super- vision, 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 annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of our annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and general partners (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to affect the registrant's ability to record, pro- cess, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's in- ternal controls over financial reporting. Date: November 14, 2007 Robert J. Conway Chief Executive Officer CERTIFICATIONS I, Richard P. Conway, certify that: 1. I have reviewed this report on Form 10-Q for the quarter ended September 30, 2007 of DSI Realty Income Fund VIII; 2. Based on my knowledge, this 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 cover- ed by this report. 3. Based on my knowledge, the financial statements and other financial information included in this 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 report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our super- vision, 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 annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of our annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and general partners (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to affect the registrant's ability to record, pro- cess, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's in- ternal controls over financial reporting. Date: November 14, 2007 Richard P. Conway Vice President CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of DSI Realty Income Fund VIII (the "Partnership") on Form 10-Q for the period ending September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert J. Conway, Chief Executive Officer of the Partnership, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Partnership. Robert J. Conway Chief Executive Officer November 14, 2007 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of DSI Realty Income Fund VIII (the "Partnership") on Form 10-Q for the period ending September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Richard P. Conway, Vice President of the Corporate General Partner, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Partnership. Richard P. Conway Vice President November 14, 2007