-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LcZ100U0XMLHJ48coVgBna4yJ7hcoBZ/p8C92Dcykn9APDfsB3ktu/qbvxIWq3Y3 xZCBpTEl8HEd6i19UygSmg== 0000736908-04-000020.txt : 20040820 0000736908-04-000020.hdr.sgml : 20040820 20040819175800 ACCESSION NUMBER: 0000736908-04-000020 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040820 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRAUVIN NET LEASE V INC CENTRAL INDEX KEY: 0000913762 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 363913066 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-28332 FILM NUMBER: 04987199 BUSINESS ADDRESS: STREET 1: BRAUVIN REAL ESTATE FUNDS STREET 2: 30 N LASALLE ST STE 3100 CITY: CHICAGO STATE: IL ZIP: 60602 BUSINESS PHONE: 3124430922 MAIL ADDRESS: STREET 1: BRAUVIN REAL ESTATE FUNDS STREET 2: 30 N LASALLE ST STE 3100 CITY: CHICAGO STATE: IL ZIP: 60602 10QSB 1 hy5.txt BRAUVIN NET LEASE V, INC. 6/30/2004 10QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended June 30, 2004 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from N/A to N/A Commission File Number 0-28332 BRAUVIN NET LEASE V, INC. (Name of small business issuer as specified in its charter) Maryland 36-3913066 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 30 North LaSalle Street, Chicago, Illinois 60602 (Address of principal executive offices) (Zip Code) (312) 759-7660 (Issuer's telephone number, including area code) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 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 . As of August 15, 2004, the registrant had 1,286,163 shares of Common Stock outstanding. Transitional small business disclosure format (check one) Yes ___ No X . BRAUVIN NET LEASE V, INC. (a Maryland corporation) INDEX PART I -Financial Information Page Item 1. Consolidated Financial Statements 3 Consolidated Statement of Net Assets in Liquidation as of June 30, 2004 (Liquidation Basis) 4 Consolidated Statement of Changes in Net Assets in Liquidation for the period January 1, 2004 to June 30, 2004 (Liquidation Basis) 5 Consolidated Statements of Operations for the six months ended June 30, 2004 (Liquidation Basis)and June 30, 2003 (Going Concern Basis) 6 Consolidated Statements of Operations for the three months ended June 30, 2004 (Liquidation Basis) and June 30, 2003 (Going Concern Basis) 7 Consolidated Statement of Cash Flow for the six months ended June 30, 2003 8 Notes to Consolidated Financial Statements 9 Item 2. Management's Discussion and Analysis or Plan of Operation 22 Item 3. Controls and Procedures 26 PART II - OTHER INFORMATION Item 1. Legal Proceedings 27 Item 2. Changes in Securities 27 Item 3. Defaults Upon Senior Securities. 27 Item 4. Submission of Matters to a Vote of Security Holders 27 Item 5. Other Information 27 Item 6. Exhibits and Reports on Form 8-K 28 Signatures 29 BRAUVIN NET LEASE V, INC. (a Maryland corporation) PART I - FINANCIAL INFORMATION ITEM 1. Consolidated Financial Statements The following Consolidated Statement of Net Assets in Liquidation as of June 30, 2004 (Liquidation Basis), Consolidated Statement of Changes in Net Assets in Liquidation for the period January 1, 2004 to June 30, 2004 (Liquidation Basis), Consolidated Statements of Operations for the six months ended June 30, 2004 (Liquidation Basis) and June 30, 2003 (Going Concern Basis), Consolidated Statements of Operations for the three months ended June 30, 2004 (Liquidation Basis) and June 30, 2003 (Going Concern Basis) and Consolidated statement of Cash Flow for the six months ended June 30, 2003 (Going Concern Basis) for Brauvin Net Lease V, Inc. (the "Fund") are unaudited but reflect, in the opinion of the management, all adjustments necessary to present fairly the information required. All such adjustments are of a normal recurring nature. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Fund's 2003 Annual Report on Form 10-KSB. BRAUVIN NET LEASE V, INC. (a Maryland corporation) CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION AS OF JUNE 30, 2004 (LIQUIDATION BASIS) (Unaudited) ASSETS Real estate held for sale $13,469,126 Cash and cash equivalents 576,417 Tenant Receivables 4,702 ----------- Total Assets 14,050,245 ----------- LIABILITIES Accounts payable and accrued expenses 35,554 Deferred gain on sale of real estate 3,793,484 Prepaid rent 44,222 Reserve for estimated costs during the period of liquidation 395,595 Tenant security deposits 9,794 Due to affiliates 2,076 ----------- Total Liabilities 4,280,725 ----------- Net Assets in Liquidation $ 9,769,520 =========== See accompanying notes to consolidated financial statements. BRAUVIN NET LEASE V, INC. (a Maryland corporation) STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION FOR THE PERIOD JANUARY 1, 2004 TO JUNE 30, 2004 (LIQUIDATION BASIS) (Unaudited) Net assets in liquidation at January 1, 2004 $9,671,560 Income from operations 613,134 Dividends (515,174) ---------- Net assets in liquidation at June 30, 2004 $9,769,520 ========== See accompanying notes to consolidated financial statements. BRAUVIN NET LEASE V, INC. (a Maryland corporation) STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2004 (LIQUIDATION BASIS) AND JUNE 30, 2003 (GOING CONCERN BASIS) (Unaudited) June 30, June 30, 2004 2003 -------- -------- INCOME Rental $646,538 $605,365 Other charges to tenants 5,962 -- Interest -- 6,022 -------- -------- Total income 652,500 611,387 -------- -------- EXPENSES Directors' fees -- 6,000 Advisory fees -- 105,438 Management fees 6,453 6,432 Depreciation and Amortization -- 87,494 Real estate tax 4,702 -- General and administrative 28,211 53,296 -------- -------- Total expenses 39,366 258,660 -------- -------- Net income $613,134 $352,727 ======== ======== Net income per Share (Based on weighted average shares outstanding of 1,286,163) $ 0.48 $ 0.27 ======== ======== See accompanying notes to consolidated financial statements. BRAUVIN NET LEASE V, INC. (a Maryland corporation) STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2004 (LIQUIDATION BASIS) AND JUNE 30, 2003 (GOING CONCERN BASIS) (Unaudited) June 30, June 30, 2004 2003 -------- -------- INCOME Rental $322,639 $303,851 Other charges to tenants 5,962 -- Interest -- 2,412 -------- -------- Total income 328,601 306,263 -------- -------- EXPENSES Directors' fees -- 3,000 Advisory fees -- 69,189 Management fees 3,154 3,442 Depreciation and Amortization -- 43,468 Real Estate Tax 4,702 -- General and administrative 15,977 33,566 -------- -------- Total expenses 23,833 152,665 -------- -------- Net income $304,768 $153,598 ======== ======== Net income per Share (Based on weighted average shares outstanding of 1,286,163) $ 0.24 $ 0.12 ======== ======== See accompanying notes to consolidated financial statements. BRAUVIN NET LEASE V, INC. (a Maryland corporation) STATEMENT OF CASH FLOW FOR THE SIX MONTHS ENDED JUNE 30, 2003 (GOING CONCERN BASIS) (Unaudited) Cash Flow From Operating Activities Net Income $352,727 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 87,494 Amortization of acquired above market lease 9,666 Changes in: Tenant receivables 21,060 Deferred rent receivable (14,738) Prepaid expenses 3,724 Accounts payable and Accrued expenses (4,697) Security deposits 9,794 Rents received in advance 877 Due to affiliates (30) --------- Net cash provided by operating activities 465,877 --------- Cash Flows From Investing Activities: Purchase of property (956,568) --------- Net cash used in investing activities (956,568) --------- Cash Flows From Financing Activities: Dividends (478,708) --------- Net cash used in financing activities (478,708) --------- Net decrease in cash and cash equivalents (969,399) Cash and cash equivalents at beginning of the period 1,559,500 Cash and cash equivalents --------- at end of period $ 590,101 ========= See accompanying notes to consolidated financial statements. BRAUVIN NET LEASE V, INC. (a Maryland corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Brauvin Net Lease V, Inc. (the "Fund") is a Maryland corporation formed on October 14, 1993, which operates as a real estate investment trust ("REIT") under federal tax laws. The Fund has acquired properties that are leased to creditworthy corporate operators of nationally or regionally established businesses primarily in the retail and family restaurant sectors. All of the leases are on a long-term "triple net" basis generally requiring the corporate tenant to pay both base annual rent with mandatory escalation clauses and all operating expenses. The Fund acquired properties subject to leases with a Country Harvest Buffet Restaurant during the year ended December 31, 1994; an On the Border Restaurant, a Blockbuster Video, A Chili's Restaurant, a Just for Feet and a Video Watch during the year ended December 31, 1995; a Pier 1 Imports and a Taylor Rental during the year ended December 31, 1996; a Jiffy Lube and Firestone facility during the year ended December 31, 1997; a Golden Corral Restaurant during the year ended December 31, 2002; and three Dollar General stores during the year ended December 31, 2003. The On the Border Restaurant, and the Just for Feet property were sold during the year ended December 31, 2002. The Chili's Restaurant in Birmingham, Alabama was exchanged for a similar property located in Tucker, Georgia during the year ended December 31, 2002. The advisory agreement provides for Brauvin Realty Advisors V, L.L.C. (the "Advisor"), an affiliate of the Fund, to be the advisor to the Fund. The Fund registered the sale of up to 5,000,000 shares of common stock at $10.00 per share in an initial public offering filed with the Securities and Exchange Commission ("Registration Statement") and the issuance of 500,000 shares pursuant to the Fund's dividend reinvestment plan. On August 8, 1994, the Fund sold the minimum 120,000 shares required under its Registration Statement and commenced its real estate activities. The offering period for the sale of common stock terminated on February 25, 1996. At June 30, 2004, the gross proceeds raised were $12,881,903, net of liquidations of $663,172, and includes $200,000 invested by the Advisor ("Initial Investment"), before reduction for selling commissions and other offering costs. On November 6, 2003 the Board of Directors approved the adoption of a plan of liquidation which contemplates the sale of all of the Fund's assets within a twenty-four month period. SIGNIFICANT ACCOUNTING POLICIES Management's Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Basis of Presentation As a result of the November 6, 2003 Board of Directors approval of the plan of liquidation and, in accordance with generally accepted accounting principles, the Fund's financial statements for periods subsequent to November 6, 2003 have been prepared on the liquidation basis of accounting. Accordingly, the carrying values of the assets are presented at their estimated net realizable values and liabilities are presented at estimated settlement amounts, including estimated costs associated with carrying out the liquidation. Preparation of financial statements on the liquidation basis of accounting requires significant assumptions by management, including the estimate of liquidation costs and the resolution of any contingent liabilities. There may be differences between the assumptions and the actual results because events and circumstances frequently do not occur as expected. Those differences, if any, could result in a change in the net assets recorded in the statement of net assets as of June 30, 2004. Accounting Method The accompanying consolidated financial statements have been prepared using the accrual method of accounting. Rental Income Prior to the preparation of the financial statements on the liquidation basis of accounting, rental income was recognized on a straight line basis over the life of the related leases. Differences between rental income earned and amounts due per the respective lease agreements were credited or charged, as applicable, to deferred rent receivable. Federal Income Taxes The Fund intends to be treated as a REIT under Internal Revenue Code Sections 856-860. A REIT will generally not be subject to federal income taxation to the extent that it distributes at least 90% of its taxable income to its shareholders and meets certain asset and income tests as well as other requirements. The Fund continues to qualify as a real estate investment trust and, accordingly, no provision has been made for Federal income taxes in the financial statements. Consolidation of Subsidiary The Fund owns a 100% interest in one qualified REIT subsidiary, Germantown Associates, Inc., which owns one Firestone/JiffyLube property. The accompanying financial statements have consolidated 100% of the assets, liabilities, operations and stockholder's equity of Germantown Associates, Inc. All significant intercompany accounts have been eliminated. Investment in Real Estate Prior to the preparation of the financial statements on the liquidation basis of accounting, the rental properties were stated at cost including acquisition costs. Depreciation was recorded on a straight-line basis over the estimated economic lives of the properties, which approximated 40 years. Subsequent to the adoption of the liquidation basis of accounting, the Fund adjusted its investment in real estate to estimated net realizable value, which is recorded as real estate held for sale. Additionally, recording of depreciation was suspended. The Fund has performed an analysis of its long-lived assets, and the Fund's management determined that there were no events or changes in circumstances that indicated that the carrying amount of the assets may not be recoverable at June 30, 2004. Accordingly, no impairment loss has been recorded in the accompanying financial statements for the period ended June 30, 2004. In July 2001, the FASB issued Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141"). SFAS 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which was effective January 1, 2002. SFAS 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions for the reclassification of certain existing intangibles, reassessment of the useful lives of existing intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. Implementation of SFAS 141 and 142 to the Company's acquisition during year 2002 has resulted in the recognition of additional intangible assets (acquired in place lease origination costs aggregating $125,000 and an above market lease in the amount of $141,000). The intangible assets were being amortized over the remaining term of the acquired lease (7.3 years). Application of SFAS 141 and 142 to future acquisitions, if any, could result in the recognition, upon acquisition, of additional intangible assets (acquired in place lease origination costs and acquired above market leases) and liabilities (acquired below market leases) which would be amortized over the remaining term of the leases. In June 2001, the FASB issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"), which was effective for years beginning after June 15, 2002. SFAS 143 requires recognition of a liability and associated asset for the fair value of costs arising from legal obligations associated with the retirement of tangible long-lived assets. The asset is to be allocated to expense over its estimated useful life. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which was effective for fiscal years beginning after December 15, 2001. SFAS 144 supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of" ("SFAS 121"). SFAS 144 retains the recognition and measurement requirements of SFAS 121, but resolves significant SFAS 121 implementation issues. In addition, it applies to a segment of a business accounted for as a discontinued operation. U.S. generally accepted accounting principles require that in the period a component of an entity is either classified as held for sale or disposed of, the statement of operations shall report the results of operations of such components in "discontinued operations" in the period in which they occur. Cash and Cash Equivalents Cash and cash equivalents include all highly liquid instruments with an original maturity within three months from date of purchase and approximate their fair value. The Fund maintains its cash in bank deposit accounts, which at times, may exceed federally insured limits. The Fund has not experienced any losses in such accounts. Management believes the Fund is not exposed to any significant credit risk related to cash and cash equivalents. Tenant Receivable Rent receivables are comprised of (a) billed but uncollected amounts due for monthly rents and other charges and (b) estimated unbilled amounts due for tenant reimbursement of common area maintenance charges and property taxes. Receivables are recorded at management's estimate of the amounts that will ultimately be collected. An allowance for doubtful accounts is based on specific identification of uncollectible accounts (if any) and the Fund's historical collection experience. Estimated Fair Value of Financial Instruments Disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of Statement of Financial Accounting Standards No. 107, "Disclosure About Fair Value of Financial Instruments." The estimated fair value amounts have been determined by using available market information and appropriate valuation methodologies. However, considerable judgement is necessarily required in interpreting market data to develop estimates of fair value. The fair value estimates presented herein are based on information available to management as of June 30, 2004, but may not necessarily be indicative of the amounts that the Fund could realize in a current market exchange. The use of different assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. In connection with the adoption of the liquidation basis of accounting, assets were adjusted to their net realizable values and liabilities were adjusted to estimated settlement amounts, which approximate fair value at June 30, 2004. Derivatives and Hedging Instruments In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which requires that all derivatives be recognized as assets and liabilities in the balance sheet and be measured at fair value. SFAS 133 also requires changes in fair value of derivatives to be recorded each period in current earnings or comprehensive income depending on the intended use of the derivatives. In June, 2000, the FASB issued SFAS 138, which amends the accounting and reporting standards of SFAS 133 for certain derivatives and certain hedging activities. SFAS 133 and SFAS 138 were adopted by the Fund effective January 1, 2001. The Fund has no derivatives in 2004 and 2003. Recent Accounting Pronouncements In April 2002, FASB issued Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44, Amendment of FASB No. 13, and Technical Corrections" ("SFAS 145"). Generally, the rescission of FASB No. 4, "Reporting Gains and Losses from Extinguishment of Debt" would require that debt extinguishment costs are to no longer be treated as extraordinary items. The amendment to FASB No. 13, "Accounting for Leases" requires sale-leaseback accounting for certain lease modifications that have the economic effects that are similar to sale-leaseback transactions. This statement is generally effective for the period ending March 31, 2004. In November 2002, FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN 45). FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued and clarifies that a guarantor is required to recognize, at inception of the guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of FIN 45 are applicable to guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN 45 are effective for periods ending after December 15, 2002. In January 2003, FASB issued interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46). FIN 46 addresses consolidation by business enterprises of certain variable interest entities in which the equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. This interpretation was revised in December 2003 and shall, for calendar year end entities, be effective as of December 31, 2003 for "special purpose entities" (as defined) and as of December 31, 2004 for all other entities. The Fund does not own any "special purpose entities" as defined. In May 2003, FASB issued Statement of Financial Accounting Standards No. 150, "Accounting for Certain Financial Instruments with the Characteristics of both Liabilities and Equity" ("SFAS 150"), which is effective for all financial instruments entered into or modified after May 31, 2003, and is otherwise effective beginning July 1, 2003. SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. The adoption of SFAS 145 and 150 and FIN 45 and 46 has not had a significant impact on the Fund's financial statements. (2) ADJUSTMENT TO LIQUIDATION BASIS On November 7, 2003, in accordance with the liquidation basis of accounting, assets were adjusted to their estimated net realizable values and liabilities were adjusted to their estimated settlement amounts, including estimated costs associated with carrying out the liquidation. The net adjustment required to convert from the going concern (historical cost) basis to the liquidation basis of accounting was a decrease of $1,047,432 which is included in the December 31, 2003 statement of changes in net assets in liquidation. Significant changes in the carrying value of assets and liabilities are summarized as follows: Increase in real estate held for sale (a) $ 3,793,484 Write-off of deferred rent receivable (253,568) Write-off of intangible assets (283,864) Increase in deferred gain on sale of real estate (3,793,484) Estimated liquidation costs (510,000) ----------- Total adjustment to liquidation basis $(1,047,432) =========== (a) Net of estimated closing costs. (3) RELATED PARTY TRANSACTIONS The Fund is required to pay certain fees to the Advisor or its affiliates pursuant to various agreements set forth in the Prospectus and described below. Pursuant to the terms of the Selling Agreement, Brauvin Securities, Inc. ("BSI"), an affiliate of the Advisor, was entitled to placement charges of 5.50% of the gross proceeds of the Fund's offering, all of which were reallowed to placement agents. In addition, BSI was entitled to a marketing and due diligence expense allowance fee equal to 0.50% of the gross proceeds to reimburse marketing and due diligence expenses, some portion of which may be reallowed to placement agents. Pursuant to the terms of the Advisory Agreement, the Advisor was entitled to a non-accountable expense allowance in an amount equal to 2.5% of the cumulative gross proceeds of the offering. Pursuant to the terms of the Advisory Agreement, the Advisor is entitled to receive acquisition fees for services rendered in connection with the selection or acquisition of any property however designated as real estate commissions, selection fees, development fees, or any fees of a similar nature. Such acquisition fees may not exceed the lesser of (a) such compensation as is customarily charged in arm's-length transactions by others rendering similar services as an ongoing business in the same geographic locale and for comparable properties or (b) 3.5% of the gross proceeds of the Fund's offering. The Fund will also reimburse the Advisor an amount estimated to be 0.75% of the gross proceeds of the offering in connection with any expenses attendant to the acquisition of properties whether or not acquired. Pursuant to the terms of the Advisory Agreement, the Advisor is entitled to an annual advisory fee until the fifth anniversary of the termination of the offering, payable monthly, in an amount equal to 0.60% of the gross proceeds during the offering. Following the termination of the offering, the annual advisory fee is an amount equal to the greater of: (i) .60% of gross proceeds, or (ii) $175,000. In February 2001, the independent directors reviewed the Advisory Agreement, and modified the annual amount of the advisory fee to $145,000. The $145,000 represents approximately 1.4% of invested assets. In 2002, the independent directors again reviewed the Advisory Agreement, and the advisory fee was renewed for a one year period at an annual amount of $145,000. The independent directors reviewed the terms of the agreement in May of 2003 and May of 2004, and renewed it in both instances on the same terms for one year. In November 2002, the independent directors approved a one- time payment of approximately $76,000 payable to the Advisor as an advisory fee in connection with the acquisition of Golden Corral. In June, 2003, the independent directors approved a one- time payment of approximately $32,900 payable to the Advisor as an advisory fee in connection with the acquisition of Dollar General. Pursuant to the terms of the Management Agreement, Brauvin Management Company ("BMC"), an affiliate of the Advisor, provides leasing and re-leasing services to the Fund in connection with the management of Fund's properties. The property management fee payable to an affiliate of the Advisor shall not exceed the lesser of: (a) fees that are competitive for similar services in the geographical area where the properties are located; or (b) 1% of the gross revenues of each property. Fees, commissions and other expenses incurred and payable to the Advisor or its affiliates for the six months ended June 30, 2004 and 2003 were as follows: 2004 2003 ------- -------- Advisory fees $72,498 $105,438 Reimbursable office expenses 8,100 6,750 Management fees 6,453 6,432 ------- -------- $87,051 $118,620 ======= ======== As of June 30, 2004 the Fund made all payments to affiliates except for $1,257 for management fees and $819 for reissue fees. (4) DIVIDENDS Below is a table summarizing the dividends declared since January 1, 2002: Annualized Declaration Record Payment Dividend Date Dates Date(a) Rate Amount - -------- ---------------- -------- ------- -------- 1/24/02 10/1/01-12/31/01 2/15/02 8.25% $267,452 5/08/02 1/1/02-3/31/02 5/15/02 8.25% 261,639 8/08/02 4/1/02-6/30/02 8/15/02 23.17% 745,000 11/12/02 7/1/02-9/30/02 11/15/02 5.44% 175,000 1/23/03 10/1/02-12/31/02 1/30/03 6.94% 225,000 5/8/03 1/1/03-3/31/03 5/15/03 8.00% 253,708 8/7/03 4/1/03-6/30/03 8/15/03 7.46% 245,000 11/06/03 7/1/03-9/30/03 11/15/03 7.46% 245,000 1/29/04 10/1/03-12/31/03 2/15/04 8.00% 259,347 5/6/04 1/1/04-3/31/04 5/15/04 8.00% 255,827 8/5/04 4/1/04-6/30/04 8/15/04 8.00% 255,657 (a) An $80,000 payment was made on 1/30/03 and a $145,000 payment was made on 1/31/03 for a total payment of $225,000. A dividend reinvestment plan ("Reinvestment Plan") was available to the stockholders so that stockholders, if they so elected, may have their distributions from the Fund invested in shares. Until the third anniversary of the termination of the offering, the price per share purchased through the Reinvestment Plan shall equal $10 per share with the purchase of partial shares allowed. The Fund has registered 200,000 shares for distribution solely in connection with the Reinvestment Plan. Funds raised through the Reinvestment Plan will be utilized to: (i) purchase shares from existing stockholders who have notified the Fund of their desire to sell their shares or held for subsequent redemptions; or (ii) purchase additional properties. The stockholders electing to participate in the Reinvestment Plan were charged a service charge, in an amount equal to 1% of their distributions, which was paid to an affiliate of the Advisor to defray the administrative costs of the Reinvestment Plan. At June 30, 2004 there were approximately 68,797 shares purchased through the Reinvestment Plan. In accordance with the Fund's original investment objective, during the first quarter of 2000, the Board of Directors approved a plan to have the Fund's shares listed on the OTC Bulletin Board under the symbol "yyBNL". In order to qualify as a REIT, the Fund is required to distribute dividends to its stockholders in an amount at least equal to 90% of REIT taxable income of the Fund. The Fund intends to make annual distributions to satisfy all annual distribution requirements. Effective February 13, 2001, the Board of Directors discontinued the Dividend Reinvestment Plan. Subsequently, dividends have been paid in cash. (5) PROPERTY ACQUISITION On June 18, 2003, with the approval of the Fund's Board of Directors and in accordance with the Fund's acquisition guidelines, the Fund purchased three Dollar General stores located in Lake Charles, Houma and Chauvin, Louisiana for approximately $940,000 plus closing costs. The Lake Charles property has been leased to Dolgencorp, Inc. which operates a Dollar General store, under a triple net lease, for a remaining term ending January 31, 2013. The lease requires Dolgencorp, Inc. to pay base rent each month in the amount of $3,000. The Houma property has been leased to Dolgencorp, Inc. which operates a Dollar General store, under a triple net lease, for a remaining term ending February 28, 2013. The lease requires Dolgencorp, Inc. to pay base rent each month in the amount of $3,000. The Chauvin property has been leased to Dolgencorp, Inc. which operates a Dollar General store, under a triple net lease, for a remaining term ending January 31, 2013. The lease requires Dolgencorp, Inc. to pay base rent each month in the amount of $2,850. (6) SUBSEQUENT EVENT The Fund has entered into a contract to sell the Firestone and Jiffy Lube properties in one transaction. The terms of the contract allows the potential purchaser a thirty five day due diligence period and if the properties are accepted by the potential purchaser closing will follow within thirty days thereafter. In addition, the Fund has reached an agreement in principle for the sale of the Chili's property. The Chili's purchase and sale agreement is currently being negotiated. However, there can be no assurance that either of the contemplated transactions will close. BRAUVIN NET LEASE V, INC. (a Maryland corporation) Item 2. Management's Discussion and Analysis or Plan of Operation. General Certain statements in this Quarterly Report that are not historical fact constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Without limiting the foregoing, words such as "anticipates," "expects," "intends," "plans" and similar expressions are intended to identify forward-looking statements. These statements are subject to a number of risks and uncertainties, including, without limitation, tenant defaults which could materially decrease the Fund's rental income. Actual results could differ materially from those projected in the forward-looking statements. The Fund undertakes no obligation to update these forward-looking statements to reflect future events or circumstances. Liquidity and Capital Resources As of June 30, 2004, the Fund had received $11,539,065 in connection with the sale of shares, net of selling commissions and other offering costs, including $200,000 paid by the Advisor for a share of stock as disclosed in the Prospectus and liquidations of $663,172. Compliance with 90% REIT taxable income test The Fund is required, under the Internal Revenue Code, to make distributions of an amount not less than 90% of its REIT taxable income during the year. Property sales On April 29, 2002, the Fund sold the On The Border Restaurant property to an unaffiliated third party for a sales price of $1,385,000 (exclusive of an additional $200,000 tenant lease buyout fee). The net proceeds received including the buyout was approximately $1,475,000. On May 16, 2002, the Fund sold the Just For Feet property to an unaffiliated third party for a sales price of $2,675,000. The net proceeds received was approximately $2,575,000. The Fund has replaced the sold properties in accordance with the acquisition guidelines of the Fund. The Fund has entered into a contract to sell the Firestone and Jiffy Lube properties in one transaction. The terms of the contract allows the potential purchaser a thirty five day due diligence period and if the properties are accepted by the potential purchaser closing will follow within thirty days thereafter. In addition, the Fund has reached an agreement in principle for the sale of the Chili's property. The Chili's purchase and sale agreement is currently being negotiated. However, there can be no assurance that either of the contemplated transactions will close. Property purchases On July 19, 2002, with the approval of the Fund's Board of Directors and in accordance with the Fund's acquisition guidelines, the Fund purchased a 9,611 square foot restaurant building situated on a two acre parcel located in Bradenton, Florida for approximately $2,174,000 plus closing costs (the "Bradenton Property"). The Bradenton Property has been leased to Corral of Bradenton LP, which operates a Golden Corral Restaurant, under a triple net lease, for a remaining term ending October 19, 2019. The lease requires Corral of Bradenton LP to pay base rent each month in the amount of $19,227 beginning August 1, 2002 with periodic rental increases starting November 1, 2002. On June 18, 2003, with the approval of the Fund's Board of Directors and in accordance with the Fund's acquisition guidelines, the Fund purchased three Dollar General stores located in Lake Charles, Houma and Chauvin, Louisiana for approximately $940,000 plus closing costs. The Lake Charles property has been leased to Dolgencorp, Inc. which operates a Dollar General store, under a triple net lease, for a remaining term ending January 31, 2013. The lease requires Dolgencorp, Inc. to pay base rent each month in the amount of $3,000. The Houma property has been leased to Dolgencorp, Inc. which operates a Dollar General store, under a triple net lease, for a remaining term ending February 28, 2013. The lease requires Dolgencorp, Inc. to pay base rent each month in the amount of $3,000. The Chauvin property has been leased to Dolgencorp, Inc. which operates a Dollar General store, under a triple net lease, for a remaining term ending January 31, 2013. The lease requires Dolgencorp, Inc. to pay base rent each month in the amount of $2,850. Adoption of a Plan of Liquidation The Fund is a finite-life REIT and, in accordance with the investment objectives and policies detailed in the Fund's Prospectus and the Fund's organizational documents, the Fund expected to sell all of its assets and liquidate after a period of ownership from 7 to 9 years, beginning, generally, anytime between 2002 and 2004. Further, the Fund is subject to increasing administrative costs related to compliance with state and federal regulatory requirements, including the costs of maintaining our status as a publicly traded company, which are not economical given the Fund's relatively small size. Accordingly, on November 6, 2003, the Board of Directors unanimously approved a Plan of Liquidation and voted to recommend that the stockholders approve the Plan of Liquidation. The Stockholders voted to approve the plan of liquidation at the Annual Meeting. The Plan of Liquidation provides that the Fund will seek to sell all of its assets within a twenty-four month period to an unaffiliated third party or parties and, subject to payment of the Fund's liabilities, distribute the net proceeds thereof to the stockholders, wind down the Fund's business and dissolve. To date, the Fund entered into two letters of intent to sell three of its properties. However, since agreement for the sale of the majority of the Fund's properties have not yet been reached, the material terms of the liquidation are still to be finally determined. As a result of the Board of Directors' approval of the Plan of Liquidation, and in accordance with generally accepted accounting principles, the Fund's financial statements for periods subsequent to November 6, 2003 have been prepared on the liquidation basis of accounting. Accordingly, the carrying values of the assets are presented at net realizable values and liabilities are presented at estimated settlement amounts, including estimated costs associated with carrying out the liquidation. Preparation of the financial statements on the liquidation basis of accounting requires significant assumptions by management, including the estimate of liquidation costs and the resolution of any contingent liabilities. There may be differences between the assumptions and the actual results because events and circumstances frequently do not occur as expected. Those differences, if any, could result in a change in the net assets recorded in the consolidated statement of net assets as of June 30, 2004. Limitation on Total Operating Expenses For the twelve month period ended December 31, 2003, the Fund's Total Operating Expenses exceeded the greater of 2% of the Average Invested Assets of the Fund or 25% of the Fund's Net Income. The Independent Directors determined that the Fund's Total Operating Expenses are justifiable based on the gains that have been achieved in prior periods and the redeployment of property sale proceeds at slightly lower investment returns than the original property investments. In addition, the Independent Directors discussed that as a result of carrying out the Plan of Liquidation the Fund's Total Operating Expenses will likely exceed the stated percentages as a result of a declining asset base and declining revenues. The Independent Directors will continue to review Total Operating Expenses on a quarterly basis. For the purpose of the following analysis, 2003 information is presented on the going concern basis. Results of Operations - 6 months - 2004 Compared to 2003 Total income for the period ended June 30, 2004 was approximately $653,000. Total expenses were approximately $39,000 and net income was approximately $613,000. Total income was approximately $653,000 in 2004 compared to approximately $611,000 in 2003, an increase of approximately $41,000. This increase was due to an increase in rental income of $42,000 offset by a decrease in interest and other income of $6,000. Real estate tax reimbursement income increased approximately $5,000. Rental income increased as a result of the June 18, 2003 acquisition of the three Dollar General stores. Total expenses incurred in 2004 were approximately $39,000, compared to approximately $259,000 in 2003, a decrease of approximately $220,000. The decrease was due primarily to a $88,000 decrease in depreciation and amortization as a result of the liquidation basis of accounting. In addition advisory fees decreased $106,000, directors fees decreased $6,000 and general and administrative expense decreased $25,000 all as a result of the expenses being reclassed against the reserve for liquidation. Partially offsetting the decrease in expenses was an increase in real estate tax expense of $5,000. Results of Operations - 3 months - 2004 Compared to 2003 The Fund generated net income of $305,000 for the three months ended June 30, 2004 as compared to net income of $154,000 for the three months ended June 30, 2003. Total income for the three months ended June 30, 2004 was $329,000 as compared to $306,000 for the same three month period in 2003, an increase of $22,000. The $22,000 increase was due to an increase in rental income of $20,000, offset by a decrease in interest and other income of $2,000. Real estate tax reimbursement income increased approximately $5,000. For the three months ended June 30, 2004, total expenses were $24,000 as compared to $154,000 for the same three month period in 2003, a decrease of $129,000. The decrease was due primarily to a $43,000 decrease in depreciation and amortization as a result of the liquidation basis of accounting. In addition advisory fees decreased $69,000, directors fees decreased $3,000 and general and administrative expense decreased $18,000 all as a result of the expenses being reclassed against the reserve for liquidation. Partially offsetting the decrease in expenses was an increase in real estate tax expense of $5,000. Item 3. Controls and Procedures Within 90 days prior to the date of this 2004 Quarterly Report, we completed an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the evaluation date. No significant changes were made to our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. BRAUVIN NET LEASE V, INC. (a Maryland corporation) PART II OTHER INFORMATION Item 1. Legal Proceedings. None. Item 2. Changes in Securities. None. Item 3. Defaults upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. An annual meeting of stockholders was held on June 30, 2004. The following is a list of directors whose term of office was retained: Jerome J. Brault James L. Brault Michael K. Huff Gregory S. Kobus Kenneth S. Nelson The selection of Alschuler, Melvoin and Glasser LLP as independent accountants for the fund year ended December 31, 2004 was submitted for a vote. There were 704,600.7576 shares voted "FOR" the ratification and 10,406.5810 shares voted "AGAINST", and 87,019.902 abstained. Based on the number of shares voted "FOR", Alschuler, Melvoin and Glasser LLP was retained as independent accountant. Additionally, the stockholders voted on the dissolution of the Company pursuant to a plan of liquidation. There were 734,103.1521 shares voted "FOR" this proposal and 26,203.76225 shares voted "AGAINST". Based on the number of shares voted "FOR" the dissolution of the Company pursuant to the plan of liquidation was approved. Item 5. Other Information None. Item 6. Exhibits and Reports On Form 8-K Exhibit 99. Certification of Officers. 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. BRAUVIN NET LEASE V, INC. By: /s/ James L. Brault James L. Brault Executive Vice President and Secretary DATE: August 19, 2004 By: /s/ Thomas E. Murphy Thomas E. Murphy Chief Financial Officer DATE: August 19, 2004 BRAUVIN NET LEASE V, INC. (a Maryland corporation) CERTIFICATE OF THE CHIEF EXECUTIVE OFFICER OF BRAUVIN NET LEASE V, INC. I, Jerome J. Brault, Chief Executive Officer of the Fund, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of BRAUVIN NET LEASE V, INC; 2. Based on my knowledge, this report does not contain any untrue statement of 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the consolidated financial condition, results of operations and statement of changes in net assets in liquidation of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)for the small business issue and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles c) Evaluated the effectiveness of the small business issuer'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 d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of small business issuer's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to aversely affect the small business issuer's ability to record, process, 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 small business issuer's internal controls over financial reporting. BY: /s/Jerome J. Brault Jerome J. Brault Chief Executive Officer DATE: August 19, 2004 BRAUVIN NET LEASE V, INC. (a Maryland corporation) CERTIFICATE OF THE CHIEF FINANCIAL OFFICER OF BRAUVIN NET LEASE V, INC. I, Thomas E. Murphy, Chief Financial Officer of the Fund, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Brauvin Net Lease V, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the consolidated financial condition, results of operations and statement of changes in net assets in liquidation of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)for the small business issue and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the small business issuer'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 d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of small business issuer's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to aversely affect the small business issuer's ability to record, process, 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 small business issuer's internal controls over financial reporting. BY: /s/ Thomas E. Murphy Thomas E. Murphy Chief Financial Officer DATE: August 19, 2004 Exhibit 99 SECTION 906 CERTIFICATION The following statement is provided by the undersigned to accompany the Quarterly Report on Form 10-QSB for the quarter ended June 30, 2004, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed pursuant to any provisions of the Securities Exchange Act of 1934 or any other securities law: Each of the undersigned certifies that the foregoing Report on Form 10-QSB fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m) and that the information contained in the Form 10-QSB fairly presents, in all material respects, the financial condition and results of operations of Brauvin Net Lease V, Inc. /s/ Jerome J. Brault Jerome J. Brault Chief Executive Officer DATE: August 19, 2004 /s/ Thomas E. Murphy Thomas E. Murphy Chief Financial Officer DATE: August 19, 2004 -----END PRIVACY-ENHANCED MESSAGE-----