ITEM 1: BUSINESS - ------- --------
The Registrant, Realmark Property Investors Limited Partnership-III (the "Partnership"), is a Delaware Limited Partnership organized in 1983, pursuant to a Second Amended and Restated Agreement and Certificate of Limited Partnership (the "Partnership Agreement"), under the Delaware Revised Uniform Limited Partnership Act. The Partnership's general partners are Realmark Properties, Inc. (the "Corporate General Partner"), a Delaware corporation, and Joseph M. Jayson (the "Individual General Partner").
The Registrant commenced the public offering of its limited partnership units, registered with the Securities and Exchange Commission under the Securities Act of 1933 as amended on February 1, 1984, and concluded the offering on January 31, 1985, having raised a total of $15,551,000 before deducting sales commissions and expenses of the offering.
The Partnership's primary business and its only industry segment is to own and operate income-producing real property for the benefit of its partners. At December 31, 2004, the Partnership has disposed of its last two properties. On April 5, 2004, the Partnership sold Inducon Amherst for $2,045,000 resulting in a net gain of approximately $20,000. On May 20, 2004, the partnership disposed of its last property, Perrymont, for $2,450,000, less a $600,000 credit for work which the buyer determined was necessary on the property, resulting in a gain of approximately $145,000. Accordingly, the Partnership is in the process of liquidating.
The business of the Partnership is not seasonal. As of December 31, 2004, the Partnership did not directly employ any persons in a full-time position. All persons who regularly rendered services on behalf of the Partnership through December 31, 2004 were employees of the Corporate General Partner or its affiliates.
This annual report contains certain forward-looking statements concerning the Partnership's current expectations as to future results. Words such as "believes", "forecasts", "intends", "possible", "expects", "estimates", "anticipates" or "plans" and similar expressions are intended to identify forward-looking statements. Such statements may not ultimately turn out to be accurate due to, among other things, economic or market conditions or the failure of the Partnership to sell an investment which is under contract.
ITEM 2:
ITEM 2: PROPERTIES - ------- ----------
As of December 31, 2004, the Partnership did not own any property investments
ITEM 3:
ITEM 3: LEGAL PROCEEDINGS - ------- -----------------
As previously reported, the Partnership, as a nominal defendant, the general partners of the Partnership and of affiliated public partnerships, (the "Realmark Partnerships") and the officers and directors of the Corporate General Partner, as defendants, had been involved in a class action litigation at the state court level regarding the payment of fees and other management issues.
On August 29, 2001, the parties entered into a Stipulation of Settlement (the "Settlement"). On October 4, 2001, the Court issued an "Order Preliminary
Approving Settlement" (the "Hearing Order") and on November 29, 2001, the Court issued an "Order and Final Judgment Approving Settlement and Awarding Fees and Expenses" and dismissing the complaints with prejudice. The Settlement provided, among other things, that all of the Realmark Partnerships' properties be disposed of. The general partners will continue to have primary authority to dispose of the Partnerships' properties. If either (i) the general partners have not sold or contracted to sell 50% of the Partnerships' properties (by value) by April 2, 2002 or (ii) the general partners have not sold or contracted to sell 100% of the Partnerships' properties by September 29, 2002, then the primary authority to dispose of the Partnerships' properties will pass to a sales agent designated by plaintiffs' counsel and approved by the Court. On October 4, 2002, the Court appointed a sales agent to work with the general partners to continue to sell the Partnership's remaining properties.
The settlement also provided for the payment by the Partnerships of fees to the plaintiffs' attorneys. These payments, which are not calculable at this time but may be significant, are payable out of the proceeds from the sale of all of the properties owned by all of the Realmark Partnerships, following the sale of the last of these properties in each partnership. Plaintiffs' counsel will receive 15% of the amount by which the sales proceeds distributable to limited partners in each partnership exceeds the value of the limited partnership units in each partnership (based on the weighted average of the units' trading prices on the secondary market as reported by Partnership Spectrum for the period May through June 2001). In no event may the increase on which the fees are calculated exceed 100% of the market value of the units as calculated above. On May 20, 2004 the Partnership sold its remaining property, and in December 2004, a payment of $404,501 was made to the plaintiffs' attorneys.
ITEM 4:
ITEM 4: SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------- ----------------------------------------------------
None.
PART II -------
ITEM 5:
ITEM 5: MARKET FOR REGISTRANT'S UNITS OF LIMITED PARTNERSHIP INTEREST - ------- -------------------------------------------------------------
There is currently no active trading market for the units of limited partnership interest of the Partnership and it is not anticipated that any will develop in the future. Accordingly, information as to the market value of a unit at any given date is not available. As of December 31, 2004, there were 1,736 record holders of units of limited partnership interest. In December 2004, the Partnership made distributions of its previously undistributed net cash from sales proceeds. These distributions were made in accordance with the settlement of the lawsuit (Item 3). A total of $1,525,136 was distributed on behalf of the limited partners. Of this amount, $404,501 was paid to legal counsel in accordance with the settlement of the lawsuit and $1,120,635 was distributed directly to record holders of units of limited partnership interest.
ITEM 6:
ITEM 6: SELECTED FINANCIAL DATA - ------- -----------------------
(1) The Partnership began reporting on the liquidation basis of accounting effective May 21, 2004. Therefore, operations for the year ended December 31, 2004 are reported on the consolidated statement of changes in net assets in liquidation for the period from May 21, 2004 to December 31, 2004, while operations from the period from January 1, 2004 to May 20, 2004 and for the years ended December 31, 2003, 2002, 2001, and 2000 are reported on the going concern basis in the consolidated statements of operations. Balance sheet data at December 31, 2004 represents the total assets and net assets in liquidation as reported in the consolidated statement of net assets in liquidation (liquidation basis) at December 31, 2004 (page).
ITEM 7:
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------- ----------------------------------------------------------------------- OF OPERATIONS -------------
Liquidity and Capital Resources: - --------------------------------
Effective January 1, 2001, management began formally marketing all properties in the Partnership for sale. On April 5, 2004, the Partnership sold
Inducon Amherst to an unaffiliated entity for cash of $2,045,000. After satisfaction of the $1,704,000 mortgage loan on the property and payment of closing costs, the net cash proceeds available amounted to $425,000, before satisfaction of any remaining obligations related to the property. Additionally, on May 20, 2004, the Partnership's only remaining property, Perrymont, was sold to an unaffiliated entity for cash of $2,450,000, less a $600,000 credit for work which the buyer determined was necessary on the property. After satisfaction of closing costs, the net cash proceeds available amounted to approximately $1,658,000, before satisfaction of any remaining obligations related to the property. These proceeds enabled the partnership to make a distribution in December 2004 of $1,120,635 after a payment of $404,501 to the plaintiff's counsel in accordance with the settlement of the lawsuit (Item 3). The Partnership made no distributions to limited partners in 2003 and 2002. The remaining proceeds, net of those amounts that are required to pay the estimated payables and costs of operating the partnership during liquidation, will be distributed to the limited partners.
Limited partners should be aware that it is possible that they will receive an allocation of income from gain on sale of properties on which they will be required to pay income taxes and there is no assurance that distributions from the sale of the properties will be sufficient to satisfy these obligations.
Except as described above and in the consolidated financial statements, the general partner is not aware of any trends or events, commitments or uncertainties that may impact liquidity in a material way.
Results of Operations: - ----------------------
As a result of the sale of the remaining property, Perrymont, and the establishment of a plan of liquidation, the Partnership began operating on the liquidation basis of accounting effective May 21, 2004. Therefore, operations for the period May 21, 2004 to December 31, 2004 are reported in the consolidated statement of changes in net assets in liquidation while the operations for the period January 1, 2004 to May 20, 2004 and for the years ended December 31, 2003 and 2002 are reported on the going concern basis in the consolidated statements of operations.
Inflation has been consistently low during the periods presented in the consolidated financial statements and, as a result, has not had a significant effect on the operations of the Partnership or its properties.
2004 as compared to 2003 - ------------------------
As discussed above, the Partnership began reporting on a liquidation basis of accounting on May 21, 2004. The decrease in most components of the consolidated statements of operations for the period January 1, 2004 to May 20, 2004 was a result of the two remaining properties, Inducon Amherst and Perrymont, being sold on April 5, 2004 and May 20, 2004, respectively, and rental operations ceasing at that time. There were no individually significant factors which caused changes in revenues and expenses as of May 20, 2004 when compared to the year ended December 31, 2003 other than the sale of Inducon Amherst and Perrymont.
2003 as compared to 2002 - ------------------------
Rental income at Perrymont increased approximately $34,000 for the year ended December 31, 2003 as occupancy remained at 66% throughout the year. Rental
income at Inducon Amherst decreased approximately $3,000 for the year ended December 31, 2003 as occupancy decreased to 58% from 61% for the year ended December 31, 2002. The net change in rental income was an increase of approximately $31,000. The increase in rental income along with an increase in other income of approximately $8,000, primarily common area maintenance fees at the property level, produced a 5% increase in total income for the year ended December 31, 2003.
Total expenses for the year ended December 31, 2003 decreased approximately $48,000 as compared to 2002. The decrease in property operations of $24,000, the decrease in administrative expense and reimbursement to affiliates of $29,000, and the decrease in interest expense of $2,000 was offset by a $7,000 increase in other administrative expense. The decrease in property operations was attributable to a decrease in leasing fees and a reduction of expenditures for exterior painting at Inducon Amherst. The decrease in administrative expense to affiliates was a result of a decrease in management fees and portfolio reimbursed expenses. Interest expense decreased due to a larger portion of each mortgage payment being applied towards principal due to amortization of the mortgage at Inducon Amherst. The increase in other administrative expense was due to increased legal and professional services.
ITEM 7A:
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - -------- ----------------------------------------------------------
The Partnership invests only in short term money market instruments, in amounts in excess of daily working cash requirements. The rates of earnings on those investments increase or decrease in line with the general movement of interest rates. The mortgage loan on the Partnership's property is fixed rate and therefore, is not subject to market risk.
ITEM 8:
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------- -------------------------------------------
Listed under Item 15 of this report.
ITEM 9:
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------- --------------------------------------------------------------- FINANCIAL DISCLOSURE --------------------
None.
ITEM 9A:
ITEM 9A: CONTROLS AND PROCEDURES - -------- -----------------------
The Partnership maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Partnership in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Within the 90-day period prior to the filing of this report, an evaluation was carried out under the supervision and with the participation of the Partnership's management, including the Partnership's Individual General Partner and Principal Financial Officer, of the effectiveness of the Partnership's disclosure controls and procedures. Based on that evaluation, the Partnership's Individual General Partner and Principal Financial Officer concluded that the Partnership's disclosure controls and procedures are effective.
Subsequent to the date of their most recent evaluation, there have been no significant changes in the Partnership's internal control over financial reporting or in other factors that could significantly affect the internal control over financial reporting.
PART III --------
ITEM 10:
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - -------- --------------------------------------------------
The Partnership, as an entity, does not have any directors or officers. The Individual General Partner of the Partnership is Joseph M. Jayson. The directors and executive officers of Realmark Properties, Inc., the Partnership's Corporate General Partner, as of December 31, 2004, are listed below. Each director is subject to election on an annual basis.
Joseph M. Jayson and Judith P. Jayson are married to each other.
The Directors and Executive Officers of the Corporate General Partner and their principal occupations and affiliations during the last five years or more are as follows:
Joseph M. Jayson, age 66, is Chairman, Director and sole stockholder of J. M. Jayson and Company, Inc. and certain of its affiliated companies: U.S. Apartments LLC, Westmoreland Capital Corporation, Oilmark Corporation and U.S. Energy Development Corporation. In addition, Mr. Jayson is Chairman of Realmark Corporation, Chairman, President and Treasurer of Realmark Properties, Inc., wholly-owned subsidiaries of J. M. Jayson and Company, Inc. and co-general partner of Realmark Property Investors Limited Partnership, Realmark Property Investors Limited Partnership-II, Realmark Property Investors Limited Partnership-III, Realmark Property Investors Limited Partnership-IV, Realmark Property Investors Limited Partnership-V, Realmark Property Investors Limited Partnership-VI A, and Realmark Property Investors Limited Partnership-VI B. Mr. Jayson has been in the real estate business for the last 42 years and is a Certified Property Manager as designated by the Institute of Real Estate Management ("I.R.E.M."). Mr. Jayson received a B.S. Degree in Education in 1961 from Indiana University, a Masters Degree from the University of Buffalo in 1963, and has served on the educational faculty of the Institute of Real Estate Management. Mr. Jayson has for the last 42 years been engaged in various aspects of real estate brokerage and investment. He brokered residential properties from 1962 to 1964, commercial investment properties from 1964 to 1967, and in 1967 left commercial real estate to form his own investment firm. Since that time, Mr. Jayson and J. M. Jayson & Company, Inc. have formed or participated in various ways with forming over 30 real estate related limited partnerships. For the past 23 years, Mr. Jayson and an affiliate have also engaged in developmental drilling for gas and oil.
Judith P. Jayson, age 64, is currently Vice President and a Director of Realmark Properties, Inc. She is also a Director of the property management affiliate, Realmark Corporation. Mrs. Jayson has been involved in property management for the last 33 years and has extensive experience in the hiring and training of property management personnel and in directing, developing and implementing property management systems and programs. Mrs. Jayson, prior to joining the firm in 1973, taught business in the Buffalo, New York High School System. Mrs. Jayson graduated from St. Mary of the Woods College in Terre Haute, Indiana, with a degree in Business Administration.
Audit Committee - ---------------
The Partnership has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The members of the audit committee are Joseph M. Jayson and Bryant E. Zilke.
Audit Committee Financial Expert - --------------------------------
The Directors and Executive Officers of the Corporate General Partner have determined that Bryant E. Zilke is an audit committee financial expert as defined by Item 401(h) of Regulation S-K of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Mr. Zilke is not independent within the meaning of Item 7(d)(3)(iv) of Schedule 14A of the Exchange Act due to limited circumstances - namely that the Partnership is small in size and there is limited personnel. Mr. Zilke is not independent as a result of being an employee of an affiliate of the Corporate General Partner.
Code of Ethics - --------------
The Partnership has adopted a code of ethics for the partners, principal financial officer, and employees of the Corporate General Partner or its affiliates who render services on behalf of the Partnership. The Partnership will provide to any person without charge, upon request, a copy of the code of ethics which is available from:
Realmark Property Investors Limited Partnership - III Attention: Investor Relations 2350 North Forest Road Getzville, New York 14068
ITEM 11:
ITEM 11: EXECUTIVE COMPENSATION - -------- ----------------------
No direct remuneration was paid or payable by the Partnership to directors and officers (since it has no directors or officers), nor was any direct remuneration paid or payable by the Partnership to directors or officers of Realmark Properties, Inc., the Corporate General Partner and sponsor, for the year ended December 31, 2004. The Corporate General Partner and its affiliate, Realmark Corporation, are entitled to fees and to certain expense reimbursements with respect to Partnership operations, as set forth in Item 13 hereof and in the notes to the consolidated financial statements.
ITEM 12:
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - -------- --------------------------------------------------------------
No person is known to the Partnership to own of record or beneficially, more than 5% of the units of limited partnership interests of the Partnership, except for affiliates of the general partners that own 1111.9 units of limited partnership interest amounting to approximately 7.2% of the partnership interest at December 31, 2004. The general partners and the executive officers of the Corporate General Partner, as of December 31, 2004, owned 25.5 units of limited partnership interest. The general partners and affiliates will receive their proportionate share, as limited partners, of any distributable proceeds from the sale of the properties.
ITEM 13:
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------- ----------------------------------------------
The properties of the Partnership and its subsidiary are managed by Realmark Corporation, an affiliate of the Partnership's corporate general partner, for a fee of generally 5% of annual net rental income of the properties. Realmark Corporation and the Corporate General Partner are also reimbursed for disbursements made on behalf of the Partnership. Those transactions are further described, and quantified, in the note to the consolidated financial statements entitled "Related Party Transactions."
ITEM 14:
ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICES - -------- --------------------------------------
Audit Engagement: Toski, Schaefer & Co., P.C. was engaged as the Partnership's independent auditor for years 2004 and 2003. All fees incurred for the years ended December 31, 2004 and 2003 were approved by the Audit Committee.
Audit Fees: Audit fees for the audit of the Partnership's annual financial statements included in the Partnership's annual report on Form 10-K and those financial statements included in the Partnership's quarterly reports on Form 10-Q by Toski, Schaefer & Co., P.C. for the years ended December 31, 2004 and 2003 totaled $31,500 and $28,150, respectively.
Audit-Related Fees: None.
Tax Fees: The Partnership engaged Toski, Schaefer & Co., P.C. to provide tax filing and compliance services during the years ended December 31, 2004 and 2003 The fees for these services amounted to $4,935 and $4,104, respectively.
All Other Fees: None.
The Audit Committee has set a policy that all fees incurred by the Partnership for services performed by its independent auditors must be pre-approved by the Audit Committee. All fees related to 2004 and 2003 were pre-approved by the Audit Committee.
The Audit Committee oversees the Partnership's financial reporting process. Management has the primary responsibility for the financial statements and the financial reporting process, including the systems of internal controls. In fulfilling its oversight responsibilities, the Audit Committee reviewed the audited financial statements with management, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements.
The Audit Committee has the sole authority to retain and terminate the Partnership's independent auditors and approves all fees paid to the independent auditors. During 2004 and 2003, the Audit Committee reviewed with the independent auditors, who are responsible for expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles, their judgments as to the quality, not just the acceptability, of the Partnership's accounting principles and such other matters as are required to be discussed with the Audit Committee under generally accepted auditing standards. In addition, the Audit Committee has discussed with the independent auditors the auditors' independence from management and the Partnership, including the matters in the written disclosures required by the Independence Standards Board, and considered the scope and type of non-audit services provided by the auditor when reviewing the compatibility of those non-audit services with the auditors' independence.
The Audit Committee discussed with the Partnership's independent auditors the overall scope and plans for their audit. The Audit Committee meets with the independent auditors to discuss the results of their examination, their evaluations of the Partnership's internal controls, and the overall quality of the Partnership's financial reporting.
In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the General Partners (and the General Partners have approved) that the audited financial statements be included in the annual report on Form 10-K for the year ended December 31, 2004.
PART IV -------
ITEM 15:
ITEM 15: EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K - -------- ------------------------------------------------------------------
All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or the notes thereto.
(b) Reports on Form 8-K -------------------
None.
(c) Exhibits --------
2. Plan of acquisition, reorganization, arrangement, liquidation, or succession
(a) Stipulation of Settlement Agreement dated August 29, 2001 is incorporated herein by reference.
(b) Order and Final Judgment Approving Settlement and Awarding Fees and Expenses dated November 29, 2001 is incorporated herein by reference.
4. Instruments defining the rights of security holder, including indentures
(a) Second Amended and Restated Agreement and Certificate of Limited Partnership filed with the Registration Statement of the Registrant Form S-11, filed November 21, 1983, and subsequently amended is incorporated herein by reference.
10. Material contracts
(a) Property Management Agreement with Realmark Corporation included with the Registration Statement of the Registrant as filed and amended to date is incorporated herein by reference.
14. Code of Ethics filed December 31, 2003, is incorporated herein by reference.
21. Subsidiary of the Partnership is filed herewith.
31. Certification Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, is filed herewith.
32. Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, is filed herewith.
SIGNATURES ----------
Pursuant to the requirements of Section 13 or 15(d) 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.
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - III
By: /s/Joseph M. Jayson March 31, 2005 ---------------------------------------- -------------------- JOSEPH M. JAYSON, Date Individual General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: REALMARK PROPERTIES, INC. Corporate General Partner
/s/ Joseph M. Jayson March 31, 2005 ---------------------------------------- -------------------- JOSEPH M. JAYSON, Date President, Treasurer and Director
/s/ Judith P. Jayson March 31, 2005 ---------------------------------------- -------------------- JUDITH P. JAYSON, Date Vice President and Director
INDEPENDENT AUDITOR'S REPORT ----------------------------
The Partners Realmark Property Investors Limited Partnership - III:
We have audited the accompanying consolidated balance sheet of Realmark Property Investors Limited Partnership - III and Subsidiary as of December 31, 2003 and the related consolidated statements of operations, partners' equity, and cash flows for each of the two years in the period ended December 31, 2003, and for the period January 1, 2004 to May 20, 2004. In addition we have audited the consolidated statement of net assets in liquidation as of December 31, 2004 and the related consolidated statement of changes in net assets in liquidation for the period May 21, 2004 to December 31, 2004. Our audits also included the financial statement schedule listed in the index at Item 15. These consolidated financial statements and the financial statement schedule are the responsibility of the General Partners. Our responsibility is to express an opinion on the consolidated financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in note 1 to the consolidated financial statements, on May 20, 2004 the Partnership adopted a plan of termination and liquidation. As a result, the Partnership has changed its basis of accounting from the going concern to the liquidation basis effective May 21, 2004.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Realmark Property Investors Limited Partnership - III and Subsidiary as of December 31, 2003, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2003, and for the period January 1, 2004 to May 20, 2004, and their net assets in liquidation as of December 31, 2004 and their related changes in net assets in liquidation for the period May 21, 2004 to December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ TOSKI, SCHAEFER & CO., P.C. ------------------------------- TOSKI, SCHAEFER & CO., P.C. Williamsville, New York March 29, 2005
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - III AND SUBSIDIARY
Notes to Consolidated Financial Statements December 31, 2004, 2003 and 2002
(1) Liquidation of the Partnership - ----------------------------------
On May 20, 2004, the Partnership sold its remaining property investment, Perrymont, and adopted a plan of termination and liquidation under which obligations to non-affiliates will be paid and net proceeds will be distributed to the limited partners.
(2) Formation and Operation of Partnership - ------------------------------------------
Realmark Property Investors Limited Partnership - III (the Partnership) is a Delaware limited partnership formed on November 18, 1983, to invest in a diversified portfolio of income-producing real estate investments.
In 1984 and 1985, the Partnership sold through a public offering, 15,551 units of limited partnership interest for $15,551,000. The general partners are Realmark Properties, Inc. (the Corporate General Partner) and Joseph M. Jayson (the Individual General Partner) who is the sole shareholder of J.M. Jayson & Company, Inc. Realmark Properties, Inc. is a wholly-owned subsidiary of J.M. Jayson & Company, Inc.
Under the partnership agreement, the general partners and their affiliates can receive compensation for services rendered and reimbursement for expenses incurred on behalf of the Partnership (note 7).
(3) Summary of Significant Accounting Policies - ----------------------------------------------
(a) Basis of Accounting and Consolidation -------------------------------------
As a result of the plan of termination and liquidation, the Partnership changed its basis of accounting from the going concern basis to the liquidation basis effective May 21, 2004. Under the liquidation basis of accounting, assets are stated at their estimated net realizable values and liabilities are stated at their estimated settlement amounts.
In estimating liquidation values, fees paid to the plaintiffs' legal counsel, amounting to $404,501 were recorded as a loss on settlement of the lawsuit
The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America and include the accounts of the Partnership and its wholly-owned subsidiary, Realmark - Inducon Amherst, LLC which owns Inducon Amherst, an office building located in Amherst, New York, acquired in 1985.
In consolidation, all intercompany accounts and transactions have been eliminated.
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - III AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) Summary of Significant Accounting Policies, Continued - ---------------------------------------------------------
(b) Estimates ---------
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
(c) Property and Equipment ----------------------
Property and equipment are recorded at cost. Depreciation is provided using the straight-line method over the estimated lives of the assets from 5 to 25 years. Significant improvements are capitalized, while expenditures for maintenance, repairs and replacements are charged to expense as incurred. Upon disposal of depreciable property, the appropriate property accounts are reduced by the related costs and accumulated depreciation and resulting gains and losses are reflected in the consolidated statements of operations.
The Partnership reviews long-lived assets for impairments whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. In determining whether there is an impairment of long-lived assets, the Partnership compares the sum of the expected future net cash flows (undiscounted and without interest charges) to the carrying amount of the assets.
The Partnership's policy is to consider a property to be held for sale or disposition when the Partnership has committed to a plan to sell or dispose of such property and active marketing activity has commenced or is expected to commence in the near term or the Partnership has concluded that it may dispose of the property by no longer funding operating deficits or debt service requirements of the property thus allowing the lender to realize upon its security. Any properties identified as "held for sale or disposition" are no longer depreciated.
(d) Cash and Equivalents --------------------
Cash and equivalents includes money market accounts and any highly liquid debt instruments purchased with a maturity of three months or less.
(e) Deferred Mortgage Costs -----------------------
Costs incurred in obtaining mortgage financing are deferred and amortized using the straight-line method over the life of the respective mortgages.
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - III AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) Summary of Significant Accounting Policies, Continued - ---------------------------------------------------------
(f) Rental Income -------------
Rental income is recognized as earned according to the terms of the leases. Leases for residential properties are generally for periods of one year or less, payable monthly. Commercial leases are generally for periods of one to five years. Delinquent residential property rent is not recorded.
(g) Per Unit Data -------------
Per limited partnership unit is based on the weighted average number of limited partnership units outstanding for the year.
(h) Fair Value of Financial Instruments -----------------------------------
The fair value of the Partnership's financial instruments approximated their carrying values at December 31, 2004.
(i) Income Allocation and Distributable Cash Flow ---------------------------------------------
The partnership agreement provides that income not arising from sale and refinancing activities and all partnership losses are to be allocated 97% to the limited partners and 3% to the general partners. Partnership income arising from sale or refinancing activities is allocated in the same proportion as distributions of distributable cash from sale proceeds. In the event there is no distributable cash from sale proceeds, taxable income will be allocated 87% to the limited partners and 13% to the general partners. The above is subject to tax laws that were applicable at the time of the formation of the Partnership and may be adjusted due to subsequent changes in the Internal Revenue Code.
The partnership agreement also provides for the distribution to the partners of net cash flow from operations. As a result of the sale of the Partnership's last property, there will be no future distributions of net cash flow from operations. Sale or refinancing proceeds are distributed to the extent available, 100% to the limited partners until there has been a return of the limited partner's capital contribution plus an amount sufficient to provide a 7%, not compounded, return on their adjusted capital contributions for all years following the termination of the offering of the units. It is anticipated that there will not be sufficient cash flow from the sale of the Partnership's remaining properties to provide this return to the limited partners.
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - III AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) Summary of Significant Accounting Policies, Continued - ---------------------------------------------------------
(j) Income Taxes ------------
No income taxes are included in the consolidated financial statements since the taxable income or loss of the Partnership is reportable by the partners on their income tax returns. At December 31, 2004, net assets for financial reporting purposes were equal to the tax bases of the net assets.
(k) Segment Information -------------------
The Partnership's operating segments all involve the ownership and operation of income-producing real property and are aggregated into one reporting segment.
(4) Investments in Real Estate - ------------------------------
On January 1, 2002, the Partnership adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 144 establishes the accounting and reporting standards for the impairment or disposal of long-lived assets by requiring those assets to be measured at the lower of depreciated cost or fair value less selling costs, whether reported in continuing operations or in discontinued operations. This standard does not change the fundamental provisions of SFAS No. 121; however, it resolves various implementation issues of SFAS No. 121. The adoption of this standard did not have a material effect on the Partnership's consolidated financial position or results of operations for the year ended December 31, 2002.
On May 20, 2004, the Partnership sold Perrymont to an unaffiliated entity for cash of $2,450,000, less a $600,000 credit for work which the buyer determined was necessary on the property, and recognized a related gain on the sale amounting to $144,785.
On April 5, 2004, the Partnership sold Inducon Amherst to an unaffiliated entity for cash of $2,045,000 and recognized a related gain on the sale amounting to $19,501.
(5) Mortgage Loan Payable - --------------------------
8.62% mortgage loan payable with total monthly payment of $15,250. The mortgage was secured by the Inducon Amherst property. The balance of the mortgage loan payable amounted to $1,703,787 at December 31, 2003. This mortgage was repaid in 2004 in connection with the sale of Inducon Amherst.
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - III AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(6) Estimated Costs During the Period of Liquidation - ----------------------------------------------------
Under the liquidation basis of accounting, the Partnership is required to estimate and record the costs associated with executing the plan of liquidation as a liability. These amounts can vary significantly due to, among other things, the costs of retaining personnel, the costs of insurance, the timing and amounts associated with discharging known and contingent liabilities and the costs associated with cessation of the Partnership's operations. These costs are estimates and are expected to be paid out over the liquidation period. The Partnership's estimated costs during the period of liquidation as of December 31, 2004 are as follows:
Professional fees $ 70,000 Office and administrative expense 48,387 ---------
Total $ 118,387 =========
(7) Related Party Transactions - -------------------------------
The Corporate General Partner and its affiliates earn fees, principally for property and partnership management and are reimbursed for services rendered to the Partnership, as provided for in the partnership agreement. A summary of those items follows:
In addition to the above, other property specific expenses such as payroll, benefits, etc. are charged to property operations on the Partnership's consolidated statements of operations. Payable to affiliated parties bears interest at 11%, are payable on demand and amounted to $11,777 at December 31, 2004.
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - III AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(7) Related Party Transactions, Continued - -----------------------------------------
Property Disposition Fees -------------------------
According to the terms of the partnership agreement, the general partners are allowed to collect property disposition fees upon the sale of acquired properties. This fee is not to exceed the lesser of 50% of amounts customarily charged in arm's-length transactions by others rendering similar services for comparable properties, or 2.75% of the sales price. The property disposition fee is subordinate to payments to the limited partners of a cumulative annual return (not compounded) equal to 7% of their average adjusted capital balances and to repayment to the limited partners of an amount equal to their capital contributions. The general partners have not to date received a disposition fee on any property sales, as the limited partners of the Partnership have not received a return of 7% on their average adjusted capital or their original capital as defined in the partnership agreement. Fees earned on the sales will not be recorded as liabilities by the Partnership until such time as payment is probable.
(8) Settlement of Lawsuit - -------------------------
As previously reported, the Partnership, as a nominal defendant, the general partners of the Partnership and of affiliated public partnerships (the "Realmark Partnerships") and the officers and directors of the Corporate General Partner, as defendants, had been involved in a class action litigation at the state court level regarding the payment of fees and other management issues.
On August 29, 2001, the parties entered into a Stipulation of Settlement (the "Settlement"). On October 4, 2001, the Court issued an "Order Preliminary Approving Settlement" (the "Hearing Order") and on November 29, 2001, the Court issued an "Order and Final Judgment Approving Settlement and Awarding Fees and Expenses" and dismissing the complaints with prejudice. The Settlement provided, among other things, that all of the Realmark Partnerships' properties be disposed of. The general partners will continue to have primary authority to dispose of the Partnerships' properties. If either (i) the general partners have not sold or contracted to sell 50% of the Partnerships' properties (by value) by April 2, 2002 or (ii) the general partners have not sold or contracted to sell 100% of the Partnerships' properties by September 29, 2002, then the primary authority to dispose of the Partnerships' properties will pass to a sales agent designated by plaintiffs' counsel and approved by the Court. On October 4, 2002, the Court appointed a sales agent to work with the general partners to continue to sell the Partnerships' remaining properties.
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - III AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(8) Settlement of Lawsuit, Continued - -------------------------------------
The settlement also provided for the payment by the Partnerships of fees to the plaintiffs' attorneys. These payments, which are not calculable at this time but may be significant, are payable out of the proceeds from the sale of all of the properties owned by all of the Realmark Partnerships, following the sale of the last of these properties in each partnership. Plaintiffs' counsel will receive 15% of the amount by which the sales proceeds distributable to limited partners in each partnership exceeds the value of the limited partnership units in each partnership (based on the weighted average of the units' trading prices on the secondary market as reported by Partnership Spectrum for the period May through June 2001). In no event may the increase on which the fees are calculated exceed 100% of the market value of the units as calculated above. On May 20, 2004, the Partnership sold its remaining property, and in December 2004, a payment of $404,501 was made to the plantiffs' attorneys.
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - III AND SUBSIDIARY
Real Estate and Accumulated Depreciation
December 31, 2004, 2003 and 2002
(1) Cost for Federal income tax purposes is none.
(2) A reconciliation of the carrying amount of land, buildings and improvements as of December 31, 2004, 2003 and 2002 is as follows:
(3) A reconciliation of accumulated depreciation for the years ended December 31, 2004, 2003, and 2002 is as follows:
(4) Balance applies entirely to buildings and improvements.
(5) Sale of Perrymont Office Building and Inducon Amherst in 2004.