UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended September 30, 2001 [ ] Transition Report Under 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. (Exact name of small business issuer 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) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 November 14, 2001, 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 Balance Sheet at September 30, 2001 . . . . . . 4 Consolidated Statements of Operations, for the nine months ended September 30, 2001 and 2000. . . . . . . . 5 Consolidated Statements of Operations, for the three months ended September 30, 2001 and 2000 . . . . . . . 6 Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and 2000. . . . . . . . 7 Notes to Consolidated Financial Statements . . . . . . . . . 8 Item 2. Management's Discussion and Analysis or Plan of Operation . . . . . . . . . . . . . . . . . . . . . . . 17 PART II - OTHER INFORMATION Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . .20 Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . .20 Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . .20 Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . . . . . . . . . . .20 Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . .20 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 BRAUVIN NET LEASE V, INC. (a Maryland corporation) PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements The following Consolidated Balance Sheet as of September 30, 2001, Consolidated Statements of Operations for the nine months ended September 30, 2001 and 2000, Consolidated Statements of Operations for the three months ended September 30, 2001 and 2000, and Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and 2000 for Brauvin Net Lease V, Inc. (the "Fund") are unaudited but reflect, in the opinion of the management, all adjustments necessary to make the consolidated financial statements not misleading. All such adjustments are of a normal recurring nature. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Fund's 2000 Annual Report on Form 10-KSB. BRAUVIN NET LEASE V, INC. (a Maryland corporation) CONSOLIDATED BALANCE SHEET (Unaudited) September 30, 2001 ASSETS Investment in real estate, at cost: Land $ 3,979,586 Buildings 7,632,199 11,611,785 Less accumulated depreciation (1,152,984) Net investment in real estate 10,458,801 Cash and cash equivalents 402,711 Prepaid expenses & deferred acquisition fees 6,585 Deferred rent receivable 397,122 Total Assets $11,265,219 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable and accrued expenses $ 35,441 Rents received in advance 44,061 Due to affiliates 33,824 Total Liabilities 113,326 Stockholders' Equity: Preferred stock, $.01 par value, 1,000,000 shares authorized; none issued -- Common stock, $.01 par value, 9,000,000 shares authorized; 1,286,163 shares issued and outstanding 12,862 Additional paid-in capital 11,526,203 Accumulated deficit (387,172) Total Stockholders' Equity 11,151,893 Total Liabilities and Stockholders' Equity $11,265,219 See notes to consolidated financial statements. BRAUVIN NET LEASE V, INC. (a Maryland corporation) CONSOLIDATED STATEMENTS OF OPERATIONS For the nine months ended September 30, (Unaudited) 2001 2000 INCOME Rental $1,019,244 $1,021,861 Real estate tax reimbursement 19,113 35,885 Interest and other 10,081 14,977 Total income 1,048,438 1,072,723 EXPENSES Directors fees 9,000 10,000 Advisory fees 113,748 131,250 Management fees 10,348 10,254 General and administrative 79,973 60,941 Real estate taxes 19,497 38,517 Bad debt expense (7,852) 7,852 Depreciation and amortization 145,323 145,323 Total expenses 370,037 404,137 Net Income $ 678,401 $ 668,586 Net Income Per Share (based on average shares outstanding of 1,292,232 and 1,261,007, respectively) $ 0.52 $ 0.53 See notes to consolidated financial statements. BRAUVIN NET LEASE V, INC. (a Maryland corporation) CONSOLIDATED STATEMENTS OF OPERATIONS For the three months ended September 30, (Unaudited) 2001 2000 INCOME Rental $340,563 $342,346 Real estate tax reimbursement 3,132 12,398 Interest and other 1,357 5,636 Total income 345,052 360,380 EXPENSES Directors fees 3,000 3,000 Advisory fees 36,249 43,750 Management fees 3,688 3,292 General and administrative 35,833 20,767 Real estate taxes 3,516 15,030 Depreciation and amortization 48,442 48,442 Total expenses 130,728 134,281 Net Income $214,324 $226,099 Net Income Per Share (based on average shares outstanding of 1,286,163 and 1,297,800, respectively) $ 0.17 $ 0.17 See notes to consolidated financial statements. BRAUVIN NET LEASE V, INC. (a Maryland corporation) CONSOLIDATED STATEMENTS OF CASH FLOWS For the nine months ended September 30,(Unaudited) 2001 2000 Cash Flows From Operating Activities: Net income $ 678,401 $ 668,586 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 145,323 145,323 Bad debt expense (7,852) 7,852 Changes in: Tenant receivables 20,803 (7,734) Deferred rent receivable (19,617) (20,867) Prepaid expenses (6,585) -- Accounts payable and accrued expenses 18,032 7,197 Rent received in advance (8,772) (8,088) Due to affiliates (21,005) 18 Net cash provided by operating activities 798,728 792,287 Cash Flows From Financing Activities: Liquidations, net of issuance of stock (115,456) (19,942) Selling commissions and other offering costs 1,799 (30,306) Dividends (775,190) (721,663) Net cash used in financing activities (888,847) (771,911) Net (decrease) increase in cash and cash equivalents (90,119) 20,376 Cash and cash equivalents at beginning of period 492,830 460,111 Cash and cash equivalents at end of period $402,711 $480,487 See notes to consolidated financial statements. BRAUVIN NET LEASE V, INC. (a Maryland corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (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; and a Jiffy Lube and Firestone facility during the year ended December 31, 1997. 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 September 30, 2001, the Fund had sold 1,286,163 shares and the gross proceeds raised were $12,881,903, net of liquidations of $663,172, including $200,000 invested by the Advisor ("Initial Investment"), before reduction for selling commissions and other offering costs. SIGNIFICANT ACCOUNTING POLICIES Management's Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Accounting Method The accompanying consolidated financial statements have been prepared using the accrual method of accounting. Rental Income Rental income is 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 are credited or charged, as applicable, to deferred rent receivable. Federal Income Taxes For the year ending December 31, 2001, 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 95% 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 stockholders' equity of Germantown Associates, Inc. All significant intercompany accounts have been eliminated. Investment in Real Estate The Fund's rental properties are stated at cost including acquisition costs. Depreciation is recorded on a straight-line basis over the estimated economic lives of the properties which approximate 40 years. 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 September 30, 2001. Accordingly, no impairment loss has been recorded in the accompanying financial statements for the nine months ended September 30, 2001. 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. 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 judgment 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 September 30, 2001, 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. The carrying amounts of the following items are reasonable estimates of fair value: cash and cash equivalents; accounts payable and accrued expense; rents received in advance; and due to affiliates. Reclassifications Certain items in the 2000 financial statements have been reclassified to conform with the 2001 presentation. Recent Accounting Pronouncements 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 adoption of SFAS 133 and SFAS 138 did not have an impact on the financial position, results of operations and cash flows of the Fund. 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 is 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 recognized intangibles as goodwill, reassessment of the useful lives of existing recognized 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. The Fund does not believe that the adoption of SFAS 141 and SFAS 142 will have a significant impact on its financial statements. (2) 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, is entitled to placement charges of 5.50% of the gross proceeds of the Fund's offering, all of which will be reallowed to placement agents. In addition, BSI is 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 is entitled to a non-accountable expense allowance in an amount equal to 2.5% of the 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 board of 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. The independent board of directors will continue to review the advisory fee amount on an annual basis. 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 the Fund's properties. The property management fee payable to an affiliate of the Advisor shall not exceed the lesser of: (a) fees which 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 nine months ended September 30, 2001 and 2000 were as follows: 2001 2000 Advisory fees $113,748 $131,250 Dividend reinvestment fees -- 223 Management fees 10,348 10,254 Nonaccountable fees -- 551 Reimbursable operating expense 5,441 4,368 $129,537 $146,646 As of September 30, 2001 the Fund made all payments to affiliates except for $32,914 for advisory fees and $910 for management fees. (3) DIVIDENDS Below is a table summarizing the dividends declared: Annualized Declaration Record Payment Dividend Date(a) Dates Date Rate Amount 1/28/99 10/1/98-12/31/98 2/15/99 6.9% $224,972 5/6/99 1/1/99-3/31/99 5/15/99 7.0% 223,602 8/5/99 4/1/99-6/30/99 8/15/99 7.0% 226,660 11/4/99 7/1/99-9/30/99 11/15/99 7.25% 236,848 1/27/00 10/1/99-12/31/99 2/15/00 7.25% 237,390 5/4/00 1/1/00-3/31/00 5/15/00 7.25% 233,673 8/10/00 4/1/00-6/30/00 8/15/00 7.75% 250,600 11/9/00 7/1/00-9/30/00 11/15/00 7.75% 253,621 2/15/01 10/1/00-12/31/00 2/15/01 8.0% 262,106 5/10/01 1/1/01-3/31/01 5/15/01 8.0% 256,556 8/09/01 4/1/01-6/30/01 8/15/01 8.0% 256,528 11/15/01 7/1/01-9/30/01 11/15/01 8.0% 259,347(b) (a) Dividends were declared on a daily basis. (b) Does not include a bonus distribution of $64,308. The 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 September 30, 2001, there were approximately 68,797 shares purchased through the Reinvestment Plan and approximately 69,204 shares liquidated. In accordance with the Company's original investment objective, during the first quarter of 2000, the Board of Directors approved a plan to have the Company'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 95% of REIT taxable income of the Fund. The Fund intends to make quarterly distributions to satisfy all annual distribution requirements. Effective February 13, 2001, the Board determined it is in the best interest of the Company to discontinue the Dividend Reinvestment Plan at this time. Shareholder participation in the Plan had declined to approximately 3.9% of the total number of investors in the Company. The board concluded that the significant majority of shareholders would benefit from the termination through the elimination of the potential for the dilution of existing shareholders as well as the elimination of the costs associated with the Plan. Accordingly, all future dividends will be paid in cash. Item 2. Management's Discussion and Analysis or Plan of Operations 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 September 30, 2001, the Fund had received $12,881,903 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 95% REIT taxable income test The Fund is required, under the Code, to make distributions of an amount not less than 95% of its REIT taxable income during the year. In accordance with the Fund's intent to maintain its qualification as a REIT under the Code, the Fund intends to manage its dividend distributions to approximate earnings during the year to which they relate. Results of Operations - 9 months - 2001 Compared to 2000 The Fund generated net income of $678,000 for the nine months ended September 30, 2001 as compared to net income of $669,000 for the nine months ended September 30, 2000. Total income for the nine months ended September 30, 2001 was $1,048,000 as compared to $1,073,000 for the same nine month period in 2000, a decrease of $25,000. The $25,000 decrease was due primarily to a $17,000 decrease in real estate tax reimbursement income and a $5,000 decrease in interest and other income. Real estate tax reimbursement income decreased because 1999 real estate tax reimbursement income was included in 2000. The 1999 tax bill was received late and therefore not billed to tenant until 2000. For the nine months ended September 30, 2001, total expenses were $370,000 as compared to $404,000 for the same nine month period in 2000, a decrease of $34,000. Bad debt expense decreased $16,000 as a result of the Fund receiving payment in 2001 that management had estimated in 2000 to be uncollectible. Advisory fees also decreased by $18,000 as a result of the modification by the Board of Directors in February, 2001. Real estate tax expense decreased by $19,000 corresponding with the decrease in real estate tax reimbursement income. These decreases in expense were offset by an increase in general and administrative expense of $19,000, primarily due to an increase of legal and other professional fees of $29,000, offset by a decrease in state tax expense of $6,000 and a decrease in insurance expense of $4,000. Results of Operations - 3 months - 2001 Compared to 2000 The Fund generated net income of $214,000 for the three months ended September 30, 2001 as compared to net income of $226,000 for the three months ended September 30, 2000. Total income for the three months ended September 30, 2001 was $345,000 as compared to $360,000 for the same three month period in 2000, a decrease of $15,000. The $15,000 decrease was due primarily to a $9,000 decrease in real estate tax reimbursement income and a $4,000 decrease in interest and other income. For the three months ended September 30, 2001, total expenses were $131,000 as compared to $134,000 for the same three month period in 2000, a decrease of $3,000. The decrease is primarily due to a decrease in real estate tax expense of $11,000 corresponding to the decrease in real estate tax reimbursement income and a decrease in advisory fee expense of $7,000 offset by an increase in general and administrative expense of $15,000, due primarily to increases in legal and other professional fees. 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. None. ITEM 5. Other Information None. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BRAUVIN NET LEASE V, INC. BY: /s/ James L. Brault James L. Brault Executive Vice President and Secretary DATE: November 20, 2001 BY: /s/Thomas E. Murphy Thomas E. Murphy Chief Financial Officer DATE: November 20, 2001