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 June 30, 1999 [ ] 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 August 13,1999, the registrant had 1,294,567 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 June 30, 1999. . . . . . . . . 4 Consolidated Statements of Operations, for the six months ended June 30, 1999 and 1998. . . . . . . . . . . 5 Consolidated Statements of Operations, for the three months ended June 30, 1999 and 1998. . . . . . . . . . 6 Consolidated Statements of Cash Flows for the six months ended June 30, 1999 and 1998. . . . . . . . . . . 7 Notes to Consolidated Financial Statements . . . . . . . . . 8 Item 2. Management's Discussion and Analysis or Plan of Operation . . . . . . . . . . . . . . . . . . . . . . . 15 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 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . .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 June 30, 1999, Consolidated Statements of Operations for the six months ended June 30, 1999 and 1998, Consolidated Statements of Operations for the three months ended June 30, 1999 and 1998, and Consolidated Statements of Cash Flows for the six months ended June 30, 1999 and 1998 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 1998 Annual Report on Form 10-KSB. BRAUVIN NET LEASE V, INC. (a Maryland corporation) CONSOLIDATED BALANCE SHEET (Unaudited) June 30, 1999 ASSETS Investment in real estate, at cost: Land $ 3,979,586 Buildings 7,632,199 11,611,785 Less accumulated depreciation (717,016) Net investment in real estate 10,894,769 Cash and cash equivalents 406,597 Tenant receivable 8,721 Deferred rent receivable 316,304 Total Assets $11,626,391 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable and accrued expenses $ 12,449 Rents received in advance 69,921 Due to affiliates 55,487 Total Liabilities 137,857 Stockholders' Equity: Preferred stock, $.01 par value, 1,000,000 shares authorized; none issued -- Common stock, $.01 par value, 9,000,000 shares authorized; 1,300,232 shares issued and outstanding 13,002 Additional paid-in capital 11,674,997 Retained earnings (deficit) (199,465) Total Stockholders' Equity 11,488,534 Total Liabilities and Stockholders' Equity $11,626,391 See notes to consolidated financial statements. BRAUVIN NET LEASE V, INC. (a Maryland corporation) CONSOLIDATED STATEMENTS OF OPERATIONS For the six months ended June 30, (Unaudited) 1999 1998 INCOME Rental $668,509 $643,434 Interest and other 6,038 5,553 Total income 674,547 648,987 EXPENSES Directors fees 8,000 7,000 Advisory fees 87,500 87,500 Management fees 6,726 6,301 General and administrative 48,418 56,821 Bad debt expense -- 17,158 Depreciation and amortization 98,049 100,424 Total expenses 248,693 275,204 Net Income $425,854 $373,783 Net Income Per Share (based on average shares outstanding of 1,295,185 and 1,285,955, respectively for the six months ended June 30, 1999 and 1998) $ 0.33 $ 0.29 See notes to consolidated financial statements. BRAUVIN NET LEASE V, INC. (a Maryland corporation) CONSOLIDATED STATEMENTS OF OPERATIONS For the three months ended June 30, 1999 and 1998 (Unaudited) 1999 1998 INCOME Rental $334,557 $304,980 Interest and other 3,093 2,668 Total income 337,650 307,648 EXPENSES Directors fees 4,000 3,000 Advisory fees 43,750 43,750 Management fees 2,979 3,294 General and administrative 27,499 38,653 Bad debt expense -- 8,720 Depreciation and amortization 48,441 51,455 Total expenses 126,669 148,872 Net Income $210,981 $158,776 Net Income Per Share (based on average shares outstanding of 1,298,689 and 1,292,912, respectively for the three months ended June 30, 1999 and 1998) $ 0.16 $ 0.12 See notes to consolidated financial statements. BRAUVIN NET LEASE V, INC. (a Maryland corporation) CONSOLIDATED STATEMENTS OF CASH FLOWS For the six months ended June 30, 1999 and 1998 (Unaudited) 1999 1998 Cash Flows From Operating Activities: Net income $ 425,854 $ 373,783 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of organization costs 1,167 3,500 Depreciation 96,882 96,924 Provision for doubtful accounts -- 17,158 Changes in: Tenant receivables (8,548) (16,763) Deferred rent receivables (33,378) (22,758) Accounts payable and accrued expenses (12,090) 41,088 Rent received in advance 43,673 (10,713) Due to affiliates (1,362) 436 Net cash provided by operating activities 512,198 482,655 Cash Flows From Investing Activities: Capital expenditures -- (85,523) Cash used in investing activities -- (85,523) Cash Flows From Financing Activities: Issuance of stock, net of liquidations 52,724 42,471 Selling commissions and other offering costs (31,475) (32,464) Dividends (448,575) (434,065) Net cash used in financing activities (427,326) (424,058) Net increase (decrease) in cash and cash equivalents 84,872 (26,926) Cash and cash equivalents at beginning of period 321,725 303,412 Cash and cash equivalents at end of period $406,597 $276,486 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 June 30, 1999, the Fund had sold 1,300,232 shares and the gross proceeds raised were $13,451,351, net of liquidations of $449,037, 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 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. 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 ended December 31, 1999, the Fund intends to be treated as a REIT under the 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 stockholder's 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 June 30, 1999 or December 31, 1998. Accordingly, no impairment loss has been recorded in the accompanying financial statements for the six months ended June 30, 1999 or the year ended December 31, 1998. 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 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, 1999, 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. Organization Costs Organization costs represent costs incurred in connection with the organization and formation of the Fund. Organization costs are amortized over a period of five years using the straight line method. (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, 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. 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 six months ended June 30, 1999 and 1998 were as follows: 1999 1998 Advisory fees $87,500 $87,500 Dividend reinvestment fees 638 661 Management fees 6,726 6,301 Nonaccountable fees 1,597 1,637 $96,461 $96,099 As of June 30, 1999 the Fund made all payments to affiliates except for $53,914 for advisory fees, and $1,573 for management fees. (3) DIVIDENDS Below is a table summarizing the dividends declared: Annualized Declaration Record Payment Dividend Date(a) Dates Date Rate Amount 5/8/97 1/1/97-3/31/97 5/15/97 7% $224,034 8/7/97 4/1/97-6/30/97 8/15/97 7% 224,907 11/6/97 7/1/97-9/30/97 11/15/97 7% 227,999 1/29/98 10/1/97-12/31/97 2/15/98 7% 227,354 5/7/98 1/1/98-3/31/98 5/15/98 6.5% 206,711 8/6/98 4/1/98-6/30/98 8/15/98 6.75% 217,606 11/2/98 7/1/98-9/30/98 11/15/98 6.2% 202,531 2/15/99 10/1/98-12/31/98 2/15/99 6.9% 224,972 5/6/99 1/1/99-3/31/99 5/14/99 7% 223,603 8/5/99 4/1/99-6/30/99 8/15/99 7% 226,660 (a) Dividends were declared on a daily basis. The dividend reinvestment plan ("Reinvestment Plan") is available to the stockholders so that stockholders, if they so elect, may have their distributions from the Fund invested in shares. 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 will be charged a service charge, in an amount equal to 1% of their distributions, which will be paid to an affiliate of the Advisor to defray the administrative costs of the Reinvestment Plan. At June 30, 1999, there were approximately 58,567 shares purchased through the Reinvestment Plan and approximately 44,904 shares liquidated. 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. 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. Year 2000 The "Year 2000" problem concerns the inability of computer technology systems to correctly identify and process date sensitive information beyond December 31, 1999. Many computers automatically add the "19" prefix to the last two digits the computer reads for the year when date information is needed in computer software programs. Thus when a date beginning on January 1, 2000 is entered into a computer, the computer may interpret this date as the year "1900" rather than "2000". The Fund's computer information technology systems consist of a network of personal computers linked to a server built using hardware and software from mainstream suppliers. The Fund does not own any equipment that contains embedded microprocessors, which may also pose a potential Year 2000 problem. Additionally, the Fund has no internally generated software coding to correct as all of the Fund's software is purchased and licensed from external providers. These external providers have assured management that their systems are, or will be, Year 2000 compliant. The Fund has two main software packages that contain date sensitive information: (i) accounting and (ii) investor relations. In 1997, the Fund initiated and completed the conversion from its existing accounting software to a new software program that is Year 2000 compliant. In 1998, the investor relations software was also updated to a new software program that is Year 2000 compliant. Management has determined that the Year 2000 issue will not pose significant operational problems for its remaining computer software systems. All costs associated with these conversions are expensed as incurred, and are not material. Management does not believe that any further expenditures will be necessary for the Fund to be Year 2000 compliant. However, additional personal computers may be purchased from time to time to replace existing machines. Also in 1997, management of the Fund initiated formal communications with all of its significant third party vendors, service providers and financial institutions to determine the extent to which the Fund is vulnerable to those third parties failure to remedy their own Year 2000 issue. There can be no guarantee that the systems of these third parties will be timely converted and would not have an adverse effect on the Fund. The most reasonably likely worst case scenario for the Fund with respect to the Year 2000 issue would be the inability of certain tenants to timely make their rental payments beginning in January 2000. This could result in the Fund temporarily suffering a depletion of the Fund's cash reserves as expenses will need to be paid while the cash flows from revenues are delayed. The Fund has no formal Year 2000 contingency plan. Liquidity and Capital Resources As of June 30, 1999, the Fund had received $11,687,999 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 $449,037. The Fund acquired one property during the year ended December 31, 1994 for $900,000 plus closing costs, acquired five properties during the year ended December 31, 1995 for $6,511,400 plus closing costs, acquired two properties during the year ended December 31, 1996 for $2,025,000 plus closing costs and acquired one property during the year ended December 31, 1997 for $1,450,000 plus closing costs. Upon the acquisition of the property purchased during the year ended December 31, 1997, the Fund has invested all the proceeds of the offering allocable to investments in real estate. The Fund has no material capital commitments. In the opinion of management of the Fund, each property is adequately covered by insurance. 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 for the six months ended June 30, 1999 and 1998. (Amounts rounded to nearest $000's) The Fund generated net income of $426,000 for the six months ended June 30, 1999 as compared to net income of $374,000 for the same six month period in 1998. The reason for the $52,000 increase in net income is set forth below. Total income for the six months ended June 30, 1999 was $675,000, as compared to $649,000 for the same six month period in 1998, an increase of $26,000. The increase was a result of a $25,000 increase in rental income and a $1,000 increase in interest and other income. The increase in rental income was a result of the Moon Buffet restaurant which opened for business mid-April 1998, therefore the Fund has received six months of income for the period ended June 30, 1999 compared to two months for the period ended June 30, 1998. For the six months ended June 30, 1999, total expenses were $249,000 as compared to $275,000 for the same six month period in 1998, a decrease of $26,000. The decrease was due to a decrease in general and administrative expenses of $8,000 and a decrease in bad debt expense of $17,000. The decrease in bad debt expense was a result of the 1998 bankruptcy of one of the Funds tenants (as described below). The Country Harvest Buffet tenant discontinued its operations in mid-June 1997 as a result of new competition from a new and larger buffet restaurant opening in the immediate area. The tenant continued to pay its rent on a timely basis through the end of 1997. In January 1998, Country Harvest Buffet Restaurants, Inc. filed for protection from its creditors under Chapter 11 of the United States Bankruptcy Code. However, prior to this filing, the Fund agreed to a sublease with another buffet restaurant, Moon Buffet. To avoid complications of a rejection of the main lease under bankruptcy law, the Fund agreed to a novation of the main lease. Moon Buffet opened for business mid-April 1998. The tenant of the On The Border property discontinued its operations on May 29, 1996. Brinker Texas, L.P., the property's lease guarantor (and a wholly-owned subsidiary of Brinker International), has stated its intention to honor the lease and cooperate with the Fund to cause the property to be re-occupied. In addition the adjacent highway is in the process of being widened which has resulted in the condemnation of a portion of the frontage of the parcel owned by the Fund. Per the purchase contract the monetary damages from this condemnation were paid to HMG/Courtland Properties, the developer of the property (the "Developer"). The Fund was compensated with an adjacent piece of land owned by the Developer. The Fund is working with Brinker International, in order to locate a subtenant or purchaser for this location. The Fund does not currently anticipate that this situation will adversely affect the Fund's cash flow, as rent is currently being paid on the lease. As reported previously, the Fund had a pending sale contract on this property to an unaffiliated third party in the amount of approximately $1,533,000, however, as a result of certain contingencies contained within the agreement the sale contract has been voided. At June 30, 1999 the carry value of this property was approximately $1,300,000. Results of Operations for the three months ended June 30, 1999 and 1998. (Amounts rounded to nearest $000's) The Fund generated net income of $211,000 for the three months ended June 30, 1999 as compared to net income of $159,000 for the three months ended June 30, 1998. Total income for the three months ended June 30, 1999 was $338,000 as compared to $308,000 for the same three month period in 1998, an increase of $30,000. The $30,000 increase was due to an increase in rental income from Moon Buffet in 1999 when compared to 1998. For the period in 1998, Moon Buffet was granted certain rental concessions per the terms of the lease agreement as an incentive to lease the property, while no such concessions were granted in the three month period ended June 30, 1999. For the three months ended June 30, 1999, total expenses were $127,000 as compared to $149,000 for the same three month period in 1998, a decrease of $22,000. The decrease is mainly due to a decrease of general and administrative expenses of $12,000 and a decrease in bad debt expense of $9,000. 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. ITEM 6. Exhibits and Reports on Form 8-K. Exhibit 27. Financial Data Schedule 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: August 16, 1999 BY: /s/Thomas E. Murphy Thomas E. Murphy Chief Financial Officer DATE: August 16, 1999