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, 1998 [ ]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, 1998, the registrant had 1,292,074 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, 1998 . . . . . . 4 Consolidated Statements of Operations, for the nine months ended September 30, 1998 and 1997. . . . . . . . 5 Consolidated Statements of Operations, for the three months ended September 30, 1998 and 1997 . . . . . . . 6 Consolidated Statements of Cash Flows for the nine months ended September 30, 1998 and 1997. . . . . . . . 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. . . . . . . . . . . . . . . . . . . . . .19 Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . .19 Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . .19 Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . . . . . . . . . . .19 Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . .19 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . .19 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 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, 1998, Consolidated Statements of Operations for the nine months ended September 30, 1998 and 1997, Consolidated Statements of Operations for the three months ended September 30, 1998 and 1997, and Consolidated Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 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 1997 Annual Report on Form 10-KSB. BRAUVIN NET LEASE V, INC. (a Maryland corporation) CONSOLIDATED BALANCE SHEET (Unaudited) September 30, 1998 ASSETS Investment in real estate, at cost: Land $3,979,586 Buildings 7,634,379 11,613,965 Less accumulated depreciation (571,822) Net investment in real estate 11,042,143 Cash and cash equivalents 282,926 Organization costs (net of accumulated amortization of $32,083) 2,917 Deferred rent receivable 247,254 Total Assets $11,575,240 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable and accrued expenses $ 32,078 Rents received in advance 57,944 Due to affiliates 56,232 Total Liabilities 146,254 Stockholders' Equity: Preferred stock, $.01 par value, 1,000,000 shares authorized; none issued -- Common stock, $.01 par value, 9,000,000 shares authorized; 1,292,074 shares issued and outstanding 13,083 Additional paid-in capital 11,624,081 Retained earnings (deficit) (208,178) Total Stockholders' Equity 11,428,986 Total Liabilities and Stockholders' Equity $11,575,240 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) 1998 1997 INCOME Rental $ 987,808 $ 994,916 Interest and other 12,553 24,842 Total income 1,000,361 1,019,758 EXPENSES Directors fees 10,000 15,225 Advisory fees 131,250 131,251 Management fees 9,849 9,321 General and administrative 71,532 72,232 Bad debt expense 17,158 -- Acquisition costs -- 33,211 Depreciation and amortization 150,614 141,977 Total expenses 390,403 403,217 Net Income $609,958 $616,541 Net Income Per Share (based on average shares outstanding of 1,283,068 and 1,281,966, respectively for the nine months ended September 30, 1998 and 1997) $ 0.48 $ 0.48 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) 1998 1997 INCOME Rental $344,374 $336,652 Interest and other 7,000 3,057 Total income 351,374 339,709 EXPENSES Directors fees 3,000 4,081 Advisory fees 43,750 43,750 Management fees 3,548 2,833 General and administrative 14,711 22,281 Acquisition costs -- (5,134) Depreciation and amortization 50,190 48,728 Total expenses 115,199 116,539 Net Income $236,175 $223,170 Net Income Per Share (based on average shares outstanding of 1,295,868 and 1,292,093, respectively for the three months ended September 30, 1998 and 1997) $ 0.18 $ 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) 1998 1997 Cash Flows From Operating Activities: Net income $609,958 $616,541 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of organization costs 5,250 5,251 Depreciation 145,364 136,726 Acquisition costs charged off -- 33,211 Provision for doubtful accounts 17,158 -- Change in tenant receivables (16,763) 378 Change in deferred rent receivables (58,430) (78,211) Change in prepaid expenses and deferred acquisition costs -- (1,107) Change in accounts payable and accrued expenses 11,440 (7,955) Change in rent received in advance 16,541 27,203 Change in due to affiliates 1,349 812 Net cash provided by operating activities 731,867 732,849 Cash Flows From Investing Activities: Purchase of properties -- (1,525,289) Capital expenditures (85,523) -- Cash used in investing activities (85,523) (1,525,289) Cash Flows From Financing Activities: Issuance of stock 94,544 106,522 Selling commissions and other offering costs (33,191) (164,154) Dividends (651,671) (678,458) Liquidations (76,512) (200,590) Net cash used in financing activities (666,830) (936,680) Net decrease in cash and cash equivalents (20,486) (1,729,120) Cash and cash equivalents at beginning of period 303,412 2,025,100 Cash and cash equivalents at end of period $ 282,926 $ 295,980 Supplemental Cash Flow Information: In 1997, Purchase of properties is net of $54,460 of acquisition costs paid in 1996 and reclassified to land and building in 1997 in conjunction with the acquisition of the related properties. 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, 1998, the Fund had sold 1,292,074 shares and the gross proceeds raised were $13,282,053, net of liquidations of $437,852, including $200,000 invested by the Advisor ("Initial Investment"), before reduction for selling commissions and other offering costs. BRAUVIN NET LEASE V, INC. (a Maryland corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued 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, 1998, 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 BRAUVIN NET LEASE V, INC. (a Maryland corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued equity of Germantown Associates, Inc. All significant inter- company 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. In 1995, the Fund adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets" (SFAS 121). 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, 1998 or December 31, 1997. Accordingly, no impairment loss has been recorded in the accompanying financial statements for the nine months ended September 30, 1998 or the year ended December 31, 1997. 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 September 30, 1998, but may not necessarily be indicative of the amounts that the Fund could realize in a current market exchange. The use of different BRAUVIN NET LEASE V, INC. (a Maryland corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued 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 re-allowed 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 re-allowed to placement agents. In 1997, pursuant to the terms of the Prospectus, the Advisor was reimbursed for certain expenses related to the costs of sales and informational meetings. 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 BRAUVIN NET LEASE V, INC. (a Maryland corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued 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. BRAUVIN NET LEASE V, INC. (a Maryland corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued Fees, commissions and other expenses incurred and payable to the Advisor or its affiliates for the nine months ended September 30, 1998 and 1997 were as follows: 1998 1997 Selling commissions $ -- $128,130 Due diligence fees -- (615) Advisory fees 131,250 131,251 Dividend reinvestment fees 987 1,096 Management fees 9,849 9,321 Nonaccountable fees 2,364 2,663 Acquisition fees and expenses -- 22,591 $144,450 $294,437 As of September 30, 1998 the Fund made all payments to affiliates except for $53,914 for advisory fees, $1,265 for management fees and $326 for dividend reinvestment fees and $727 for nonaccountable fees. (3) DIVIDENDS Below is a table summarizing the dividends declared: Annualized Declaration Record Payment Dividend Date(a) Dates Date Rate Amount 5/2/96 1/1/96-3/31/96 5/15/96 7% $216,247 8/1/96 4/1/96-6/30/96 8/15/96 7% 227,068 10/31/96 7/1/96-9/30/96 11/15/96 7% 229,532 1/31/97 10/1/96-12/31/96 2/15/97 7% 229,517 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 (a) Dividends were declared on a daily basis. BRAUVIN NET LEASE V, INC. (a Maryland corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued 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 September 30, 1998, there were approximately 49,288 shares purchased through the Reinvestment Plan and approximately 43,785 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. Discussions containing forward-looking statements may be found in this section. 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 In 1997, the Fund initiated the conversion from its existing accounting software to a program that is year 2000 compliant. This conversion is anticipated being completed by December 31, 1998. Management has determined that the year 2000 issue will not pose significant operational problems for its computer system. All costs associated with this conversion are being expensed as incurred, and are not material. 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. Liquidity and Capital Resources As of September 30, 1998, the Fund had received $11,637,164 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 $437,852. 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 nine months ended September 30, 1998 and 1997. (Amounts rounded to nearest $000's) The Fund generated net income of $610,000 for the nine months ended September 30, 1998, as compared to net income of $617,000 for the same nine month period in 1997. The reasons for the decrease in net income are set forth below. Total income for the nine months ended September 30, 1998 was $1,000,000, as compared to $1,020,000 for the period ended September 30, 1997, a decrease of $20,000. The decrease in total income primarily relates to a one time reversal of deferred rent receivable due to the novation of the main lease at the Country Harvest Buffet. For the nine months ended September 30, 1998, total expenses were $390,000 as compared to $403,000 for the same period in 1997, a decrease of $13,000. The decrease was due primarily to a decline of $33,000 in acquisition fees expense as a result of the January, 1997 purchase of the Fund's last property. This decrease in acquisition expense was partially offset by an increase in bad debt expense as a result of the bankruptcy of the original tenant at the Country Harvest Buffet property (as detailed more fully 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 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 condemnation damages were paid to HMG/Courtland Properties (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 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. Results of Operations for the three months ended September 30, 1998 and 1997. (Amounts rounded to nearest $000's) Results of operations for the three months ended September 30, 1998 reflected net income of $236,000 compared to net income of $223,000 for the three months ended September 30, 1997, an increase of approximately $13,000. Total income for the three months ended September 30, 1998 was $351,000 as compared to $340,000 for the period ended September 30, 1997, an increase of $11,000. The increase in total income was a result of an increase in rental income as a result of the increased base rent associated with the Moon Buffet novation, (base rent at this property was increased in lieu of percentage rent potential which was not being realized). Total expenses for the three months ended September 30, 1998 were $115,000 as compared to $117,000 for the period ended September 30, 1997 a decrease of approximately $2,000. The $2,000 decrease was due primarily to a decrease in general and administrative expense of $8,000. The decrease in general and administrative expense is primarily the result of lower costs associated with certain property related legal issues in 1998 when compared to 1997. 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 ITEM 6. Exhibits and Reports on Form 8-K. (a) Exhibit 27. Financial Data Schedule (b) 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 16, 1998 BY: /s/ Thomas E. Murphy Thomas E. Murphy Chief Financial Officer DATE: November 16, 1998