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 March 31, 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) 443-0922 (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 May 14, 1998, the registrant had 1,291,507 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 March 31, 1998 . . . . . . . . 4 Consolidated Statements of Operations, for the three months ended March 31, 1998 and 1997 . . . . . . . . . 5 Consolidated Statements of Cash Flows for the three months ended March 31, 1998 and 1997 . . . . . . . . . 6 Notes to Consolidated Financial Statements . . . . . . . . . 7 Item 2. Management's Discussion and Analysis or Plan of Operation . . . . . . . . . . . . . . . . . . . . . . . 14 PART II - OTHER INFORMATION Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . .17 Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . .17 Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . .17 Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . . . . . . . . . . .17 Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . .17 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . .17 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 BRAUVIN NET LEASE V, INC. (a Maryland corporation) PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements The following Consolidated Balance Sheet as of March 31, 1998, Consolidated Statements of Operations for the three months ended March 31, 1998 and 1997 and Consolidated Statements of Cash Flows for the three months ended March 31, 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) March 31, 1998 ASSETS Investment in real estate, at cost: Land $ 3,979,586 Buildings 7,548,856 11,528,442 Less accumulated depreciation (473,677) Net investment in real estate 11,054,765 Cash and cash equivalents 257,831 Organization costs (net of accumulated amortization of $28,583) 6,417 Tenant receivable (net of an allowance of $8,438) 8,721 Deferred rent receivable 218,206 Total Assets $11,545,940 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable and accrued expenses $ 10,989 Rents received in advance 25,379 Due to affiliates 55,386 Total Liabilities 91,754 Stockholders' Equity: Preferred stock, $.01 par value, 1,000,000 shares authorized; none issued Common stock, $.01 par value, 9,000,000 shares authorized; 1,291,507 shares issued and outstanding 13,027 Additional paid-in capital 11,619,971 Retained earnings (deficit) (178,812) Total Stockholders' Equity 11,454,186 Total Liabilities and Stockholders' Equity $11,545,940 See notes to consolidated financial statements. BRAUVIN NET LEASE V, INC. (a Maryland corporation) CONSOLIDATED STATEMENTS OF OPERATIONS For the three months ended March 31, 1998 and 1997 (Unaudited) 1998 1997 INCOME Rental $338,454 $ 321,605 Interest and other 2,885 18,314 Total income 341,339 339,919 EXPENSES Directors fees 4,000 7,001 Advisory fees 43,750 43,750 Management fees 3,007 3,386 General and administrative 18,168 21,698 Bad debt expense 8,438 -- Acquisition costs -- 31,378 Depreciation and amortization 48,969 44,207 Total expenses 126,332 151,420 Net Income $215,007 $188,499 Net Income Per Share (based on average shares outstanding of 1,289,464 and 1,297,934, respectively for the three months ended March 31, 1998 and 1997) $ 0.17 $ 0.15 See notes to consolidated financial statements. BRAUVIN NET LEASE V, INC. (a Maryland corporation) CONSOLIDATED STATEMENTS OF CASH FLOWS For the three months ended March 31, 1998 and 1997 (Unaudited) 1998 1997 Cash Flows From Operating Activities: Net income $ 215,007 $ 188,499 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of organization costs 1,750 1,750 Depreciation 47,219 42,457 Acquisition costs charged off -- 31,378 Provision for doubtful accounts 8,438 -- Change in deferred rent receivables (29,382) (23,945) Change in prepaid expenses and deferred acquisition costs -- 3,001 Change in tenant receivables (16,764) 378 Change in accounts payable and accrued expenses (9,649) (10,923) Change in due to affiliates 503 4,066 Change in rent received in advance (16,024) 20,885 Net cash provided by operating activities 201,098 257,546 Cash Flows From Investing Activities: Purchase of properties -- (1,529,287) Cash used in investing activities -- (1,529,287) Cash Flows From Financing Activities: Issuance of stock, net of liquidations 12,386 35,891 Selling commissions and other offering costs (31,711) (34,258) Dividends (227,354) (229,517) Net cash used in financing activities (246,679) (227,884) Net decrease in cash and cash equivalents (45,581) (1,499,625) Cash and cash equivalents at beginning of period 303,412 2,025,100 Cash and cash equivalents at end of period $257,831 $ 525,475 Supplemental Cash Flow Information: In 1997, Purchase of properties is net of $3,087 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 March 31, 1998, the Fund had sold 1,291,507 shares and the gross proceeds raised were $13,299,407, net of liquidations of $392,340, 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, 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 REIT 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. 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 March 31, 1998 or December 31, 1997. Accordingly, no impairment loss has been recorded in the accompanying financial statements for the three months ended March 31, 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 March 31, 1998, 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. 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 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 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 three months ended March 31, 1998 and 1997 were as follows: 1998 1997 Due diligence fees $ -- $ 179 Advisory fees 43,750 43,750 Dividend reinvestment fees 357 363 Management fees 3,007 3,386 Nonaccountable fees 885 897 Acquisition fees and expenses -- 28,860 $47,999 $77,435 As of March 31, 1998 the Fund made all payments to affiliates except for $53,913 for advisory fees, $1,116 for management fees and $357 for dividend reinvestment 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 (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 March 31, 1998, there were approximately 43,373 shares purchased through the Reinvestment Plan and approximately 39,234 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 Annual 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 and in the section entitled "Business." 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. 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 March 31, 1998, the Fund had received $11,632,998 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 $392,340. 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 (Amounts rounded to nearest $000's) The Fund generated net income of $215,000 for the three months ended March 31, 1998 as compared to net income of $188,000 for the same three month period in 1997. Total income for the three months ended March 31, 1998 was $341,000 as compared to $340,000 for the same three month period in 1997, an increase of $1,000. The $1,000 increase is result of the timing of the Fund's last acquisition in January, 1997. As a result of this acquisition rental income increased $17,000 and interest and other income decreased $15,000. For the three months ended March 31, 1998 total expenses were $126,000 as compared to $151,000 for the same three month period in 1997, a decrease of $25,000. The decrease was due primarily to a decline of $31,000 in acquisition fees expense as a result of the January 1997 purchase of the Fund's last property. 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. Country Harvest Buffet has not notified the Fund of its intentions to either accept or reject this lease. The Fund had previously identified a sublease for the property. However, in light of the bankruptcy, the Fund is currently seeking to take assignment of Country Harvest's position in the original lease, and thus convert the sublease into a diret lease with the new operator. The identified tenant is Moon Buffet and will use the facility as a Chinese buffet restaurant. 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 reoccupied. Moreover, 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. The damages will be paid to HMG/Courtland Properties (the "Developer"). The Fund will be 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. 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 On May 15, 1989, B. Allen Aynessazian resigned as Chief Financial Officer. Mr. Aynessazian is returning to Giordano's Enterprises, a privately held restaurant concern where he worked from 1989 until 1996, prior to joining the Fund. Mr. Aynessazian is being succeeded by Mr. Thomas E. Murphy, age 31. Mr. Murphy will be the Fund's Principal Accounting Officer and Treasurer. Mr. Murphy recieved a B.S. degree from Northern Illinois University in 1988. Prior to joining the Brauvin organization he was in the accounting department of Zell/Merrill Lynch and First Capital Real Estate Funds where he was responsible for the preparation of the accounting and financial reporting for several real estate limited partnerships and corporations. Mr. Murphy is a Certified Public Accountant and is a member of the Illinois Certified Public Accountants Society. 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: May 15, 1998 BY: /s/ B. Allen Aynessazian B. Allen Aynessazian Chief Financial Officer DATE: May 15, 1998