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**FORM 10-QSECURITIES AND EXCHANGE COMMISSION****WASHINGTON,D.C. 20549**

**Quarterly ReportUnder Section 13 or 15(d)of the Securities Exchange Act of 1934**

** **
| **For Quarter ended**      | **June  30, 2001** |
|----------------------------|--------------------|
|                       | ****               |
| **Commission file number** | **0-11068**        |
|                       |                    |

 

SIERRA PACIFIC DEVELOPMENT FUND(A Limited Partnership)

 
| **State  of California**                                        |   | **95-3643693**                           |
|-----------------------------------------------------------------|--------|------------------------------------------|
|                                                                 |   |                                          |
| (State or other  jurisdiction of incorporation or organization) |   | (I.R.S. Employer  Identification Number) |
|                                                            |   |                                     |
|                                                            |   |                                     |
| **5850  San Felipe, Suite 450  Houston, Texas**                 |   | **77057**                                |
|                                                                 |   |                                          |
| (Address of principal  executive offices)                       |   | (Zip Code)                               |

 
| Registrant’s  telephone number, including area code: | **(713)  706-6271** |
|----------------------------------------------------------------|---------------------|
|                                                           |                     |

Indicate by check mark whether theregistrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor 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 ý   No o.

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PARTI  - FINANCIAL INFORMATION

ITEM 1.            FINANCIALSTATEMENTS

The following financial statements aresubmitted in the next pages:

 

| Consolidated Balance Sheets  – June 30, 2001 and December 31, 2000                                                                               |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Consolidated  Statements of Operations – For the Six Months and for the   Three Months Ended June 30, 2001 and 2000                              |   |
| Consolidated  Statements of Changes in Partners’ Equity – For the Year   Ended December 31, 2000 and for the Six Months Ended June 30, 2001 |   |
| Consolidated  Statements of Cash Flows - For the Six Months Ended June 30, 2001 and 2000                                                              |   |
| Notes to  Consolidated Financial Statements                                                                                                           |   |

 

| ITEM  2. | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
|----------|---------------------------------------------------------------------------------------------|

 

| (a) | OVERVIEW |
|-----|----------|

The following discussion should be readin conjunction with the Sierra Pacific Development Fund’s (the Partnership)Consolidated Financial Statements and Notes thereto appearing elsewhere in thisForm 10-Q.

The Partnership currently owns a 100%interest in the Sierra Creekside Partnership, which operates the SierraCreekside property (the Property) in San Diego, CA.

| (b) | RESULTS  OF OPERATIONS |
|-----|------------------------|

Rental income for the six months andthree months ended June 30, 2001 rose by approximately $113,000, or 23%, and byapproximately $56,000, or 22%, respectively, in comparison to the same periodsin 2000. This increase was principally due to higher rental rates obtained as aresult of tenant rollover at the Property. In addition, several tenants renewed or extended their leases at higherrental rates.  The Property was 100%occupied at June 30, 2001 and 2000.

Operating expenses for the six monthsended June 30, 2001 increased by approximately $88,000, or 33%, in comparisonto the corresponding period in the prior year. This increase was primarily due to higher maintenance and repair costsand utilities incurred during the period. In addition, management fees rose as a result of the increase in rentalrevenue.  Further, insurance, accountingand auditing costs, and other operating expenses increased during theperiod.  Operating expenses for thethree months ended June 30, 2001, increased by approximately $22,000 or 20%,principally due to higher utility costs and management fees incurred during thequarter.

Depreciation and amortization expensesfor the six months and three months ended June 30, 2001, decreased byapproximately $11,000, or 7%, and by approximately $2,000, or 2%, respectively,primarily due to fully depreciated capitalized tenant improvements whencompared to the same periods in the prior year.

Interest expense for the six months endedJune 30, 2001 increased by approximately $7,000, or 4%, when compared to thecorresponding period in the prior year. As stated below, the Partnership refinanced its mortgage loan on theProperty in January 2000.  Interestexpense for the quarter ended June 30, 2001 decreased by approximately $12,000or 13%, principally as a result of lower interest rates.

An extraordinary loss of approximately$46,000 was recorded in the first quarter of the prior year due to thewrite-off of deferred loan costs associated with the payoff of the mortgageloan with Home Federal Savings.

| (c) | LIQUIDITY  AND CAPITAL RESOURCES |
|-----|----------------------------------|

In January 2000, the Partnership paid itsloan balance of $1,669,000 to Home Federal Savings and entered into a loanagreement with General Electric Capital Corporation (GECC) in the principalamount of $4,250,000.  The lender funded$4,050,000 at closing and held back $200,000 to be drawn upon to help finance futuretenant improvements and leasing costs. The Partnership received net proceeds of $2,222,000 as a result of thenew loan.  The loan is secured by theProperty and bears interest at 2.75% above the GECC Composite Commercial PaperRate.  Principal and interest paymentsare due monthly based on a 30-year amortization.  The loan matures January 31, 2005.  The majority of the loan proceeds were distributed to theminority owner of the property, Sierra Mira Mesa Partners (SMMP).

During the six months ended June 30,2001, the Partnership generated cash flows from operations of approximately$83,000 and paid approximately $187,000 for property additions and leasecommissions.

The Partnership is in an illiquidposition at June 30, 2001 with cash and billed receivables of approximately$99,000 and current liabilities of approximately $143,000.  A secondary source of cash is availablethrough contributions from SMMP. Management expects these contributions will be adequate to meet thefinancial obligations of the Partnership in the foreseeable future.  During the six months ended June 30, 2001,SMMP contributed $95,000 to the Partnership and received distributions of$88,000 from the Partnership.

The Partnership’s primary capitalrequirements are for the construction of new tenant space and debt obligations.  It is anticipated that these requirementswill be funded from the operations of the Property, the $200,000 tenantimprovement/lease commission holdback, and contributions from SMMP.

Inflation:

The Partnership does not expect inflationto be a material factor in its operations in 2001.

The Partnership considered the provisionof Financial Reporting Release No. 48 A Disclosure of Accounting Policiesfor Derivative Financial Instruments and Derivative Commodity Instruments, andDisclosure of Quantitative and Qualitative Information about Market RiskInherent in Derivative Financial Instruments, Other Financial Instruments andDerivative Commodity Instruments. The Partnership had no holdings of derivativefinancial or commodity instruments at June 30, 2001. A review of thePartnership's other financial instruments and risk exposures at that daterevealed that the Partnership had minor exposure to interest rate risk due tothe floating rate note payable of $4,010,918. The Partnership utilizedsensitivity analyses to assess the potential effect of this risk and concludedthat near-term changes in interest rates should not materially adversely affectthe Partnership's financial position, results of operations or cash flows.

 

| *SIERRA  PACIFIC DEVELOPMENT FUND** **(A Limited Partnership)**CONSOLIDATED BALANCE SHEETS**June 30, 2001 and December 31, 2000* |                                                                                                                                 |
|---------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                       |                                                                                                                                 |
|                                                                                                                                  |                                                                                                                                 |
|                                                                                                                                  |                                                                                                                                 |
|                                                                                                                                  |                                                                                                                                 | June  30, 2001  (Unaudited) |   | December  31, 2000 |   |
|                                                                                                                                  |                                                                                                                                 |  |   |  |   |
|                                                                                                                                  |                                                                                                                                 |   |   |   |   |
|                                                                                                                                  | ASSETS                                                                                                                               |   |   |   |   |
|                                                                                                                                  |                                                                                                                                 |   |   |   |   |
|                                                                                                                                  | Cash and cash  equivalents                                                                                                           | $ | 42,616 |   | $ | 47,822 |   |
|                                                                                                                                  | Receivables:                                                                                                                         |   |   |   |   |
|                                                                                                                                  |                                                                                                                                 | Unbilled rent | 55,981 |   | 45,968 |   |
|                                                                                                                                  |                                                                                                                                 | Billed rent | 0 |   | 23,154 |   |
|                                                                                                                                  | Income-producing  property - net ofaccumulated depreciation and valuation  allowance of $3,354,431 and $3,321,820, respectively | 2,340,048 |          | 2,354,368 |         |
|                                                                                                                                  | Other  assets - net of accumulated amortizationof $209,322 and $188,798, respectively                                                | 344,709 |     | 303,252 |      |
|                                                                                                                                  | Excess distributions  to minority partner                                                                                            | 2,533,963 |   | 2,540,963 |   |
|                                                                                                                                  |                                                                                                                                 |  |   |  |   |
|                                                                                                                                  |                                                                                                                                 |   |   |   |   |
|                                                                                                                                  | Total Assets                                                                                                                         | $ | 5,317,317 |   | $ | 5,315,527 |   |
|                                                                                                                                  |                                                                                                                                 |  |   |  |   |
|                                                                                                                                  |                                                                                                                                 |   |   |   |   |
|                                                                                                                                  | LIABILITIES  AND PARTNERS' EQUITY                                                                                                    |   |   |   |   |
|                                                                                                                                  |                                                                                                                                 |   |   |   |   |
|                                                                                                                                  | Accrued and other  liabilities                                                                                                       | $ | 232,226 |   | $ | 141,487 |   |
|                                                                                                                                  | Note payable                                                                                                                         | 4,010,918 |   | 4,025,544 |   |
|                                                                                                                                  |                                                                                                                                 |  |   |  |   |
|                                                                                                                                  |                                                                                                                                 |   |   |   |   |
|                                                                                                                                  | Total Liabilities                                                                                                                    | 4,243,144 |   | 4,167,031 |   |
|                                                                                                                                  |                                                                                                                                 |  |   |  |   |
|                                                                                                                                  |                                                                                                                                 |   |   |   |   |
|                                                                                                                                  | Partners' equity  (deficit):                                                                                                         |   |   |   |   |
|                                                                                                                                  |                                                                                                                                 | General Partner | (83,839 | ) | (83,096 | ) |
|                                                                                                                                  |                                                                                                                                 | Limited Partners: |   |   |   |   |
|                                                                                                                                  |                                                                                                                                 | 30,000 units authorized,  29,354 issued and  outstanding | 1,158,012 |     | 1,231,592 |      |
|                                                                                                                                  |                                                                                                                                 |  |   |  |   |
|                                                                                                                                  |                                                                                                                                 |   |   |   |   |
|                                                                                                                                  | Total Partners' equity                                                                                                               | 1,074,173 |   | 1,148,496 |   |
|                                                                                                                                  |                                                                                                                                 |  |   |  |   |
|                                                                                                                                  |                                                                                                                                 |   |   |   |   |
|                                                                                                                                  | Total Liabilities and  Partners' equity                                                                                              | $ | 5,317,317 |   | $ | 5,315,527 |   |
|                                                                                                                                  |                                                                                                                                 |  |   |  |   |
|                                                                                                                                       |                                                                                                                                      |  |  |  |  |  |  |  |  |  |

 

*See Accompanying Notes*

 

| *SIERRA  PACIFIC DEVELOPMENT FUND(A Limited Partnership)*                                                                                          |
|----------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                               |
| *CONSOLIDATED STATEMENTS OF OPERATIONS****For  the Six Months Ended June 30, 2001 and 2000  and for the Three Months Ended June 30, 2001 and 2000* |
| **                                                                                                                                                 |
|                                                                                                                                               |   |   |   |   |   |   |   |   |
|                                                                                                                                               |   |   |   |   |   |   |   |   |
|                                                                                                                                               | Six  Months Ended  June 30, |   | Three  Months Ended  June 30, |   |
|                                                                                                                                               |   |
|                                                                                                                                               |  |   |  |   |
| 2001                                                                                                                                               |   | 2000 |   | 2001 |   | 2000 |   |
|                                                                                                                                               | (Unaudited) |   | (Unaudited) |   | (Unaudited) |   | (Unaudited) |   |
|                                                                                                                                               |  |   |  |   |
| REVENUES:                                                                                                                                          |   |   |   |   |   |   |   |   |
|                                                                                                                                               | Rental income | $ | 602,808 |   | $ | 489,777 |   | $ | 316,571 |   | $ | 260,337 |   |
|                                                                                                                                               |   |  |   |  |   |  |   |  |   |
|                                                                                                                                               |   |   |   |   |   |   |   |   |
|                                                                                                                                               | Total revenues | 602,808 |   | 489,777 |   | 316,571 |   | 260,337 |   |
|                                                                                                                                               |   |  |   |  |   |  |   |  |   |
|                                                                                                                                               |   |   |   |   |   |   |   |   |
| EXPENSES:                                                                                                                                          |   |   |   |   |   |   |   |   |
|                                                                                                                                               | Operating expenses | 356,843 |   | 268,936 |   | 137,152 |   | 114,756 |   |
|                                                                                                                                               | Depreciation and amortization | 149,289 |   | 160,035 |   | 77,209 |   | 78,993 |   |
|                                                                                                                                               | Interest | 170,999 |   | 164,372 |   | 79,342 |   | 91,491 |   |
|                                                                                                                                               |   |  |   |  |   |  |   |  |   |
|                                                                                                                                               |   |   |   |   |   |   |   |   |
|                                                                                                                                               | Total costs and expenses | 677,131 |   | 593,343 |   | 293,703 |   | 285,240 |   |
|                                                                                                                                               |   |  |   |  |   |  |   |  |   |
|                                                                                                                                               |   |   |   |   |   |   |   |   |
| (LOSS) INCOME BEFORE  EXTRAORDINARY LOSS                                                                                                           | (74,323 | ) | (103,566 | ) | 22,868 |   | (24,903 | ) |
|                                                                                                                                               |   |   |   |   |   |   |   |   |
| EXTRAORDINARY LOSS  FROM WRITE-OFF                                                                                                                 |   |   |   |   |   |   |   |   |
| OF DEFERRED LOAN COSTS                                                                                                                             | 0 |   | (46,020 | ) | 0 |   | 0 |   |
|                                                                                                                                               |  |   |  |   |  |   |  |   |
|                                                                                                                                               |   |   |   |   |   |   |   |   |
| (LOSS) INCOME BEFORE  MINORITY INTEREST'S                                                                                                          |   |   |   |   |   |   |   |   |
| SHARE OF CONSOLIDATED  JOINT VENTURE                                                                                                               |   |   |   |   |   |   |   |   |
| LOSS                                                                                                                                               | (74,323 | ) | (149,586 | ) | 22,868 |   | (24,903 | ) |
|                                                                                                                                               |  |   |  |   |  |   |  |   |
|                                                                                                                                               |   |   |   |   |   |   |   |   |
| MINORITY INTEREST'S  SHARE OF                                                                                                                      |   |   |   |   |   |   |   |   |
| CONSOLIDATED JOINT  VENTURE LOSS                                                                                                                   | 0 |   | 7,599 |   | 0 |   | 1,265 |   |
|                                                                                                                                               |  |   |  |   |  |   |  |   |
|                                                                                                                                               |   |   |   |   |   |   |   |   |
| NET (LOSS) INCOME                                                                                                                                  | $ | (74,323 | ) | $ | (141,987 | ) | $ | 22,868 |   | $ | (23,638 | ) |
|                                                                                                                                               |  |   |  |   |  |   |  |   |
|                                                                                                                                               |   |   |   |   |   |   |   |   |
| Per limited  partnership unit:                                                                                                                     |   |   |   |   |   |   |   |   |
|                                                                                                                                               | (Loss) income before extraordinary loss | $ | (2.51 | ) | $ | (3.24 | ) | $ | 0.77 |   | $ | (0.80 | ) |
|                                                                                                                                               | Extraordinary loss | 0 |   | (1.55 | ) | 0 |   | 0 |   |
|                                                                                                                                               |   |  |   |  |   |  |   |  |   |
| Net (loss) income per  limited partnership unit                                                                                                    | $ | (2.51 | ) | $ | (4.79 | ) | $ | 0.77 |   | $ | (0.80 | ) |
|                                                                                                                                               |  |   |  |   |  |   |  |   |
|                                                                                                                                                    |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

*See Accompanying Notes*

 

| *SIERRA PACIFIC DEVELOPMENT FUND(A Limited Partnership)*CONSOLIDATED  STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT)*For the Year Ended December 31, 2000 and  for the Six Months Ended June 30, 2001* |              |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------|
|                                                                                                                                                                                                        |
|                                                                                                                                                                                                        |
|                                                                                                                                                                                                        |
|                                                                                                                                                                                                        |
|                                                                                                                                                                                                        |
|                                                                                                                                                                                                             |              |
|                                                                                                                                                                                                        |              |   |   |   |   |   |   |   |
|                                                                                                                                                                                                        |              |   |   |   |   |   |   |   |
|                                                                                                                                                                                                        |              |   |   |   |   |   |   |   |
|                                                                                                                                                                                                        |              |   |   |   |   |   |   |   |
|                                                                                                                                                                                                        | Limited  Partners |   |   |   | Total |   |
|                                                                                                                                                                                                        |                   |   | General |   | Partners' |   |
|                                                                                                                                                                                                        | Per  Unit         |   | Total |   | Partner |   | Equity |   |
|                                                                                                                                                                                                        |                   |   |  |   |  |   |  |   |
|                                                                                                                                                                                                        |              |   |   |   |   |   |   |   |
| Proceeds  from sale of partnership units                                                                                                                                                               | $                 | 500.00 |    | $ | 14,677,000 |    |   |    | $ | 14,677,000 |   |
| Underwriting  commissions and other organization  expenses                                                                                                                                             | (60.29            | ) | (1,769,862 | ) |   |   | (1,769,862 | ) |
| Cumulative net (loss)  income (to December 31, 1999)                                                                                                                                                   | (225.92           | ) | (6,631,704 | ) | $ | 14,600 |   | (6,617,104 | ) |
| Cumulative  distributions (to December 31, 1999)                                                                                                                                                       | (166.75           | ) | (4,894,473 | ) | (14,600 | ) | (4,909,073 | ) |
|                                                                                                                                                                                                        |                   |   |  |   |  |   |  |   |
|                                                                                                                                                                                                        |              |   |   |   |   |   |   |   |
| Partners' equity -  January 1, 2000                                                                                                                                                                         | 47.04             |   | 1,380,961 |   | 0 |   | 1,380,961 |   |
| Transfer among general  partner and limited partners                                                                                                                                                        | 2.75              |   | 80,771 |   | (80,771 | ) | 0 |   |
| Net loss                                                                                                                                                                                                    | (7.84             | ) | (230,140 | ) | (2,325 | ) | (232,465 | ) |
|                                                                                                                                                                                                        |                   |   |  |   |  |   |  |   |
|                                                                                                                                                                                                        |              |   |   |   |   |   |   |   |
| Partners' equity  (deficit) - December 31, 2000 (audited)                                                                                                                                                   | 41.95             |   | 1,231,592 |   | (83,096 | ) | 1,148,496 |   |
| Net loss (unaudited)                                                                                                                                                                                        | (2.51             | ) | (73,580 | ) | (743 | ) | (74,323 | ) |
|                                                                                                                                                                                                        |                   |   |  |   |  |   |  |   |
|                                                                                                                                                                                                        |              |   |   |   |   |   |   |   |
| Partners' equity  (deficit) - June 30, 2001 (unaudited)                                                                                                                                                     | $                 | 39.44 |   | $ | 1,158,012 |   | $ | (83,839 | ) | $ | 1,074,173 |   |
|                                                                                                                                                                                                        |                   |   |  |   |  |   |  |   |

 

*See Accompanying Notes*

 

| *SIERRA PACIFIC DEVELOPMENT FUND(A Limited Partnership)****CONSOLIDATED STATEMENTS OF CASH FLOWS****F**or the Six Months Ended June 30, 2001 and 2000* |                                                                         |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------|
|                                                                                                                                                   |
|                                                                                                                                                        |                                                                         |
|                                                                                                                                                   |                                                                         |   |   |   |
|                                                                                                                                                   | 2001                                                                         |   | 2000 |   |
|                                                                                                                                                   | (Unaudited)                                                                  |   | (Unaudited) |   |
|                                                                                                                                                   |                                                                              |   |  |   |
|                                                                                                                                                   |                                                                         |   |   |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                                                                                 |                                                                         |   |   |   |
|                                                                                                                                                   | Net loss                                                                     | $ | (74,323 | ) | $ | (141,987 | ) |
|                                                                                                                                                   | Adjustments to reconcile net loss to cash provided by  operating activities: |   |   |   |   |
|                                                                                                                                                   | Depreciation and amortization                                                | 149,289 |   | 160,035 |   |
|                                                                                                                                                   | Extraordinary loss from write-off of deferred loan costs                     | 0 |   | 46,020 |   |
|                                                                                                                                                   | Minority interest's share of consolidated joint venture  loss                | 0 |   | (7,599 | ) |
|                                                                                                                                                   | Decrease (increase) in receivables                                           | 13,141 |   | (7,097 | ) |
|                                                                                                                                                   | Increase in other assets                                                     | (95,631 | ) | (18,339 | ) |
|                                                                                                                                                   | Increase in accrued and other liabilities                                    | 90,739 |   | 43,521 |   |
|                                                                                                                                                   |                                                                              |   |  |   |
|                                                                                                                                                   |                                                                         |   |   |   |
|                                                                                                                                                   | Net cash provided by operating activities                                    | 83,215 |   | 74,554 |   |
|                                                                                                                                                   |                                                                         |  |   |  |   |
|                                                                                                                                                   |                                                                         |   |   |   |
| CASH FLOWS FROM INVESTING  ACTIVITIES:                                                                                                                 |                                                                         |   |   |   |
|                                                                                                                                                   | Payments for property additions                                              | (80,795 | ) | 0 |   |
|                                                                                                                                                   |                                                                              |   |  |   |
|                                                                                                                                                   |                                                                         |   |   |   |
|                                                                                                                                                   | Net cash used in investing activities                                        | (80,795 | ) | 0 |   |
|                                                                                                                                                   |                                                                              |   |  |   |
|                                                                                                                                                   |                                                                         |   |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                                                                                 |                                                                         |   |   |   |
|                                                                                                                                                   | Proceeds from note payable secured by property                               | 0 |   | 4,050,000 |   |
|                                                                                                                                                   | Principal payments on note payable                                           | (14,626 | ) | (1,682,968 | ) |
|                                                                                                                                                   | Additions to deferred loan costs                                             | 0 |   | (112,436 | ) |
|                                                                                                                                                   | Contributions from minority partner                                          | 95,000 |   | 78,091 |   |
|                                                                                                                                                   | Distributions to minority partner                                            | (88,000 | ) | (2,432,547 | ) |
|                                                                                                                                                   |                                                                              |   |  |   |
|                                                                                                                                                   |                                                                         |   |   |   |
|                                                                                                                                                   | Net cash used in financing activities                                        | (7,626 | ) | (99,860 | ) |
|                                                                                                                                                   |                                                                              |   |  |   |
|                                                                                                                                                   |                                                                         |   |   |   |
| NET DECREASE IN  CASH AND CASH EQUIVALENTS                                                                                                        | (5,206                                                                       | ) | (25,306 | ) |
|                                                                                                                                                   |                                                                         |   |   |   |
| CASH AND CASH  EQUIVALENTS                                                                                                                             |                                                                         |   |   |   |
|                                                                                                                                                   | Beginning of period                                                          | 47,822 |   | 134,154 |   |
|                                                                                                                                                   |                                                                              |   |  |   |
|                                                                                                                                                   |                                                                         |   |   |   |
| CASH AND CASH EQUIVALENTS                                                                                                                              |                                                                         |   |   |   |
|                                                                                                                                                   | End of period                                                                | $ | 42,616 |   | $ | 108,848 |   |
|                                                                                                                                                   |                                                                              |   |  |   |
|                                                                                                                                                   |                                                                         |   |   |   |
|                                                                                                                                                   |                                                                         |   |   |   |
| SUPPLEMENTAL  DISCLOSURE OF CASH FLOW INFORMATION:                                                                                                     |                                                                         |   |   |   |
|                                                                                                                                                   |                                                                         |   |   |   |
|                                                                                                                                                   | Cash paid during the period for real estate taxes                            | $ | 41,866 |   | $ | 36,473 |   |
|                                                                                                                                                   |                                                                              |   |  |   |
|                                                                                                                                                   |                                                                         |   |   |   |
|                                                                                                                                                   | Cash paid during the period for interest                                     | $ | 179,396 |   | $ | 146,360 |   |
|                                                                                                                                                   |                                                                              |   |  |   |
|                                                                                                                                                        |                                                                              |  |  |  |  |  |  |  |

 

*See Accompanying Notes*

SIERRAPACIFIC DEVELOPMENT FUND AND SUBSIDIARY(A Limited Partnership)

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)

----

1.          ORGANIZATION

In February 1994, Sierra Pacific DevelopmentFund (the Partnership) created a general partnership (Sierra Creekside Partners(SCP)) with Sierra Mira Mesa Partners (SMMP) to facilitate cash contributionsby SMMP for the continued development and operation of the Sierra Creeksideproperty.  The percentage interests ofthe Partnership and SMMP are to be adjusted each year on January 1 during theterm of SCP, beginning January 1, 1995 and ending December 31, 2013 unlessterminated sooner, based upon the relative net contributions and distributionssince inception through the preceding December 31.  In 2000, SCP made distributions to SMMP in excess of SMMP’s netcumulative contributions.  Accordingly,on January 1, 2001, the Partnership’s interest in SCP was increased to 100%from 94.92%.  The excess distributionsmade to SMMP and cumulative loss allocated to SMMP is reported as an asset inthe Partnership’s balance sheet.  Underthe terms of the SCP joint venture agreement, SMMP would be obligated tocontribute to the Partnership any negative balance standing in its capitalaccount upon liquidation of the Partnership.

2.          BASISOF FINANCIAL STATEMENTS

The accompanying unaudited consolidatedcondensed financial statements include the accounts of the Partnership and SCPat June 30, 2001.  All significantintercompany balances and transactions have been eliminated in consolidation.

In the opinion of the Partnership’smanagement, these unaudited financial statements reflect all adjustments whichare necessary for a fair presentation of its financial position at June 30,2001 and results of operations and cash flows for the periods presented.  All adjustments included in these statementsare of a normal and recurring nature. These financial statements should be read in conjunction with thefinancial statements and notes thereto contained in the Annual Report of thePartnership for the year ended December 31, 2000.

3.          RELATEDPARTY TRANSACTIONS

Included in the financial statements forthe six months ended June 30, 2001 and 2000 are affiliate transactions as follows:

 

|                | June  30 |   |
|---------------------|----------|--------|
|                |          |   |
|                | 2001     |   | 2000 |   |
|                |          |   |  |   |
| Management fees     | $        | 30,612 |   | $ | 21,235 |   |
| Administrative fees | 21,788   |   | 20,398 |   |
| Leasing fees        | 66,263   |   | 0 |   |
| Construction fees   | 6,746    |   | 0 |   |
|                |     |   |   |   |
|                     |          |        |  |  |  |  |

On April 16, 2001, the combined financialstatements of the parent of the general partner and other affiliates, includingthe general partner, (the Company) were issued.  The independent public accountants report on such statementscontained an explanatory paragraph relating to the ability of the Company tocontinue as a going concern.  TheCompany experienced losses in the periods presented and has a net capitaldeficiency.  Certain entities in thecombined financial statements have not made debt payments when due and variouslenders placed $10,520,000 of debt in default. Certain entities also needed to pay or refinance a significant amount ofdebt coming due in the next twelve months. These factors raise substantial doubt about the ability of the combinedentities to continue as a going concern.

 

Management of the Company has plansrelated to these matters, which include, in addition to those items discussedabove, obtaining additional loans from shareholders, obtaining extensions fromlenders or refinancing all debts through the completion of the transactiondiscussed in Note 5.  In addition, ifnecessary, management believes it could sell properties to generate cash to paydebt.  The Partnership does not believethat the effect of the ultimate outcome of the circumstances surrounding theCompany will have a material adverse effect on its results of operations orfinancial position.

4.          PARTNERS’EQUITY

Equity and net loss per limitedpartnership unit is determined by dividing the limited partners’ share of thePartnership’s equity and net loss by the number of limited partnership unitsoutstanding, 29,354.

During 2000, an amount was transferredbetween the partners’ equity accounts such that 99% of cumulative operatingincome, gains, losses, deductions and credits of the Partnership was allocatedamong the limited partners and 1% was allocated to the general partner.  Management does not believe that the effectof this transfer was significant.

5.          PENDINGTRANSACTION

CGS Real Estate Company, Inc. (CGS), anaffiliate of the corporate general partner of the Partnership, is continuingthe development of a plan which will combine the Partnership’s property withthe properties of other real estate partnerships managed by CGS and itsaffiliates.   These limited partnershipsown office properties, industrial properties, shopping centers and residentialapartment properties.  It is expectedthat the acquiror, American Spectrum Realty, Inc. (ASR), would qualify in thefuture as a real estate investment trust. Limited partners would receive shares of common stock in ASR, which wouldbe listed on a national securities exchange.

The Partnership’s participation in thisplan will require the consent of its limited partners.  ASR filed a registration statement on FormS-4 August 14, 2000 relating to the solicitation of consents with theSecurities and Exchange Commission (SEC). The registration statement was amended February 14, 2001, April 24,2001, June 26, 2001, and August 7, 2001 and was declared effective by the SECon August 8, 2001.  The plan and thebenefits and risks thereof were described in detail in the finalprospectus/consent solicitation statement included in the registrationstatement filed under the Securities Act of 1933 at the time it was declaredeffective by the SEC.  Solicitationmaterials will be provided to limited partners in connection with thesolicitation of the consent of the limited partners.  There can be no assurances that the plan described above will beconsummated.

6.          RECENTACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial AccountingStandards Board issued SFAS No. 133, “Accounting for Derivative Instruments andHedging Activities”. SFAS No. 133 requires a company to recognize allderivative instruments (including certain derivative instruments embedded inother contracts) as assets or liabilities in its balance sheet and measure themat fair value.  The statement requiresthat changes in the derivative’s fair value be recognized currently in earningsunless specific hedge accounting criteria are met.  SFAS No. 133, as amended, is effective for fiscal years beginningafter June 15, 2000.  The Partnershipadopted the accounting provisions of SFAS No. 133 in 2001.  The implementation of SFAS No. 133 did nothave a significant effect on the Partnership’s financial conditions or resultsof operations.

In December 1999, the SEC issued StaffAccounting Bulletin No. 101 (SAB 101), on Revenue Recognition in FinancialStatements, which summarizes certain of the SEC staff’s views on applyinggenerally accepted accounting principles to revenue recognition in financialstatements.  The Partnership adopted theaccounting provisions of SAB 101 in 2000. The implementation of SAB 101 did not have a significant effect on thePartnership’s financial condition or results of operations.

PARTII  - OTHER INFORMATION

ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K

(a)         Exhibits

             None

(b)        Reportson Form 8-K

             None

SIGNATURES

Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report besigned on its behalf by the undersigned thereunto duly authorized.

|   |             |   | SIERRA  PACIFIC DEVELOPMENT FUND  a Limited Partnership  S-P PROPERTIES, INC.  General Partner |
|--------|------------------|--------|------------------------------------------------------------------------------------------------|
|   |             |   |                                                                                           |
|   |             |   |                                                                                           |
| Date:  | August  13, 2001 |   | */s/  Thomas N. Thurber*                                                                       |
|   |                  |   | **                                                                                             |
|   |             |   | Thomas  N. Thurber  President and Director                                                     |
|   |             |   |                                                                                           |
|   |             |   |                                                                                           |
| Date:  | August  13, 2001 |   | */s/  G. Anthony Eppolito*                                                                     |
|   |                  |   | **                                                                                             |
|   |             |   | G.  Anthony Eppolito  Chief Accountant                                                         |
|   |             |   |                                                                                           |