Item 2."Properties," some Properties have already been rezoned, but no assurances can be given that all such rezoning changes will be approved. Zoning changes are dependent on, among other things, whether or not such change would be consistent with the General and Specific Plan for a given area. Further, final parcel/tract maps have not been approved for all Properties, nor have any grading or building permits been obtained. In the event that such Properties do not receive the zoning desired by the General Partners, or if final maps are not approved or permits not obtained, the value of those parcels to the Partnership and to others may be reduced and the investment results of the Partnership may be materially adversely affected.
GROWTH INITIATIVES. Many counties and cities in California have been subject to so called "slow growth" initiatives which could seriously affect the ability to timely develop properties located within a county or city passing such an initiative. Although no such initiatives are currently pending, such an initiative could adversely affect the use or value of those of the Properties located within such county or city. PROPERTY TAX REFORM AND RENT CONTROL. Statewide property tax reform has reduced real property taxes in California. However, subsequently enacted statewide implementing legislation may cause real property taxes in California to increase at a more rapid rate than previously experienced and legislation enacted in certain municipalities in response to the statewide reform requires owners of real property to pass through property tax saving to residential and certain commercial tenants by various means, including rent reduction. It is also possible that legislation at the state or local level may be enacted in California which include some form of rent control applicable to the Partnership. In addition, certain fees and charges associated with the acquisition and ownership of real property in California have been increased to offset decreases in local revenue resulting from the property tax reduction.
OTHER GOVERNMENTAL INTERVENTION. There can be no assurance that there will be no governmental intervention with respect to the Properties that would adversely affect the use or value of the Properties. For example, building moratoriums, changes in general or specific plans, down-zoning of the Properties or unanticipated environmental regulation or similar considerations could impair the value of the Properties, either to the partnership or to others.
ENVIRONMENTAL
The Partnership may be required in certain instances to obtain environmental impact, biological impact or other similar reports prior to development of the Properties. Such reports may indicate conditions which make it more expensive (or in rare cases, impossible) to develop a Property in a manner anticipated by the Partnership, or may cause delays in the development of a Property. If a Property is contaminated by hazardous materials, the Partnership could incur substantial clean up costs under federal, state and local laws which could adversely affect the investment results of the Partnership.
To date, no environmental studies have been done on the Property. The General Partners know of no environmental conditions on the Properties that would adversely affect the investment results of the Properties.
EMPLOYEES
The Partnership has no employees. Management of the Partnership is provided by the General Partners. See Item 10 "Directors and Executive Officers" for information about the General Partners.
ITEM 1(D). FOREIGN OPERATIONS
The Partnership has no foreign operations in foreign countries: ITEM 2. PROPERTIES
The Partnership acquired a total of five properties. All of the Properties are in the area of Southern California known as the "Inland Empire." While no fixed geographical boundary identifies the Inland Empire, the General Partners consider the Inland Empire to include most of the western portion of Riverside and San Bernardino counties and to be roughly bounded by the cities of Corona on the west, the Coachella Valley (Palm Springs area) on the east, the City of Victorville on the north and Murietta (formerly Rancho California) on the south.
Included in this area are the communities of Perris, Sun City, Moreno Valley, Riverside, Beaumont, San Jacinto, Palm Desert, Murietta (formerly Rancho California) and Elsinore in Riverside County, and Fontana, Rialto, Rancho Cucamonga, Ontario, San Bernardino Highlands and Chino in San Bernardino County.
The Properties are unimproved and do not produce any operating income or cash flow. It is possible that future economic conditions, governmental actions or other factors may deter or prevent the Partnership from pre-developing or developing the Properties, or any of them. In such even, the potential profitability, if any, with respect to the Properties would be dependant upon appreciation of the Properties and the Partnership's ability to refinance and sell the same. There can be no assurance that the Properties, even if developed by the Partnership, can be operated or ultimately sold for profit.
The Partnership owns the following properties:
* All of the Properties were still owned by the Partnership as of December 31, 1996.
PERRIS 9.6. This Property, consisting of approximately 9.6 net acres, is located at the southwest corner of the intersection of Nuevo Road and Evans in the City of Perris, and is currently zoned C-2 (general commercial). The Property is adjacent to the Park West Specific Plan, which contemplates 2,203 residential dwelling units over 520 acres. Construction of the new town center is underway on Nuevo and the 215 freeway which is 1 -1/2 miles from the Property. VICTORVILLE 19.55. This Property, consisting of approximately 19.55 acres, is located at the southeast corner of Holly and Highway 395 in the City of Victorville. Since contracting to buy the Property, the General Partners have successfully achieved a rezoning from M-I-T (light manufacturing) to C-2-T (commercial). The intersection at which the Property is located is schedule to become one of the major intersections in the Victor Valley. Cal Trans has informally adopted a redesign plan for Highway 395 which will widen it to six lanes and create traffic signal controlled intersections at Holly and five other cross streets in the Cities of Victorville and Adelanto. Holly is scheduled to become a 100 foot wide surface connector.
ADELANTO 18.3. This property, consisting of approximately 18.3 acres, is located in the City of Adelanto and is currently zoned R-1 (residential). Since its acquisition, the General Partners have secured approval of a tentative tract map creating 73 single-family residential lots. The engineering and additional work necessary to make the map recordable is currently underway, and the Property is being held for resale. Located at the Northeast corner of Cactus and Raccoon in the City of Adelanto, the property is part of the area to be included within the Second Assessment District to bring sewer, water and paved streets to the Property.
VICTORVILLE 70.35. This Property, consisting of approximately 70.35 acres, is located within the city limits of Victorville, approximately -1/2 mile east of Highway 395 with Palmdale Drive to the north, and Luna Road to the south. When the Property was acquired, it was zoned for three residential units per acre. However, the general plan calls for five units per acre, and the General Partners have initiated a plan for the Property calling for partial PUD (Planned Unit Development) zoning and Tentative Tract Maps, which, when taken together, will create 346 single-family home lots. The Partnership contracted with Ludwig Engineering to do the final engineering on a deferred payment basis on these tracts. The final engineering costs are due on sale of Property or three years, whichever occurs first. The General Partners personally guaranteed the Partnership's unsecured Note to Ludwig Engineering for this work. Infrastructure is being brought to the property by a combination of improvements funded by the City in an Assessment District, and neighboring developers. The General Partner's business plan is to have the final map ready to record, making the project much more attractive to a builder.
RIVERSIDE 18.54. This Property, consisting of approximately 18.54 acres, is located southeast of and adjacent to the intersection of Oleander Avenue and Decker Road in the Perris Area of Riverside County, California. The Property is zoned Industrial. Construction of the freeway off-ramp is complete which greatly enhances the visibility of the Property.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
There are no matters requiring disclosure under Item 3: ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters we submitted to a vote of Registrants security holders during the fourth quarter of 1996.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
As of December 31, 1996, there were approximately 968 record holders of Units of Limited Partnership Interest. There is no other class of security outstanding or authorized. To the General Partners knowledge, there has not been, and currently there does not exist, any publicly established trading market for the Units. Accordingly, there was no trading activity during the fiscal year ended December 31, 1995 or 1994. In 1996, 17 Units traded on the secondary market at approximately $260 a Unit.
CASH DISTRIBUTIONS
There were no cash distributions to the Partners during the fiscal years ended December 31, 1996 1995, 1994, 1993, or 1992. A summary of the provisions of the Partnership Agreement regarding distributions of cash and allocations of net income and losses is set forth below in Item 1, "Business" under the subcaption "Distributions, Net Income and Net Loss."
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes selected financial data of the Partnership for the years ended December 31, 1996 1995, 1994, 1993, and 1992, and should be read in conjunction with the more detailed financial statements contained in Item 8 below. (UNAUDITED) YEAR ENDED DECEMBER 31 (NOT COVERED BY AUDITOR'S REPORT)
*(Based on 8,700 Units Outstanding at December 31, 1992, 1993, 1994 1995 and 1996.)
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSES OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
During the period from inception (July 20, 1990) through December 31, 1991, the Partnership was engaged primarily in the sale of Units of Limited Partnership Interest and the investment of the subscription proceeds to purchase parcels of unimproved real property. The only revenues received during, 1992, 1993, 1994, 1995, and 1996 were from the interest income earned on funds held pending their investment to acquire the Properties and income from the forfeiture by potential buyer(s) of non-refundable escrow deposit(s). The Partnership losses in 1995 and 1996 were due to write-downs in value of the Partnership land due to a decline in market value of the land. LIQUIDITY AND CAPITAL RESOURCES
The partnership raised a total of $7,722,751, net of syndication costs, from the sale of Limited Partnership Units. During the Period from inception through December 31, 1995, the Partnership acquired a total of five Properties for all cash at a total expenditure of $7,457,705, including carrying costs (such as interest expense and property taxes). All costs associated with the acquisition of the Properties, as well as carrying costs and administrative expenses, are capitalized (i.e., added to the cost of the Properties) and are deducted from the sales prices to determine gains (or losses) when the Properties are sold.
The Partnership does not intend to acquire any additional Properties. The five Properties are being held for resale. Upon sale, the Partnership intends to distribute the sales proceeds, less any reserves needed for operations, to the Partners.
The Partnership owns land in the Riverside and San Bernardino counties. This region of Southern California experienced a significant economic recession that has substantially eroded the value of all real estate in the area.
Lower home and commercial property prices has driven down the value of vacant land, and in many instances has made new development financially unfeasible. This has made it difficult to sell the Partnership land at anything but liquidation prices. The general partners expect the economic recovery in this region to be slow. Accordingly, the General Partners intend to meet currently anticipated cash requirements for at least the next twelve months by first using cash on hand; second, funds from interest income; third, the sale of properties; and fourth, from a loan secured by the property.
The General Partners believe there are insufficient funds available to meet anticipated cash requirements for the next 12 months. In March 1997, the General Partners procured a $125,000 loan to provide cash for Partnership operations. The loan is secured by Partnership land. Management is also attempting to sell one or more of the remaining parcels of land to meet anticipated cash requirements. There can be no assurance that management will be successful in selling one or more of the remaining parcels of land.
The Partnership has contracted with Ludwig Engineering to do the final engineering on the Victorville 70 acre parcel. The Partnership has a note payable to Ludwig for the work performed. The note matured March 1, 1996. The General partners are negotiating for an extension of the note. There is no assurance that management will be successful in obtaining an extension.
There are not current plans to further develop any of the parcels, and it is expected that no such plans would be undertaken unless adequate funding could be obtained, either from the sale or refinancing of parcels or from a joint venture partner.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements are filed as a part of this Form 10K:
For the fiscal years ended December 31, 1996, 1995, 1994, and 1993: Page No.
All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Financial Statements and Notes thereto.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
The accounting firm of Balser, Horowitz, Frank & Wakeling ("BHF&W), whose report is included elsewhere herein with respect to the Partnership's financial statements for the fiscal years ended December 31, 1996 and 1995, has provided accounting services to this Partnership and to other limited partnerships of which the General Partners are the general partners, for many years. PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The Partnership has no employees and no directors or executives officers. Management of the Partnership is provided by the General Partners.
TMP Properties, a California general partnership, and TMP Investments, Inc., a California corporation, are the General Partners of the Partnership. TMP Properties was formed on July 14, 1978. TMP Properties' principal business has been the acquisition of undeveloped land and the coordination of activities necessary to add value to such land, primarily through the predevelopment process. It has syndicated numerous private real estate limited partnerships, and eleven public real estate limited partnerships. All of the properties purchased by such partnerships were located in the State of California except for one (an office building) which was located in Oklahoma City, Oklahoma. Each of such limited partnerships involved a specified real property program in which TMP Properties was the general partner. The general partners of TMP Properties are William O. Paso, Anthony W. Thompson and Scott E. McDaniel.
The individual partners of TMP Properties are listed below, together with information regarding their employment experience and background.
TMP Investment Inc., a California corporation, was formed on December 12, 1984. TMP Investments Inc. has served in the capacity of a co-general partner in all of the TMP sponsored programs since December 1984. In 1993, TMP Investments Inc. began serving as sole general partner in all TMP sponsored partnerships. TMP Investments Inc. has been and will continue to be engaged in asset management, real estate accounting, budgetary services, and partnership management on behalf of existing limited partnerships and limited partnerships which it sponsors in the future. The shareholders of TMP Investments, Inc. were William O. Passo, Anthony W. Thompson, and Scott E. McDaniel until September 1993, when Mr. McDaniel sold his share of TMP Investments Inc. to Mr. Passo and Mr. Thompson.
WILLIAM O. PASSO, 55, is a Director and the President of TMP Investments Inc. He practiced law for 18 years, has been a licensed real estate broker since 1974 and holds registered representative and general principals securities licenses through the National Association of Securities Dealers, Inc. Mr. Passo received his Juris Doctorate Degree from UCLA School of Law in 1967. He has been a senior partner first of Passo, Yates, and Nissen until 1975, then of Passo & Davis until March 1983 when he resigned from the partnership to take a leading role in the management of the affairs of TMP Properties. Mr. Passo has been involved in public and private real estate syndication since 1970, and has acted as principal, investor, general partner, and counsel in real estate transactions involving apartments, office buildings, and unimproved land. Mr. Passo is a director and officer of William O. Passo, Inc., an officer of TMP Capital Corp., an NASD registered broker-dealer, and an officer of TMP Realty, a registered real estate broker. SCOTT E. MCDANIEL, 50, is a Director and Vice President of TMP Investments Inc. He is a graduate of the U.S. Naval Academy at Annapolis, majoring in engineering. Mr. McDaniel is a California licensed general contractor and has been a licensed California real estate broker since 1976. He was the founder and President of Scott E. McDaniel, Inc. (dba Regal Realty). Mr. McDaniel has developed office complexes and industrial space in Southern California and has personally brokered over $125 million of real estate since 1982. Through an affiliated company, DeVille Construction Co. Inc., Mr. McDaniel has directed general contracting operations in Southern California since 1982.
ANTHONY W. "TONY" THOMPSON, 50, is Director and Vice-President of TMP Investments Inc. A graduate of Sterling College in 1969, with a Bachelors Degree in Science and Economics, Mr. Thompson holds the professional designations of Charter Life Underwriter and chartered Financial Consultant form the American College. Mr. Thompson is a registered principal with the NASD and is a principal in TMP Capital Corp., a NASD registered Broker Dealer. Mr. Thompson has been involved in the securities and the real estate investment fields since 1970, and a General Partner of TMP since its formation in 1978. Mr. Thompson's primary responsibility is marketing TMP offerings through the broker dealer community.
The General Partners have raised over $100,000,000 since 1978 for properties which they, or partnerships with which they are affiliated, have purchased.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
During the period since the formation of the Partnership (March 20, 1990) through the fiscal year ended December 31, 1996, the Partnership paid fees to the General Partners for various services in the amount of $87,126 of which $15,419 was paid in the year ended December 31, 1996, 1995, and 1994. The General Partners did not receive any Partnership distribution during that period. (See Item 13. "Certain Relationships and Related Transactions".) The Partnership has no officers or employees and, therefore, paid no other compensation other than that paid to the General Partners as indicated above.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1996, the Partnership had 8,700 units of Limited Partnership interest (the "Units") issued and outstanding. To the knowledge of the General Partners, no person beneficially owns more the 5% of the Units. The following table set forth the number of Units beneficially owned as of December 31, 1996 by each officer, director and general partner of the General Partners and by all such persons as a group.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH AFFILIATES
The following information summarizes the forms and amounts of compensation (some of which involve cost reimbursements) paid either by the Partnership, or others, to the General Partners and their affiliates since the formation of the Partnership (July 20, 1990) through the fiscal year ended December 31, 1996. The information under "Operating and Liquidation Stage" and "Summary of Compensation" below also describes the amounts of compensation to be paid to the General Partners and their affiliates in the future. None of these amounts were determined by arm's-length negotiations. Reference is also made to the Notes to the Financial Statements included elsewhere in this Form 10K for additional information regarding transactions with affiliates.
OFFERING AND ORGANIZATION STAGE OF PARTNERSHIP
OFFERING AND ORGANIZATION STAGE OF PARTNERSHIP
SUMMARY OF COMPENSATION. In summary, the Partnership paid securities brokerage commissions for services performed by TMP Capital Corp. in the sale of the Units in the amount of $780,008 (including due diligence fees) and reimbursed the General Partners for expenses incurred in organizing the Partnership and documenting the offering in the amount of $13,426. The General Partners also received Property Acquisition Fees and real estate brokerage commissions in the amounts set forth above, and were reimbursed for out of pocket expenditures made in connection with the acquisition and carrying costs for the Properties or studies related thereto. During the operating stage, the partnership will pay the General Partners an annual Partnership Management Fee for managing the Partnership equal to 1/4 of 1% of the cost of the Properties, payable annually in advance with respect to each Property until such time as the Properties are sold or improvement of the land commences; provided such fee, in the aggregate, shall not exceed 2% of the cost of the Properties. At such time, if at all, that the Properties, or any of them, are developed, the General Partners will receive leasing commissions as described above, and a property management fee in an amount up to 5% of the gross property revenues, but not to exceed the competitive rate charged by nonaffiliated persons providing similar services. The General Partners have a 1% interest in all allocations of Partnership Net Income until the limited Partners have received allocations of Net Income equal to a cumulative, noncompounded return of 6% on their Adjusted Capital Contributions (the "Preferred Return"); and thereafter, the General Partners will have a 16.5% interest in all Partnership allocations of Net Income, Distributions of Distributable Cash from Operations, and Cash from Sale or Refinancing of Partnership Property and the Limited partners will have an 83.5% interest therein. Net Losses will be allocated to the Partners with positive Capital Accounts, in accordance with the ratio of their positive Capital Account balances until no Partner has a positive Capital Account; and thereafter, Net Losses will be allocated 100% to the General Partners. If the General Partners or an Affiliate provide a substantial amount of services with respect to the sale of a Partnership Property, the General Partners or an Affiliate may receive a real estate commission in an amount up to one-half of the amount of competitive real estate commissions, not to exceed 3% of the sales price of such Property. Both the 16.5% General Partners' participation and the Partners' real estate commission are subordinated to a return of all Limited Partners' Capital Contribution plus a cumulative, non-compounded return of 6% per annum on their Adjusted Capital contributions. Thus, only after the Limited Partners have recovered their Capital Contributions plus the cumulative 6% return discussed above, will the General Partners' allocation of Distributions of Distributable Cash from Operations and Cash from Sale or Refinancing of Partnership Property exceed a nominal 1% ownership interest therein. Such allocation provides built-in incentive for the General Partners to seek the optimum performance from the Partnership's Properties.
CONFLICTS OF INTEREST
The Partnership is subject to various conflicts of interest from its relationship with the General Partners. These conflicts include, but are not limited to:
CONFLICTS IN GENERAL. The interests for the Limited Partners may be inconsistent with those of the General Partners or their Affiliates when the General Partners must make policy decisions on behalf of the Partnership. The General Partners, for instance, might not desire to sell a Property when a sale would be advantageous to the Limited Partners because of the General Partner's interest in Distributions of Distributable Cash from Operations and Net Proceeds from the Sale or Refinancing of the Property. Subject in certain circumstances to the approval of the holders of a majority or other specified voting percentage of the Units, the General Partners will have the discretion as to when to sell a Property or portion thereof. The timing of the sale of a Property or any portion thereof and the terms on which such sale will be made may result in a conflict of interest. Furthermore, the sale of a Property may result in the recognition of substantial taxable gain to the General or Limited Partners in different ratios depending upon three timing of such sale. Accordingly, the decisions as to when to sell a Property may be advantageous to the General Partners and disadvantageous to the Limited Partners, or vice versa. The General Partners in any event will be compelled to make any decisions with respect to the sale or retention of a Property based upon the best interests of the a Partnership and its Limited Partners because of the fiduciary duty which they owe to the Limited Partners.
AVAILABILITY OF MANAGEMENT SERVICE. The Partnership will not have independent management, as it will rely on the General Partners and affiliates for all its management decisions. Other investment projects in which the General Partners and affiliates participate, either individually or as a general partner, real estate broker, or investment adviser, may compete with the Partnership for the time and resources of the General Partners and their affiliates. The General Partners will, therefore, have conflicts of interest in allocating management time, services, and functions among the Partnership and other existing partnerships and businesses, s well as any partnerships or business entitles which may be organized in the future. Under the Partnership Agreement, the General Partners are obligated to devote as much time as they, in their sole discretion, deem to be reasonably required for the proper management of the Partnership and its assets. The General Partners believe that they have the capacity to discharge their responsibilities to the Partnership notwithstanding participation in other investment programs and projects.
INTERESTS IN OTHER ACTIVITIES. The General Partners, or any of their affiliates, may engage for their own account, or for the account of others, in other business ventures, whether real estate or otherwise, and neither the Partnership nor any Limited Partner shall be entitled to any interest therein solely by reason of any relationship with or to each other arising from the Partnership. RECEIPT OF COMPENSATION BY THE GENERAL PARTNERS. The payments to the General Partners set forth above have not been determined by arm's-length negotiations.
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8K
(a) For a listing of financial statements, reference is made to Item 8 included in this Form 10K
(b) The Registrant filed no reports on Form 8K during the fourth quarter of the fiscal year ended December 31, 1996.
(c) Exhibits - Those Exhibits required by Item 601 of Regulation S-K which are applicable to the Registrant are as follows:
(3), (4) and (10.1) Agreement of Limited Partnership and other material agreements are incorporated by reference to Exhibits (3), (4) and (10.1) to the Form 10 Registration Statement, SEC File No. 0-20120 filed on April 24, 1992. SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 14, 1997
TMP INLAND EMPIRE VII, LTD. A California Limited Partnership
By: TMP INVESTMENTS INC., A California corporation as co-General Partner
By: __________________________________ William O. Passo, President
By: ___________________________________ Anthony W. Thompson, Executive Vice President
By: ____________________________________ Michael C. Sun, Chief Financial Officer
and by TMP Properties, a California General Partnership, as co-General Partner
By: _____________________________________ William O. Passo, General Partner
By: _____________________________________ Scott E. McDaniel, General Partner
By:__________________________________ Anthony W. Thompson, General Partner
TMP INLAND EMPIRE VII, LTD. (A CALIFORNIA LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995
TMP INLAND EMPIRE VII, LTD. (A California Limited Partnership)
Financial Statements December 31, 1996 and 1995
Independent Auditor's Report............................................ 1
Balance Sheets.......................................................... 2
Statements of Income.................................................... 3
Statements of Partners' Capital......................................... 4
Statements of Cash Flows................................................ 5
Notes to Financial Statements........................................... 6-9
Supplementary Information............................................... 10-12
[BALSER, HOROWITZ, FRANK & WAKELING LETTERHEAD]
Independent Auditor's Report
To the Partners TMP Inland Empire VII, Ltd. (A California Limited Partnership)
We have audited the accompanying balance sheets of TMP Inland Empire VII, Ltd. (A California Limited Partnership) as of December 31, 1996 and 1995, and the related statements of income, partners' capital, and cash flows for the years ended December 31, 1996, 1995 and 1994. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of TMP Inland Empire VII, Ltd. (A California Limited Partnership) as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years ended December 31, 1996, 1995 and 1994, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information contained in Schedule I is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is stated fairly in all material respects in relation to the basic financial statements taken as a whole.
Balser, Horowitz, Frank and Wakeling
BALSER, HOROWITZ, FRANK & WAKELING An Accountancy Corporation
Santa Ana, California January 23, 1997
TMP INLAND EMPIRE VII, LTD. (A California Limited Partnership) Balance Sheets December 31, 1996 and 1995
See Accompanying Notes and Independent Auditor's Report
TMP INLAND EMPIRE VII, LTD. (A California Limited Partnership) Statements of Income For the Years Ended December 31, 1996, 1995 and 1994
See Accompanying Notes and Independent Auditor's Report
TMP INLAND EMPIRE VII, LTD. (A California Limited Partnership) Statements of Partners' Capital For the Years Ended December 31, 1996, 1995 and 1994
See Accompanying Notes and Independent Auditor's Report
TMP INLAND EMPIRE VII, LTD. (A California Limited Partnership) Statements of Cash Flows For the Years Ended December 31, 1996, 1995 and 1994
Other disclosures
The Partnership did not enter into any non-cash investing activities, but had non-cash financing activities (see Note 6). It did not have any short-term highly liquid investments during the years ended December 31, 1996, 1995 or 1994.
See Accompanying Notes and Independent Auditor's Report
TMP INLAND EMPIRE VII, LTD. (A California Limited Partnership) Notes to Financial Statements December 31, 1996, 1995 and 1994
Note 1 - Summary of significant accounting policies
Accounting Method - The Partnership's policy is to prepare its financial statements on the accrual basis of accounting.
Cash and Cash Equivalents - For purposes of the statements of cash flows, the Partnership considers all cash in banks and all highly liquid investments with a maturity of three months or less to be cash equivalents. During the normal course of its business, the Partnership accumulates cash and maintains deposits at various banks.
Organization Costs - Organization costs include expenses incurred in the formation of the Partnership that have been capitalized and that are being amortized over a period of 40 years prior to 1992 and 5 years beginning in 1992.
Investment in Unimproved Land - Investment in unimproved land is stated at the lower of cost or fair value (see Note 7). All costs associated with the acquisition of a property are capitalized. Additionally, the Partnership capitalizes all carrying costs (such as interest expense and property taxes). These costs are added to the cost of the properties and are deducted from the sales prices to determine gains when properties are sold.
Syndication Costs - Syndication costs (such as commissions, printing, and legal fees) totaling $1,007,223 represent costs incurred to raise capital and, accordingly, are recorded as a reduction in partners' capital (see Note 3).
Estimates - In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from these estimates.
Concentration - All unimproved land parcels held for investment are located in the Inland Empire area of Southern California. The eventual sales price of all parcels is highly dependent on the real estate market condition. The Partnership attempts to mitigate any potential risk by monitoring the market condition and holding the land parcels until the real estate market recovers.
Income Taxes - The entity is treated as a partnership for income tax purposes and any income or loss is passed through and taxable to the individual partners. Accordingly, there is no provision for federal income taxes in the accompanying financial statements. However, the minimum California Franchise tax due by the Partnership at December 31, 1996 and 1995 is $800.
See Independent Auditor's Report
TMP INLAND EMPIRE VII, LTD. (A California Limited Partnership) Notes to Financial Statements December 31, 1996, 1995 and 1994
Note 2 - Organization of the Partnership
On July 20, 1990, the Partnership was formed with TMP Properties (A California General Partnership) and TMP Investments, Inc. (A California Corporation) as the general partners. The partners of TMP Properties are William O. Passo, Anthony W. Thompson and Scott E. McDaniel. William O. Passo and Anthony W. Thompson were the shareholders of TMP Investments, Inc. until October 1, 1995, when they sold their shares to TMP Group, Inc., and then became the shareholders of TMP Group, Inc.
The Partnership originally acquired four separate parcels of unimproved real property in Riverside and San Bernardino Counties, California. During 1992, one additional parcel in Riverside County was purchased by the partnership. The properties were to be held for investment, appreciation, and ultimate sale and/or improvement of all or a portion thereof, either alone or in conjunction with a joint venture partner.
The partnership agreement provides for two types of investments: Individual Retirement Accounts (IRA) and others. The IRA minimum purchase requirement was $2,000 and all others were a minimum purchase requirement of $5,000. The maximum liability of the limited partners is the amount of their capital contribution.
Note 3 -Partners' contributions
The Partnership offered for sale 8,700 units at $1,000 each to qualified investors. As of December 31, 1992, all 8,700 units had been sold for total limited partner contributions of $8,700,000. There have been no contributions made by the general partners. As described in Note 1, syndication costs have been recorded as a reduction in partners' capital.
Note 4 - Allocation of profits, losses and cash distributions
Profits, losses and cash distributions are allocated 99% to the limited partners and 1% to the general partners until the limited partners have received an amount equal to their capital contributions plus a cumulative, non-compounded return of 6% per annum on their adjusted capital contributions. At that point, the limited partners are allocated 83.5% and the general partners 16.5% of profits, losses and cash distributions. There were no distributions in 1996, 1995 or 1994.
See Independent Auditor's Report
TMP INLAND EMPIRE VII, LTD. (A California Limited Partnership) Notes to Financial Statements December 31, 1996, 1995 and 1994
Note 5 - Related party transactions
Syndication costs (see Note 1) include $870,000 in selling commissions paid in prior years to TMP Capital Corp. for the sale of partnership units of which a portion was then paid to unrelated registered representatives. William O. Passo and Anthony W. Thompson were the shareholders of TMP Corp. until October 1, 1995, when they sold their shares to TMP Group, Inc.
Investment in unimproved land includes acquisition fees of $500,000 paid in prior years to TMP Properties and TMP Investments, Inc., the general partners, for services rendered in connection with the acquisition of the properties.
The Partnership paid $15,419 in partnership management fees to the general partners for each of the years ended December 31, 1996, 1995 and 1994, respectively. The Partnership was also charged $9,943, $9,042 and $8,163 during the years ended December 31, 1996, 1995 and 1994, respectively, by the general partner and an affiliated company of the general partner for office, secretarial and advertising expenses. At December 31, 1996 the Partnership had a payable of $703, to the general partner and the affiliated company.
Note 6 - Notes payable
The Partnership entered into loan agreements with an outside party who provided engineering service for various land parcels. The total loan amount of $229,628 accrues interest at 10% per annum, and the interest is payable on or before March 1, 1997. The principal amount is payable in full upon sale of the land parcels or upon recordation of the final tract maps for the same parcels and is secured by those parcels. The loans are guaranteed by the three general partners of TMP Properties and by TMP Properties.
Note 7 - Decline in the fair value of investment in unimproved land
As of December 31, 1996 and 1995, the total carrying amount of the investment in unimproved land was reduced by $3,546,049 and $2,117,773, respectively. This reduction represents the decline in fair values, as determined by the general partners, and is due mainly to the downturn in Southern California's real estate market and slow recovery.
See Independent Auditor's Report
TMP INLAND EMPIRE VII, LTD. (A California Limited Partnership) Notes to Financial Statements December 31, 1996, 1995 and 1994
Note 8 - Property taxes payable
Property taxes payable at December 31, 1996 are as follows:
If the property taxes remain delinquent for five years, then the County can foreclose on the property. Management plans to take necessary actions to prevent foreclosures.
See Independent Auditor's Report
Supplementary Information
TMP INLAND EMPIRE VII, LTD. (A California Limited Partnership) Schedule I - Real Estate and Accumulated Depreciation (Schedule XI, Rule 12-28, For SEC Reporting Purposes) For the Year Ended December 31, 1996
TMP INLAND EMPIRE VII, LTD. (A California Limited Partnership) Schedule I - Real Estate and Accumulated Depreciation (Schedule XI, Rule 12-28, For SEC Reporting Purposes) For the Year Ended December 31, 1995
TMP INLAND EMPIRE VII, LTD. (A California Limited Partnership) Schedule I - Real Estate and Accumulated Depreciation (Schedule XI, Rule 12-28, For SEC Reporting Purposes) For the Year Ended December 31, 1994