ITEM 1 - BUSINESS
Interstate Land Investors II (the "Registrant" or the "Partnership") is a North Carolina limited partnership organized as of July 27, 1989 to acquire for investment and dispose of three tracts of undeveloped land located in York County, South Carolina (the "Property"). The Property consists of "Tract 1" (which was subdivided as discussed below), an approximately 91.64 acre tract fronting on Interstate 77 and Gold Hill Road; "Tract 2", an adjoining (but non contiguous) approximately 76.74 acre tract with frontage entirely on Interstate 77; and "Tract 3", an approximately 20 acre tract located on U.S. Highway 21 and contiguous to Tract 2. The General Partners of the Registrant were Performance Investments, Inc., a North Carolina corporation ("PII"), William Garith Allen ("Allen") and ISC Realty Corporation, a North Carolina corporation ("ISCR"). Allen is the President, a director and a 50% shareholder of PII. ISCR is a North Carolina corporation wholly owned by Wachovia Securities Inc. ("WSI"). Effective January 1, 1992, ISCR and Allen assumed the role of co-managing general partner and PII was converted to a Class A limited partner. In 1997, Allen executed an assignment of his partnership interests and forfeited his right to subordinated returns by transferring his interest and PII's interest to ISCR.
The Registrant offered (the "Offering") a minimum of 5,406 units of Class A Limited Partnership Interests and a maximum of 9,588 units of Class A Limited Partnership Interests (the "Units") at $1,000 per Unit pursuant to a Registration Statement effective September 29, 1989, filed under the Securities Act of 1933, as amended (the "Act"). As of November 3, 1989, the Registrant had received aggregate subscriptions for 5,406 Units and accordingly, on November 3, 1989, subscriptions for 5,406 Units were accepted and the Initial Closing occurred under the Offering and 527 investors were admitted to the Partnership as Limited Partners. Of the $5,402,640 in gross proceeds received in connection with the Initial Closing (which amount equals subscription payments for 5,406 Units at $1,000 each less discounts on the purchase of certain Units as described in the Registration Statement), $668,458 had been applied to sales commissions and to organization and offering expenses. The balance of the gross proceeds, $4,734,182, was used to purchase Tracts 2 and 3 and provide working capital.
Tract 2 was acquired by the Registrant pursuant to an Option Agreement that was originally obtained by Performance Service and Finance, Inc. ("PSF") from unaffiliated individuals. This Option Agreement was subsequently assigned by PSF to PII and then assigned by PII to the Registrant. Tract 2 was acquired from unrelated individuals for a purchase price of $2,855,223. In addition, the Partnership reimbursed PII $116,000 for its carrying costs associated with the Option Agreement and paid PII $181,363 in additional consideration as an assignment fee. The total amount paid by the Registrant for Tract 2 was $3,152,586, not including certain miscellaneous closing costs.
The Registrant acquired Tract 3 pursuant to an Option Agreement that was originally obtained by Gold Hill Investment Associates ("Gold Hill"). The Option Agreement was subsequently assigned by Gold Hill to the Registrant. The Registrant acquired Tract 3 from an unaffiliated unrelated entity for a purchase price of $1,400,000. In addition, the Registrant reimbursed Gold Hill $10,750 for its carrying costs associated with the Option Agreement and an
additional $14,094 in additional consideration as an assignment fee. The total amount paid by the Registrant for Tract 3 was $1,424,844, not including certain miscellaneous closing costs.
Gold Hill is a North Carolina partnership of which Gold Hill Limited Partnership, an affiliate of Allen, is a partner. Tract 1 was purchased by Gold Hill from an unrelated entity in December, 1986 for a purchase price of $1,800,000. Gold Hill Limited Partnership had an option, until June 30, 1990, to acquire the partnership interests of the remaining unrelated entities in Gold Hill, and thus become the sole owner of Tract 1. The Registrant had secured an option (see discussion below) to purchase Tract 1 from Gold Hill at a purchase price of $3,622,500.
During July, 1990, the Registrant requested and received approval from the limited partners to extend the Partnership offering from July 31, 1990 until December 31, 1990. During July and August 1990, the Registrant requested and received limited partner approval to subdivide Tract 1 into four (4) separate parcels and to allow the Registrant to acquire a portion of the property in the event proceeds from investor subscriptions were not sufficient to acquire all of Tract 1. In addition, the seller of Tract 1 had agreed to extend the option to purchase Tract 1 from September 30, 1990 until December 31, 1990.
Under the terms of the new Option, in the event the Registrant was unable to sell the Maximum Offering Amount by December 31, 1990, but the Registrant had sold a minimum of 7,620 units (the "Secondary Offering Amount") then the Registrant could purchase Tracts 1A and 1D (and it must purchase Tracts 1A and 1D simultaneously). Additionally, if the Registrant had achieved the Secondary Offering Amount, purchased Tracts 1A and 1D pursuant to the terms of the new Option and had sold a minimum of 8,721 Units (the "Tertiary Offering Amount") prior to December 31, 1990, then the Registrant could purchase Tract 1B. Finally, if the Registrant achieved the Tertiary Offering Amount, and purchased Tracts 1A, 1B and 1D as herein above provided, and had sold a minimum of 9,588 Units prior to December 31, 1990, then the Registrant could purchase Tract 1C.
The Registrant filed a post effective amendment to the original prospectus in August, 1990, outlining to the SEC these modifications to the offering and the amendment to the Partnership Agreement.
On November 14, 1990, the Partnership received formal approval from the SEC on the post-effective amendment filed in August, 1990. Therefore, ISCR took additional subscriptions and was able to close on Parcels 1A and 1D on November 30, 1990. The total cost of the November 30, 1990 acquisition of Subtracts 1A and 1D was $1,908,605 which included a purchase price of $1,906,517, plus closing costs of $2,088. The Partnership has determined that no further Units will be offered, sold and issued pursuant to the Prospectus. The Partnership filed Post-effective Amendment No. 4 for the purpose of deregistering 1,938 Units of unsold Class A Limited Partnership interests.
The Registrant's principal investment objectives are to: (1) preserve and protect capital invested in the Registrant, (2) provide a relatively low-risk real estate investment through debt-free ownership of the Property, (3) provide long-term appreciation in the value of the Property, and (4) provide protection for investors against inflation. The Registrant intends to accomplish its objectives through holding the Property and subsequently disposing of it at an appropriate time.
The disposition of the Property by the Registrant may result in substantial fees to the General Partner and its affiliates. Reference is made to Item 13 herein for a description of certain transactions between the Registrant and the General Partner and its affiliates.
No mortgage indebtedness was incurred in connection with the acquisition of the Property.
The Registrant plans to hold the property for future appreciation. It is not contemplated that the Registrant will undertake construction or substantial improvements on the Property.
Upon the sale of all or a portion purchased (i.e., Tracts 2, 3, 1A, and 1D) of the Property by the Registrant, the proceeds of the sale will be distributed to the investors. The General Partner currently intends to dispose of the Property purchased within ten to twelve years of the purchase. However, the investors had a one-time right to direct the Registrant to dispose of the Property upon the fifth anniversary of the Closing of the Offering (November 1994) for a price not less than $11,104,839, reduced by the net proceeds to the Registrant from the sale of other parcels within the Property by the Registrant. If the Registrant was unable to sell the Property by such date at such price, Allen was obligated to either (i) purchase the Property at such price or (ii) forfeit his entire subordinated Limited Partner interest and transfer the remaining General Partner interest to the Limited Partners.
The Registrant in seeking to secure purchasers for its Property will be competing with many other real estate investment partnerships as well as individuals, insurance companies, banks and other entities engaged in real estate investment activities including, perhaps, certain affiliates of the General Partner.
The General Partner currently serves as general partner in over 10 public and private partnerships, which currently own various types of real property. None of the prior partnerships sponsored by the General Partner or its affiliates now contemplate the acquisition of any additional properties of the type purchased by the Registrant. However, the General Partner or its affiliates may sponsor additional public or private partnerships in the future. In addition, the General Partner and its affiliates are and will continue to be engaged in the business of real estate investment, development and management apart from their involvement in the Registrant.
Located immediately adjacent to the Property is an approximately 96.74 acre tract owned by Interstate Land Investors I Limited Partnership ("Interstate I"), a North Carolina limited partnership having the same general partner as the Registrant. Interstate I acquired the adjacent property on September 30, 1988, for a purchase price of $4,200,000. Interstate I intends to hold the adjacent property under the same terms and with the same investment objectives as the Registrant intends to apply to the Property.
The General Partner will devote only so much of its time to the business of the Registrant as in their judgment and experience is reasonably required. The General Partner is engaged in other activities that also require its time and attention.
As of December 31, 1999, the Registrant did not directly employ any persons in a full-time position. Certain employees of the General Partner performed services for the Registrant during the year.
ITEM 2
ITEM 2 - PROPERTY
The Property is located approximately 12 miles south of the Central Business District of Charlotte, North Carolina along the I-77 corridor and approximately 8 miles north of Rock Hill, South Carolina. While the Property is located in northeastern York County, South Carolina, the Property is considered a part of the Charlotte MSA. The Property consists of three separate tracts, all of which are zoned for agricultural use, more particularly described as follows:
Tract 1 (which was subdivided - See Item 1) is an approximately 91.64 acre tract located in the northeast quadrant of I-77 and Gold Hill Road in York County, South Carolina. 16.1 acres of Tract 1 lies in a floodplain and the remaining 76.03 acres are usable and free of rights-of-way. Tract 1 has approximately 2,200 feet of frontage along Gold Hill Road and 3,600 feet of frontage along I-77. Electricity and telephone are available to Tract 1. Municipal water and sewer has been brought to the edge of the Property and would be made available if the Property were developed. If a sale was to occur, Tract 1 zoning would revert to BD-2 and BD-3 under the York County Zoning Ordinance. The BD-2 classification is designed to provide for the development of office and institutional parks in areas free of general commercial activity. The BD-3 classification is designed to provide for retail establishments, such as department stores and variety stores. Tract 1 was subdivided into four Tracts. Tract 1A is approximately 17.0 acres; Tract 1B, approximately 24.33 acres; Tract 1C, approximately 19.08 acres; and Tract 1D, approximately 31.23 acres. Tracts 1A and 1D are owned by the Registrant.
Tract 2 consists of approximately 76.74 acres. Tract 2 has 2,819 feet of frontage on I-77 and is located north of Tract 1. Tract 2 is not contiguous to Tract 1. Access to Tract 2 is through Tract 3 to U.S. Highway 21. Additionally, Tract 2 adjoins a common boundary with the 95 acre tract of land owned by Interstate I. Electricity and telephone are available to Tract 2. Water is currently available to Tract 2 by extension through Tract 3. Water and sewer will be provided by a private utility company with facilities located west of Tract 2 on the west side of I-77. In addition, Tract 2 can be serviced by the water and sewer facilities serving the Charlotte Knights baseball stadium. If a sale was to occur, Tract 2 zoning would revert to UDD, urban development district, by the York County Council. The purpose of this district is to permit maximum flexibility in response to market demands in specific areas of the County. Permitted uses range from residential to business development and industrial.
Tract 3 consists of approximately 20 acres of land fronting approximately 400 feet on U.S. Highway 21 and being contiguous to Tract 2. Additionally, a portion of the Property is contiguous to the tract owned by Interstate I. Electricity, telephone, water and sewer are all available to Tract 3. If a sale was to occur, Tract 3 zoning would revert to UDD, urban development district, by the York County, South Carolina, County Council.
In December 1999, the Partnership entered into a contract with Crescent Resources, the real estate arm of Duke Energy Corporation, to sell the unimproved land for approximately $6,660,000. The potential purchaser deposited earnest money with a title agency. Under the terms
of the contract, the potential purchaser had until March 31, 2000, to complete their due diligence, making the earliest possible closing date April 20, 2000. However, on March 17, 2000, Crescent Resources notified the Registrant of its desire to cancel the contract. Crosland Commercial continues to list the property for sale.
ITEM 3
ITEM 3 - LEGAL PROCEEDINGS
None.
ITEM 4
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In December 1999, an official ballot was sent to the Limited Partners requesting that they vote their "Approval" or "Disapproval" for the proposed sale of the property. Results of this ballot indicated 56.2% in favor of the proposed sale.
PART II
ITEM 5
ITEM 5 - MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY HOLDER MATTERS
Transfer of the Units is subject to certain restrictions contained in the Limited Partnership Agreement. There is no established market for the Units and it is not anticipated that any will occur in the future. The Registrant is aware of no significant resales of Units since the Initial Closing on November 3, 1989. As of March 9, 2000, 774 persons were record owners of 7,650 Units.
The Registrant in each year allocates to the investors and the General Partner any net profit prior to a sale of the Property. Such allocations to the investors are credited against the preferred return due to them on their invested capital. Net losses for each year are also allocated to the investors and the General Partner in accordance with their respective capital accounts. The Registrant does not intend to make any distributions of available cash prior to the sale of all or a portion of the Property.
ITEM 6
ITEM 6 - SELECTED FINANCIAL DATA (AUDITED)
SELECTED STATEMENT OF OPERATIONS DATA
SELECTED BALANCE SHEET DATA
ITEM 7
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
As of December 31, 1999, the Registrant had $3,443 cash and cash equivalents on hand. Until the Registrant disposes of the Property, its only sources of additional capital are loans. The Registrant's ability to maintain cash adequate to meet its needs will be dependent upon the availability of financing and successful operations of its real estate investment. The General Partner anticipates that any future funds necessary for the operations of the Partnership will be provided by ISCR. As of May 23, 1995, the General Partner, ISCR, entered into a line of credit agreement in the amount of $150,000 with the Partnership to provide additional funds as needed. In July of 1998, the line of credit amount was increased to $175,000 and in August of 1999, the amount was increased to $250,000. In accordance with the Partnership Agreement, ISCR is
entitled to accrue interest on any loans provided to the Partnership at the rate of prime plus two percent. The balance of the note plus accrued interest at December 31, 1999, is $230,722.
RESULTS OF OPERATIONS
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1999 TO THE YEAR ENDED DECEMBER 31,
The Registrant's net loss increased to $133,834 for the year ended December 31, 1999 compared with $50,114 for the year ended December 31, 1998. The majority of this increase is attributable to the $84,310 property write-down in 1999.
Legal fees decreased by $1,891 to $2,072 in 1999 due to the settlement of the lawsuit in 1998. Interest expense increased $2,594 to $18,144. This higher expense was due to the increased borrowings under the note to ISCR during 1999. General and administrative expense decreased $3,550 to a total of $18,333.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998, TO THE YEAR ENDED DECEMBER 31,
The Registrant's net loss increased to $50,114 for the year ended December 31, 1998 from $42,084 for the year ended December 31, 1997.
Legal fees in the amount of $3,962 were incurred from pursuing the claims against W. G. Allen. Interest expense increased $2,134 to a total of $15,550. This higher expense was due to the increased borrowings under the note to ISCR during 1998. General and administrative expense increased $3,323 to a total of $21,883. Additional costs were incurred in 1998 from separate studies performed to evaluate the current market value and environmental conditions in the area.
The Year 2000 Issue
The Registrant determined that the potential consequences of year 2000 would not have a material effect on business, results of operations, or financial condition. This conclusion was reached after researching computer programs and third party vendors that are currently used to manage this limited partnership. The Registrant is not solely reliant upon outside systems or vendors for record keeping. Information is on file in our offices, which states that existing computer software is Y2K compliant. The third party vendor currently used was Y2K compliant by June 30, 1999. The computer hardware and peripherals located in the Registrant's offices are also Y2K ready. If necessary, the Registrant can revert to manual methods for bookkeeping, check writing, preparation of financial statements and investor correspondence. Hard copies of essential information are available and will continue to be available well into the year 2000.
ITEM 8
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted as a separate section of this report.
ITEM 9
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no disagreements concerning the December 31, 1999, financial statements.
PART III
ITEM 10
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Registrant has no directors or executive officers. PII, the former managing general partner, filed for relief from creditors under Chapter 11 of the Bankruptcy Code during 1991. Effective January 1, 1992, the general partner interest of PII was converted to that of a Class A Limited Partner retaining the same interest in the Partnership's net profit, losses and distributions as it had as a general partner subject to the same priority of the other Class A Limited Partners. In 1997, Allen executed an assignment of his partnership interests and forfeited his right to subordinated returns by transferring his interest and PII's interest to ISCR.
Information as to ISCR, the current Managing General Partner, is as follows:
Information About Directors Name and Executive Officers - ---- ----------------------
J. Christopher Boone Director and President of ISCR. He is 41 years old.
Robert B. McGuire Treasurer of ISCR. He is 52 years old.
Michael D. Hearn Director and Secretary of ISCR. He is 47 years old.
Lewis F. Semones, Jr. Director of ISCR. He is 41 years old.
J. Christopher Boone is a Managing Director of Wachovia Securities, Inc. (WSI), an affiliate of ISCR and President of ISCR. Prior to joining the Selling Agent in 1984, Mr. Boone was a tax specialist for Coopers & Lybrand. He received a bachelor's degree in business administration with an emphasis in accounting from the University of North Carolina at Chapel Hill.
Robert B. McGuire is Treasurer of ISC Realty Corporation. In addition, he is Senior Vice President and Treasurer of WSI. Mr. McGuire received a B.A. in Business Administration from Furman University and a Masters in Business Administration from Emory University.
Michael D. Hearn has served as Secretary and General Counsel of WSI since 1985. He is a Senior Managing Director of WSI. Mr. Hearn received a Bachelor of Science degree in Business Administration and a Juris Doctor from the University of North Carolina at Chapel Hill. He is Secretary of ISCR. In May of 1992 he was elected a Director of ISCR.
Lewis F. Semones, Jr. is Senior Managing Director and Chief Financial Officer of WSI. He is also a director of WSI. Mr. Semones is a graduate of Lenoir Rhyne College, a Certified Public Accountant and a graduate of the Securities Industry Institute at The Wharton School of The University of Pennsylvania. He was elected as a director of ISCR in September, 1997.
Each officer and director holds office until his death, resignation, retirement, removal, disqualification or his successor is elected and qualified.
Effective April 1, 1999, ISC Realty Corporation's parent, Interstate/Johnson Lane, Inc., merged into Wachovia Corporation. Personnel and offices continue to operate as usual.
ITEM 11
ITEM 11 - EXECUTIVE COMPENSATION
No remuneration was paid or accrued for the account of any partner, officer or director of the General Partner during the Partnership fiscal year ended December 31, 1999.
ITEM 12
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 22, 2000, Begley-Hall owned 6.87% of the limited partnership interests.
As of March 22, 2000, none of the individual directors and officers of the General Partner had subscribed for Units.
Amount and Nature of Beneficial Partner Type Name & Address Ownership Class - ------------ -------------- --------- -----
Subordinated Limited ISC Realty Corporation $100 100%
General Partner ISC Realty Corporation 0 100%
Class A Limited Partner ISC Realty Corporation 100 <.1%
Class A Limited Partner ISC Realty Corporation 150,000 2.0%
ITEM 13
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended December 31, 1999, there were no related party transactions in excess of $60,000.
During the year ended December 31, 1999, ISCR earned $16,209 for monitoring the operations of the Registrant on behalf of the investors and performing certain administrative
functions. ISCR is entitled to receive an annual administrative fee equal to 0.25% of the cost of the Property. However, the payment of such administrative fee is deferred until sale of the Property and return to the investors of their invested capital plus the preferred return. The deferred portion of this fee may accrue interest at an interest rate of prime plus 1%.
PART IV
ITEM 14
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules.
See Index to Financial Statements included in Appendix A to this Form 10-K. Schedules are omitted because they are not applicable, not required or because the requested information is included in the Financial Statements or notes thereto.
(b) Reports on Form 8-K. None.
(c) Exhibits. EX-27 - Financial Data Schedule
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
INTERSTATE LAND INVESTORS II A NORTH CAROLINA LIMITED PARTNERSHIP
BY: ISC REALTY CORPORATION GENERAL PARTNER
BY: /S/ J. CHRISTOPHER BOONE ------------------------ J. CHRISTOPHER BOONE PRESIDENT
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated:
Signature Title Date --------- ----- ----
/S/ J. Christopher Boone March 22, 2000 - ---------------------------- -------------- J. Christopher Boone Director and President of ISC Realty Corporation
/S/ Michael D. Hearn March 22, 2000 - ---------------------------- -------------- Michael D. Hearn Director and Secretary of ISC Realty Corporation
/S/ Lewis F. Semones, Jr. March 22, 2000 - ---------------------------- -------------- Lewis F. Semones, Jr. Director of ISC Realty Corporation
INTERSTATE LAND INVESTORS II, LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
FAULKNER AND THOMPSON, P.A.
CERTIFIED PUBLIC ACCOUNTANTS
INTERSTATE LAND INVESTORS II, LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
INTERSTATE LAND INVESTORS II, LIMITED PARTNERSHIP FINANCIAL STATEMENTS
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PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS..........................1
BALANCE SHEETS..............................................................2
STATEMENTS OF OPERATIONS....................................................3
STATEMENT OF PARTNERS' CAPITAL..............................................4
STATEMENTS OF CASH FLOWS....................................................5
NOTES TO FINANCIAL STATEMENTS...............................................6
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners of Interstate Land Investors II Limited Partnership Charlotte, North Carolina
We have audited the balance sheets of Interstate Land Investors II, Limited Partnership (a North Carolina limited partnership) as of December 31, 1999 and 1998 and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 1999. 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 audit.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit 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 the managing general partner, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 2, the general partner has entered into a contract to sell all unimproved land held for appreciation. This sale, if consummated, will occur in the second or third quarter of the year 2000. Subsequent to the sale, if consummated, the Partnership will liquidate. During the fourth quarter of 1999, the Partnership recorded a non-cash charge related to the write-down of its unimproved land to estimated realizable value.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Interstate Land Investors II, Limited Partnership (a North Carolina limited partnership) as of December 31, 1999 and 1998 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles.
Charlotte, North Carolina January 19, 2000
INTERSTATE LAND INVESTORS II, LIMITED PARTNERSHIP BALANCE SHEETS DECEMBER 31,
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1999 1998 ----------- -----------
ASSETS
Unimproved land held for appreciation $ 6,450,000 $ 6,534,310 Cash and cash equivalents 3,443 849 Accounts receivable - related party 17,427 17,427 Interest receivable - related party 22,066 19,800 ----------- -----------
$ 6,492,936 $ 6,572,386 =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES Line-of-credit payable - related party $ 175,000 $ 170,655 Advance from related party 19,754 -- Administrative fees payable - related party 158,442 142,233 Interest payable - related party 55,722 41,646 ----------- ----------- 408,918 354,534 ----------- -----------
PARTNERS' CAPITAL Class A limited partners' interest (authorized, 9,588 units; issued and outstanding, 7,650 units) 6,084,088 6,217,905 Subordinated limited partner's interest 85 88 General partners' capital deficiency (155) (141) ----------- ----------- 6,084,018 6,217,852 ----------- -----------
$ 6,492,936 $ 6,572,386 =========== ===========
See Notes to Financial Statements.
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INTERSTATE LAND INVESTORS II, LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31,
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See Notes to Financial Statements.
- 3 -
INTERSTATE LAND INVESTORS II, LIMITED PARTNERSHIP STATEMENT OF PARTNERS' CAPITAL FOR THE THREE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
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See Notes to Financial Statements.
- 4 -
INTERSTATE LAND INVESTORS II, LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS FOR THE THREE YEARS ENDED DECEMBER 31,
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See Notes to Financial Statements.
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INTERSTATE LAND INVESTORS II, LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS
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NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Interstate Land Investors II, Limited Partnership (the Partnership) is a North Carolina limited partnership formed, on July 26, 1989, to acquire for investment, hold for appreciation and ultimately dispose, without substantial improvements, undeveloped land in York County, South Carolina. The Partnership acquired 97 acres of such land in November 1989, and acquired an additional 48 acres in November 1990. The Partnership shall continue its existence without interruption subject to the terms and conditions set forth in the partnership agreement and the provisions of the Revised Uniform Limited Partnership Act of the State of North Carolina.
Until January 1, 1992, the managing general partner was Performance Investments, Inc. (PII), which is 100% owned by Mr. William Garith Allen and a family member. Mr. Allen and ISC Realty Corporation (ISCR) are also general partners in the Partnership and effective January 1, 1992, assumed the role of co-managing partners. In November 1991, PII consented to the conversion of its interest to that of a Class A limited partner, to become effective January 1, 1992. PII, however, retains the same interest in the Partnership's net profit, losses and distributions as it had as a general partner subject to the same priority of the other Class A limited partners. In December, 1993, upon the approval of 67% of the Class A limited partners' interest and upon meeting certain conditions in the partnership agreement, the partners exercised their one-time right to direct the general partners to sell the property at a price no less than $11,104,839, reduced by the proceeds from any previous sales. The property was to be sold by November, 1994, or at that time Mr. Allen would agree to either (i) purchase the property from the Partnership on such date at the purchase price or, (ii) elect not to purchase the property at the purchase price but instead forfeit his right to receive subordinated returns, withdraw as a general partner and transfer his general partnership interest to ISCR. In 1997 Mr. Allen executed an assignment of his partnership interests and forfeited his right to subordinated returns by the transfer of his interest and PII's interest to ISCR.
The general partners are solely responsible for the day-to-day management and operation of the property. ISCR is responsible for certain administrative functions of the Partnership and beginning in November 1989, is entitled to an annual administrative fee equal to .25% of the cost of the property acquired. Payment of such administrative fee is deferred until the sale of the property and the return of the Class A limited partners' invested capital plus their preferred return, as defined. Any such deferred fee will accrue interest at the prime rate plus 1%. However, because of the uncertainty as to the ultimate collection of this interest, ISCR has elected not to accrue such interest in the Partnership's financial statements.
CASH EQUIVALENTS
For the purposes of the statements of cash flows, the Partnership considers all highly liquid investments having maturities of three months or less to be cash equivalents. At December 31, 1999 and 1998, the Partnership's cash consisted of monies deposited through Wachovia Securities, Inc. (a related company to ISCR) in a money market fund.
UNIMPROVED LAND HELD FOR APPRECIATION
The costs of acquiring land, including related closing and predevelopment costs, are capitalized and will be allocated to cost of sales as sales of the property occur. In the fourth quarter of 1999, the Partnership recorded a write-down of the carrying amount of their property of approximately $84,000 to reflect the general partner's estimate of the property's estimated realizable value.
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INTERSTATE LAND INVESTORS II, LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS
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NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
UNIMPROVED LAND HELD FOR APPRECIATION, CONTINUED
During 1999, the Partnership entered into a contract to sell its primary asset, unimproved land.
ORGANIZATIONAL AND SYNDICATION COSTS
Various expenses and fees paid in connection with organizing the Partnership (including an organizational fee paid to ISCR amounting to $159,000 in 1990 and an additional $66,000 in 1991) have been capitalized and amortized using the straight-line method over a 60-month period. These costs have been fully amortized in prior years. Other fees and expenses related to the sale of limited partnership interests in the Partnership have been classified as syndication costs and include sales commissions paid to Interstate/Johnson Lane Corporation, a related company to ISCR, of $377,644 in connection with the initial offering in 1989 and $116,305 in connection with the secondary offering in 1990.
INCOME TAXES
Items of income or loss of the Partnership are included in the income tax returns of the partners. Accordingly, the Partnership makes no provision for federal and state income taxes.
NET LOSS PER CLASS A LIMITED PARTNERSHIP UNIT
Net loss per weighted average Class A limited partnership unit is calculated based on the loss allocated to such partners without giving consideration to the conversion of PII's general partner interest (see Note 6).
ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
NOTE 2 - UNIMPROVED LAND HELD FOR APPRECIATION
PROVISION FOR WRITE-DOWN OF UNIMPROVED LAND
The general partner periodically reviews the recorded value of its long-lived assets to determine if the future cash flows to be derived from these assets will be sufficient to recover the recorded asset values. During the fourth quarter of 1999, the Partnership recorded a non-cash charge of approximately $84,000, or approximately $11 per limited partnership unit, to write-down its unimproved land to its estimated realizable value.
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INTERSTATE LAND INVESTORS II, LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS
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NOTE 2 - UNIMPROVED LAND HELD FOR APPRECIATION, CONTINUED
POTENTIAL SALE
During the fourth quarter of 1999, the Partnership entered into a contract to sell the Partnership's primary asset, unimproved land, for approximately $6,660,000. The potential purchaser has deposited earnest money with a title agency. Under the terms of the contract, the purchaser has until March 31, 2000 to complete their due diligence, which makes the earliest possible closing date April 20, 2000. After that date, the potential purchaser may either cancel the contract or extend the closing period for four additional thirty (30) day periods by paying additional earnest money for each thirty (30) day extension period.
NOTE 3 - ALLOCATIONS AND DISTRIBUTIONS OF NET PROFITS AND LOSSES
Under the terms of the partnership agreement, net profit and distributions of available cash in each year prior to a sale of the property will be allocated 99% to the Class A limited partners and 1% to the general partners. Net losses shall be allocated among all partners in accordance with their respective capital accounts. Special allocations are provided for any gains or losses arising from the sale of the property and for the related cash distributions.
NOTE 4 - RELATED PARTIES AND RELATED PARTY TRANSACTIONS
In connection with the initial acquisition of the property in 1989, the Partnership paid PII and Gold Hill Investment Associates (a partnership of Gold Hill Limited Partnership and an affiliate of Mr. Allen) a total of $322,207 for the assignment of options to acquire the two tracts of land which comprise the property and for reimbursement of Gold Hill Investment Associates' (Gold Hill) and PII's holding costs in the options (which totaled approximately $126,750). The total cost, along with legal and other acquisition expenses, is included in the land on the accompanying balance sheets.
At December 31, 1999 and 1998, the Partnership had an account receivable from PII of $17,427 plus accrued interest receivable of $22,066 and $19,800, respectively, related to the reimbursement of certain costs incurred in connection with organizing the Partnership and with organization of the property. In connection with the consent entered into in November 1991 (see Note 1), the amount will be offset against any amounts due PII or Mr. Allen in connection with the sale of the property.
In November 1990, the Partnership acquired approximately 48 acres of property from Gold Hill at a purchase price of $1,906,517. The partners of Gold Hill agreed to accept, as part of the purchase price, 533 units of Class A limited partner interests and granted a credit on the purchase price of $495,690, which represents the cost of 533 units at $1,000 per unit less selling commissions.
In 1989, ISCR purchased 106 units of Class A limited partner interests at the full offering price ($1,000 a unit). In 1990, ISCR contributed two-thirds of its fee received for additional organizational costs to purchase 44 Class A limited partner interests at $1,000 per unit. These units are included in Class A limited partners' interest on the balance sheets. Also, the general partners, their affiliates and their employees purchased units of Class A limited partner interests at 3.5% discount. The total discounts amounted to $385 in 1990 and $3,360 in 1989, representing 11 and 66 units, respectively.
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INTERSTATE LAND INVESTORS II, LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS
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NOTE 4 - RELATED PARTIES AND RELATED PARTY TRANSACTIONS, CONTINUED
The Partnership incurred expense of approximately $16,200 in 1999, 1998 and 1997 for services rendered by ISCR in connection with certain administrative functions of the Partnership. Since payment of these fees is deferred as described in Note 1, they are included in accrued administrative fees in the accompanying balance sheets, and as general and administrative expenses in the accompanying statements of operations.
See Note 1 for fees paid to ISCR and its affiliates in connection with organizing the Partnership and the subsequent sale of limited partnership interests.
The Partnership has the same general partners of and owns land adjacent to Interstate Land Investors I Limited Partnership (Interstate I). The property owned by Interstate I is in direct competition with the Partnership's property. No financial statement transactions have occurred between these Partnerships.
NOTE 5 - LINE-OF-CREDIT FROM RELATED PARTY
On May 23, 1995, the Partnership obtained a line-of-credit from ISCR to utilize as needed. Interest is charged on this line-of-credit at 2% above the announced prime lending rate of Bank of America, resulting in a rate of 10.25%, 9.75% and 10.5% at December 31, 1999, 1998 and 1997, respectively. ISCR has received a mortgage and assignment of rents and leases on the property as security. Interest shall accrue on this line-of-credit and shall be paid along with the outstanding principal balance on the earlier of:
o Sale or disposition of all or any portion or part of the property securing the mortgage instrument,
o the date ISCR is removed as managing general partner of the Partnership, or
o the date the Partnership terminates its legal existence.
This agreement with ISCR requires that the Partnership comply with certain covenants, which are not financial in nature.
During the years ended December 31, 1999, 1998 and 1997, interest expense of $4,069, $6,855 and $0 was paid to ISCR.
NOTE 6 - RECONCILIATION OF FINANCIAL STATEMENT NET LOSS TO TAXABLE LOSS
A reconciliation of financial statement and taxable loss is as follows:
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INTERSTATE LAND INVESTORS II, LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS
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NOTE 7 - POTENTIAL LIQUIDATION OF PARTNERSHIP
Should the sale of the unimproved land held for appreciation (see Note 2) be consummated, the Partnership will be liquidated during the year ended December 31, 2000.
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