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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM
____________________________ TO ___________________________
COMMISSION FILE NUMBER: 110-9305
REEVES TELECOM LIMITED PARTNERSHIP
(NAME CHANGED FROM REEVES TELECOM ASSOCIATES)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
SOUTH CAROLINA 57-0700063
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
C/O GRACE PROPERTY MANAGEMENT, INC.
P.O. BOX 163, 55 BROOKVILLE ROAD
GLEN HEAD, NEW YORK 11545
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (516) 686-2201
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON
WHICH REGISTERED
NONE NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON
WHICH REGISTERED
PARTNERSHIP UNITS NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
--- ---
ON MARCH 15, 1997 THE REGISTRANT HAD OUTSTANDING 1,828,248 PARTNERSHIP UNITS.
SEE ITEM 5. THERE IS NO ACTIVE MARKET FOR THE PARTNERSHIP UNITS. WITH REGARD TO
RECENT SALES SEE ITEM 5. AS OF MARCH 15, 1997, NON-AFFILIATES HELD 1,187,903
PARTNERSHIP UNITS.
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PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Reeves Telecom Limited Partnership (the "Registrant" or the
"Partnership") is a South Carolina Limited Partnership formed for the purpose of
accepting certain assets and liabilities from its predecessor corporation,
Reeves Telecom Corporation (the "Corporation"). The Corporation sold its
principal assets during the twelve month period ended May 15, 1980 and
distributed cash and the limited partnership units of the Registrant to its
former shareholders as a liquidation distribution. The partnership units were
registered under the Securities Act of 1933 by the filing of a Registration
Statement pursuant to Form S-14 (File No. 2-66452) which became effective April
8, 1980 and pursuant to which a Proxy statement/prospectus dated April 14, 1980
was mailed to all shareholders. Reference is made to said Registration Statement
and said Proxy statement/prospectus for a description of the liquidation of the
Corporation and the formation of the Registrant. The Registrant was initially
organized October 25, 1979 but had only nominal assets and no liabilities until
May 15, 1980. To reflect a change in South Carolina law, Registrant's name was
changed from Reeves Telecom Associates to Reeves Telecom Limited Partnership on
January 21, 1987.
(b) GENERAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Partnership's business may be categorized into two industry
segments: (i) owning, developing, selling, leasing, or otherwise dealing in real
estate, and (ii) owning and operating a golf course and country club. See the
audited financial statements for financial information about each segment.
(c) NARRATIVE DESCRIPTION OF BUSINESS
The principal assets of the Partnership since inception have consisted
of real estate for development located in two sites: Boiling Spring Lakes, in
Brunswick County, North Carolina; and Pimlico Plantation, in Berkeley County,
South Carolina. The Partnership also owns and operates a golf course and country
club in Boiling Spring Lakes, North Carolina (see Item 2, "Properties").
Prior to mid-1993, in view of limited resources, Management
concentrated on holding down costs and focused on a bulk sale of all or
substantially all of the assets of the Partnership. Local real estate brokers
were relied upon to generate individual lot sales, and the golf course and
country club were leased to an operator. Under this arrangement, lot sales were
slow and operating expenses generally significantly exceeded revenue from such
sales. Were it not for cash
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generated from activities other than the sale of real estate during recent
years, the Partnership would likely have become insolvent.
In June 1993, Management began to place greater emphasis on the sale of
individual lots at both locations and pursued other means of generating revenue.
In addition, the Partnership became increasingly involved in the management and
operation of the golf course and country club.
BOILING SPRING LAKES
LOT SALES
Lots sold during the last five fiscal years are as follows:
NUMBER OF LOTS PROCEEDS
-------------- --------
Fiscal 1996 51 $ 463,051
Fiscal 1995 37 209,055
Transition Quarter 6 27,075
Fiscal 1994 37 314,548
Fiscal 1993 15 101,665
Fiscal 1992 5 8,101
The Transition Quarter is the three month period from October 1, 1994
to December 31, 1994 and reflects the change in the Partnership's fiscal year
end from September 30 to December 31 (see Item 6, "Selected Financial Data").
Accordingly, the above figures, and the figures contained in all tables in this
Item 1, for Fiscal 1995 and Fiscal 1996 are for the twelve months ended
December 31 of each such year and the figures for prior fiscal years are for the
twelve months ended September 30 of each such year.
Management attributes the increase in the number of lots sold and
revenue from sales in 1993 and subsequent years over prior years to a greater
flexibility in the Partnership's pricing structure of lots and to generally
improved economic conditions in the region.
FOX SQUIRREL COUNTRY CLUB
The Registrant is the owner of Fox Squirrel Country Club ("Fox
Squirrel"). Fox Squirrel's 18 hole golf course serves, along with numerous
recreational lakes and ponds, as the centerpiece of the Boiling Spring Lakes
development.
Prior to October 1993, Fox Squirrel was leased to an operator. The
Partnership paid the operator a subsidy, which eventually ceased, and beginning
in July 1990 the Partnership began
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receiving monthly rental payments of $1,000. During 1992, the monthly rent was
increased to $1,500 and the Partnership assumed certain operating expenses.
Because of unfavorable operating conditions, however, the operator fell behind
in payments. In October 1993, at the request of the operator and to ensure
uninterrupted operation of the golf course and country club, the Partnership
began operating Fox Squirrel, receiving all revenue and paying all expenses
relating thereto, and the operator became an employee of the Partnership,
managing Fox Squirrel on behalf of the Partnership. In November 1995, the
Partnership hired a new manager and golf pro of Fox Squirrel, replacing the
former manager, who resigned. The new manager also leases the kitchen and dining
area in the club house from the Partnership. To enable the new dining service to
become financially established, lease payments on the kitchen and dining area
were waived through 1997. In addition, the Partnership paid for certain
improvements to and remodeling of the kitchen and dining area.
Management views Fox Squirrel as being highly important to the success
of the development. Its attraction as a recreational facility to those who are
considering purchasing or building a home in the region is believed to allow for
more lot sales and a higher sales price per lot than would be the case in the
absence of such a facility. As a consequence, Management currently expects to
continue operating Fox Squirrel.
The Partnership's revenue and operating income from Fox Squirrel for
the last five fiscal years are as follows:
OPERATING
REVENUE INCOME (LOSS)
------- -------------
Fiscal 1996 $358,580 $ 8,126
Fiscal 1995 340,699 41,522
Transition Quarter 68,189 (13,269)
Fiscal 1994 345,737 44,175
Fiscal 1993 10,000 10,000
Fiscal 1992 9,000 9,000
As previously described, the Transition Quarter is the three month
period from October 1, 1994 to December 31, 1994 and reflects the change in the
Partnership's fiscal year end from September 30 to December 31 beginning with
Fiscal 1995.
The increase in revenue and variability in operating income in Fiscal
1994 and subsequent years over prior years is attributable to the Partnership
assuming operating responsibility for Fox Squirrel on October 1, 1993 and
reflects the actual operations of Fox Squirrel. Prior to 1994 a base rent was
collected from the operator under a lease with the Partnership. Accordingly,
revenue and operating income after 1993 are not directly comparable to prior
years.
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OTHER
The Partnership has generated revenue from the sale of timber on
certain unsold lots. While additional revenue from tree cutting continues to be
sought as a means of supplementing revenue from lot sales, Management believes
that tree cutting will not be a source of substantial revenue during the next
fiscal year and cannot be considered a source of on-going revenue in future
years. The amount of revenue generated during the last five fiscal years is as
follows:
REVENUE
-------
Fiscal 1996 $ 12,866
Fiscal 1995 35,920
Transition Quarter 15,381
Fiscal 1994 91,611
Fiscal 1993 202,830
Fiscal 1992 -0-
As previously described, the Transition Quarter is the three month
period from October 1, 1994 to December 31, 1994 and reflects the change in the
Partnership's fiscal year end from September 30 to December 31 beginning with
Fiscal 1995.
During the past 20 years, health standards at Boiling Spring Lakes have
become increasingly stringent regarding septic tanks and on-site sewage
disposal. It is estimated that 70% to 75% of the property which would have
complied with applicable rules and regulations a number of years ago no longer
meets present day health standards. This has had a detrimental effect on the
operations of the Partnership. In a few cases the problem could be cured by the
use of drains, or by the scraping away of hard pan and adding fill dirt. In most
instances, however, health departments have declared a majority of the areas as
irremediable by ordinary measures. In such cases, the only solution would be to
install area-wide sewer systems. While the Partnership does not have the
resources to install a sewer system throughout the development, Management is
investigating the possibility of installing sewer systems in certain sections of
the development and has undertaken preliminary work on the installation of a
small, multi-user system in a portion of the development.
PIMLICO PLANTATION
Lots sold during the last five fiscal years are as follows:
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NUMBER OF LOTS PROCEEDS
-------------- --------
Fiscal 1996 -0- $ -0-
Fiscal 1995 -0- -0-
Transition Quarter -0- -0-
Fiscal 1994 23 202,075
Fiscal 1993 3 29,266
Fiscal 1992 5 40,907
As previously described, the Transition Quarter is the three month
period from October 1, 1994 to December 31, 1994 and reflects the change in the
Partnership's fiscal year end from September 30 to December 31 beginning with
Fiscal 1995.
Pursuant to a letter agreement dated September 14, 1993 and amended on
November 22, 1993, the Partnership transferred 23 lots to a major unit holder in
exchange for $10,000 cash and 492,584 partnership units held by such unit
holder. The transaction closed on December 15, 1993 and is valued by the
Partnership at $202,075. See Item 12, "Security Ownership of Certain Beneficial
Owners and Management." The Partnership currently owns only two lots for sale in
Pimlico Plantation. Accordingly, revenue from the sale of lots in Pimlico
Plantation in future years is expected to represent, at best, a negligible
percentage of total revenue.
SEASONALITY
The sale of real estate in North and South Carolina is seasonal. The
Partnership has generally experienced slower than average lot sales in the
period from November to January, inclusive.
Although played year-round, depending upon the climate and weather,
golf is by and large a summer sport. Accordingly, revenue at Fox Squirrel is
generally highest in the period from June to September, inclusive. Revenue is
generally lowest in the period from November to February, inclusive, when
extensive seeding and course repair work is usually performed.
DEPENDENCE UPON CUSTOMERS
The Partnership is not dependent in any respect upon one or a few
customers, the loss of any one of which might significantly affect the financial
results of the Partnership.
COMPETITION
The real estate markets in Brunswick County, North Carolina and
Berkeley County, South Carolina are extremely competitive. Prospective
residential property owners may buy from real
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estate developers, who generally sell lots suitable for building but who may
also sell improved properties, existing homeowners looking to relocate, and
others. Property values are dependent upon, among other factors, proximity to
and the nature and quality of recreational facilities, retail shopping,
commercial sites and schools, and the availability of county water (as opposed
to well water) and sewer service (as opposed to septic systems).
Many real estate developments in the two markets in which the
Partnership operates provide recreational facilities, such as a golf course,
lakes and/or swimming pools, and tennis courts. In many cases, depending upon
the financial resources of the particular developer, such facilities are more
extensive and/or more varied than the Partnership's facilities. Within a radius
of 100 miles of Boiling Spring Lakes are several golf courses designed by world
famous golf course designers, some of which serve as the site of significant
professional golf tournaments, as well as numerous golf courses in and
surrounding the resort community of Myrtle Beach, South Carolina. Lots
associated with such facilities generally command higher sales prices than lots
owned by the Partnership. Management believes that the Partnership can compete
effectively against other real estate developers and golf course operators, many
of whom are believed to have substantially greater resources than the
Partnership, principally on the basis of price and, depending upon the amount of
cash generated from lot sales, by making selective improvements to recreational
facilities, including Fox Squirrel.
LIQUID ASSETS AND RESERVES
As of December 31, 1996, the Partnership held $133,919 in cash. Current
liabilities as of this date totaled $997,568.
The Partnership Agreement obligates the General Partner to distribute
Distributable Cash (as such term is defined in the Partnership Agreement).
Distributable Cash excludes, among other items, reserves established for working
capital, contingent liabilities, taxes, debt service, repairs, replacements,
renewals, capital expenditures or other purposes consistent with the Partnership
Agreement. Such reserves are used solely for calculating Distributable Cash and
are not treated as deductions from income for accounting purposes. During the
first quarter of Fiscal 1994, a reserve of $100,000 was established to fund
certain capital expenditures, including, among others, construction of a new
maintenance shed at the golf course and re-roofing of the Fox Squirrel
clubhouse. Also in 1994, the Partnership established a reserve of $20,000 to
fund the initial portion of a regional marketing campaign, one aspect of which
involves the construction of one or more model homes. In Fiscal 1995 a reserve
of $250,000 was established to fund primarily certain capital improvements at
Fox Squirrel. In Fiscal 1996, reserves totaling $200,000 were established to
fund, principally, certain capital improvements at Fox Squirrel and initial
development costs of certain capital projects within the general development.
See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," for further discussion of factors
affecting liquidity.
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ITEM 2. PROPERTIES
BOILING SPRING LAKES
Boiling Spring Lakes began as a 14,000 acre development which was
commenced by the Corporation in 1962. Part of the tract is now within the
incorporated town of Boiling Spring Lakes, which has approximately eighteen
hundred residents. The town is in Brunswick County, 25 miles south of
Wilmington, North Carolina, and 8 miles west of Southport.
The Registrant presently owns the following real estate: (1) 159.9
acres comprising a surveyed 18 hole sprinklered golf course, club house and
maintenance building, together known as Fox Squirrel; (2) 145 building lots
located near the golf course which have been surveyed and platted and are
suitable for building; (3) 194 acres surrounding the golf course which could be
developed; (4) 3,319 surveyed and platted lots of which approximately 8% are
suitable for building, 6% are conditionally suitable for building and the
balance are unsuitable for building; (5) approximately 4,000 acres of wetlands
and woodlands which have no development potential; and (6) a sales office.
During 1988, the Partnership reduced the carrying value of the Boiling
Spring Lakes property as a result of an appraisal obtained in December 1988 (see
Note 3 of financial statements). During 1993 and 1995 the Partnership received
updated appraisals of the Boiling Spring Lakes property. Based upon the updated
appraisals, no additional reduction to the carrying value was made.
Management intends to emphasize the sale of individual lots at Boiling
Spring Lakes, concentrating first on lots situated on existing paved roads.
Depending upon the Partnership's financial resources, cost estimates, and
projected sales prices, among other things, Management may undertake the
development of additional sections of Boiling Spring Lakes.
During 1995, the Partnership undertook certain improvements to Fox
Squirrel, including paving of the 25,360 linear feet of cart paths. During 1996,
the Partnership undertook substantial remodeling of the kitchen and dining area
of the club house and made further improvements to the golf course. Depending
upon the Partnership's financial resources, revenues from Fox Squirrel, and cost
estimates, among other things, Management may undertake additional improvement
projects at Fox Squirrel.
In December 1995, Management initiated a pilot project involving the
construction of a house on a lot owned by the Partnership and the immediate
marketing of the house and lot for sale. In January 1996 the Partnership
obtained from a local bank a line of credit of $85,000 to finance the
construction of the house. The house was sold in June 1996 and the outstanding
borrowing under the line of credit was repaid, resulting in a profit to the
Partnership greater than would have been the case if the vacant lot alone had
been sold. In October 1996 the project was continued by starting the
construction of a second house for sale and borrowing under the line
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of credit totaled approximately $83,000 at year end. In February 1997 a contract
for the property was signed and a cash downpayment received by the Partnership.
The sale was closed in March 1997 and resulted in a profit to the Partnership
greater than would have been the case if the vacant lot alone had been sold.
Management may undertake similar projects on a limited basis during Fiscal 1997.
In March 1997 the Town of Boiling Spring Lakes granted its approval for
the construction of several patio homes on contiguous lots owned by the
Partnership. Construction is expected to commence on the first patio home in May
1997 and Management expects that additional homes will be started as completed
homes are sold.
PIMLICO PLANTATION
Following the exchange described in Item 1(c), "Narrative Description
of Business: Pimlico Plantation," the Registrant owns two lots, comprising an
aggregate of approximately 3/4 acre, in this location in Berkeley County, near
Charleston, South Carolina. Pimlico Plantation was developed by the Corporation
and its predecessors. The Registrant is actively marketing these lots through
local real estate brokers.
ITEM 3. LEGAL PROCEEDINGS
The Partnership is not a party to any material pending legal
proceedings. From time to time the Partnership has been and may become a party
to ordinary routine litigation incidental to its business. Management believes
that the potential liability to the Partnership from any of such proceedings is
immaterial.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF UNIT HOLDERS
No matters were submitted to a vote of unit holders during Fiscal 1996.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S PARTNERSHIP UNITS AND RELATED SECURITY MATTERS
As of December 31, 1996 there were 1,335 recorded holders of
partnership units, which has remained substantially unchanged since December 31,
1995. The units are not registered on any exchange, and there is only a limited
over-the-counter market for the units. It is not anticipated that there will
ever be an active public market for the units.
It is the Partnership's experience that revenues are highly variable
and may not be sufficient in future years to cover expenses and necessary
capital expenditures and that, in the absence of enhanced prospects for the
development as a whole, a bulk sale of assets for cash is extremely difficult
to achieve. Management believes that the best use of the current surplus of
cash generated from operations in 1996 and cash surpluses, if any, generated
in the next few fiscal years is to improve the overall value of the
Partnership's assets by (i) making certain improvements at Fox Squirrel,
thereby increasing the attractiveness of Fox Squirrel as a recreational
facility to prospective homeowners, (ii) undertaking certain infrastructure
and other improvements in the development, (iii) undertaking on a limited
scale home construction on lots owned by the Partnership to demonstrate the
viability of larger scale building programs, and (iv) paying down accrued
expenses. Management believes that this plan will, in future years, result in,
among other things, an increase in the number of lots sold, a higher average
sales price per lot, and higher operating income at Fox Squirrel and the
Partnership as a whole. There can be no assurance, however, that sufficient
cash will be generated from operations to successfully implement Management's
plan.
Consistent with such plan and in view of the costs associated with a
distribution to all partners, Management believes it would be impractical and
imprudent to make a general distribution prior to the sale of a major asset, the
bulk sale of all or substantially all of the Partnership's assets, or such time
as the Boiling Spring Lakes development, as a whole, has been established to
operate at a level sufficient to consistently generate revenues in excess of
expenses and capital expenditures. However, from time to time in future periods,
in accordance with applicable Securities laws, the Partnership may utilize
excess cash by repurchasing partnership units, either in privately negotiated
transactions or through open market purchases. Since the amount of excess cash
available for such purpose cannot be estimated at this time due to the highly
variable nature of the Partnership's cash flow, there can be no assurance as to
the number of partnership units which will actually be repurchased, if any such
repurchases will, in fact, occur, or the prices at which such repurchases, if
any, will be made. As of the date of this Form 10-K, no filings have been made
with the Securities and Exchange Commission with respect to any such planned
repurchases.
ITEM 6. SELECTED FINANCIAL DATA
Since the Registrant is a liquidation partnership, the current
operations and financial status
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cannot meaningfully be compared to the activities of its predecessor in
interest, Reeves Telecom Corporation. Further, the Registrant believes that a
short summary of only a few financial items would not be meaningful since this
is not a typical operating entity. The Registrant recommends that unit holders
review the audited financial statements and notes set forth in this report.
The Partnership's fiscal year end was changed from September 30 to
December 31 beginning with 1995. For financial reporting purposes, a transition
quarter, covering the period from October 1, 1994 to December 31, 1994, was
employed. The change in fiscal year end reflects Management's desire to avoid
having to make certain deposits to the U.S. Internal Revenue Service (the "IRS")
required by Code Section 7519 and the regulations thereunder of the Internal
Revenue Code of 1986, as amended (the "Code"). The Code requires that any
limited partnership having a fiscal year end other than December 31 and which
generates income taxable to its partners during any fiscal year make such a
deposit in respect of such fiscal year. By changing its fiscal year end to
December 31, the Partnership was able to reclaim $9,481 held on deposit by the
IRS for income deferred through September 30, 1993. Furthermore, the Partnership
will not be required to make future deposits in the event that income taxable to
its partners is generated in the current or future years, although there can be
no assurance that the Partnership will, in fact, generate such income.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the audited
financial statements of the Partnership and the notes thereto, included
elsewhere in this Form 10-K.
The Partnership has continued to liquidate its assets through real
estate sales. In the past, Management concentrated its efforts on effecting a
bulk sale of the Partnership's real estate holdings to a single buyer. It is
Management's current belief, however, that in the absence of enhanced prospects
for the development as a whole, a bulk sale of assets for cash is extremely
difficult to achieve. In June 1993, Management began to place greater emphasis
on the sale of individual lots and pursued other means of generating revenue.
For the 12 months ended December 31, 1996 and 1995, the number of lots
sold were 51 and 37, respectively, and revenues from such sales were $463,051
and $209,055, respectively. Results for 1996 include the sale of a 400 acre
parcel for $85,000. Except for such sale, revenue from the sale of lots in 1996
was $378,051. Management attributes the increase in revenue principally to
generally improved market conditions in the region and to a more favorable mix
of lots sold as to location and asking price. Individual lots adjacent to or
near the golf course, for example, generally command a higher asking price than
lots which are not so situated. Lots sold during 1996 were generally located
nearer to the golf course than lots sold during 1995.
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Revenues from Fox Squirrel for Fiscal 1996 and 1995 were $358,580 and
$340,699, respectively. Increased revenues from cart rentals and dues more than
offset declines in greens fees and other revenues. Revenue from the sale of
concessions was $0 in 1996 compared to $23,839 in 1995. This decline is due to
the decision in 1995 to lease the dining service to an operator rather than have
the Partnership continue to operate the service. To assist the operator in
establishing his business, the Partnership has waived lease payments on the
kitchen and dining area through 1997. As a further means of assisting the dining
service, Fox Squirrel collected revenues in 1996 through a one-time imposition
of a "food minimum" from members, whereas no such revenue was collected in 1995.
The Partnership's operating expenses for 1996, exclusive of those
relating to Fox Squirrel, were $432,767 compared to $293,277 in 1995. Management
attributes the increase principally to a higher fee charged by the general
partner, higher compensation in the form of incentive bonuses paid to employees,
and higher accounting and administrative expenses relating to the transition of
the Partnership's fiscal year end from September 30 to December 31 effective
1995.
Selling, general and administrative expenses at Fox Squirrel were
$350,454 for 1996 as compared to $299,177 for 1995. Management attributes the
increase in expenses principally to increased maintenance-related expenditures,
much of which was of a deferred nature, relating to the golf course. Management
expects that maintenance-related expenditures in 1997 will be less than in 1996.
Expenses related to concessions declined to $0 in 1996 from $15,695 in 1995,
reflecting the decision to lease the dining service to an operator. However,
1996 saw payment of money to the dining service operator collected from the
"food minimum" whereas there were no such payments in the prior year. Expenses
in 1996 relating to equipment rental were higher than in 1995 due to the
replacement of certain aged equipment with leased equipment. Advertising and
telephone expenses were higher in 1996 than in 1995, reflecting an intensified
marketing campaign to attract golfers to Fox Squirrel.
Direct cost of land sold decreased due to a modification of the formula
utilized to determine the cost basis of land sold. Depreciation increased as a
result of capital expenditures made in 1995, especially with respect to the cart
paths. Interest expense increased in part due to capital leases entered into
during 1996 for certain golf course maintenance equipment which replaced
obsolete equipment owned by Fox Squirrel, and in part due to interest charged by
the general partner and its affiliates on accrued but unpaid expenses
outstanding.
During 1996, the Partnership earned $12,866 in revenue from the sale of
timber on certain unsold lots and unplatted woodlands, compared to $35,920 in
the prior year. The decrease reflects a reduction in the number of trees
suitable for cutting. While additional revenue from tree cutting will be sought
as a means of supplementing revenue from lot sales, Management believes that
tree cutting will not be a source of substantial revenues during 1997 and cannot
be considered a source of on-going revenue in future years.
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The operation of Fox Squirrel added $300,000 to $400,000 in annual
revenue and $300,000 to $350,000 in annual operating expenses over 1993's level
. Revenues from the golf course are highly dependent upon weather conditions.
Since adverse weather may significantly reduce revenues while expenses may not
be reduced as quickly, nor as greatly, as needed to prevent Fox Squirrel from
incurring a deficit in the future, there can be no assurance that the
Partnership will realize a profit at Fox Squirrel or that the Partnership will
realize a positive return on its investment in improvements at Fox Squirrel.
Furthermore, the Partnership's other overhead costs remain and there can be no
assurance that revenues from lot sales can be supplemented from revenues from
tree cutting or other sources. Based upon current cash requirements, it is
apparent that revenues from lot sales and income from Fox Squirrel may be
inadequate in future years to cover operating expenses and commitments for
capital expenditures.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14, "Exhibits, Financial Statement Schedules, and Reports on
Form 8-K," for response to this item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In January and February 1997 the Partnership sought bids from certain
nationally recognized accounting firms, including the then current auditor, KPMG
Peat Marwick LLP for auditing the Partnership's financial statements for Fiscal
1996. In February 1997, the Partnership changed auditors from KPMG Peat Marwick
LLP to Coopers & Lybrand LLP. The change was not as a result of any
disagreements with KPMG Peat Marwick LLP on account and financial disclosure.
There have been no such disagreements between the Partnership and Coopers &
Lybrand LLP.
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PART III
Item 10. Directors and Executive Officers of the Registrant
(a) Identification of General Partner
Principal occupation
Period of past five years-
service as a business experience
General and other
Partner previous
Name Age commenced Directorships
---- --- --------- -------------
Grace Property N/A May 15, 1980 A Delaware
Management, Inc. corporation engaged
in the business of
real estate
management. It is
owned 50% by the
Bank of Butterfield
Executor & Trustee
Company, as
trustee for John S.
Grace, and 50% by
the Estate of Oliver
R. Grace, Mr.
Grace being a
former director of
Registrant's
predecessor.
(b) INDEMNIFICATION OF EXECUTIVE OFFICERS
None
ITEM 11. EXECUTIVE COMPENSATION
NAME CAPACITY GENERAL PARTNER'S FEES
- ---------------------------------------- -------------------- ----------------------
Grace Property Management, Inc. General Partner $ 150,000
Mr. Ralph McDermid resigned as a General Partner effective June 1,
1994. The amount
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of General Partner's fees accrued for Fiscal 1994 for Mr. McDermid was $16,000.
Pursuant to a letter agreement dated August 6, 1994 between Mr. McDermid and the
Partnership, the Partnership paid Mr. McDermid $50,000 in September 1994 and
$50,000 in September 1995 in lieu of $147,000 in accrued but unpaid General
Partner's fees owed to Mr. McDermid as of June 1, 1994.
The Registrant has no on-going plan or arrangement with respect to
future remuneration to Grace Property Management other than to accrue interest
on the unpaid balance due to Grace Property Management. Except for a $25,000
payment in April 1990 and except as discussed in the preceding paragraph, the
General Partners' fees have not been paid since January 1986, although they have
been provided for in the accompanying financial statements. As of December 31,
1996, the fees accrued but not paid to Grace Property Management in respect of
General Partner's fees totaled $456,000. The Registrant has no group life
insurance plan. The Registrant has no pension or profit sharing plan but does
provide for incentive bonus compensation to certain managerial employees for
meeting or exceeding pre-designated budget targets. The Registrant has no
options, warrants, or appreciation rights outstanding. No Management person is
indebted to the Registrant.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1996, the Partnership has outstanding 1,828,248
partnership units. Information with respect to the principal holders of record
known to the Partnership to beneficially own more than five (5%) percent of the
outstanding voting securities is set forth below.
NAME AND ADDRESS AMOUNT AND NATURE
OF BENEFICIAL OF BENEFICIAL PERCENT OF
OWNER OWNERSHIP CLASS
------------------------- -------------------------- --------------
Estate of Oliver R. Grace 436,480 units are owned 23.9%
515 Madison Avenue by the Estate of Oliver R.
20th Floor Grace, Mr. Grace's widow
New York, NY 10022 and a company he formerly
controlled(1)
The General Partner owns 25,000 partnership units, representing
approximately 1.4% of all units issued and outstanding.
- ------------------
(1)The Estate of Oliver R. Grace beneficially owns 436,480 units
(including 44,750 units held in trusts of which the Estate of Oliver R. Grace is
the trustee). In addition, other members of the family beneficially own an
additional 203,865 units, which represents approximately 11.2% of the units
outstanding. The Estate of Oliver R. Grace disclaims beneficial ownership with
respect to these additional units as well as the 44,750 units held in certain
trusts.
14
16
In December 1995, following an unsolicited offer from a securities
broker-dealer to sell all of the units it owned to Mr. John S. Grace, the
president of the General Partner, an agreement was reached among Mr. Grace, the
Partnership, and such broker-dealer which provided for, among other things: (i)
a fifteen-year "standstill" by such broker-dealer; (ii) the purchase by Mr.
Grace from such broker-dealer of 22,160 units, representing all of the units
then held by such broker-dealer, for aggregate consideration of $5,540.00,
equivalent to $0.25 per unit; and (iii) the allocation of the consideration per
unit as being $0.10 for the standstill covenant and $0.15 for the purchase
price.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1995 the Partnership borrowed $200,000 from Mr. John S. Grace, president
of the General Partner, in the form of a promissory note. The note bears
interest at a rate equal to 6% over 12-month LIBOR (12.375% at December 31,
1996), requires quarterly interest payments, and is due on June 1, 1998. The
Partnership may repay any or all of such note without penalty. During 1996, the
Partnership paid $18,600 in interest on such note and at various times
throughout the year made pre-payments of principal totaling, in aggregate,
$60,000. In March 1997 the Partnership pre-paid an additional $10,000 in
principal and paid $3,300 in interest. During 1995, the Partnership paid
$14,000 in interest on such note and pre-paid $30,000 in December 1995.
For fiscal years 1996, 1995 and 1994, the General Partners elected to
charge the Partnership for services and office space. These charges include
$10,000 in 1996, $10,000 in 1995, and $38,000 in 1994 for legal services and
$15,000 in each of 1996, 1995 and 1994 for rent on office space used by various
members of the Partnership's management. The General Partners fees were
$150,000, $60,000 and $60,000, for 1996, 1995 and 1994, respectively (see Item
11, "Executive Compensation"). In 1996 the General Partner and its affiliates
charged the Partnership interest totalling $201,245, representing cumulative
interest at an annual rate of 10% on the unpaid balances owed them by the
Partnership since 1993. Such interest included $71,208 with respect to 1996,
$51,292 with respect to 1995, $10,863 with respect to the Transition Quarter,
and $37,797 with respect to 1994. These charges have been included in selling,
general and administrative expenses. On January 5, 1994 and September 30, 1994,
$45,463 and $15,000, respectively, of accrued rent was paid to an affiliate of
the General Partner.
To fund certain capital expenditures and for working capital purposes,
on August 22, 1994, the Partnership sold 25,000 partnership units to Grace
Property Management, Inc., the General Partner, for an aggregate of $10,000, or
$0.40 per unit.
The Partnership paid a former General Partner $50,000 during 1994 and
an additional $50,000 to September 30, 1995 in lieu of accrued but unpaid
General Partner's fees due to him. See Item 11, "Executive Compensation."
Except for the preceding items, there were no other transactions
between Management (or
15
17
the immediate families of Management) and the Registrant during the fiscal year
ended December 31, 1996 or thereafter. Further, there were no other related
party transactions and there existed no indebtedness to the Registrant from
Management (or any member of the immediate family of Management.)
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
(a)(1) INDEX TO FINANCIAL STATEMENTS
The following financial information is contained within
Exhibit 1, "Audited Financial Statements:"
Page
----
Report of Independent Acountants F-1
Balance Sheets at December 31, 1996 and 1995 F-2
Statements of Operations for the fiscal years ended December
31, 1996, 1995 and September 30, 1994 and the three months
ended December 31, 1994 F-3
Statements of Partners' Capital for the fiscal years ended
December 31, 1996, 1995 and September 30, 1994 and the three
months ended December 31, 1994 F-4
Statements of Cash Flows for the fiscal years ended December
31, 1996, 1995 and September 30, 1994 and the three months
ended December 31, 1994 F-5
Notes to Financial Statements F-6
(a)(2) INDEX TO FINANCIAL SCHEDULES
All schedules required are either contained within the Notes
to Financial Statements included in Exhibit 1 or are not applicable.
(a)(3) EXHIBITS
A. The Limited Partnership Agreement of Reeves Telecom
Associates sets forth the rights of unit holders. It has been previously filed
as Exhibit B to Amendment No.2 to
16
18
Registrant's Registration Statement on Form S-14 dated March 28, 1980
(Registration No.2-66452), which Agreement is incorporated herein by reference.
B. The Robert C. Cantwell IV, MAI appraisals of the Boiling
Spring Lakes property dated 12/21/88, 7/17/84, and 2/23/82, which were filed as
a part of Form 10-K for September 30, 1988 and which are incorporated herein by
reference.
C. The Robert C. Cantwell IV, MAI appraisal of the Boiling
Spring Lakes property dated September 10, 1993, which appraisal was filed as
part of Form 10-K for September 30, 1993 and which is incorporated herein by
reference.
D. The Robert C. Cantwell IV, MAI appraisal of the Boiling
Spring Lakes property dated July 10, 1995, which was filed as Exhibit 3 to the
Form 10-K for December 31, 1995 and which is incorporated herein by reference.
(b) REPORTS ON FORM 8-K
No current reports on Form 8-K were filed during the fourth
quarter of the fiscal year ended December 31, 1996.
17
19
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.
REEVES TELECOM LIMITED PARTNERSHIP
Signatures Title Date
By: Grace Property
Management, Inc. General Partner April 11, 1997
--------------
By: /s/ JOHN S. GRACE
---------------------
John S. Grace
President
18
20
EXHIBIT 1
Audited Financial Statements
21
REEVES TELECOM LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995,
AND SEPTEMBER 30, 1994, AND FOR THE
THREE MONTHS ENDED DECEMBER 31, 1994
22
REEVES TELECOM LIMITED PARTNERSHIP
INDEX
PAGE(S)
Report of Independent Accountants 1
Financial Statements
Balance Sheets as of December 31, 1996 and 1995 2
Statements of Operations for the years ended December 31,
1996, 1995 and September 30, 1994, and for the three months
ended December 31, 1994 3
Statements of Partners' Capital for the years ended December 31,
1996, 1995, and September 30, 1994, and for the three months
ended December 31, 1994 4
Statements of Cash Flows for the years ended December 31,
1996, 1995, and September 30, 1994, and for the three months
ended December 31, 1994 5
Notes to Financial Statements 6 - 12
23
[COOPERS & LYBRAND LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
The Partners
Reeves Telecom Limited Partnership
We have audited the balance sheet of Reeves Telecom Limited Partnership (the
"Partnership") as of December 31, 1996, and the related statements of
operations, partners' capital and cash flows for the year then ended. 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 audit 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
Partnership's management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides 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 the Partnership as of December
31, 1996, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 10 to the
financial statements, the Partnership's recurring losses from operations and
liquidity position raise substantial doubt about the entity's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 10. The financial statements do not include any
adjustments relating to the recoverability and classification of reported asset
amounts or the amounts and classification of liabilities that might result
should the Partnership be unable to continue in existence.
/s/ Cooper & Lybrand L.L.P
Raleigh, North Carolina
March 27, 1997
24
REEVES TELECOM LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 1996 and 1995
ASSETS 1996 1995
Current assets - cash and cash equivalents $ 133,919 $ 73,860
Land held for sale and related buildings and equipment, net 1,037,678 910,183
Other assets -- 1,201
---------- ----------
$1,171,597 $ 985,244
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued expenses $ 73,061 $ 68,933
Accrued expenses, affiliates 827,876 458,300
Current maturities of long-term debt 96,631 4,234
---------- ----------
Total current liabilities 997,568 531,467
---------- ----------
Long-term debt, less current maturities 153,641 172,945
Partners' capital - issued and outstanding
1,828,248 and 1,828,258 units at December 31, 1996 and 1995,
respectively 20,388 280,832
---------- ----------
$1,171,597 $ 985,244
========== ==========
The accompanying notes are an integral part of the financial statements.
2
25
REEVES TELECOM LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
THREE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1996 1995 1994 1994
----------- ----------- ----------- -----------
Revenues:
Land sales $ 463,051 $ 209,055 $ 27,075 $ 516,623
Profit on land sales recognized
under installment method -- 6,599 -- 1,000
Country Club revenue 358,580 340,699 68,189 345,737
Interest income and finance
charges 3,756 2,281 593 4,305
----------- ----------- ----------- -----------
825,387 558,634 95,857 867,665
----------- ----------- ----------- -----------
Expenses:
Direct costs of land sold 40,201 95,992 13,900 184,450
Selling, general and
administrative expenses of
Country Club 350,454 299,177 81,458 301,562
Selling, general and
administrative expenses 432,767 293,277 54,317 357,536
Depreciation 50,756 39,190 6,566 13,276
Interest 225,200 14,627 -- 691
----------- ----------- ----------- -----------
1,099,378 742,263 156,241 857,515
----------- ----------- ----------- -----------
Operating income (loss) (273,991) (183,629) (60,384) 10,150
Other income (expense):
Timber sales 12,866 35,920 15,381 91,611
Gain (loss) on disposal of fixed
assets 681 -- -- (29,850)
Miscellaneous -- 7,765 -- 36,939
----------- ----------- ----------- -----------
13,547 43,685 15,381 98,700
----------- ----------- ----------- -----------
Net income (loss) $ (260,444) $ (139,944) $ (45,003) $ 108,850
=========== =========== =========== ===========
Income (loss) per partnership
unit $ (.14) $ (.08) $ .00 $ .06
=========== =========== =========== ===========
Weighted average partnership
units outstanding 1,828,248 1,828,258 1,828,258 1,906,366
=========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements.
3
26
REEVES TELECOM LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
THREE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1996 1995 1994 1994
--------- --------- --------- ---------
Partners' capital at beginning of
period $ 280,832 $ 420,776 $ 465,799 $ 539,004
Net income (loss) (260,444) (139,944) (45,003) 108,850
Repurchase of partnership units
(492,584 units at cost of $.39
per unit ) -- -- -- (192,075)
Sale of partnership units (25,000
units at $.40 per unit) -- -- -- 10,000
--------- --------- --------- ---------
Partners' capital at end of period $ 20,388 $ 280,832 $ 420,796 $ 465,779
========= ========= ========= =========
The accompanying notes are an integral part of the financial statements.
4
27
REEVES TELECOM LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
THREE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1996 1995 1994 1994
--------- --------- --------- ---------
Cash flows from operating activities:
Net income (loss) $(260,444) $(139,944) $ (45,003) $ 108,850
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation 50,756 39,190 6,566 13,276
(Gain) loss on disposal of fixed
assets (681) -- -- 29,850
Gain on transfer of land in
exchange for partnership units -- -- -- (192,075)
Change in assets and liabilities:
Other assets, net 1,201 1,711 -- (1,711)
Land held for sale and contracts
on land sales, net 40,201 1,292 499 817
Accounts payable and accrued
expenses 4,128 7,630 24,266 (47,659)
--------- --------- --------- ---------
Net cash used in operating
activities (164,839) (90,121) (13,672) (88,652)
--------- --------- --------- ---------
Cash flows from investing activities:
Acquisition of land improvements,
buildings and equipment (217,771) (138,300) 27,073 25,873
--------- --------- --------- ---------
Net cash provided by (used in)
investing activities (217,771) (138,300) 27,073 25,873
--------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from reissuance of partnership
units -- -- -- 10,000
Proceeds from issuance of long-term
debt 66,666 200,000 -- 12,447
Repayment of long-term debt (76,223) (35,268) -- (31,000)
Borrowings under line of credit 167,650 -- -- --
Repayments of line of credit (85,000) -- -- --
Increase in accrued expenses, affiliates 369,576 -- -- --
Net cash provided by (used in) --------- --------- --------- ---------
financing activities 442,669 164,732 -- (8,553)
--------- --------- --------- ---------
Net increase (decrease) in cash 60,059 (63,689) (40,745) (71,332)
Cash at beginning of period 73,860 137,549 178,294 249,626
--------- --------- --------- ---------
Cash at end of period $ 133,919 $ 73,860 $ 137,549 $ 178,294
========= ========= ========= =========
Supplemental information:
Interest paid $ 23,955 $ 14,627 $ -- $ 691
========= ========= ========= =========
Exchange of land for partnership units $ 192,075
=========
The accompanying notes are an integral part of the financial statements.
5
28
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. PLAN OF LIQUIDATION
On May 17, 1979 the stockholders of Reeves Telecom Corporation (the
"Corporation") approved a plan of liquidation (the "Plan") for the
Corporation and its subsidiaries. The plan, which was determined by the
Internal Revenue Service to qualify as a Section 337 liquidation, authorized
the Corporation's Board of Directors to sell the Corporation's assets and
distribute any remaining unsold assets to its stockholders and/or a
liquidation trust. On May 8, 1980, stockholders at a special meeting
approved an amendment to the Plan whereby assets not sold within one year of
the date the Plan was approved could, at the discretion of the Board of
Directors, be transferred from the Corporation to a South Carolina limited
partnership which would undertake to sell the remaining assets on behalf of
the stockholders. On May 15, 1980, the Corporation was liquidated and all of
its unsold assets and liabilities were transferred to Reeves Telecom
Associates, a South Carolina limited partnership (the "Partnership").
Stockholders of the Corporation received one Partnership unit in exchange
for each share of common stock. The units are registered under the
Securities Act of 1933 but are not listed on any national securities
exchange. In January 1987, pursuant to a change in South Carolina law, the
Partnership's legal name was changed from Reeves Telecom Associates to
Reeves Telecom Limited Partnership.
Pursuant to the Plan, the Corporation sold all of its broadcasting assets
and substantially all of the land held for development and sale at one of
its two land development locations and distributed cash to its stockholders
of $.90 per share on February 29, 1980 and $2.30 per share on May 15, 1980.
Remaining assets relate primarily to land held for sale, and cash, generated
primarily from the sale of timber and real estate (Note 3).
The Partnership's Managing General Partner is Grace Property Management,
Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accompanying financial statements have been prepared using the accrual
basis of accounting. The Partnership's assets have been written down, from
time to time, to reflect their fair values based upon appraisals. The
Partnership changed its fiscal year end from September 30, to December 31.
This change became effective as of December 31, 1994.
LAND SALES
Land sales represent individual building lots sold for cash. Land cost
included in direct costs of land sold represents the proportionate amount of
the total project costs, after recorded valuation allowances, based on the
sales value of the lot to the total estimated project sales value.
6
29
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LAND HELD FOR SALE AND RELATED BUILDINGS AND EQUIPMENT
Land held for development or sale is recorded at the lower of cost less
previously established valuation allowances or estimated fair value. Related
buildings and equipment are stated at cost less accumulated depreciation.
Depreciation for financial reporting purposes is calculated on the
straight-line basis over the estimated useful lives of 8 to 31.5 years for
buildings and 5 to 20 years for equipment and land improvements.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent 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.
ACCOUNTING AND REPORTING CHANGES
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, ("SFAS 121"). The statement requires that
long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Management believes the valuation allowance against the
property at Boiling Springs Lake, N.C. is adequate.
ADVERTISING COSTS
Advertising costs of $11,627, $12,190, $8,447, and $4,353 were expensed as
incurred during the years ended December 31, 1996, 1995 and September 30,
1994, and for the three months ended December 31, 1994, respectively.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
7
30
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
3. LAND HELD FOR SALE AND RELATED BUILDINGS AND EQUIPMENT
During July 1995, the Partnership obtained an appraisal of the Boiling
Spring Lakes property. Based upon the updated appraisal, the valuation
allowance established in previous years of $1,902,644 was considered
adequate. Management believes that based upon the 1996 sales activities and
the golf course operations, the valuation allowance continues to be
adequate.
A summary of land held for sale and related buildings and equipment at
December 31, 1996 and 1995 is as follows:
1996 1995
Boiling Spring Lakes:
Land held for sale $ 2,226,340 $ 2,266,541
Other land and land improvements 391,669 394,045
Residential house held for sale 82,650 --
Buildings 305,648 201,243
Equipment 269,956 262,121
----------- -----------
3,276,263 3,123,950
Pimlico Plantation lots 500 500
Less:
Accumulated depreciation (336,441) (311,623)
Valuation allowance (1,902,644) (1,902,644)
----------- -----------
$ 1,037,678 $ 910,183
=========== ===========
4. ACCRUED EXPENSES, AFFILIATES
A summary of accrued expenses, affiliates at December 31, 1996 and 1995 is as
follows:
1996 1995
General partner fees $ 456,000 $ 312,668
Legal fees Land held for sale 91,728 81,728
Rent 48,903 33,904
Interest Buildings 201,245 --
Brokerage commission Equipment 30,000 30,000
----------- -----------
$ 827,876 $ 458,300
=========== ===========
General partner fees, brokerage commission, rent and legal fees represent
amounts due to the General Partner. See Note 6 for additional information
regarding related party transactions.
8
31
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
5. LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1995 consists of the following:
1996 1995
Uncollateralized note payable to John S. Grace, an affiliate of the
General Partner, interest payable at the 12 month LIBOR rate
plus 6%(12.375% at December 31, 1996), maturing
in June 1998 $110,000 $170,000
Borrowings outstanding under a revolving credit facility, as
defined below 82,650 --
8.57% note payable in monthly installments of $1,370,
including interest, maturing in February 2001, collateralized 55,773 --
by equipment
Other 1,849 7,179
-------- --------
250,272 177,179
Less current maturities 96,631 4,234
-------- --------
$153,641 $172,945
======== ========
In June 1996, the Partnership entered into a revolving credit facility
requiring interest only payments at the lender's prime rate plus .5% (8.75%
at December 31, 1996) through maturity, which is August 1997. This agreement
is collateralized by building lots in Boiling Springs Lakes. At December 31,
1996, the Partnership had fully utilized this revolving credit facility.
Principal maturities of long-term debt for the years subsequent to December
31, 1996 are as follows:
1997 $ 96,631
1998 122,373
1999 14,316
2000 15,592
2001 1,360
---------
$ 250,272
=========
9
32
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
6. RELATED PARTY TRANSACTIONS
The General Partners charged the Partnership for services and office space
as follows:
THREE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 31,
1996 1995 1994 1994
-------- -------- -------- --------
General Partner fees $150,000 $ 60,000 $ 15,000 $ 60,000
Legal fees 10,000 10,000 -- 38,000
Office space 15,000 15,000 3,750 15,000
Interest 201,245 -- -- --
-------- -------- -------- --------
$376,245 $ 85,000 $ 18,750 $113,000
======== ======== ======== ========
Due to the resignation of a former general partner on July 1, 1994, the
Partnership settled accrued general partner fees from prior years at less
than the accrued amount. The decrease in general partner fees related to the
former partner amounted to $31,000 and is included in other income in 1994.
General partners fees and other related charges have been included in
selling, general and administrative expenses.
In fiscal 1994, 23 lots at Pimlico Plantation with a carrying value of
$15,450 were transferred to a major unitholder in exchange for $10,000 cash
and 492,584 units valued at $192,075 held by such unitholder. This
transaction was recorded at the fair value of the property transferred. The
remaining two lots at Pimlico are on the Partnership's balance sheet at a
nominal amount.
7. LITIGATION
In the past, litigation has been filed against the Partnership claiming
breach of contract because lots guaranteed in the sales contract as being
"high, dry and suitable for building" will not pass current county health
department requirements regarding the installation of septic tanks and
on-site sewage disposal systems. Management contends this language does not
constitute a guarantee of soil conditions for sewer purposes and that even
if it did, installation and use of septic tanks on these lots would have
been permitted under county regulations in effect prior to August 1976 and
that it had no way of knowing that stricter regulations would later be
enacted. In the event litigation is filed which results in an unfavorable
ruling, possible remedies could include: refunding the purchase price of the
lots; building nitrification fields with fill dirt that would allow
installation of sewage disposal systems on the lots; providing the litigants
with lots that will pass current county health department requirements; and
paying monetary damages. If mandated, the cost of such remedial action in
the aggregate could be substantial. No provision for this contingent
liability has been made in the accompanying financial statements; however,
at December 31, 1996 no suits or claims are pending against the Partnership
related to this matter.
10
33
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
8. INCOME TAXES
Results of operations of the Partnership are taxable to the partners and no
recognition of Federal and state income tax is included in the financial
statements.
9. LEASES
The Company leases certain office and golf course equipment under operating
leases. The minimum lease payments under operating leases for the years
subsequent to December 31, 1996 are as follows:
1997 $ 31,549
1998 31,205
1999 30,509
2000 10,100
---------
$ 103,363
=========
Equipment rental and lease expense for the years ending December 31, 1996
and 1995, September 30, 1994 and for the three months ended December 31,
1994 was $28,145, $32,908, $30,279 and 8,831, respectively.
10. LIQUIDITY AND GOING CONCERN ISSUES
Cash generated from Fox Squirrel Country Club and individual lot sales may
not be sufficient to meet future operating costs, debt service and other
cash requirements. Operating cash flow was negative for fiscal year 1995 and
would have been negative for 1996 if certain accrued expenses were not
deferred. Further, at December 31, 1996, the current liabilities of the
Partnership exceeded its current assets by approximately $837,000. Partner's
capital has been reduced to approximately $20,000. No reasonable offer has
been received for the assets of the Partnership due principally to the fact
that the majority of the land is wetland and that most of the unsold plotted
lots do not satisfy current county health standards regarding the
installation of septic tanks and on-site sewage disposal systems. If the
Partnership's cash flow is less than management's expectations, capital
programs presently planned may be either postponed, scaled back, or
eliminated, and certain operating expenditures may be either deferred or, in
the case of payments to affiliates of the General Partner, accrued. Despite
such contingency plans by management, the above mentioned factors indicate
that the Partnership may be unable to continue in existence while attempting
to complete the sale and liquidation of the Partnership's remaining assets.
The financial statements have been prepared assuming the Partnership will
continue as a going concern. The Partnerships recurring losses from
operations and liquidity position raise substantial doubt about the entity's
ability to continue while attempting to sell the remaining assets of the
Partnership.
The financial statements do not include any adjustments relating to the
recoverability and classification of reported asset amounts or the amounts
and classification of liabilities that might result should the Partnership
be unable to continue in existence.
11
34
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, Disclosure About Fair Value of
Financial Instruments. The estimated fair value amounts have been determined
by the Partnership using the methods and assumptions described below.
However, considerable judgment is required to interpret market data to
develop estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts the Partnership could realize
in a current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practical to estimate
that value:
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are by definition short-term and the carrying
amount is a reasonable estimate of fair value.
LONG-TERM DEBT
The fair value of long term debt has been estimated by discounting the
future cash flows using the current rates offered for debt issues with
similar characteristics. The carrying amount of long-term debt approximates
fair value at December 31, 1996 and 1995.
12
35
REEVES TELECOM LIMITED PARTNERSHIP
Financial Statements
December 31, 1994 and the Three months then ended
(With Independent Auditors' Report Thereon)
36
REEVES TELECOM LIMITED PARTNERSHIP
Financial Statements
Table of Contents
Independent Auditors' Report
Financial Statements:
Balance Sheet
December 31, 1994
Statement of Operations
Three months ended December 31, 1994
Statement of Partners' Capital
Three months ended December 31, 1994
Statement of Cash Flows
Three months ended December 31, 1994
Notes to Financial Statements
37
Independent Auditors' Report
The Partners
Reeves Telecom Limited Partnership:
We have audited the balance sheet of Reeves Telecom Limited Partnership (the
"Partnership") as of December 31, 1994, and the related statement of operations,
partners' capital and cash flows for the three months then ended. 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 audit 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
Partnership's management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides 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 Reeves Telecom Limited
Partnership as of December 31, 1994, and the results of its operations and its
cash flows for the three months then ended, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that Reeves
Telecom Limited Partnership will continue as a going concern. As discussed in
Note 12 to the financial statements, the Partnership's recurring losses from
operations in prior years and liquidity position raise substantial doubt about
the entity's ability to continue in existence while attempting to sell the
remaining assets of the Partnership. Management's plans in regard to these
matters are also described in Note 12. The financial statements do not include
any adjustments relating to the recoverability and classification of reported
asset amounts or the amounts and classification of liabilities that might result
should the Partnership be unable to continue in existence.
February 9, 1996
38
REEVES TELECOM LIMITED PARTNERSHIP
Balance Sheet
December 31, 1994
Assets
Current assets - cash $137,549
Land held for sale and related buildings
and equipment, net (note 3) 811,073
Other assets 4,204
--------
$952,826
========
Liabilities and Partners' Capital
Current liabilities:
Accounts payable and accrued expenses (note 4) 519,603
Notes payable (note 5) 4,025
--------
Total current liabilities 523,628
--------
Long-term debt 8,422
Partners' capital (notes 1 and 12) - issued and outstanding
1,828,258 units at December 31, 1994 420,776
--------
$952,826
========
See accompanying notes to financial statements.
39
REEVES TELECOM LIMITED PARTNERSHIP
Statement of Operations
Three Months ended December 31, 1994
Revenues:
Land sales (note 2) $ 27,075
Country Club revenue 68,189
Interest income and finance charges 593
------------
95,857
------------
Expenses:
Selling, general and administrative
expenses (note 6) 54,317
Selling, general and administrative expenses of
Country Club (note 6) 81,458
Direct costs of land sold 13,900
Depreciation 6,566
------------
156,241
Loss before other income and expense (60,384)
------------
Other income:
Timber sales (note 11) 15,381
------------
Net loss $ (45,003)
============
Loss per partnership unit $ (0.02)
============
Weighted average partnership units outstanding 1,828,258
============
See accompanying notes to financial statements.
40
REEVES TELECOM LIMITED PARTNERSHIP
Statement of Partners' Capital
Three Months ended December 31, 1994
Partners' capital at September 30, 1994 $ 465,779
Net loss (45,003)
---------
Partners' capital at December 31, 1994 $ 420,776
=========
See accompanying notes to financial statements.
41
REEVES TELECOM LIMITED PARTNERSHIP
Statement of Cash Flows
Three Months ended December 31, 1994
Cash flows from operating activities:
Net loss $ (45,003)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 6,566
Change in assets and liabilities:
Contracts on land sales, net 499
Land held for sale and related buildings and equipment (27,073)
Accounts payable and accrued expenses 24,266
---------
Net decrease in cash (40,745)
Cash at beginning of quarter 178,294
---------
Cash at end of quarter $ 137,549
=========
See accompanying notes to financial statements
42
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1994
(1) Plan of Liquidation
On May 17, 1979 the stockholders of Reeves Telecom Corporation (the
"Corporation") approved a plan of liquidation (the "plan") for the
Corporation and its subsidiaries. The plan, which was determined by the
Internal Revenue Service to qualify as a Section 337 liquidation,
authorized the Corporation's Board of Directors to sell the Corporation's
assets and distribute any remaining unsold assets to its stockholders
and/or a liquidation trust. On May 8, 1980, stockholders at a special
meeting approved an amendment to the plan whereby assets not sold within
one year of the date the plan was approved could, at the discretion of
the Board of Directors, be transferred from the Corporation to a South
Carolina limited partnership which would undertake to sell the remaining
assets on behalf of the stockholders. On May 15, 1980, the Corporation
was liquidated and all of its unsold assets and liabilities were
transferred to Reeves Telecom Associates, a South Carolina limited
partnership (the "Partnership"). Stockholders of the Corporation received
one partnership unit in exchange for each share of common stock. The
units are registered under the Securities Act of 1933 but are not listed
on any national securities exchange. In January 1987, pursuant to a
change in South Carolina law, the Partnership's legal name was changed
from Reeves Telecom Associates to Reeves Telecom Limited Partnership.
Pursuant to the plan, the Corporation sold all of its broadcasting assets
and substantially all of the land held for development and sale at one of
its two land development locations and distributed cash to its
stockholders of $.90 per share on February 29, 1980 and $2.30 per share
on May 15, 1980.
Remaining assets relate primarily to land held for sale, and cash,
generated primarily from the sale of timber and real estate (note 3).
The Partnership's Managing General Partner is Grace Property
Management, Inc.
(2) Summary of Significant Accounting Policies
(a) Basis of Accounting
The accompanying financial statements have been prepared using the
accrual basis of accounting. The Partnership's assets have been
written down, from time to time, to reflect their fair values based
upon appraisals. The Partnership changed its fiscal year end from
September 30, to December 31. This change became effective as of
December 31, 1995.
(b) Land Sales
All sales during the three months ended December 31, 1994 have been
for cash. Land cost included in direct costs of land sold represents
the proportionate amount of the total estimated project costs based
on the sales value of the lot to the total estimated project sales
value. Following the inability of the Partnership to effect a bulk
sale of all of its remaining land holdings, the sale of individual
lots for cash has been emphasized in recent years (note 3) and is
expected to continue at least for the near term.
43
2
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(2) Summary of Significant Accounting Policies, Continued
(c) Land Held for Sale and Related Buildings and Equipment
Land held for development or sale is recorded at the lower of cost
less previously established valuation allowances or estimated fair
value. Related buildings and equipment are stated at cost less
accumulated depreciation. Depreciation for financial reporting
purposes is calculated on the straight-line basis over the estimated
useful lives of 8 to 25 years for buildings and 5 to 20 years for
equipment and land improvements.
(d) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent 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.
(e) Accounting and Reporting Changes
In March 1995, the FASB issued Statement Number 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of". The statement requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. The statement is effective for the year ending December
31, 1996, and is not expected to have a material impact on the
Partnership's financial statements.
(f) Fair Value of Financial Instruments
The Financial Accounting Standards Board issued SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments," ("SFAS
107") in December 1991. SFAS 107 requires disclosures about the fair
value of all financial instruments whether or not recognized in the
balance sheet, for which it is practicable to estimate that value.
In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation
techniques. The carrying amount of financial instruments included in
accounts payable and accrued expenses are deemed reasonable
estimates of their fair value. The Company adopted the provisions of
SFAS 107 in 1995 as required for companies its size.
(3) Land Held for Sale and Related Buildings and Equipment
The land held for sale and buildings and equipment in the Partnership's
Boiling Springs Lakes, North Carolina property consists of the following:
(1) 159.9 acres comprising an 18 hole operating sprinklered golf course
together with a club house and maintenance buildings; (2) 164 detached
single family lots located near the golf course which have been surveyed
and platted and are suitable for building; (3) 194 acres surrounding the
golf course which could be developed; (4) 3,387 surveyed and platted lots
of which approximately 8% are suitable for building, 6% are conditionally
suitable for building and the balance are unsuitable for building; (5)
over 4,000 acres of wetlands and woodlands which have no development
potential; and (6) a sales office.
44
3
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(3) Land Held for Sale and Related Buildings and Equipment, Continued
During September 1993, the Partnership obtained an appraisal of the
Boiling Spring Lakes property. Based upon the updated appraisal, the
valuation allowance established in previous years of $1,902,644 was
considered adequate. Management believes that based upon the sales
activities and the golf course operations during the three months ended
December 31, 1994, the valuation allowance continues to be adequate.
A summary of land held for sale and related buildings and equipment at
December 31, 1994 follows:
Boiling Spring Lakes:
Land held for sale $ 2,362,534
Other land and land improvements 222,264
Buildings 173,578
Equipment 227,275
-------------
2,985,651
Pimlico Plantation lots 500
Less:
Accumulated depreciation 272,434
Valuation allowance 1,902,644
-------------
$ 811,073
=============
(4) Accounts Payable and Accrued Expenses
A summary of accounts payable and accrued expenses at December 31, 1994
follows:
General partner fees $ 302,668
Legal fees 86,738
Rent 18,904
Brokerage commission 30,000
Taxes, other than taxes on income 35,925
Accounting fees 17,500
Other 27,868
----------
$ 519,603
==========
General Partner fees, accrued brokerage commission, rent, legal fees, and
$7,182 of other represent amounts due to affiliates of the General
Partners.
(5) Notes Payable
The note payable at December 31, 1994 relates to equipment purchased
during 1994. The note matures in September 1997. The fair value of the
note payable approximates its carrying value as of December 31, 1994.
45
4
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(6) Selling, General and Administrative Expenses
During 1994, the Partnership took over management of Fox Squirrel Country
Club golf course. During previous years, management of the course had
been on contract.
A summary of selling, general and administrative expenses, excluding the
Country Club, for the three months ended December 31, 1994 follows:
Salaries and payroll taxes $ 12,601
Fees to General Partners 15,000
Advertising 4,353
Accounting and tax preparation fees 7,500
Rent 3,750
Group insurance 2,328
Travel 1,521
Insurance - general 3,742
Other 3,522
-----------
Total $ 54,317
===========
A summary of general and administrative expenses for the Country Club for
the three months ended December 31, 1994 follows:
Salaries and payroll taxes $ 39,509
Repairs and maintenance 17,490
Equipment rental and leases 8,831
Utilities 4,053
Concessions 3,431
Advertising 2,051
Insurance 1,171
Other 4,922
-----------
$ 81,458
===========
For the three months ended December 31, 1994, the General Partners
charged the Partnership for services and office space. These charges
include $3,750 for rent on office space used by various members of the
Partnership's management and $15,000 of General Partners' fees. Both of
these charges have been included in selling, general and administrative
expenses.
46
5
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(7) Litigation
In the past, litigation has been filed against the Partnership claiming
breach of contract because lots guaranteed in sales contracts as being
"high, dry and suitable for building" will not pass current county health
department requirements regarding the installation of septic tanks and
on-site sewage disposal systems. Management contends this language does
not constitute a guarantee of soil conditions for sewer purposes and that
even if it did, installation and use of septic tanks on these lots would
have been permitted under county regulations in effect prior to August
1976 and that it had no way of knowing that stricter regulations would
later be enacted. In the event litigation is filed which results in an
unfavorable ruling, possible remedies could include: refunding the
purchase price of the lots; building nitrification fields with fill dirt
that would allow installation of sewage disposal systems on the lots;
providing the litigants with lots that will pass current county health
department requirements; and paying monetary damages. If mandated, the
cost of such remedial action in the aggregate could be substantial. No
provision for this contingent liability has been made in the accompanying
financial statements; however, at December 31, 1995 no suits or claims
are pending against the Partnership related to this matter.
(8) Income Taxes
Results of operations of the Partnership are taxable to the partners and
no recognition of Federal and state income tax is included in the
financial statements.
The Corporation received favorable rulings from the Internal Revenue
Service regarding the qualification of the liquidation under Section 337
of the Internal Revenue Code and the formation of the Partnership for
holding and maintaining the assets during the final liquidation period
discussed in note 1.
(9) Leases
As of December 31, 1994, the Partnership was obligated under two lease
agreements, both of which are accounted for as operating leases. The
minimum lease payments under these leases as of December 31, 1994 are as
follows:
1995 $ 30,837
1996 30,837
1997 15,209
1998 -
1999 -
--------
$ 76,883
========
Equipment rental and lease expense for the three months ended December
31, 1994 was $8,831.
47
6
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(10) Golf Course Operations
In 1984, the Partnership entered a written lease agreement with an
operator for the Fox Squirrel Country Club. The Partnership initially
paid to the operator a subsidy, which continued through December 1987.
The subsidy eventually ceased and starting July 1, 1990 the Partnership
began receiving from the operator $1,000 per month rent, which continued
through December 31, 1990. Starting on January 1, 1991 the operator
continued to lease the premises as a month-to-month tenant under an oral
lease with much the same terms as the aforementioned written lease. For
1992, the monthly rent was increased to $1,500. The operator was
obligated to continue paying costs associated with maintaining and
operating the golf club and golf course, while the Partnership was to pay
personal property taxes, real estate taxes, hazard insurance, and
liability insurance. Because of unfavorable operating conditions, the
operator fell behind in payments. At the request of the operator and to
ensure uninterrupted operation of the golf course and country club, in
October 1993 the operator and the Partnership concluded an agreement, the
principal terms of which are that (i) the Partnership would operate the
golf club and golf course, receiving all revenues and incurring all
expenses relating thereto, and (ii) for a period of one year the operator
would be an employee of the Partnership and would manage the golf club
and golf course on behalf of the Partnership. The operator was still an
employee of the Partnership at December 31, 1994; however, the individual
resigned and was replaced in November 1995. The Partnership has a similar
agreement with the new operator.
(11) Timber Sales
During the three months ended December 31, 1994, the Partnership earned
$15,381, in revenues from the sale of timber on certain unsold lots and
unplatted woodlands. Additional contracts for the sale of timber were
signed for 1995 but such contracts should not be considered an on-going
source of revenue to the Partnership.
48
7
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(12) Liquidity and Going Concern Issues
Cash generated from Fox Squirrel Country Club and individual lot sales
may not be sufficient to meet future operating costs, debt service and
other cash requirements. Operating cash flow was positive for the three
months ended December 31, 1994, but was negative for the past two fiscal
years without consideration of cash received from timber sales. There are
limited prospects for additional revenue from timber sales beyond 1995.
Further, at December 31, 1994, the current liabilities of the Partnership
exceeded its current assets by approximately $386,000. No reasonable
offer has been received for the assets of the Partnership due principally
to the fact that the majority of the land is wetland and that many of the
unsold plotted lots do not satisfy current county health standards
regarding the installation of septic tanks and on-site sewage disposal
systems. If the Partnership's cash flow is less than Management's
expectations, capital programs presently planned may be either postponed,
scaled back, or eliminated, and certain operating expenditures may be
either deferred or, in the case of payments to affiliates of the General
Partner, accrued. Despite such contingency plans by Management, the above
mentioned factors indicate that the Partnership may be unable to continue
in existence while attempting to complete the sale and liquidation of the
Partnership's remaining assets. The financial statements have been
prepared assuming that Reeves Telecom Limited Partnership will continue
as a going concern. The Partnership's recurring losses from operations in
prior years and liquidity position raise substantial doubt about the
entity's ability to continue in existence while attempting to sell the
remaining assets of the Partnership. The financial statements do not
include any adjustments relating to the recoverability and classification
of reported asset amounts or the amounts and classification of
liabilities that might result should the Partnership be unable to
continue in existence.
49
REEVES TELECOM LIMITED PARTNERSHIP
Financial Statements
December 31, 1995, September 30, 1994 and 1993
(With Independent Auditors' Report Thereon)
50
REEVES TELECOM LIMITED PARTNERSHIP
Financial Statements
Table of Contents
Independent Auditors' Report
Financial Statements:
Balance Sheets
December 31, 1995, September 30, 1994 and 1993
Statements of Operations
Years ended December 31, 1995, September 30, 1994 and 1993
Statements of Partners' Capital
Years ended December 31, 1995, September 30, 1994 and 1993
Statements of Cash Flows
Years ended December 31, 1995, September 30, 1994 and 1993
Notes to Financial Statements
51
Independent Auditors' Report
The Partners
Reeves Telecom Limited Partnership:
We have audited the balance sheets of Reeves Telecom Limited Partnership (the
"Partnership") as of December 31, 1995 and September 30, 1994, and the related
statements of operations, partners' capital and cash flows for the years ended
December 31, 1995, September 30, 1994 and September 30, 1993. 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 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
Partnership's 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 the Partnership as of December
31, 1995 and September 30, 1994, and the results of its operations and its cash
flows for the years ended December 31, 1995, September 30, 1994 and 1993, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 12 to the
financial statements, the Partnership's recurring losses from operations and
liquidity position raise substantial doubt about the entity's ability to
continue in existence while attempting to sell the remaining assets of the
Partnership. Management's plans in regard to these matters are also described in
Note 12. The financial statements do not include any adjustments relating to the
recoverability and classification of reported asset amounts or the amounts and
classification of liabilities that might result should the Partnership be unable
to continue in existence.
February 9, 1996
52
REEVES TELECOM LIMITED PARTNERSHIP
Balance Sheets
December 31, 1995 and September 30, 1994
Assets 1995 1994
-------- -------
Current assets - cash $ 73,860 178,294
Land held for sale and related buildings
and equipment, net (note 3) 910,183 790,566
Contracts on land sales, net -- 1,292
Other assets 1,201 3,412
-------- -------
$985,244 973,564
======== =======
Liabilities and Partners' Capital
Current liabilities:
Accounts payable and accrued expenses (note 4) 527,233 495,338
Current portion of long-term debt (note 5) 4,234 3,974
-------- -------
Total current liabilities 531,467 499,312
-------- -------
Long-term debt, excluding current portion (note 5) 172,945 8,473
-------- -------
Partners' capital (notes 1 and 12) - issued and outstanding 1,828,258 units at
December 31, 1995 and September 30, 1994 280,832 465,779
Commitments and contingent liability (note 7)
-------- -------
$985,244 973,564
======== =======
See accompanying notes to financial statements.
53
REEVES TELECOM LIMITED PARTNERSHIP
Statements of Operations
Years ended December 31, 1995, September 30, 1994 and 1993
1995 1994 1993
----------- ---------- ----------
Revenues:
Land sales (notes 2, 3 and 7) $ 209,055 516,623 130,931
Profit on land sales recognized under
installment method 6,599 1,000 2,967
Country Club revenue 340,699 345,737 --
Interest income and finance charges 2,281 4,305 4,176
Gain (loss) on cancellations of
land sales contracts -- -- (2,020)
----------- ---------- ----------
558,634 867,665 136,054
----------- ---------- ----------
Expenses:
Selling, general and administrative
expenses (note 6) 293,277 357,536 293,760
Selling, general and administrative expenses
of Country Club (note 6) 299,177 301,562 --
Direct costs of land sold (note 3) 95,992 184,450 74,825
Depreciation 39,190 13,276 12,224
Interest 14,627 691 2,170
----------- ---------- ----------
742,263 857,515 382,979
----------- ---------- ----------
Income (loss) before other
income and expense (183,629) 10,150 (246,925)
Other income (expense):
Timber sales (note 11) 35,920 91,611 202,830
Loss on disposal of fixed assets -- (29,850) (56,652)
Miscellaneous (note 7) 7,765 36,939 14,160
----------- ---------- ----------
43,685 98,700 160,338
----------- ---------- ----------
Net income (loss) $ (139,944) 108,850 (86,587)
=========== ========== ==========
Income (loss) per partnership unit $ (.08) .06 (.04)
=========== ========== ==========
Weighted average partnership units outstanding 1,828,258 1,906,366 2,295,842
=========== ========== ==========
See accompanying notes to financial statements.
54
REEVES TELECOM LIMITED PARTNERSHIP
Statements of Partners' Capital
Years ended December 31, 1995, September 30, 1994 and 1993
1995 1994 1993
--------- -------- --------
Partners' capital at beginning of year $ 420,776 539,004 625,591
Net income (loss) (139,944) 108,850 (86,587)
Repurchase of partnership units (492,584
units) at cost of $.39 per unit (note 7) -- (192,075) --
Sale of partnership units (25,000 units at
$.40 per unit) -- 10,000 --
--------- -------- --------
Partners' capital at end of year $ 280,832 465,779 539,004
========= ======== ========
See accompanying notes to financial statements.
55
REEVES TELECOM LIMITED PARTNERSHIP
Statements of Cash Flows
Years ended December 31, 1995, September 30, 1994 and 1993
1995 1994 1993
--------- -------- --------
Cash flows from operating activities:
Net income (loss) $(139,944) 108,850 (86,587)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Depreciation 39,190 13,276 12,224
Loss on disposal of fixed assets -- 29,850 56,652
Gain on transfer of land in exchange for
partnership units -- (192,075) --
Change in assets and liabilities:
Other assets, net 1,711 (1,711) --
Contracts on land sales, net 1,292 817 6,549
Accounts payable and accrued expenses 7,630 (47,659) 99,959
--------- -------- --------
Net cash provided by (used in)
operating activities (90,121) (88,652) 88,797
--------- -------- --------
Cash flows from investing activities:
Land held for sale and related buildings
and equipment (138,300) 25,873 76,426
Payments on notes receivable -- -- 18,775
--------- -------- --------
Net cash provided by
investing activities (138,300) 25,873 95,201
--------- -------- --------
Cash flows from financing activities:
Proceeds from reissuance of partnership units -- 10,000 --
Proceeds from issuance of long-term debt 200,000 12,447 --
Repayment of long-term debt (35,268) (31,000) --
--------- -------- --------
Net cash provided by (used in)
financing activities 164,732 (8,553) --
--------- -------- --------
Net increase (decrease) in cash (63,689) (71,332) 183,998
Cash at beginning of year 37,549 249,626 65,628
--------- -------- --------
Cash at end of year $ 73,860 178,294 249,626
========= ======== ========
Supplemental information:
Interest paid $ 14,627 691 2,170
========= ======== ========
Exchange of land for partnership units $ -- 192,075 --
========= ======== ========
See accompanying notes to financial statements.
56
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1995, September 30, 1994 and 1993
(1) Plan of Liquidation
On May 17, 1979 the stockholders of Reeves Telecom Corporation (the
"Corporation") approved a plan of liquidation (the "plan") for the
Corporation and its subsidiaries. The plan, which was determined by the
Internal Revenue Service to qualify as a Section 337 liquidation,
authorized the Corporation's Board of Directors to sell the Corporation's
assets and distribute any remaining unsold assets to its stockholders
and/or a liquidation trust. On May 8, 1980, stockholders at a special
meeting approved an amendment to the plan whereby assets not sold within
one year of the date the plan was approved could, at the discretion of
the Board of Directors, be transferred from the Corporation to a South
Carolina limited partnership which would undertake to sell the remaining
assets on behalf of the stockholders. On May 15, 1980, the Corporation
was liquidated and all of its unsold assets and liabilities were
transferred to Reeves Telecom Associates, a South Carolina limited
partnership (the "Partnership"). Stockholders of the Corporation received
one partnership unit in exchange for each share of common stock. The
units are registered under the Securities Act of 1933 but are not listed
on any national securities exchange. In January 1987, pursuant to a
change in South Carolina law, the Partnership's legal name was changed
from Reeves Telecom Associates to Reeves Telecom Limited Partnership.
Pursuant to the plan, the Corporation sold all of its broadcasting assets
and substantially all of the land held for development and sale at one of
its two land development locations and distributed cash to its
stockholders of $.90 per share on February 29, 1980 and $2.30 per share
on May 15, 1980.
Remaining assets relate primarily to land held for sale, and cash,
generated primarily from the sale of timber and real estate (note 3).
The Partnership's Managing General Partner is Grace Property Management,
Inc.
(2) Summary of Significant Accounting Policies
(a) Basis of Accounting
The accompanying financial statements have been prepared using the
accrual basis of accounting. The Partnership's assets have been
written down, from time to time, to reflect their fair values based
upon appraisals. The Partnership changed its fiscal year end from
September 30, to December 31. This change became effective as of
December 31, 1995.
(b) Land Sales
From July 1960 through 1981 the Partnership and its predecessor
corporation sold land, that had been sub-divided into individual
lots, under installment payment agreements. Buyers agreed to make
periodic payments, usually on a monthly basis generally for a term
of ten years. The payments consisted of amortization of the unpaid
balance of the selling price plus interest thereon at rates which
ranged from 6% to 12%. The Partnership accounts for these sales
using the installment method of accounting. Under this method the
profit realized on the sale is taken into income on a pro-rata basis
as payments of principal are received. Beginning in 1982,
installment land sales were discontinued. All sales during fiscal
1993, 1994 and 1995 have been for cash.
57
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REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(2) Summary of Significant Accounting Policies, Continued
Direct costs of land sold on the installment basis, which are used
in the determination of deferred profit, consist of raw land costs,
costs of developing roads, drainage canals and other improvements
(including estimated future development costs to be incurred on sold
lots) and selling costs directly related to the sales. Land cost
included in direct costs of land sold represents the proportionate
amount of the total estimated project costs based on the sales value
of the lot to the total estimated project sales value. Following the
inability of the Partnership to effect a bulk sale of all of its
remaining land holdings, the sale of individual lots for cash has
been emphasized in recent years (note 3) and is expected to continue
at least for the near term.
When a land contract is canceled, operations are charged for the
amount of the unpaid receivable in excess of the sum of the
unamortized deferred profit and the value (lower of cost or market)
of the repossessed lot.
(c) Land Held for Sale and Related Buildings and Equipment
Land held for development or sale is recorded at the lower of cost
less previously established valuation allowances or estimated fair
value. Related buildings and equipment are stated at cost less
accumulated depreciation. Depreciation for financial reporting
purposes is calculated on the straight-line basis over the estimated
useful lives of 8 to 25 years for buildings and 5 to 20 years for
equipment and land improvements.
(d) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent 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.
(e) Accounting and Reporting Changes
In March 1995, the FASB issued Statement Number 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of". The statement requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. The statement is effective for the year ending December
31, 1996, and is not expected to have a material impact on the
Partnership's financial statements.
(f) Fair Value of Financial Instruments
The Financial Accounting Standards Board issued SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments," ("SFAS
107") in December 1991. SFAS 107 requires disclosures about the fair
value of all financial instruments whether or not recognized in the
balance sheet, for which it is practicable to estimate that value.
In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation
techniques. The carrying amount of financial instruments included in
accounts payable and accrued expenses are deemed reasonable
estimates of their fair value. The Company adopted the provisions of
SFAS 107 in 1995 as required for companies its size.
58
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REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(3) Land Held for Sale and Related Buildings and Equipment
The land held for sale in the Partnership's Boiling Springs Lakes, North
Carolina property consists of the following: (1) 159.9 acres comprising
an 18 hole operating sprinklered golf course together with a club house
and maintenance buildings; (2) 159 detached single family lots located
near the golf course which have been surveyed and platted and are
suitable for building; (3) 194 acres surrounding the golf course which
could be developed; (4) 3,355 surveyed and platted lots of which
approximately 8% are suitable for building, 6% are conditionally suitable
for building and the balance are unsuitable for building; (5) over 4,000
acres of wetlands and woodlands which have no development potential; and
(6) a sales office.
During July 1995, the Partnership obtained an appraisal of the Boiling
Spring Lakes property. Based upon the updated appraisal, the valuation
allowance established in previous years of $1,902,644 was considered
adequate. Management believes that based upon the 1995 sales activities
and the golf course operations, the valuation allowance continues to be
adequate.
A summary of land held for sale and related buildings and equipment at
December 31, 1995 and September 30, 1994 follows:
1995 1994
---------- ---------
Boiling Spring Lakes:
Land held for sale $2,266,541 2,369,934
Other land and land improvements 394,045 221,449
Buildings 201,243 173,578
Equipment 262,121 193,617
---------- ---------
3,123,950 2,958,578
Pimlico Plantation lots 500 500
Less:
Accumulated depreciation 311,623 265,868
Valuation allowance 1,902,644 1,902,644
---------- ---------
$ 910,183 790,566
========== =========
(4) Accounts Payable and Accrued Expenses
A summary of accounts payable and accrued expenses at December 31, 1995
and September 30, 1994 follows:
1995 1994
-------- -------
General partner fees $312,668 287,668
Legal fees 81,728 86,738
Rent 33,904 15,154
Brokerage commission 30,000 30,000
Taxes, other than taxes on income 45,940 30,408
Accounting fees 17,500 17,500
Other 5,493 27,870
-------- -------
$527,233 495,338
======== =======
General Partner fees, brokerage commission, rent, and legal fees
represent amounts due to affiliates of the General Partners.
59
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REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(5) Long-Term Debt
Long-term debt at December 31, 1995 and September 30, 1994 consist of the
following:
1995 1994
---- ----
Unsecured note payable to John S. Grace, an affiliate of the
General Partner, at 12 month LIBOR plus 6% interest, due
in June 1998 $170,000 --
Note payable secured by equipment purchased in 1994, at
5.09% interest, maturing in September 1997 7,179 12,447
-------- ------
177,179 12,447
Less current portion 4,234 3,974
-------- ------
Noncurrent debt $172,945 8,473
======== ======
There is no accrued interest payable on either of the notes as of
December 31, 1995 or September 30, 1994. The fair value of the
outstanding notes payable approximates its carrying value as of December
31, 1995.
(6) Selling, General and Administrative Expenses
During fiscal 1994, the Partnership took over management of Fox Squirrel
Country Club golf course. During previous years, management of the course
had been on contracted to a third party. Revenues and expenses in 1995
and 1994 reflect the addition of operations of the golf course.
A summary of selling, general and administrative expenses, excluding the
Country Club, for the years ended December 31, 1995 and September 30,
1994 and 1993 follows:
1995 1994 1993
-------- ------- -------
Salaries and payroll taxes $ 46,920 69,434 46,080
Fees to General Partners 60,000 60,000 63,000
Legal fees 22,050 38,147 41,766
Real estate taxes 47,796 36,355 39,182
Advertising 16,966 20,980 1,212
General maintenance and repairs -- 7,708 956
Accounting and tax preparation fees 16,446 26,387 25,587
Rent 15,000 15,000 15,154
Group insurance 9,266 9,293 8,469
Travel 7,097 5,158 7,078
Insurance - general 10,541 13,867 6,379
Other 41,195 55,207 38,897
-------- ------- -------
Total $293,277 357,536 293,760
======== ======= =======
60
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REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(6) Selling, General and Administrative Expenses, Continued
A summary of general and administrative expenses for the Country Club for
the years ended December 31 1995 and September 30, 1994 follows:
1995 1994
-------- -------
Salaries and payroll taxes $154,133 156,934
Repairs and maintenance 41,728 46,926
Equipment rental and leases 32,908 30,279
Utilities 21,098 20,958
Concessions 15,695 20,183
Advertising 12,190 8,447
Insurance 3,515 5,485
Other 17,910 12,350
-------- -------
$299,177 301,562
======== =======
(7) Related Party Transactions
For fiscal years 1995, 1994 and 1993, the General Partners charged the
Partnership for services and office space. These charges include $16,990
in 1995, $38,000 in 1994 and $36,100 in 1993 for legal services, $7,182
in 1993 for consulting services provided by affiliates of the General
Partners in connection with the continuing operations of the Partnership,
and $15,000 in 1995, 1994 and 1993 for rent on office space used by
various members of the Partnership's management. The General Partners'
fees were $60,000, $60,000 and $63,000 for fiscal 1995, 1994 and 1993,
respectively. Due to the resignation of a former general partner, the
partnership settled accrued general partner fees from prior years at less
than the accrued amount. The decrease in general partner fees related to
the former partner amounted to $31,000 and is included in other income in
1994. General partners fees and other related charges have been included
in selling, general and administrative expenses.
In fiscal 1994, 23 lots at Pimlico Plantation with a carrying value of
$15,450 were transferred to a major unitholder in exchange for $10,000
cash and 492,584 units valued at $192,075 held by such unitholder. This
transaction was recorded at the fair value of the property transferred.
The remaining two lots at Pimlico are on the Partnership's balance sheet
at a nominal amount.
61
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REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(8) Litigation
In the past, litigation has been filed against the Partnership claiming
breach of contract because lots guaranteed in the sales contract as being
"high, dry and suitable for building" will not pass current county health
department requirements regarding the installation of septic tanks and
on-site sewage disposal systems. Management contends this language does
not constitute a guarantee of soil conditions for sewer purposes and that
even if it did, installation and use of septic tanks on these lots would
have been permitted under county regulations in effect prior to August
1976 and that it had no way of knowing that stricter regulations would
later be enacted. In the event litigation is filed which results in an
unfavorable ruling, possible remedies could include: refunding the
purchase price of the lots; building nitrification fields with fill dirt
that would allow installation of sewage disposal systems on the lots;
providing the litigants with lots that will pass current county health
department requirements; and paying monetary damages. If mandated, the
cost of such remedial action in the aggregate could be substantial. No
provision for this contingent liability has been made in the accompanying
financial statements; however, at December 31, 1995 no suits or claims
are pending against the Partnership related to this matter.
(9) Income Taxes
Results of operations of the Partnership are taxable to the partners and
no recognition of Federal and state income tax is included in the
financial statements.
The Corporation received favorable rulings from the Internal Revenue
Service regarding the qualification of the liquidation under Section 337
of the Internal Revenue Code and the formation of the Partnership for
holding and maintaining the assets during the final liquidation period
discussed in note 1.
(10) Leases
During fiscal 1994, the Partnership entered into two operating leases and
assumed a third operating lease when it took over management of the golf
course. The minimum lease payments under these leases as of December 31,
1995 are as follows:
1996 $ 30,837
1997 15,209
1998 -
1999 -
2000 -
---------
$ 46,046
=========
Equipment rental and lease expense for 1995 and 1994 was $32,908 and
$30,279, respectively.
62
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REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(11) Timber Sales
During 1995, 1994 and 1993, the Partnership earned $35,920, $91,611 and
$202,830, respectively, in revenues from the sale of timber on certain
unsold lots and unplatted woodlands. The sale of timber should not be
considered an on-going source of revenue to the Partnership.
(12) Liquidity and Going Concern Issues
Cash generated from Fox Squirrel Country Club and individual lot sales
may not be sufficient to meet future operating costs, debt service and
other cash requirements. Operating cash flow was negative for fiscal
years 1995 and 1994 and would have been negative in 1993 were it not for
over $202,000 in revenues from the sale of timber. There are limited
prospects for additional revenue from timber sales beyond 1995. Further,
at December 31, 1995, the current liabilities of the Partnership exceeded
its current assets by approximately $576,000. No reasonable offer has
been received for the assets of the Partnership due principally to the
fact that the majority of the land is wetland and that most of the unsold
plotted lots do not satisfy current county health standards regarding the
installation of septic tanks and on-site sewage disposal systems. If the
Partnership's cash flow is less than Management's expectations, capital
programs presently planned may be either postponed, scaled back, or
eliminated, and certain operating expenditures may be either deferred or,
in the case of payments to affiliates of the General Partner, accrued.
Despite such contingency plans by Management, the above mentioned factors
indicate that the Partnership may be unable to continue in existence
while attempting to complete the sale and liquidation of the
Partnership's remaining assets. The financial statements have been
prepared assuming that Reeves Telecom Limited Partnership will continue
as a going concern. The Partnership's recurring losses from operations in
prior years and liquidity position raise substantial doubt about the
entity's ability to continue in existence while attempting to sell the
remaining assets of the Partnership. The financial statements do not
include any adjustments relating to the recoverability and classification
of reported asset amounts or the amounts and classification of
liabilities that might result should the Partnership be unable to
continue in existence.