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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
(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, 2002 or
[ ] 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 33-30312
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INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP
(Exact name of Registrant as specified in its charter)
North Carolina 56-1669199
- ------------------------- ------------------------------------
(State of Organization) (I.R.S. Employer Identification No.)
Wachovia Securities, NC0170
301 S. College St. - 17th Floor
Charlotte, NC 28288-0170
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (704) 715-7616
--------------
Securities Registered Pursuant to Section 12(b) of the Act: NONE
----
Securities Registered Pursuant to
Section 12(g) of the Act: Units of Class A Limited Partnership Interest
---------------------------------------------
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
----- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes ___ No X
Upon the sale of the remaining property, the estimated aggregate market value of
the units of Class A Limited Partnership Interest ("Units") held by
non-affiliates of the registrant would be approximately $1,872,500 based on a
price of approximately $250 per Unit.
On March 19, 2003, there were 7,650 Units outstanding.
Documents Incorporated by Reference: See Item 15
Page 1 of 14 Sequentially Numbered Pages
PART I
ITEM 1 - BUSINESS
Interstate Land Investors II (the "Registrant" or the "Partnership") is
a North Carolina limited partnership organized as of July 27, 1989 to acquire
for investment and dispose of three tracts of undeveloped land located in York
County, South Carolina (the "Property"). The Property originally consisted of
"Tract 1" (which was subdivided as discussed below), an approximately 91.64 acre
tract fronting on Interstate 77 and Gold Hill Road; "Tract 2", an adjoining (but
non contiguous) approximately 76.74 acre tract with frontage entirely on
Interstate 77; and "Tract 3", an approximately 20 acre tract located on U.S.
Highway 21 and contiguous to Tract 2. The General Partners of the Registrant
were Performance Investments, Inc., a North Carolina corporation ("PII"),
William Garith Allen ("Allen") and ISC Realty Corporation, a North Carolina
corporation ("ISCR"). Allen is the President, a director and a 50% shareholder
of PII. ISCR is a North Carolina corporation wholly owned by Wachovia Securities
Inc. ("WSI"). Effective January 1, 1992, ISCR and Allen assumed the role of
co-managing general partner and PII was converted to a Class A limited partner.
In 1997, Allen executed an assignment of his partnership interests and forfeited
his right to subordinated returns by transferring his interest and PII's
interest to ISCR.
The Registrant offered (the "Offering") a minimum of 5,406 units of
Class A Limited Partnership Interests and a maximum of 9,588 units of Class A
Limited Partnership Interests (the "Units") at $1,000 per Unit pursuant to a
Registration Statement effective September 29, 1989, filed under the Securities
Act of 1933, as amended (the "Act"). As of November 3, 1989, the Registrant had
received aggregate subscriptions for 5,406 Units and accordingly, on November 3,
1989, subscriptions for 5,406 Units were accepted and the Initial Closing
occurred under the Offering and 527 investors were admitted to the Partnership
as Limited Partners. Of the $5,402,640 in gross proceeds received in connection
with the Initial Closing (which amount equals subscription payments for 5,406
Units at $1,000 each less discounts on the purchase of certain Units as
described in the Registration Statement), $668,458 had been applied to sales
commissions and to organization and offering expenses. The balance of the gross
proceeds, $4,734,182, was used to purchase Tracts 2 and 3 and provide working
capital.
Tract 2 was acquired by the Registrant pursuant to an Option Agreement
that was originally obtained by Performance Service and Finance, Inc. ("PSF")
from unaffiliated individuals. This Option Agreement was subsequently assigned
by PSF to PII and then assigned by PII to the Registrant. Tract 2 was acquired
from unrelated individuals for a purchase price of $2,855,223. In addition, the
Partnership reimbursed PII $116,000 for its carrying costs associated with the
Option Agreement and paid PII $181,363 in additional consideration as an
assignment fee. The total amount paid by the Registrant for Tract 2 was
$3,152,586, not including certain miscellaneous closing costs.
The Registrant acquired Tract 3 pursuant to an Option Agreement that
was originally obtained by Gold Hill Investment Associates ("Gold Hill"). The
Option Agreement was subsequently assigned by Gold Hill to the Registrant. The
Registrant acquired Tract 3 from an unaffiliated unrelated entity for a purchase
price of $1,400,000. In addition, the Registrant
2
reimbursed Gold Hill $10,750 for its carrying costs associated with the Option
Agreement and an additional $14,094 in consideration as an assignment fee. The
total amount paid by the Registrant for Tract 3 was $1,424,844, not including
certain miscellaneous closing costs.
Gold Hill is a North Carolina partnership of which Gold Hill Limited
Partnership, an affiliate of Allen, is a partner. Tract 1 was purchased by Gold
Hill from an unrelated entity in December, 1986 for a purchase price of
$1,800,000. Gold Hill Limited Partnership had an option, until June 30, 1990, to
acquire the partnership interests of the remaining unrelated entities in Gold
Hill, and thus become the sole owner of Tract 1. The Registrant had secured an
option (see discussion below) to purchase Tract 1 from Gold Hill at a purchase
price of $3,622,500.
During July 1990, the Registrant requested and received approval from
the limited partners to extend the Partnership offering from July 31, 1990 until
December 31, 1990. During July and August 1990, the Registrant requested and
received limited partner approval to subdivide Tract 1 into four (4) separate
parcels and to allow the Registrant to acquire a portion of the property in the
event proceeds from investor subscriptions were not sufficient to acquire all of
Tract 1. In addition, the seller of Tract 1 had agreed to extend the option to
purchase Tract 1 from September 30, 1990 until December 31, 1990 (the "Option").
Under the terms of the Option, in the event the Registrant was unable
to sell the Maximum Offering Amount by December 31, 1990, but the Registrant had
sold a minimum of 7,620 Units (the "Secondary Offering Amount") then the
Registrant could purchase Tracts 1A and 1D (and it must purchase Tracts 1A and
1D simultaneously). Additionally, if the Registrant had achieved the Secondary
Offering Amount, purchased Tracts 1A and 1D pursuant to the terms of the Option
and had sold a minimum of 8,721 Units (the "Tertiary Offering Amount") prior to
December 31, 1990, then the Registrant could purchase Tract 1B. Finally, if the
Registrant achieved the Tertiary Offering Amount, and purchased Tracts 1A, 1B
and 1D as herein above provided, and had sold a minimum of 9,588 Units prior to
December 31, 1990, then the Registrant could purchase Tract 1C.
The Registrant filed a post effective amendment to the original
prospectus in August, 1990, outlining to the SEC these modifications to the
offering and the amendment to the Partnership Agreement.
On November 14, 1990, the Partnership received formal approval from the
SEC on the post-effective amendment filed in August, 1990. Therefore, ISCR took
additional subscriptions and was able to close on Parcels 1A and 1D on November
30, 1990. The total cost of the November 30, 1990 acquisition of Subtracts 1A
and 1D was $1,908,605 which included a purchase price of $1,906,517, plus
closing costs of $2,088. At that time, the Partnership determined that no
further Units would be offered, sold and issued pursuant to the prospectus. The
Partnership filed Post-effective Amendment No. 4 for the purpose of
deregistering 1,938 unsold Units.
The Registrant's principal investment objectives are to: (1) preserve
and protect capital invested in the Registrant, (2) provide a relatively
low-risk real estate investment through debt-free ownership of the Property, (3)
provide long-term appreciation in the value of the Property,
3
and (4) provide protection for investors against inflation. The Registrant
intends to accomplish its objectives through holding the Property and
subsequently disposing of it at an appropriate time.
The disposition of the Property by the Registrant may result in
substantial fees to the General Partner and its affiliates. Reference is made to
Item 13 herein for a description of certain transactions between the Registrant
and the General Partner and its affiliates.
No mortgage indebtedness was incurred in connection with the
acquisition of the Property.
The Registrant plans to hold the property for future appreciation. It
is not contemplated that the Registrant will undertake construction or
substantial improvements on the Property.
Upon the sale of all or a portion purchased (i.e., Tracts 2, 3, 1A, and
1D) of the Property by the Registrant, the proceeds of the sale will be
distributed to the investors. The General Partner currently intends to dispose
of the Property purchased within ten to twelve years of the purchase. However,
the investors had a one-time right to direct the Registrant to dispose of the
Property upon the fifth anniversary of the Closing of the Offering (November
1994) for a price not less than $11,104,839, reduced by the net proceeds to the
Registrant from the sale of other parcels within the Property by the Registrant.
If the Registrant was unable to sell the Property by such date at such price,
Allen was obligated to either (i) purchase the Property at such price or (ii)
forfeit his entire subordinated Limited Partner interest and transfer the
remaining General Partner interest to the Limited Partners. In 1997 Mr. Allen
executed an assignment transferring his partnership interest to ISCR.
(See Note 1 of the audited financial statements.)
The Registrant in seeking to secure purchasers for its Property will be
competing with many other real estate investment partnerships as well as
individuals, insurance companies, banks and other entities engaged in real
estate investment activities including, perhaps, certain affiliates of the
General Partner.
The General Partner currently serves as general partner in several
public and private partnerships, which currently own various types of real
property. None of the prior partnerships sponsored by the General Partner or its
affiliates now contemplate the acquisition of any additional properties of the
type purchased by the Registrant. However, the General Partner or its affiliates
may sponsor additional public or private partnerships in the future. In
addition, the General Partner and its affiliates are and will continue to be
engaged in the business of real estate investment, development and management
apart from their involvement in the Registrant.
Located immediately adjacent to the Property is an approximately 96.74
acre tract which was owned by Interstate Land Investors I Limited Partnership
("Interstate I"), a North Carolina limited partnership having the same general
partner as the Registrant. Interstate I acquired the adjacent property on
September 30, 1988, for a purchase price of $4,200,000. Interstate I sold the
adjacent property in May of 2001 to Greenfield Development Company, LLC and
Interstate Land Investors I Limited Partnership was liquidated in 2001.
4
The General Partner will devote only so much of its time to the
business of the Registrant as in their judgment and experience is reasonably
required. The General Partner is engaged in other activities that also require
its time and attention.
As of December 31, 2002, the Registrant did not directly employ any
persons in a full-time position. Certain employees of the General Partner
performed services for the Registrant during the year.
ITEM 2 - PROPERTY
The Property is located approximately 12 miles south of the Central
Business District of Charlotte, North Carolina along the I-77 corridor and
approximately 8 miles north of Rock Hill, South Carolina. While the Property is
located in northeastern York County, South Carolina, the Property is considered
a part of the Charlotte Metropolitan Service Area (MSA). The Property originally
consisted of three separate tracts, all of which are zoned for agricultural use,
more particularly described as follows:
Tract 1 (which was subdivided - See Item 1) is an approximately 91.64
acre tract located in the northeast quadrant of I-77 and Gold Hill Road in York
County, South Carolina. 16.1 acres of Tract 1 lies in a floodplain and the
remaining 76.03 acres are usable and free of rights-of-way. Tract 1 has
approximately 2,200 feet of frontage along Gold Hill Road and 3,600 feet of
frontage along I-77. Electricity and telephones are available to Tract 1.
Municipal water and sewer has been brought to the edge of the Property and would
be made available if the Property were developed. If a sale was to occur, Tract
1 zoning would revert to BD-2 and BD-3 under the York County Zoning Ordinance.
The BD-2 classification is designed to provide for the development of office and
institutional parks in areas free of general commercial activity. The BD-3
classification is designed to provide for retail establishments, such as
department stores and variety stores. Tract 1 was subdivided into four Tracts.
Tract 1A is approximately 17.0 acres; Tract 1B, approximately 24.33 acres; Tract
1C, approximately 19.08 acres; and Tract 1D, approximately 31.23 acres. Tracts
1A and 1D are owned by the Registrant.
Tract 2 consists of approximately 76.74 acres. Tract 2 has 2,819 feet
of frontage on I-77 and is located north of Tract 1. Tract 2 is not contiguous
to Tract 1. Access to Tract 2 is through Tract 3 to U.S. Highway 21.
Additionally, Tract 2 adjoins a common boundary with the 95-acre tract of land
owned by Interstate I. Electricity and telephones are available to Tract 2.
Water is currently available to Tract 2 by extension through Tract 3. Water and
sewer will be provided by a private utility company with facilities located west
of Tract 2 on the west side of I-77. In addition, Tract 2 can be serviced by the
water and sewer facilities serving the Charlotte Knights baseball stadium. If a
sale was to occur, Tract 2 zoning would revert to UDD, urban development
district, by the York County Council. The purpose of this district is to permit
maximum flexibility in response to market demands in specific areas of the
County. Permitted uses range from residential to business development and
industrial.
Tract 3 consists of approximately 20 acres of land fronting
approximately 400 feet on U.S. Highway 21 and being contiguous to Tract 2.
Additionally, a portion of the Property is contiguous to the tract that was
owned by Interstate I. Electricity, telephone, water and sewer are
5
all available to Tract 3. If a sale was to occur, Tract 3 zoning would revert to
UDD, urban development district, by the York County, South Carolina, County
Council.
In June 2000, the Partnership entered into a contract with Greenfield
Development Company, LLC, to sell 97 acres of the 145 acres of unimproved land
for $45,000 per acre, subject to adjustments for wetlands acreage. The actual
proceeds from the sale totaled $4,353,360. The purchaser deposited $50,000
earnest money with a title agency. Under the terms of the contract, the
purchaser had until November 6, 2000, to complete their due diligence, however,
Greenfield requested two 90-day extensions of the closing date to provide them
time to obtain a wetlands permit from the U.S. Army Corps of Engineers which
permit was necessary to allow the proposed development. An additional $25,000
earnest money was deposited with the title agency for the first extension and
$50,000 was deposited for the second extension. The first extension expired on
March 6, 2001, and the sale was consummated on May 11, 2001.
The remaining approximate 48 acres of the property consisting of Tract
1A and Tract 1D is listed and being marketed for sale at $57,500 per acre by
Bissell Patrick. (See Item 13 - Related Transactions.)
ITEM 3 - LEGAL PROCEEDINGS
The Partnership is not a party to any legal proceedings.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of 2002.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S SECURITIES AND RELATED
SECURITY HOLDER MATTERS
Transfer of the Units is subject to certain restrictions contained in
the Limited Partnership Agreement. There is no established market for the Units
and it is not anticipated that any will occur in the future. The Registrant is
not aware of any significant resale of Units since the Initial Closing on
November 3, 1989. As of March 19, 2003, 775 persons were record owners of 7,650
Units.
The Registrant in each year allocates to the investors and the General
Partner any net profit prior to a sale of the Property. Such allocations to the
investors are credited against the preferred return due to them on their
invested capital. Net losses for each year are also allocated to the investors
and the General Partner in accordance with their respective capital accounts.
The Registrant does not intend to make any distributions of available cash prior
to the sale of all or a portion of the Property. Allocations to the investors
are subject to the limitations of the Partnership's limited partnership
agreement.
6
ITEM 6 - SELECTED FINANCIAL DATA (AUDITED)
SELECTED STATEMENT OF OPERATIONS DATA
The following selected financial data for the five years ended December 31,
2002, have been derived from audited financial statements. The financial
statements for each of the three years ended December 31, 2002, were audited by
Faulkner and Thompson, P.A., and these financial statements and independent
auditors' report are contained elsewhere in this report. All of the data set
forth below are qualified by this reference to, and should be read in
conjunction with, the Partnership's audited financial statements (including the
Notes thereto), and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing elsewhere in this report.
Year ended Year ended Year ended Year ended Year ended
December 31, December 31, December 31, December 31, December 31,
2002 2001 2000 1999 1998
----------- ----------- ----------- ----------- -----------
Revenue from Sale of Property $ 0 $ 4,353,360 $ 0 $ 0 0
Interest and Other Income $ 1,313 $ 17,424 $ 3,056 $ 2,356 $ 2,392
Property write-down 0 0 0 84,310 0
Extraordinary Gain on
Extinguishment of Liability 0 131,561 0 0 0
Expenses 33,446 36,985 57,177 51,880 52,506
----------- ----------- ----------- ----------- -----------
Net Loss $ (32,133) $ (520,749) $ (54,121) $ (133,834) $ (50,114)
----------- ----------- ----------- ----------- -----------
Distributions to limited partners $ 439 $ 3,467,974 $ 0 $ 0 $ 0
----------- ----------- ----------- ----------- -----------
Net Loss Allocated
to Class A limited partners $ (32,129) $ (520,684) $ (54,115) $ (133,817) $ (50,108)
----------- ----------- ----------- ----------- -----------
Net Loss Per Class A limited
partnership unit $ (4.20) $ (68.06) $ (7.07) $ (17.49) $ (6.55)
----------- ----------- ----------- ----------- -----------
7
SELECTED BALANCE SHEET DATA
December 31, December 31, December 31, December 31, December 31,
2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ----------
Total Assets $2,008,978 $2,041,174 $6,494,010 $6,492,936 $6,572,386
Total Liabilities 376 0 464,113 408,918 354,534
---------- ---------- ---------- ---------- ----------
Partner's Capital $2,008,602 $2,041,174 $6,029,897 $6,084,018 $6,217,852
---------- ---------- ---------- ---------- ----------
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership sold one-third acre of the Property for $15,000 on May
10, 2001. On May 11, 2001, the Partnership sold 97 acres of the Property for
$4,353,360. On June 29, 2001, a distribution of $3,467,974 ($453 per unit) was
distributed to the limited partners. In 2001, there was a significant year end
adjustment related to the cost basis of the properties sold. The original second
quarter 2001 filing utilized an average cost basis on the properties sold.
However, a year end adjustment totaling approximately $209,000 increased the
cost basis of the property sold as the Partnership utilized the specific
identification method on the properties sold which was more reflective of the
proper cost.
As of December 31, 2002, the Registrant had $97,478 in cash and cash
equivalents on hand which will be retained to pay ongoing partnership expenses.
Until the Registrant disposes of the remaining approximate 48 acres of the
Property, its only sources of additional capital are from General Partner
advances or other borrowings. The General Partner anticipates that any future
additional funds necessary for the operations of the Partnership will be
provided by ISCR.
On May 23, 1995, the General Partner, ISCR, entered into a line of
credit agreement in the amount of $150,000 with the Partnership to provide
additional funds as needed. In July of 1998, the line of credit amount was
increased to $175,000 and in August of 1999, the amount was increased to
$250,000. In accordance with the Partnership Agreement, ISCR is entitled to
accrue interest on any loans provided to the Partnership at the rate of prime
plus two percent. In May 2001, a portion of the proceeds from the sale of
unimproved land was used to pay in full the debt and accrued interest. (See Note
5 of the audited financial statements.)
RESULTS OF OPERATIONS
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2002 TO THE YEAR ENDED DECEMBER 31,
2001
The Registrant's net loss decreased from $520,749 for the year ended
December 31, 2001, to $32,133 for the year ended December 31, 2002. With the
exception of an approximately $3,800 fee for a real estate broker's opinion of
value, the loss in 2002 is the result of regular and ongoing partnership
expenses, compared to the loss incurred from the sale of a portion of the
property in 2001. An extraordinary gain in the amount of $131,561 on
extinguishment of debt was recorded by the Partnership in 2001. (See Note 4 of
the audited financial statements.)
8
Professional and legal fees increased from $26,707 in 2001 to $28,034
in 2002 reflecting extra charges incurred by auditors and tax preparers for new
electronic filing requirements mandated by the IRS. Interest expense was zero in
2002 compared to $8,306 in 2001 because the note to ISCR was paid in full from
the proceeds of the sale in May 2001. General and administrative expenses
increased from $1,873 in 2001 to $5,392 in 2002 due to additional database
management fees incurred also for the new IRS electronic filing requirements.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2001 TO THE YEAR ENDED DECEMBER 31,
2000
The Registrant's net loss increased from $54,121 for the year ended
December 31, 2000, to $520,749 for the year ended December 31, 2001. This loss
is the result of the loss incurred from the sale of a portion of the property in
2001. An extraordinary gain on extinguishment of debt for $131,561 was recorded
by the Partnership in 2001. (See Note 4 of the audited financial statements
Professional and legal fees increased from $16,297 in 2000 to $26,707
in 2001 due to the review of the purchase contract and closing costs. Interest
expense decreased to $8,306 in 2001 from $20,986 in 2001 because the note to
ISCR was paid in full from the proceeds of the sale in May 2001. General and
administrative expense decreased from $19,697 in 2000 to $1,873 due to
discontinuation and forgiveness of Partnership management fees to ISCR. See Note
4 for further disclosure.
SELECTED QUARTERLY FINANCIAL DATA
The table below shows excerpted results from our quarterly Reports on
Form 10-Q filed in the years ended December 31, 2002 and 2001. Individual
quarterly amounts may not be additive due to rounding.
2002 (unaudited) 2001 (unaudited)
1st 2nd 3rd 4th Total 1st 2nd 3rd 4th Total
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
Total Revenues $367 $284 $286 $376 $1,313 $35 $4,345,381 $9,703 $15,665 $4,370,784
Total Expenses 10,882 6,882 10,273 5,409 33,446 17,490 4,641,704 4,592 359,308 5,023,094
and other
Extraordinary 131,561 131,561
Gain on
Extinguishment
of Liability
Income (Loss) ($10,515) ($6,598) ($9,987) ($5,033) ($32,133) ($17,454) ($296,323) $5,112 ($212,084) ($520,749)
From
Operations and
Sale of
Property
Net Income
(Loss)
Allocation:
General (105) (1) (1) 104 ($3) (175) (30) 1 152 ($52)
Partners
Class A (10,410) (6,597) (9,987) (5,135) ($32,129) (17,280) (296,294) 5,111 ($212,221) ($520,684)
Limited
Partners
Net Income ($1.36) ($0.86) ($1.31) (0.67) ($4.20) ($2.26) ($38.73) $0.67 ($27.74) ($68.06)
(Loss) Per
Class A
Limited
Partnership
Unit
9
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership does not hold any financial instruments with market
risk exposure.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted as a separate section of this
report.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There were no disagreements concerning either the December 31, 2002,
financial statements or the December 31, 2001, financial statements.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Registrant has no directors or executive officers. PII, the former
managing general partner, filed for relief from creditors under Chapter 11 of
the Bankruptcy Code during 1991. Effective January 1, 1992, the general partner
interest of PII was converted to that of a Class A Limited Partner retaining the
same interest in the Partnership's net profit, losses and distributions as it
had as a general partner subject to the same priority of the other Class A
Limited Partners. In 1997, Allen executed an assignment of his partnership
interests and forfeited his right to subordinated returns by transferring his
interest and PII's interest to ISCR. Because the Registrant has no directors or
executive officers and because, to the Registrant's knowledge no person owns
more than 10% of the Units, there is no disclosure pursuant to Item 405 of
Regulation S-K contained in this report.
Information as to ISCR, the current Managing General Partner, is as
follows:
Information About Executive Officer
Jeffrey K. Harpel Principal Executive, Financial and Accounting Officer
of ISCR since 2002. He is 50 years old.
Jeffrey K. Harpel is Sr. Vice President & Managing Director of Wachovia
Securities, Inc. (WSI), an affiliate of ISCR. WSI is the brokerage division of
the parent company Wachovia Corporation, a large east-coast bank. Before joining
Wachovia Securities in 1988, Mr. Harpel was Controller & Managing Director at
Wheat First Securities. He received his B.S. degree from Penn State.
10
The officer holds office until his death, resignation, retirement,
removal, disqualification or his successor is elected and qualified.
On April 1, 1999, ISCR's parent company, Interstate/Johnson Lane, Inc.,
merged into Wachovia Corporation and on September 1, 2001, Wachovia Corporation
and First Union Corporation merged. The new organization functions under the
name Wachovia Corporation. Personnel and offices continue to operate as usual.
ITEM 11 - EXECUTIVE COMPENSATION
No remuneration from the Partnership was paid or accrued for the
account of any partner, officer or director of the General Partner during the
Partnership fiscal year ended December 31, 2002.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED MATTERS
As of March 19, 2003, Begley-Hall, P.O. Box 1027, Mount Airy, NC 27030,
an investment partnership, beneficially owned 6.87% of the limited partnership
interests or 525.6 Units.
As of March 19, 2003, none of the individual directors and officers of
the General Partner beneficially owned any Units. ISCR has sole investment and
voting power with respect to the securities indicated in the table below. The
address of ISCR is 901 E. Byrd St., Richmond, VA 23019.
Amount and
Nature of
Beneficial Percent of
Partner Type Name & Address Ownership Class
- ------------ -------------- ---------- ----------
Subordinated Limited ISC Realty Corporation 0 Units 100%
General Partner ISC Realty Corporation 0 Units 100%
Class A Limited Partner ISC Realty Corporation 160.65 Units 2.1%
The Partnership does not have any equity compensation plans.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The remaining approximate 48 acres of the Property is listed for sale
with Bissell Patrick. Should a sale of the property occur from this contractual
listing agreement, the past president of ISCR, J. Christopher Boone, may receive
a sales commission through a separate agreement between Mr. Boone and Bissell
Patrick. As the purchase price of the property is not known, the Partnership is
unable to determine the amount of the sales commission, if any, that Mr. Boone
may receive.
11
ITEM 14 - CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures. The General Partner's Senior
Vice President (our principal executive officer and principal financial
officer,) has concluded, based on his evaluation as of a date within 90 days
prior to the filing date of this Report, that the Partnership's disclosure
controls and procedures are effective to ensure that information required to be
disclosed by us in the reports filed or submitted by us under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms, and
include controls and procedures designed to ensure that information required to
be disclosed by us in such reports is accumulated and communicated to the
Partnership's management, including the General Partner's Senior Vice President,
as appropriate to allow timely decisions regarding required disclosure.
Changes in internal controls. There were no significant changes in the
Partnership's internal controls or in other factors that could significantly
affect these controls subsequent to the date of such evaluation.
PART IV
ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules.
See Index to Financial Statements included in Appendix A to
this Form 10-K. Schedules are omitted because they are not
applicable, not required or because the requested information
is included in the Financial Statements or notes thereto.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter of
2002.
(c) Exhibits.
No exhibits are attached to this filing.
12
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERSTATE LAND INVESTORS II
A NORTH CAROLINA LIMITED PARTNERSHIP
BY: ISC REALTY CORPORATION
AS PRINCIPAL EXECUTIVE OFFICER,
PRINCIPAL FINANCIAL OFFICER,
PRINCIPAL ACCOUNTING OFFICER AND
GENERAL PARTNER
OF THE REGISTRANT
BY: /S/JEFFREY K. HARPEL
JEFFREY K. HARPEL
DATE: MARCH 19, 2003
PRINCIPAL EXECUTIVE AND FINANCIAL OFFICER CERTIFICATION PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jeffrey K. Harpel, certify that:
1. I have reviewed this annual report on Form 10-K of Interstate Land Investors
II Limited Partnership;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by
13
others within those entities, particularly during the period in which
this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
By:
/s/Jeffrey K. Harpel
- --------------------
Jeffrey K. Harpel
Senior Vice President
ISC Realty Corporation,
General Partner,
Principal Executive Officer
and Principal Financial Officer
of the Registrant
14
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERSTATE LAND INVESTORS II
A NORTH CAROLINA LIMITED PARTNERSHIP
BY: ISC REALTY CORPORATION
AS PRINCIPAL EXECUTIVE OFFICER,
PRINCIPAL FINANCIAL OFFICER,
PRINCIPAL ACCOUNTING OFFICER AND
GENERAL PARTNER
OF THE REGISTRANT
BY: ______________________________
JEFFREY K. HARPEL
DATE: MARCH 19, 2003
PRINCIPAL EXECUTIVE AND FINANCIAL OFFICER CERTIFICATION PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jeffrey K. Harpel, certify that:
1. I have reviewed this annual report on Form 10-K of Interstate Land Investors
II Limited Partnership;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
15
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
By:
- ----------------
Jeffrey K. Harpel
Senior Vice President
ISC Realty Corporation,
General Partner,
Principal Executive Officer
and Principal Financial Officer
of the Registrant
16
INTERSTATE LAND INVESTORS II,
LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
As of December 31, 2002 and 2001
and for the three years ended
December 31, 2002, 2001 and 2000
FAULKNER AND THOMPSON, P.A.
CERTIFIED PUBLIC ACCOUNTANTS
INTERSTATE LAND INVESTORS II,
LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
BALANCE SHEETS 2
STATEMENTS OF OPERATIONS 3
STATEMENT OF PARTNERS' CAPITAL 4
STATEMENTS OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS 6
-i-
FAULKNER AND THOMPSON, P.A.
CERTIFIED PUBLIC ACCOUNTANTS
POST OFFICE BOX 2456
ROCK HILL, SOUTH CAROLINA 29732-4456
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners of
Interstate Land Investors II, Limited Partnership
Charlotte, North Carolina
We have audited the balance sheets of Interstate Land Investors II,
Limited Partnership (a North Carolina limited partnership) as of December 31,
2002 and 2001 and the related statements of operations, partners' capital and
cash flows for each of the three years in the period ended December 31, 2002.
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 U.S. generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the managing general partner, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Interstate Land
Investors II, Limited Partnership (a North Carolina limited partnership) as of
December 31, 2002 and 2001 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2002 in conformity
with U.S. generally accepted accounting principles.
Charlotte, North Carolina
February 6, 2003
INTERSTATE LAND INVESTORS II,
LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31,
- --------------------------------------------------------------------------------
ASSETS
2002 2001
---------- ----------
Unimproved land held for investment purposes $1,911,500 $1,911,500
Cash and cash equivalents 97,478 129,674
---------- ----------
$2,008,978 $2,041,174
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Accrued expenses $ 376 $ --
---------- ----------
376 --
---------- ----------
PARTNERS' CAPITAL
Class A limited partners' interest
(authorized, 9,588 units; issued
and outstanding, 7,650 units) 2,008,747 2,041,315
Subordinated limited partner's interest 70 71
General partners' capital deficiency (215) (212)
---------- ----------
2,008,602 2,041,174
---------- ----------
$2,008,978 $2,041,174
========== ==========
See Notes to Financial Statements.
- 2 -
INTERSTATE LAND INVESTORS II,
LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
For the three years ended December 31,
- --------------------------------------------------------------------------------
2002 2001 2000
--------- ---------- ----------
INCOME
Sale of real estate $ -- $4,353,360 $ --
Interest 1,313 17,424 3,056
--------- ---------- ----------
1,313 4,370,784 3,056
--------- ---------- ----------
OPERATING EXPENSES
Cost of real estate sold -- 4,986,109 --
Professional fees 28,034 26,707 16,297
Property tax 20 99 197
Interest expense -- 8,306 20,986
General and administrative 5,392 1,873 19,697
--------- ---------- ----------
33,446 5,023,094 57,177
--------- ---------- ----------
Net loss before extraordinary item (32,133) (652,310) (54,121)
EXTRAORDINARY GAIN ON EXTINGUISHMENT
OF LIABILITY - RELATED PARTY -- 131,561 --
--------- ---------- ----------
Net loss $(32,133) $(520,749) $(54,121)
========= =========== ==========
NET LOSS ALLOCATED TO
Class A limited partners $(32,129) $(520,684) $(54,115)
Subordinated limited partner (1) (13) (1)
General partners (3) (52) (5)
--------- ---------- ----------
$(32,133) $(520,749) $(54,121)
========= =========== ==========
Weighted average Class A limited
partnership units outstanding 7,650 7,650 7,650
========= =========== ==========
Net loss per weighted average Class A
limited partnership unit $(4.20) $(68.06) $(7.07)
========= =========== ==========
See Notes to Financial Statements.
- 3 -
INTERSTATE LAND INVESTORS II,
LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' CAPITAL For the three
years ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------
Subordinated
Class A Limited Partners ---------------------------
-------------------------- Limited General
Units Amount Partner Partners Total
----------- ----------- ----------- ----------- -----------
Partners' capital (deficiency) -
December 31, 1999 7,650 $ 6,084,088 $ 85 $ (155) $ 6,084,018
Net loss, year ended
December 31, 2000 -- (54,115) (1) (5) (54,121)
----------- ----------- ----------- ----------- -----------
Partners' capital (deficiency) -
December 31, 2000 7,650 6,029,973 84 (160) 6,029,897
Net loss, year ended
December 31, 2001 -- (520,684) (13) (52) (520,749)
Distributions to partners -- (3,467,974) (--) (--) (3,467,974)
----------- ----------- ----------- ----------- -----------
Partners' capital (deficiency) -
December 31, 2001 7,650 2,041,315 71 (212) 2,041,174
Net loss, year ended
December 31, 2002 -- (32,129) (1) (3) (32,133)
Distributions to partners -- (439) (--) (--) (439)
----------- ----------- ----------- ----------- -----------
Partners' capital (deficiency) -
December 31, 2002 7,650 $ 2,008,747 $ 70 $ (215) $ 2,008,602
=========== =========== =========== =========== ===========
See Notes to Financial Statements.
- 4 -
INTERSTATE LAND INVESTORS II,
LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the three years ended December 31,
- --------------------------------------------------------------------------------
2002 2001 2000
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (32,133) $(520,749) $(54,121)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities
Loss on sale of unimproved land held for
investment purposes - 632,749 -
(Increase) decrease in interest receivable -
related party - 42,361 (2,868)
Increase (decrease) in other liabilities 376 (251,359) 37,195
Proceeds from sale of unimproved land
(net of closing costs totaling $447,609) 3,905,751 -
------- --------- -------
Net cash provided by (used for) operating
activities (31,757) 3,808,753 (19,794)
------- --------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Advance from related party - 15,000 18,000
Distributions to partners (439) (3,467,974) -
Payment on line-of-credit - related party - (175,000) -
Payment on advance from related party (-) (52,754) -
------- --------- -------
Net cash provided by (used for)
financing activities (439) (3,680,728) 18,000
------- --------- -------
Net increase (decrease) in cash and cash
equivalents (32,196) 128,025 (1,794)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 129,674 1,649 3,443
------- --------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 97,478 $ 129,674 $ 1,649
======== ========== =======
See Notes to Financial Statements.
- 5 -
INTERSTATE LAND INVESTORS II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Interstate Land Investors II, Limited Partnership (the Partnership) is
a North Carolina limited partnership formed on July 26, 1989, to acquire
for investment, hold for appreciation and ultimately dispose of, without
substantial improvements, undeveloped land in York County, South
Carolina. The Partnership acquired 97 acres of such land in November
1989 and an additional 48 acres in November 1990. The Partnership shall
continue its existence without interruption subject to the terms and
conditions set forth in the partnership agreement and the provisions of
the Revised Uniform Limited Partnership Act of the State of North
Carolina.
Until January 1, 1992, the managing general partner was Performance
Investments, Inc. (PII), which is 100% owned by Mr. William Garith Allen
and a family member. Mr. Allen and ISC Realty Corporation (ISCR) are
also general partners in the Partnership and effective January 1, 1992,
assumed the role of co- managing partners. In November 1991 PII
consented to the conversion of its interest to that of a Class A limited
partner, to become effective January 1, 1992. PII, however, retains the
same interest in the Partnership's net profit, losses and distributions
as it had as a general partner subject to the same priority of the other
Class A limited partners. In December 1993, upon the approval of 67% of
the Class A limited partners' interest and upon meeting certain
conditions in the partnership agreement, the partners exercised their
one-time right to direct the general partners to sell the property at a
price no less than $11,104,839, reduced by the proceeds from any
previous sales. The property was to be sold by November 1994, or at that
time Mr. Allen would agree to either (i) purchase the property from the
Partnership on such date at the purchase price or, (ii) elect not to
purchase the property at the purchase price but instead forfeit his
right to receive subordinated returns, withdraw as a general partner and
transfer his general partnership interest to ISCR. In 1997 Mr. Allen
executed an assignment of his partnership interests and forfeited his
right to subordinated returns by the transfer of his interest and PII's
interest to ISCR.
The general partners are solely responsible for the day-to-day
management and operation of the property. ISCR is responsible for
certain administrative functions of the Partnership and beginning in
November 1989, is entitled to an annual administrative fee equal to .25%
of the cost of the property acquired. Payment of such administrative fee
is deferred until the sale of the property and the return of the Class A
limited partners' invested capital plus their preferred return, as
defined. Any such deferred fee will accrue interest at the prime rate
plus 1%. In 2002, management of ISCR determined that this fee would
never be paid. Accordingly, the fee was written-off as uncollectible and
reported as an extraordinary gain on extinguishment of debt.
CASH EQUIVALENTS
For the purposes of the statements of cash flows, the Partnership
considers all highly liquid investments having maturities of three
months or less to be cash equivalents. At December 31, 2002 and 2001,
the Partnership's cash consisted of monies deposited through Wachovia
Securities, Inc. (a related company to ISCR) in a money market fund.
UNIMPROVED LAND HELD FOR INVESTMENT PURPOSES
The costs of acquiring land, including related closing and
predevelopment costs, are capitalized and will be allocated to cost of
sales as sales of the property occur. In the fourth quarter of 2000, the
Partnership recorded a write-down of the carrying amount of their
property of approximately $84,000 to reflect the general partner's
estimate of the property's estimated realizable value.
- 6 -
INTERSTATE LAND INVESTORS II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
UNIMPROVED LAND HELD FOR INVESTMENT PURPOSES, CONTINUED
On May 11, 2001, the Partnership sold 97 acres of unimproved land held
by the Partnership for $4,338,360. The Partnership sold an additional
one-third acre of unimproved land as right-of-way for $15,000 on May 10,
2001.
ORGANIZATIONAL AND SYNDICATION COSTS
Various expenses and fees paid in connection with organizing the
Partnership (including an organizational fee paid to ISCR amounting to
$159,000 in 1990 and an additional $66,000 in 1991) have been
capitalized and amortized using the straight-line method over a 60-month
period. These costs have been fully amortized in prior years. Other fees
and expenses related to the sale of limited partnership interests in the
Partnership have been classified as syndication costs and include sales
commissions paid to Interstate/Johnson Lane Corporation, a related
company to ISCR, of $377,644 in connection with the initial offering in
1989 and $116,305 in connection with the secondary offering in 1990.
These costs were charged directly against partners' capital.
INCOME TAXES
Items of income or loss of the Partnership are included in the income
tax returns of the partners. Accordingly, the Partnership makes no
provision for federal and state income taxes.
NET LOSS PER CLASS A LIMITED PARTNERSHIP UNIT
Net loss per weighted average Class A limited partnership unit is
calculated based on the loss allocated to such partners without giving
consideration to the conversion of PII's general partner interest (see
Note 7).
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMEnts
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 the value.
Cash, Cash Equivalents, Receivables, Accounts Payable and Accrued
Expenses - The carrying amount approximates fair value because of
the short-term nature of these instruments.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
- 7 -
INTERSTATE LAND INVESTORS II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2 - UNIMPROVED LAND HELD FOR APPRECIATION
PROVISION FOR WRITE-DOWN OF UNIMPROVED LAND
The general partner periodically reviews the recorded value of its
long-lived assets to determine if the future cash flows to be derived
from these assets will be sufficient to recover the recorded asset
values. During the fourth quarter of 1999, the Partnership recorded a
non-cash charge of approximately $84,000, or approximately $11 per
limited partnership unit, to write-down its unimproved land to its
estimated realizable value. This charge was reflected in the basis of
the property sold in 2001. Management deems that the market value of the
land held for investment purposes at December 31, 2002 is in excess of
its cost.
NOTE 3 - ALLOCATIONS AND DISTRIBUTIONS OF NET PROFITS AND LOSSES
Under the terms of the partnership agreement, net profit and distributions
of available cash in each year prior to a sale of the property will be
allocated 99% to the Class A limited partners and 1% to the general
partners. Net losses shall be allocated among all partners in accordance
with their respective capital accounts. Special allocations are provided
for any gains or losses arising from the sale of the property and for the
related cash distributions.
NOTE 4 - RELATED PARTIES AND RELATED PARTY TRANSACTIONS
In connection with the initial acquisition of the property in 1989, the
Partnership paid PII and Gold Hill Investment Associates (a partnership of
Gold Hill Limited Partnership and an affiliate of Mr. Allen) a total of
$322,207 for the assignment of options to acquire the two tracts of land
which comprise the property and for reimbursement of Gold Hill Investment
Associates' (Gold Hill) and PII's holding costs in the options (which
totaled approximately $126,750). The total cost, along with legal and other
acquisition expenses, is included in the land on the accompanying balance
sheets.
In connection with the consent entered into during November 1991 (see Note
1), the amount will be offset against any amounts due PII or Mr. Allen in
connection with the sale of the property. This receivable was written-off
as uncollectible in 2001 and is netted against the liabilities of ISCR,
which were forgiven in 2001 and included in the extraordinary item as an
extinguishment of debt.
In November 1990, the Partnership acquired approximately 48 acres of
property from Gold Hill at a purchase price of $1,906,517. The partners of
Gold Hill agreed to accept, as part of the purchase price, 533 units of
Class A limited partner interests and granted a credit on the purchase
price of $495,690, which represents the cost of 533 units at $1,000 per
unit less selling commissions.
In 1989, ISCR purchased 106 units of Class A limited partner interests at
the full offering price ($1,000 a unit). In 1990, ISCR contributed
two-thirds of its fee received for additional organizational costs to
purchase 44 Class A limited partner interests at $1,000 per unit. These
units are included in Class A limited partners' interest on the balance
sheets. Also, the general partners, their affiliates and their employees
purchased units of Class A limited partner interests at 3.5% discount. The
total discounts amounted to $385 in 1990 and $3,360 in 1989, representing
11 and 66 units, respectively.
- 8 -
INTERSTATE LAND INVESTORS II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4 - RELATED PARTIES AND RELATED PARTY TRANSACTIONS, CONTINUED
The Partnership incurred expense of approximately $16,200 in 2000 for
services rendered by ISCR in connection with certain administrative
functions of the Partnership. Since payment of these fees is deferred as
described in Note 1, they are included in accrued administrative fees in
the accompanying balance sheets, and as general and administrative expenses
in the accompanying statements of operations. The accompanying liability
was forgiven by ISCR in 2001 and this is included in the extraordinary item
as an extinguishment of debt.
See Note 1 for fees paid to ISCR and its affiliates in connection with
organizing the Partnership and the subsequent sale of limited partnership
interests.
NOTE 5 - LINE-OF-CREDIT FROM RELATED PARTY
On May 23, 1995, the Partnership obtained a line-of-credit from ISCR to
utilize as needed. Interest was charged on this line-of-credit at 2% above
the announced prime-lending rate of Bank of America, resulting in a rate of
0% and 11.5% at December 31, 2002 and 2001, respectively. ISCR received a
mortgage and assignment of rents and leases on the property as security.
Interest accrued on this line-of-credit which would be paid along with the
outstanding principal balance on the earlier of:
o Sale or disposition of all or any portion or part of the property
securing the mortgage instrument;
o the date ISCR is removed as managing general partner of the
Partnership; or
o the date the Partnership terminates its legal existence.
A portion of the proceeds from the sale of unimproved land on May 11,
2001, totaling $313,543, was used to pay the line-of-credit and accrued
interest.
During the years ended December 31, 2002, 2001 and 2000, interest expense
of $0, $85,014 and $0, respectively, was paid to ISCR.
NOTE 6 - SALE OF UNIMPROVED LAND HELD FOR INVESTMENT PURPOSES
On June 29, 2000, the Partnership entered into a contract to sell 97 acres
of the Partnership's 145 acres of unimproved land held for sale. A majority
of the limited partners approved the sale of unimproved land on August 7,
2000.
Subsequently, on May 11, 2001, the Partnership sold the 97 acres of
unimproved land held for investment purposes related to this contract. The
Partnership realized a loss related to this sale calculated as follows:
Sales proceeds $ 4,353,360
Less: Carrying value of acreage sold (4,538,500)
Less: Selling costs (447,609)
-------------
Loss on sale $ (632,749)
=============
In 1999, the Partnership recorded an impairment loss in order to reflect
management's expected cash flow from its land held for sale. Management
believes the expected cash flow from the remaining 48 acres of unimproved
land held for sale will be greater than the carrying value.
- 9 -
INTERSTATE LAND INVESTORS II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7 - RECONCILIATION OF FINANCIAL STATEMENT NET LOSS TO TAXABLE LOSS
A reconciliation of financial statement net loss and taxable loss is as
follows:
2002 2001 2000
--------- ---------- ---------
Financial statement net loss $(32,133) $(520,749) $(54,121)
Less: Temporary non-taxable
income from related party - - (2,868)
Less: Expenses deductible for tax
purposes in excess of book - (128,151) -
Less: Tax loss on sale of property in
excess of book loss - (84,310) -
Less: Excludable gain for tax purposes
on extinguishments of debt from
related party - (131,561) -
Plus: Temporary non-deductible
expenses to related party - - 37,195
--------- ---------- ---------
Taxable loss $(32,133) $(864,771) $(19,794)
========= ========== =========
- 10 -