UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 1997
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 2-89185
GULLEDGE REALTY INVESTORS II
Virginia 54-1191237
(State of incorporation) (I.R.S. Employer Identification No.)
One North Jefferson, St. Louis, Missouri 63103
Registrant's telephone number: 314-955-3000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Limited Partnership Interests
(Title of class)
________________
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 (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
Documents Incorporated by Reference:
1. Registration Statement (No. 2-89185) of Registrant effective April 30, 1984
(the "Registration Statement").
2. Prospectus of Registrant dated April 30, 1984 (the "Prospectus").
3. Supplement No. 1 dated October 8, 1984 to Prospectus.
4. Supplement No. 2 dated February 6, 1985 to Prospectus.
5. Supplement No. 3 dated April 18, 1985 to Prospectus.
TABLE OF CONTENTS
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for the Registrant's Common Stock and Related
Security Holder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on
Form 8-K
SIGNATURES
PART I
ITEM 1. BUSINESS.
Gulledge Realty Investors II, L.P., ("Registrant" or "Partnership") is a
Virginia limited partnership formed to invest as a limited partner in other
limited partnerships ("Project Partnerships") that own and operate apartment
complexes ("Projects") that are financed and/or operated under federal or state
housing assistance programs. Part of the objective of the Registrant is to
generate tax losses for investors. However, due to changes in the tax
regulations, the use of these losses has been restricted for most investors.
Gull-AGE Properties, Inc. ("General Partner"), a Delaware corporation, is the
General Partner of the Registrant. The stock of the General Partner is owned by
Gull-AGE Capital Group, Inc., whose stock was originally owned 50% by the
Gulledge Corporation ("Gulledge"), the former General Partner, and 50% by A.G.
Edwards, Inc. ("Edwards"), a St. Louis-based financial services holding company.
In March of 1988, Edwards, through an affiliate, acquired all the shares of
Gull-AGE Capital Group, Inc. formerly held by Gulledge. Edwards' principal
subsidiary, A.G. Edwards & Sons, Inc., a securities and commodities broker-
dealer, was a principal distributor of Units of the Registrant. As a result,
neither the General Partner nor Gull-AGE Capital Group, Inc. has any current
affiliation with Gulledge.
On November 1, 1990, Gull-AGE Properties, Inc. was approved by a majority-of-
interest of holders of limited partner units to become the sole General Partner
of the Registrant. Gull-AGE Properties, Inc. replaced the Gulledge Corporation
as Managing General Partner and Eugene A. Gulledge and Keith A. Gulledge as
individual General Partners.
Pursuant to the Securities Act of 1933, the Registrant filed a Form S-11
Registration Statement with the Securities and Exchange Commission. Reference
is made to the Prospectus contained in said Registration Statement declared
effective April 30, 1984.
Commencing on April 30, 1984, the Registrant began offering through Gulledge
Securities Corporation ("Selling Agent") and other broker-dealers up to 10,000
units (with an option to sell up to 25,000 units) of limited partnership
interest (the "Units") at $1,000 per unit ("Offering"), with a minimum purchase
of five Units ($5,000).
As of September 30, 1985, the date that the offering terminated, the
Registrant had accepted subscriptions for 11,458 units from 1,041 Investor
Limited Partners and 356 units from General and Special Limited Partners.
<TABLE>
<CAPTION>
As of December 31, 1997, the Registrant has investments in Project
Partnerships which own the Projects listed below:
Year Housing Original Offering Acquisition Government
PROJECT Complete Units Mortgages Proceeds Fees Programs
<S> <C> <C> <C> <C> <C> <S>
1. Carriage House 1973 240 $ 4,860,050 $ 2,175,000 $ 195,750 HUD Section
of Florence Apts. 236
Florence, KY
2. Olympic Village Apts. 1977 320 $ 5,989,253 $ 2,720,000 $ 244,800 HUD Sections
Chicago Heights, IL 8 and
221(d)(4);
Illinois HDA
3. Hawthorn Ridge Apts. 1977 176 $ 4,196,243 $ 1,836,000 $ 164,700 HUD Section
Woodbridge, IL 8; IL HDA
4. Greentree Apts. 1977 100 $ 1,783,912 $ 591,250 $ 53,200 HUD Sections
Wilmington, NC 8 and 236
5. Colony Place Apts. 1970 100 $ 1,744,265 $ 598,750 $ 53,950 HUD Sections
Fayetteville, NC 8 and 236
6. Country Oaks Apts. 1986 36 $ 1,054,350 $ 264,000 $ 23,760 FmHA 515
Somerville, TN
7. Rancho Vista Apts. 1986 28 $ 992,920 $ 239,500 $ 21,500 FmHA 515
Wickenburg, AZ
8. Pine West Apts. 1986 48 $ 1,282,500 $ 300,000 $ 27,000 FmHA 515
Indianola, MS
1,238 $ 24,129,046 $ 10,174,500 $ 915,160
</TABLE>
Although each Project must compete in the market place for tenants, interest
subsidies and/or rent supplements from governmental agencies make it possible to
offer certain of these dwelling units to eligible tenants at a cost
significantly below the market rate for comparable conventionally-financed
dwelling units.
ITEM 2. PROPERTIES.
Other than its interests in the Project Partnerships, the Registrant does not
own any property. The General Partner believes that the projects described
below are all in satisfactory physical condition.
Average Effective
Occupancy Monthly Rental
Project 1997 1996 1997 1996
Carriage House of Florence 98% 96% $349 $324
Olympic Village Apts. 96% 96% $804 $797
Hawthorn Ridge Apts. 97% 97% $762 $752
Greentree Apts. 98% 98% $328 $328
Colony Place Apts. 96% 96% $302 $299
Country Oaks Apts. 94% 96% $224 $224
Rancho Vista Apts. 96% 98% $290 $290
Pine West Apts. 94% 93% $264 $264
The Registrant had owned an investment in Camelot Housing which defaulted on its
mortgage in June 1995. The default was primarily caused by a decrease in
housing assistance payments from HUD and a resulting decline in occupancy.
Due to a significant amount of housing quality standard violations noted by
HUD in a physical inspection report, HUD greatly reduced its housing
assistance payments until such time as the repairs were completed. Without
the payments from HUD, the Project Partnership was unable to make its
mortgage payments. The mortgage was assigned to HUD at which time HUD
initiated foreclosure proceedings. The proceedings concluded during 1996.
The effect on the Registrant's financial statements was negligible because
the investment in Project Partnerships was reduced to zero several years ago.
Also, this Project Partnership never paid distributions nor was it expected
to do so for the foreseeable future. In addition, the tax effect of the
foreclosure is negligible as losses from other Project Partnerships are
available to offset the gain due to the foreclosure.
ITEM 3. LEGAL PROCEEDINGS.
The Registrant is not currently subject to any pending material legal
proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS.
As of December 31, 1997, the number of holders of units was 1,039.
The Registrant is a limited partnership and thus has no common stock. There
is no ready market for the Units and it is not anticipated that there will be
any market. Any acquisitions or dispositions of Units that have occurred have
been the result of private transactions, usually between related parties, and
the Registrant has no knowledge of the prices bid for or asked with respect to
the Units. The General Partner has no plans to offer any services that would
match prospective buyers with prospective sellers of Units.
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Income from Distributions
and Other Miscellaneous
Revenue $ 73,251 $ 45,946 $ 83,495 $ 109,886 $ 13,434
Equity Losses of Project
Partnerships (2,695,167) -0- -0- -0- -0-
Operating Expenses (248,899) (159,279) (132,509) (142,197) (137,285)
Net Loss $(2,870,815) $(113,333) $ (49,014) $ (32,311) $ (123,851)
Investment in Project
Partnerships $ 976,602 $ -0- $ -0- $ -0- $ -0-
Total Assets $ 1,498,463 $ 449,902 $ 448,855 $ 387,789 $ 303,545
Net Loss per
partnership unit $ (243) $ (10) $ (4) $ (3) $ (10)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULT OF OPERATIONS.
The net loss for 1997 was $2,870,815 compared to $113,333 for 1996 and
$49,014 for 1995 (see Items 6 and 14(a)1). The net loss for 1997 increased by
$2,757,482 which is primarily due to the Registrant recognizing losses from one
Project Partnership (Hawthorn) that had not been recognized in prior years.
This occurred due to the transaction described in the following two paragraphs.
During 1997, Hawthorn refinanced its mortgage and used the proceeds to make a
partial payment to the holder of a promissory note. The remaining balance of
the promissory note ($3,748,687) was assumed by the Registrant. Payment terms
are very similar to when Hawthorn held the promissory note. The promissory note
bears simple interest at a rate of 9%. Principal and interest payments can only
be made from distributions received from Hawthorn. The Registrant is not
required to use distributions from any other Project Partnerships to make
payments on this promissory note.
In conjunction with the assumption of the promissory note, the Registrant
recorded an investment in Hawthorn equal to the balance of the promissory note
assumed. Following the equity method of accounting for investments in project
partnerships, the Registrant was then required to reduce the investment balance
by previously unrecognized losses from Hawthorn. Recognition of prior years'
unrecorded losses of $2,695,167 is the primary reason for the large increase in
net loss for 1997 compared to prior years. See footnote F of Item 14(a)1 for
more information.
Distribution income received from all the Project Partnerships was $52,702 in
1997 compared to $26,763 in 1996 and $63,895 in 1995. Income from distributions
increased in 1997 compared to 1996 primarily due to two Project Partnerships
that paid distributions in 1997 but did not pay distributions in 1996.
Distribution income decreased and the net loss increased in 1996 compared to
1995 primarily due to a decrease in distribution income received from one
Project Partnership (Olympic). Under the terms of a renegotiated promissory
note, the noteholder now receives a greater portion of Olympic's surplus cash as
partial payment of the annual interest due on the promissory note.
Operating expenses increased in 1997 compared to prior years primarily due to
two items: interest expense on the promissory note assumed from Hawthorn as
described earlier and additional expenses related to a settlement of outstanding
items with the Former General Partner.
The accounting for an investment in a Project Partnership involves decreasing
the Registrant's investment in each Project Partnership by the Registrant's
share of the Project Partnership's loss until that investment reaches zero.
Losses incurred by a Project Partnership subsequent o the Registrant's
investment reaching zero are not reflected in the Registrant's financial
statements until such time as the Project Partnership reports net income.
Losses reported from the Project Partnerships are primarily the result of
depreciation expense and interest expense incurred on nonrecourse government
backed debt and nonrecourse secondary financing loans. These losses, in and of
themselves, do not accurately portray the surplus cash or excess cash (as
defined by HUD and Farmers' Home regulations) generating potential of the
projects, such surplus cash being available for distribution to the partners of
the Project Partnerships. The Registrant treats distributions as income, if the
investment in the Project Partnership is zero, or as a return or withdrawal of
capital invested in the Project Partnership, if the investment is above zero.
As of December 31, 1992, all investments in Project Partnerships were reduced to
a zero book basis; therefore, subsequent losses were not reported for financial
statement purposes. Now that the Registrant has a book basis in Hawthorn, as
discussed earlier, losses from Hawthron will be reported for financial statement
purposes until the book basis is reduced to zero. Tax basis losses from all the
Project Partnerships remain available to the Registrant's investors.
The Registrant's ownership interest in several of the Project Partnerships is
pledged as collateral in connection with promissory notes issued by the Project
Partnerships. The General Partner attempts to refinance the promissory notes as
they come due in order to avoid foreclosure by the noteholders and to continue
to defer the adverse tax consequences that would result from foreclosure. If
the General Partner were ever unable to renegotiate a promissory note, the
noteholder would likely exercise his rights to the collateral and seize the
Project Partnership. This would cause the Registrant to realize a gain for tax
purposes primarily due to the recapture of accelerated depreciation taken in
prior years.
The assets of the Registrant are illiquid. The primary source of cash to
finance day-to-day operations is from distributions, if any, to the Registrant
from the Project Partnerships. Due to a low volume of transactional activity,
the Registrant's need for cash to finance day-to-day operations is minimal. The
ability to sell the Registrant's assets, i.e. the Project Partnerships, is
limited by the overall market conditions in the geographic areas where the
Projects operate and, potentially, the ability of the Projects to qualify for
Low Income Housing Tax Credits. In addition, the purchase of these interests
was intended, and remains, to be for long-term investment purposes.
The distribution received from Project Partnerships in a given year is affected
by regulatory restrictions and limitations and by the operations of the Project
Partnerships. Operations of the Project Partnerships is, in turn, affected by
several factors, among which are:
Inflation and changing economic conditions involving the management and
ownership of rental real estate. Vacancy levels, rental payment defaults and
operating expenses are all dependent on general and local economic conditions.
Shifts in these conditions could impact operating results of the Project
Partnerships.
The need for capital additions or improvements may limit the amount of cash
available for distribution.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements of the Registrant are filed herewith (See
Item 14(a)1). The supplementary financial information specified by
Item 302 of Regulation S-K is not applicable.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Registrant has no officers or directors. The General Partner is Gull-AGE
Properties, Inc. The following is information concerning the officers and
directors of the General Partner, all of which are compensated by A.G. Edwards &
Sons, Inc., an affiliate of the General Partner:
Name Position
Robert L. Proost Director, President and
Treasurer
Robert J. Herleth Vice President and
Assistant Secretary
Douglas L. Kelly Secretary
Eugene J. King Assistant Treasurer
Robert L. Proost, age 60, has been a Director of the General Partner,
President and Treasurer since March 1, 1997. Mr. Proost succeeds
David W. Mesker who retired on February 28, 1997. Mr. Proost has been Treasurer
of Edwards since March 1, 1997. He is currently Treasurer, Corporate Vice
President, Assistant Secretary and Director of Administration of A.G. Edwards &
Sons, Inc., of which he has been an employee since 1988. Prior to joining A.G.
Edwards & Sons, Inc. he was a partner in Peper, Martin, Jensen, Maichel and
Hetlage, a St. Louis area law firm. He is also President of A.G.E. Realty
Corp., the Special Limited Partner, which owns other real estate properties and
interests, and President of The Ceres Investment Company, a wholly-owned
subsidiary of A.G. Edwards & Sons, Inc., which serves as general partner in
several limited partnerships which invest in commodities futures.
Robert J. Herleth, age 45, is a Vice President of the General Partner and
manages the operations of the General Partner. Mr. Herleth joined A.G.
Edwards & Sons, Inc., an affiliate of the General Partner, in 1980. Since then
he has specialized in the areas of real estate and finance. He is also Vice
President of A.G.E. Realty Corp., the Special Limited Partner, which owns other
real estate properties and interests and Vice President of Edwards Development
Corporation which serves as general partner for a limited partnership that owned
a large apartment project in Indianapolis, Indiana, that was sold in 1996.
Prior to joining A.G. Edwards & Sons, Inc., Mr. Herleth was employed by Pantheon
Corporation, a St. Louis area real estate development firm.
Douglas L. Kelly, age 49, is Secretary of the General Partner. Mr. Kelly
succeeds Ronald E. Buesinger who retired on February 28, 1994. Mr. Kelly joined
A.G. Edwards & Sons, Inc., an affiliate of the General Partner, on January 1,
1994 and serves as Director, Vice President, Corporate Secretary and Director of
Law and Compliance. Prior to joining A.G. Edwards & Sons, Inc., Mr. Kelly was a
partner in Peper, Martin, Jensen, Maichel & Hetlage, a St. Louis area law firm,
where he served as outside counsel to A.G. Edwards & Sons, Inc. for eight years.
Eugene J. King, age 66, is the Assistant Treasurer of the General Partner.
Mr. King joined A.G. Edwards & Sons, Inc., an affiliate of the General Partner
in 1971 as Corporate Controller. He also serves as Director and Senior Vice
President of A.G. Edwards & Sons, Inc.
The General Partner does not have any standing audit, nominating or
compensation committees.
ITEM 11. EXECUTIVE COMPENSATION.
Under the provisions of the Registrant's Limited Partnership Agreement, the
General Partner is entitled to receive an asset management fee (an annual
cumulative amount of $114,580) and a program management fee (an annual
noncumulative amount up to $59,250). The amount of these fees paid during 1997
were $0 for the asset management fee and $0 for the program management fee. The
accumulated amount of these fees accrued but not paid to the General Partner at
December 31, 1997 are $1,031,140 and $0, respectively. Additionally, $246,964
of accrued asset management fees remain unpaid to a former General Partner. The
ability to pay the program management fee is limited by payment of priority
items as outlined in the Registrant's Limited Partnership Agreement.
The General Partner is also to receive a fee of 1% of the gross capital
proceeds generated by the Project Partnerships, for services connected with the
disposition of Partnership investments. This payment is limited by payment of
priority items as outlined in the Registrant's Limited Partnership Agreement.
In addition, the General Partner will receive any fees to which the prior
General Partners would be entitled for performing services with respect to the
Project Partnerships of which the Registrant is the limited partner.
Please refer to Note C of the financial statements referenced under
Item 14(a)1 for additional information.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The General Partner owns a 1.1% interest in the Registrant and its affiliate,
A.G.E. Realty Corporation, owns a 0.10% interest in the Partnership as Special
Limited Partner. As of December 31, 1997, no person was known by the Registrant
to be the beneficial owner of more than a 5% interest in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
An affiliate of Gull-AGE Properties, Inc., A.G.E. Realty Corp. holds a .10%
interest in the Registrant as a Special Limited Partner.
Please refer to Item 11 for additional information.
PART IV
ITEM 14.EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) The following financial statements are included:
1. Financial Statements of the Registrant (filed herewith as Exhibit 13).
Independent Auditors' Report.
Balance Sheets as of December 31, 1997 and 1996.
Statements of Operations for the three years in the period ended
December 31, 1997.
Statements of Changes in Partners' Capital (Deficit) for the three
years in the period ended December 31, 1997.
Statements of Cash Flows for the three years in the period ended
December 31, 1997.
Notes to Financial Statements.
Financial Statements of Unconsolidated Limited Partnership meeting
requirements of significant subsidiary/investee (Exhibit 21).
Material Contract (filed herewith as Exhibit 10)
No financial schedules are applicable.
Management will provide, without charge, a copy of the Registrant's
annual report on Form 10-K.
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K for the year ended December 31,
1997.
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.
April 13, 1998 GULLEDGE REALTY INVESTORS II
(Registrant)
By: Gull-AGE Properties, Inc.
(General Partner)
By:/s/Robert L. Proost
Robert L. Proost
President & Treasurer
& Director
By:/s/Robert J. Herleth
Robert J. Herleth
Vice President
By:/s/Eugene J. King
Eugene J. King
Assistant Treasurer
GULLEDGE REALTY INVESTORS II, L.P.
(A VIRGINIA LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
INDEPENDENT AUDITORS' REPORT
To the Partners of
Gulledge Realty Investors II:
We have audited the accompanying balance sheets of Gulledge Realty Investors II
(a limited partnership) as of December 31, 1997 and 1996, and the related
statements of operations, changes in partners' capital (deficit) and cash flows
for each of the three years in the period ended December 31, 1997. 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
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, such financial statements present fairly, in all material
respects, the financial position of Gulledge Realty Investors II as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.
April 3, 1998
St. Louis, Missouri
GULLEDGE REALTY INVESTORS II, L.P.
(A VIRGINIA LIMITED PARTNERSHIP)
BALANCE SHEETS
December 31,
Assets 1997 1996
Cash and cash equivalents $ 490,764 $ 366,271
Advances to Project Partnerships 31,097 62,158
Investment in
Project Partnerships (Note F) 976,602
Intangible assets, net of
accumulated amortization of
$2,268,294 and $2,246,821 (Note B) 21,473
Total Assets $ 1,498,463 $ 449,902
Liabilities and Partners' Capital (Deficit)
Accounts payable $ 7,000 $ 14,000
Payable to affiliates (Note E) 1,278,104 1,144,783
Capital contributions payable 50,000 50,000
Note Payable (Note F) 3,793,055
Total Liabilities 5,128,159 1,208,783
Partners' Capital
(Deficit) (Note C) (3,629,696) (758,881)
Total Liabilities and
Partners' Capital (Deficit) $ 1,498,463 $ 449,902
See Notes to Financial Statements.
GULLEDGE REALTY INVESTORS II, L.P.
(A VIRGINIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
Year Ended December 31,
1997 1996 1995
Revenue and equity in
Project Partnerships' operations:
Interest $ 20,549 $ 19,183 $ 19,600
Distributions from
Project Partnership 52,702 26,763 63,895
Equity in loss of
Project Partnerships (2,695,167)
Miscellaneous revenue 4,274
(2,621,916) 45,946 87,769
Expenses:
Asset Mgmt. fee (Note E) 114,580 114,580 114,580
Interest expense 44,368
Professional fees 8,553 29,055 14,000
Amortization 21,473 6,129 6,129
Operating expenses 59,925 9,515 2,074
248,899 159,279 136,783
Net Loss $(2,870,815) $(113,333) $(49,014)
See Notes to Financial Statements.
<TABLE>
<CAPTION>
GULLEDGE REALTY INVESTORS II, L.P.
(A VIRGINIA LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
THREE YEARS ENDED DECEMBER 31, 1997
Special
Total General Limited Limited
<S> <C> <C> <C> <C>
Balances at January 1, 1995 $ (596,534) $(15,153) $(27,346) $ (554,035)
Net loss for 1995 (49,014) (539) (931) (47,544)
Balances at December 31, 1995 (645,548) (15,692) (28,277) (601,579)
Net loss for 1996 (113,333) (1,247) (2,153) (109,933)
Balances at December 31, 1996 (758,881) (16,939) (30,430) (711,512)
Net loss for 1997 (2,870,815) (31,579) (54,545) (2,784,691)
Balances at December 31, 1997 $(3,629,696) $(48,518) $(84,975) $(3,496,203)
</TABLE>
See Notes to Financial Statements.
<TABLE>
<CAPTION>
GULLEDGE REALTY INVESTORS II, L.P.
(A VIRGINIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss $(2,870,815) $(113,333) $ (49,014)
Adjustments to reconcile net loss to
net cash used in operating activities:
Equity in loss of Project Partnership 2,695,167
Distributions from zero-basis
Project Partnerships (52,702) (26,763) (63,895)
Amortization 21,473 6,129 6,129
Change in assets and liabilities:
Decrease (increase) in advances to
Project Partnerships 31,061 (12,125) (48,167)
Increase in interest payable 44,368
Decrease in accounts payable (7,000) (200) (4,500)
Increase in payable to affiliates 133,321 114,580 114,580
Net Cash Used In Operating Activities (5,127) (31,712) (44,867)
Cash Flows From Investing Activities:
Distributions from all Project Partnerships 129,620 26,763 63,895
Net Increase (Decrease) In Cash and Cash Equiv. 124,493 (4,949) 19,028
Cash and Cash Equivalents-Beginning of Year 366,271 371,220 352,192
Cash and Cash Equivalents-End of Year $ 490,764 $ 366,271 $ 371,220
Supplemental disclosure of noncash financing and
investing activities:
Additional investment in partnerships
through assumption of Notes Payable $ 3,748,687
</TABLE>
See Notes to Financial Statements.
GULLEDGE REALTY INVESTORS II, L.P.
(A VIRGINIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1997
Note A Summary of Significant Accounting Policies
Partnership Organization
Gulledge Realty Investors II (the Partnership) is a limited
partnership organized on December 1, 1983 under the laws of the
Commonwealth of Virginia for the purpose of acquiring limited partner
interests in real estate limited partnerships (Project Partnerships).
These Project Partnerships are known as Florence Housing Partnership,
Colony Place Associates, Ltd., Greentree Housing Limited Partnership,
Camelot Housing Limited Partnership, Hawthorn Housing Limited
Partnership, Olympic Housing Limited Partnership, Country Oaks
Apartments Limited Partnership, Pine West Ltd., and Rancho Vista
Associates. Except for Camelot Housing (see Note F), each of the
Project Partnerships is an operating real estate project which
receives mortgage interest and/or rental assistance from the United
States Department of Housing and Urban Development (HUD) or Farmer's
Home Administration. The Partnership commenced operations on March 1,
1984.
The financial statements include only those assets, liabilities, and
results of operations which relate to the business of Gulledge Realty
Investors II and do not include any assets, liabilities, or operating
results attributable to the partners' individual activities.
In November 1988, the General Partners (Eugene A. Gulledge, Keith A.
Gulledge and The Gulledge Corporation) filed for bankruptcy. The
Limited Partnership Agreement allows for the replacement of a General
Partner in such circumstances subject to Limited Partner approval. In
November 1990, by approval of a majority vote of the limited
partnership units, Gull-AGE Properties, Inc. (GAP) replaced Eugene A.
Gulledge, Keith A. Gulledge and The Gulledge Corporation as the sole
General Partner. GAP is not affiliated with the Gulledges or their
affiliates. GAP had been performing certain administrative duties on
behalf of the Gulledges since the bankruptcy filing. As General
Partner, GAP will continue the operation of the Partnership in
accordance with the Limited Partnership Agreement.
Cash and Cash Equivalents
The Partnership considers interest bearing money market account
balances to be cash equivalents.
Investment in Project Partnerships
The investment in Project Partnerships is accounted for using the
equity method of accounting. Under the equity method, investments are
reflected at cost, adjusted for the Partnership's share of the Project
Partnerships' income or loss. The Partnership is under no obligation
to contribute additional capital, or to lend monies necessary to fund
cash flow deficiencies of the Project Partnerships, because the
Partnership is a limited partner in such partnerships. The investment
account will not be reduced below zero because the Partnership is not
liable for Project Partnership losses in excess of such investment.
Any distributions received from the Project Partnerships subsequent to
reducing the investment account to zero, will be recognized as income
in the year received.
Income Taxes
No provision has been made for current or deferred income taxes since
they are the responsibility of each partner. Profits (or gains) and
losses of the Partnership are allocated to the partners in accordance
with the partnership agreement.
Use of 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
significantly from those estimated.
Note B Intangible Assets
Intangible assets include costs and fees paid to The Gulledge
Corporation for providing services relating to organization and
management, and the acquisition of the properties on behalf of the
Project Partnerships. The fees were amortized on a straight-line
basis over the period of estimated future benefit. As of December 31,
1997, all intangible assets were fully amortized.
Note C Partners' Capital (Deficit)
Profits and losses of the Partnership are allocated pro-rata to the
partners in accordance with their interest as follows:
General partner (131 units) 1.1%
Special limited partners (225 units) 1.9
Investor limited partners (11,458 units) 97.0
100.0%
Upon dissolution and termination of the Partnership, the net proceeds
resulting from the sale of Partnership assets are first used to pay
all debts and liabilities of the Partnership; next, to repay capital
contributions of the partners less any prior cash distributions; then,
to the payment of a cumulative disposition fee to the General Partner,
with any remaining funds allocated as follows:
General partner 4.0%
Special limited partners 6.0
Investor limited partners 90.0
100.0%
In the event that net operating revenues, as defined, are realized
during any fiscal year, an annual noncumulative program management fee
of up to $59,250 is payable to the managing General Partner. The fee
represents compensation for maintaining the Partnership's books,
records and accounts per the Partnership agreement. The amount of the
program management fee plus the asset management fee accrued each year
shall not exceed .5% of invested assets, as defined in the
Partnership's Limited Partnership Agreement.
Upon the distribution of capital proceeds by the Partnership, the
General Partner is authorized to receive a cumulative disposition fee
equal to 1% of the capital proceeds generated through the sale of
Project Partnerships to the extent such proceeds exceed priority
payments as defined in the Partnership Agreement.
Note D Reconciliation of Operations: Financial Statement Versus Income Tax
Return
<TABLE>
<CAPTION>
The financial statement loss is reconciled to income tax (loss) gain
for the years ended December 31, 1997, 1996 and 1995 as follows:
1997 1996 1995
<S> <C> <C> <C>
Net Loss per financial statements $ (2,870,815) $(113,333) $ (49,014)
Add: equity in loss of Project
Partnership for financial
statement purposes in excess
of equity in loss of Project
Partnership for tax return purposes 2,695,167
Less: equity in (losses) gains of
Project Partnerships for tax
return purposes in excess of
equity in (losses) gains of
Project Partnerships for financial
statement purposes (1,531,938) 1,121,625 (1,743,656)
Distributions received from zero-basis
Project Partnership (52,702) (26,763) (63,895)
Net (Loss) Gain per income tax return $ (1,760,288) $ 981,529 $(1,856,565)
</TABLE>
The Net Gain per income tax return in 1996 is a result of the foreclosure
against Camelot Housing (see Note F).
Note E Payable To Affiliates
In accordance with the Partnership Agreement, the Partnership is
required to pay to the General Partner an annual asset management fee
of $114,580. Amounts due in accordance with this agreement are
included in payable to affiliates in the accompanying balance sheets.
Note F Project Partnerships
The Hawthorn project partnership refinanced its mortgage during 1997.
Proceeds from the refinancing were used to make a partial payment on
the promissory note which had come due December 31, 1996. The
remaining balance of the promissory note was renegotiated. The
mortgage was refinanced under HUD regulations which limit the amount
of debt that can be collateralized by the project. Accordingly, HUD
would not approve the mortgage refinance unless the promissory note
was no longer a liability of the project. Therefore, the general
partner of the Partnership and the noteholder agreed to have the
promissory note assumed by the Partnership. The promissory note is
now collateralized by the partners' interests in the Hawthorn project
partnership. Principal and interest are only payable from surplus
cash received by the Partnership from the Hawthorn project
partnership. The Partnership is not required to make any payments
from distributions it receives from any other project. The promissory
note plus accrued interest totaled $3,793,000 at December 31, 1997,
and bears simple interest at a rate of 9%. Any principal and interest
remaining unpaid on June 30, 2002, will be due in full.
In conjunction with assuming the liability for the promissory note,
the Partnership also recorded a corresponding investment in Hawthorn.
The investment account was then reduced by previously unrecorded
losses of Hawthorn of $2,695,167 in accordance with the equity method
of accounting. The investment account will be reduced in future years
by the Partnership's share of any additional losses from Hawthorn.
This investment account will also be reduced whenever the Partnership
receives a distribution from Hawthorn. Therefore, until the
investment account is reduced to zero, the Partnership will not
recognize distribution income in future years from the Hawthorn
project partnership.
Other than Camelot, none of the Project Partnerships are experiencing
significant cash flow deficiencies after adding back non-cash items
such as depreciation, amortization and accrued interest on promissory
notes not currently payable to the operating losses of the Project
Partnerships.
Note F Project Partnerships (continued)
Camelot Housing defaulted on its mortgage in June 1995. The mortgage
was assigned to HUD and HUD initiated foreclosure proceedings. The
proceedings concluded during 1996. The effect on the Partnership's
financial statements was negligible because the investment in Camelot
was reduced to zero several years ago and Camelot was not expected to
pay distributions in the foreseeable future. A foreclosure on a
Project Partnership causes a gain for tax purposes primarily due to
the recapture of accelerated depreciation taken in prior years. The
tax gain caused by this foreclosure was offset by losses from other
Project Partnerships and suspended losses from prior years.
The Partnership's investment in the following Project Partnerships
(the "Projects") serves as collateral in connection with promissory
notes issued by the Projects as described below:
Project Partnership Promissory Note
(Debtor) Including Accrued Interest Payment Terms
Colony Place $1,867,000 9% interest due annually.
Principal plus unpaid
interest due on June 30, 1997
Florence Housing $4,660,000 13% interest due annually.
Principal plus unpaid interest
due on December 31, 1998
Greentree Housing $1,441,000 11% interest due annually.
Principal plus unpaid interest
due on December 31, 1999
Olympic Housing $6,904,000 10% interest due annually.
Principal plus unpaid interest
due on December 31, 2000
Note F Project Partnerships (continued)
The ability of the Projects to refinance or renegotiate these
Promissory Notes when due is uncertain at this time. Factors that may
affect the Projects' ability to refinance or renegotiate include
changes in tax laws, changes in interest rates, and the operations of
the Projects.
The Partnership could lose its ownership interest in the Project
Partnerships if it is unsuccessful in renegotiating these notes.
Though the Partnership's investment in these Project Partnerships is
zero, the impact on future operations could be significant as
distributions from Project Partnerships is the primary source of
revenue for the Partnership.
Colony Place's promissory note was originally due December 31, 1995,
but was extended until June 30, 1997, while a sale of the project was
being pursued under the Low Income Housing Preservation and Resident
Homeownership Act ("LIHPRHA"). LIHPRHA was a program administered by
the Department of Housing and Urban Development ("HUD").
Unfortunately, funds are no longer available under the LIHPRHA program
and the noteholder has been unresponsive to further negotiations.
Although this promissory note is technically in default, the
noteholder has not yet made demand of payment. If the Partnership is
unsuccessful in refinancing the promissory note, the project may
revert to the noteholder.
Florence Housing's promissory note was originally due
December 31, 1995, but was extended to December 31, 1998, with
additional one year extensions available. Olympic Housing's
promissory note was originally due December 31, 1995, but was extended
to December 31, 2000. In addition, the interest rate on Olympic's
note was reduced from 12% to 10% and payment terms were changed to
allow more of the project's available surplus cash to be paid to the
noteholder as partial payment of the annual interest due on the
promissory note.
Note G Condensed Financial Data of Project Partnerships
The following is a summary of the condensed financial position and
results of operations of the Project Partnerships which have been
extracted from audited financial statements and are not covered by the
accompanying independent auditors' report (dollars in thousands):
Camelot Housing Limited Partnership
Condensed Balance Sheets
December 31,
1995
Assets:
Rental Property (Net) $3,402
Other Assets 355
$3,757
Liabilities and Partners' Capital (Deficit):
Mortgage Notes Payable $4,888
Other Liabilities 80
Partners' Capital (Deficit) (1,211)
$3,757
Condensed Statements of Operations
For The Year Ended December 31,
1995
Revenues:
Rental Income $ 568
Other Income 17
Total Revenue 585
Expenses:
Operating Expenses 450
Financial Expenses 171
Depreciation 110
Total Expenses 731
Net Loss $(146)
See Note F as Camelot Housing was sold through foreclosure during 1996 and,
therefore, there are no audited financial statements available for 1997 and
1996.
Note G Condensed Financial Data of Project Partnerships (continued)
Colony Place Associates, Ltd.
Condensed Balance Sheets
December 31,
1997 1996 1995
Assets:
Rental Property (Net) $1,224 $1,291 $1,357
Other Assets 124 95 105
$1,348 $1,386 $1,462
Liabilities and Partners' Capital (Deficit):
Mortgage Notes Payable $2,638 $2,515 $2,402
Other Liabilities 80 71 97
Partners' Capital (Deficit) (1,370) (1,200) (1,037)
$1,348 $1,386 $1,462
Condensed Statements of Operations
For The Year Ended December 31,
1997 1996 1995
Revenues:
Rental Income $ 341 $ 347 $ 303
Interest Income 1 1 1
Other Income 9 10 10
Total Revenue 351 358 314
Expenses:
Operating Expenses $ 290 307 273
Financial Expenses 157 148 138
Depreciation 66 66 66
Total Expenses 513 521 477
Net Loss $(162) $(163) $(163)
Note G Condensed Financial Data of Project Partnerships (continued)
Country Oaks Apartments, Ltd.
Condensed Balance Sheets
December 31,
1997 1996 1995
Assets:
Rental Property (Net) $ 313 $ 378 $ 440
Other Assets 185 184 174
$ 498 $ 562 $ 614
Liabilities and Partners' Capital (Deficit):
Mortgage Notes Payable $ 1033 $1,038 $1,042
Other Liabilities 59 58 56
Partners' Capital (Deficit) (594) (534) (484)
$ 498 $ 562 $ 614
Condensed Statements of Operations
For The Year Ended December 31,
1997 1996 1995
Revenues:
Rental Income $ 154 $ 157 $ 156
Interest Income 7 4 4
Other Income 7 6 7
Total Revenue 168 167 167
Expenses:
Operating Expenses 64 55 64
Financial Expenses 88 88 88
Depreciation 72 71 71
Total Expenses 224 214 223
Net Loss $ (56) $(47) $ (56)
Note G Condensed Financial Data of Project Partnerships (continued)
Florence Housing Associates
Condensed Balance Sheets
December 31,
1997 1996 1995
Assets:
Rental Property (Net) $3,330 $3,465 $3,593
Other Assets 789 849 849
$4,119 $4,314 $4,442
Liabilities and Partners' Capital (Deficit):
Mortgage Notes Payable $7,087 $6,944 $6,810
Other Liabilities 191 179 107
Partners' Capital (Deficit) (3,159) (2,809) (2,475)
$4,119 $4,314 $4,442
Condensed Statements of Operations
For The Year Ended December 31,
1997 1996 1995
Revenues:
Rental Income $ 972 $ 855 $ 802
Interest Income 37 39 45
Other Income 17 12 13
Total Revenue 1,026 906 860
Expenses:
Operating Expenses 970 840 738
Financial Expenses 251 257 641
Depreciation 143 143 143
Total Expenses 1,364 1,240 1,522
Net Loss $(338) $(334) $(662)
Note G Condensed Financial Data of Project Partnerships (continued)
Greentree Housing, Ltd.
Condensed Balance Sheets
December 31,
1997 1996 1995
Assets:
Rental Property (Net) $1,504 $1,554 $1,622
Other Assets 175 127 118
$1,679 $1,681 $1,740
Liabilities and Partners' Capital (Deficit):
Mortgage Notes Payable $2,529 $2,423 $2,355
Other Liabilities 79 35 60
Partners' Capital (Deficit) (929) (777) (675)
$1,679 $1,681 $1,740
Condensed Statements of Operations
For The Year Ended December 31,
1997 1996 1995
Revenues:
Rental Income $ 393 $ 389 $ 345
Interest Income 1 1 1
Other Income 14 40 12
Total Revenue 408 430 358
Expenses:
Operating Expenses 322 341 311
Financial Expenses 160 140 126
Depreciation 50 50 50
Total Expenses 532 531 487
Net Loss $(124) $(101) $(129)
Note G Condensed Financial Data of Project Partnerships (continued)
Hawthorn Housing Limited Partnership
Condensed Balance Sheets
December 31,
1997 1996 1995
Assets:
Rental Property (Net) $4,473 $4,716 $4,996
Other Assets 1,682 1,450 1,075
$6,155 $6,166 $6,071
Liabilities and Partners' Capital (Deficit):
Mortgage Notes Payable $4,900 $8,388 $7,936
Other Liabilities 269 181 179
Partners' Capital (Deficit) 986 (2,403) (2,044)
$6,155 $6,166 $6,071
Condensed Statements of Operations
For The Year Ended December 31,
1997 1996 1995
Revenues:
Rental Income $1,439 $1,516 $1,513
Interest Income 71 63 51
Other Income 35 16 11
Total Revenue 1,545 1,595 1,575
Expenses:
Operating Expenses 759 876 1,005
Financial Expenses 818 772 724
Depreciation 269 289 276
Total Expenses 1,846 1,937 2,005
Net Loss $(301) $(342) $(430)
Note G Condensed Financial Data of Project Partnerships (continued)
Olympic Housing Limited Partnership
Condensed Balance Sheets
December 31,
1997 1996 1995
Assets:
Rental Property (Net) $7,823 $7,762 $7,745
Other Assets 834 1,042 1,075
$8,657 $8,804 $8,820
Liabilities and Partners' Capital (Deficit):
Mortgage Notes Payable $11,476 $11,018 $10,775
Other Liabilities 1,291 1,346 1,174
Partners' Capital (Deficit) (4,110) (3,560) (3,129)
$8,657 $8,804 $8,820
Condensed Statements of Operations
For The Year Ended December 31,
1997 1996 1995
Revenues:
Rental Income $2,421 $2,347 $2,348
Interest Income 15 12 6
Other Income 43 36 38
Total Revenue 2,479 2,395 2,392
Expenses:
Operating Expenses 1,723 1,756 1,754
Financial Expenses 950 835 691
Depreciation 300 296 291
Total Expenses 2,973 2,887 2,736
Net Loss $(494) $(492) $(344)
Note G Condensed Financial Data of Project Partnerships (continued)
Pine West, Ltd.
Condensed Balance Sheets
December 31,
1997 1996 1995
Assets:
Rental Property (Net) $1,047 $1,073 $1,103
Other Assets 122 120 123
$1,169 $1,193 $1,226
Liabilities and Partners' Capital (Deficit):
Mortgage Notes Payable $1,260 $1,263 $1,266
Other Liabilities 38 36 34
Partners' Capital (Deficit) (129) (106) (74)
$1,169 $1,193 $1,226
Condensed Statements of Operations
For The Year Ended December 31,
1997 1996 1995
Revenues:
Rental Income $ 148 $ 138 $ 138
Interest Income 2 2 2
Other Income 7 8 4
Total Revenue 157 148 144
Expenses:
Operating Expenses 116 113 94
Financial Expenses 33 31 31
Depreciation 26 30 30
Total Expenses 175 174 155
Net Loss $ (18) $(26) $ (11)
Note G Condensed Financial Data of Project Partnerships (continued)
Rancho Vista Associates
Condensed Balance Sheets
December 31,
1997 1996 1995
Assets:
Rental Property (Net) $ 699 $ 725 $ 733
Other Assets 50 45 63
$ 749 $ 770 $ 796
Liabilities and Partners' Capital (Deficit):
Mortgage Notes Payable $ 910 $ 912 $ 916
Other Liabilities 10 10 10
Partners' Capital (Deficit) (171) (152) (130)
$ 749 $ 770 $ 796
Condensed Statements of Operations
For The Year Ended December 31,
1997 1996 1995
Revenues:
Rental Income $ 155 $ 158 $ 160
Interest Income 1 1 1
Other Income 2 4 3
Total Revenue 158 163 164
Expenses:
Operating Expenses 61 65 61
Financial Expenses 83 84 84
Depreciation 33 33 32
Total Expenses 177 182 177
Net Loss $ (19) $(19) $ (13)
Note G Condensed Financial Data of Project Partnerships (continued)
Combined Total of Project Partnerships
Condensed Balance Sheets
December 31,
1997 1996 1995
Assets:
Rental Property (Net) $20,413 $ 20,964 $ 24,991
Other Assets 3,961 3,912 3,937
$24,374 $ 24,876 $ 28,928
Liabilities and Partners' Capital (Deficit):
Mortgage Notes Payable $31,833 $ 34,501 $ 38,390
Other Liabilities 2,017 1,916 1,797
Partners' Capital (Deficit) (9,476) (11,541) (11,259)
$24,374 $ 24,876 $ 28,928
Condensed Statements of Operations
For The Year Ended December 31,
1997 1996 1995
Revenues:
Rental Income $ 6,023 $ 5,907 $ 6,333
Interest Income 135 123 111
Other Income 134 132 115
Total Revenue 6,292 6,162 6,559
Expenses:
Operating Expenses 4,305 4,353 4,750
Financial Expenses 2,540 2,355 2,694
Depreciation 959 978 1,069
Total Expenses 7,804 7,686 8,513
Net Loss $(1,512) $(1,524) $(1,954)
Note H Fair Value of Financial Instruments
FASB Statement No. 107, Disclosures About Fair Value of Financial
Instruments, requires disclosure of fair value information about
financial instruments, when it is practicable to estimate fair value.
The carrying amounts of assets and liabilities reported on the
statements of financial position that require such disclosure
approximate fair value.
FINANCIAL STATEMENTS
OF
UNCONSOLIDATED LIMITED PARTNERSHIPS
MEETING REQUIREMENTS OF SIGNIFICANT
SUBSIDIARY/INVESTEE
HAWTHORN HOUSING
LIMITED PARTNERSHIP
071-11069
FINANCIAL STATEMENTS
DECEMBER 31, 1997
Rubin, Brown, Gornstein & Co. LLP 230 South Bemiston Avenue
Certified Public Accountants St. Louis, Missouri 63105
314/727-8150
314/727-9195 FAX
Internet http://www rbgco.com
RBG&CO.
Independent Auditors' Report
To The Partners
Hawthorn Housing Limited Partnership
We have audited the accompanying balance sheet of Hawthorn Housing Limited
Partnership, Project No. 071-11069, a limited partnership, as of December 31,
1997 and the related statements of profit and loss, partners' equity 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
and Government Auditing Standards, issued by the Comptroller General of the
United States. 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 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 Hawthorn Housing Limited
Partnership as of December 31, 1997 and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplementary
information (shown on Pages 13 through 18) is presented for purposes of
additional analysis and is not a required part of the basic financial
statements. Such information has been subjected to the auditing procedures
applied in the audit of the financial statements and, in our opinion, is fairly
stated in all material respects in relation to the financial statements taken as
a whole.
In accordance with Government Auditing Standards, we have also issued a report
dated January 30, 1998 on our consideration of Hawthorn Housing Limited
Partnership's internal control structure and a report dated January 30, 1998 on
its compliance with laws and regulations.
/s/Rubin, Brown, Gornstein & Co. LLP
January 30, 1998
Member: Summit International Associates, Inc., with offices in principal U.S.
and International Cities
American Institute of Certified Public Accountants
BALANCE SHEET
Page 1 Of 2
December 31, 1997
Assets
Current Assets
1120 Cash in bank- project $ 495,027
1125 Cash in bank - partnership 1,685
1130 Tenants' accounts
receivable (Schedule) 117
1141 Accounts receivables
rent supplements 893
1142 IHDA receivable (Schedule) 26,692
Total Current Assets $ 524,414
Deposits Held In Trust - Funded
1191 Tenants' security deposits 86,841
Prepaid Expenses
1210 Fuel inventory 3,824
1240 Property insurance 37,362
Total Prepaid Expenses 41,186
Restricted Deposits And Funded Reserves
1310 Mortgage escrow deposits (Schedule) 78,452
1320 Replacement reserve (Schedule) 442,500
Total Deposits 520,952
Fixed Assets (Note 2)
1410 Land 620,000
1420 Buildings 6,549,236
1450 Equipment and furniture 479,089
Total Fixed Assets (Schedule) 7,648,325
Less: Accumulated depreciation 3,175,711
4,472,614
Other Assets
1801 Organizational costs,
less amortization 4,481
1802 Loan costs, less amortization 504,540
Total Other Assets 509,021
Total Assets $6,155,028
BALANCE SHEET
Page 2 Of 2
December 31, 1997
Liabilities
Current Liabilities
2100 Accounts payable $18,203
2130 Accrued interest payable 26,950
2140 Distributions payable (Note 6) 1,111
2150 Accrued property taxes (Schedule) 145,104
2200 Advances from general partner 1,459
2320 Mortgage payable - current portion 36,996
Total Current Liabilities $229,823
Deposit And Prepayment Liabilities
2191 Tenants' security deposits 67,986
2210 Prepaid rents 7,748
Total Deposit And Prepayment Liabilities 75,734
Long-Term Liabilities
2320 Mortgage payable (Note 2) 4,900,000
Less: Current portion 36,996
Total Long-Term Liabilities 4,863,004
Total Liabilities 5,168,561
Partners' Equity
3130 Partners' equity 986,467
Total Liabilities And Partners' Equity $ 6,155,028
U.S. Department of Housing
Statement of and Urban Development
Profit and Loss Office of Housing
Federal Housing Commissioner
OMB Approval No. 2502-0052 (exp. 1/31/95)
Public Reporting Burden for this collection of information is estimated to
average 1.0 hours per response, including the time for reviewing instructions,
searching existing data sources, gathering and maintaining the data needed, and
completing and reviewing the collection of information. Send comments regarding
this burden estimate or any other aspect of this collection of information,
including suggestions for reducing this burden, to the Reports Management
Officer, Office of Information Policies and Systems, U.S. Department of Housing
and Urban Development, Washington, D.C. 20410-3600 and to the Office of
Management and Budget, Paperwork Reduction Project (2502-0052), Washington, D.C.
20503. Do not send this completed form to either of these addresses.
For Project Project
Month/Period Number: Name:
Beginning: Ending:
January 1, December 31, 071-11069 Hawthorn
1997 1997 Housing
Limited
Partnershi
p
Part 1 Description of Account Acct. Amount*
No.
Apartments or Member Carrying Charges 5120 $1,117,546
(Coops)
Tenant Assistance Payments 5121 $470,879
Rental Furniture and Equipment 5130 $
Income Stores and Commercial 5140 $
5100 Garage and Parking Spaces 5170 $
Flexible Subsidy Income 5180 $
Miscellaneous (specify) 5190 $
Total Rent Revenue Potential at 100% $1,588,425
Occupancy
Apartments 5220 $(45,299)
Furniture and Equipment 5230 $
Vacanci Stores and Commercial 5240 $
es
5200 Garage and Parking Spaces 5270 $
Miscellaneous (specify) Rent 5290 $(104,259)
concessions
Total Vacancies (149,558)
Net Rental Revenue Rent Revenue Less $1,438,867
Vacancies
Elderly and Congregate Services
Income 5300
Total Service Income (Schedule 5300 $ $
Attached)
Interest Income-Project Operations 5410 $10,959
Financi Income from Investments-Residual 5430 $14,478
al Receipts
Revenue Income from Investments-Reserve for 5440 $12,699
Replacement
5400 Income from Investments-Other Escrows 5490 $33,146
Total Financial Revenue $71,282
Laundry and Vending 5910 $19,184
NSF and Late Charges 5920 $ 2,424
Other Damages and Cleaning Fees 5930 $ 532
Revenue Forfeited Tenant Security Deposits 5940 $12,205
5900 Other Revenue (specify) 5990 $ 499
Total Other Revenue $34,844
Total Revenue $1,544,993
Advertising 6210 $ 9,126
Other Administrative Expense 6250 $ 8,197
Office Salaries 6310 $23,375
Office Supplies 6311 $ 6,351
Office or Model Apartment Rent 6312 $
Adminis Management Fee 6320 $86,973
trative
Expense Manager or Superintendent Salaries 6330 $32,525
s
6200/63 Manager or Superintendent Rent Free 6331 $
00 Unit
Legal Expenses (Project) 6340 $ 1,477
Auditing Expenses (Project) 6350 $ 8,246
Bookkeeping Fees/Accounting Services 6351 $ 1,500
Telephone and Answering Service 6360 $ 7,048
Bad Debts 6370 $ 395
Miscellaneous Administrative Expenses 6390 $
(specify)
Total Administrative Expenses $185,213
Fuel Oil/Coal 6420 $
Utiliti Electricity (Light and Misc. Power) 6450 $28,674
es
Expense Water 6451 $28,238
6400 Gas 6452 $68,153
Sewer 6453 $13,571
Total Utilities Expense $138,636
Total Expenses (Carry forward to $323,849
Page 2)
*All amounts must be rounded to the nearest dollar; $.50 and over, round up $.49
and below, round down. Form HUD-92410 (7/91)
Project Name: Hawthorn Housing Limited Partnership
Balance $323,849
Carried
Forward
Part 1 Description of Account Acct. Amount*
No.
Janitor and Cleaning Payroll 6510 $24,915
Janitor and Cleaning Supplies 6515 $ 2,921
Janitor and Cleaning Contract 6517 $
Exterminating Payroll/Contract 6519 $ 1,591
Exterminating Supplies 6520 $ 232
Garbage and Trash Removal 6525 $ 8,448
Security Payroll/Contract 6530 $10,592
Grounds Payroll 6535 $ 2,152
Grounds Supplies 6536 $ 3,756
Operating Grounds Contract 6537 $10,835
and
Maintenan Repairs Payroll 6540 $69,791
ce
Expenses Repairs Material 6541 $38,426
6500 Repairs Contract 6542 $15,593
Elevator Maintenance/Contract 6545 $
Heating/Cooling Repairs and 6546 $ 5,340
Maintenance
Swimming Pool Maintenance/Contract 6547 $ 8,539
Snow Removal 6548 $14,650
Decorating Payroll/Contract 6560 $ 8,530
Decorating Supplies 6561 $ 6,766
Other 6570 $ 787
Miscellaneous Operating and 6590 $
Maintenance Expenses
Total Operating and Maintenance $233,864
Expenses
Real Estate Taxes 6710 $147,029
Payroll Taxes (FICA) 6711 $12,084
Miscellaneous Taxes, Licenses and 6719 $ 6,574
Permits
Taxes Property and Liability Insurance 6720 $21,361
(Hazard)
and Fidelity Bond Insurance 6721 $ 1,028
Insurance Workmen's Compensation 6722 $ 5,954
6700 Health Insurance and Other Employee 6723 $ 6,443
Benefits
Other Insurance (specify) 6729 $
Total Taxes and Insurance $200,473
Interest on Bonds Payable 6810 $
Interest on Mortgage Payable 6820 $265,653
Financial Interest on Notes Payable (Long-Term) 6830 $
Expenses Interest on Notes Payable (Short- 6840 $
Term)
6800 Mortgage Insurance Premium/Service 6850 $27,596
Charge
Miscellaneous Financial Expenses 6890 $ 3,318
(Includes $1,763 amortization of
Total Financial Expenses $296,567
loan costs)
Elderly Total Service Expenses Schedule 6900 $
and Attached
Congregat Total Cost of Operations before $1,054,753
e Depreciation
Service Profit (Loss) before Depreciation $490,240
Expenses Depreciation (Total) 6600 (specify) 6600 $269,466
6900 Operating Profit or (Loss) $220,774
Corporate Officer Salaries 7110 $
or
Mortgagor Legal Expenses (Entity) 7120 $
Entity Taxes (Federal-State-Entity) 7130-32 $
Expenses Other Expenses (Entity) (Schedule) 7190 $521,504
7100 Total Corporate Expenses $521,504
Net Profit or (Loss) $(300,730)
Warnings: HUD will prosecute false claims and statements. Conviction may
result in criminal and/or civil penalties.(18 U.S.C. 1001, 1010, 1012; 31
U.S.C. 3729, 3802)
Miscellaneous or other Income and Expense Sub-account Groups. If
miscellaneous or other income and/or expense sub-accounts (5190,
5290, 5490, 5990, 6390, 6590, 6729, 6890 and 7190) exceed the
Account Groupings by 105 or more, attach a separate schedule
describing or explaining the miscellaneous income or expense.
Part II
1. Total principal payments required under the mortgage, even if $66,866
payments under a Workout Agreement are less or more than those
required under the mortgage.
2. Replacement Reserve deposits required by the Regulatory $32,044
Agreement or Amendments thereto, even if payments may be
temporarily suspended or waived.
3. Replacement or Painting Reserve releases which are included as $
expense items on this Profit and Loss Statement.
4. Project Improvement reserve releases under the Flexible Subsidy $ N/A
Program that are included as expense items on this Profit and Loss
Statement.
SCHEDULE OF OTHER MORTGAGOR ENTITY EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
Amortization of organization costs $ 2,447
Interest on note payable - accrued 517,544
Travel costs 1,513
Total $521,504
STATEMENT OF PARTNERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
BEGINNING OF YEAR (DEFICIT) $(2,402,500)
ADD
Partner capital contributions:
Assumption of debt (Note 3) 3,748,687
Interest expense 9,279
3,757,966
DEDUCT
Net loss (300,730)
Distributions to partners (68,269)
(368,999)
END OF YEAR $ 986,467
STATEMENT OF CASH FLOWS
PAGE 1 OF 2
FOR THE YEAR ENDED DECEMBER 31, 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Revenues:
Rental receipts $ 1,447,489
Interest receipts 71,282
Other receipts 34,844
$ 1,553,615
Expenses:
Administrative expenses 98,710
Management fees 90,964
Utilities expense 137,506
Operating and maintenance expenses 213,336
Taxes - real estate 140,878
Taxes - other 18,658
Insurance 35,943
Interest on mortgage note 168,122
Mortgage insurance 21,217
Miscellaneous financial expense 1,555
926,889
626,726
Other:
Tenants' security deposits - funded (1,233)
Tenants' security deposits 3,541
2,308
NET CASH PROVIDED BY OPERATING ACTIVITIES 629,034
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for additions to fixed assets (26,433)
Increase in replacement reserve (28,565)
Payments to mortgage escrow deposits (11,727)
Net payments to residual receipts reserve (445,706)
Increase in IHDA receivable 26,692
NET CASH USED IN INVESTING ACTIVITIES (485,739)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage payable (66,866)
Payment of loan refinancing costs (6,100)
Net entity applications (Schedule) (25,556)
NET CASH USED IN FINANCIAL ACTIVITIES (98,522)
NET INCREASE IN CASH 44,773
CASH - BEGINNING OF YEAR 451,939
CASH - END OF YEAR $ 496,712
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Noncash investing and financing activities (Note 7)
STATEMENT OF CASH FLOWS
PAGE 2 OF 2
FOR THE YEAR ENDED DECEMBER 31, 1997
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
Net loss $(300,730)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 271,229
Other entity expenses 521,504
Change in assets and liabilities:
Decrease in accounts receivable - tenants 1,767
Increase in accounts receivable - HUD (893)
Decrease in prepaid expenses 513
Increase in tenants' security deposits - funded (1,233)
Increase in accounts payable and accrued expenses 125,588
Increase in tenants' security deposits 3,541
Increase in prepaid rents 7,748
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 629,034
SCHEDULE OF ENTITY SOURCE AND APPLICATIONS OF FUNDS
SOURCE OF FUNDS
Proceeds from refinancing $ 90,997
APPLICATIONS OF FUNDS
Distributions to partners (25,556)
Distributions to partners from refinancing (68,269)
Payments for loan refinancing and travel costs (22,728)
NET ENTITY FUNDS APPLIED $ (25,556)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. Organization And Summary Of Significant Accounting Policies
The Partnership was organized as a limited partnership during June 1984 for
the purpose of constructing and operating a rental housing project pursuant
to a regulatory agreement with Illinois Housing Development Authority
(IHDA). In November 1997, the Project was refinanced under Section 223(f)
of the National Housing Act. The project consists of 176 units located in
Woodridge, Illinois, operating under the name of Hawthorn Ridge Apartments.
The project is regulated by the U.S. Department of Housing and Urban
Development (HUD) and the Illinois Housing Development Authority (IHDA), as
administrator of the housing assistance contract, as to rent charges and
operating methods.
The regulatory agreement with HUD limits annual distributions of net
operating receipts to "surplus cash". At December 31, 1997, there was
"surplus cash" in the amount of $461,874 available for distribution.
Distributions were previously further limited to 6% of initial equity by the
regulatory agreement between the Partnership and IHDA.
The following significant accounting policies have been followed in the
preparation of the 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 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
reported period. Actual results could differ from those estimates.
The Partnership considers all temporary cash investments as cash
equivalents. These temporary cash investments are securities held for cash
management purposes, having maturities of three months or less.
The Partnership provides an allowance for doubtful accounts equal to the
estimated collection losses that will be incurred in collection of all
receivables. The estimated losses are based on a review of the current
status of the existing receivables. No allowance for doubtful accounts was
provided for at December 31, 1997 as none was deemed necessary by
management.
Rental property is carried as cost. Depreciation is provided using straight-
line and accelerated methods over estimated useful lives ranging from five
to forty years.
The replacement reserve can only be used for improvements to buildings upon
prior approval of HUD.
Deferred loan costs consist of fees for obtaining the HUD insured mortgage
loan and are being amortized using the straight-line method over the life of
the mortgage loan.
Organization costs are recorded at cost and are deferred and amortized over
a period of 15 years.
Income or loss of the Partnership is allocated .01 % to the general partner
and 99.99 % to the limited partners. No income tax provision has been
included in the financial statements since income or loss of the Partnership
is required to be reported by the partners on their respective income tax
returns.
2. Mortgage Payable
In November 1997, the 6.73% mortgage note payable, which was insured by
IHDA, was refinanced. The new mortgage payable, in the amount of $
4,900,000, is insured by the Department of Housing and Urban Development and
collateralized by a deed of trust on the rental property. The mortgage is
payable to P/R Mortgage & Investment Corp. and bears interest at the rate of
6.6% per annum. Principal and interest are payable by the Partnership in
monthly installments of $29,940 through December 2032.
Under agreements with the mortgage lender and HUD, the Partnership is
required to make monthly escrow deposits for property taxes, insurance,
mortgage insurance and replacement of project assets.
The scheduled maturities of the mortgage payable at December 31, 1997 are as
follows:
YEAR AMOUNT
1998 $ 36,996
1999 39,513
2000 42,201
2001 45,072
2002 48,138
Thereafter 4,688,080
$ 4,900,000
3. Notes Payable
During November 1997, the notes payable to sellers, which were secured by
the Partnership's interest in the Project and were subordinated to the
mortgage, were paid off. As part of the refinancing of the mortgage,
$2,180,273 of the seller notes and accrued interest were paid and the
remaining balance of $3,748,687 was assumed by a limited partner and is
reflected in the financial statements as a partner capital contribution.
4. Commitments
The Partnership has entered into a regulatory agreement with HUD which
regulates, among other things, the rents which may be charged for apartment
units in the project, prohibits the sale of the project without HUD consent,
limits the annual distribution of cash flow to the partners and otherwise
regulates the relationship between the Partnership and HUD.
The Department of Housing and Urban Development, through a program
administered by the Illinois Housing Development Authority, has contracted
with the Partnership effective December 1976, under Section 8 of the
National Housing Act of 1968, to make housing assistance payments to the
project on behalf of qualified tenants. The term of the agreement is five
years with renewal options for terms not to exceed forty-seven years in the
aggregate.
5. Management Agreement
Effective in November 1997, the project is managed by Alan Fox Real Estate
Investment and Management Co., Inc. The management contract provides for a
management fee of 5.4% of gross collections. Alan Fox Real Estate Investment
and Management Co., Inc. has subcontracted the daily management of the
project to Floyd M. Phillips & Co., Inc.
Prior to November, the project was managed by Western Property Management
who received a 6% management fee based on cash basis revenue received during
the period of management.
6. Distributions Payable
In 1991, the partners agreed that amounts payable to general partners for
annual fees are more appropriately classified as distributions payable to
all partners. As a result, the balance of $49,000 previously due to general
partners was recorded as distributions payable at December 31, 1991. As of
December 31, 1997, $1,111 of this distribution has not been paid.
7. Supplemental Cash Flow Information
The Partnership had the following noncash investing and financing
activities:
During 1997, the first mortgage was refinanced. From the refinancing, the
following occurred: first mortgage of $2,900,815 was paid off; second
mortgage of $5,928,960 was paid down with the remaining $3,748,687 being
assumed by a limited partner; the residual receipts account of $697,351 was
released; the development cost escrow of $150,565 was released; and loan
closing costs of approximately $500,000 were paid.
EXHIBIT 10
RESTATED PROMISSORY NOTE
$3,748,687 November 13, 1997
FOR VALUE RECEIVED, the undersigned, GULLEDGE REALTY INVESTORS II,
L.P., a Virginia limited partnership (the "Maker"), promises to pay to the order
of Hawthorn Ridge Apartment Investors, L.L.C., an Illinois limited liability
company (the "Payee"), c/o Alan A. Fox, 7366 Lincoln Avenue, Lincolnwood,
Illinois 60646, or at such other place as the holder hereof may from time to
time designate, the principal sum of Three Million Seven Hundred Forty-Eight
Thousand Six Hundred Eighty-Seven Dollars ($3,748,687) plus simple interest
thereon at the rate of nine percent (9%) per annum, in accordance with the
following terms and conditions:
1. BACKGROUND. This Restated Promissory Note (the "Note") is a
restatement of a series of twenty-seven (27) notes ("Original Notes") that
emanated from a purchase by Hawthorn Housing Limited Partnership ("Hawthorn
Housing"), an Illinois Limited Partnership, from Hawthorn Ridge Associates, an
Illinois limited partnership ("Hawthorn Ridge"), of an apartment complex in
Woodridge, DuPage County, Illinois known as "Hawthorn Ridge Apartments" (the
"Project"). The Original Notes were secured by a Security Agreement dated
November 6, 1984 (the "Original Security Agreement"). Hawthorn Ridge assigned
the Original Notes to Payee. Upon execution and delivery of this Note by the
Maker, a limited partner of Hawthorn Housing, the Original Notes are restated to
this Note and the Original Security Agreement is terminated. The Maker and
Payee have entered into a Security Agreement of even date herewith ("Security
Agreement") as security for this Note.
2. PRINCIPAL AMOUNT. As of the date of this Note, the outstanding
principal amount, plus accrued interest, is Three Million Seven Hundred Forty-
Eight Thousand Six Hundred Eighty-Seven Dollars ($3,748,687).
3. PAYMENT TERMS. Except with respect to prepayments described in 4
below, principal and interest under this Note shall be payable solely from
Distributed Cash (as defined below), if any, as follows:
(A) On April 1 of each year, (1) One Hundred Thousand Dollars from
Distributed Cash; and (2) ninety-two percent (92%) of the balance of Distributed
Cash.
(B) On June 30, 2002, all accrued interest and principal from
Distributed Cash. Any payment of principal or interest not made when due shall
bear interest at the rate of eleven percent (11%) per annum from the due date.
4. PREPAYMENT. This Note may be prepaid in whole or in part at any
time without penalty. Payments on this Note shall be credited first to interest
then due and the remainder to principal.
5. NON-RECOURSE DEBT. The Maker, all partners of the Maker (general
and limited), and its and their heirs, personal or legal representatives,
successors, and assigns, shall have no personal liability for the payment of
this Note, the indebtedness evidenced by this Note, or the performance of the
covenants or any agreements securing this Note. In the event of a default,
(a) the Payee and its successors and assigns shall not seek or accept any
judgment for a deficiency against the Maker, any partner of the Maker, or any of
its or their heirs, personal or legal representatives, successors or assigns, in
any action to foreclose under any agreement given as security for this Note and
(b) in the event that any suit is brought under this Note or any agreement given
as security for this Note, or under any other claim founded in law or in equity,
whether before or after maturity or acceleration, by passage of time or
otherwise, any judgment obtained in, or as a result of, such suit may be
enforceable and/or enforced solely against the property securing this Note.
6. DISTRIBUTED CASH. "Distributed Cash" shall mean all cash
distributions of any type or kind to the Maker as a limited partner of Hawthorn
Housing, less, to the extent paid, (i) an annual cumulative consulting fee of
Twenty-Five Thousand Dollars ($25,000) payable to Alan A. Fox, and (ii) an
annual cumulative fee of Nineteen Thousand Dollars ($19,000) payable to the
General Partner of the Maker.
7. DEFAULT; REMEDIES. The Note shall be immediately due and payable
in the event of any "Prohibited Transaction" (as defined herein), without the
prior written consent of Payee. Any (a) conveyance, sale, lease with option of
sale, assignment, transfer, lien, pledge, mortgage, security interest or other
encumbrance or alienation (or any agreement to do any of the foregoing) of the
Project, or any part thereof or interest therein, or (b) borrowing of money by
Hawthorn Housing or Maker which is senior to the Note, or (c) conveyance, sale,
lease with option of sale, assignment, transfer, lien, pledge, mortgage,
security interest or other encumbrance or alienation (or any agreement to do any
of the foregoing) of the Maker's interest in Hawthorn Housing, or any part
thereof or interest therein shall constitute a "Prohibited Transaction", in each
case whether any such conveyance, sale, lease with option of sale, assignment,
transfer, lien, pledge, mortgage, security interest, encumbrance or alienation
is effected directly, indirectly, voluntarily or involuntarily, by Maker or any
third party, by operation of law or otherwise.
The occurrence of any one of the following events shall constitute
a default by the Maker ("Event of Default") under this Note: (a) if Maker fails
to pay any amount required under the Note when due and payable; (b) if Maker
fails to perform, keep or observe any term, provision, condition, covenant,
warranty or representation contained in this Note which is required to be
performed, kept, or observed by Maker; (c) if any of Maker's assets are
attached, seized, subjected to a will of distress warrant, or are levied upon or
become subject to any lien or come within the possession of any receiver,
trustee, custodian or assignee for the benefit of creditors; or (d) if Maker
becomes insolvent or generally fails to pay, or admits in writing its inability
to pay, debts as they become due, if a petition under any section or chapter of
the Bankruptcy Reform Act of 1978 or any similar law or regulation is filed by
or against Maker, if Maker shall make an assignment for the benefit of
creditors, if any case or proceeding is filed by or against Maker for its
dissolution or liquidation, or upon appointment of a conservator for all or any
portion of Maker's assets.
Upon the occurrence of an Event of Default, at Payee's option,
without notice by Payee to or demand by Payee, all of Maker's Notes shall be due
and payable forthwith. payee may, in addition, pursue each and every other
right, remedy and power under this Note and at law and in equity.
All of Payee's rights and remedies under this Note are cumulative
and non-exclusive. The acceptance by Payee of any partial payment made
hereunder after the time when any amount under the Note becomes due and payable
will not establish a custom, or waive any rights of Payee to enforce prompt
payment hereof. Payee's failure to require strict performance by Maker of any
provision of this Note shall not waive, affect or diminish any right of Payee
thereafter to demand strict compliance and performance therewith. Any waiver of
any Event of Default hereunder shall not suspend, waive or affect any other
Event of Default hereunder. Maker and every endorser waive presentment, demand
and protest and notice of presentment, protest, default, non-payment maturity,
release, compromise, settlement, extension or renewal of this Note, and hereby
ratify and confirm whatever Payee may do in this regard. Maker further waives
any and all notice or demand to which maker might be entitled with respect to
this Note by virtue of any applicable statute or law (to the extent permitted by
law).
Maker agrees to pay, upon Payee's demand therefor, any and all
costs, fees and expenses (including attorney's fees, costs and expenses)
incurred by Payee (a) in enforcing any of Payee's rights hereunder, and (b) in
representing Payee in any litigation contest, suit or dispute, or to commence,
defend or intervene or to take any action with respect to any litigation,
contest, suit or dispute (whether instituted by Payee, Maker or any other
person), in any way relating to this Note, and to the extent not paid the same
shall become part of Maker's liabilities hereunder.
8. APPLICABLE LAW. This Note shall be construed pursuant to the laws
of the State of Illinois and shall be binding on the undersigned and on its
successors and assigns.
IN WITNESS WHEREOF, this Note has been executed as of the date written
above.
GULLEDGE REALTY INVESTORS II, L.P.
By: GULL-AGE Properties, Inc.
Managing General Partner
/s/Robert J. Herleth
Robert J. Herleth
Vice President
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 490,764
<SECURITIES> 0
<RECEIVABLES> 31,097
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 521,861
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,498,463
<CURRENT-LIABILITIES> 1,335,104
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (3,629,696)
<TOTAL-LIABILITY-AND-EQUITY> 1,498,463
<SALES> 0
<TOTAL-REVENUES> (2,621,916)
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 204,531
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,368
<INCOME-PRETAX> (2,870,815)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,870,815)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,870,815)
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