UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended December 31, 1996
Commission File Number 1-8893
ROYAL PALM BEACH COLONY, LIMITED PARTNERSHIP
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 59-2501059
- --------------------------------- ---------------------------------------
(State of other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
2501 S. Ocean Drive
Hollywood, Florida 33019
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (954) 927-3080
NONE
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by checkmark 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 the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
CLASS Outstanding at December 31, 1996
----- --------------------------------
Limited Partnership Units 4,485,504 units
<PAGE>
ROYAL PALM BEACH COLONY, LIMITED PARTNERSHIP
INDEX
PART I. Financial Information
Balance sheets -
December 31, 1996 and
September 30, 1996
Statements of operations -
Three months ended
December 31, 1996 and 1995
Statements of cash flows -
Three months ended
December 31, 1996 and 1995
Notes to financial statements
Management's discussion and analysis
of financial condition and results
of operations
PART II. Other information and signatures
<PAGE>
<TABLE>
<CAPTION>
ROYAL PALM BEACH COLONY, LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, September 30,
1996 1996
---------- ----------
(unaudited)
ASSETS
<S> <C> <C>
Cash $ 41,785 $ 41,451
Other receivables: 131,518 133,318
Property held for sale 5,340,657 5,249,988
Other assets 44,306 61,377
---------- ----------
$5,558,266 $5,486,134
========== ==========
LIABILITIES AND EQUITY
Liabilities:
Mortgage payable, bank $1,344,638 $1,212,412
Mortgage payable, general partner 527,249 527,249
Mortgage payable, related party 325,000 325,000
Accounts payable and accrued
liabilities 948,501 1,037,440
Estimated cost of development
of land and property sold 14,142 14,142
Equity:
Partners' equity, 4,485,504 units
outstanding 2,398,736 2,369,891
---------- ----------
$5,558,266 $5,486,134
========== ==========
See notes to financial statements
<PAGE>
<CAPTION>
ROYAL PALM BEACH COLONY, LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
DECEMBER 31, 1996 AND 1995
(UNAUDITED)
1996 1995
----------- -----------
<S> <C> <C>
Revenues $ 320,619 $ 144,044
----------- -----------
Cost and expenses:
Cost of land sold 118,483 106,210
Selling, general and
administrative expenses 118,474 146,000
Interest 23,121 15,618
Terminated merger costs -- 65,720
Depreciation and property taxes 31,696 41,896
----------- -----------
Total costs and expenses 291,774 375,444
----------- -----------
Net income (loss) $ 28,845 $ (231,400)
=========== ===========
Net income (loss) per unit $ 0.01 $ (0.05)
=========== ===========
Weighted average number of
units outstanding 4,485,504 4,485,504
=========== ===========
See notes to financial statements
<PAGE>
<CAPTION>
ROYAL PALM BEACH COLONY, LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED)
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Cash was received from:
Collections on sales
and receivables $ 320,440 $ 372,292
Interest income 179 5,888
Other -- 300
--------- ---------
320,619 378,480
--------- ---------
Cash was expended for:
Selling, administrative and
property taxes 183,348 213,461
Interest paid (net of amounts
capitalized) 2,048 1,915
Improvements to property 267,115 240,982
--------- ---------
452,511 456,358
--------- ---------
Net cash used in operating activities (131,892) (77,878)
--------- ---------
Cash flows from financing activities:
Net borrowings from mortgage note
payable, bank 132,226 48,131
--------- ---------
Net increase (decrease) in cash 334 (29,747)
Cash, beginning of period 41,451 83,902
--------- ---------
Cash, end of period $ 41,785 $ 54,155
--------- ---------
See notes to financial statements
<PAGE>
<CAPTION>
ROYAL PALM BEACH COLONY, LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED (USED) BY OPERATING ACTIVITIES
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED)
1996 1995
--------- ---------
<S> <C> <C>
Reconciliation of net income (loss)
to net cash used in operating
activities:
Net income (loss) $ 28,845 $(231,400)
--------- ---------
Adjustments to reconcile net
income (loss) to net cash used
in operating activities:
Depreciation and amortization 688 1,025
Change in assets and
liabilities:
Increase in:
Property held for sale (90,669) (149,866)
Accounts payable and accrued
liabilities -- 15,525
Estimated costs of
development of land
and property sold -- 27,482
Decrease in:
Mortgage notes and other
receivables 1,800 238,986
Other assets 16,383 20,370
Accounts payable and
accrued liabilities (88,939) --
--------- ---------
Total adjustments (160,737) 153,522
Net cash flow used in
operating activities $(131,892) $ (77,878)
See notes to financial statements.
</TABLE>
<PAGE>
ROYAL PALM BEACH COLONY, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED
DECEMBER 31, 1996 AND 1995
(UNAUDITED)
1. Interim financial statements:
The accompanying unaudited financial statements have been prepared
in accordance with the instructions to Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three months ended
December 31, 1996 are not necessarily indicative of the results that may be
expected for the fiscal year ending September 30, 1997. These statements should
be read in conjunction with the financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the fiscal year ended September
30, 1996.
2. Income tax:
The Partnership has made no provision for income taxes since it is
not subject to income taxes. Instead, the partners are required to include in
their income tax returns their share of the Partnership's taxable income or
loss.
<PAGE>
ROYAL PALM BEACH COLONY, LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED
December 31, 1996 AND 1995
(UNAUDITED)
Results of Operations
During the three months ended December 31, 1996, the Partnership had
revenues totaling $320,619. Of the foregoing, approximately $100,000 was
realized in October, 1996 on the sale to the County of Palm Beach of 18 one-acre
lots out of a 206 acre tract owned by the Partnership in Palm Beach County. (The
County also purchased 16 additional lots for $84,000 in January, 1997.) In
addition, the Partnership sold the balance of the its undeveloped land in
Hernando County to the State of Florida for gross proceeds of $125,000 and three
residential lots for gross proceeds of $90,000.
Revenues for the three months ended December 31, 1995, were $144,044,
which include the net proceeds of $140,000 received upon the sale of four
residential lots, offset in part by by approximately $65,000 of terminated
merger expense. During the quarter ended December 31, 1995 the Partnership also
received $168,962 in satisfaction of a mortgage note receivable.
As a result of the foregoing, the Partnership's cash balances, which
had declined to $41,000 at September 30, 1996 remained at approximately the same
level at December 31, 1996.
Liquidity and Capital Resources
The Partnership is obligated to repay a working capital loan in the
amount of $527,000 due to Hasam Realty Limited Partnership, a general partner of
the Partnership, on February 28, 1997. In addition, the Partnership obtained an
additional working capital loan in the amount of $300,000 from an affiliate of
Jack Friedland and $25,000 from Mr. Friedland directly. Mr. Friedland is
affiliated with Hasam Realty Limited Partnership, a general partner of the
Partnership. The maturity date of the loan, originally October 31, 1996, has
been extended through February 28, 1997.
The Partnership's future revenues will depend solely upon its ability
to develop and sell its remaining real estate, and upon receipts from a prior
sale of a utility plant. The Partnership's properties are described in Item 2 of
its report on Form 10-K for the year ended September 30, 1996 (the "Incorporated
1996 10K"). An extract from the Incorporated 1996 10K containing Item 2 thereof
is annexed to this report as an Exhibit and is incorporated herein by reference.
As described in of the Incorporated 1996 10K, the Partnership is
committed to the continuing development of phases II and III of the "Crestwood"
residential tract as the most efficacious manner in which to enhance liquidation
values. The Partnership intends to finance on-site development of the 166 lots
in Phases II and III of the Residential Tract, anticipated to cost in the range
of $1.9 million, with the balance of its borrowing available under the Union
Bank Loan referred to in the following paragraph and the net proceeds of a
public bond financing effected in November, 1996 by the Indian Trail Water
Control District (the "District"), which produced net avai lable funds for the
<PAGE>
project of approximately $1,074,000. The bonds are a direct obligation of the
District and not of the Partnership, and interest and principal on the bonds
will payable from taxes levied on the lots in the Residential Tract. Such bond
issue resulted in an increase in an aggregate real estate tax increase of
approximately $117,000 per annum on the entire Residential Tract, of which
amount $600 is allocable to each lot individually.
During the quarter the Partnership's financing arrangements with Union
Bank ("Bank") were amended to increase the Bank's loan commitment from
$2,175,000 to $2,725,000, and the maturity date of the loan was extended to
January 31, 1998. The Partnership is required to apply $20,000 of the proceeds
of each lot sale to payment of the Union Bank Loan.
Under the Partnership's agreement with Lennar Homes, Inc. ("Lennar"),
as described in the Incorporated 1996 10K, Lennar has contracted to purchase of
86 lots in Phase II of the Residential Tract for an aggregate of $2,451,000. It
is anticipated that closing on at least 22 of the lots will occur during the
summer of 1997, resulting in gross proceeds to the Partnership of approximately
$612,000. Lennar's obligations are subject to certain conditions as described in
the Incorporated 1996 10K.
As described in the Incorporated 1996 10K, the Partnership has obtained
the rezoning of a 28 acre portion of the Crestwood Tract previously zoned for
multi-family housing to permit the Partnership to develop a 14 acre portion for
use as a shopping center site. The Partnership has executed an agreement to sell
the entire 28 acre portion to an unaffiliated shopping center developer
("Purchaser") in four phases. The closing on the first phase, postponed several
times, is now scheduled to take place by the end of February, 1997, and is
anticipated to generate approximately $1,542,024 of gross proceeds (subject to
final survey). If the Purchaser should refuse to close, which is considered
highly unlikely, its only liability would be its loss of deposits presently
aggregating $71,000. The completion of the second, third and fourth phases is
subject to numerous contingencies described in the Incorporated 1996 10-K and
revenues under current contractual arrangements with the Purchaser are not
likely to be received for several years.
During the current fiscal year, and based upon management's judgment
that ordinary operating expenses will not increase, the Partnership anticipates
that cash flow and liquidity requirements will be satisfied by current cash, the
Union Bank financing described above, land sales, contingent utility receipts
described "Utility Contingent Receipts" in the Incorporated 1996 10K, and the
proceeds of the Indian Trail Water Control District bonds.
Affect of Land Sales on Future Cash Flow
As indicated in Item 2 in the Incorporated 1996 10K, the Partnership
has determined to develop portions of its remaining properties in order to
enhance their ultimate selling price. It is unlikely, in view of management's
decision to continue development activities as an aid to the enhancement of
ultimate liquidation proceeds, that distributions to partners will be made
during fiscal 1997. However, the successful completion of sales contracts
described above could have a substantial positive affect on liquidity and cash
flow in the 1997 fiscal year and enable the partnership to resume payment of
liquidating dividends in early part of the 1998 fiscal year.
<PAGE>
Total net cash flow which might become available for distribution
remains unpredictable due to uncertain conditions in the South Florida real
estate market in which the Partnership's remaining real estate is located, and
competition from other owners and developers of real estate in the South Florida
market. These conditions will continue to affect the realizable value of the
Partnership's remaining land, including decisions by parties holding options on
the Partnership's land to exercise such options in whole or in part.
The Partnership received an annual contingent payment on a prior sale
of a utility plant in the amount of $129,000 in late January, 1997. This payment
was substantially less than the $433,000 received in the previous year. The rate
of construction in the Village of Royal Palm Beach could significantly affect
future payments to the Partnership under the contract described under the
caption "Utilities Contingent Receviable" in the Incorporated 1996 10-K. The
ability of the Partnership to realize the maximum price future contingent
payments (approximately $5,475,000) is dependent upon the rate at which the
population in the Village grows, and levels of water consumption which in turn
depends upon economic, social and climatic factors which cannot be predicted.
There can be no assurance, particularly in view of the decline in payments from
1995 to 1996, that the rate of new construction or water consumption in such
area will be sufficient to enable the Partnership to receive the full amount or
even a substantial portion of such payments prior to the expiration of the
contingent payment term.
Environmental Matters
There are no environmental contingencies in respect of the Partnership
or its properties. Use of all of the Partnership's properties is subject to
compliance with state and county land use regulations relating to environmental
matters, which the Partnership takes into account in considering the values of
its properties.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 99 - Extract from Annual Report of the Registrant on Form
10-K for the fiscal year ended September 30, 1996 - Item 2
(b) Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements 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.
ROYAL PALM BEACH COLONY,
LIMITED PARTNERSHIP
By: Stein Management Company, Inc.
Managing General Partner
By: /s/ David B. Simpson
-----------------------------------
DATE: February 17, 1997 David B. Simpson, Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 41,785
<SECURITIES> 0
<RECEIVABLES> 131,518
<ALLOWANCES> 0
<INVENTORY> 5,340,657
<CURRENT-ASSETS> 0
<PP&E> 21,843
<DEPRECIATION> 16,441
<TOTAL-ASSETS> 5,558,266
<CURRENT-LIABILITIES> 948,501
<BONDS> 2,196,887
0
0
<COMMON> 0
<OTHER-SE> 2,398,736
<TOTAL-LIABILITY-AND-EQUITY> 5,558,266
<SALES> 320,440
<TOTAL-REVENUES> 320,619
<CGS> 118,483
<TOTAL-COSTS> 118,483
<OTHER-EXPENSES> 150,170
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,121
<INCOME-PRETAX> 28,845
<INCOME-TAX> 0
<INCOME-CONTINUING> 28,845
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,845
<EPS-PRIMARY> .01
<EPS-DILUTED> 0
</TABLE>
EXHIBIT 99
Royal Palm Beach Colony, Limited Partnership
Extract from Annual Report of the Registrant on Form 10-K for the Fiscal Year
ended September 30, 1996 -- Item 2
<PAGE>
Item 2. Properties
Palm Beach County, Florida
The Company originally owned approximately 28,000 acres in Palm Beach County, in
southeastern Florida, approximately 4,200 of which were located within the
Village.
The Village of Royal Palm Beach
The village, an incorporated municipality, is approximately eight miles from the
Palm Beach International Airport and eleven miles west of Palm Beach. Two major
area highways, Southern Boulevard and Okeechobee Road, lead directly from Palm
Beach through West Palm Beach to the Village. The Village has a population of
approximately 16,000 and is primarily residential. The Village has been
developed in accordance with a master plan and includes schools, shopping
facilities, community recreation areas, and its own police and fire departments.
Although the Partnership had previously sold all of its land in the Village, it
reacquired in 1992, through foreclosure of a defaulted purchase money mortgage,
the 165 acre Crestwood Tract of undeveloped land in the Village. When
reacquired, the Crestwood Tract was zoned and preliminary approval had been
obtained for the development of 172 single-family homesites (the "Single Family
Tract") and 625 multi-family units. The Crestwood Tract is bisected by a
principal Village road and has access to all utilities, but was otherwise
undeveloped with the exception of the existence of portions of a drainage
system.
Commercial Tract within the Crestwood Tract
In order to enhance the value and salability of the Crestwood Tract, the
Partnership has obtained the rezoning of a 28 acre portion of the multi-family
zoned property in the Crestwood Tract to permit the Partnership to offer such
portion for sale as a shopping center site. The Partnership expects to receive
site-plan approval in mid-1996. The Partnership has executed an agreement to
sell this portion to an unaffiliated shopping center developer ("Purchaser") in
four phases. The first phase relates to an 11.8 acre tract to be sold for $3.00
per square foot (approximately $1,542,024 subject to final survey), with a
closing subject to soil testing, availability of sufficient utility connections,
environmental matters, final site-plan approval by June, 1996 and approval of
the premises by a major supermarket chain as a site for a new supermarket. In
addition, the Purchaser has an inspection period ending in May, 1996 during
which Purchaser can terminate the agreement if it determines that the property
is not suitable for Purchaser's purposes. All conditions to closing must be
satisfied and the closing must occur ("First Closing") on or before December 31,
1996. The Purchaser's only liability for failure to close will be its loss of an
initial deposit of $15,000, plus additional deposits aggregating $55,500
required if the inspection period expires, the supermarket chain approves the
site, and the Purchaser does not terminate the agreement.
<PAGE>
The second and third phases consist of two parcels which are covered by the
rezoning process referred to above and adjoin the shopping center site, but as
to which building permits are not expected to be available for approximately
four years. As to such parcels, the Partnership has agreed, during a five-year
period following the First Closing, to accord an option to Purchaser to acquire
the parcels, with the price to be paid dependent on the terms upon which the
Purchaser leases or sells such parcels to an unaffiliated third party. In such
event the Purchaser will pay to the partnership, (i) in the event of a lease, a
sum equal to the five times the average annual rental under the lease, and (ii)
in the event of a sale, 50% of the net proceeds of the sale; provided that the
partnership is not required to accept less than $3.50 per square foot. If the
Partnership obtains an unsolicited offer to lease or purchase the parcels
("Third Party Offer") which the Partnership desires to accept, the Purchaser may
exercise a right of first refusal in which case the Partnership must accept (i)
in the event of a lease, a sum equal to five times the average annual rental to
be paid during the first five years of the proposed lease, and (ii) in the event
of a sale, 50% of the net proceeds the Partnership would have received under the
Third Party Offer.
The fourth phase relates to a 14-acre parcel as to which rezoning from the
current multi-family to commercial use is not considered feasible for several
years. The Purchaser has been granted an option ending four years after the
First Closing to acquire this parcel at $3.50 per square foot (approximately
$2,129,000 subject to survey). The Partnership is entitled to make an earlier
sale of this parcel, commencing two years after the First Closing, for
multi-family residential purposes only, and for a price which is less than the
option price, subject to the Purchaser's right of first refusal at the same
price.
Randy Rieger, who became vice-president of the Partnership's managing general
partner in September, 1995 for an interim period following the death of its
President, is entitled to a commission of 10% of the net proceeds to the
Partnership on all of the above-described transactions. See Item 13.
In addition, as a result of management's decision to develop portions of the
Crestwood Tract, the Partnership has replanned the configuration of the entire
tract. This project included a redesign of the Single Family Tract, and the
Partnership has now received final plat approval to increase to 198 the number
of lots which may be developed in the Single Family Tract. "Development," as
such term is applied to single-family lots, entails the completion of all
necessary zoning, land use, environmental and other required regulatory
procedures, the installation of roads and utility connections to each lot and
the provision of drainage facilities.
The Partnership has recently completed the off-site utility infrastructure for
the entire Crestwood Tract. The cost of such construction approximated $975,000.
This construction was financed with the proceeds of a $975,000 construction loan
from Union Bank of Florida, ("Union Bank Loan " -- See Item 13 -"Certain
Relationships and Related Transactions"). See Item 7 -Management Discussion and
Analysis -- "Liquidity." Under the terms of the Union Bank Loan, the Partnership
is paying interest at a rate equal to 2% above the bank's prime lending rate.
The Union Bank's aggregate commitment in respect of the Residential Tract is
$2,175,000. The Union Bank Loan, which is secured by a first mortgage on the
1978 undeveloped homesites, is due in full on July 1, 1997. Individual lots may
be released from the mortgage upon sale upon a prepayment of $20,000 per lot.
<PAGE>
The Partnership is developing the residential lots in three phases, of which the
first phase, comprising 32 lots, is currently being developed with on-site
improvements. financed by $350,000 in additional borrowings under the Union Bank
Loan. Four of the residential lots in the first phase have already been
purchased by Regency Homes, Inc. for the sum of $35,000 per lot, and the balance
of 28 lots are subject to an option in favor of Regency at $36,000 per lot for
the 14 remaining waterfront lots and $30,000 for the 14 remaining "dry" lots (an
additional $924,000 if all options are exercised). In order to preserve the
option, Regency must purchase a minimum of three lots per month commencing in
May, 1996. The agreement with Regency Homes, Inc. was unrelated to and not
contingent upon the merger described in Item 1 -- Recent Efforts to resume
Active Business Operations.
The Partnership proposes to finance on-site development of the balance of the
Single Family Tract, anticipated to cost in the range of $1.9 million, with the
balance of the borrowing available under the Union Bank Loan and public bond
financing through the Indian Trail Water Control District (the "District"),
which the Partnership anticipates will produce net available funds of
approximately $1,000,000. Union Bank is not obliged to fund the balance of its
commitment unless bond issue proceeds of a minimum of $1,000,000 are realized.
The District has adopted the Partnership's proposed development plan, a
court-appointed commission has reported favorably upon such plan and the
District has authorized the initiation of procedures with a view to issuance of
the bonds. The Partnership intends to seek issuance of the bonds during
mid-spring of 1996. The District's ability to sell such bonds will be subject to
financial market and other variable factors which cannot be predicted at this
time. The Partnership's ability to proceed with on-site development of these
sites would be adversely affected if such bank and/or bond financing proves to
be unavailable. The additional financing anticipated from Union Bank could be
deferred or said bank's obligation to make further advances could expire without
further funding if the Partnership does not sell at least 20 single-family lots
in first 32-lot phase on or before May, 1996. In turn, the Partnership's ability
to meet this schedule depends upon the rate at which Regency Homes, Inc., which
holds options on these lots, is able to sell and construct homes thereon.
Regency has the right to defer additional purchases until May 1996 without
losing its options. Management believes that the market for homes on such lots
is currently strong.
In March, 1993 the Partnership reacquired a separate tract of five acres in the
Village by accepting a deed in lieu of foreclosure on a mortgage with a
principal balance of $300,000 (See Item 7 --"Foreclosure Transactions"). This
parcel is bordered by a golf course and a principal Village road, is zoned for
approximately 100 multi-family residential units and is being offered for sale
in its present state without further development.
Included in Property Held For Sale at September 30, 1995 is the net carrying
value of a mortgage note receivable having a net carrying value of $137,614 on
which foreclosure action has been commenced. Management is of the opinion that
the realizable value of the underlying property is in excess of the current book
value of the mortgage.
<PAGE>
Utility Contingent Receivable
In 1983 the Partnership's Predecessor Company sold to the Village of Royal Palm
Beach a water and sewage treatment system servicing the Village. Pursuant to the
agreement of sale ("Utility Contract"), the Predecessor company received
$2,510,000 on closing, and was entitled to future payments to a maximum of
$10,900,000 as future connections, measured by consumption increases, were made
to the system over a period ending August, 2001. As of September 30, 1995,
$5,708,000 had not been received or earned. The Utility Contract also provided
for contingent extension periods aggregating not more than three additional
years to compensate for possible future governmental building moratoriums or
water use restrictions. The Partnership's consultants have advised it that the
term has been extended through 2003 as a result of water usage restrictions
imposed by the South Florida Water Management District in 1990 and 1991 and
moratorium actions taken by the Village of Royal Palm Beach in 1985 and 1986.
The Utility Contract also calls for payments to the Partnership equal to 25% of
any "Guaranteed Revenues" (payment by developers to secure guaranteed
allocations of plant capacity) collected by the Village to a maximum payment of
$500,000, of which $262,657 has already been received. It is not possible to
predict the amount or timing of future revenues to the Partnership under this
program.
To date, the Partnership has received the following Utility Contract payments:
<TABLE>
<CAPTION>
Amount Received Based On
---------------------------------
Fiscal Year Ended Consumption Guaranteed
September 30, Increases Revenues
- ----------------- ----------- ----------
<S> <C> <C>
1984 $919,000
1985 830,000
1986 637,000
1987 859,000
1988 240,000 $ 30,000
1989 761,000 45,000
1990 -0- 35,000
1991 293,000 21,000
1992 357,000 37,000
1993 168,000 47,000
1994 58,000 27,000
1995* 413,000 20,000
---------- --------
Total $5,535,000 $262,000
+========= ========
</TABLE>
- ----------------------------------
*Paid in January, 1996.
<PAGE>
The Utility Contract with extensions management believes have already
accumulated will expire in 2003, subject to extensions of up to one additional
year. The ability of the Partnership to realize the maximum price is dependent
upon the rate at which the population in the Village grows, and levels of water
consumption which in turn depends upon economic, social and climatic factors
which cannot be predicted. Historically, water consumption tends to increase
based upon increases in population. During most of fiscal 1990, however, due to
drought conditions existing in most Southern Florida, the South Florida Water
Management District imposed mandatory water usage restrictions. The imposition
of these restrictions resulted in a decrease in aggregate water consumption in
the area from which the Partnership's receipts are projected while population
was increasing.
Management believes that there remain sufficient potential new home water
hookups in the area served by the utility to enable the Partnership to realize
the maximum remaining $5,708,000 in contingent payments under the Utility
Contract. There can be no assurance that the rate of new construction or water
consumption in such area will be sufficient to enable the Partnership to receive
the full amount or even a substantial portion of such payments prior to the
expiration of the contingent payment term.
Acreage in the Vicinity of the Village
Substantially all of the property previously owned by the Predecessor Company in
Palm Beach County outside of the Village limits, originally aggregating
approximately 23,800 acres, was sold under the Predecessor Company's retail
installment sales program, which terminated prior to the inception of the
Partnership. The Partnership currently retains a tract of approximately 483
acres, and additionally holds approximately 206 one-acre lots, located
approximately eight miles northwest of the Village.
The 206 lots have been improved with graded unpaved access roads and drainage
facilities. The Partnership has not sold any of these lots. The timing of future
sales of these lots, the manner in which they may be developed and the ultimate
realizable prices for these lots are dependent upon a complex and interrelated
number of factors arising out of governmental regulations concerning permissible
land use.
Palm Beach County has adopted land development regulations under which new
development will not be permitted unless adequate public facilities (such as
roads) will be in place concurrently with the impacts of such development. The
Indian Trail Water Control District ("District") is currently preparing a
revised drainage plan which would result in an exemption for such 206 lots from
further compliance with such concurrency requirements and would allow the
issuance of building permits for single-family residences on such lots. Such
plan has been opposed by other governmental agencies, however, and it is
uncertain whether the plan will be adopted. If the plan is not approved these
lots may not be usable for residential purposes. Further, even assuming a
favorable result, the administrative process leading to the availability of
building permits cannot be expected to be completed before mid-1998. However,
management is of the opinion that the realizable value of these lots, in the
aggregate, is in excess of its current book value of $132,754.
<PAGE>
The 483-acre tract had been reserved for use by the District, in part, as a
water retention area for such revised drainage plan. The Partnership is
presently evaluating possible alternative uses of this tract, which contains a
significant amount of wetlands. Since the use of this land is also dependent on
the extension of roads, and development activity on this tract may meet with
opposition from governmental agencies concerned with wildlife and wetlands
preservation, it is not possible to estimate the realizable value of this land.
However, management is of the opinion that its realizable value is in excess of
its current book value of $213,421.
Elsewhere in the vicinity of the Village the Partnership previously held a
disputed claim to approximately 24 acres of undeveloped land. This claim had not
originally been accorded value on the Partnership's balance sheet and was
considered to have little or no value. During 1994, in connection with the
resolution of this claim with adjoining land owners, and in order to give value
to such claim, the Partnership relinquished a portion of its claim, acquired 5
adjoining acres for $141,879, and executed a joint development agreement with
one of such adjoining landowners relating to the Partnership's acreage and such
landowner's acreage (comprising approximately 22 acres in the aggregate of which
the Partnership now owns approximately 12 acres). The Partnership and the joint
developer have recently entered into an agreement to sell the entire combined
parcel for a price of $1.90 per square foot, subject to survey, which would
result in a gross selling price of approximately $1,820,808 of which the
Partnership's share would be approximately $927,500. The sale is subject to the
purchaser's ability to have the premises rezoned for use as a shopping center,
approval of the premises as a site for a supermarket by a major supermarket
chain, and the issuance of all necessary building and other permits, with a
closing date (subject to all of the foregoing) no later than June 30, 1997. The
agreement is also subject the ability of the Partnership to cause the owner of
an adjoining residence, which is not owned by the Partnership or its joint
developer, to sell such residence to the purchaser. There is no assurance that
such permits will be obtained, nor can the Partnership predict whether the
rezoning process, which involves proceedings before several governmental bodies,
or the sale of the aforesaid residence, could be completed or obtained within
the required time frame.
Hernando County, Florida
The Predecessor Company originally owned approximately 17,600 acres in Hernando
County, Florida, located 56 miles from Tampa, with 13 miles of road frontage
along U.S. Highway 19, a major area highway. In 1994 the Partnership sold a 14
acre tract in this area for $125,000. The Partnership presently retains
approximately 20 acres in this area with negligible value.
<PAGE>
Lake County, Florida
The Predecessor Company originally owned approximately 12,300 acres in Lake
County, Florida, located in Central Florida on the outskirts of the Ocala
National Forest approximately 39 miles from Ocala and 6 miles from Deland. Lake
County is predominantly rural with a population of approximately 14,000. At
September 30, 1992, the Partnership owned no property in Lake County; however,
in March of 1993 the Partnership accepted a deed in lieu of foreclosure on a
mortgage on a 1400 acre portion of this property with a principal balance of
$706,000. See Item 7 -- "Foreclosure Transactions." Approximately 1,000 acres of
this property which are remote, undeveloped and may be unsuited for any
development, were sold by the Partnership for a cash price of $350,000 in June,
1993. The balance of the tract was sold in 1994 in two transactions for prices
aggregating $360,000, of which $248,000 was represented by a purchase money
mortgage payable over a five year term. In November 1995 this mortgage having a
principal balance of $222,471 and deferred profit of $48,958, was sold for
$170,000.
