SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended February 28, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the
transition period from ______ to ______.
0-17793
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(Commission File Number)
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
(Exact name of registrant as specified in its governing instruments)
Delaware 13-3481443
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(State or other jurisdiction (I.R.S.Employer
of organization) Identification No.)
Wilder Richman Historic Corporation
599 W. Putnam Avenue
Greenwich, Connecticut 06830
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (203) 869-0900
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Securities registered pursuant to Section 12(b) of the Act:
None
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(Title of each Class)
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in a 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
The aggregate sales price of the units of limited partnership interest held by
on-affiliates of the Registrant is $19,280,000. There is currently no public
market for the units of limited partnership interest and, accordingly, such
figure does not represent the market value for the units.
Documents incorporated by reference:
The Prospectus of the Registrant, dated May 13, 1988 and filed pursuant to Rule
424(b)(iii) under the Securities Act of 1933, is incorporated by reference into
Parts I, II and III of this Annual Report on Form 10-K.
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PART I
Item 1. Business
General Development of Business
Registrant (also referred to as the "Partnership") is a limited
partnership which was formed under the Delaware Revised Uniform Limited
Partnership Act on October 15, 1987. The general partner of the Partnership is
Wilder Richman Historic Corporation, a Delaware corporation (the "General
Partner" or "WRHC").
Registrant was organized to acquire all of the limited partnership
interests in Dixon Mill Associates I (Phase One), Limited Partnership, Dixon
Mill Associates II (Phase Two), Limited Partnership, and Dixon Mill Associates
III (Phase Three), Limited Partnership, each of which is a New Jersey limited
partnership (individually "Dixon Mill I," "Dixon Mill II" and "Dixon Mill III,"
respectively, and collectively the "Operating Partnerships"). Each Operating
Partnership owns one phase ("Phase") of an aggregate 433-unit residential
apartment complex (the "Complex") located in Jersey City, New Jersey, that
consists of buildings designated as certified historic structures by the U.S.
Department of the Interior. The Operating Partnerships have constructed,
substantially rehabilitated and are operating the Complex. The rehabilitation of
the Complex qualified for a rehabilitation tax credit in 1988, 1989 and 1990.
The general partner of the Operating Partnerships is Dixon Venture Corp. (the
"Operating General Partner"), which is not an affiliate of the Partnership or
WRHC.
Pursuant to the Partnership's prospectus dated May 13, 1988, (the
"Prospectus"), the Partnership offered $19,280,000 of units of limited
partnership interest in the Partnership (the "Units") at an offering price of
$24,100 per Unit. The Units were registered under the Securities Act of 1933
pursuant to a Registration Statement on Form S-11 (Registration No.
33-19646). The Prospectus is incorporated herein by reference.
The closing of the offering of Units (the "Offering") occurred on July
15, 1988. At such closing, 800 Units were sold, representing $19,280,000 in
gross proceeds. After payment of $674,800 of organization and offering expenses,
$674,800 in an origination fee and $1,349,600 of selling commissions, the net
proceeds available for investment were $16,580,800. Of such net proceeds,
$16,388,000 was allocated to the investment in the Operating Partnerships, which
included investments in guaranteed investments contracts. The remainder of
$192,800 was designated as working capital to be used for operating expenses of
the Partnership.
Financial Information About Industry Segments
Registrant is engaged solely in the business of owning a limited
partnership interest in each of the Operating Partnerships. A presentation of
information regarding industry segments is not applicable and would not be
material to an understanding of the Partnership's business taken as a whole. See
Item 8 below for a summary of Registrant's operations.
Working Capital Reserves
As of February 28, 1999, Registrant had working capital reserves of
approximately $663,000, inclusive of funds previously restricted for the purpose
of providing operating deficit loans to the Operating Partnerships (in order to
avoid default under their mortgages pursuant to their modified mortgage
documents) which were substantially invested in interest-bearing deposits. See
Item 7 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Competition
Information regarding competition, general risks, tax risks and
partnership risks is set forth under the heading "RISK FACTORS" at pages 37 - 57
of the Prospectus.
Compliance with Environmental Protection Provisions
In connection with the environmental cleanup responsibilities pertaining
to the Complex, the Operating General Partner submitted a declaration to the
State of New Jersey Department of Environmental Protection ("NJDEP") stating
that there remains no
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hazardous substances and wastes on the site. In August 1989, the Operating
General Partner received notification from NJDEP that the environmental testing
was complete and the Complex was in compliance with NJDEP requirements. All
costs incurred in connection with the review conducted by NJDEP were borne by
The Dixon Venture, an affiliate of the Operating General Partner. Information
regarding such environmental matters is set forth under the heading "DESCRIPTION
OF THE COMPLEX ENVIRONMENTAL MATTERS" at pages 87 - 92 of the Prospectus, which
is incorporated herein by reference.
Employees of Registrant
Registrant employs no personnel and incurs no payroll costs. An affiliate
of the General Partner employs individuals who perform accounting, secretarial,
transfer and other services on behalf of Registrant as are necessary in the
ordinary course of business. Such individuals also perform similar services for
other affiliates of the General Partner.
Tax Reform Act of 1986, Revenue Act of 1987, Technical and Miscellaneous
Revenue Act of 1988, Omnibus Budget Reconciliation Act of 1989, Omnibus
Budget Reconciliation Act of 1990, Tax Extension Act of 1991, Omnibus
Budget Reconciliation Act of 1993, Uruguay Round Agreements Act and
Taxpayer Relief Act of 1997 (collectively the "Tax Acts")
Registrant is organized as a limited partnership and is a pass through
tax entity which does not, itself, pay Federal income tax. However, the partners
of Registrant who are subject to Federal income tax may be affected by the Tax
Acts. Registrant will consider the effect of certain aspects of the Tax Acts on
the partners when making decisions regarding its investment. Registrant does not
anticipate that the Tax Acts will currently have a material adverse impact on
Registrant's business operations, capital resources and plans or liquidity.
Item 2. Properties
The Complex consists of approximately 34 historic mill buildings built
between 1847 and 1932, all of which are certified historic structures that have
been converted and substantially rehabilitated into a 433 unit luxury apartment
complex that has received financing exempt from Federal income taxation under
Internal Revenue Code Section 103(b)(4)(A). As a consequence of this tax exempt
financing, the Operating Partnerships are required to rent at least 15% of the
dwelling units ("D.U.'s") in the Complex to individuals or families of low or
moderate income as determined under such Code Section, currently based on their
income not exceeding 80% of the median income for the area as determined by the
United States Department of Housing and Urban Development ("HUD"). These income
limits are subject to increases pursuant to HUD guidelines. In the Complex, 68
studio and efficiency D.U.'s and 17 one-bedroom D.U.'s are set aside for rental
to low or moderate income persons. There are no rent ceilings on those D.U.'s
set aside for low or moderate income persons. Because such tax exempt financing
consists of bonds sold in 1985, the 80% of median income limit is not required
to be adjusted based on family size as would be required under the Tax Reform
Act of 1986.
The Complex is located on a 4-acre site in Jersey City, New Jersey. In
addition, one new five-story building, approximately 20 feet by 50 feet, was
built on the site. The Complex is located in the Dixon Crucible Redevelopment
Area, an area so designated pursuant to a redevelopment plan adopted in
September 1983 by ordinance of the City of Jersey City. The actual development
entails three Phases with each Phase owned by a separate New Jersey limited
partnership, respectively Dixon Mill I, Dixon Mill II and Dixon Mill III. Phase
I consists of seven industrial buildings which have been rehabilitated to
provide 134 D.U.'s, 55 underground and 77 surface parking spaces and
approximately 1,550 square feet of commercial space. Phase II consists of 11
industrial buildings which have been rehabilitated to provide 191 D.U.'s and 62
underground and 124 surface parking spaces. Phase III consists of four
industrial buildings which have been rehabilitated to provide 108 D.U.'s, 35
underground and 73 surface parking spaces and approximately 2,230 square feet of
commercial space.
The Complex features gardens, elevated walkways and brick paved walkways.
The Complex also has its own electronic security system and a free shuttle
service to the Grove Street PATH station is being provided. In addition, the
residents of the Complex have access to a private fitness facility. The
Complex's commercial space is designated for retail stores and/or professional
offices.
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As of December 31, 1998 and 1997, the occupancy and rental rates were as
follows:
December 31, 1998 December 31, 1997
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Occupancy Rate 96% 99%
Monthly Rental Rates:
Studio $ 614 - $1,044 $ 578 - $ 935
One-Bedroom $ 715 - $1,395 $ 666 - $1,450
Two-Bedroom $1,001 - $1,802 $ 808 - $1,695
Three-Bedroom $1,658 - $2,395 $ 1,695 - $2,195
The rental rates reflect significant ranges because the apartments vary
as to size and floor plans (i.e., square footage, duplex, triplex, penthouse)
and due to the low-moderate tenant income restrictions for 15% to 20% of the
D.U.'s resulting from the tax-exempt financing described above.
Item 3. Legal Proceedings
As of February 28, 1999, there were no material pending legal proceedings
to which Registrant or any of its affiliates was a party or to which any of
their property was subject except for the following:
Two complaints were filed in Federal Court by former employees of the
Operating Partnerships (one of whom is a relative of the principals of the
Operating General Partner) claiming sexual harassment. The Operating General
Partner settled such complaints on behalf of the Operating Partnerships
subsequent to February 28, 1999, each in the amount of $250,000, inclusive of
respective legal fees. Such settlements were conducted despite the General
Partner's refusal to provide its consent. The results of the settlement were
accrued in the Operating Partnerships' financial statements as of December 31,
1998.
The Operating Partnerships have been named as a third-party defendant in
a lawsuit between The Dixon Venture, the party who sold the Complex to the
Operating Partnerships, and the former owner, Joseph Dixon Crucible Company, for
indemnification for cost clean-up under the Comprehensive Environmental Response
Compensation and Liability Act of 1980. The Operating General Partner believes
that the Operating Partnerships have no liability or no liability that is not
adequately covered by an indemnification from The Dixon Venture.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of the limited partners of
Registrant during the fourth quarter of the fiscal year covered by this report.
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PART II
Item 5. Market for Registrant's Common Equity and Related Unit Matters
a) Market
There is no developed public market for the purchase and sale of Units
and Registrant does not anticipate that such a market will develop.
b) Holders
As of February 28, 1999, there were approximately 743 record holders of
Units holding an aggregate of 800 Units in the Partnership.
c) Distributions
The Agreement of Limited Partnership of the Registrant provides that cash
available for distribution, if any, be distributed annually to the partners in
specified proportions. As a result of the mortgage modification on June 11,
1992, certain cash flow restrictions have been placed on the Operating
Partnerships. See Item 7 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Notes 3 and 5 to the Dixon Mills
Financial Statements included herein.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Year End
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February February February February February
28, 1999 28, 1998 29, 1997 28, 1996 28, 1995
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<S> <C> <C> <C> <C> <C>
Total revenues
(Interest income) $ 52,660 $ 55,276 $ 50,994 $ 43,259 $ 30,858
Equity in loss of investment in
Operating Partnerships $ (508,146)(b) $ (358,875) $ (799,980) $ (745,393)(a) $ (873,701)
Net loss $ (488,061) $ (333,793) $ (779,882) $ (736,763) $ (875,499)
Net loss per unit of limited
partnership interest $ (604) $ (413) $ (965) $ (912) $ (1,083)
At year end:
Total assets $ 2,314,027 $ 2,787,088 $ 3,105,881 $ 3,870,763 $ 4,592,526
</TABLE>
(a) This amount is net of an extraordinary gain of $366,499 resulting from the
forgiveness of debt of the Operating Partnerships reflected in Registrant's
financial statements.
(b) Includes extraordinary loss of $321,753 in connection with litigation
settlement. See Management's Discussion and Analysis of Financial Condition
and Results of operations.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
The operating results of the Complex for 1998 (before extraordinary
charges) were favorable compared to 1997. During 1992, the mortgages of the
Operating Partnerships were modified pursuant to agreements among Federal
National Mortgage Association ("FNMA" or the "Lender"), Chase Manhattan Bank,
N.A. ("Chase") and the Operating General Partner. The Partnership obtained the
consent of the limited partners to utilize the proceeds from the final
distribution from the guaranteed investment contracts to assist in modifying the
mortgages. As a result of the mortgage modification, the interest rate under the
mortgages decreased from approximately 9.6% to approximately 6.74%, thereby
improving the financial viability of the Complex. Recently, there has been
ongoing new construction of luxury multi-family housing in the vicinity of the
Complex. Such housing includes asking rents that are comparable and
substantially higher than rents currently charged by the Complex. It has not
been determined whether such new
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housing will have a positive or negative impact on the Complex or its cash flow
in the future.
In connection with the mortgage modification, Chase and the Partnership
each advanced $277,500 to the Operating Partnerships to pay for certain costs of
the mortgage modification. In addition, in the event of future operating
deficits, Chase and the Partnership each provided a letter of credit and cash of
approximately $622,500 (the "Operating Deficit Escrows"), for the purpose of
providing FNMA the ability to make pro-rata draws for debt service payments and
other operating expenses to the extent cash flow of the Operating Partnerships
was insufficient to make the required payments under the modified mortgages. The
release of the Operating Deficit Escrow was based upon the later of (i) the date
on which the Operating Partnerships satisfy the Lender as to the 110% debt
service coverage ratio requirements on the mortgages or (ii) January 1, 1996 (to
coincide with the expiration of Federal income tax recapture of the
rehabilitation credits). During 1995, the Operating General Partner submitted to
the Lender the operating statement of the Complex for 1994, reflecting that the
1994 operations satisfied the 110% debt service coverage ratio requirement. Such
submission was reviewed by the Lender and was approved in June 1995 and the
letters of credit were released by the Lender in January 1996.
Chase and the Partnership each originally provided advances of $317,713.
During 1995, Chase agreed to release the Operating Partnerships from
substantially all of the outstanding liabilities owed to Chase in connection
with outstanding advances and accrued interest thereon . As of February 28,
1999, the Partnership had accrued interest receivable of $140,083 in connection
with the advances provided. Such outstanding advances and all accrued interest
thereon were repaid by the Operating Partnerships during April 1999.
Because the outstanding advance owed to the Partnership was repaid, the
Operating Partnerships are no longer subject to restrictions concerning cash
flow distributions and the payment of certain fees to affiliates. To the extent
cash flow is generated by the Operating Partnerships, such cash flow may be
retained by the Operating Partnerships or may be distributed at the discretion
of management, pursuant to the terms of the limited partnership agreements of
the Operating Partnerships. To the extent there are proceeds from a future sale
or refinancing of the Complex, the Partnership will receive 100% of any such
proceeds available for distribution until the 7% cumulative preferred
distribution has been achieved. Through December 1998, the cumulative preferred
distribution is approximately $10,813,000. Although recent rental market
conditions have been strong, management has been building up its cash balance to
protect against potential adverse changes in market conditions and unanticipated
expenses. In addition, because the property has been in operation for
approximately ten years, management is addressing the potential need for
extensive capital improvements that may be necessary in the near future. The
General Partner and the Operating General Partner are contemplating the economic
benefits of a refinancing of the Property in order to enhance cash flow. Until
such time as the Property is refinanced at a lower annual debt service, the
Partnership does not anticipate making annual cash flow distributions to Limited
Partners (except as discussed below). If a refinancing is ultimately achieved,
the resumption of cash flow distributions will be assessed on an ongoing basis,
based on the results of operations, the physical condition of the property and
the local market conditions, among other things. As of December 31, 1998, the
Operating Partnerships' balance in the replacement reserves account, which is
controlled by the Lender to be used for certain repairs or capital improvements,
was approximately $747,000.
As of December 31, 1998, the Operating Partnerships' liquidity is
improved compared to December 31, 1997, with cash and cash equivalents having
increased by approximately $791,000 and the replacement reserve having increased
by approximately $85,000. Accounts payable and accrued expenses increased by
approximately $539,000 (primarily due to the accrual of the litigation
settlement discussed below) and amounts due to related parties, which balance
was approximately $2,029,000 as of December 31, 1998, increased by approximately
$188,000 due to the accrual of management fees and investor service fees.
Subsequent to December 31, 1998, the Operating Partnerships utilized cash to
repay the Partnership for its advance and accrued interest thereon
(approximately $460,000), settle outstanding litigation matters (in the amount
of $500,000), pay outstanding investor service fees ($270,000) and pay accrued
property management fees.
Two complaints were filed in Federal Court by former employees of the
Operating Partnerships (one of whom is a relative of the principals of the
Operating General Partner) claiming sexual harassment. The Operating General
Partner settled such complaints on behalf of the Operating Partnerships
subsequent to February 28, 1999, each in the amount of $250,000, inclusive of
respective legal fees. Such settlements were conducted despite the General
Partner's refusal to provide its consent. The General Partner is reviewing
whether there may be a claim for damages. The results of the settlements were
accrued in the Operating Partnerships' financial statements as of December 31,
1998.
Cash and cash equivalents of the Partnership as of February 28, 1999 of
$663,495 includes approximately $582,000 which was released from the Operating
Deficit Escrow. In addition, the Partnership received approximately $460,000 as
repayment of its advance to the Operating Partnerships in May, 1999. Pursuant to
the Partnership Agreement, the released Operating Deficit Escrow of the
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Partnership may be held or utilized for other Partnership purposes in the
discretion of the General Partner. The General Partner is planning to make a
distribution to limited partners of record as of December 31, 1999 of
approximately $964,000 ($1,205 per Unit) in the first quarter of 2000. During
the year ended February 28, 1999, the Partnership's investment in Operating
Partnerships decreased by $508,146 as a result of the equity in loss of
investment in Operating Partnerships.
The annual investor service fees are payable from the operating results
of the Operating Partnerships and from reserves. As of February 28, 1999, due to
affiliates includes $155,000 of accrued investor service fees, which includes
the Partnership's expense for the last seven fiscal periods and $50,000
otherwise payable from the final distribution of the guaranteed investment
contracts in January 1992.
Results of Operations
The Partnership's operating results are dependent upon the operating
results of the Operating Partnerships and are significantly impacted by the
policies of the Operating Partnerships. Registrant accounts for its investment
in Operating Partnerships in accordance with the equity method of accounting,
under which the investment is carried at cost and is adjusted for Registrant's
share of the Operating Partnerships' results of operations and by any cash
distributions received. Equity in loss of each investment in Operating
Partnership allocated to Registrant is recognized to the extent of Registrant's
investment balance in each Operating Partnership. Any equity in loss in excess
of Registrant's investment balance in an Operating Partnership is allocated to
other partners' capital in each such Operating Partnership. As a result, the
equity in loss of investment in Operating Partnerships is expected to decrease
as Registrant's investment balances in the respective Operating Partnerships
become zero.
Cumulative losses and cash distributions in excess of investment in
Operating Partnerships may result from a variety of circumstances, including the
Operating Partnerships' accounting policies, debt structure and operating
deficits, among other things. Accordingly, cumulative losses and cash
distributions in excess of the investment are not necessarily indicative of
adverse operating results of the Operating Partnerships.
Year Ended February 28, 1999
During the year ended February 28, 1999, the Partnership earned interest
of approximately $53,000 including approximately $21,000 of accrued interest on
advances provided to the Operating Partnerships discussed above. During the year
ended February 28, 1999, interest earnings was comparable to the previous fiscal
period. The Partnership's operating expenses (which include accrued investor
service fees of $15,000) were comparable to the year ended February 28, 1998.
The operating expenses of the Partnership are not expected to vary significantly
in the near future. Registrant's equity in loss in Operating Partnerships does
not include a 99% allocation of the loss reported by the Operating Partnerships
due to the nonrecognition of losses in excess of Registrant's investment in
Dixon Mills I of approximately $233,000, in accordance with the equity method of
accounting.
The Operating Partnerships reported a net loss from operations for the
year ended December 31, 1998 in the amount of approximately $748,000, inclusive
of depreciation and amortization of approximately $1,360,000 and the
extraordinary charge in connection with the litigation settlement of $500,000.
However, the Operating Partnerships generated cash flow after required debt
service payments and required replacement reserve deposits of approximately
$781,000 during 1998, which considers principal amortization under the mortgages
(approximately $254,000) and net deposits to required escrows (approximately
$85,000), and excludes the extraordinary charge, accrued fees to affiliates of
the Operating General Partner and the General Partner (approximately $232,000)
and accrued interest to the Partnership (approximately $21,000). Occupancy
remained consistently high throughout 1998, while management has steadily
increased rental rates, resulting in an improvement in operating results
compared to 1997. In future periods, the related party services are more likely
to be paid on a current basis because the Partnership advances were repaid
during 1999.
The Operating Partnerships did not utilize any replacement reserves
during 1998. Although the results of operations have steadily improved,
management continues to examine methods to maintain healthy occupancy rates
while steadily increasing rental rates and to closely monitor its operating
costs. In addition, management is addressing the potential need for capital
improvements to be conducted in the near future. As of December 31, 1998, the
occupancy rate was approximately 96%. Although operations have significantly
improved since the mortgage modification in June 1992, the future operating
results of the Complex will be extremely dependent on market conditions (which
have been very strong but include newly developed multi-family housing in the
area) and the regional economy, and therefore may be subject to significant
volatility.
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Year Ended February 28, 1998
During the year ended February 28, 1998, the Partnership earned interest
of approximately $55,000 including approximately $21,000 of accrued interest on
advances provided to the Operating Partnerships discussed above. During the year
ended February 28, 1998, interest earnings increased compared to the previous
fiscal period due to the increase in average cash balances. The Partnership's
operating expenses (which include accrued investor service fees of $15,000) were
comparable to the year ended February 28, 1997. The operating expenses of the
Partnership are not expected to vary significantly in the near future.
Registrant's equity in loss in Operating Partnerships does not include a 99%
allocation of the loss reported by the Operating Partnerships due to the
nonrecognition of losses in excess of Registrant's investment in Dixon Mills I
of approximately $129,000, in accordance with the equity method of accounting.
The Operating Partnerships reported a net loss from operations for the
year ended December 31, 1997 in the amount of approximately $493,000, inclusive
of depreciation and amortization of approximately $1,360,000. However, the
Operating Partnerships generated cash flow after required debt service payments
and required replacement reserve deposits of approximately $645,000 during 1997,
which considers principal amortization under the mortgages (approximately
$238,000) and net deposits to required escrows (approximately $132,000), and
excludes accrued fees to affiliates of the Operating General Partner and the
General Partner (approximately $175,000) and accrued interest to the Partnership
(approximately $21,000). Occupancy remained consistently high throughout 1997,
while management has steadily increased rental rates, resulting in an
improvement in operating results compared to 1996. The Operating Partnerships
did not utilize any replacement reserves during 1997. As of December 31, 1997,
the occupancy rate was approximately 99%.
Year Ended February 28, 1997
During the year ended February 28, 1997, the Partnership earned interest
of approximately $51,000 including $21,000 of accrued interest on advances
provided to the Operating Partnerships discussed above. During the year ended
February 28, 1997, interest earnings increased compared to the previous fiscal
period due to the average increase of short-term interest rates. The
Partnership's operating expenses (which include accrued investor service fees of
$15,000) were comparable to the year ended February 29, 1996. The operating
expenses of the Partnership are not expected to vary significantly in the near
future. Registrant's equity in loss in Operating Partnerships does not include a
99% allocation of the loss reported by the Operating Partnerships due to the
nonrecognition of losses in excess of Registrant's investment in Dixon Mills I
of approximately $47,000, in accordance with the equity method of accounting.
The Operating Partnerships reported a net loss from operations for the
year ended December 31, 1996 in the amount of approximately $855,000, inclusive
of depreciation and amortization of approximately $1,363,000. However, the
Operating Partnerships generated cash flow after required debt service payments
and required replacement reserve deposits of approximately $285,000 during 1996,
which considers principal amortization under the mortgages (approximately
$223,000) and net deposits to required escrows (approximately $200,000), and
excludes accrued fees to affiliates of the Operating General Partner and the
General Partner (approximately $179,000) and accrued interest to the Partnership
(approximately $21,000). Occupancy remained high throughout 1996, resulting in
an improvement in operating results compared to 1995. The Operating Partnerships
did not utilize any replacement reserves during 1996. As of December 31, 1996,
the occupancy rate was approximately 99%.
Inflation
Inflation is not expected to have a material adverse impact on
Registrant's revenues during its period of equity ownership in the
Operating Partnerships.
Year 2000 Compliance
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a two
digit year is commonly referred to as the year 2000 compliance ("Y2K") issue. As
the year 2000 approaches, such systems may be unable to accurately process
certain data-based information. Many businesses may need to upgrade existing
systems or purchase new ones to correct the Y2K issue. Registrant has performed
an assessment of its computer software and hardware and believes it has made the
necessary upgrades in an effort to ensure compliance. However, there can be no
assurance that the systems of other entities on which Registrant relies will be
timely converted. The total cost associated with Y2K implementation is not
expected
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to materially impact Registrant's financial position or results of operations in
any given year. However, there can be no assurance that a failure to convert by
Registrant or another entity would not have a material adverse impact on
Registrant.
Quantitative and Qualitative Disclosure About Market Risk
Because of the Property's proximity to New York City and the strong local
rental market, there is a significant likelihood that other multi-family
residential complexes will be built in the general vicinity of the Property,
which may adversely affect the Property's ability to maintain its high occupancy
levels or its ability to increase rents.
Item 8. Financial Statements and Supplementary Data
The financial information required in response to this Item 8 is
submitted as part of Item 14(a) of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
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PART III
Item 10. Directors and Executive Officers of the Registrant
The Partnership has no directors or executive officers.
The General Partner was incorporated in Delaware on November 24, 1986. As
described below, its principals have had significant experience in various
facets of the real estate business including the development of multi-family
rental housing. The directors and officers of the General Partner, who have
served as such since inception, are as follows:
Name Age Office
Richard Paul Richman 51 President and Director
Robert H. Wilder, Jr. 53 Executive Vice President, Assistant
Secretary, Treasurer and Director.
Gina S. Scotti 43 Secretary
Richard Paul Richman, 51 years old, is President and Director of WRHC.
Mr. Richman graduated from the Columbia University Law School with a Juris
Doctor degree, the Columbia University Graduate School of Business
Administration with a Master of Business Administration degree and Syracuse
University with a Bachelor of Arts degree in Political Science. Mr. Richman has
over ten years of extensive experience in both the development and management of
residential properties. From 1973 until 1979, Mr. Richman practiced corporate
law in New York City with the law firm of Greenbaum, Wolff & Ernst and then as a
partner of Shipley, Richman & Nierenberg. For over six years, Mr. Richman acted
as a lawyer in connection with the development, syndication and tax issues
relating to real estate. Since 1988, Mr. Richman has been the President and sole
stockholder of The Richman Group, Inc. and is the managing partner of The
Richman Group of Connecticut, L.L.C. In recent years, Mr. Richman has devoted
full time to the syndication and development of real estate. Mr. Richman was a
vice president and shareholder of Related Housing Companies Incorporated, New
York, New York from 1978 until mid-1979 with responsibility for that company's
project acquisition and syndication activities. Mr. Richman has been a member of
the National Advisory Board of the Housing and Development Reporter, a bi-weekly
publication of the Bureau of National Affairs, Inc., a frequent speaker on real
estate syndication, and a member of the New York State Historic Credit Task
Force, the National Leased Housing Association, the Coalition to Preserve the
Low-Income Tax Credit and the Minority Developer Assistance Corporation (which
was established by the New York State Battery Park Commission).
Robert H. Wilder, Jr., 53 years old, is Executive Vice President,
Assistant Secretary, Treasurer and Director of WRHC. Mr. Wilder graduated from
the University of Michigan with a Bachelor of Arts degree in Economics and from
the Columbia University Graduate School of Business with a Master of Business
Administration degree. After graduation in 1968, Mr. Wilder joined James D.
Landauer Associates, Inc., a national real estate consulting firm, where his
account responsibilities included feasibility studies, market analyses, land use
studies, portfolio valuations and appraisals of industrial, office, commercial
and multi-family properties. From 1973 until mid-1979, Mr. Wilder was executive
vice president and shareholder of Related Housing Companies Incorporated, New
York, New York, and was responsible for mortgage financing and construction loan
placement and the supervision of the development of the company's projects.
Since 1988, Mr. Wilder has been the President and sole shareholder of Wilder
Property Companies Inc. Mr. Wilder is also a licensed real estate broker in New
York and Connecticut.
Gina S. Scotti, 43 years old, is Secretary of WRHC. Ms. Scotti, a Vice
President and Secretary of The Richman Group, Inc. and Secretary of Wilder
Richman Corporation ("WRC"), joined WRC in 1984 as a special assistant to the
President, and has been the Director of Investor Services with responsibility
for communications with investors since 1986.
10
<PAGE>
Item 11. Executive Compensation
The Partnership is not required to pay the officers, directors or
partners of the General Partner any direct compensation, and no such
compensation was paid during the year ended February 28, 1999.
Item 12. Security Ownership of Certain Beneficial Owners and Management
No person or group is known by the Partnership to be the owner of record
of more than 5% of the outstanding Units as of February 28, 1999.
Item 13. Certain Relationships and Related Transactions
The financial interests in Registrant of the General Partner and Special
Limited Partner are set forth under the heading "PROFITS, LOSSES and
DISTRIBUTIONS" at pages 117 - 124 of the Prospectus.
Transactions with Affiliates of Management
The General Partner and certain of its affiliates are entitled to receive
certain compensation, fees and reimbursement of expenses during the offering,
operational and termination or refinancing stages of the Partnership.
Wilder Richman Management Corporation ("WRMC"), an affiliate of the
General Partner, is a co-management agent of the Complex. In connection with
these services, WRMC earned management fees of $78,444 in 1998, of which $35,004
was paid.
Richman Asset Management, LLC., an affiliate of the General Partner,
earned compensation in the amount of $60,000 in 1999 for its performance in
connection with investor services for the Partnership and the Operating
Partnerships, all of which was accrued.
Indebtedness of Management
No officer or director of the General Partner or any affiliate of the
foregoing was indebted to Registrant at any time during the years ended February
28, 1999 and 1998.
11
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
a) Financial Statements
(i) The list of Financial Statements of Registrant appears on page
F-1.
(ii) The list of Financial Statements of the Operating Partnerships
appears on page F-16.
(3) Exhibits:
(3A) Certificate of Limited Partnership of Wilder Richman Historic
Properties II, L.P., as filed with the Secretary of State of
Delaware on October 15, 1987;*
(3B) Form of Agreement of Limited Partnership of Wilder Richman
Historic Properties II, L.P. (attached to Prospectus as Exhibit
A);
(4) Form of Subscription Agreement (attached to Prospectus as Exhibit
B);
(10A) Previously executed and filed Certificate of Limited Partnership
and Amended and Restated Certificate of Limited Partnership of (x)
Dixon Mill Associates I (Phase One), Limited Partnership, (y)
Dixon Mill Associates II (Phase Two), Limited Partnership and (z)
Dixon Mill Associates III (Phase Three), Limited Partnership;*
(10B) Form of Amended and Restated Agreement and Certificate of Limited
Partnership of the Dixon Mill Partnerships:
(1) Dixon Mill Associates I (Phase One), Limited Partnership
Amended and Restated Agreement and Certificate of Limited
Partnership;**
(2) Dixon Mill Associates II (Phase Two), Limited Partnership
Amended and Restated Agreement and Certificate of Limited
Partnership;** and
(3) Dixon Mill Associates III (Phase Three), Limited Partnership
Amended and Restated Agreement and Certificate of Limited
Partnership;**
(10C) Dixon Mill Complex Financing Documents;*
(10D) Administrative Consent Order with New Jersey Department of
Environmental Protection ("NJDEP") and NJDEP Non-Applicability
Letter as to Dixon Mill Partnerships;*
(10E) Master Services Agreement, dated June 18, 1986, between Varick
Construction Corp. and IT Corporation;*
(10F) Documents related to Dixon Mill Complex historic certification;*
(10G) Form of Operating Deficit Guarantee Agreement;*
(10H) Form of Repurchase Agreement;**
(10I) Form of Investor Services Agreement;**
(10J) Form of Escrow Agreement among Wilder Richman Historic Properties
II, L.P., Wilder Richman Historic Corporation, Shearson Lehman
Hutton Inc. and FirsTier Bank, N.A., as escrow agent;**
12
<PAGE>
(10K) Form of Financial Development Consulting Agreement between Wilder
Richman Corporation and the Operating Partnerships;**
(10L) Form of Annuity Issuance Agreement between Wilder Richman Historic
Properties II, L.P. and the Issuer;**
(10M) Form of Guaranteed Investment Contract Escrow Agreement among
Wilder Richman Historic Properties II, L.P., the Dixon Mill
Partnerships and the escrow agent;**
(10N) Form of Assignment between the Dixon Mill Partnership, as
Assignor, and Wilder Richman Historic Properties II, L.P., as
Assignee;**
(10O) Form of Letter from The Dixon Venture to Wilder Richman Historic
Properties II, L.P. and the Dixon Mill Partnerships, as to The
Dixon Venture's agreement to bear all costs of compliance with the
New Jersey Environmental Cleanup Responsibility Act;**
(10P) Amendment No. 1 to Agreement of Limited Partnership; ***
(10Q) Reinstatement and Modification Agreement; ***
(10R) Operating Deficit Escrow Agreement; ***
(10S) Priority Operating Deficit Escrow Agreement; ***
(10T) Amended and Restated Achievement Escrow Agreement; ***
(10U) Default Avoiding Loan Agreement; ***
(10V) Management Agreement; ***
(10W) Chase Note; ***
(10X) Letter of Intent to Reinstate and Modify the Mortgages; ****
(27) Financial Data Schedule.
* Incorporated by Reference to Registrant's Form S-11 Registration
Statement as filed with the Securities and Exchange Commission on January
15, 1988.
** Incorporated by Reference to Amendment No.1 to Registrant's Form S-11
Registration Statement as filed with the Securities and Exchange
Commission on May 9, 1988.
*** Submitted as exhibit to Form 10-K for the fiscal year ended February 29,
1992.
**** Incorporated by Reference to Proxy dated March 23, 1992.
b) Reports on Form 8-K
None.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 14th day of
December, 1999.
Wilder Richman Historic Properties II, L.P.
By: Wilder Richman Historic Corporation,
General Partner
By: /s/ Richard Paul Richman
-------------------------------------
Richard Paul Richman
President and Director
By: /s/ Robert H. Wilder, Jr.
-------------------------------------
Robert H. Wilder, Jr.
Executive Vice President and Director
14
<PAGE>
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
FINANCIAL STATEMENTS FOR THE
YEARS ENDED FEBRUARY 28, 1999, 1998 AND 1997
AND INDEPENDENT AUDITORS' REPORT
<PAGE>
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
Financial Statements for the
Years Ended February 28, 1999, 1998 and 1997
and Independent Auditors' Report
C O N T E N T S
Page
----
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS:
Balance sheets F-3
Statements of operations F-4
Statements of partners' equity F-5
Statements of cash flows F-6
Notes to financial statements F-7 - F-14
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Partners
Wilder Richman Historic Properties II, L.P.
Greenwich, Connecticut
We have audited the accompanying balance sheets of Wilder Richman Historic
Properties II, L.P. as of February 28, 1999 and 1998, and the related statements
of operations, partners' equity, and cash flows for the years ended February 28,
1999, 1998 and 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Wilder Richman Historic
Properties II, L.P. as of February 28, 1999 and 1998 and the results of its
operations, changes in partners' equity and cash flows for the years ended
February 28, 1999, 1998 and 1997 in conformity with generally accepted
accounting principles.
/s/ Rosenburg, Neuwirth & Kuchner
May 3, 1999
New York, New York
F-2
<PAGE>
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
BALANCE SHEETS
February 28, February 28,
A S S E T S 1999 1998
----------- ----------- -----------
INVESTMENTS IN OPERATING PARTNERSHIPS
(Notes 2, 3, 4 and 7) $ 1,192,736 $ 1,700,882
CASH AND CASH EQUIVALENTS (Note 2) 663,495 649,233
NOTE RECEIVABLE (Note 3) 317,713 317,713
ACCRUED INTEREST RECEIVABLE (Note 3) 140,083 119,260
----------- -----------
$ 2,314,027 $ 2,787,088
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Other liabilities $ 10,000 $ 10,000
Due to related parties (Note 4) 169,201 154,201
----------- -----------
179,201 164,201
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 7)
PARTNERS' EQUITY (Notes 2 and 5):
Limited partners' equity 2,279,787 2,762,967
General partner's deficit (144,961) (140,080)
----------- -----------
2,134,826 2,622,887
----------- -----------
$ 2,314,027 $ 2,787,088
=========== ===========
See notes to financial statements
F-3
<PAGE>
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended
February 28,
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Interest income $ 52,660 $ 55,276 $ 50,994
--------- --------- ---------
Expenses:
Operating 32,575 30,194 30,896
--------- --------- ---------
Income from operations 20,085 25,082 20,098
Equity in loss of Operating Partnerships before
extraordinary item (Note 3) (186,393) (358,875) (799,980)
--------- --------- ---------
Net loss before extraordinary item (166,308) (333,793) (779,882)
Extraordinary item - litigation settlement (Note 7) (321,753) -- --
--------- --------- ---------
NET LOSS $(488,061) $(333,793) $(779,882)
========= ========= =========
Net loss attributable to:
Limited partners $(483,180) $(330,455) $(772,083)
General partner (4,881) (3,338) (7,799)
--------- --------- ---------
$(488,061) $(333,793) $(779,882)
========= ========= =========
Net loss per unit of limited
partnership interest $ (604) $ (413) $ (965)
========= ========= =========
</TABLE>
See notes to financial statements
F-4
<PAGE>
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
STATEMENTS OF PARTNERS' EQUITY
YEARS ENDED FEBRUARY 28, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Limited General
Total partners partner
----------- ----------- -----------
<S> <C> <C> <C> <C>
Partners' equity (deficit), March 1, 1996 $ 3,736,562 $ 3,865,505 $ (128,943)
Net loss, year ended February 28, 1997 (779,882) (772,083) (7,799)
----------- ----------- -----------
Partners' equity (deficit), February 28, 1997 2,956,680 3,093,422 (136,742)
Net loss, year ended February 28, 1998 (333,793) (330,455) (3,338)
----------- ----------- -----------
Partners' equity (deficit), February 28, 1998 $ 2,622,887 $ 2,762,967 $ (140,080)
Net loss, year ended February 28, 1999 (488,061) (483,180) (4,881)
----------- ----------- -----------
Partners' Equity (deficit) February 28, 1999 $ 2,134,826 $ 2,279,787 $ (144,961)
=========== =========== ===========
Limited partnership units outstanding at February 28,
1999, 1998 and 1997 800
===========
</TABLE>
See notes to financial statements
F-5
<PAGE>
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended
February 28,
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(488,061) $(333,793) $(779,882)
--------- --------- ---------
Adjustments to reconcile net loss to net cash provided
by operating activities:
Equity in loss of Operating Partnerships 508,146 358,875 799,980
Changes in assets and liabilities:
Decrease in restricted cash
Increase in accrued interest receivable (20,823) (20,824) (20,938)
Increase in due to related parties 15,000 15,000 15,000
--------- --------- ---------
Total adjustments 502,323 353,051 794,042
--------- --------- ---------
Net cash provided by operating activities 14,262 19,258 14,160
--------- --------- ---------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 14,262 19,258 14,160
CASH AND CASH EQUIVALENTS, beginning of year 649,233 629,975 615,815
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year $ 663,495 $ 649,233 $ 629,975
========= ========= =========
</TABLE>
See notes to financial statements
F-6
<PAGE>
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 1999, 1998 AND 1997
1. ORGANIZATION
Wilder Richman Historic Properties II, L.P. (the "Partnership") was
formed under the Delaware Revised Uniform Limited Partnership Act on
October 15, 1987 to acquire all of the limited partnership interest in
Dixon Mill Associates I (Phase One), Limited Partnership ("Dixon Mill
I"), Dixon Mill Associates II (Phase Two), Limited Partnership ("Dixon
Mill II") and Dixon Mill Associates III (Phase Three), Limited
Partnership ("Dixon Mill III") (together herein referred to as the
"Operating Partnerships") which, collectively, constructed,
rehabilitated and own and operate a 433-unit apartment complex (the
"Complex") located in Jersey City, New Jersey. Wilder Richman Historic
Corporation (the "General Partner") is the General Partner of the
Partnership. The general partner of the Operating Partnerships is Dixon
Venture Corp. (the "Operating General Partner").
The Partnership filed a Form S-11 registration statement with the
Securities and Exchange Commission, which became effective May 9, 1988,
covering an offering (the "Offering") of 800 limited partnership units
at $24,100 per unit.
On July 15, 1988, the Partnership admitted 754 limited partners
representing 800 units of limited partnership interest (the "Closing")
for $19,280,000 in cash and notes. Immediately following the Closing,
the Partnership acquired a 99% limited partnership interest in the
Operating Partnerships. The Partnership acquired its limited
partnership interest for $16,388,000 which was paid in installments.
2. SIGNIFICANT ACCOUNTING POLICIES
Financial statements
The financial statements of the Partnership are prepared on the accrual
basis of accounting and include only those assets, liabilities and
results of operations related to the business of the Partnership.
Investments in Operating Partnerships
The Partnership accounts for its investment in the Operating
Partnerships on the equity method of accounting. Under the equity
method of accounting, the investment cost is adjusted by the
Partnership's share of the Operating Partnerships' results of
operations, which are limited to the respective investment balances and
by distributions received or accrued. The statements of operations
includes the Partnership's equity in the earnings of the Operating
Partnerships on a calendar year basis.
Syndication costs
Syndication costs of $2,639,200 were charged against limited partners'
capital upon the closing of the public offering, in accordance with
prevalent industry practice.
F-7
<PAGE>
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1999, 1998 AND 1997
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income taxes
No provisions have been made for federal, state and local income taxes,
as they are the personal responsibility of the partners.
Cash and cash equivalents
For purposes of the statements of cash flows, the Partnership considers
all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents. Cash and cash equivalents are
recorded at cost which approximates fair value.
Fiscal year
The Partnership's fiscal year ends on the last day in February.
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
from those estimates.
3. INVESTMENTS IN OPERATING PARTNERSHIPS
The Investments in Operating Partnerships are as follows:
<TABLE>
<CAPTION>
Dixon Dixon Dixon
Mill I Mill II Mill III Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, March 1, 1996 $ 278,084 978,738 1,602,915 2,859,737
Equity in loss of
Operating Partnerships (278,084 (346,227) (175,669) (799,980)
----------- ----------- ----------- -----------
Balance, March 1,1996 -- 632,511 1,427,246 2,059,757
Equity in loss of
Operating Partnerships -- (269,557) (89,318) (358,875)
----------- ----------- ----------- -----------
Balance, February 28, 1998 -- 362,954 1,337,928 1,700,882
Equity in loss of Operating Partnerships -- (362,954) (145,192) (508,146)
----------- ----------- ----------- -----------
Balance, February 28, 1999 $ -- $ -- $ 1,192,736 $ 1,192,736
=========== =========== =========== ===========
</TABLE>
F-8
<PAGE>
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1999, 1998 AND 1997
3. INVESTMENTS IN OPERATING PARTNERSHIPS (CONTINUED)
The combined balance sheets of the Operating Partnerships at December
31, 1998 and 1997 are shown below.
December 31,
-------------------------
1998 1997
----------- -----------
Assets:
Land $ 1,150,473 $ 1,150,473
Buildings (net of accumulated depreciation
of $ 12,497,566 and 11,164,490 in 1998 and
1997, respectively) 40,402,992 41,475,474
Cash and cash equivalents 1,951,002 1,159,863
Deferred costs 493,546 537,180
Mortgage escrow deposits 1,134,739 1,067,734
Tenant security deposits 725,172 669,685
Other assets 36,594 34,043
----------- -----------
Total assets $45,894,518 $46,094,452
=========== ===========
Liabilities:
Mortgages payable $26,522,146 $26,776,894
Note payable 317,713 317,713
Accounts payable and accrued expenses 676,712 137,084
Accrued interest payable 269,139 249,734
Tenants' security deposits payable 725,172 669,685
Due to general partner and affiliates 2,028,955 1,840,349
----------- -----------
Total liabilities 30,539,837 29,991,459
----------- -----------
Partners' equity:
Wilder Richman Historic Properties II, L.P. 1,192,736 1,700,882
General partner 14,161,945 14,402,111
----------- -----------
Total partners' equity 15,354,681 16,102,993
----------- -----------
Total liabilities and partners' equity $45,894,518 $46,094,452
=========== ===========
F-9
<PAGE>
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1999, 1998 AND 1997
3. INVESTMENTS IN OPERATING PARTNERSHIPS (CONTINUED)
The combined statements of operations of the Operating Partnerships for the
years ended December 31, 1998, 1997 and 1996are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Rent $ 6,083,567 $ 5,803,104 $ 5,530,885
Interest 56,291 31,153 14,497
----------- ----------- -----------
6,139,858 5,834,257 5,545,382
----------- ----------- -----------
Expenses:
Administrative 997,976 958,904 978,505
Operating 2,018,481 2,005,544 2,041,985
Management fees 178,610 169,787 168,976
Interest 1,816,393 1,832,950 1,847,737
Depreciation and amortization 1,376,710 1,360,247 1,363,337
----------- ----------- -----------
6,388,170 6,327,432 6,400,540
----------- ----------- -----------
Loss before extraordinary item (248,312) (493,175) (855,158)
Extraordinary item - litigation settlement (500,000) -- --
----------- ----------- -----------
NET LOSS $ (748,312) $ (493,175) $ (855,158)
=========== =========== ===========
Loss before extraordinary item allocated to
Wilder Richman Historic Properties II, L.P. $ (186,393) $ (358,875) $ (799,980)
Extraordinary item (321,753) -- --
----------- ----------- -----------
Net loss allocated to Wilder Richman Historic
Properties II, L.P. $ (508,146) $ (358,875) $ (799,980)
=========== =========== ===========
Loss before extraordinary item allocated to
Dixon Venture Corp. $ (61,919) $ (134,300) $ (55,178)
Extraordinary item (178,247) -- --
----------- ----------- -----------
Net loss allocated to Dixon Venture Corp. $ (240,166) $ (134,300) $ (55,178)
=========== =========== ===========
</TABLE>
F-10
<PAGE>
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1999, 1998 AND 1997
3. INVESTMENTS IN OPERATING PARTNERSHIPS (CONTINUED)
In connection with the modification of the mortgages of the Operating
Partnerships on June 11, 1992, the Partnership provided (i) an advance of
$300,000 to assist in covering costs associated with such modification and
(ii) a letter of credit to Federal National Mortgage Association ("FNMA"),
the lender, in the amount of $600,000. Such letter of credit was provided
to assist in covering future operating shortfalls, if any, of the
Operating Partnerships in order to avoid default under their respective
mortgage obligations. The term of the letter of credit was the later of
(i) January 1, 1996 or (ii) the ability of the operating Partnerships to
operate at a debt service coverage ratio of 1.10 for a twelve month
period. Such condition was satisfied for the twelve-month period ended
December 31, 1994; accordingly, the Partnership's letter of credit was
released on January 1, 1996. The Partnership provided an advance of
$17,713 during 1992 to cover operating shortfalls pursuant to the terms of
the mortgage modification.
Any such advances bear interest at 6.5% per annum and are guaranteed by
principals of the Operating General Partner to the extent that such sums
would have otherwise been advanced pursuant to their operating deficit
guarantee obligation. Outstanding advances as of February 28, 1999 and
1998 amounted to $317,713 with accrued interest thereon of $140,083 and
$119,260 at February 28, 1999 and 1998, respectively. The outstanding
advances and accrued interest are reflected in Note Payable and Accrued
Interest Payable in the combined balance sheet of the Operating
Partnerships presented above.
4. RELATED PARTY TRANSACTIONS
An annual investor services fee is payable to an affiliate of the general
partner of the Partnership in the amount of $15,000 from the Partnership
and each of the Operating Partnerships. At February 28, 1999 and 1998, due
to related parties includes $155,000 and $140,000, respectively of
Investor Services fees payable from the Partnership and the Operating
Partnerships.
At February 28, 1999 and 1998, due to related parties also includes $9,846
due to the Operating Partnerships.
An affiliate of the General Partner is the co-management agent of the
properties owned by the Operating Partnerships. Pursuant to the management
agreement such management fees are not to exceed 1.5% of annual gross
operating revenues of the Complex. The affiliated management agent earned
$78,444 and $74,915 in the years ended December 31, 1998 and 1997,
respectively of which $35,004 was paid in 1998 and 1997.
F-11
<PAGE>
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1999, 1998 AND 1997
5. PARTNERS' EQUITY
The general partner, the special limited partner and the limited
partners were allocated 1%, .01% and 98.99%, respectively, of the
losses.
Distributions
Cash flow of the Partnership available annually for distribution after
payment of Partnership expenses will be distributed 98.99% to the
investor limited partners, .01% to the special limited partner and
1.00% to the General Partner.
Net cash proceeds resulting from a sale or refinancing by the Operating
Partnerships, to the extent available (after the discharge of debts and
obligations of the Operating Partnerships and the Partnership,
including outstanding loans from partners or affiliates), will be
distributed generally as follows:
- 98.99% to the investor limited partners, .01% to the special
limited partner and 1.00% to the General Partner, until the
investor limited partners have received an amount equal to
their adjusted contributions;
- 98.99% to the investor limited partners, .01% to the special
limited partner and 1.00% to the General Partner, until the
investor limited partners have received an amount equal to the
accrued cumulative, non-compounded rate of 7% per annum (see
Note 7).
- The balance of adjusted capital contributions of the General
Partner and special limited partner, and
- The balance, if any, 97.99% to the investor limited partners,
.01% to the special limited partner and 2.00% to the General
Partner.
F-12
<PAGE>
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1999, 1998 AND 1997
6. TAXABLE LOSS
A reconciliation of the financial statement loss of the Partnership for
the years ended February 28, 1999, 1998 and 1997 to the net loss as
shown on the tax returns for the years ended December 31, 1998, 1997
and 1996 is as follows:
<TABLE>
<CAPTION>
Year ended
December 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Financial statement loss as of February 28, 1999,
1998 and 1997, respectively $ (488,061) $ (333,793) $ (779,882)
Less transactions occurring during January 1 to
end of February of respective periods:
Interest income (1,308) (1,426) (1,393)
Fees to related party not deductible
under Internal Revenue Code Section 267 15,000 15,000 15,000
----------- ----------- -----------
(474,369) (320,219) (766,275)
Financial statement to tax return difference arising from investments
in Operating Partnerships:
Forgiveness of debt -- -- 366,499
Excess of depreciation expense of the operating
partnerships for income tax purposes over
financial reporting purposes (1,064,685) (1,148,570) (1,048,735)
----------- ----------- -----------
Taxable loss $(1,217,301) $(1,468,789) $(1,448,511)
=========== =========== ===========
</TABLE>
F-13
<PAGE>
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1999, 1998 AND 1997
7. COMMITMENTS AND CONTINGENCIES
Preferred return
Pursuant to the Partnership Agreement, the investor limited partners
are entitled to an annual preferred return in the amount of 7% of the
investor limited partners' adjusted contributions outstanding from time
to time, subject to cash flow available for distribution (including
lender restrictions). As of December 31, 1998, the cumulative preferred
amount due from the Operating Partnerships is $10,813,180. Any
cumulative shortfall not recovered out of future cash flow
distributions will be payable from sale or refinancing proceeds, to the
extent available.
Operating Partnership Litigation
A civil complaint was filed in a prior year by an employee of the
Operating Partnerships against the Operating Partnerships and another
employee. A separate similar suit was initiated subsequently by another
employee of the Operating Partnerships who is also a relative of an
officer/owner of the corporate general partner against the same
defendant. The defendant is no longer employed by the Operating
Partnerships. Both complaints were settled subsequent to February 28,
1999 for an aggregate amount of $500,000. The aggregate settlement is
accrued in the Operating Partnerships' combined financial statements as
of December 31, 1998.
F-14
<PAGE>
DIXON MILLS ASSOCIATES
COMBINED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
AND INDEPENDENT AUDITORS' REPORT
<PAGE>
DIXON MILLS ASSOCIATES
Combined Financial Statements for the
Years Ended December 31, 1998, 1997 and 1996
and Independent Auditors' Report
C O N T E N T S
Page
----
INDEPENDENT AUDITORS' REPORT F-17
COMBINED FINANCIAL STATEMENTS:
Combined balance sheets F-18
Combined statements of operations F-19
Combined statements of partners' equity F-20
Combined statements of cash flows F-21
Notes to combined financial statements F-22 - F-27
F-16
<PAGE>
Board of Directors and Stockholders
Dixon Venture Corp.
Secaucus, New Jersey
and
Partners
Wilder Richman Historic Properties II, LP
Greenwich, Connecticut
We have audited the accompanying combined balance sheets of Dixon Mills
Associates as of December 31, 1998 and 1997, and the related statements of
operations, partners' equity and cash flows for the years ended December 31,
1998, 1997 and 1996. These financial statements are the responsibility of the
Partnerships' 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Dixon Mills Associates, as of
December 31, 1998 and 1997, and the results of its operations, changes in
partners' equity and cash flows for the years ended December 31, 1998, 1997 and
1996 in conformity with generally accepted accounting principles.
February 26, 1999
New York, New York
F-17
<PAGE>
DIXON MILLS ASSOCIATES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
A S S E T S 1998 1997
----------- ----------- -----------
<S> <C> <C>
LAND (Notes 2 and 5) $ 1,150,473 $ 1,150,473
BUILDINGS (net of accumulated depreciation
of $12,497,566 and $11,164,490 in 1998 and 1997,
respectively) (Notes 2 and 5) 40,402,992 41,475,474
CASH AND CASH EQUIVALENTS (Note 2) 1,951,002 1,159,863
DEFERRED COSTS (Note 2) 493,546 537,180
MORTGAGE ESCROW DEPOSITS (Note 5) 1,134,739 1,067,734
TENANT SECURITY DEPOSITS 725,172 669,685
OTHER ASSETS 36,594 34,043
----------- -----------
$45,894,518 $46,094,452
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Mortgages payable (Note 5) $26,522,146 $26,776,894
Note payable (Note 6) 317,713 317,713
Accounts payable and accrued expenses (Note 7) 676,712 137,084
Accrued interest payable (Notes 5 and 6) 269,139 249,734
Tenants' security deposits payable 725,172 669,685
Due to general partner and affiliates (Notes 4 and 6) 2,028,955 1,840,349
----------- -----------
30,539,837 29,991,459
COMMITMENTS AND CONTINGENCIES (Note 7)
PARTNERS' EQUITY (Note 3):
WILDER RICHMAN HISTORIC
PROPERTIES II, L.P., LIMITED PARTNER 1,192,736 1,700,882
DIXON VENTURE CORP., GENERAL PARTNER 14,161,945 14,402,111
----------- -----------
15,354,681 16,102,993
$45,894,518 $46,094,452
</TABLE>
See notes to combined financial statements
F-18
<PAGE>
DIXON MILLS ASSOCIATES
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended
December 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Rent $ 6,083,567 $ 5,803,104 $ 5,530,885
Interest 56,291 31,153 14,497
----------- ----------- -----------
6,139,858 5,834,257 5,545,382
----------- ----------- -----------
Expenses:
Administrative 997,976 958,904 978,505
Operating 2,018,481 2,005,544 2,041,985
Management fees (Note 4) 178,610 169,787 168,976
Interest (Notes 5 and 6) 1,816,393 1,832,950 1,847,737
Depreciation and amortization 1,376,710 1,360,247 1,363,337
----------- ----------- -----------
6,388,170 6,327,432 6,400,540
----------- ----------- -----------
Loss before extraordinary item (248,312) (493,175) (855,158)
Extraordinary item - litigation settlement (Note 7) (500,000) -- --
----------- ----------- -----------
NET LOSS $ (748,312) $ (493,175) $ (855,158)
=========== =========== -----------
Loss before extraordinary item allocated to
Wilder Richman Historic Properties II, L.P. $ (186,393) $ (358,875) $ (799,980)
Extraordinary item (321,753) -- --
----------- ----------- -----------
Net loss allocated to Wilder Richman Historic
Properties II, L.P. $ (508,146) $ (358,875) $ (799,980)
=========== =========== ===========
Loss before extraordinary item allocated to
Dixon Venture Corp. $ (61,919) $ (134,300) $ (55,178)
Extraordinary item (178,247) -- --
----------- ----------- -----------
Net loss allocated to Dixon Venture Corp. $ (240,166) $ (134,300) $ (55,178)
=========== =========== ===========
</TABLE>
See notes to combined financial statements
F-19
<PAGE>
DIXON MILLS ASSOCIATES
COMBINED STATEMENTS OF PARTNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Limited General
Total partner partner
<S> <C> <C> <C>
Partners' equity, January 1, 1996 $ 17,451,326 $ 2,859,737 $ 14,591,589
Net loss, year ended December 31, 1996 (855,158) (799,980) (55,178)
------------ ------------ ------------
Partners' equity, December 31, 1996 16,596,168 2,059,757 14,536,411
Net loss, year ended December 31, 1997 (493,175) (358,875) (134,300)
------------ ------------ ------------
Partners' equity, December 31, 1997 16,102,993 1,700,882 14,402,111
Net loss, year ended December 31, 1998 (748,312) (508,146) (240,166)
------------ ------------ ------------
Partners' equity, December 31, 1998 $ 15,354,681 $ 1,192,736 $ 14,161,945
============ ============ ============
</TABLE>
See notes to combined financial statements
F-20
<PAGE>
DIXON MILLS ASSOCIATES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (748,312) $ (493,175) $ (855,158)
----------- ----------- -----------
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 1,376,710 1,360,247 1,363,337
Change in assets:
Increase in mortgage escrow deposits (67,005) (165,513) (53,403)
Increase in tenant security deposits (55,487) (39,685) (28,016)
Increase (decrease) in other assets (2,551) (32,108) 69,163
Change in liabilities:
Increase (decrease) in accounts payable
and accrued expenses 539,628 18,666 (17,180)
Increase (decrease) in accrued interest payable 19,405 19,446 19,484
Increase in tenants security deposit 55,487 39,685 28,016
Increase in due to General Partner and affiliates 188,606 179,783 178,971
----------- ----------- -----------
Total adjustments 2,054,793 1,380,521 1,560,372
----------- ----------- -----------
Net cash provided by
operating activities 1,306,481 887,346 705,214
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (260,594) (52,333) --
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of mortgages payable (254,748) (238,234) (222,661)
----------- ----------- -----------
INCREASE IN CASH 791,139 596,779 482,553
CASH AND CASH EQUIVALENTS,
beginning of year 1,159,863 563,084 80,531
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
end of year $ 1,951,002 $ 1,159,863 $ 563,084
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during year for interest $ 1,796,988 $ 1,813,502 $ 1,828,253
=========== =========== ===========
</TABLE>
See notes to combined financial statements
F-21
<PAGE>
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. COMBINATION AND ORGANIZATION
The combined financial statements include the accounts of Dixon Mill
Associates I (Phase One), Limited Partnership ("DM I"), Dixon Mill
Associates II, (Phase Two), Limited Partnership ("DM II") and Dixon Mill
Associates III, (Phase Three), Limited Partnership ("DM III") after
elimination of all significant intercompany balances and transactions.
Description of the business
The partnerships are one of three limited partnerships collectively known
as "Dixon Mills Associates" or the "Operating Partnerships", each of which
owns one phase of an aggregate 433 units of residential apartments located
in Jersey City, New Jersey, that consist of buildings that are designated
as "certified historic structures" by the U.S. Department of the Interior.
The Operating Partnerships have constructed, rehabilitated, and own and
operate the complex. In accordance with the tax exempt financing of the
complex, the Operating Partnerships are required to rent 15% to 20% of the
apartment units to individuals of low or moderate income.
On July 15, 1988, the Operating Partnerships transferred their 99% limited
partnership interests to Wilder Richman Historic Properties II, L.P. (the
"Limited Partner") in connection with that limited partnership's public
offering. The remaining 1% interest remained with the Operating General
Partner, Dixon Venture Corp. ("DVC")
2. SIGNIFICANT ACCOUNTING POLICIES
Financial statements
The financial statements of the Operating Partnerships are prepared on the
accrual basis of accounting and include only those assets, liabilities and
results of operations related to the business of the Operating
Partnerships.
Combined financial statements are presented as the companies are under
common control, ownership, and management.
Land and buildings
Land and buildings are stated at lower of cost or net realizable value,
("NRV"). NRV is the net cash flow necessary to recover costs exclusive of
debt service. Depreciation on buildings is computed on the straight-line
method. The depreciable lives assigned is 40 years for the real property.
Effective for the year ended December 31, 1996 the Partnership adopted
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of." This standard requires that long-lived assets and certain
identifiable intangibles held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
F-22
<PAGE>
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income taxes
No provisions have been made for federal, state and local income taxes, as
they are the responsibility of the partners.
The partners of the Operating Partnerships were entitled to a 25% historic
rehabilitation tax credit on eligible costs as a reduction of their tax
liabilities. In addition, the tax basis of the property has been reduced
by one-half of the historic rehabilitation tax credit for income tax
purposes only.
Cash and cash equivalents
For purposes of the statements of cash flows, the Operating Partnerships
consider all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents. Cash and cash equivalents are
recorded at cost which approximates fair value.
Deferred costs
Deferred costs represent costs incurred in connection with the mortgages
(Note 5) and are being amortized over the term of the mortgages using the
straight line method.
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 from those
estimates.
3. PARTNERS' EQUITY
In accordance with the Partnership agreement, income and losses are to be
allocated 1% and 99% to the general partner and the Limited Partner,
respectively.
Any equity in loss in excess of the Limited Partner's investment balance
in an operating partnership is allocated to the General Partner.
F-23
<PAGE>
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
3. PARTNERS' EQUITY (CONTINUED)
Distributions
The partnership agreements of the Operating Partnerships provide that cash
flow from operations will be distributed 99% to the Limited Partner and 1%
to the Operating General Partner until the Limited Partner has received a
7% preferred return (the "Preference Amount") on their initial capital
contributions. The balance, if any, would be distributed 75% to the
Limited Partner and 25% to the Operating General Partner. Any cumulative
shortfall not recovered out of subsequent cash flow distributions will be
payable from sale or refinancing proceeds, to the extent available. The
cumulative preferred amount due to the Limited Partner at December 31,
1998 is $10,813,180. Distributions of annual net cash flow are subject to
the provisions of the note payable (Note 6). There is no assurance that
all or a portion of such amount will be paid, and no amount has been
accrued.
Net cash proceeds resulting from a sale or refinancing, to the extent
available (after the discharge of debts and obligations of the
Partnership, including outstanding loans from partners or affiliates),
will be distributed generally as follows:
- 99% to the Limited Partner and 1% to the Operating General Partner,
until the Limited Partner has received an amount equal to its
adjusted contributions.
- 99% to the Limited Partner and 1% to the Operating General Partner,
until the Limited Partner has received an amount equal to the
accrued cumulative Preference Amount.
- The balance of adjusted capital contributions of the General
Partner.
- The balance, if any, 75% to the Limited Partner and 25% to the
Operating General Partner.
F-24
<PAGE>
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
4. RELATED PARTY TRANSACTIONS
DVC has complete authority, management and control of the Operating
Partnerships. The Operating Partnerships, in the normal course of
business, have transactions with related parties. Included in the balance
sheet are the following items:
Due to(from):
1998 1997
---- ----
Morris Property Management $ 535,304 $ 435,138
Morris Realty (5,259) (5,259)
DVC 936,830 936,830
Wilder Richman Management Corporation 292,080 248,640
RG Housing Advisors, Inc. 90,000 90,000
Richman Asset Management, LLC 180,000 135,000
----------- -----------
$ 2,028,955 $ 1,840,349
=========== ===========
The Operating Partnerships incurred annual property management fees to
Wilder Richman Management Corp. ("WRMC"), an affiliate of the Limited
Partner, in the amount of $78,444 in 1998, $74,915 in 1997 and $74,590 in
1996. WRMC received payments of $35,004 1998 and 1997, respectively. In
addition, property management fees of $100,166, $94,872 and $94,386 were
incurred in 1998, 1997 and 1996, respectively to Morris Property
Management, an affiliate of the General Partner.
The Operating Partnerships incurred investor service fees of $45,000 to
Richman Asset Management, LLC, an affiliate of the Limited Partner in
1998, 1997 and 1996.
5. MORTGAGES PAYABLE
On June 11, 1992, the Jersey City Redevelopment Agency provided mortgage
financing for the Operating Partnerships through the issuance of
tax-exempt Bonds (the "Bonds") guaranteed and secured by the Federal
National Mortgage Association ("FNMA") mortgage pass-through certificate
("FNMA Certificate"). The FNMA Certificate in turn was secured by
mortgages in the amount of $27,545,000 (collectively, the "Mortgages") and
letters of credit of $4,260,000 (the "Letters of Credit") issued by Chase
Manhattan Bank ("Chase"). The Letters of Credit were secured by an
additional mortgage in the same amount and the personal guarantees of
certain principals of DVC. The Mortgages provided that the Letters of
Credit would remain until the Operating Partnerships meet certain debt
service ratio tests as defined in the Mortgages (the "Debt Service Test").
The Debt Service Test was met and the letters of credit were released in
June, 1995.
F-25
<PAGE>
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
5. MORTGAGES PAYABLE (CONTINUED)
The interest rate on the Mortgages is 6.74% with a monthly payment of
$170,978. Principal amortization is based on a thirty-five year payment
period. The Mortgages are scheduled to mature as follows:
1999 $ 262,586
2000 290,713
2001 310,924
2002 332,540
2003 356,499
Thereafter 24,968,884
----------
$26,522,146
===========
The Mortgages are due for payment on May 1, 2000. If the underlying bonds
are not remarketed and the Trustee acquires the bonds on behalf of FNMA,
the mortgage rate becomes 8.675% per annum and the Mortgages are extended
until May 1, 2010.
The Mortgages require monthly payments to a replacement reserve
("Replacement Reserve") account as follows:
June 1996 - May 1997 $16,667
June 1997 - May 2012 5,400
The Replacement Reserve (included in mortgage escrow deposits) shall be
used exclusively to pay for certain repairs or replacements, subject to
the approval of FNMA. The balance in this account was $747,117 and
$662,134 at December 31, 1998 and 1997, respectively.
6. NOTE PAYABLE AND FOREGIVENESS OF DEBT
Chase Manhattan Bank
Chase advanced $277,500 to the Operating Partnerships for costs associated
with the Mortgages, bearing interest at 6.50% with a maturity of May 1,
2000. Payments of principal and interest could not commence sooner than
January 1, 1996 depending on, among other things, cash flow generated by
the Operating Partnerships. In addition, Chase provided FNMA with cash and
letter of credit in the amount of $622,500 (the "Chase Operating Deficit
Escrows") to provide assistance in the event the Operating Partnerships
experience future operating deficits. Any amounts drawn on the Chase
Operating Deficit Escrows also bore interest of 6.50%.
In addition by an agreement with Chase dated July 5, 1995, to the extent
that the $600,000 letter of credit issued to FNMA was released, the Chase
note and any accrued and unpaid interest would be forgiven. In January
1996, pursuant to the Operating Deficit Escrow Agreement, FNMA released
the Chase letter of credit. As a result of the full release of the Chase
Operating Deficit Escrow, the note payable of $317,714 and accrued
interest of $52,487 was written down to zero in 1995.
F-26
<PAGE>
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
6. NOTE PAYABLE (CONTINUED)
Limited Partner
The Limited Partner also advanced $277,500 in connection with the
Mortgages which bear interest at 6.50%. Payments of principal and interest
could commence no sooner than January 1, 1996 depending on, among other
things, cash flow generated by the Operating Partnerships. The principal
balance and unpaid interest become due upon a sale or refinancing of the
property. In addition, the Limited Partner provided FNMA with a letter of
credit and cash in the amount of $622,500 (the "Limited Partner Operating
Deficit Escrow") to provide assistance in the event the Operating
Partnerships experience future operating deficits. Pursuant to the
Operating Deficit Escrow Agreement, FNMA released the letter of credit in
January 1996. Any amount drawn on the Limited Partner Operating Deficit
Escrow bears interest at 6.50%. To the extent the Operating Partnerships
make distributions of net cash flow, all such net cash flow with respect
to the applicable distribution periods must be paid to the Limited Partner
until the amounts outstanding to the Limited Partner are satisfied.
Total advances provided by the Limited Partner as of December 31, 1997
amount to $317,713 and accrued interest of approximately $114,000 and
$94,000 as of December 31, 1997 and 1996, respectively. This note is
secured by the personal guarantees of certain principals of DVC to the
extent such amounts were advanced before February 1, 1994.
7. COMMITMENTS AND CONTINGENCIES
Subsequent Event
A civil complaint was filed in a prior year by an employee of the
Operating Partnerships against the Operating Partnerships and another
employee. A separate similar suit was initiated subsequently by a related
party of the corporate general partner against the same defendant. The
defendant is no longer employed by the Operating Partnerships. Both
complaints were settled, including legal fees, in 1999 for a total of
$500,000. The aforementioned related party's settlement was in the amount
of $244,000. The aggregate settlement is accrued in the accompanying
combined financial statements as of December 31, 1998.
F-27
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This article contains summary information extracted from the year ended
February 28, 1999 Form 10-K and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000827830
<NAME> Neal Ludeke
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> FEB-28-1999
<EXCHANGE-RATE> 1.00
<CASH> 663,495
<SECURITIES> 0
<RECEIVABLES> 140,083
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,314,027
<CURRENT-LIABILITIES> 179,201
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,134,826
<TOTAL-LIABILITY-AND-EQUITY> 2,314,027
<SALES> 0
<TOTAL-REVENUES> 52,660
<CGS> 0
<TOTAL-COSTS> 32,575
<OTHER-EXPENSES> 186,393
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> (321,753)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (488,061)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
