<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
(Mark one)
[X] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required, Effective October 7, 1996]
For the fiscal year ended December 31, 1996 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] For the transition period from
_______________ to _______________
Commission File Number 33-22420-A
INTERSTATE LAND INVESTORS I LIMITED PARTNERSHIP
(Exact name of Registrant as specified in its charter)
North Carolina 56-1610635
- ----------------------- ------------------------------------
(State of Organization) (I.R.S. Employer Identification No.)
121 W. Trade St., Charlotte, North Carolina 28202
- ------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (704) 379-9164
--------------
Securities Registered Pursuant to Section 12(b) of the Act: NONE
----
Securities Registered Pursuant to Section 12(g) of the Act: NONE
----
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing. (See
definition of affiliate in Rule 405.)
Not applicable as all securities are non-voting.
Indicate the number of shares outstanding of each of the issuers' classes of
common stock as of the latest practicable date
5,100 limited partnership units as of March 10, 1997
Documents Incorporated by Reference: See Item 14
Page 1 of 13 sequentially numbered pages
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PART I
ITEM 1 - BUSINESS
Interstate Land Investors I (the "Registrant" or the "Partnership") is
a North Carolina limited partnership organized as of May 18, 1988 to acquire for
investment, hold on an unencumbered basis and dispose of an approximately
96.74-acre tract of land located in York County, South Carolina (the
"Property"). Until January 1, 1992 the General Partners of the Registrant were
Performance Investments, Inc., a North Carolina corporation ("PII"), William
Garith Allen ("Allen") and ISC Realty Corporation, a North Carolina corporation
("ISCR"). Allen is the President, a director and a 50% shareholder of PII. PII
filed bankruptcy in 1992 under Chapter 11 of the Bankruptcy Code. ISCR is a
North Carolina corporation wholly owned by Interstate/Johnson Lane, Inc.
Effective January 1, 1992, ISCR and Allen assumed the role of co-managing
general partners (hereinafter referred to collectively as the "General Partners"
or the "Co-Managing General Partners") and PII converted to a limited partner.
The Registrant offered (the "Offering") 5,100 units of Class A Limited
Partnership Interests (the "Units") at $1,000 per Unit pursuant to a
Registration Statement effective September 7, 1988 filed under the Securities
Act of 1933, as amended (the "Act"). On September 30, 1988, the Offering was
terminated (the "Closing") with aggregate net proceeds from the Offering
totaling $5,096,360. After deduction for selling commissions and organization
and offering expenses of $624,400, net proceeds of $4,471,960 were available to
the Registrant for the acquisition of the Property. In addition to these
proceeds, the General Partners and their affiliates contributed amounts totaling
$200.
The Property was purchased by the Registrant on September 30, 1988 for
$4,200,000. Interstate Development Associates ("IDA"), a North Carolina general
partnership composed of Allen and his father, William G. Allen, Jr., had
purchased the Property on September 29, 1987. IDA acquired the Property for a
gross purchase price of $3,325,000 plus closing costs of $172,719 or a total of
$3,497,719. In addition, IDA incurred carrying costs aggregating approximately
$1,086,486, making its total investment in the Property approximately
$4,584,205. IDA's excess costs in the Property $384,205 will be returned to IDA
as part of subordinated return of $1,050,000 payable out of the net proceeds of
the future sale of the Property, assuming sufficient proceeds, after the
investors receive a return of their invested capital plus a 14% noncompounded
annual return. The Registrant does not anticipate the acquisition of any
additional properties.
The Registrant's principal investment objectives are to: (1) preserve
and protect capital invested in the Registrant, (2) provide a relatively
low-risk real estate investment through debt-free ownership of the Property, (3)
provide long-term appreciation in the value of the Property, and (4) provide
protection for investors against inflation. The Registrant intends to accomplish
its objectives through holding the Property and subsequently disposing of it at
an appropriate time.
The disposition of the Property by the Registrant may result in
substantial fees to the General Partners and their affiliates. Reference is made
to Item 13 herein for a description of certain transactions between the
Registrant and the General Partners and their affiliates.
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No mortgage indebtedness was incurred in connection with the
acquisition of the Property.
The Registrant has developed a master land use plan for the Property
and ultimately will sell individual tracts to third-party developers and users
as mixed commercial use parcels. It is anticipated that portions of the Property
will be designated for retail, office, industrial and possibly hotel use. It is
not contemplated that the Registrant will undertake construction of substantial
improvements on the Property.
Upon the sale of all or a portion of the Property by the Registrant,
the proceeds of the sale will be distributed to the investors. The General
Partners currently intend to dispose of the Property purchased within five to
ten years of the purchase. However, the investors had a one-time right to direct
the Registrant to dispose of the Property upon the fifth anniversary of the
Closing of the Offering for a price not less than $7,185,000 ("Put Price")
reduced by the net proceeds to the Registrant from the sale of other parcels
within the Property by the Registrant. The limited partners voted to direct the
General Partners to sell the property at the Put Price as more fully explained
in Item 4.
The Registrant in seeking to secure purchasers for its Property will be
competing with many other real estate investment partnerships as well as
individuals, insurance companies, banks and other entities engaged in real
estate investment activities including, perhaps, certain affiliates of the
General Partners.
The General Partners or their affiliates currently serve as general
partners in over 19 public and private partnerships which currently own various
types of real property. None of the prior partnerships sponsored by the General
Partners or their affiliates now contemplate the acquisition of any additional
properties of the type purchased by the Registrant. However, it is likely that
the General Partners or their affiliates will sponsor additional public or
private partnerships in the future. In addition, the General Partners and their
affiliates are and will continue to be engaged in the business of real estate
investment, development and management apart from their involvement in the
Registrant.
Interstate Land Investors II Limited Partnership ("Interstate II"), a
North Carolina limited partnership organized as of July 27, 1989, whose General
Partners are the same as the Registrant's, acquired two tracts of land located
immediately to the south of and adjoining the Property. The first tract is an
approximately 76.74 acre tract fronting on Interstate 77. The second tract
located south of the Property and northeast to the 76.74 acre tract is
approximately 20 acres. Also, Interstate II had an option to purchase an
approximately 91.64 acre tract located immediately south of and adjacent to the
two tracts previously purchased by that partnership. That 91.64 tract was
subdivided into four subtracts and Interstate II acquired two of the four
subtracts in November, 1990. It is anticipated that Interstate II will hold all
of its tracts as one investment property. The property acquired by Interstate II
should be deemed to be in direct competition with the Property. In addition, the
close proximity of these competing parcels may give rise to conflicts of
interest between Allen and ISCR as General Partners and the Registrant and
Interstate II. In addition, conflicts of interest may arise in connection with
the business of
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each General Partner in other partnerships, private and public, of which the
General Partners are affiliated at such time as the Registrant attempts to sell
or otherwise dispose of the Property owned by the Registrant.
The General Partners will devote only so much of their time to the
business of the Registrant as in their judgment and experience is reasonably
required. The General Partners are engaged in other activities which also
require their time and attention.
As of March 10, 1997, the Registrant did not directly employ any
persons in a full-time position. Certain employees of the General Partners and
affiliates performed services for the Registrant during the year.
ITEM 2 - PROPERTY
The Property is located 11 miles south of the Central Business District
of Charlotte, North Carolina along the I-77 corridor and approximately 8.6 miles
north of Rock Hill, South Carolina. While the Property is located in
northeastern York County, South Carolina, the Property is considered a part of
the Charlotte MSA.
The Property has approximately 4,188 feet of frontage along the east
side of I-77 and 840 feet of frontage along U.S. Highway 21. The Property is an
irregularly shaped parcel containing approximately 96.74 acres. The primary
access to the Property will be U.S. Highway 21. It intersects with Carowinds
Boulevard, approximately 5,100 feet north of the Property. Carowinds Boulevard
in turn intersects with I-77 approximately 1,700 feet north of the Property.
The topography of the Property consists of generally rolling terrain.
The Property is level to the street grade of U.S. Highway 21 and is also level
to the street grade of I-77 along the western boundary of the Property. The
Property is not located within any floodplain areas and drainage appears to be
adequate. The Property is approximately 95% wooded, covered with vegetation
indigenous to the Piedmont section of the Carolinas. The soil is generally of a
clay-type and is capable of supporting conventional spread footings which would
be used in development of the Property.
Utilities that are or will be available to the Property include water,
sewer, electricity and telephone. Sanitary sewage disposal and water will be
provided by North County Service Company, a private utility company. A sewage
treatment plant serving the Property will be located west of the Property. This
facility was approved by York County to serve the immediate area in and around
the subject Property and is subject to the regulations of York County.
Performance Consultants, Inc. ("PCI"), an affiliate of PII and Allen, has
entered into an Agreement with North County Service Company dated January 9,
1987, under which North County Service Company has agreed to expand its waste
treatment facility in order to treat waste from the Property and certain other
properties owned by affiliates of PII and Allen. In return, the Registrant will
be obligated to reimburse PCI or to pay a fee directly to North County Service
Company. The fees to be charged by North County Service Company will be absorbed
and paid by the ultimate purchasers and developers of the Property. The proposed
utilities appear to be of sufficient capacity to serve the site for future
development.
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There is a 10-foot wide American Telephone & Telegraph Company buried
toll line easement which traverses the Property. However, it is not anticipated
that this easement will inhibit the potential development of the Property or
adversely affect its market value.
The Property is currently zoned for agricultural use, by York County,
South Carolina, however, if a sale of the property occurred zoning would revert
to UDD (urban development district). The purpose of such zoning designation is
to permit maximum flexibility in response to market demands in specific areas of
York County and to minimize land use conflicts in such areas. The permitted uses
in UDD districts range from residential to business development, including
industrial developments. For business and industrial development, there are no
minimum lot area requirements for UDD-zoned areas. There are various building
setback requirements in a UDD depending upon the type of development. None of
the setback requirements under the zoning classification are deemed onerous.
There is no open space ratio requirement for business or industrial use.
ITEM 3 - LEGAL PROCEEDINGS
In May, 1996, the Partnership filed a Complaint in the General Court of
Justice, Superior Court Division against William Garith Allen, a General
Partner, seeking damages for Mr. Allen's failure to purchase the Property at the
Put Price. The Partnership is seeking damages equal to the difference between
the current value of the Property and the Put Price. The lawsuit is in the
preliminary discovery stage. Mr. Allen has not asserted any claims against the
Partnership and the Partnership believes that its claims against Mr. Allen have
merit. Mr. Allen has asserted that he is insolvent and will be unable to satisfy
any award that the Partnership may recover. The Partnership is investigating
that assertion and will continue to evaluate the claim and the likelihood of any
recovery based upon the information received from Mr. Allen.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The limited partners voted to direct the General Partners to sell the Property
at the Put Price in the third quarter of 1992. The General Partners began
efforts to market the Property in accordance with the limited partners vote. In
accordance with the vote, the Property was to be sold by September of 1993, or
at that time Allen was required to purchase the Property at the Put Price. As
explained in Item 3 above, the Partnership is seeking damages for Mr. Allen's
failure to purchase the Property at the Put Price.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY
HOLDER MATTERS
Transfer of the Units is subject to certain restrictions contained in
the Limited Partnership Agreement. There is no established market for the Units
and it is not anticipated that any will
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occur in the future. The Registrant is aware of no significant resales of Units
since the Closing on September 30, 1988. As of March 10, 1997, 523 persons were
record owners of 5,100 Units.
The Registrant in each year allocates to the investors and the General
Partners any net profit prior to a sale of the Property. Such allocations to the
investors are credited against their preferred return due to them on their
invested capital. Net losses for each year are also allocated to the investors
and the General Partners in accordance with their respective capital accounts.
The Registrant does not intend to make any distributions of available cash prior
to the sale of all or a portion of the Property.
ITEM 6 - SELECTED FINANCIAL DATA (AUDITED)
SELECTED STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
Year Ended Year ended Year ended Year ended Year ended
December 31, December 31, December 31, December 31, December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest and Other
Income $ 60 $ 42 $ 280 $ 1,404 $ 4,047
Expenses 27,280 21,775 24,082 101,522 83,453
-------- -------- -------- --------- --------
Net Loss (27,220) (21,733) (23,802) (100,118) (79,406)
======== ======== ======== ========= ========
Net Loss Allocated
to Class A limited
partners (27,216) (21,730) (23,799) (100,105) (79,396)
======== ======== ======== ========= ========
Net Loss Per Class A
limited partnership
unit (5.28) (4.22) (4.62) (19.43) (15.41)
======== ======== ======== ========= ========
</TABLE>
SELECTED BALANCE SHEET DATA
<TABLE>
<CAPTION>
December 31, December 31, December 31, December 31, December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Assets $4,262,844 $4,264,021 $4,264,739 $4,304,842 $4,394,461
Total Liabilities 112,682 86,639 65,624 81,925 71,426
---------- ---------- ---------- ---------- ----------
Partner's Capital $4,150,162 $4,177,382 $4,199,115 $4,222,917 $4,323,035
========== ========== ========== ========== ==========
</TABLE>
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ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Until the Registrant disposes of the Property, its only sources of
additional capital are loans and the interest earned on its short-term
investments. The Registrant's ability to maintain cash adequate to meet its
needs will be dependent upon the availability of financing and successful
operations of its real estate investment. As of December 31, 1996, the remaining
funds of the Registrant were $234. In accordance with the Partnership Agreement,
the General Partners are required to advance any additional funds needed for
operations . ISCR is entitled to accrue interest on any loans provided to the
Partnership at the rate of prime plus two percent. As of May 23, 1995 the
General Partner, ISCR, entered into a line of credit agreement in the amount of
$100,000 with the Partnership to provide additional funds as needed. The note
will accrue interest at prime plus 2% and will only be repaid upon the sale of
the property in accordance with Section 8.2 of the Agreement of Limited
Partnership. The balance of the note plus accrued interest at December 31, 1996,
is $26,057.
Results of Operations
COMPARISON OF THE FISCAL YEAR ENDED DECEMBER 31, 1996, TO THE FISCAL YEAR ENDED
DECEMBER 31, 1995
The Registrant reported a net loss in the amount of $27,220 for the
year ended December 31, 1996, as compared to a net loss of $21,733 for the year
ended December 31, 1995.
Professional fees increased $1,016 during 1996 due to increased legal
expenses in relation to the Allen Put Obligation (see Item 4).
Interest expense increased $1,391 during 1996 due to higher amounts
outstanding on the note payable to ISCR.
General and administrative expense increased by $3,088 due primarily to
additional costs incurred in conjunction with the Registrant changing its
reporting service.
COMPARISON OF THE FISCAL YEAR ENDED DECEMBER 31, 1995, TO THE FISCAL YEAR ENDED
DECEMBER 31, 1994.
The Registrant reported a net loss in the amount of $21,733 for the
year ended December 31, 1995, as compared to a net loss of $23,802 for the year
ended December 31, 1994.
Professional fees decreased approximately $1,500 during 1995 as the
result of a timing difference of audit and tax fees paid in 1995 as compared to
1994.
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Interest expense increased $514 during 1995 due to the interest
incurred on borrowings made under the note payable to ISCR during 1995.
Property tax expense decreased approximately $1,300 as a result of the
agricultural exemption granted by York County. See Note 5 to the Financial
Statements for further discussion.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is included as a separate section to this
report.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There were no disagreements in connection with the December 31, 1996,
financial statements or changes in accountants during the fiscal period ended
December 31, 1996.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Registrant has no directors or executive officers. PII, the former
managing general partner, filed for relief from creditors under Chapter 11 of
the Bankruptcy Code during 1992. Effective January 1, 1992, the general partner
interest of PII was converted to that of a Class A Limited Partner retaining the
same interest in the Partnership's net profit, losses and distributions as it
had as a general partner subject to the same priority of the other Class A
Limited Partners.
Information as to ISCR, one of the current Co-Managing General
Partners, is as follows:
Information About Directors
Name and Executive Officers
---- ----------------------
J. Christopher Boone Director and President of ISCR since
February, 1989. He is 38 years old.
Parks H. Dalton Director of ISCR. He is 67 years old.
Edward C. Ruff Director of ISCR. He is 57 years old.
Robert B. McGuire Treasurer of ISCR. He is 49 years old.
Michael D. Hearn Director of ISCR. He is 44 years old.
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Michael A. Paschall Vice President of ISCR. He is 32 years old.
J. Christopher Boone is a Managing Director of Interstate/Johnson Lane
Corporation ("I/JL"), an affiliate of ISCR and President of ISCR. Prior to
joining the Selling Agent in 1984, Mr. Boone was a tax specialist for Coopers &
Lybrand. He received a bachelor's degree in business administration with an
emphasis in accounting from the University of North Carolina at Chapel Hill.
Parks H. Dalton was a director of Interstate/Johnson Lane, Inc. (the
"Company") from 1985 until his retirement in 1988. He also served as Chief
Executive Officer of I/JL from 1968 to 1988, President from 1968 to 1983, and
Chairman from 1983 to 1988. In November 1990, he was re-elected Chairman and
Chief Executive Officer of I/JL. He was re-elected as a director of the Company
in July 1990 and as Chairman and Chief Executive Officer of the Company in
September 1990. In 1994, he transferred the duties of Chief Executive Officer to
the current President of I/JL and currently remains Chairman. He is a director
of ISCR.
Edward C. Ruff is Senior Managing Director and Chief Financial Officer
of I/JL. He also serves as a member of the Board of Directors and Management
Committee of I/JL. Mr. Ruff has been with I/JL since 1976. He is a graduate of
the University of San Francisco, with a bachelor's degree in accounting.
Robert B. McGuire is Treasurer of ISC Realty Corporation. In addition,
he is Senior Vice President and Treasurer of I/JL. Mr. McGuire received a B.A.
in Business Administration from Furman University and a Masters in Business
Administration from Emory University.
Michael D. Hearn has served as Secretary and General Counsel of I/JL
since 1985. He is a Senoir Managing Director and a member of the Board of
Directors of I/JL. Mr. Hearn received a Bachelor of Science degree in Business
Administration and a Juris Doctor from the University of North Carolina at
Chapel Hill. He is Secretary of ISCR. In May of 1992 he was elected a Director
of ISCR.
Michael A. Paschall, Vice President of ISCR since 1996 and Vice
President of I/JL since 1996. Prior to joining I/JL in 1996, Mr. Paschall was
Assistant Vice President and Investment Officer of First Union National Bank of
North Carolina. Mr. Paschall received a Bachelor of Arts degree in English and
Economics from the University of North Carolina at Chapel Hill and a Juris
Doctor from Wake Forest University.
Each officer and director holds office until his death, resignation,
retirement, removal, disqualification or his successor is elected and qualified.
The other Co-Managing General Partner, is William Garith Allen. Allen
is the Chief Executive Officer and sole shareholder of Performance Investments,
Inc., a North Carolina corporation organized in 1974 that is principally active
in the acquisition, financing, development, sales, marketing and administration
of various subdivisions and other real estate investments sold by Allen. Allen
is also the sole shareholder of Performance Consultants, Inc., a North Carolina
corporation organized in 1981 to acquire property and assist development
entities in locating
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various public and private sources of funds. In addition, Allen and his father,
William G. Allen, Jr., are the sole shareholders of Investment Brokers, Inc., a
North Carolina corporation organized in 1979. This corporation is primarily
involved in the acquisition and sale of property.
ITEM 11 - EXECUTIVE COMPENSATION
No remuneration was paid or accrued for the account of any partner,
officer or director of the General Partner during the Partnership fiscal year
ended December 31, 1996.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial
Partner Type Name & Address Ownership Class
------------ -------------- --------- -----
<S> <C> <C> <C>
Subordinated limited Interstate Development $100 100%
Partner Associates
General Partner William Garith Allen 50 50%
General Partner ISC Realty Corporation 50 50%
Class A Limited ISC Realty Corporation 100,000 2.0%
Class A Limited Performance Investments, Inc. 100 <0.1%
</TABLE>
As of March 10, 1997, no persons known to the Registrant have
beneficial ownership of more than 5% of the Units.
As of March 10, 1997, none of the individual directors and officers of
the General Partners had subscribed for Units.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1996, there were no payments made to related parties in excess
of $60,000.
During the period ended December 31, 1996, ISCR earned $10,500
for monitoring the operations of the Registrant on behalf of the investors and
performing certain administrative functions. However, the payment of such
administrative fee is deferred until sale of the Property and return to the
investors of their invested capital plus the preferred return. The deferred
portion of this fee may accrue interest at the prime rate plus 1%.
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During 1996, the Partnership accrued interest at the rate of prime plus 2% on
the outstanding balance of borrowing made against a note made by ISCR to the
Partnership. This amount will not be paid until the property is sold or the
Partnership is liquidated.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) Financial Statements and Schedules. See Index to Financial
Statements included in Appendix A to this Form 10-K. Schedules are omitted
because they are not applicable, not required or because the requested
information is included in the Financial Statements or notes thereto.
(b) Reports on Form 8-K. No reports on Form 8-K have been filed during
the quarter of the period covered by this Report.
(c) Exhibits.
27. Financial Data Schedule (for SEC use only)
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERSTATE LAND INVESTORS I
A NORTH CAROLINA LIMITED PARTNERSHIP
BY: ISC REALTY CORPORATION
GENERAL PARTNER
BY: /s/ J. CHRISTOPHER BOONE
-----------------------------
J. CHRISTOPHER BOONE
PRESIDENT
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this Annual Report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the date indicated:
Signature Title Date
--------- ----- ----
/S/ J. Christopher Boone Director and March 25, 1997
- ------------------------------ President of
J. Christopher Boone ISC Realty
Corporation
/S/ Edward C. Ruff Director of March 25, 1997
- ------------------------------ ISC Realty
Edward C. Ruff Corporation
/S/Parks H. Dalton Director of March 25, 1997
- ------------------------------ ISC Realty
Parks H. Dalton Corporation
/S/Michael D. Hearn Director of March 25, 1997
- ------------------------------ ISC Realty
Michael D. Hearn Corporation
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APPENDIX A
INTERSTATE LAND INVESTORS I
LIMITED PARTNERSHIP
Financial Statements
for the years ended
December 31, 1996, 1995 and 1994
<PAGE> 15
INTERSTATE LAND INVESTORS I LIMITED PARTNERSHIP
Contents
Page
----
Report of Independent Certified Public Accountants.......... 2
Balance Sheets.............................................. 3
Statements of Partners' Capital............................. 4
Statements of Operations.................................... 5
Statements of Cash Flows.................................... 6
Notes to Financial Statements............................... 7-11
<PAGE> 16
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Partners
Interstate Land Investors I Limited Partnership
Charlotte, North Carolina
We have audited the balance sheets of Interstate Land Investors I Limited
Partnership as of December 31, 1996 and 1995 and the related statements of
operations, partners' capital and cash flows for the years ended December 31,
1996, 1995 and 1994. These financial statements are the responsibility of the
Managing General Partner (see Note 1). 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
Managing General Partner, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Interstate Land Investors I
Limited Partnership as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years ended December 31, 1996, 1995 and
1994, in conformity with generally accepted accounting principles.
/s/ Cherry Bekaert & Holland, L.L.P.
Charlotte, North Carolina
January 16, 1997
<PAGE> 17
3
INTERSTATE LAND INVESTORS I LIMITED PARTNERSHIP
Balance Sheets
December 31, 1996 and 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Land held for appreciation .............................. $ 4,261,551 $ 4,261,551
Cash and cash equivalents ............................... 234 1,140
Account receivable - related party ...................... 1,059 1,059
Other receivable ........................................ -- 271
----------- -----------
$ 4,262,844 $ 4,264,021
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Advance from related party .......................... $ 23,637 $ 10,000
Accrued administrative fee - related party .......... 86,625 76,125
Accrued interest - related party .................... 2,420 514
----------- -----------
112,682 86,639
Partners' capital
Class A limited partners' interest (authorized,
issued and outstanding 5,100 units) .............. 4,150,168 4,177,384
Subordinated limited partner's interest ............. 87 88
General partners' capital deficiency ................ (93) (90)
----------- -----------
4,150,162 4,177,382
$ 4,262,844 $ 4,264,021
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE> 18
4
INTERSTATE LAND INVESTORS I LIMITED PARTNERSHIP
Statements of Partners' Capital
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Class A Subordinated
Limited Partners Limited General
Units Amount Partner Partners Total
----- ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Partners' capital (deficiency) -
December 31, 1993 .......... 5,100 $ 4,222,913 $ 90 $(86) $ 4,222,917
Net loss, year ended
December 31, 1994 .......... -- (23,799) (1) (2) (23,802)
----- ----------- ---- ---- -----------
Partners' capital (deficiency) -
December 31, 1994 .......... 5,100 4,199,114 89 (88) 4,199,115
Net loss, year ended
December 31, 1995 .......... -- (21,730) (1) (2) (21,733)
----- ----------- ---- ---- -----------
Partners' capital (deficiency) -
December 31, 1995 .......... 5,100 4,177,384 88 (90) 4,177,382
Net loss, year ended
December 31, 1996 .......... -- (27,216) (1) (3) (27,220)
----- ----------- ---- ---- -----------
Partners' capital (deficiency) -
December 31, 1996 .......... 5,100 $ 4,150,168 $ 87 $(93) $ 4,150,162
===== =========== ==== ==== ===========
</TABLE>
See notes to financial statements.
<PAGE> 19
5
INTERSTATE LAND INVESTORS I LIMITED PARTNERSHIP
Statements of Operations
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
INCOME
Interest ................................ $ 60 $ 42 $ 280
-------- -------- --------
EXPENSES
Property tax ............................ 115 105 1,425
Professional fees ....................... 11,399 10,383 11,907
Interest expense ........................ 1,905 514 --
General and administrative .............. 13,861 10,773 10,750
-------- -------- --------
27,280 21,775 24,082
-------- -------- --------
NET LOSS ............................. $(27,220) $(21,733) $(23,802)
======== ======== ========
NET LOSS ALLOCATED TO:
Class A limited partners ................ $(27,216) $(21,730) $(23,799)
Subordinated limited partner ............ (1) (1) (1)
General partners ........................ (3) (2) (2)
-------- -------- --------
$(27,220) $(21,733) $(23,802)
======== ======== ========
Class A limited partnership units outstanding 5,100 5,100 5,100
======== ======== ========
Net loss per weighted average Class A
limited partnership unit ................ $ (5.28) $ (4.22) $ (4.62)
======== ======== ========
</TABLE>
See notes to financial statements.
<PAGE> 20
6
INTERSTATE LAND INVESTORS I LIMITED PARTNERSHIP
Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss .................................... $(27,220) $(21,733) $(23,802)
Adjustments to reconcile net loss to net
cash used for operating activities:
Decrease in accounts receivable .......... 271 -- --
Increase (decrease) in accrued liabilities 12,406 11,015 (16,301)
-------- -------- --------
NET CASH USED FOR OPERATING ACTIVITIES (14,543) (10,718) (40,103)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in advance from related party ...... 13,637 10,000 --
-------- --------
NET DECREASE IN CASH AND CASH
EQUIVALENTS ...................... (906) (718) (40,103)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR .................................... 1,140 1,858 41,961
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR ........ $ 234 $ 1,140 $ 1,858
======== ======== ========
</TABLE>
See notes to financial statements.
<PAGE> 21
7
INTERSTATE LAND INVESTORS I LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1996, 1995 and 1994
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Interstate Land Investors I Limited Partnership (the Partnership) is a North
Carolina limited partnership formed, on May 18, 1988, to acquire for investment,
hold for appreciation and ultimately dispose, without substantial improvement,
approximately 97 acres of undeveloped land in York County, South Carolina.
Until January 1, 1992, the Managing General Partner was Performance Investments,
Inc. (PII) (see Note 6), which is 100% owned by Mr. William Garith Allen and a
family member. Mr. Allen and ISC Realty Corporation (ISCR) are also General
Partners in the Partnership and effective January 1, 1992 assumed the role of
co-managing general partners. Interstate Development Associates (IDA) is holder
of the Subordinated Limited Partner interest, which may be assigned by IDA to
any of its affiliates at any time. Mr. Allen is a 50% general partner in IDA.
The General Partners are solely responsible for the day-to-day management and
operation of the property. ISCR is responsible for certain administrative
functions of the Partnership and is entitled to an annual administrative fee of
up to $10,500. Payment of such administrative fee is deferred until the sale of
the property and the return of the Class A Limited Partners' invested capital
plus their preferred return, as defined. Any such deferred fee will accrue
interest at the prime rate plus 1%. However, because of the uncertainty as to
the ultimate collection of this interest, ISCR has elected not to accrue such
interest in the Partnership's financial statements.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Partnership considers highly
liquid investments having maturities of three months or less to be cash
equivalents. At December 31, 1996, 1995 and 1994, all of the Partnership's cash
consisted of monies deposited through Interstate/Johnson Lane, Inc. (a related
company to ISCR) in a money market fund invested in United States Government
obligations.
CAPITALIZATION POLICIES
The costs of acquiring land, including related closing and predevelopment costs,
are capitalized and will be allocated to cost of sales as sales of the property
occur.
<PAGE> 22
8
INTERSTATE LAND INVESTORS I LIMITED PARTNERSHIP
Notes to Financial Statements (continued)
December 31, 1996, 1995 and 1994
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Items of income or loss of the Partnership are included in the income tax
returns of the partners. Accordingly, the Partnership makes no provision for
federal and state income taxes.
NET LOSS PER CLASS A LIMITED PARTNERSHIP UNIT
Net loss per weighted average Class A limited partnership unit is calculated
based on the loss allocated to such partners without giving consideration to the
conversion of PII's general partner interest (see Note 6).
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.
NOTE 2 - ALLOCATIONS AND DISTRIBUTIONS OF NET PROFITS AND LOSSES
Under the terms of the partnership agreement, net profit and distributions of
available cash in each year prior to a sale of the property will be allocated
99% to the Class A Limited Partners and 1% to the General Partners. Net losses
shall be allocated among the partners in accordance with their respective
capital accounts. Special allocations are provided for any gains or losses
arising from the sale of the property and for the related cash distributions. In
no event, shall the portion of any item of partnership income, gain, loss,
deduction or credit allocated to the original General Partners (see Note 6) be
less than 1%. IDA, as the Subordinated Limited Partner, may be entitled to
certain distributions from sale of the property assuming sufficient proceeds
exist after the return of the Class A Limited Partners' invested capital plus
their preferred return, as defined, and after payment to the General Partners of
any deferred fees plus interest owed. IDA's subordinated return is $1,050,000.
Additionally, as Subordinated Limited Partner, IDA may, under certain
circumstances, as defined, receive an additional distribution arising from the
sale of the property equal to 5% of the net sale proceeds after deducting the
distributions described above to the Class A Limited Partners, General Partners
and Subordinated Limited Partner.
<PAGE> 23
9
INTERSTATE LAND INVESTORS I LIMITED PARTNERSHIP
Notes to Financial Statements (continued)
December 31, 1996, 1995 and 1994
NOTE 2 - ALLOCATIONS AND DISTRIBUTIONS OF NET PROFITS AND LOSSES (CONTINUED)
In September 1992, upon the approval of the holders of 67% of the Class A
Limited Partner interests and upon meeting certain conditions in the partnership
agreement, these Partners exercised their one-time right to direct the General
Partners to sell the property at a price no less than $7,185,000. In accordance
with this vote, the property was to be sold by September 1993, or at that time,
Mr. Allen (see Note 1) became obligated to purchase the property at the
stipulated price. Because the required date of purchase expired, the Partnership
investigated the legal remedies available that would best benefit the
Partnership in 1993. In 1996, 1995 and 1994, no further events have occurred
regarding the Partnership's planned course of action.
NOTE 3 - RELATED PARTIES AND RELATED PARTY TRANSACTIONS
In 1988, the Partnership purchased the property from IDA for $4,200,000. An
acquisition fee of $50,000 was paid to PII for services in connection with the
acquisition of the property. These costs, as well as legal and other acquisition
expenses, are included in land on the accompanying balance sheets.
ISCR purchased 100 units of Class A Limited Partner interests at the full
offering price ($1,000 a unit). These units are included in Class A Limited
Partners' interest on the balance sheets. Also, employees of the General
Partners and affiliates purchased 104 units of Class A Limited Partner interests
at a total discount of $3,640.
The Partnership incurred expense of $10,500 in 1996, 1995 and 1994,
respectively, for services rendered by ISCR in connection with certain
administrative functions of the Partnership. Since payment of these fees is
deferred as described in Note 1, the fees are included as accrued administrative
fees in the accompanying balance sheets, and as general and administrative
expenses in the accompanying statements of operations.
The Partnership has the same General Partners as and owns land adjacent to
Interstate Land Investors II Limited Partnership (Interstate II). The Property
owned by Interstate II is in direct competition with the Partnership's property.
No financial statement transactions have occurred between these Partnerships.
<PAGE> 24
10
INTERSTATE LAND INVESTORS I LIMITED PARTNERSHIP
Notes to Financial Statements (continued)
December 31, 1996, 1995 and 1994
NOTE 4 - ADVANCE FROM RELATED PARTY
On May 23, 1995, the Partnership obtained an advance from ISCR, for which total
borrowings cannot exceed $50,000. Interest is charged on this advance at 2%
above the announced prime lending rate of NationsBank, N.A. (Carolinas),
resulting in a rate of 10.25% and 10.5% at December 31, 1996 and 1995,
respectively. ISCR has received a mortgage and assignment of rents and leases on
the property as security. Interest shall accrue on this advance and shall be
paid along with the outstanding principal balance on the earlier of:
- - Sale or disposition of all or any portion or part of the property
securing the mortgage instrument,
- - The date ISCR is removed as Managing General Partner of the
Partnership, or
- - The date the Partnership terminates its legal existence.
The agreement with ISCR requires that the Partnership comply with certain
covenants, which are not financial in nature.
NOTE 5 - PROPERTY TAXES
Based upon efforts and studies performed in 1993, the property was rezoned from
commercial property to agricultural property effective with the 1994 tax
assessment. However, if the property is sold within five years from the
reclassification date, then the property resumes its status as commercial
property and the Partnership becomes liable for the annual difference between
the commercial property tax and the tax with the agricultural exemption. If this
occurs, this liability will be treated as a selling expense at the time of sale.
Based upon the 1993 assessment at commercial zoning and the 1994, 1995 and 1996
assessments at agriculture zoning, the potential reduction in sales proceeds
would be approximately $87,650 if the property were sold in 1997. Any reduction
in sales proceeds, if the property were sold beyond 1997 but still during the
period of five years from the reclassification date, would depend on the tax
rates and assessed values in effect during this period.
If it were to be determined that the Partnership was not adequately meeting the
requirements to maintain its agricultural exemption, then the Partnership could
become liable for the annual difference between the commercial property tax and
the tax with the agricultural exemption.
<PAGE> 25
11
INTERSTATE LAND INVESTORS I LIMITED PARTNERSHIP
Notes to Financial Statements (continued)
December 31, 1996, 1995 and 1994
NOTE 6 - OTHER MATTER
PII is currently seeking relief under Chapter 11 of the United States Bankruptcy
Code. The provisions of the partnership agreement stipulate that the filing of a
bankruptcy petition by PII automatically causes its interest to be converted
from that of a general partner to that of a Class A Limited Partner. In November
1991, PII consented to the conversion of its interest to that of a Class A
Limited Partner, to become effective January 1, 1992. PII, however, retains the
same interest in the Partnership's net profit, losses and distributions as it
had as a general partner subject to the same priority of the other Class A
Limited Partners (see Note 1).
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF INTERSTATE LAND INVESTORS I FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 234
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 234
<PP&E> 4,261,551
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,262,844
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4,150,162
<TOTAL-LIABILITY-AND-EQUITY> 4,262,844
<SALES> 0
<TOTAL-REVENUES> 60
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 25,375
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,905
<INCOME-PRETAX> (27,220)
<INCOME-TAX> 0
<INCOME-CONTINUING> (27,220)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,220)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
