<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 [Fee Required] For the fiscal year ended December 31, 1997 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.)
201 N. Tryon 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 19, 1998
Documents Incorporated by Reference: See Item 14
Page 1 of 12 sequentially numbered pages
<PAGE> 2
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.
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<PAGE> 3
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.
No mortgage indebtedness was incurred in connection with the
acquisition of the Property.
The Registrant plans to hold the property for future appreciation. It
is not contemplated that the Registrant will undertake construction 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 ten to
fifteen 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 12 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
3
<PAGE> 4
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 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 19, 1998, 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 eastern
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, gas, electricity and telephone. Sanitary sewage disposal and water was
originally available through North County Service Company, a private utility
company. A sewage treatment plant serving the Property was to 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
4
<PAGE> 5
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. The Registrant
believes that this facility was conveyed to York County and that future services
may be provided through either the County or the local municipality.
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 the UDD 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. 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
None.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY
HOLDER MATTERS
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Transfer of the Units is subject to certain restrictions contained in
the Limited Partnership Agreement. There is no established market for the Units
and it is not anticipated that any will occur in the future. The Registrant is
aware of no significant resales of Units since the Closing on September 30,
1988. As of March 19, 1998, 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,
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Interest and Other
Income $ 146 $ 60 $ 42 $ 280 $ 1,404
Expenses 26,734 27,280 21,775 24,082 101,522
-------- -------- -------- -------- ---------
Net Loss (26,588) (27,220) (21,733) 23,802 (100,118)
======== ======== ======== ======== =========
Net Loss Allocated
to Class A limited
partners (26,584) (27,216) (21,730) 23,799 (100,105)
======== ======== ======== ======== =========
Net Loss Per Class A
limited partnership
unit (5.16) (5.28) (4.22) (4.62) (19.43)
======== ======== ======== ======== =========
</TABLE>
SELECTED BALANCE SHEET DATA
<TABLE>
<CAPTION>
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total Assets $4,263,565 $4,262,844 $4,264,021 $4,264,739 $4,304,842
Total Liabilities 139,989 112,682 86,639 65,624 81,925
---------- ---------- ---------- ---------- ----------
Partner's Capital $4,123,574 $4,150,162 $4,177,382 $4,199,115 $4,222,917
========== ========== ========== ========== ==========
</TABLE>
6
<PAGE> 7
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, 1997, the remaining
funds of the Registrant were $955. 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, 1997,
is $42,865.
Results of Operations
COMPARISON OF THE FISCAL YEAR ENDED DECEMBER 31, 1997 TO THE FISCAL YEAR ENDED
DECEMBER 31, 1996
The Registrant reported a net loss in the amount of $26,588 for the
year ended December 31, 1997, as compared to a net loss of $27,220 for the year
ended December 31, 1996.
Interest expense increased $1,404 due to larger amounts borrowed from
the general partner. Professional fees decreased $902 during 1997 due to lower
accounting and tax preparation fees. General and administrative expense
decreased $1,051 to $12,810 due to slightly lower servicing costs.
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.
Interest expense increased $1,391 during 1996 due to higher amounts
outstanding on the note payable to ISCR. Professional fees increased $1,016
during 1996 due to increased legal expenses in relation to the Allen Put
Obligation.
General and administrative expense increased by $3,088 due primarily to
additional costs incurred in conjunction with the Registrant changing its
reporting service.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is included as a separate section to this
report.
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<PAGE> 8
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There were no disagreements in connection with the December 31, 1997,
financial statements. As reported on Form 8-K, the Registrant changed its
accountants during the fiscal period ended December 31, 1997.
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. He is 39 years old.
Edward C. Ruff Director of ISCR. He is 58 years old.
Robert B. McGuire Treasurer of ISCR. He is 50 years old.
Michael D. Hearn Director and Secretary of ISCR. He is 45 years old.
Lew F. Semones, Jr. Director of ISCR. He is 39 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.
Edward C. Ruff is Executive Managing Director and Chief Operating
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.
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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.
Lew F. Semones, Jr. is Senior Managing Director and Chief Financial
Officer of I/JL. He is also a director of I/JL. Mr. Semones is a graduate of
Lenoir Rhyne College, a Certified Public Accountant and a graduate of the
Securities Industry Institute at The Wharton School of The University of
Pennsylvania. He was elected as a director of ISCR in September, 1997.
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 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, 1997.
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>
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As of March 19, 1998, no persons known to the Registrant have
beneficial ownership of more than 5% of the Units.
As of March 19, 1998, none of the individual directors and officers of
the General Partners had subscribed for Units.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1997, there were no payments made to related parties in excess
of $60,000.
During the period ended December 31, 1997, 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%.
During 1997, 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. The Registrant filed Form 8-K during the
period reporting a change in accountants as discussed in Item 9.
(c) Exhibits.
None.
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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:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ J. Christopher Boone March 27, 1998
- ------------------------------------- --------------
J. Christopher Boone Director and
President of
ISC Realty
Corporation
/s/ Edward C. Ruff March 27, 1998
- ---------------------------------------- --------------
Edward C. Ruff Director of
ISC Realty
Corporation
/s/Michael D. Hearn March 27, 1998
- ------------------- --------------
Michael D. Hearn Director and
Secretary of
ISC Realty
Corporation
/s/Lew F. Semones, Jr. March 27, 1998
- ---------------------- --------------
Lew F. Semones. Jr. Director of
ISC Realty
Corporation
</TABLE>
12
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Appendix A
INTERSTATE LAND INVESTORS I
LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
For the years ended
December 31, 1997, 1996 and 1995
<PAGE> 14
INTERSTATE LAND INVESTORS I LIMITED PARTNERSHIP
TABLE OF CONTENTS
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS...........................1
BALANCE SHEETS...............................................................2
STATEMENTS OF OPERATIONS.....................................................3
STATEMENTS OF PARTNERS' CAPITAL..............................................4
STATEMENTS OF CASH FLOWS.....................................................5
NOTES TO FINANCIAL STATEMENTS................................................6
<PAGE> 15
[Faulkner and Thompson, P.A. Letterhead]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners of
Interstate Land Investors I Limited Partnership
Charlotte, North Carolina
We have audited the balance sheet of Interstate Land Investors I
Limited Partnership (a North Carolina limited partnership), as of December 31,
1997 and the related statements of operations, partners' capital and cash flows
for the year then ended. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audit. The balance sheet of Interstate
Land Investors I, Limited Partnership, (a North Carolina limited partnership) as
of December 31, 1996 and the related statements of operations, partners' capital
and cash flows for the years ending December 31, 1996 and 1995, were audited by
other auditors whose report dated January 16, 1997, expressed an unqualified
opinion on those financial statements.
We conducted our audit 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 the managing general partner, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 1997 financial statements referred to above
present fairly, in all material respects, the financial position of Interstate
Land Investors I Limited Partnership (a North Carolina limited partnership), as
of December 31, 1997 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
/s/ Faulkner & Thompson, P.A.
Charlotte, North Carolina
February 19, 1998
-1-
<PAGE> 16
INTERSTATE LAND INVESTORS I LIMITED PARTNERSHIP
Balance Sheets
December 31, 1997 and 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Land held for appreciation $ 4,261,551 $ 4,261,551
Cash and cash equivalents 955 234
Accounts receivable - related party 1,059 1,059
----------- -----------
$ 4,263,565 $ 4,262,844
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Line-of-credit payable - related party $ 37,137 $ 23,637
Administrative fees payable - related party 97,124 86,625
Interest payable - related party 5,728 2,420
----------- -----------
139,989 112,682
PARTNERS' CAPITAL
Class A limited partners' interest
(authorized, issued and outstanding
5,100 units) 4,123,584 4,150,168
Subordinated limited partners' interest 86 87
General partners' capital deficiency (96) (93)
----------- -----------
4,123,574 4,150,162
----------- -----------
$ 4,263,563 $ 4,262,844
=========== ===========
</TABLE>
See Notes to Financial Statements
-2-
<PAGE> 17
INTERSTATE LAND INVESTORS I LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
INCOME
Interest $ 146 $ 60 $ 42
-------- -------- --------
EXPENSES
Professional fees 10,497 11,399 10,383
Property tax 118 115 105
Interest expense 3,309 1,905 514
General and administrative 12,810 13,861 10,773
-------- -------- --------
26,734 27,280 21,775
-------- -------- --------
Net loss $(26,588) $(27,220) $(21,733)
======== ======== ========
NET LOSS ALLOCATED TO
Class A limited partners $(26,584) $(27,216) $(21,730)
Subordinated limited partners (1) (1) (1)
General partners (3) (3) (2)
-------- -------- --------
$(26,588) $(27,220) $(21,733)
======== ======== ========
Class A limited partnership
units outstanding 5,100 5,100 5,100
======== ======== ========
Net loss per weighted average Class A
limited partnership unit $ (5.16) $ (5.28) $ (4.22)
======== ======== ========
</TABLE>
See Notes to Financial Statements
-3-
<PAGE> 18
INTERSTATE LAND INVESTORS I LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Class A Subordinated
Limited Partners -------------------
---------------------- Limited General
Units Amount Partners Partners Total
----- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
Partners' capital (deficiency)-
January 1, 1995 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
Net loss, year ended
December 31, 1997 -- (26,584) (1) (3) (26,588)
----- ----------- ---- ---- -----------
Partners' capital (deficiency)-
December 31, 1997 5,100 $ 4,123,584 $ 86 $(96) $ 4,123,574
===== =========== ==== ==== ===========
</TABLE>
See Notes to Financial Statements
-4-
<PAGE> 19
INTERSTATE LAND INVESTORS I LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ 26,588) $(27,220) $(21,733)
Adjustments to reconcile net loss to net
cash used for operating activities:
Decrease in accounts receivable -
related party -- 271 --
Increase in accrued liabilities -
related party 13,809 12,406 11,015
-------- -------- --------
Net cash used for operating activities (12,779) (14,543) (10,718)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in line-of-credit payable -
related party 13,500 13,637 10,000
-------- -------- --------
Net increase (decrease) in cash
and cash equivalents 721 (906) (718)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 234 1,140 1,858
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 955 $ 234 $ 1,140
======== ======== ========
</TABLE>
See Notes to Financial Statements
-5-
<PAGE> 20
INTERSTATE LAND INVESTORS I LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
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 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. The Partnership shall continue its
existence without interruption subject to the terms and conditions
set forth in the partnership agreement and the provisions of the
Revised Uniform Limited Partnership Act of the State of North
Carolina.
Until January 1, 1992, the managing general partner was Performance
Investments, Inc. (PII) (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 the purposes of the statements of cash flows, the Partnership
considers all highly liquid investments having original maturities of
three months or less to be cash equivalents. At December 31, 1997,
1996 and 1995, the Partnership's cash consisted of monies deposited
through Interstate/Johnson Lane, Corp. (a related company to ISCR) in
a money market fund.
-6-
<PAGE> 21
INTERSTATE LAND INVESTORS I LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED
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.
ORGANIZATIONAL AND SYNDICATION COSTS
Various expenses and fees paid in connection with organizing the
Partnership (including an organizational fee of $150,000 paid to
ISCR) have been capitalized and amortized using the straight-line
method over a 60-month period. Other fees and expenses (including
sales commissions of $346,360 paid to Interstate/Johnson Lane
Corporation, a related company to ISCR) related to the sale of
limited partnership interests in the Partnership have been classified
as syndication costs and charged directly against partners' capital.
INCOME TAXES
Items of income or loss of the Partnership are included in the income
tax returns of the partners. Accordingly, the Partnership makes no
provision for federal and state income taxes.
NET LOSS PER CLASS A LIMITED PARTNERSHIP UNIT
Net loss per weighted average Class A limited partnership unit is
calculated based on the loss allocated to such partners without
giving consideration to the conversion of PII's general partner
interest (see Note 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.
RECLASSIFICATIONS
Certain 1996 amounts have been reclassified to conform to 1997
presentation.
-7-
<PAGE> 22
INTERSTATE LAND INVESTORS I LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
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 be less
than 1%. IDA, as the subordinated limited partner, may be entitled to
certain distributions from the 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.
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 ISC Realty initiated a civil action against Mr. Allen and is
currently in negotiations with Mr. Allen to reach a settlement which
will be subject to approval by the limited partners.
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.
-8-
<PAGE> 23
INTERSTATE LAND INVESTORS I LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
NOTE 3 - RELATED PARTIES AND RELATED PARTY TRANSACTIONS, CONTINUED
The Partnership incurred expenses of $10,500 in 1997, 1996 and 1995, 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 a general and
administrative expense in the accompanying statements of operations.
See Note 1 for fees paid to ISCR and its affiliates in connection with
organizing the Partnership and the subsequent sale of limited
partnership interests.
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.
In 1995, the Partnership obtained a line-of-credit from ISCR (See Note
4).
NOTE 4 - LINE-OF-CREDIT FROM RELATED PARTY
On May 23, 1995, the Partnership obtained a line-of-credit from ISCR,
for which total borrowings cannot exceed $50,000. Interest is charged on
this line-of-credit at 2% above the announced prime lending rate of
NationsBank, N.A. (Carolinas), resulting in a rate of 10.5%, 10.25% and
10.5% at December 31, 1997, 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 line-of-credit 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.
This agreement with ISCR requires that the Partnership comply with
certain covenants, which are not financial in nature.
-9-
<PAGE> 24
INTERSTATE LAND INVESTORS I LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
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 as commercial zoning and the 1994, 1995, 1996 and 1997
assessments as agricultural zoning, the potential reduction in sales
proceeds would be approximately $114,500 if the property were sold in
1998. Any reduction in sales proceeds, if the property were sold beyond
1998 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.
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).
-10-
<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, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 955
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 955
<PP&E> 4,261,551
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,263,565
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4,123,574
<TOTAL-LIABILITY-AND-EQUITY> 4,263,563
<SALES> 0
<TOTAL-REVENUES> 146
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 23,425
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,309
<INCOME-PRETAX> (26,588)
<INCOME-TAX> 0
<INCOME-CONTINUING> (26,588)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,588)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
