<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] For the fiscal year ended December 31, 1998 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 23, 1999
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.
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 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 10 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, the General
Partners or their affiliates may 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 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.
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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 23, 1999, 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 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.
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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.
In November 1998, a contract was signed listing the Property for sale
with the Crosland Group for an asking price of $45,000 per acre or $4,320,000 in
aggregate.
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 was seeking damages equal to the difference between
the current value of the Property and the Put Price. In June 1998, the
Partnership settled the claims against William Garith Allen. The Partnership
received a cash payment in the amount of $500,000 in exchange for assignment of
Mr. Allen's interests to a third party and relinquishment of his interests in
the Partnership. The Partnership and Mr. Allen have signed mutual releases in
conjunction with this settlement.
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
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 resale of Units since the Initial Closing on September
30, 1988. As of March 23, 1999, 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
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or a portion of the Property. During 1998, $306,000 was distributed to the
limited partners from the proceeds of the legal settlement discussed in Item 3.
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,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest and Other
Income $505,387 $ 146 $ 60 $ 60 $ 42
Expenses 29,949 26,734 27,280 27,280 21,775
-------- -------- -------- -------- --------
Net Gain (Loss) $475,438 (26,588) (27,220) (27,220) (21,733)
======== ======== ======== ======== ========
Net Gain (Loss) Allocated
to Class A limited
partners 475,438 (26,584) (27,216) (27,216) (21,730)
======== ======== ======== ======== ========
Net Gain (Loss) Per Class A
limited partnership
unit 93.22 (5.16) (5.28) (5.28) (4.22)
======== ======== ======== ======== ========
</TABLE>
SELECTED BALANCE SHEET DATA
<TABLE>
<CAPTION>
December 31, December 31, December 31, December 31, December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Assets $4,407,721 $4,263,565 $4,262,844 $4,264,021 $4,264,739
Total Liabilities 114,709 139,989 112,682 86,639 65,624
---------- ---------- ---------- ---------- ----------
Partner's Capital $4,292,962 $4,123,574 $4,150,162 $4,177,382 $4,199,115
========== ========== ========== ========== ==========
</TABLE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
As of December 31, 1998, the Registrant had cash on hand of $145,111.
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
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of its real estate investment. 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
accrued interest at prime plus 2%. In July 1998 repayment, in the amount of
$50,337, was made with proceeds from the legal settlement.
Results of Operations
COMPARISON OF THE FISCAL YEAR ENDED DECEMBER 31, 1998 TO THE FISCAL YEAR ENDED
DECEMBER 31, 1997
The Registrant reported a net income in the amount of $475,438 for the
year ended December 31, 1997, as compared to a net loss of $26,588 for the year
ended December 31, 1997.
Interest expense decreased $1,253 due to smaller amounts borrowed from
the general partner and repayment of the note payable. Professional fees
increased $1,823 during 1998 due to increased legal expenses in relation to the
settlement of the lawsuit against Allen. General and administrative expense
increased $2,640 to $15,450 as a result of separate studies performed to
evaluate the current market value and environmental conditions in the area.
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 $27,220 for the
year ended December 31, 1996, as compared to a net loss of $26,588 for the year
ended December 31, 1997.
Interest expense increased $1,404 during 1997 due to higher amounts
outstanding on the note payable to ISCR. Professional fees decreased $902 during
1997 due to decreases in accounting and tax reporting fees. General and
administrative expense decreased by $1,953 due primarily the Registrant changing
its reporting service.
The Year 2000 Issue
The Registrant determined that the potential consequences of year 2000
will not have a material effect on business, results of operations, or financial
condition. This conclusion was reached after researching computer programs and
third party vendors that are currently used to manage this limited partnership.
The Registrant is not solely reliant upon outside systems or vendors for record
keeping. Information is on file in our offices which states that existing
computer software is Y2K compliant and that the third party vendor currently
utilized will be Y2K compliant by June 30, 1999. The computer hardware and
peripherals located in the Registrant's offices are also Y2K ready.
If necessary, the Registrant can revert to manual methods for
bookkeeping, check writing, preparation of financial statements and investor
correspondence. Hard copies of essential information are available and will
continue to be available well into the year 2000.
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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, 1998,
financial statements.
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 40 years old.
Edward C. Ruff Director of ISCR. He is 59 years old.
Robert B. McGuire Treasurer of ISCR. He is 51 years old.
Michael D. Hearn Director and Secretary of ISCR. He is 46 years old.
Lewis F. Semones, Jr. Director of ISCR. He is 40 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.
Lewis 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.
Effective April 1, 1999, Interstate/Johnson Lane will merge into
Wachovia Corporation and will officially change its name to Wachovia Securities,
Inc. The Registrant will be an affiliate of Wachovia Securities, Inc., but not
be part of Wachovia Corporation's banking subsidiary. Personnel and offices will
continue to operate as usual.
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, 1998.
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 Melvin D. Childers (W. G. Allen) 50 50%
General Partner ISC Realty Corporation 50 50%
Class A Limited ISC Realty Corporation 100,000 2.0%
Class A Limited Melvin D. Childers (PII) 100 <0.1%
</TABLE>
As of March 23, 1999, no persons known to the Registrant have
beneficial ownership of more than 5% of the Units.
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<PAGE> 10
As of March 23, 1999, none of the individual directors and officers of
the General Partners had subscribed for Units.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1998, there were no payments made to related parties in excess
of $60,000.
During the period ended December 31, 1998, 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 1998, 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.
None.
(c) Exhibits.
27 Financial Data Schedule (for SEC use only)
10
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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 March 23, 1999
- ---------------------------- --------------
J. Christopher Boone Director and
President of
ISC Realty
Corporation
/S/ Edward C. Ruff March 23, 1999
- ---------------------------- --------------
Edward C. Ruff Director of
ISC Realty
Corporation
/S/Michael D. Hearn March 23, 1999
- ---------------------------- --------------
Michael D. Hearn Director and
Secretary of
ISC Realty
Corporation
/S/Lewis F. Semones, Jr. March 23, 1999
- ----------------------------- --------------
Lewis F. Semones. Jr. Director of
ISC Realty
Corporation
12
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INTERSTATE LAND INVESTORS I,
LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1998, 1997 AND 1996
<PAGE> 14
INTERSTATE LAND INVESTORS I,
LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
TABLE OF CONTENTS
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS............................1
BALANCE SHEETS................................................................2
STATEMENTS OF OPERATIONS......................................................3
STATEMENT OF PARTNERS' CAPITAL................................................4
STATEMENTS OF CASH FLOWS......................................................5
NOTES TO FINANCIAL STATEMENTS.................................................6
<PAGE> 15
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners of
Interstate Land Investors I, Limited Partnership
Charlotte, North Carolina
We have audited the balance sheets of Interstate Land Investors
I, Limited Partnership (a North Carolina limited partnership), as of December
31, 1998 and 1997 and the related statements of operations, partners' capital
and cash flows for the years 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 statements of
operations, partners' capital and cash flows of Interstate Land I, Limited
Partnership (a North Carolina limited partner) for the year ending December 31,
1996 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 1998 and 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, 1998 and 1997 and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
Charlotte, North Carolina
February 26, 1999
<PAGE> 16
INTERSTATE LAND INVESTORS I,
LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31,
See Notes to Financial Statements.
<TABLE>
<CAPTION>
1998 1997
---------- -----------
<S> <C> <C>
ASSETS
Unimproved land held for appreciation $4,261,551 $ 4,261,551
Cash and cash equivalents 145,111 955
Accounts receivable - related party 1,059 1,059
---------- -----------
$4,407,721 $ 4,263,565
========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Line-of-credit payable - related party $ -- $ 37,137
Administrative fees payable - related party 107,625 97,125
Interest payable - related party 7,084 5,729
---------- -----------
114,709 139,991
---------- -----------
PARTNERS' CAPITAL
Class A limited partners' interest (authorized,
issued and outstanding 5,100 units) 4,292,962 4,123,584
Subordinated limited partners' interest 98 86
General partners' capital deficiency (48) (96)
---------- -----------
4,293,012 4,123,574
---------- -----------
$4,407,721 $ 4,263,565
========== ===========
</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>
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
INCOME
Interest $ 5,387 $ 146 $ 60
--------- -------- --------
EXPENSES
Professional fees 12,320 10,497 11,399
Property tax 123 118 115
Interest expense 2,056 3,309 1,905
General and administrative 15,450 12,810 13,861
--------- -------- --------
29,949 26,734 27,280
--------- -------- --------
Loss from operations (24,562) (26,588) (27,220)
SETTLEMENT FROM LAWSUIT - NOTE 7 500,000 -- --
--------- -------- --------
Net income (loss) $ 475,438 $(26,588) $(27,220)
========= ======== ========
NET INCOME (LOSS) ALLOCATED TO
Class A limited partners $ 475,378 $(26,584) $(27,216)
Subordinated limited partners 12 (1) (1)
General partners 48 (3) (3)
--------- -------- --------
$ 475,438 $(26,588) $(27,220)
========= ======== ========
Class A limited partnership units outstanding 5,100 5,100 5,100
========= ======== ========
Net income (loss) per weighted average Class A
limited partnership unit $ 93.22 $ (5.16) $ (5.28)
========= ======== ========
Loss from operations per weighted average Class A
limited partnership unit $ (4.82) $ (5.16) $ (5.28)
========= ======== ========
</TABLE>
See Notes to Financial Statements.
-3-
<PAGE> 18
INTERSTATE LAND INVESTORS I,
LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
SUBORDINATED
CLASS A LIMITED PARTNERS -------------------
------------------------- LIMITED GENERAL
UNITS AMOUNT PARTNERS PARTNERS TOTAL
----- ------------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
Partners' capital (deficiency) -
January 1, 1996 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
Net income year ended
December 31, 1998 -- 475,378 12 48 475,438
Distributions to partners -- (306,000) -- -- (306,000)
----- ----------- ---- ---- -----------
Partners capital (deficiency) -
December 31, 1998 5,100 $ 4,292,962 $ 98 $(48) $ 4,293,012
===== =========== ==== ==== ===========
</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>
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 475,438 $(26,588) $(27,220)
Adjustments to reconcile net income (loss) to net
cash provided by (used
for) operating activities:
Decrease in accounts receivable - related party -- -- 271
Increase in accrued liabilities - related party 11,855 13,809 12,406
--------- -------- --------
Net cash provided by (used for) operating
activities 487,293 (12,779) (14,543)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in line-of-credit payable -
related party (37,137) 13,500 13,637
Distributions to partners (306,000) -- --
--------- -------- --------
Net cash provided (used) for financing
activities (343,137) 13,500 13,637
--------- -------- --------
Net increase (decrease) in cash and cash
equivalents 144,156 721 (906)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 955 234 1,140
--------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 145,111 $ 955 $ 234
========= ======== ========
</TABLE>
See Notes to Financial Statements.
-5-
<PAGE> 20
INTERSTATE LAND INVESTORS I,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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. During 1998, Mr. Allen's general partnership interest
was transferred to another individual due to settlement of a lawsuit
(see Note 7).
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, 1998,
1997 and 1996, the Partnership's cash consisted of monies deposited
through Interstate/Johnson Lane Corporation (a related company to
ISCR) in a money market fund.
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. Additionally, management
deems that the market value of the land is not below its historical
cost.
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. These costs have been fully amortized
in prior years. Other fees and expenses (including sales commissions
of $346,360 paid to Interstate/Johnson Lane Corporation,
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
-6-
<PAGE> 21
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.
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
NOTE 2 - ALLOCATIONS AND DISTRIBUTIONS OF NET PROFITS AND LOSSES, CONTINUED
expired, the Partnership investigated the legal remedies available that
would best benefit the Partnership
-7-
<PAGE> 22
in 1993. In 1996 ISC Realty initiated a civil action against Mr. Allen
and in 1998 the civil action was settled (see Note 7). As part of this
settlement, Mr. Allen's general partnership interest was transferred to
another individual.
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 expenses of $10,500 in 1998, 1997 and 1996, 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.
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 9.75%, 10.5% and
10.25% at December 31, 1998, 1997 and 1996, 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:
NOTE 4 - LINE-OF-CREDIT FROM RELATED PARTY, CONTINUED
-- 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
-8-
<PAGE> 23
-- 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.
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
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).
NOTE 7 - SETTLEMENT FROM LAWSUIT
During 1998 the Partnership settled the claim against William Garith
Allen in exchange for an assignment to a third party, a $500,000 cash
payment, and relinquishment of his interest in the Partnership. A mutual
release was signed in conjunction with this settlement.
NOTE 8 - RECONCILIATION OF FINANCIAL STATEMENT NET INCOME TO TAXABLE INCOME
A reconciliation of financial statement and taxable income is as follows:
<TABLE>
<S> <C>
Financial statement net income $ 475,438
Plus: temporary non-deductible expenses to related party 11,855
-----------
Taxable income $ 487,293
===========
</TABLE>
-9-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF INTERSTATE LAND INVESTORS I FOR THE YEAR ENDED DECEMBER
31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 145,111
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 145,111
<PP&E> 4,261,551
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,407,721
<CURRENT-LIABILITIES> 114,709
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4,293,012
<TOTAL-LIABILITY-AND-EQUITY> 4,407,721
<SALES> 0
<TOTAL-REVENUES> 5,387
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 27,893
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,506
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 500,000
<CHANGES> 0
<NET-INCOME> 475,438
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
