<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
[Fee Required]
For the fiscal year ended
December 31, 1998
or
[ ] Transition Report to Section 13 or 15(d) of the Securities
Exchange Act of 1934
[Fee Required]
For the transition period from _______to_______
Commission File Number
33-22908-A
NORTH BY NORTHEAST, LTD.
(Exact name of Registrant as specified in its charter)
Tennessee 62-1356792
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
Number.)
One Belle Meade Place, 4400 Harding Road, Suite 500, Nashville,
Tennessee 37205
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (615) 292-1040
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
(Title of Class)
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 at least the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is
not contained herein, and will not be contained, to the best of the
registrant's knowledge, in definitive proxy of information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
[X]
The aggregate sales price of the Units of Limited Partnership
Interest to non-affiliates was $1,875,000 as of February 28, 1999.
This does not reflect market value, but is the price at which these
Units of Limited Partnership Interest were sold to the public.
There is no current market for these Units.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Incorporated by Reference in Part IV:
Prospectus of Registrant, dated September 1, 1988, as filed
pursuant to Rule 424(b) of the Securities and Exchange Commission.
<PAGE>
PART I
Item 1. Business
North by Northeast, Ltd. (the "Registrant"), is a Tennessee
limited partnership organized on June 27, 1988, pursuant to the
provisions of the Tennessee Uniform Limited Partnership Act,
Chapter 2, Title 61, Tennessee Code Annotated, as amended. The
general partner of Registrant is 222 North, Ltd., whose general
partners are 222 Partners, Inc., Steven D. Ezell, and Michael A.
Hartley.
The Registrant's primary business is to participate as a
general partner in North By Northeast Land Partners (the "Land
Partnership"), a general partnership formed with Reveille
Industrial #3 Limited Partnership ("Reveille"), a Trammell Crow
entity. The Land Partnership acquires, develops and disposes of
certain real properties near Indianapolis, Indiana (the
"Property"). In 1994, the Registrant also acquired a limited
partnership interest in Northeast Building IV, L.P., an
unaffiliated Indiana limited partnership. Northeast Building IV
purchased land and constructed, leased and sold a warehouse
building in 1995.
The Registrants' investment objectives are preservation of
capital and capital appreciation through investing in partnerships
that invest in real estate which will appreciate through the
passage of time, growth in the surrounding areas and the
development of the Properties prior to resale.
Financial Information About Industry Segment
The Registrant's activity, investment in partnerships that
invest in land, is within one industry segment and geographical
area. Therefore, financial data relating to the industry segment
and geographical area is included in Item 6 - Selected Financial
Data.
Narrative Description of Business
Due to the nature of the Registrant's business, the activity
of the Registrant revolves around the operations of the Land
Partnership.
North by Northeast Land Partners
As of December 31, 1998, the Land Partnership owned
approximately 3 acres of land (the "Property") in the Town of
Fishers, Hamilton County, Indiana, just outside the Indianapolis
city limits. The majority of the development of the Property was
completed in 1993. All other development on the Property pertained
to sales and included grading and other sitework and extending
roads and utilities.
The property is zoned for small business use or warehouse use
and continues to be surrounded by a significant amount of
competition. The largest competition for land sales and
build-to-suit type sales is Crosspointe, a 300 acre business park
at the northwest corner of Interstate 69 and 96th Street. In
addition, Exit 5 Business Park, two miles north of the Property has
competitive land. Castleton Business Park, one-half mile south of
the Property, is the largest competitor for leased space. The Land
Partnership's Property offers better access to purchasers and
pricing is similar.
The majority of the proceeds used to invest in the Land
Partnership were from a $4,719,375 participating mortgage note (the
"Lender Financing") from North Lenders, L.P. (the "Lender"), an
affiliated partnership sharing the same General Partner. The
principal balance accrued interest at a simple interest rate of 10%
per annum. The loan was retired in full on December 31, 1997.
The Registrant has no employees. The Registrant's and the
Land Partnership's administration services are being provided under
a contractual agreement with Landmark Realty Services Corporation,
an affiliate of the general partner.
Item 2. Properties
As of December 31, 1998, the Land Partnership owned
approximately 3 acres of land in the Town of Fishers, Hamilton
County, Indiana, just outside the Indianapolis city limits. The
property lies at the intersection of Interstate 69 and 96th Street.
During 1989, the Property was annexed by the Town of Fishers and
zoned for interstate business allowing for the intended
development.
Item 3. Legal Proceedings
Registrant is not a party to, nor is any of Land Partnership's
property the subject of, any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
The security holders of Registrant did not vote on any matter
during the fiscal year covered by this report.
PART II
Item 5. Market for Registrant's Units of Limited Partnership
Interest and Related Security Holder Matters
There is no established market for the units and it is not
anticipated that any will exist in the future. As of February 28,
1999, there were 154 holders of record of the 1,875 units of
limited partnership interest.
In 1997, and 1996, $221,386,and $199,999 respectively, were
paid to the Lender as accrued interest and applicable principal in
accordance with the Lender Financing. In 1998, $282,534 was
distributed to the partners of the Registrant. In 1997 and 1996,
there were no distributions.
There are no material restrictions upon Registrant's present
or future ability to make distributions in accordance with the
provisions of Registrant's Limited Partnership Agreement, other
than available resources.
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Item 6. Selected Financial Data
For the Year Ended
December 31,
1998 1997 1996 1995 1994
Total revenues $238,911 59,936 4,775 687,924 1,242,420
Net income(loss)$218,112 20,583 (30,822) 11,477 748,885
Net income(loss)
per limited
partner unit - - (16.44) - 370.15
Total assets $ 71,427 223,849 303,741 503,952 2,467,183
Notes payable
to affiliate $ - - 183,889 346,678 1,325,513
Distributions $ 282,534 - - 988,870 1,451,734
Distributions per
limited partner
unit 110 - - 385 745
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Due to the nature of the Registrant, the majority of its
activity on a regular basis is to reflect the activity of the
investment in the Land Partnership.
Sales
In 1998, the Land Partnership sold approximately 5 acres for
$905,000. From the sale proceeds $425,000 was distributed to the
Registrant.
In 1997, the Land Partnership sold approximately 2 acres for
$250,000. The Land Partnership distributed $110,000 to The
Registrant. The Registrant then made a $100,000 principal payment
on the Lender Financing and paid all accrued interest through the
sale date. An additional principal payment of $83,889 was paid at
year end from borrowed funds, therefore retiring the loan in full.
There were no land sales at the Land Partnership in 1996.
Analysis of Operations
Overall operations in 1998 of the Registrant remained
comparable to
prior years except for the fluctuations in equity in income of
partnerships, legal and accounting expense and interest expense.
The equity in income of partnerships is directly related to land
sales at the Land Partnership. Please refer to Item 14 and the
separate Financial Statements of the Land Partnership.
The increase in legal and accounting fees is due to the
Registrant assuming certain expenses of the Lender Partnership
which was dissolved in 1997. These expenses are not expected to
be recurring. Interest expense includes interest accrued on the
principal balance and additional interest, if any, as defined in
loan agreement. The Registrant paid additional interest of $17,835
in 1997. No additional interest was paid in 1996. Accrued interest
expense has declined through the years due to the reduction in
principal balances. The Lender financing was retired in full on
December 31, 1997. Therefore, there was no interest expense in
1998.
Financial Position and Liquidity
At February 28, 1999, the Registrant had $39,025 in cash and
cash equivalents to meet its 1999 operational needs which are
expected to remain comparable to 1998. Therefore, the General
Partner believes that the present cash balance will be sufficient
to cover the operating expenses for 1999.
Year 2000
In 1998, the Partnership initiated a plan ("Plan") to
identify, and remediate "Year 2000" issues within each of its
significant computer programs and certain equipment which contain
microprocessors. The Plan is addressing the issue of computer
programs and embedded computer chips being unable to distinguish
between the year 1900 and the year 2000, if a program or chip uses
only two digits rather than four to define the applicable year.
The Partnership has divided the Plan into five major phases-
assessment, planning, conversion, implementation and testing.
After completing the assessment and planning phases earlier year,
the Partnership is currently in the conversion, implementation, and
testing phases. Systems which have been determined not to be Year
2000 compliant are being either replaced or reprogrammed, and
thereafter tested for Year 2000 compliance. The Plan anticipates
that by mid-1999 the conversion, implementation and testing phases
will be completed. Management believes that the total remediation
costs for the Plan will not be material to the operations or
liquidity of the Partnership.
The Partnership is in the process of identifying and
contacting critical suppliers and other vendors whose computerized
systems interface with the Partnership's systems, regarding their
plans and progress in addressing their Year 2000 issues. The
Partnership has received varying information from such third
parties on the state of compliance or expected compliance.
Contingency plans are being developed in the event that any
critical supplier or customer is not compliant.
The failure to correct a material Year 2000 problem could
result in an interruption in, or failure of, certain normal
business activities or operations. Such failures could materially
and adversely affect the Partnership's operations, liquidity and
financial condition. Due to the general uncertainty inherent in
the Year 2000 problem, resulting in part from the uncertainty of
the Year 2000 readiness of third-party suppliers and customers, the
Partnership is unable to determine at this time whether the
consequences of Year 2000 failures will have a material impact on
the Partnership's operations, liquidity or financial condition.
Item 8. Financial Statements and Supplementary Data
The Financial Statements required by Item 8 are filed at the
end of this Report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Registrant does not have any directors or officers. 222
North, Ltd. is the general partner. Steven D. Ezell, Michael A.
Hartley and 222 Partners, Inc. are the general partners of the
general partner and as such have general responsibility and
ultimate authority in matters affecting Registrant's business.
The General Partners of 222 North, Ltd. are as follows:
Steven D. Ezell
Steven D. Ezell, age 46, is a general partner of 222 North,
Ltd. He is the President and sole shareholder of 222 Partners,
Inc. He has been an officer of 222 Partners, Inc. from September
17, 1986 through the current period. Mr. Ezell is President and
50% owner of Landmark Realty Services Corporation. For the prior
four years, Mr. Ezell was involved in property acquisitions for
Dean Witter Realty Inc. in New York City, most recently as Senior
Vice President. Steven D. Ezell is the son of W. Gerald Ezell.
Michael A. Hartley
Michael A. Hartley, age 39, is a general partner of 222 North,
Ltd. He is the Secretary/Treasurer and a Vice President of 222
Partners, Inc. He has been an officer of 222 Partners, Inc. from
September 17, 1986 through the current period. Mr. Hartley is Vice
President and 50% owner of Landmark Realty Services Corporation.
Prior to joining Landmark in 1986, Mr. Hartley was Vice President
of Dean Witter Realty Inc., a New York- based real estate
investment firm.
222 Partners Inc.
222 Partners, Inc. was formed in September, 1986 and serves as
general partner for several other real estate investment limited
partnerships. Steven D. Ezell is the sole shareholder of 222
Partners, Inc. The directors of 222 Partners, Inc. are W. Gerald
Ezell, Steven D. Ezell, and Michael A. Hartley. All officers are
elected by the Board of Directors and serve until their successors
are elected and qualified.
Other directors of 222 Partners, Inc. are as follows:
W. Gerald Ezell, age 68, serves on the Board of Directors of
222 Partners, Inc. Until November, 1985, Mr. Ezell had been, for
over 20 years, an agency manager for Fidelity Mutual Life Insurance
Company and a registered securities principal of Capital Analysts
Incorporated, a wholly owned subsidiary of Fidelity Mutual Life
Insurance Company.
Item 11. Executive Compensation
During 1998, Registrant was not required to and did not pay
remuneration to any executives, partners of the general partner or
any affiliates, except as set forth in Item 13 of this report,
"Certain Relationships and Related Transactions."
The general partner does participate in the profits, losses
and distributions of the Registrant as set forth in the Partnership
Agreement.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
As of February 28, 1999 no person or "group" (as that term is
used in Section 13(d) (3) of the Securities Exchange Act of 1934)
was known by the Registrant to beneficially own more than five
percent of the units of Registrant.
As of the above date, the Registrant knew of no officers or
directors of 222 Partners, Inc. that beneficially owned any of the
units of the Registrant.
There are no arrangements known by the Registrant, the
operation of which may, at a subsequent date, result in a change in
control of the Registrant.
Item 13. Certain Relationships and Related Transactions
No affiliated entities have, for the year ended December 31,
1998, earned or received compensation or payments for services from
the Registrant in excess of $60,000. For a list of all
transactions paid to affiliates for the Registrant and the Land
Partnership see Note 2 to the Financial Statements.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) (1) Financial Statements
Independent Auditors' Report F-1
Financial Statements
Balance Sheets F-2
Statements of Operations F-3
Statements of Partners' Equity F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6
(3) Exhibits
3 Amended and Restated Certificate and Agreement of
Limited Partnership, incorporated by reference to
Exhibit A1 to the Prospectus of Registrant dated
September 1, 1988 filed pursuant to Rule 424 (b)
of the Securities and Exchange Commission.
22 Subsidiaries-Registrant has no subsidiaries.
27 Financial Data Schedule
(b) No reports on Form 8-K have been filed during the last
quarter of 1998.
(c) See Exhibits listed in Item 14(a) (3) above.
(d) Financial Statements of subsidiaries not consolidated.
North By Northeast Land Partners
Independent Auditors' Report M-1
Balance Sheets M-2
Statements of Operations M-3
Statements in Partners' Equity M-4
Statements of Cash Flows M-5
Notes to Financial Statements M-6
All other Schedules have been omitted because they are
inapplicable, not required or the information is included in the
Financial Statements or notes thereto.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NORTH BY NORTHEAST, LTD.
By: 222 North, Ltd.
General Partner
DATE: March 31, 1999 By: /s/ Steven D. Ezell
General Partner
DATE: March 31, 1999 By: /s/ Michael A. Hartley
General Partner
By: 222 Partners, Inc.
General Partner
DATE: March 31, 1999 By: /s/ Michael A. Hartley
Secretary/Treasurer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
NORTH BY NORTHEAST, LTD.
By: 222 North, Ltd.
General Partner
DATE: March 31, 1999 By: /s/ Steven D. Ezell
General Partner
DATE: March 31, 1999 By: /s/ Michael A. Hartley
General Partner
By: 222 Partners, Inc.
General Partner
DATE: March 31, 1999 By: /s/ Michael A. Hartley
Secretary/Treasurer
Supplement Information to be Furnished with Reports filed
Pursuant to Section 15(d) of the Act by Registrant Which Have Not
Registered Securities Pursuant to Section 12 of the Act:
No annual report or proxy material has been sent to security
holders.
<PAGE>
Independent Auditors' Report
The Partners
North By Northeast, Ltd.:
We have audited the accompanying balance sheets of North By
Northeast, Ltd. (a limited partnership) as of December 31, 1998 and
1997, and the related statements of operations, partners' equity,
and cash flows for each of the years in the three-year period ended
December 31, 1998. These financial statements are the
responsibility of the Partnership's management. Our responsibility
is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of North
By Northeast, Ltd. at December 31, 1998 and 1997, and the results
of its operations and its cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with
generally accepted accounting principles.
KPMG LLP
Nashville, Tennessee
January 22, 1999
F-1
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NORTH BY NORTHEAST, LTD.
(A Limited Partnership)
Balance Sheets
December 31, 1998 and 1997
Assets 1998 1997
Cash $ 39,425 279
Investment in land partnership
(note 3) 32,002 223,570
Total assets $ 71,427 223,849
Liabilities and Partners' Equity
Accounts payable to affiliate(note 2)$ - $ 88,000
Partners' equity:
Limited partners (1,875 units
outstanding) 164,534 370,784
General partner (93,107) (234,935)
Total Partners' equity 71,427 135,849
Commitment(note 3)
Total liabilities and
partners' equity $ 71,427 223,849
See accompanying notes to financial statements.
F-2
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NORTH BY NORTHEAST, LTD.
(A Limited Partnership)
Statements of Operations
Years ended December 31, 1998, 1997 and 1996
1998 1997 1996
Revenues:
Equity in income of
partnerships (note 3) $ 233,432 59,187 2,909
Interest income 3,997 749 1,866
Other income 1,482 - -
Total revenues 238,911 59,936 4,775
Expenses:
Legal and accounting
(note 2) 19,574 5,975 4,467
General and administrative 1,225 467 520
Interest expense - 32,911 30,610
Total expenses 20,799 39,353 35,597
Net income
(loss) $ 218,112 20,583 (30,822)
Net income (loss) allocated to:
General partner $ 218,112 20,583 -
Limited partners $ - - (30,822)
Net loss per
limited partner unit $ - - (16.44)
Weighted average, limited
partner units outstanding 1,875 1,875 1,875
See accompanying notes to financial statements.
F-3
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NORTH BY NORTHEAST, LTD.
(A Limited Partnership)
Statements of Partners' Equity
Years ended December 31, 1998, 1997 and 1996
Limited General
partners partner Total
Units Amounts
Balance at
December 31, 1995 1,875 $ 401,606 (255,518) 146,088
Net loss - (30,822) - (30,822)
Balance at
December 31, 1996 1,875 370,784 (255,518) 115,266
Net income - - 20,583 20,583
Balance at
December 31, 1997 1,875 370,784 (234,935) 135,849
Distributions to
Partners (Note 4) - (206,250) (76,284) (282,534)
Net income - - 218,112 218,112
Balance at
December 31, 1998 1,875 $ 164,534 (93,107) 71,427
See accompanying notes to financial statements.
F-4
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NORTH BY NORTHEAST, LTD.
(A Limited Partnership)
Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
1998 1997 1996
Cash flows from operating activities:
Net income (loss) $ 218,112 20,583 (30,822)
Adjustments to reconcile
net income (loss) to
net cash provided (used)
by operating activities:
Equity in income
of partnerships (233,432) (59,187) (2,909)
Decrease in accrued
interest payable
to affiliate - (4,586) (6,601)
Increase (decrease) in
accounts payable to
affiliates (88,000) 88,000 -
Net cash provided (used)
by operating activities(103,320) 44,810 (40,332)
Cash flows from investing
activities - distributions
from partnerships 425,000 110,000 190,000
Cash flows from financing activities:
Distributions to partners(282,584) - -
Payment of notes payable
to affiliates - (183,889) (162,789)
Net cash used by
financing activities (282,534) (183,889) (162,789)
Net increase (decrease)
in cash 39,146 (29,079) (13,121)
Cash at beginning of year 279 29,358 42,479
Cash at end of year $ 39,425 279 29,358
Supplemental Disclosures of Cash Flow Information:
1998 1997 1996
Cash paid during the
year for interest $ - 37,497 37,210
See accompanying notes to financial statements.
F-5
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NORTH BY NORTHEAST, LTD.
(A Limited Partnership)
Notes to Financial Statements
December 31, 1998 and 1997
(1) Summary of Significant Accounting Policies
(a) Organization
North by Northeast, Ltd. (the Partnership) was organized on
June 27, 1988 to participate as a general partner in North
By Northeast Land Partners (the Land Partnership) and other
affiliated partnerships. On October 18, 1988, the Land
Partnership acquired an undeveloped tract of land in
Indianapolis, Indiana for the purpose of developing and
selling parcels of real estate. The general partner is 222
North, Ltd., whose general partners are 222 Partners, Inc.,
Steven D. Ezell and Michael A. Hartley. The Partnership
prepares financial statements and Federal income tax
returns on the accrual method and includes only those
assets, liabilities and results of operations which relate
to the business of the Partnership.
(b) Estimates
Management of the Partnership has made estimates and
assumptions to prepare these financial statements in
accordance with generally accepted accounting principles.
Actual results could differ from those estimates.
(c) Cash
Cash belonging to the Partnership is combined in an account
with funds from other partnerships related to the general
partner.
(d) Investment in Partnerships
Investment in North by Northeast Land Partners (Land
Partnership) is accounted for using the equity method.
Accordingly, the Partnership's investment has been adjusted
to reflect its proportionate share of profits, losses, and
distributions. Interest incurred on notes payable
attributable to investment in the Land Partnership was
capitalized when the Land Partnership was actively
developing its land. Subsequent interest is
F-6
<PAGE>
NORTH BY NORTHEAST, LTD.
(A Limited Partnership)
Notes to Financial Statements
(1) Summary of Significant Accounting Policies (continued)
expensed as the development project is substantially
complete. Capitalized interest is amortized as land
parcels are sold on the basis of the relative sales value
of the parcels.
(e) Income Taxes
No provision has been made for Federal or state
income taxes since such taxes are the personal
responsibility of the partners. Annually, the partners
receive, from the Partnership, IRS Form K-1's which provide
them with their share of taxable income or losses,
deductions, and other tax information. There are no
differences in the book and tax basis of the Partnership's
assets and liabilities.
(f) Partnership Allocations
Net profits, losses and distributions of cash flow of the
Partnership are allocated to the partners in accordance
with the Partnership agreement as follows:
Net profits are allocated first to any partner with a
negative balance in their capital account, determined at
the end of the taxable year as if the Partnership had
distributed cash flow, in proportion to the negative
capital balance account of all partners until no partner's
capital account is negative. Net profit allocations are
then made to the limited partners up to the difference
between their capital account balances and the sum of their
adjusted capital contributions (capital balance, net of
cumulative cash distributions in excess of preferred
returns - 12% annual cumulative return on capital
contributed). Any remaining net profit allocations are
then made to the limited partners until the taxable year in
which cumulative profits to the limited partners equal
their adjusted capital contribution plus an unpaid
preferred return (12% annual cumulative return on capital
contributed). Net profits are then allocated to the
general partner until the ratio of the general partner's
capital account balance to the capital account balances, in
F-7 <PAGE>
NORTH BY NORTHEAST, LTD.
(A Limited Partnership)
Notes to Financial Statements
(1) Summary of Significant Accounting Policies (continued)
excess of adjusted capital contributions and unpaid
preferred return, of all limited partners is 27% to 73%.
Thereafter, profits are generally allocated 27% to the
general partner and 73% to the limited partners. Net
losses are allocated to the partners in proportion to their
positive capital accounts.
Partnership distributions are allocated 99% to the limited
partners and 1% to the general partner in an amount equal
to their preferred return (12% annual cumulative return on
capital contributed), 99% to the limited partners and 1% to
the general partner until the limited partners have
received an amount equal to their adjusted capital
contributions, and then 73% to the limited partners and 27%
to the general partner.
(g) Comprehensive Income
Effective January 1, 1998, the Partnership adopted
Statement of Financial Accounting Standards (SFAS) No. 130
Reporting Comprehensive Income. SFAS No. 130 establishes
standards for reporting and display of comprehensive income
and its components in a full set of general-purpose
financial statements and requires that all components of
comprehensive income be reported in a financial statement
that is displayed with the same prominence as other
financial statements. Comprehensive income is defined as
the change in equity of a business enterprise, during a
period, associated with transactions and other events and
circumstances from non-owner sources. It includes all
changes in equity during a period except those resulting
from investments by owners and distributions to owners.
During the years ended December 31, 1998, 1997 and 1996,
the Partnership had no components of other comprehensive
income. Accordingly, comprehensive income for each of the
years was the same as net income (loss).
F-8<PAGE>
NORTH BY NORTHEAST, LTD.
(A Limited Partnership)
Notes to Financial Statements
(2) Related Party Transactions
The general partner and its affiliates have been actively
involved in managing the investments in partnerships.
Affiliates of the general partner receive fees or
commissions for performing certain services. Compensation
paid for these services during 1998, 1997 and 1996 is as
follows:
1998 1997 1996
Accounting fees $ 3,942 - 1,600
The accounts payable to affiliates at December 31,
1997 represents two demand notes payable to North
by Northeast Land Partners, and 222 North, L.P. in
the amounts of $35,000 and $53,000, respectively.
Both notes were repaid in 1998.
(3) Investment in Land Partnership
The Partnership has a 50% ownership interest in North By
Northeast Land Partners, a general partnership. The
remaining 50% is owned by an unrelated affiliate of
Trammell Crow Company. Pursuant to the partnership
agreement, the Trammell Crow affiliate will provide
development supervision for the acquisition of land and
construction of improvements. At December 31, 1997,
development on the land was substantially complete.
Summarized information at December 31, 1998 and 1997 and
for the years ended December 31, 1998, 1997, and 1996, is
presented below (in thousands):
Assets 1998 1997
Cash and cash equivalents $ 49 41
Restricted cash 1 1
Accounts receivable affiliate - 35
Land and improvements held for investment 143 499
Total assets $ 193 576
Liabilities and Partners' Equity
Accounts payable $ 1 -
Partners' equity 192 576
Total liabilities and partners' equity $ 193 576
F-9<PAGE>
NORTH BY NORTHEAST, LTD.
(A Limited Partnership)
Notes to Financial Statements
(3) Investment in Land Partnership
Operations for the Years Ended December 31,
1998 1997 1996
Revenues:
Gain on sale of land
and improvements $ 470 88 -
Other 41 76 83
Total revenues 511 164 83
Operating expenses 44 46 77
Net income $ 467 118 6
Cash Flows for the Years ended December 31,
1998 1997 1996
Cash provided (used) by:
Operating activities $ 858 220 (65)
Investing activities - - 54
Financing activities (850) (410) (190)
Net increase (decrease)
in cash $ 8 (190) (201)
A summary of activity in the Partnership's investment account
and a reconciliation of the partner's equity account on the
books of the Land Partnership and the Partnership's investment
account follows (in thousands):
1998 1997 1996
Balances, beginning of year $ 174 224 411
Net income allocated
to Partnership 233 60 3
Distributions (425) (110) (190)
Balance end of year $ (18) 174 224
Capitalized construction
period interest at year end 50 50 50
Investment in North by
Northeast Land Partners $ 32 224 274
The Partnership is committed to contribute an additional
$254,862 to the Land Partnership. However, due to retained
proceeds from property sales, management of the Land
Partnership does not anticipate a need for these funds.
F-10<PAGE>
NORTH BY NORTHEAST, LTD.
(A Limited Partnership)
Notes to Financial Statements
(4) Distributions
For the year ended December 31, 1998, the
Partnership made distributions totaling $282,534.
Of this amount, $206,250 ($110 per unit) was
allocated to the limited partners. Distributions
to the general partner were $76,284 for the year
ended December 31, 1998. There were no
distributions in 1997 or 1996.
(5) Fair Value of Financial Instruments
At December 31, 1998 and 1997, the Partnership had
financial instruments including cash and accounts payable
to affiliate. The carrying amounts of cash and accounts
payable to affiliate approximate their estimated fair value
because of the short maturity of those financial
instruments.
F-11 <PAGE>
Independent Auditors' Report
The Partners
North By Northeast Land Partners:
We have audited the accompanying balance sheets of North By
Northeast Land Partners (a general partnership) as of December 31,
1998 and 1997, and the related statements of operations, partners'
equity, and cash flows for each of the years in the three-year
period ended December 31, 1998. These financial statements are the
responsibility of the Partnership's management. Our responsibility
is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of North
By Northeast Land Partners at December 31, 1998 and 1997, and the
results of its operations and its cash flows for each of the years
in the three-year period ended December 31, 1998, in conformity
with generally accepted accounting principles.
KPMG, LLP
Nashville, Tennessee
January 22, 1999
M-1
<PAGE>
NORTH BY NORTHEAST LAND PARTNERS
(A General Partnership)
Balance Sheets
December 31, 1998 and 1997
Assets 1998 1997
Cash $ 49,129 41,168
Restricted cash (note 1) 1,000 1,000
Accounts receivable-affiliate (note 2) - 35,000
Land and improvements held for investment
(note 3) 143,204 499,079
Total Assets $ 193,333 576,247
Liabilities and Partners' equity
Liabilities:
Accounts payable (note 2) $ 623 400
Total liabilities 623 400
Partners' equity:
North by Northeast, Ltd. 96,355 287,923
Reveille Industrial #3, L.P. 96,355 287,924
Total partners' equity 192,710 575,847
Commitments (note 2)
Total liabilities and
partners' equity $ 193,333 576,247
See accompanying notes to financial statements.
M-2
<PAGE>
NORTH BY NORTHEAST LAND PARTNERS
(A General Partnership)
Statements of Operations
Years ended December 31, 1998, 1997 and 1996
1998 1997 1996
Revenues:
Sales of land and
improvements $ 905,000 250,000 -
Cost of land and
improvements sold (369,595) (132,297) -
Selling expenses (note 2) (65,513) (29,557) -
Gain on sale of land and
improvements 469,892 88,146 -
Other income:
Common area maintenance
income - 10,923 50,628
Interest 3,333 2,992 20,209
Miscellaneous 37,330 61,699 12,355
Total other income 40,663 75,614 83,192
Total revenues 510,555 163,760 83,192
Expenses:
Partnership administration
fee (note 2) 6,000 6,000 6,000
Legal and accounting
(note 2) 20,264 19,166 29,606
Property management fees
(note 2) 6,000 6,000 6,000
Other land management fees
(note 2) 2,419 6,973 26,187
General and administrative
expenses 1,106 501 885
Property taxes 7,903 6,746 8,695
Total expenses 43,692 45,386 77,373
Net income $ 466,863 118,374 5,819
Net income allocated to:
North by Northeast, Ltd. $ 233,432 71,792 2,910
Reveille Industrial #3, L.P $ 233,431 46,582 2,909
See accompanying notes to financial statements.
M-3
<PAGE>
NORTH BY NORTHEAST LAND PARTNERS
(A General Partnership)
Statements of Partners' Equity
Years ended December 31, 1998, 1997 and 1996
North By Reveille
Northeast, Industrial
Ltd. #3,L.P. Total
Balance at
December 31, 1995 $ 525,827 525,827 1,051,654
Distributions to partners (190,000) - (190,000)
Net income 2,910 2,909 5,819
Balance at
December 31, 1996 338,737 528,736 867,473
Distributions to partners (122,606) (287,394) (410,000)
Net income 71,792 46,582 118,374
Balance at
December 31, 1997 287,923 287,924 575,847
Distributions to partners (425,000) (425,000) (850,000)
Net income 233,432 233,431 466,863
Balance at
December 31, 1998 $ 96,355 96,355 192,710
See accompanying notes to financial statements.
M-4
<PAGE>
NORTH BY NORTHEAST LAND PARTNERS
(A General Partnership)
Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
1998 1997 1996
Cash flows from operating activities:
Net income $ 466,863 118,374 5,819
Adjustments to reconcile
net income to net cash
provided (used) by operating
activities:
Cost of land and
improvements sold 369,595 132,297 -
Cost of land
improvements (13,720) 11,157 (44,610)
Decrease in
restricted cash - - 26,539
(Increase) decrease
in accounts
receivable-affiliate 35,000 (35,000) -
Increase (decrease) in
accounts payable 223 (6,500) (52,360)
Net cash provided (used)
by operating
activities 857,961 220,328 (64,612)
Cash flows from investing activities-
decrease in certificate
of deposit - - 53,576
Cash flows from financing
activities - distributions
to partners (850,000) (410,000) (190,000)
Net increase (decrease)
in cash 7,961 (189,672) (201,036)
Cash at beginning of year 41,168 230,840 431,876
Cash at end of year $ 49,129 41,168 230,840
See accompanying notes to financial statements.
M-5
<PAGE>
NORTH BY NORTHEAST LAND PARTNERS
(A General Partnership)
Notes to Financial Statements
December 31, 1998 and 1997
(1) Summary of Significant Accounting Policies
(a) Organization
North by Northeast Land Partners (the Partnership) was
organized by North by Northeast, Ltd. and Reveille Industrial
#3 Limited Partnership (RILP), an affiliate of Trammell Crow
Company (Trammell Crow), each acting as general partners and
each owning 50% of the partnership. The Partnership was
organized on October 18, 1988 for the purpose of acquiring,
developing and selling parcels of real estate near
Indianapolis, Indiana. The Partnership prepares financial
statements and Federal income tax returns on the accrual
method and includes only those assets, liabilities, and
results of operations which relate to the Partnership.
(b) Estimates
Management of the Partnership has made estimates and
assumptions to prepare these financial statements in
accordance with generally accepted accounting principles.
Actual results could differ from those estimates.
(c) Cash
Cash belonging to the Partnership is combined in an account
with funds from other partnerships related to the general
partner.
(d) Restricted Cash
At December 31, 1998 and 1997, the partnership has restricted
cash balances of $1,000, representing retainage on land
improvements made to land sold.
M-6
<PAGE>
NORTH BY NORTHEAST LAND PARTNERS
(A General Partnership)
Notes to Financial Statements
(1) Summary of Significant Accounting Policies (continued)
(e) Land and Improvements Held for Investment
The Partnership originally acquired a tract of undeveloped
land representing approximately 169 acres. Land and
improvements held for investment is recorded at acquisition
cost plus certain carrying costs. Insurance and property
taxes are capitalized as carrying costs of the property during
the development stage of the property. Insurance and property
taxes are charged to expense once development is complete.
Approximately 3 and 8 acres remain at December 31, 1998 and
1997, respectively.
The Partnership accounts for long-lived assets in accordance
with the provisions of Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed
of". This statement requires that long-lived assets to be
disposed of be reported at the lower of the carrying amount or
fair value less estimated costs to sell. The fair value of
the assets can be determined externally, using appraisals, or
internally using discounted future net cash flows. If such
assets are considered impaired, the impairment to be
recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets less
estimated costs to sell. Impairment is recognized through the
establishment of an allowance for impairment with a
corresponding charge to operations. Losses upon the sale of
the assets are charged to the allowance. Based upon
management's analysis, the Partnership's land and
improvements held for investment does not meet the definition
of impairment under SFAS No. 121. Accordingly, land and
improvements held for investment is recorded at cost with no
allowance for impairment necessary.
M-7
NORTH BY NORTHEAST LAND PARTNERS
(A General Partnership)
Notes to Financial Statements
(1) Summary of Significant Accounting Policies (continued)
(f) Income Recognition
Income from sales of land and improvements held for investment
is generally recorded on the accrual basis when the buyer's
financial commitment is sufficient to provide economic
substance to the transaction, and when other criteria of SFAS
No. 66 "Accounting for Sales of Real Estate" are satisfied.
For sales of real estate where both cost recovery is
reasonably certain and the collectibility of the contract
price is reasonably assured, but the transaction does not meet
the remaining requirements to be recorded on the accrual
basis, profit is deferred and recognized under the installment
method, which recognizes profit as collections of principal
are received. If developments subsequent to the adoption of
the installment method occur which cause the transaction to
meet the requirements of the full accrual method, the
remaining deferred profit is recognized at that time. Any
losses on sales of real estate are recognized at the time of
the sale.
(g) Income Taxes
No provision has been made in the financial statements for
Federal income taxes, since such taxes are the responsibility
of the partners. The partnership is subject to a 6% state tax
on certain interest income. For the years ended December 31,
1998, 1997, and 1996, the Partnership had no state income tax
expense. Annually, the partners receive, from the
partnership, IRS Form K-1's which provides them with their
respective share of taxable income (or losses), deductions,
and other tax related information. At December 31, 1998 and
1997, there were no differences in the book and tax bases of
the Partnership's assets and liabilities.
(h) Partnership Allocations
Net profits, losses and distributions of cash flow of the
Partnership are allocated in accordance with the Partnership
agreement as follows:
Net profits are first allocated to the partners to offset any
cumulative net losses allocated to the partners, then to
offset any reductions to capital account balances caused by
M-8<PAGE>
NORTH BY NORTHEAST LAND PARTNERS
(A General Partnership)
Notes to Financial Statements
(1) Summary of Significant Accounting Policies (continued)
prior allocations of losses. Any remaining profits are then
allocated to North by Northeast, Ltd. until the cumulative net
profits allocated to North by Northeast, Ltd. are equal to the
sum of its Preferred Return (11% of the outstanding balances
of Phase I development contributions), 10% of Phase I
development contributions, and any amounts distributed to
North by Northeast, Ltd. commencing on the date hereof and
ending on a date 90 days following the close of the fiscal
year. Any remaining profits are allocated to the partners in
proportion to their ownership interests.
Net losses are allocated first among the partners until the
cumulative losses allocated are equal to the cumulative
profits allocated to date, then among the partners in
proportion to their positive account balances. Any remaining
losses are allocated among the partners in proportion to their
ownership interests.
Partnership distributions from the cash proceeds from sales to
an affiliated venture are allocated first to pay any currently
required installments or payments of outstanding liabilities
and expenses of the Partnership which are not assumed by a
single partner or a purchaser of the project, if applicable,
and upon which either the Partnership or any partner has
personal liability, excluding capital loans, then to repay
capital loans, then to fund the construction reserve fund with
25% of cash proceeds from such sale until such fund is equal
to the total amount designated for the construction reserve
fund. Then distributions are allocated to North by Northeast,
Ltd. until North by Northeast, Ltd. has received an amount
equal to its preferred return, to the extent unpaid, then to
North by Northeast, Ltd. until North by Northeast, Ltd. has
received 110% of the sum of the then outstanding Phase I
Development Contribution. Any remaining cash distribution is
to be used to fund construction shortfall loans, together with
any interest thereon. Any remaining proceeds shall then be
divided between the partners in proportion to their ownership
interests.
Partnership distributions from the cash proceeds from sales to
a third-party venture are allocated as follows: 1)Out of the
portion of the proceeds of such sale equivalent to the
purchase price which would have been received had such
M-9<PAGE>
NORTH BY NORTHEAST LAND PARTNERS
(A General Partnership)
Notes to Financial Statements
(1) Summary of Significant Accounting Policies (continued)
installments or payments of outstanding liabilities and
expenses of the Partnership which are not assumed by a single
partner or a purchaser of the project, if applicable, and upon
which either the Partnership or any partner has personal
liability, excluding capital loans, then to repay capital
loans, then to fund the construction reserve fund with the 25%
of cash proceeds from such sale until such fund is equal to
the total amount designated for the construction reserve fund.
Then distributions are allocated to North by Northeast, Ltd.
until North by Northeast, Ltd. has received an amount equal to
its preferred return, to the extent unpaid, then to North by
Northeast, Ltd. until North by Northeast, Ltd. has received
110% of the sum of the then outstanding Phase I Development
Contribution. Any remaining cash distribution is to be used
to fund construction shortfall loans, together with any
interest thereon. Any remaining proceeds shall then be
divided between the partners in proportion to their ownership
interests. 2) That portion of the proceeds from a sale to a
third-party venture which is equal to the third-party price
differential shall be distributed to North by Northeast, Ltd.
(and shall not apply toward the reduction of any preferred
return or return of Phase I Development Contribution). 3)
That portion of the proceeds from a sale to a third-party
venture which is in excess of the minimum purchase price for
the parcel sold as set forth in the closing schedule shall be
divided between the partners in proportion to their ownership
interests (and shall not apply toward the reduction of any
capital loan, preferred return, return of Phase I Development
Contribution, or Construction Shortfall loan).
(i) Comprehensive Income
Effective January 1, 1998, the Partnership adopted SFAS No.
130 Reporting Comprehensive Income. SFAS No. 130 establishes
standards for reporting and display of comprehensive income
and its components in a full set of general-purpose financial
statements and requires that all components of comprehensive
income be reported in a financial statement that is displayed
with the same prominence as other financial statements.
Comprehensive income is defined as the change in equity of a
business enterprise, during a period, associated with
transactions and other events and circumstances from non-owner
sources. It includes all changes in equity during a period
except those resulting from investments by owners and
distributions to owners. During the years ended December 31,
1998 and 1997, the Partnership had no components of other
comprehensive income. Accordingly, comprehensive income for
each of the years was the same as net income.
M-10<PAGE>
NORTH BY NORTHEAST LAND PARTNERS
(A General Partnership)
Notes to Financial Statements
(1) Summary of Significant Accounting Policies (continued)
(j) Reclassification
Certain reclassifications have been made in the financial
statements for prior years to conform with the 1998
presentation.
(2) Related Party Transactions
The general partners and their affiliates have been actively
involved in managing the Partnership. Affiliates of the general
partners receive fees and commissions for performing certain
services. Expenses incurred for these services during 1998, 1997
and 1996 are as follows:
Payee Nature of Compensation 1998 1997 1996
Landmark Realty Services Corp.
Administration fees $ 6,000 6,000 6,000
Property management fees 6,000 6,000 6,000
Sales commissions 9,050 2,500 -
Accounting fees 491 2,900 -
Year-end accounts payable 400 400 400
Trammell Crow Company (RILP)
Sales commissions 19,500 7,500 -
Development fees 670 1,786 6,780
The Partnership had a receivable from North by Northeast, Ltd. for
$35,000 as of December 31, 1997. The receivable was collected in
1998.
(3) Land and Improvements Held for Investment
The components of land and improvements held for investment at
December 31, are as follows: 1998 1997
Land and carrying costs $ 60,941 267,258
Land improvements 82,263 231,821
$ 143,204 499,079
The aggregate cost for Federal income tax purposes for land
and improvements held for investment was $143,204 and
$499,079 at December 31, 1998 and 1997, respectively.
(4) Fair Value of Financial Instruments
At December 31, 1998 and 1997, the Partnership had financial
instruments including cash, restricted cash, accounts receivable
and accounts payable. The carrying amounts of these financial
instruments approximate their fair value because of the short
maturity of such instruments. M-12<PAGE>
Exhibits filed to Item 14(a) (3):
NORTH BY NORTHEAST, LTD.
(A Tennessee Limited Partnership)
Exhibit Index
Exhibit
3 Amended and Restated Certificate and Agreement of Limited
Partnership, incorporated by reference to Exhibit A1 to
the Prospectus of Registrant dated September 1, 1988
filed pursuant to Rule 424 (b) of the Securities and
Exchange Commission.
22 Subsidiaries-Registrant has no subsidiaries.
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000835954
<NAME> NORTH BY NORTHEAST, LTD.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 39,425
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 71,427
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 71,427
<TOTAL-LIABILITY-AND-EQUITY> 71,427
<SALES> 0
<TOTAL-REVENUES> 238,911
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 20,799
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 218,112
<INCOME-TAX> 0
<INCOME-CONTINUING> 218,112
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 218,112
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
