<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
(Mark one)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1997 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required]
For the transition period from _______________ to _______________
Commission File Number 33-30312
INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP
(Exact name of Registrant as specified in its charter)
North Carolina 56-1669199
- ----------------------- ------------------------------------
(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
7,650 limited partnership units as of March 19, 1998
Documents Incorporated by Reference: See Item 14
Page 1 of 14 sequentially numbered pages
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PART I
ITEM 1 - BUSINESS
Interstate Land Investors II (the "Registrant" or the "Partnership") is
a North Carolina limited partnership organized as of July 27, 1989 to acquire
for investment and dispose of three tracts of undeveloped land located in York
County, South Carolina (the "Property"). The Property consists of "Tract 1"
(which was subdivided as discussed below), an approximately 91.64 acre tract
fronting on Interstate 77 and Gold Hill Road; "Tract 2", an adjoining (but non
contiguous) approximately 76.74 acre tract with frontage entirely on Interstate
77; and "Tract 3", an approximately 20 acre tract located on U.S. Highway 21 and
contiguous to Tract 2. 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. ISCR is a North
Carolina corporation wholly owned by Interstate/Johnson Lane, Inc. (Allen and
ISCR are hereinafter referred to collectively as the "General Partners.")
Effective January 1, 1992, ISCR and Allen assumed the role of co-managing
general partners (the "Co-Managing General Partner") and PII was converted to a
Class A limited partner.
The Registrant offered (the "Offering") a minimum of 5,406 units of
Class A Limited Partnership Interests and a maximum of 9,588 units of Class A
Limited Partnership Interests (the "Units") at $1,000 per Unit pursuant to a
Registration Statement effective September 29, 1989, filed under the Securities
Act of 1933, as amended (the "Act"). As of November 3, 1989, the Registrant had
received aggregate subscriptions for 5,406 Units and accordingly, on November 3,
1989, subscriptions for 5,406 Units were accepted and the Initial Closing
occurred under the Offering and 527 investors were admitted to the Partnership
as Limited Partners. Of the $5,402,640 in gross proceeds received in connection
with the Initial Closing (which amount equals subscription payments for 5,406
Units at $1,000 each less discounts on the purchase of certain Units as
described in the Registration Statement), $668,458 had been applied to sales
commissions and to organization and offering expenses. The balance of the gross
proceeds, $4,734,182, was used to purchase Tracts 2 and 3 and provide working
capital.
Tract 2 was acquired by the Registrant pursuant to an Option Agreement
that was originally obtained by Performance Service and Finance, Inc. ("PSF")
from unaffiliated individuals. This Option Agreement was subsequently assigned
by PSF to PII and then assigned by PII to the Registrant. Tract 2 was acquired
from unrelated individuals for a purchase price of $2,855,223. In addition, the
Partnership reimbursed PII $116,000 for its carrying costs associated with the
Option Agreement and paid PII $181,363 in additional consideration as an
assignment fee. The total amount paid by the Registrant for Tract 2 was
$3,152,586, not including certain miscellaneous closing costs.
The Registrant acquired Tract 3 pursuant to an Option Agreement that
was originally obtained by Gold Hill Investment Associates ("Gold Hill"). The
Option Agreement was subsequently assigned by Gold Hill to the Registrant. The
Registrant acquired Tract 3 from an
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unaffiliated unrelated entity for a purchase price of $1,400,000. In addition,
the Registrant reimbursed Gold Hill $10,750 for its carrying costs associated
with the Option Agreement and an additional $14,094 in additional consideration
as an assignment fee. The total amount paid by the Registrant for Tract 3 was
$1,424,844, not including certain miscellaneous closing costs.
Gold Hill is a North Carolina partnership of which Gold Hill Limited
Partnership, an affiliate of Allen, is a partner. Tract 1 was purchased by Gold
Hill from an unrelated entity in December, 1986 for a purchase price of
$1,800,000. Gold Hill Limited Partnership had an option, until June 30, 1990, to
acquire the partnership interests of the remaining unrelated entities in Gold
Hill, and thus become the sole owner of Tract 1. The Registrant had secured an
option (see discussion below) to purchase Tract 1 from Gold Hill at a purchase
price of $3,622,500.
During July, 1990, the Registrant requested and received approval from
the limited partners to extend the Partnership offering from July 31, 1990 until
December 31, 1990. During July and August 1990, the Registrant requested and
received limited partner approval to subdivide Tract 1 into four (4) separate
parcels and to allow the Registrant to acquire a portion of the property in the
event proceeds from investor subscriptions were not sufficient to acquire all of
Tract 1. In addition, the seller of Tract 1 had agreed to extend the option to
purchase Tract 1 from September 30, 1990 until December 31, 1990.
Under the terms of the new Option, in the event the Registrant was
unable to sell the Maximum Offering Amount by December 31, 1990, but the
Registrant had sold a minimum of 7,620 units (the "Secondary Offering Amount")
then the Registrant could purchase Tracts 1A and 1D (and it must purchase Tracts
1A and 1D simultaneously). Additionally, if the Registrant had achieved the
Secondary Offering Amount, purchased Tracts 1A and 1D pursuant to the terms of
the new Option and had sold a minimum of 8,721 Units (the "Tertiary Offering
Amount") prior to December 31, 1990, then the Registrant could purchase Tract
1B. Finally, if the Registrant achieved the Tertiary Offering Amount, and
purchased Tracts 1A, 1B and 1D as herein above provided, and had sold a minimum
of 9,588 Units prior to December 31, 1990, then the Registrant could purchase
Tract 1C.
The Registrant filed a post effective amendment to the original
prospectus in August, 1990, outlining to the SEC these modifications to the
offering and the amendment to the Partnership Agreement.
On November 14, 1990, the Partnership received formal approval from the
SEC on the post-effective amendment filed in August, 1990. Therefore, ISCR took
additional subscriptions and was able to close on Parcels 1A and 1D on November
30, 1990. The total cost of the November 30, 1990 acquisition of Subtracts 1A
and 1D was $1,908,605 which included a purchase price of $1,906,517, plus
closing costs of $2,088. The Partnership has determined that no further Units
will be offered, sold and issued pursuant to the Prospectus. The Partnership
filed Post-effective Amendment No. 4 for the purpose of deregistering 1,938
Units of unsold Class A Limited Partnership interests.
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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.
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 purchased (i.e., Tracts 2, 3, 1A, and
1D) 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 twelve 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 (November
1994) for a price not less than $11,104,839, reduced by the net proceeds to the
Registrant from the sale of other parcels within the Property by the Registrant.
If the Registrant was unable to sell the Property by such date at such price,
Allen was obligated to either (i) purchase the Property at such price or (ii)
forfeit his entire subordinated Limited Partner interest and transfer the
remaining General Partner interest to the Limited Partners. See Item 4 for
further discussion.
The Registrant in seeking to secure purchasers for its Property will be
competing with many other real estate investment partnerships as well as
individuals, insurance companies, banks and other entities engaged in real
estate investment activities including, perhaps, certain affiliates of the
General Partners.
The General Partners or their affiliates currently serve as general
partners in over 12 public and private partnerships which currently own various
types of real property. None of the prior partnerships sponsored by the General
Partners or their affiliates now contemplate the acquisition of any additional
properties of the type purchased by the Registrant. However, it is likely that
the General Partners or their affiliates will sponsor additional public or
private partnerships in the future. In addition, the General Partners and their
affiliates are and will continue to be engaged in the business of real estate
investment, development and management apart from their involvement in the
Registrant.
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Located immediately adjacent to the Property is an approximately 96.74
acre tract owned by Interstate Land Investors I Limited Partnership ("Interstate
I"), a North Carolina limited partnership having the same general partners as
the Registrant. Interstate I acquired the adjacent property on September 30,
1988 for a purchase price of $4,200,000. Interstate I intends to hold the
adjacent property under the same terms and with the same investment objectives
as the Registrant intends to apply to the Property. 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 I. In addition, conflicts
of interest may arise in connection with the business of each General Partner in
other partnerships, private and public, of which the General Partners are
affiliated at such time as the Registrant attempts to sell or otherwise dispose
of the Property owned by the Registrant.
The General Partners will devote only so much of their time to the
business of the Registrant as in their judgment and experience is reasonably
required. The General Partners are engaged in other activities which also
require their time and attention.
As of December 31, 1997, the Registrant did not directly employ any
persons in a full-time position. Certain employees of the General Partners and
affiliates performed services for the Registrant during the year.
ITEM 2 - PROPERTY
The Property is located approximately 12 miles south of the Central
Business District of Charlotte, North Carolina along the I-77 corridor and
approximately 8 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 consists of three separate tracts, all
of which are zoned for agricultural use, more particularly described as follows:
Tract 1 (which was subdivided - See Item 1) is an approximately 91.64
acre tract located in the northeast quadrant of I-77 and Gold Hill Road in York
County, South Carolina. 16.1 acres of Tract 1 lies in a floodplain and the
remaining 76.03 acres are usable and free of rights-of-way. Tract 1 has
approximately 2,200 feet of frontage along Gold Hill Road and 3,600 feet of
frontage along I-77. Electricity and telephone are available to Tract 1.
Municipal water and sewer has been brought to the edge of the Property and would
be made available if the Property were developed. If a sale was to occur, Tract
1 zoning would revert to BD-2 and BD-3 under the York County Zoning Ordinance.
The BD-2 classification is designed to provide for the development of office and
institutional parks in areas free of general commercial activity. The BD-3
classification is designed to provide for retail establishments, such as
department stores and variety stores. Tract 1 was subdivided into four Tracts.
Tract 1A is approximately 17.0 acres; Tract 1B, approximately 24.33 acres; Tract
1C, approximately 19.08 acres; and Tract 1D, approximately 31.23 acres. Tracts
1A and 1D are owned by the Registrant.
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Tract 2 consists of approximately 76.74 acres. Tract 2 has 2,819 feet
of frontage on I-77 and is located north of Tract 1. Tract 2 is not contiguous
to Tract 1. Access to Tract 2 is through Tract 3 to U.S. Highway 21.
Additionally, Tract 2 adjoins a common boundary with the 95 acre tract of land
owned by Interstate I. Electricity and telephone are available to Tract 2. Water
is currently available to Tract 2 by extension through Tract 3. Water and sewer
will be provided by a private utility company with facilities located west of
Tract 2 on the west side of I-77. In addition, Tract 2 can be serviced by the
water and sewer facilities serving the Charlotte Knights baseball stadium. If a
sale was to occur, Tract 2 zoning would revert to UDD, urban development
district, by the York County Council. The purpose of this district is to permit
maximum flexibility in response to market demands in specific areas of the
County. Permitted uses range from residential to business development and
industrial.
Tract 3 consists of approximately 20 acres of land fronting
approximately 400 feet on U.S. Highway 21 and being contiguous to Tract 2.
Additionally, a portion of the Property is contiguous to the tract owned by
Interstate I. Electricity, telephone, water and sewer are all available to Tract
3. If a sale was to occur, Tract 3 zoning would revert to UDD, urban development
district, by the York County, South Carolina, County Council.
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 in the alternative, damages for Mr. Allen's failure to purchase
the Property at the Put Price or an order, in accordance with the provisions of
the Partnership Agreement, that Mr. Allen has forfeited his right to a
distribution as the subordinated Limited Partner, that Mr. Allen is required to
withdraw as a General Partner and transfer his general partnership interest to
ISCR, and that he is required to cause Performance Investments Inc. to withdraw
as a general partner and transfer its general partnership interest to ISCR. In
the alternative, the Partnership is seeking damages equal to the difference
between the current value of the Property and the Put Price. Mr. Allen has not
asserted any claims against the Partnership and the Partnership believes that
its claims against Mr. Allen have merit. Mr. Allen has asserted that he is
insolvent and will be unable to satisfy any award that the Partnership may
recover. The Partnership is investigating that assertion and will continue to
evaluate the claim and the likelihood of any recovery based upon the information
received from Mr. Allen.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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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 resales of Units since the Initial Closing on November
3, 1989. As of March 19, 1998, 774 persons were record owners of 7,650 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 the preferred return due to them on their
invested capital. Net losses for each year are also allocated to the investors
and the General Partners in accordance with their respective capital accounts.
The Registrant does not intend to make any distributions of available cash prior
to the sale of all or a portion of the Property.
ITEM 6 - SELECTED FINANCIAL DATA (AUDITED)
SELECTED STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
Year Ended Year ended Year ended Year ended Year ended
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1994 1993
------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Interest and Other
Income $ 2,248 $ 2,193 $ 2,167 $ 2,187 $ 2,195
Expenses 44,332 46,116 46,130 84,104 127,524
-------- -------- -------- -------- ---------
Net Loss (42,084) (43,923) (43,963) (81,917) (125,329)
======== ======== ======== ======== =========
Net Loss Allocated
to Class A limited
partners (42,079) (43,918) (43,958) (81,907) (125,313)
======== ======== ======== ======== =========
Net Loss Per Class A
limited partnership
unit $ (5.45) $ (5.68) $ (5.69) $ (10.60) $ (16.22)
======== ======== ======== ======== =========
</TABLE>
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SELECTED BALANCE SHEET DATA
<TABLE>
<CAPTION>
December 31, December 31 December 31, December 31, December 31,
1997 1996 1995 1994 1993
------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total Assets $6,569,272 $6,567,152 $6,565,623 $6,569,579 $6,614,605
Total Liabilities 301,306 257,102 211,650 171,643 134,752
---------- ---------- ---------- ---------- ----------
Partner's Capital $6,267,966 $6,310,050 $6,353,973 $6,397,936 $6,479,853
========== ========== ========== ========== ==========
</TABLE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Until the Registrant disposes of the Property, its only sources of
additional capital are loans. The Registrant's ability to maintain cash adequate
to meet its needs will be dependent upon the availability of financing and
successful operations of its real estate investment. As of December 31, 1997,
the Registrant had no cash and cash equivalents on hand. The General Partners
anticipate that any future funds necessary for the operations of the Partnership
will be provided by ISCR. In accordance with the Partnership Agreement, ISCR is
entitled to accrue interest on any loans provided to the Partnership at the rate
of prime plus two percent. The balance of the note plus accrued interest at
December 31, 1997, is $175,281.
RESULTS OF OPERATIONS
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 TO THE YEAR ENDED
DECEMBER 31, 1996
The Registrant's net loss decreased to $42,084 for the year ended
December 31, 1997 from $43,923 for the year ended December 31, 1996.
General and administrative expense accounted for the majority of the
decrease. this expense decreased $1,940 or 9.5%, to $18,560. Additional costs
were incurred in 1996 in conjunction with the Registrant changing its investor
reporting service. An increase in interest expense of $643, or 5% to $13,416
offset some of the savings. The higher expense was due to the increased
borrowings under the note to ISCR during 1997.
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COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996, TO THE YEAR ENDED
DECEMBER 31, 1995
The Registrant's net loss decreased from $43,963 for the year ended
December 31, 1995, to $43,923 for the year ended December 31, 1996.
Amortization expense decreased from $6,627 for the year ended December
31, 1995, to $0 for the year ended December 31, 1996, due to the completion of
amortization of organizational costs during 1995.
Interest expense increased approximately $1,975 due to the increased
borrowings under the note to ISCR during 1996.
General and administrative expense increased by $4,089 due primarily to
additional costs incurred in conjunction with the Registrant changing its
reporting service.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted as a separate section of this
report.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There were no disagreements in connection with the December 31, 1996,
financial statements. As reported on Form 8-K, the Registrant changed its
accountants during the fiscal period ended December 31, 1997.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Registrant has no directors or executive officers. PII, the former
managing general partner, filed for relief from creditors under Chapter 11 of
the Bankruptcy Code during 1991. 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:
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Information About Directors
Name and Executive Officers
- ---- ---------------------------
J. Christopher Boone Director and President of ISCR. He is 39 years old.
Edward C. Ruff Director of ISCR. He is 58 years old.
Robert B. McGuire Treasurer of ISCR. He is 50 years old.
Michael D. Hearn Director and Secretary of ISCR. He is 45 years old.
Lew F. Semones, Jr. Director of ISCR. He is 39 years old.
J. Christopher Boone is a Managing Director of Interstate/Johnson Lane
Corporation ("I/JL"), an affiliate of ISCR and President of ISCR. Prior to
joining the Selling Agent in 1984, Mr. Boone was a tax specialist for Coopers &
Lybrand. He received a bachelor's degree in business administration with an
emphasis in accounting from the University of North Carolina at Chapel Hill.
Edward C. Ruff is Executive Managing Director and Chief Operating
Officer of I/JL. He also serves as a member of the Board of Directors and
Management Committee of I/JL. Mr. Ruff has been with I/JL since 1976. He is a
graduate of the University of San Francisco, with a bachelor's degree in
accounting.
Robert B. McGuire is Treasurer of ISC Realty Corporation. In addition,
he is Senior Vice President and Treasurer of I/JL. Mr. McGuire received a B.A.
in Business Administration from Furman University and a Masters in Business
Administration from Emory University.
Michael D. Hearn has served as Secretary and General Counsel of I/JL
since 1985. He is a Senoir Managing Director and a member of the Board of
Directors of I/JL. Mr. Hearn received a Bachelor of Science degree in Business
Administration and a Juris Doctor from the University of North Carolina at
Chapel Hill. He is Secretary of ISCR. In May of 1992 he was elected a Director
of ISCR.
Lew F. Semones, Jr. is Senior Managing Director and Chief Financial
Officer of I/JL. He is also a director of I/JL. Mr. Semones is a graduate of
Lenoir Rhyne College, a Certified Public Accountant and a graduate of the
Securities Industry Institute at The Wharton School of The University of
Pennsylvania. He was elected as a director of ISCR in September, 1997.
Each officer and director holds office until his death, resignation,
retirement, removal, disqualification or his successor is elected and qualified.
The other Co-Managing General Partner, is William Garith Allen. Allen
is the Chief Executive Officer and sole shareholder of Performance Service &
Finance, Inc., a North Carolina corporation organized in 1974 that is
principally active in the acquisition, financing, development, sales, marketing
and administration of various subdivisions and other real estate investments
sold by Allen. Allen is also the sole shareholder of Performance Consultants,
Inc., a North Carolina corporation organized in 1981 to acquire property and
assist development entities
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in locating various public and private sources of funds. In addition, Allen and
his father, William G. Allen, Jr., are the sole shareholders of Investment
Brokers, Inc., a North Carolina corporation organized in 1979. This corporation
is primarily involved in the acquisition and sale of property.
ITEM 11 - EXECUTIVE COMPENSATION
No remuneration was paid or accrued for the account of any partner,
officer or director of the General Partner during the Partnership fiscal year
ended December 31, 1997.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 19, 1998, Begley-Hall owned 5.6% of the limited partnership
interests.
As of March 19, 1998, none of the individual directors and officers of
the General Partners had subscribed for Units.
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial
Partner Type Name & Address Ownership Class
- ------------ -------------- ---------- -----
<S> <C> <C> <C>
Subordinated Limited William Garith Allen $ 100 100%
General Partner William Garith Allen 0 50%
General Partner ISC Realty Corporation 0 50%
Class A Limited Partner Performance Investments,
Inc. 100 <.1%
Class A Limited Partner ISC Realty Corporation 150,000 2.0%
</TABLE>
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended December 31, 1997, there were no related party
transactions in excess of $60,000.
During the period ended December 31, 1997, ISCR earned $16,209 for
monitoring the operations of the Registrant on behalf of the investors and
performing certain administrative functions. ISCR is entitled to receive an
annual administrative fee equal to 0.25% of the cost of the Property. However,
the payment of such administrative fee is deferred until sale of the
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Property and return to the investors of their invested capital plus the
preferred return. The deferred portion of this fee may accrue interest at an
interest rate of prime plus 1%.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules.
See Index to Financial Statements included in Appendix A to
this Form 10-K. Schedules are omitted because they are not
applicable, not required or because the requested information
is included in the Financial Statements or notes thereto.
(b) Reports on Form 8-K.
The Registrant filed Form 8-K during the quarter reporting a
change in accountants as reported in Item 9.
(c) Exhibits.
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERSTATE LAND INVESTORS II
a North Carolina Limited Partnership
By: ISC Realty Corporation
General Partner
By: /s/ J. Christopher Boone
---------------------------
J. Christopher Boone
President
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Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ J. Christopher Boone March 27, 1998
- ------------------------------------- --------------
J. Christopher Boone Director and
President of
ISC Realty
Corporation
/s/ Edward C. Ruff March 27, 1998
- ---------------------------------------- --------------
Edward C. Ruff Director of
ISC Realty
Corporation
/s/Michael D. Hearn March 27, 1998
- ------------------- --------------
Michael D. Hearn Director and
Secretary of
ISC Realty
Corporation
/s/Lew F. Semones, Jr. March 27, 1998
- ---------------------- --------------
Lew F. Semones. Jr. Director of
ISC Realty
Corporation
</TABLE>
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Appendix A
INTERSTATE LAND INVESTORS II
LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1997, 1996 AND 1995
<PAGE> 16
INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP
TABLE OF CONTENTS
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS............................1
BALANCE SHEETS................................................................2
STATEMENTS OF OPERATIONS......................................................3
STATEMENTS OF PARTNERS' CAPITAL...............................................4
STATEMENTS OF CASH FLOWS......................................................5
NOTES TO FINANCIAL STATEMENTS.................................................6
<PAGE> 17
[Faulkner & Thompson, P.A. Letterhead]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners of
Interstate Land Investors II Limited Partnership
Charlotte, North Carolina
We have audited the balance sheet of Interstate Land Investors II
Limited Partnership, (a North Carolina limited partnership) as of December 31,
1997 and the related statements of operations, partners' capital and cash flows
for the year then ended. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audit. The balance sheet of Interstate
Land Investors II Limited Partnership, (a North Carolina limited partnership) as
of December 31, 1996 and the related statements of operations, partners' capital
and cash flows for the years ending December 31, 1996 and 1995, were audited by
other auditors whose report dated January 16, 1997, expressed an unqualified
opinion on those financial statements.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the managing general partner, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 1997 financial statements referred to above
present fairly, in all material respects, the financial position of Interstate
Land Investors II Limited Partnership, (a North Carolina limited partnership) as
of December 31, 1997 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
/s/ Faulkner & Thompson, P.A.
Charlotte, North Carolina
February 19, 1998
<PAGE> 18
INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
Land held for appreciation $ 6,534,310 $ 6,534,310
Accounts receivable - related party 17,427 17,427
Interest receivable - related party 17,535 15,415
----------- -----------
$ 6,569,272 $ 6,567,152
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Line-of-credit payable - related party $ 142,331 $ 127,751
Administrative fees payable - related party 126,025 109,816
Interest payable - related party 32,950 19,535
----------- -----------
301,306 257,102
----------- -----------
PARTNERS' CAPITAL
Class A limited partners' interest
(authorized, 9,588 units; issued
and outstanding, 7,650 units) 6,268,013 6,310,092
Subordinated limited partner's interest 89 90
General partners' capital deficiency (136) (132)
----------- -----------
6,267,966 6,310,050
----------- -----------
$ 6,569,272 $ 6,567,152
=========== ===========
</TABLE>
See Notes to Financial Statements
-2-
<PAGE> 19
INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
INCOME
Interest $ 2,248 $ 2,193 $ 2,167
-------- -------- --------
EXPENSES
Professional fees 12,176 12,668 12,135
Amortization of organizational costs -- -- 6,627
Property tax 180 175 159
Interest expense 13,416 12,773 10,798
General and administrative 18,560 20,500 16,411
-------- -------- --------
44,332 46,116 46,130
-------- -------- --------
Net loss $(42,084) $(43,923) $(43,963)
======== ======== ========
NET LOSS ALLOCATED TO
Class A limited partners $(42,079) $(43,918) $(43,958)
Subordinated limited partner (1) (1) (1)
General partners (4) (4) (4)
-------- -------- --------
$(42,084) $(43,923) $(43,963)
======== ======== ========
Weighted average Class A limited
partnership units outstanding 7,650 7,650 7,650
======== ======== ========
Net loss per weighted average Class A
limited partnership unit $ (5.45) $ (5.68) $ (5.69)
======== ======== ========
</TABLE>
See Notes to Financial Statements
-3-
<PAGE> 20
INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Class A Subordinated
Limited Partners -------------------
--------------------- Limited General
Units Amount Partner Partners Total
----- ---------- ------- -------- -----------
<S> <C> <C> <C> <C> <C>
Partners' capital (deficiency)-
January 1, 1995 7,650 $ 6,397,968 $ 92 $(124) $ 6,397,936
Net loss, year ended
December 31, 1995 -- (43,958) (1) (4) (43,963)
----- ----------- ---- ----- -----------
Partners' capital (deficiency)-
December 31, 1995 7,650 6,354,010 91 (128) 6,353,973
Net loss, year ended
December 31, 1996 -- (43,918) (1) (4) (43,923)
----- ----------- ---- ----- -----------
Partners' capital (deficiency)-
December 31, 1996 7,650 6,310,092 90 (132) 6,310,050
Net loss, year ended
December 31, 1997 -- (42,079) (1) (4) (42,084)
----- ----------- ---- ----- -----------
Partners' capital (deficiency)-
December 31, 1997 7,650 $ 6,268,013 $ 89 $(136) $ 6,267,966
===== =========== ==== ===== ===========
</TABLE>
See Notes to Financial Statements
-4-
<PAGE> 21
INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(42,084) $(43,923) $(43,963)
Adjustments to reconcile net loss to net
cash used for operating activities
Amortization of organizational costs -- -- 6,627
Interest expense transferred to
advance -- -- 4,037
Increase in interest receivable -
related party (2,120) (2,120) (2,120)
Increase in accrued liabilities -
related party 29,624 29,076 22,970
-------- -------- --------
Net cash used for operating
activities (14,580) (16,967) (12,449)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in line-of-credit - related
party 14,580 16,376 13,000
-------- -------- --------
Net increase (decrease) in cash
and cash equivalents -- (591) 551
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR -- 591 40
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ -- $ -- $ 591
======== ======== ========
</TABLE>
See Notes to Financial Statements
-5-
<PAGE> 22
INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Interstate Land Investors II Limited Partnership (the Partnership) is
a North Carolina limited partnership formed, on July 26, 1989, to
acquire for investment, hold for appreciation and ultimately dispose,
without substantial improvements, undeveloped land in York County,
South Carolina. The Partnership acquired 97 acres of such land in
November 1989, and acquired an additional 48 acres in November 1990.
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 partners.
Mr. Allen also holds all of the subordinated limited partner
interest, which may be assigned to one of his affiliates at any time.
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 beginning in
November 1989, is entitled to an annual administrative fee equal to
.25% of the cost of the property acquired. 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 maturities of three
months or less to be cash equivalents.
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.
-6-
<PAGE> 23
INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED
ORGANIZATIONAL AND SYNDICATION COSTS
Various expenses and fees paid in connection with organizing the
Partnership (including an organizational fee paid to ISCR amounting
to $159,000 in 1990 and an additional $66,000 in 1991) have been
capitalized and amortized using the straight-line method over a
60-month period. Other fees and expenses related to the sale of
limited partnership interests in the Partnership have been classified
as syndication costs and include sales commissions paid to
Interstate/Johnson Lane Corporation, a related company to ISCR, of
$377,644 in connection with the initial offering in 1989 and $116,305
in connection with the secondary offering in 1990.
INCOME TAXES
Items of income or loss of the Partnership are included in the income
tax returns of the partners. Accordingly, the Partnership makes no
provision for federal and state income taxes.
NET LOSS PER CLASS A LIMITED PARTNERSHIP UNIT
Net loss per weighted average Class A limited partnership unit is
calculated based on the loss allocated to such partners without
giving consideration to the conversion of PII's general partner
interest (see Note 6).
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
RECLASSIFICATIONS
Certain 1996 amounts have been reclassified to conform to the 1997
presentation.
-7-
<PAGE> 24
INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
NOTE 2- ALLOCATIONS AND DISTRIBUTIONS OF NET PROFITS AND LOSSES
Under the terms of the partnership agreement, net profit and
distributions of available cash in each year prior to a sale of the
property will be allocated 99% to the Class A limited partners and 1% to
the general partners. Net losses shall be allocated among all partners
in accordance with their respective capital accounts. Special
allocations are provided for any gains or losses arising from the sale
of the property and for the related cash distributions. In no event
shall the portion of any item of partnership income, gain, loss,
deduction or credit allocated to the original general partners (see Note
6) be less than 1%. Mr. Allen, as the subordinated limited partner, may
be entitled to a subordinated return of $776,935 arising 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. Additionally, as subordinated limited
partner, Mr. Allen may under certain circumstances, as defined, receive
an additional distribution arising from the sale of 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 December 1993, 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
$11,104,839, reduced by the proceeds from any previous sales. In
accordance with this vote, the property was to be sold by November 1994,
or at that time, Mr. Allen (see Note 1) became obligated to purchase the
property at the stipulated price. Because the required date of purchase
expired, the Partnership investigated the legal remedies available that
would best benefit the Partnership in 1994. In 1996 ISC Realty initiated
a civil action against Mr. Allen and is currently in negotiations with
Mr. Allen to reach a settlement which will be subject to approval by the
limited partners.
NOTE 3 - RELATED PARTIES AND RELATED PARTY TRANSACTIONS
In connection with the initial acquisition of the property in 1989, the
Partnership paid PII and Gold Hill a total of $322,207 for the
assignment of options to acquire the two tracts of land which comprise
the property and for reimbursement of Gold Hill's and PII's holding
costs in the options (which totaled approximately $126,750). The total
cost, along with legal and other acquisition expenses, is included in
the land on the accompanying balance sheets.
-8-
<PAGE> 25
INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
NOTE 3 - RELATED PARTIES AND RELATED PARTY TRANSACTIONS, CONTINUED
At December 31, 1997 and 1996, the Partnership had an account receivable
from PII of $17,427 plus accrued interest receivable of $17,535 and
$15,415, respectively, related to the reimbursement of certain costs
incurred in connection with organizing the Partnership and with
organization of the property. In connection with the consent entered
into in November 1991 (see Note 6), the amount will be offset against
any amounts due PII or Mr. Allen in connection with the sale of the
property.
In November 1990, the Partnership acquired approximately 48 acres of
property from Gold Hill at a purchase price of $1,906,517. The partners
of Gold Hill agreed to accept, as part of the purchase price, 533 units
of Class A limited partner interests and granted a credit on the
purchase price of $495,690, which represents the cost of 533 units at
$1,000 per unit less selling commissions.
In 1989, ISCR purchased 106 units of Class A limited partner interests
at the full offering price ($1,000 a unit). In 1990, ISCR contributed
two-thirds of its fee received for additional organizational costs to
purchase 44 Class A limited partner interests at $1,000 per unit. These
units are included in Class A limited partners' interest on the balance
sheets. Also, the general partners, their affiliates and their employees
purchased units of Class A limited partner interests at 3.5% discount.
The total discounts amounted to $385 in 1990 and $3,360 in 1989,
representing 11 and 66 units, respectively.
The Partnership incurred expense of approximately $16,200 in 1997, 1996
and 1995 for services rendered by ISCR in connection with certain
administrative functions of the Partnership. Since payment of these fees
is deferred as described in Note 1, they are included in accrued
administrative fees in the accompanying balance sheets, and as general
and administrative expenses 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 I Limited Partnership (Interstate I). The
property owned by Interstate I is in direct competition with the
Partnership's property. No financial statement transactions have
occurred between these Partnerships.
-9-
<PAGE> 26
INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
NOTE 4 - LINE-OF-CREDIT FROM RELATED PARTY
On May 23, 1995, the Partnership obtained a line-of-credit from ISCR for
which the borrowings cannot exceed $150,000. Interest is charged on this
line-of-credit at 2% above the announced prime lending rate of
NationsBank, N.A. (Carolinas), resulting in a rate of 10.5%, 10.25% and
10.5% at December 31, 1997, 1996 and 1995, respectively. ISCR has
received a mortgage and assignment of rents and leases on the property
as security. Interest shall accrue on this line-of-credit and shall be
paid along with the outstanding principal balance on the earlier of:
* Sale or disposition of all or any portion or part of the
property securing the mortgage instrument,
* the date ISCR is removed as managing general partner of the
Partnership, or
* the date the Partnership terminates its legal existence.
This agreement with ISCR requires that the Partnership comply with
certain covenants, which are not financial in nature.
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 $183,200 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.
-10-
<PAGE> 27
INTERSTATE LAND INVESTORS II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
NOTE 6 - OTHER MATTER
PII is currently seeking relief under Chapter 11 of the United States
Bankruptcy Code. The provisions of the partnership agreement stipulate
that the filing of a bankruptcy petition by PII automatically causes its
interest to be converted from that of a general partner to that of a
Class A limited partner. In November 1991, PII consented to the
conversion of its interest to that of a Class A limited partner, to
become effective January 1, 1992. PII, however, retains the same
interest in the Partnership's net profit, losses and distributions as it
had as a general partner subject to the same priority of the other Class
A limited partners (see Note 1).
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF INTERSTATE LAND INVESTORS II FOR THE TWELVE MONTHS
ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,534,310
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,569,272
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 6,267,466
<TOTAL-LIABILITY-AND-EQUITY> 6,569,272
<SALES> 0
<TOTAL-REVENUES> 2,248
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 30,916
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,416
<INCOME-PRETAX> (42,084)
<INCOME-TAX> 0
<INCOME-CONTINUING> (42,084)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (42,084)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
