<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
Quarterly Report under Section 13 or 15 (d) of
The Securities Exchange Act of 1934
For the Quarterly Period ended September 30, 1999
Commission File No. 33-39238
TMP LAND MORTGAGE FUND, LTD
A CALIFORNIA LIMITED PARTNERSHIP
(Name of small business issuer as specified in its charter)
CALIFORNIA 33-0451040
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
801 North Parkcenter Drive, Suite 235
Santa Ana, California 92705
(Address of principal executive offices, including Zip Code)
(714) 836-5503
(Issuer's telephone number, including Area Code)
Check whether the issuer [1] filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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 [ ]
Transitional Small Business Disclosure Format:____Yes__X__No
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The following financial statements are filed as a part of this form 10-QSB:
Consolidated Balance Sheets as of September 30, 1999 and December 31, 1998,
Consolidated Statements of Income for the three and nine months ended September
30, 1999 and 1998, and Consolidated Statements of Cash Flows for the nine months
ended September 30, 1999 and 1998.
The interim financial statements presented have been prepared by the Partnership
without audit and in the opinion of the management, reflect all adjustments of a
normal recurring nature necessary for a fair statement of (a) the results of
operations for the three and nine months ended September 30, 1999 and 1998 (b)
the financial position at September 30, 1999 and (c) the cash flows for the nine
months ended September 30, 1999 and 1998. Interim results are not necessarily
indicative of results for a full year.
The balance sheet presented as of December 31, 1998 has been derived from the
financial statements that have been audited by the Partnership's independent
public accountants. The financial statements and notes are condensed as
permitted by Form 10-QSB and do not contain certain information included in the
annual financial statements and notes of the Partnership. The financial
statements and notes included herein should be read in conjunction with the
financial statements and notes included in the Partnership's Form 10-KSB.
2
<PAGE>
<TABLE>
<CAPTION>
TMP LAND MORTGAGE FUND, LTD.
A California Limited Partnership
Consolidated Balance Sheets
September 30, December 31
1999 1998
(unaudited)
----------- -----------
<S> <C> <C>
Assets
Cash $ 292,568 $ 416,098
Notes Receivable from Affiliate 335,861 307,091
Prepaid Expenses & Other 38,246 18,181
Other Receivables 23,661 32,553
Investments 607,439 608,039
Investment in Unimproved Land, Net 15,356,338 12,555,444
---------------- ----------------
Total Assets $ 16,654,113 $ 13,937,406
================ ================
Liabilities and Partners Capital
Accounts Payable & Other $ 284,591 $ 161,824
Due to Affiliates 192,800 3,267
Franchise Taxes Payable 800 800
Property Taxes Payable 5,910,765 4,870,485
Note Payable 2,400,905 895,371
---------------- ----------------
Total Liabilities 8,789,861 5,931,747
---------------- ----------------
Minority Interests 911,813 460,171
---------------- ----------------
General Partners (87,678) (81,748)
Limited Partners: 20,000 Equity Units
Authorized:
15,715 Units Outstanding 7,040,117 7,627,236
---------------- ----------------
Total Partners' Capital 6,952,439 7,545,488
---------------- ----------------
Total Liabilities and Partners'
Capital $ 16,654,113 $ 13,937,406
================ ================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
3
<PAGE>
<TABLE>
<CAPTION>
TMP LAND MORTGAGE FUND, LTD.
A California Limited Partnership
Consolidated Statements of Income
(unaudited)
Three Months Ended
September 30 September 30
1999 1998
-------------- -------------
<S> <C> <C>
Property Sales $ 507,770 $ 0
Cost of Property Sales 472,846 0
--------------- -------------
Net Gain on Property Sales 34,924 0
Income
Interest 10,798 9,849
Other 1,800 1,800
--------------- ---------------
Total Income 12,598 11,649
--------------- -------------
Expenses
Accounting & Financial Reporting 12,889 5,882
General & Administrative 3,083 7,511
Manager Profit Participation 24,985 0
Interest 1,483 138
Outside Professional Services 11,618 13,500
-
Other 5,613 26,066
--------------- -------------
Total Expenses 59,671 53,097
--------------- -------------
Net Loss before Minority Interests 12,149 41,448
Minority Interests Loss in Consolidated
Affiliates 450,646 550,020
--------------- -------------
Net Loss $ (462,795) $ (591,468)
=============== =============
Allocation of Net Loss:
General Partners, in the Aggregate: $ (4,628) $ (5,915)
=============== =============
Limited Partners, in the Aggregate: $ (458,167) $ (585,553)
=============== =============
Limited Partners, per Equity Unit: $ (29.16) $ (37.26)
=============== =============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
4
<PAGE>
<TABLE>
<CAPTION>
TMP LAND MORTGAGE FUND, LTD.
A California Limited Partnership
Consolidated Statements of Income
(unaudited)
Nine Months Ended
September 30 September 30
1999 1998
-------------- -------------
<S> <C> <C>
Property Sales $ 1,677,032 $ 0
Cost of Property Sales 1,602,819 0
--------------- -------------
Net Gain on Property Sales 74,213 0
Income
Interest 32,377 34,143
Other 3,600 53,600
--------------- ---------------
Total Income 35,977 87,743
--------------- -------------
Expenses
Accounting & Financial Reporting 93,106 27,337
Discount on Due from Affiliates 0 73,268
General & Administrative 9,501 12,003
Manager Profit Participation 24,985 0
Interest 2,144 231
Outside Professional Services 31,008 23,522
-
Other 27,828 39,311
--------------- -------------
Total Expenses 188,572 175,672
--------------- -------------
Net Loss before Minority Interests and
Income Taxes 78,382 87,929
Minority Interests Loss in Consolidated
Affiliates 512,267 281,531
State Franchise Tax 2,400 2,400
-------------- -------------
Net Loss $ (593,049) $ (371,860)
=============== =============
Allocation of Net Income (Loss):
General Partners, in the Aggregate: $ (5,930) $ (3,719)
=============== =============
Limited Partners, in the Aggregate: $ (587,119) $ (368,141)
=============== =============
Limited Partners, per Equity Unit: $ (37.36) $ (23.43)
=============== =============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
5
<PAGE>
<TABLE>
<CAPTION>
TMP LAND MORTGAGE FUND, LTD
A California Limited Partnership
Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended
September 30 September 30
1999 1998
------------ --------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Loss $ (593,049) $ (371,860)
Adjustments to Reconcile Net Loss to Net Cash
(Used In) Provided By Operating Activities:
Gain on Property Sales (74,213) 0
Minority Interests in Consolidated Affiliates 452,242 431,985
Discount on Due from Affiliates 0 73,268
Accretion of Discounted Notes Receivable (28,770) (23,724)
Other 27,828 39,311
Changes in Assets and Liabilities:
Increase in Prepaid Expenses and Other (20,065) (27,938)
Decrease in Other Receivables 8,892 111,676
Increase in Due From Affiliates 0 (165,000)
Increase in Accounts Payable & Other 122,767 49,871
Decrease in Due to Affiliates (3,267) (26,204)
-------------- --------------
Net Cash (Used In) Provided by Operating
Activities (107,635) 91,385
Cash Flows from Investing Activities:
Proceeds from Property Sales 1,677,032 0
Payment of selling costs (55,691) 0
Increase in Investments 0 231,273
Increase in Land Development and Carrying
Costs (3,335,570) (1,238,588)
-------------- --------------
Net Cash Used In Investing Activities (1,714,229) (1,007,315)
Cash Flows from Financing Activities:
Proceeds from Affiliates 192,800 0
Proceeds from Notes Payable 1,505,534 374,794
-------------- --------------
Net Cash Provided By Financing Activities 1,698,334 374,794
-------------- --------------
Decrease in Cash (123,530) (541,136)
Cash, Beginning of Period 416,098 960,479
-------------- --------------
Cash, End of Period $ 292,568 $ 419,343
============= ==============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
7
<PAGE>
TMP LAND MORTGAGE FUND, LTD
A California Limited Partnership
Consolidated Statements of Cash Flows, con't
(unaudited)
Supplemental Disclosure of Cash Flow
Information:
<TABLE>
<CAPTION>
<S> <C> <C>
Cash Paid for Taxes $ 1,600 $ 1,600
============== ==============
Cash Paid for Interest $ 95,704 $ 5,177
============== ==============
</TABLE>
Other Disclosures:
Non-cash investing activities during the nine months ended September 30, 1999
and 1998 consisted of an increase in the carrying costs of Investment in
Unimproved Land equal to additional property tax liabilities incurred of
$1,040,280 and $703,388, respectively.
See Accompanying Notes to Consolidated Financial Statements
7
<PAGE>
TMP LAND MORTGAGE FUND, LTD.
A California Limited Partnership
Notes to the Consolidated Financial Statements
For the Nine Months Ended September 30, 1999
(Unaudited)
Note 1 - General and Summary of Significant Accounting Policies
General - TMP Land Mortgage Fund, Ltd., A California Limited Partnership (the
- ------
"Partnership"), was organized in 1991 in accordance with the provisions of the
California Uniform Limited Partnership Act. The purpose of the Partnership is to
make short-term (generally one to three-year) loans to unaffiliated parties
secured by first trust deeds (mortgages) on unimproved real property primarily
in the Inland Empire area of Southern California and to provide cash
distributions on a current basis to the limited partners, primarily from
interest earned on the mortgage loans.
Principles of Consolidation - The consolidated financial statements include the
- ----------
accounts of the Partnership and its majority-owned investments, TMP Homes
Remington, LLC (Remington) and TMP Homes Flowerfield-Sun City, LLC (Sun City).
All significant inter-company accounts and transactions have been eliminated in
consolidation. (See Note 4.)
Investment in Unimproved Land - Investment in unimproved land is stated at the
- ------------------------------
balance of the foreclosed loan plus carrying and improvement costs incurred
subsequent to foreclosure, net of a valuation allowance, as necessary, to state
the properties at their fair value. All costs associated with the acquisition
and improvement of a property are capitalized including all direct carrying
costs; such as interest expense and property taxes.
Syndication Costs - Syndication costs (such as commissions, printing, and legal
- -----------------
fees) were paid by an affiliate of the Partnership, TMP Realty, Inc. (See Note
2.)
Income Taxes - No provision for federal income taxes has been made in the
- -------------
accompanying consolidated financial statements as all profits and losses flow
through to the respective partners and is recognized on their individual income
tax returns. However, the minimum California franchise tax required to be paid
by the Partnership and it's consolidated entities is $800 per year per entity.
As of September 30, 1999, only Sun City and Remington have paid this annual tax.
Cash and Cash Equivalents - For purposes of the Consolidated Statements of Cash
- -------------------------
Flows, the Partnership considers all highly liquid investments with a maturity
of three months or less to be cash equivalents. During the normal course of its
business, the Partnership accumulates cash and maintains deposits at various
banks. Occasionally, the cash deposit at a particular bank may exceed the
federally insured limit. Any accounting loss or cash requirement resulting from
the failure of a bank would be limited to such excess amounts.
Use of Estimates - In the preparation of financial statements in conformity with
- ----------------
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities as of the
date of the
8
<PAGE>
TMP LAND MORTGAGE FUND, LTD.
A California Limited Partnership
Notes to the Consolidated Financial Statements
For the Nine Months Ended September 30, 1999
(Unaudited)
Note 1 - General and Summary of Significant Accounting Policies (continued)
financial statements and revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Concentration - All unimproved land parcels held for sale are located in the
- -------------
Inland Empire area of Southern California. The eventual sales price of all
parcels is highly dependent on the real estate market conditions. The
Partnership attempts to mitigate any potential risk by monitoring the market
condition and holding the land parcels until the real estate market recovers.
Note 2 - Organization of the Partnership
TMP Properties (A California General Partnership) and TMP Investments, Inc. (A
California Corporation) originally formed the Partnership on November 15, 1991
as the general partners. The partners of TMP Properties are William O. Passo,
Anthony W. Thompson and Scott E. McDaniel. William O. Passo and Anthony W.
Thompson were the shareholders of TMP Investments, Inc. until October 1, 1995,
when they sold their shares to TMP Group, Inc. and then became the shareholders
of TMP Group, Inc.
The Partnership was formed principally to make short-term loans to unaffiliated
parties secured by first trust deeds on unimproved properties, primarily in the
Inland Empire area of Southern California and in some instances, in other areas
of Southern California, and to provide cash distributions to the limited
partners, primarily from interest earned on the mortgage loans. The Partnership
is not a mutual fund or any other type of Investment Company within the meaning
of, and is not subject to regulations under, the Investment Company Act of 1940.
Since its formation, he Partnership had received and accepted subscriptions of
15,715 units, representing total subscription proceeds in the amount of
$15,715,000. All proceeds were committed to mortgage loan investments made by
the Partnership and to working capital reserves. During 1992, the Partnership
funded five mortgage loans, four loans were funded in 1993 and three loans were
funded in 1994 for a total of twelve loans.
The general partners manage and control the affairs of the Partnership,
including final approval of all loans and investments, and have ultimate
authority for matters affecting the interests of the Partnership. All
organization and offering expenses of the Partnership were paid by TMP Realty,
an affiliate of the general partners, in exchange for loan fees (or points) on
each mortgage loan.
As a consequence of adverse changes in market conditions and other economic and
business factors, nine of the twelve loans went into default. The Partnership
foreclosed on the properties secured by the defaulted loans and is in the
process of developing and/or selling these properties. (See update of property
status included in the Management's Discussion and Analysis of Financial
9
<PAGE>
Condition and Results of Operations located elsewhere in this report)
The partnership agreement provides for two types of investments: Individual
Retirement Accounts (IRA) and others. The IRA minimum purchase requirement was
$2,000 and all others were a minimum purchase requirement of $5,000. The maximum
liability of the limited partners is the amount of their capital contribution.
Note 3 - Partners' Contributions
The Partnership raised capital through a public offering of units at $1,000 per
unit. The minimum offering size was 1,000 units or $1,000,000. The maximum
offering size was 20,000 units or $20,000,000. As of April 21, 1994, 15,715
units were sold for total capital contributions of $15,715,000 and the offering
was closed.
Note 4 - Restatements and reissuances of September 30, 1994 - September 30, 1998
Financial Statements
In 1992, the Partnership made two loans totaling $3,500,000 to PR Equities,
Ltd., a California Limited Partnership. The loans were secured by first trust
deeds on residential property located in San Jacinto, California. In 1994, the
Partnership foreclosed on the properties securing these loans and continues to
own these properties. In accordance with generally accepted accounting
principles, assets acquired through foreclosure should be recorded at the lower
of cost or fair value less costs of disposal at the date of foreclosure. The
September 30, 1994 through September 30, 1998 financial statements originally
issued reported this property at the amount of the outstanding mortgage balances
due on these loans at the time of foreclosure, which did not represent their
fair value less costs of disposal. Management has subsequently determined that a
valuation allowance for these properties should have been established for
approximately $3.8 million at the dates of foreclosure in 1994. The valuation
allowance should have been adjusted each year thereafter such that the only
value for these properties is the capitalized direct carrying costs that
represent the total accumulated property taxes and Mello-Roos bond assessments.
Therefore, the consolidated financial statements for September 30, 1994 through
September 30, 1998 have been restated to record the valuation allowance and to
adjust these properties to their fair value for those years.
In addition, management has determined that the amount of property taxes payable
as recorded in June 1994, and subsequent periods was understated. Accordingly,
the consolidated financial statements for those periods have been restated for
this understatement by adjusting the carrying value of the land and the property
taxes payable in the appropriate periods.
In accordance with generally accepted accounting principles, the financial
statements of majority-owned investments are required to be consolidated. The
December 31, 1995 through September 30, 1998 financial statements originally
issued did not properly account for the consolidation of all significant
majority-owned investments. Therefore, the financial statements of these
material majority owned entities have been consolidated with the financial
statements of the Partnership and have been restated for these periods to
reflect the consolidation and related minority interests for Remington and Sun
City.
In November 1996, the Partnership entered into a non-interest-bearing note with
an affiliate for $286,000. In accordance with generally accepted accounting
principles, the note should have been discounted at the date of execution and
interest accreted over the period of the note for $127,000. The consolidated
financial statements have been restated for this discount and accretion of
interest. (See Note 7.)
10
<PAGE>
Note 5 - Allocation of Profits and Losses and Cash Distributions
Profit, losses, and cash distributions are allocated ninety-nine percent to the
limited partners and one percent to the general partners until the limited
partners have received an amount equal to their capital contributions plus a
cumulative, non-compounded return of eight percent per annum based on their
adjusted capital account balances, at which time, remaining profits, losses and
cash distributions are allocated seventy-six percent to the limited partners and
twenty-four percent to the general partners. Distributions of cash from
operations, if any, are made monthly within 30 days after the end of the month.
No distributions were made during 1999 or 1998.
Note 6 - Related Party Transactions
During the nine-month period ended September 30, 1999, TMP Homes, LLC (TMP
Homes), managing member of Remington, paid $17,800 of bank loan fees on behalf
of Remington. TMP Homes paid $151,000 to Sun City and $24,000 to Remington as an
advance for fees. These funds will be repaid from proceeds received as
properties are sold. These funds are recorded in the Consolidated Balance Sheets
in Due to Affiliates.
See Note 8 regarding information on management of the Partnership during 1999.
Note 7 - Notes Receivable from Affiliate
In November, 1996, the Partnership sold a parcel of land (including the
capitalized interest costs and the related property taxes payable) to an
affiliated partnership, TMP Mortgage Income Plus, LTD (MIP) for $286,000 and
recorded a note receivable for a five year period without interest with a 12%
discount (imputed interest). The total sales price represented the Partnerships'
original interest of $100,000, as well as $186,000 of other advances and
capitalized costs for the development of the land. The Partnership recognized a
$127,000 discount on the note as a charge to operations for the difference
between the total value of the land and the face value of the note. In 1998, the
Partnership loaned an additional $165,000 to MIP for a five year period without
interest (and discounted the note at 12%) and recognized approximately $73,000
to operations due to the non-interest bearing terms of the note. As of September
30, 1999, the two notes receivable balances totaled $335,861 (net of the
unamortized discount of $115,139). The Partnership accreted interest income on
these notes during the nine month periods ended September 30, 1999 and 1998 of
$28,770 and $23,724, respectively which is included as interest income on the
Consolidated Statements of Income. (See Note 4.)
Note 8 - Agreements with PacWest
In April 1998, the general partners of the Partnership entered into an agreement
(the Financing Agreement) with PacWest Inland Empire, LLC (PacWest), a Delaware
Limited Liability Company, whereby PacWest paid the general partners of the
Partnership and ten other related partnerships a total of $300,000 and agreed to
pay up to an additional $300,000 for any deficit capital accounts for these 11
partnerships in exchange for the rights to the general partners' distributions;
referred to as a "distribution fee" as defined by the Financing Agreement.
11
<PAGE>
In addition, PacWest agreed to loan and/or secure a loan for the Partnership and
ten other related partnerships (the TMP Land Partnerships) in the amount of
$2,500,000. Loan proceeds will be allocated among the TMP Land Partnerships,
based on partnership needs, from recommendations made by PacWest, and under the
approval and/or direction of the general partners. A portion of these funds will
be loaned to the Partnership at 12% simple interest over a 24-month period
beginning April 1, 1998. The borrowings are secured by the Partnership's
properties, and funds will be loaned, as needed, in the opinion of the general
partners. These funds are not to exceed 50% of the 1997 appraised value of the
properties, and will primarily be used to pay for on-going property maintenance,
pay down existing debt, accrued property taxes and appropriate entitlement
costs.
PacWest, at their option, can make additional advances with the agreement of the
general partners; however, the aggregate amount of cash loaned to the TMP Land
Partnerships is limited to a maximum of $2,500,000.
In April 1998, PacWest entered into a management, administrative and consulting
agreement (the Management Agreement) with the general partners of the
Partnership to provide the Partnership with overall management, administrative
and consulting services. PacWest currently contracts with third party service
providers to perform certain of the financial, accounting, and investor
relations' services for the Partnership.
Pursuant to the Management Agreement, PacWest has acquired the general partners'
unsubordinated 1% interest in the Partnership and assumed responsibility for all
partnership administration while not replacing any of the general partners.
PacWest will charge a fee for its administrative services equal to an amount not
to exceed the average reimbursements to the general partners for such services
over the past five years. As of September 30, 1999, the Partnership has no
amount payable to PacWest related to the aforementioned agreements.
Note 9 - Investments
The following is a summary of the investments of the Partnership as of September
30:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
TMP Flowerfield - San Jacinto, LLC
(Flowerfield) $ 107,439 $ 106,840
Peppertree Park, LLC (Peppertree) 500,000 500,000
------------- -------------
$ 607,439 $ 606,840
============= ==============
</TABLE>
The Partnership has a 75% membership interest in Flowerfield, which was
organized for the purpose of acquiring, owning and developing certain parcels of
land into single family home developments in San Jacinto, California. The equity
method is used to account for the Partnership's share of Flowerfield's earnings
or losses, which is not materially different than the consolidation of this
majority owned investment.
The Partnership has a 20% interest in Peppertree, which was formed to acquire
and develop certain property in San Diego, California. The Partnership's 20%
interest is stated at its cost of $500,000. During 1998, Peppertree sold a
parcel of land for a total sales price of $5,455,000. The Partnership recorded
$50,000 for their portion of the gain on the sale of this property, which is
included in other income in the Consolidated Statements of Income.
Note 10 - Other Receivables
12
<PAGE>
During 1995 the Partnership invested approximately $855,000 in Steadfast H.S.C.,
LLC (Steadfast) which was formed to acquire and operate an apartment building.
In 1997, this investment was sold for a $521,110 gain to the Partnership; of
which all but $13,661 was distributed. This amount is included in other
receivables in the Consolidated Balance Sheets at September 30, 1999 and 1998.
Note 11 - Property Taxes Payable
As of September 30, 1999, approximately $5,885,000 of property taxes is owed on
the San Jacinto property representing the cumulative unpaid property taxes and
Mello-Roos tax assessments at that date. The amount accrues interest each
quarter at a rate of 3.75% on the outstanding balance. During the nine month
period ended September 30, 1999, the Partnership paid approximately $65,700
toward the outstanding property tax balance only.
Note 12 - Note Payable
On March 10, 1998, Sun City entered into a promissory note agreement for a
construction loan with a bank. The maximum loan amount is $2,275,000 and accrues
interest at 1.5% per annum in excess of the prime rate. Interest is payable
monthly. As of September 30, 1999, Sun City has a principal balance due on the
note of $1,895,911. Interest paid for the nine-month period ended September 30,
1999 was approximately $92,400.
On August 17, 1999, Remington entered into a promissory note agreement for a
construction loan with a bank. The maturity date of the note is December 10,
2000. The maximum loan amount is $8,498,000 and accrues interest at 1% per annum
in excess of the Index Rate. Interest is payable monthly. As of September 30,
1999, Remington has a principal balance due on the note of $504,994. Interest
paid for the nine-month period ended September 30, 1999 was approximately
$3,300.
Note 13 - Minority Interests
In 1995, the Partnership entered into joint venture agreements with TMP Homes
whereby the Partnership contributed land for a 75% interest in Remington and Sun
City. TMP Homes contributed $100 for its 25% interest. As a result of this
transaction and subsequent capital contributions whereby the Partnership has
contributed assets for a 75% interest, the Partnership has recognized a loss
equal to the fair value of 25% of the assets contributed to the joint venture
which value was credited to TMP Homes, as the minority interest owner, who will
develop the property, and has recorded a gain equal to the fair value of 75% of
the assets contributed to the joint venture by TMP Homes.
In June 1999, the Partnership contributed approximately $206,000 to Sun City to
pay down the construction loan (see Note 12) and the Partnership incurred a loss
of approximately $51,500 (25%) on this contribution which is included in
Minority Interests in Consolidated Affiliates in the Consolidated Statements of
Income. In addition, for the nine month period ended September 30, 1999, 25% or
approximately $9,400 related to Sun City and Remington's operations is included
in Minority Interests in Consolidated Affiliates in the Consolidated Statements
of Income.
Note 14 - Sale of Property
During the nine-month period ended September 30, 1999 Sun City sold nine lots.
The following is a summary of the properties sold:
13
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Income from Sale of Properties $ 1,297,377
Cost of Properties 1,303,810
Marketing & Selling Costs 29,913
------------------
Total Costs 1,333,723
------------------
Loss on Sale of Properties $ 36,346
==================
</TABLE>
In July 1999, the Partnership sold approximately 1.84 acres in Sun City. The
sale price of the property was $100,000 and the Partnership recorded a gain of
approximately $93,000 (excluding the "manager profit participation" as defined
in the Management Agreement of $12,073 that was paid to PacWest). The following
is a summary of the property sold:
<TABLE>
<CAPTION>
<S> <C>
Sales Price $ 100,000
Cost of Property
(Includes capitalized carrying & selling costs) 7,129
------------------
Gain on Sale of Property $ 92,871
==================
</TABLE>
In July 1999, the Partnership sold approximately 2.14 acres in Sun City. The
sale price of the property was $279,655 and the Partnership recorded a gain of
approximately $18,000 (excluding the "manager profit participation" as defined
in the Management Agreement of $12,912 that was paid to PacWest). The following
is a summary of the property sold:
<TABLE>
<CAPTION>
<S> <C>
Sales Price $ 279,655
Cost of Property
(Includes capitalized carrying costs) 243,306
Selling Costs 18,661
------------------
Total Costs 261,967
------------------
Gain on Sale of Property $ 17,688
==================
</TABLE>
Note 15 - Year 2000 Compliance
Like other organizations and individuals around the world, the Partnership could
be adversely affected if the computer systems it uses and those used by the
Partnership's major customers and vendors do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Issue." Management is assessing its computer
systems and the systems compliance issues of its major service providers. Based
on information available to management, the Partnership's major customers and
vendors are taking steps that they believe are reasonably designed to address
the Year 2000 issue with respect to computer systems that they use. At this
time, however, there can be no assurance that these steps will be sufficient,
and the failure of a timely completion of all necessary procedures could have a
material adverse effect on the Partnership's operations. Management will
continue to monitor the status of, and its exposure to, this issue.
14
<PAGE>
TMP LAND MORTGAGE FUND, LTD.
A California Limited Partnership
For the Nine Months Ended September 30, 1999
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis provides information that the
Partnership's management believes is relevant to an assessment and understanding
of the Partnership's results of operations and financial condition. This
discussion should be read in conjunction with the financial statements and
footnotes, which appear elsewhere in this report.
This Quarterly Report on Form 10-QSB contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, which are subject to the "safe harbor" created
by that section. Words such as "expects," "anticipates," "intends," "plans,"
"believes," "seeks," "estimates" and similar expressions or variations of such
words are intended to identify forward-looking statements, but are not the
exclusive means of identifying forward-looking statements in this report.
Additionally, statements concerning future matters such as the features,
benefits and advantages of the Partnership's property regarding matters that are
not historical are forward-looking statements. Such statements are subject to
certain risks and uncertainties, including without limitation those discussed in
"Risk Factors" sections of this report. The Partnership's actual future results
could differ materially from those projected in the forward-looking statements.
The Partnership assumes no obligation to update the forward-looking statements.
Readers are urged to review and consider carefully the various disclosures made
by the Partnership in this report, which attempts to advise interested parties
of the risks and factors that may affect the Partnership's business, financial
condition and results of operations.
The Partnership was formed principally to make short-term loans to unaffiliated
parties secured by first trust deeds on unimproved properties, primarily in the
Inland Empire area of Southern California and in some instances, in other areas
of Southern California, and to provide cash distributions to the limited
partners, primarily from interest earned on the mortgage loans. The Partnership
is not a mutual fund or any other type of Investment Company within the meaning
of, and is not subject to regulations under, the Investment Company Act of 1940.
Since its formation, the Partnership had received and accepted subscriptions of
15,715 units, representing total subscription proceeds in the amount of
$15,715,000. All proceeds were committed to mortgage loan investments made by
the Partnership and to working capital reserves. During 1992, the Partnership
funded five mortgage loans, four loans were funded in 1993 and three loans were
funded in 1994 for a total of twelve loans.
As a consequence of adverse changes in market conditions and other economic and
business factors, nine of the twelve loans went into default. The Partnership
foreclosed on the properties secured by the defaulted loans and is in the
process of developing and/or selling these properties. (See update of properties
status below)
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the attached
15
<PAGE>
Consolidated Financial Statements and notes thereto for the periods ended
September 30, 1999 and 1998.
During the period from inception (November 15, 1991) through April 22, 1994, the
Partnership was engaged in the formation of the Partnership, the sale of units
and the investment of the subscription proceeds in mortgage loan investments. At
April 22, 1994, a total of 15,715 units had been sold for gross proceeds of
$15,715,000 and the offering was closed. Excess proceeds from the sale of units
were invested in interest-bearing reserve accounts.
In 1992, the Partnership made two loans totaling $3,500,000 to PR Equities,
Ltd., a California Limited Partnership. The loans were secured by first trust
deeds on residential property located in San Jacinto, California. In 1994, the
Partnership foreclosed on the properties securing these loans and continues to
own these properties. In accordance with generally accepted accounting
principles, assets acquired through foreclosure should be recorded at the lower
of cost or fair value less costs of disposal at the date of foreclosure. The
September 30, 1994 through September 30, 1998 financial statements originally
issued reported this property at the amount of the outstanding mortgage balances
due on these loans at the time of foreclosure, which did not represent their
fair value less costs of disposal. Management has determined that a valuation
allowance for these properties should have been established for approximately
$3.8 million at the date of foreclosure in 1994. The valuation allowance should
have been adjusted each year thereafter such that the only value for these
properties is the capitalized direct carrying costs that represent the total
accumulated property taxes and Mello-Roos bond assessments. Therefore, the
consolidated financial statements for September 30, 1994 through September 30,
1998 have been restated to record the valuation allowance and to adjust these
properties to their fair value for those years.
In addition, management has determined that the amount of property taxes payable
as recorded in June 1994, and subsequent periods was understated. Accordingly,
the consolidated financial statements for those periods have been restated by
adjusting the carrying value of the land and the property taxes payable in the
appropriate periods.
In accordance with generally accepted accounting principles, the financial
statements of majority-owned investments are required to be consolidated. The
December 31, 1995 through September 30, 1998 financial statements originally
issued did not properly account for the consolidation of all significant
majority-owned investments. Therefore, the financial statements of these
material majority owned entities have been consolidated with the financial
statements of the Partnership and have been restated for these periods to
reflect the consolidation and related minority interests for Remington and Sun
City.
In November 1996, the Partnership entered into a non-interest bearing note with
an affiliate for $286,000. In accordance with generally accepted accounting
principles, the note should have been discounted at the date of execution and
interest accreted over the period of the note for $127,000. The consolidated
financial statements have been restated for this discount and accretion of
interest.
The Partnership's management believes that inflation has not had a material
effect on the Partnership's results of operations.
During the nine-month period ended September 30, 1999, Sun City sold nine lots.
The following is a summary of the properties sold:
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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Income from Sale of Properties $ 1,297,377
Cost of Properties 1,303,810
Marketing & Selling Costs 29,913
------------------
Total Costs 1,333,723
------------------
Loss on Sale of Properties $ 36,346
==================
</TABLE>
In July 1999, the Partnership sold approximately 1.84 acres in Sun City. The
sale price of the property was $100,000 and the Partnership recorded a gain of
approximately $93,000 (excluding the "manager profit participation" as defined
in the Management Agreement of $12,073 that was paid to PacWest). The following
is a summary of the property sold:
<TABLE>
<CAPTION>
<S> <C>
Sales Price $ 100,000
Cost of Property
(Includes capitalized carrying & selling costs) 7,129
------------------
Gain on Sale of Property $ 92,871
==================
</TABLE>
In July 1999, the Partnership sold approximately 2.14 acres in Sun City. The
sale price of the property was $279,655 and the Partnership recorded a gain of
approximately $18,000 (excluding the "manager profit participation" as defined
in the Management Agreement of $12,912 that was paid to PacWest). The following
is a summary of the property sold:
<TABLE>
<CAPTION>
<S> <C>
Sales Price $ 279,655
Cost of Property
(Includes capitalized carrying costs) 243,306
Selling Costs 18,661
------------------
Total Costs 261,967
------------------
Gain on Sale of Property $ 17,688
==================
</TABLE>
During the nine month period ended September 30, 1999 and 1998, approximately
$32,000 and $34,000, respectively, of interest income was earned. The majority
of interest was earned from the notes receivable from affiliate (See Note 7)
approximately $29,000 and $25,000, respectively. In addition, approximately
$3,000 and $9,000 of interest was earned on funds held for the nine month period
ended September 30, 1999 and 1998, respectively. In March 1998, the Partnership
received and recorded income of $50,000 for its portion of the gain on the sale
of property relating to Peppertree, which is included in Other Income.
Total expenses for the three months ended September 30, 1999 compared with the
17
<PAGE>
three months ended September 30, 1998, increased by approximately $6,600, or
11%, due primarily to the increase in accounting and financial reporting
associated with the restatement of financial statements discussed above. Manager
Profit Participation increase of $24, 985 or 100% is due to the payment to
PacWest relating to sale of the two properties in July 1999 in Sun City and in
accordance with the Management Agreement. Other expenses includes certain
carrying costs related to the PR Equities, Ltd. properties in San Jacinto, CA
which are expensed as incurred in order to bring the stated value of the
property to fair market value. (See Note 4). The $5,613 is related to property
services incurred to prepare the property for future sale.
Total expenses for the nine months ended September 30, 1999 compared with the
nine months ended September 30, 1998, increased by approximately $13,000, or 7%,
due primarily to the increase in accounting and financial reporting associated
with the restatement of financial statements discussed above. Outside
Professional Services increased by approximately $7,500 or 25% due to the
payment of the asset administration fee pursuant to the Management Agreement and
a contract with a third party that was entered into for certain investor
relations' services. Both of these contracts were entered into April 1, 1998 and
therefore only six months of expenses were incurred during the nine-month period
ended September 30, 1998. Manager Profit Participation increase of $24, 985 or
100% is due to the payment to PacWest relating to sale of the two properties in
July 1999 in Sun City and in accordance with the Management Agreement. Other
expenses includes certain carrying costs related to the PR Equities, Ltd.
properties in San Jacinto, CA which are expensed as incurred in order to bring
the stated value of the property to fair market value. (See Note 4). The $27,828
is related to property services incurred to prepare the property for future
sale.
A net loss of $512,267 is recorded in Minority Interests in Consolidated
Affiliates for the nine-month period ended September 30, 1999 relating to the
Partnership contributing approximately $206,000 to Sun City to pay down the
construction loan (see Note 12). The Partnership incurred a loss of
approximately $51,500 (25%) on this contribution, which is included in Minority
Interests Loss in Consolidated Affiliates in the Consolidated Statements of
Income. In addition, for the nine-month period ended September 30, 1999 25% or
approximately $461,000 related to Sun City and Remington's operations and loss
on property contributed is included in Minority Interests Loss in Consolidated
Affiliates in the Consolidated Statements of Income.
Investing activities for the nine-month periods ended September 30, 1999 and
1998 used approximately $3,336,000 and $1,239,000 of cash, respectively, mainly
to pay for development and for carrying costs of the land held for investment.
The Partnership provided approximately $1,677,000 of funds from the sale of
properties during the period.
Financing activities for the nine months ended September 30, 1999 and 1998
include proceeds of approximately $1,506,000 and $375,000, respectively,
relating to borrowings on the construction loan. Proceeds for the nine months
ended September 30, 1999 also include affiliate advances of $192,800 from TMP
Homes.
The Partnership had three properties as of September 30, 1999 that are being
held for appreciation and resale. Remington and Sun City are holding two
additional parcels for development and future sale of residential units. The
Partnership does not intend to acquire any additional properties. Upon the sale
of each property, the Partnership intends to distribute the sales proceeds, less
any reserves needed for operations, to the partners.
The following is an update of the foreclosed properties status from the
information documented in the December 31, 1998 10KSB:
TMP Flowerfield, LLC - The foreclosed San Jacinto properties (located in
the County of Riverside, California) have substantial Mello-Roos
assessments and property tax delinquencies. The County of Riverside has
postponed the property going into tax default due to a $65,000 payment of
current and delinquent property taxes due by the Partnership in June 1999.
Management has begun an Installment Payment Plan (five year payment plan)
with the County of Riverside beginning in June 1999 to avoid the property
being sold at a tax sale. In the meantime, the general partners are
attempting both to have the Mello-Roos bonds restructured and/or the
penalties reduced, and sell the property by currently marketing two of the
six tracts, the remaining four tracts will be marketed as the first two
tracts are sold.
18
<PAGE>
Fox-Olson Loan #1 - 2.14 acres of this property were sold in July 1999 for
a sales price of $279,655. The Partnership recorded a net gain on the sale
of approximately $18,000. The remaining acres are currently offered for
sale at $2,090,000.
Sunset Crossing I Loan - Property is currently listed for sale at a
price of$2,500,000
TMP Remington, LLC - During the three-month period ended September 30,
1999, the Partnership contributed this property to Remington in accordance
with the membership agreement. Remington has received a construction loan
and Phase I construction is expected to begin by the end of 1999.
TMP Homes Flowerfield - Sun City, LLC - 1.84 acres of this property was
sold in July 1999 for a sales price of $100,000. The Partnership recorded a
net gain on the sale of approximately $93,000. The remaining property was
contributed to Sun City in accordance with the membership agreement. Phase
I construction of 42 homes is complete and all homes have sold or currently
in escrow expecting to close by the end of 1999. Sun City has obtained
financing and has already begun Phase 2 & 3 construction.
No other significant activity or changes have occurred in the Partnership
properties.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Partnership had cash on hand of approximately
$293,000. All other proceeds from the sale of units and property have been
invested in the making of loans or working capital reserves, or have been used
in foreclosure proceedings or maintaining the foreclosed properties for the
Partnership.
The Partnership raised a total of $8,334,000, $6,127,000, and $1,254,000 during
the calendar years ended December 31, 1992, 1993, and 1994, respectively for a
total of $15,715,000 in gross proceeds from the sale of units. The offering was
closed on April 22, 1994, and no additional subscriptions were accepted after
that date. The Partnership made a total of twelve mortgage loans for a total of
$15,015,000. Loans of $4,870,000, $7,420,000, and $2,725,000 were made during
the calendar years ended December 31, 1992, 1993, and 1994, respectively.
Three loans, in the total amount of $4,825,000 were repaid during the year ended
December 31, 1995. Nine loans totaling $10,190,000 were foreclosed. Proceeds
from loan repayments were reinvested, added to Partnership reserves, or
distributed to investors.
The Partnership does not intend to make any new land loans with existing or
future partnership cash. At September 30, 1999, the Partnership had development
agreements with TMP Homes, LLC, an affiliated company, to develop single family
homes on three of the properties the Partnership has acquired through
foreclosure. In addition, the Partnership has a $500,000 investment in a
single-family development that resulted from the Peppertree loan. The
Partnership was repaid $1,500,000 of the $2,000,000 Peppertree loan in cash. The
remaining $500,000 represents a 20% investment in the project. The Partnership
may incur indebtedness from nonaffiliated financial institutions in order to
complete any development for projects in which the Partnership is involved.
The properties relating to the nine loans that were foreclosed upon by the
Partnership produce no income. Accordingly, the Partnership is not making
distributions to investors except from the sales proceeds of certain partnership
assets. The Partnership cash reserves are being used to fund the operating cash
needs of the Partnership. As of September 30, 1999, the Partnership had
sufficient cash reserves for the next twelve months.
19
<PAGE>
In April, 1998, the general partners of the Partnership entered into an
agreement (the Financing Agreement) with PacWest Inland Empire, LLC (PacWest), a
Delaware Limited Liability Company, whereby PacWest paid a total of $300,000 to
the general partners of the Partnership and ten other related partnerships (the
TMP Land Partnerships). PacWest agreed to pay up to an additional $300,000 for
any deficit capital accounts for these 11 partnerships in exchange for the
rights to the general partners' distributions; referred to as a "distribution
fee" as defined by the Financing Agreement.
In addition, PacWest agreed to loan and/or secure a loan for the TMP Land
Partnerships in the amount of $2,500,000. Loan proceeds are allocated among the
TMP Land Partnerships, based on partnership needs, from recommendations made by
PacWest, and under the approval and/or direction of the general partners.
Portions of these funds were loaned to the Partnership at 12% simple interest
over a 24-month period beginning April 1, 1998. The borrowings are secured by
the Partnership's properties, and the funds will be loaned, as needed, in the
opinion of the general partners. These funds are not to exceed 50% of the 1997
appraised value of the properties, and will primarily be used to pay for
on-going property maintenance, reduction of existing debt, property taxes in
arrears, appropriate entitlement costs and Partnership operations.
PacWest, can, at their option, make additional advances with the agreement of
the general partners. However, the aggregate amount of cash loaned to the TMP
Land Partnerships is limited to a maximum of $2,500,000.
In April 1998, PacWest entered into a management, administrative and consulting
agreement (the Management Agreement) with the general partners of the
Partnership to provide the Partnership with overall management, administrative
and consulting services. PacWest currently contracts with third party
serviceproviders to perform certain of the financial, accounting, and investor
relations' services for the Partnership. As of September 30, 1999 PacWest has no
amount due from the Partnership relating to the aforementioned agreements.
Pursuant to the Management Agreement, PacWest has acquired the general partners'
unsubordinated 1% interest in the Partnership and assumed responsibility for all
partnership administration while not replacing any of the general partners.
PacWest is paid a fee of $24,588 annually for its administrative services.
On March 10, 1998, Sun City entered into a promissory note agreement for a
construction loan with a bank. The maximum loan amount is $2,275,000 and accrues
interest at 1.5% per annum in excess of the prime rate. Interest is payable
monthly. As of September 30, 1999, Sun City has a principal balance due on the
note of $1,895,911. Interest paid for the nine-month period ended September 30,
1999 was approximately $92,400.
On August 17, 1999, Remington entered into a promissory note agreement for a
construction loan with a bank. The maturity date of the note is December 10,
2000. The maximum loan amount is $8,498,000 and accrues interest at 1% per annum
in excess of the Index Rate. Interest is payable monthly. As of September 30,
1999, Remington has a principal balance due on the note of $504,994. Interest
paid for the nine-month period ended September 30, 1999 was approximately
$3,300.
Aside from the foregoing, the Partnership knows of no demands, commitments,
events, or uncertainties, which might affect its liquidity or capital resources
in any material manner.
20
<PAGE>
RISK FACTORS
Year 2000 Compliance. Many currently installed computer systems and software
products are coded to accept only two digit entries in the date code field.
Beginning in the year 2000, these date code fields will need to accept four
digit entries to distinguish 21st century dates. As a result, computer systems
and/or software used by organizations may need to be upgraded to comply with the
"Y2K" requirements. There is significant uncertainty in the software and
information services industries concerning the potential effects associated with
such compliance. While the Partnership believes that its systems are compatible
with Y2K applications, there can be no assurance that all partnership systems
will function properly in all operating environments and on all platforms. The
failure to comply with Y2K requirements by systems not designed by the
Partnership may also have a material adverse effect on the Partnership's
business, financial condition and results of operations. The Partnership has
developed and implemented a plan to identify and address potential difficulties
associated with Y2K issues and does not expect to expend any significant funds
as a result of these issues.
The Partnership utilizes a number of computer software programs and operating
systems across its organization including applications used in financial
business systems and various administrative functions. The Partnership has
established an action plan for addressing Year 2000 issues. As a general matter,
the Partnership is vulnerable to failures by third parties to address their own
Year 2000 issues. The Partnership relies heavily upon third parties for
financial services. There can be no assurance that the Partnership's suppliers
and other third parties will adequately address their Year 2000 issues, and any
such issues could have a material adverse affect upon the Partnership's
financial condition and results of operation.
The Partnership has not spent a material amount of financial resources to
remediate Year 2000 problems and does not anticipate that it will spend a
material amount of financial resources to remediate Year 2000 problems in the
future. The costs of such remediation will be part of the Partnership's general
and administrative expenses.
21
<PAGE>
Signatures
Pursuant to the requirements 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.
Date: November 8, 1999
TMP LAND MORTGAGE FUND, LTD.
A California Limited Partnership
By: TMP Investments, Inc., A California Corporation as Co-General Partner
By: \s\ William O. Passo
-------------------------------------
William O. Passo, President
By: \s\ Anthony W. Thompson
-------------------------------------
Anthony W. Thompson, Exec. Vice President
By: TMP Properties, A California General Partnership as Co-General Partner
By: \s\ William O. Passo
-------------------------------------
William O. Passo, Partner
By: \s\ Anthony W. Thompson
-------------------------------------
Anthony W. Thompson, Partner
By: \s\ Scott E. McDaniel
-------------------------------------
Scott E. McDaniel Partner
By: JAFCO, Inc., A California Corporation as Chief Accounting Officer
By: \s\ John A. Fonseca
-------------------------------------
John A. Fonseca, President
22
