<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 March 31, 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 March 31, 1999 and December 31, 1998,
Consolidated Statements of Income for the three months ended March 31, 1999 and
1998, and Consolidated Statements of Cash Flows for the three months ended March
31, 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 months ended March 31, 1999 and 1998 (b) the financial
position at March 31, 1999 and ( c ) the cash flows for the three months ended
March 31, 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
March 31, December 31
1999 1998
(unaudited)
----------- ------------
Assets
<S> <C> <C>
Cash $ 291,310 $ 416,098
Notes Receivable from Affiliate 316,396 307,091
Prepaid Expenses & Other 10,685 18,181
Other Receivables 23,661 32,553
Investments 607,439 608,039
Investment in Unimproved Land, Net 13,677,707 12,555,444
---------------- ----------------
Total Assets $ 14,927,198 $ 13,937,406
================ ================
Liabilities and Partners Capital
Accounts Payable $ 152,101 $ 161,824
Due to Affiliates 16,465 3,267
Franchise Taxes Payable 800 800
Property Taxes Payable 5,266,240 4,870,485
Note Payable 1,514,728 895,371
---------------- ----------------
Total Liabilities 6,950,334 5,931,747
---------------- ----------------
Minority Interests 459,840 460,171
---------------- ----------------
General Partners (82,032) ( 81,748)
Limited Partners: 20,000 Equity
Units Authorized:
15,715 Units Outstanding 7,599,056 7,627,236
---------------- ----------------
Total Partners' Capital 7,517,024 7,545,488
---------------- ----------------
Total Liabilities and Partners' $ 14,927,198 $ 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
March 31 March 31
1999 1998
-------------- -------------
<S> <C> <C>
Income
Interest $ 11,042 $ 14,508
Other 900 51,200
-------------- -------------
Total Income 11,942 65,708
Expenses
Accounting & Financial Reporting 24,075 18,185
General & Administrative 3,277 2,515
Interest 216 0
Outside Professional Services 8,865 0
Other 1,304 8,750
-------------- -------------
Total Expenses 37,737 29,450
Net Income (Loss) before Minority Interests
and Income Taxes (25,795) 36,258
--------------- ------------
Minority Interests in Consolidated Affiliates 269 26,397
State Franchise Tax 2,400 2,400
-------------- ------------
Net Income (Loss) $ (28,464) $ 7,461
=============== ============
Allocation of Net Income (Loss):
General Partners, in the Aggregate: $ (284) $ 75
=============== ============
Limited Partners, in the Aggregate: $ (28,180) $ 7,386
=============== ============
Limited Partners, per Equity Unit: $ (1.79) $ 0.47
=============== ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
4
<PAGE>
<TABLE>
<CAPTION>
TMP LAND MORTGAGE FUND, LTD
A California Limited Partnership
Consolidated Statements of Cash Flows
(unaudited)
Three Months Ended
March 31 March 31
1999 1998
---------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ (28,464) $ 7,461
Adjustments to Reconcile Net Income (Loss) to Net Cash
Used In Operating Activities:
Minority Interests in Consolidated Affiliates 269 36,737
Accretion of Discounted Notes Receivable (9,305) (5,533)
Other 1,304 8,750
Changes in Assets and Liabilities:
Decrease (Increase) in Prepaid Expenses and Other 7,496 (42,330)
Decrease (Increase) in Other Receivables 8,892 (59,525)
(Decrease) Increase in Accounts Payable (9,723) 56,031
Increase (Decrease) in Due to Affiliates 13,198 (29,138)
--------- ---------
Net Cash Used In Operating Activities (16,333) (27,547)
Cash Flows from Investing Activities:
Increase in Investments 0 (27,530)
Increase in Land Development and Carrying Costs (727,812) (169,341)
--------- ---------
Net Cash Used In Investing Activities (727,812) (196,871)
Cash Flows from Financing Activities:
Proceeds from Note Payable 619,357 0
--------- ---------
Net Cash Provided By Financing Activities 619,357 0
--------- ---------
Decrease in Cash (124,788) (224,418)
Cash, Beginning of Period 416,098 960,479
--------- ---------
Cash, End of Period $ 291,310 $ 736,061
======== =========
Supplemental Disclosure of Cash Flow Information:
- -------------------------------------------------
Cash Paid for Taxes $ 1,600 $ 1,600
========= =========
Cash Paid for Interest $ 25,590 $ 0
========= =========
</TABLE>
Other Disclosures:
- ------------------
Non-cash investing activities during the periods ended March 31, 1999 and 1998
consisted of an increase in the carrying costs of Investment in Unimproved Land
equal to additional property tax liabilities incurred of $395,755 and $270,733,
respectively.
See Accompanying Notes to Consolidated Financial Statements
5
<PAGE>
TMP LAND MORTGAGE FUND, LTD.
A California Limited Partnership
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 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 March 31, 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
6
<PAGE>
TMP LAND MORTGAGE FUND, LTD.
A California Limited Partnership
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 1999
(Unaudited)
Note 1 - General and Summary of Significant Accounting Policies (Continued)
date of the 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 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.
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 June 30, 1994 - June 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
7
<PAGE>
TMP LAND MORTGAGE FUND, LTD.
A California Limited Partnership
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 1999
(Unaudited)
Note 4 - Restatements and reissuances of June 30, 1994 - June 30, 1998 Financial
Statements (Cont.)
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
June 30, 1994 through June 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 June 30, 1994 through June 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 through June 30, 1998, was
understated by a total of $575,368. 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 June 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.)
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.
8
<PAGE>
TMP LAND MORTGAGE FUND, LTD.
A California Limited Partnership
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 1999
(Unaudited)
Note 5 - Allocation of Profits and Losses and Cash Distributions (Continued)
No distributions were made during the three months ended March 31, 1999 or 1998.
Note 6 - Related Party Transactions
In March of 1999, TMP Homes, LLC (TMP Homes), managing member of Remington, paid
$12,500 of bank loan fees on behalf of Remington. These funds are recorded as a
payable due to affiliate as of March 31, 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 a $73,000 charge to
operations due to the non-interest bearing terms of the note. As of March 31,
1999, the two notes receivable balances totaled $316,396 (net of the unamortized
discount of $134,343). The Partnership accreted interest income on these notes
during the three months ended March 31, 1999 and 1998 of $9,305 and $5,533,
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.
In addition, PacWest has 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 11 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
9
<PAGE>
TMP LAND MORTGAGE FUND, LTD.
A California Limited Partnership
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 1999
(Unaudited)
Note 8 - Agreements with PacWest (Continued)
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 March 31, 1999, the Partnership has a payable of
$3,707 to PacWest related to the aforementioned agreements.
Note 9 - Investments
The following is a summary of the investments of the Partnership as of March 31:
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
TMP Flowerfield - San Jacinto, LLC (Flowerfield) $ 107,439 $ 108,039
Peppertree Park, LLC (Peppertree) 500,000 500,000
--------- ---------
$ 607,439 $ 608,039
========= =========
</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
10
<PAGE>
TMP LAND MORTGAGE FUND, LTD.
A California Limited Partnership
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 1999
(Unaudited)
Note 9 - Investments (Continued)
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
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 March 31, 1999 and 1998.
Note 11 - Property Taxes Payable
As of March 31, 1999, approximately $5,260,000 of total property taxes payable
is owed on the San Jacinto property representing the cumulative unpaid property
taxes and Mello-Roos tax assessments at that date. This amount accrues interest
each quarter at a rate of 3.75% on the outstanding balance.
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 March 31, 1999, Sun City has a principal balance due on the note
of $1,514,728. Interest paid for the periods ended March 31, 1999 and 1998 was
$25,590 and $0, respectively.
Note 13 - Minority Interests
In 1995, the Partnership entered into a joint venture agreement referred to as
"TMP Remington, LLC" with TMP Homes whereby the Partnership contributed land for
a 75% interest in TMP Remington, LLC.
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
11
<PAGE>
TMP LAND MORTGAGE FUND, LTD.
A California Limited Partnership
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 1999
(Unaudited)
Note 13 - Minority Interests (continued)
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. For the three months ended March
31, 1998, approximately $70,000 of expenses were paid by the Partnership on
behalf of the TMP Remington LLC, and therefore the Partnership incurred a loss
equal to 25% or approximately $18,000. No funds were contributed for the three
months ended March 31, 1999.
Note 14 - 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.
12
<PAGE>
TMP LAND MORTGAGE FUND, LTD.
A California Limited Partnership
For the Three Months Ended March 31, 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, 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.
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)
13
<PAGE>
TMP LAND MORTGAGE FUND, LTD.
A California Limited Partnership
For the Three Months Ended March 31, 1999
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the attached
Consolidated Financial Statements and notes thereto for the periods ended March
31, 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
June 30, 1994 through June 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 June 30, 1994 through June 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 through June 30, 1998, was
understated by a total of $575,368. 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 June 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's 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.
14
<PAGE>
TMP LAND MORTGAGE FUND, LTD.
A California Limited Partnership
For the Three Months Ended March 31, 1999
The Partnership's management believes that inflation has not had a material
effect on the Partnership's results of operations.
During the three month periods ended March 31, 1999 and 1998, approximately
$11,000 and $14,000, respectively, of interest income was earned. The majority
of interest was earned from the notes receivable from affiliate (See Note 7) and
approximately $1,400 of interest was earned on funds held. Additionally, during
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.
Total expenses for the three months ended March 31, 1999 compared with the three
months ended March 31, 1998, increased by approximately $8,300, or 28%, due
primarily to the increase in accounting and financial reporting and general and
administrative costs associated with the restatement of financial statements
discussed above. Outside Professional Services increased by $8,865 or 100% 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 no expense was incurred during the period ended March 31,
1998.
Investing activities for the three month periods ended March 31, 1999 and 1998
used approximately $728,000 and $169,000 of cash, respectively, for the carrying
costs of the land held for investment. Financing activities for the three months
ended March 31, 1999 received approximately $619,000 relating to borrowings on
the construction loan. No financing activities occurred during the three-month
period ended March 31, 1998.
The Partnership had four properties as of March 31, 1999 that are being held for
appreciation and resale. 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
stated that due to these delinquencies, the property will be going into tax
default on June 30, 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.
Sunset Crossing I Loan - Property is currently listed for sale at a price
of $2,500,000
Fox-Olson Loan #1 - 2.14 acres of this property is in escrow and expected
to close by July 30,1999. A $10,000 non-refundable deposit has been
received from the buyer of the property. The remainder of the property is
currently offered for sale at $2,090,000.
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TMP LAND MORTGAGE FUND, LTD.
A California Limited Partnership
For the Three Months Ended March 31, 1999
TMP Remington, LLC - Phase I constructed is expected to begin by the end of
1999.
TMP Homes Flowerfield - Sun City, LLC - 1.84 acres of this property is in
escrow and expected to close by July 30, 1999. A $10,000 non-refundable
deposit has been received from the buyer of the property.
Peppertree Park - The first phase of development within the Peppertree
Park, LLC investment has begun, and as future phases are sold, additional
proceeds should be available for distribution.
No other significant activity or changes have occurred in the foreclosed
properties.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Partnership had cash on hand of approximately
$290,000. All other proceeds from the sale of units have been invested in the
making of loans (See Item 1 - 12/31/98 10KSB) 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 March 31, 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 March 31, 1999, the Partnership had sufficient
cash reserves for the next twelve months.
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
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TMP LAND MORTGAGE FUND, LTD.
A California Limited Partnership
For the Three Months Ended March 31, 1999
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 distributions from the general partners; 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
11 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. As of March 31, 1999
PacWest has loaned the Partnership $3,707 for ongoing operations.
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 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 March 31, 1999, Sun City has a principal balance due on the note
of $1,514,728. Interest paid for the periods ended March 31, 1999 and 1998 was
$25,590 and $0, respectively.
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.
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
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TMP LAND MORTGAGE FUND, LTD.
A California Limited Partnership
For the Three Months Ended March 31, 1999
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.
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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: August 4, 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
