SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission File Number: 000-19210
USA Capital Land Fund, a Nevada limited partnership
Nevada 88-0248397
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3900 Paradise Road, Ste 263 89109
Las Vegas, Nevada (Zip Code)
(Address of principal executive offices)
Registrant's telephone number: (702) 734-8721
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) during the
preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
USA CAPITAL LAND FUND, A NEVADA LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1.CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principals for interim
financial information and with the instructions to Form 10-Q and
Regulation S-X. They do not include all information and footnotes
required by generally accepted accounting principals for complete
financial statements.
The condensed financial statements presented herein have been prepared
by the Partnership in accordance with the accounting policies
described in its 1995 audited financial statements and should be read
in conjunction with the notes thereto.
In the opinion of management, all adjustments (consisting of normal
recurring adjustments) which are necessary to a fair presentation of
the interim financial statements presented herein have been made.
NOTE 2.RELATED PARTY TRANSACTIONS
The Corporate General Partner received $0 in cash distributions during
the second quarter of 1996.
USA Capital Management Group, Inc. (USA Capital), that was an
affiliated NASD licensed securities broker/dealer, received sales
commissions of up to 7% of the partnership units sold by them. No
commissions were paid in the quarter ended June 30, 1996.
USA Commercial Real Estate Group (USA Commercial), an affiliated
corporation of the General Partner, earned net commissions on the
sales from the Owens Road project in the amount of $3,785 after
payments to independent brokers/contractors, for the quarter ended
June 30, 1996.
In February, 1994, the Partnership entered into an AIA construction
contract with REK Corporation for the construction of Phases III and
IV of Owens Road. The president of the Partnership's corporate
general partner is also a vice president of REK Corporation. REK was
allocated $54,000 for overhead and $54,000 for profit. It also
received an allocation of up to $47,000 for the reimbursement of
project supervision. Other on site items, such as temporary
facilities and clean up costs have been reimbursed. The Partnership
also entered into an AIA contract for Phases V and VI of the owens
Road Project. The terms were identical to the Phase III and IV
contract. In essence, the REK Corporation received $2,000 per unit or
$60,000 for overhead and $60,000 for profit on the 60 unit
construction phase. All other reimbursements discussed above applied
also. The fee was the same rate Owens Road Partnership was charged on
Phases I and II by Paragon Construction, a third party general
contractor. All funds earned have been paid. Additionally, REK
Corporation completed a job as supervisor and plumbing sub-contractor
at the Owens Road project. This work was necessary to satisfy a new
requirement recently imposed by the City of Las Vegas to adjust the
water pressure at the Emerald Gardens site to the city's revised
plans. REK was paid a total of $14,268 in it's capacity as supervisor
and plumbing sub-contractor.
CURRENT EVENTS
BELLAVISTA
USA Capital Land Fund has taken write downs in the amount of
$2,140,000.00 on their equity investment at Bellavista Partners, L.P.
(BVP). A portion of this write down was caused by soils and related
problems that have been experienced at Bellavista. As a result of
improperly prepared finished lots at Bellavista, eleven existing
homeowners experienced severe cracking and settlement problems with
their homes which were developed by BVP. As a result, the BVP has had
to perform significant remediation for nine of the eleven homeowners.
These repairs have cost BVP in excess of $700,000; however, no
assurances can be given that the remediation will be satisfactory or
that additional remediation will not be necessary. In fact, as of
this writing, BVP is contemplating additional expenditures of
approximately $150,000 to further remediate some of these units. As
of this time, no final decision has been made.
Bellavista Partners initially contracted with two local contractors to
perform civil engineering and grading for this project. Our contract
called to the delivery of finished lots whereby all aspects of the
soils reports recommendation were to be followed by the grading
contractor as they built these lots. Furthermore, the civil
engineering firm was engaged to perform on site observation on the
lot development process. This did not occur. Hence, it is our belief
that we were severely damaged by these two contractors and have filed
suit against SEA Consulting Engineers and Central Grading, the soils
engineer and grading subcontractors who were responsible for the soils
engineering and build out of the finished lots at Bellavista Estates.
After the lots were constructed by our subcontractor and delivered,
BVP then engaged an independent general contractor to build homes on
these sites with the belief that we had been delivered finished lots.
Because the lots were not properly finished, and did not conform to
the soils reports recommendations, the houses that were built
eventually began cracking and settling. As a result, homeowners who
purchased homes from BVP have looked to BVP for remediation. BVP has
in turn looked to the subcontractors and our insurance. In addition
to the money we spent to remedy the problems, BVP has received
$159,874.61 from our insurance company to reimburse some of the
remediation expenses spent to date. Various claims are still pending,
but it appears unlikely that any additional claims benefits will be
received by us.
BVP has been severely damaged, and the damages caused by these
problems caused additional marketing problems at Bellavista, which in
turn reduced the viability of the project. Currently, all homes and
lots at BVP are sold. There was a bulk sale of 11 lots that took
place in August, 1995 at a significant discount. This enabled the BVP
to gain funds necessary to meet it's obligation for remediation of
residences that have experienced settlement related problems at the
project.
LEGAL PROCEEDINGS AND BELLAVISTA
Bellavista partners (BVP) has filed an action in Clark County District
Court, Clark County, Nevada against SEA Consulting Engineers and
Central Grading, the soils engineer and grading subcontractor who were
responsible for the soils engineering and build out of the finished
lots at Bellavista Estates.
Central Grading denies responsibility, alleging a number of defenses,
most particularly, that they built the lots in accordance with
instructions from BVP. SEA denies liability on a number of theories,
including that they had no liability for the construction of the lots,
that whatever duties they did have, they fully and properly performed.
Additionally, SEA has filed counterclaim against BVP in the amount of
approximately $150,000 for a balance allegedly due under contracts
between BVP and SEA for work performed.
At this stage of the litigation, it is impossible to predict the
length of time it will take to try the case, whether settlement is
possible, of the cost. The ultimate cost of the lawsuit will depend
on a number of factors, including (1) whether the insurance company
assists in the defense, (2) whether settlement can be negotiated, (3)
whether discovery is done cooperatively or contentiously, and (4) the
cost of expert consultants and expert witnesses. Likely, the range of
costs for litigation is somewhere between $100,000 and $300,000. The
likely time frame to resolve this suit will be, if settled, six (6) to
12 months; if tried, 18 to 36 months.
BVP has been sued by three homeowners in BellaVista Estates. The main
point of the complaint is that BVP delayed in their performance of
certain remedial work to their homes, and that the homeowners have
suffered emotional distress as a result. The complaint also alleges
that the soil problems and remediation have diminished the value of
the plaintiff's homes. As of April 15, 1996, the case against BVP
filed by the homeowners has been consolidated with the case BVP filed
against SEA and Central Grading mentioned above.
Bellavista Partners has received $159,874.61 from our insurance
company to reimburse some of the remediation expenses spent to date.
Various claims are still pending, but no assurance can be given as to
the final settlement, if any, from the insurance company.
In August, 1995, the Bellavista Partners, L.P. closed a bulk sale of
the 11 remaining unsold lots. This sale was consummated at a
significant discount. This enabled the Bellavista Partners, L.P. to
gain funds necessary to meet it's obligation for remediation of
residences that experienced settlement related problems at the
Bellavista project. as a result, an additional write down of the
Bellavista investment of $395,000 was taken in 1995, bringing the
total write down to $2,140,000.00.
LEGAL PROCEEDINGS AND PALOMINO PARTNERS
USA Partners, Inc. has been sued in its capacity as General Partner of
Palomino Partners in connection with a personal injury suffered by a
woman who was employed by a tenant in the building owned by Palomino
Partners. That case is in the early stages, and the potential loss,
and potential liability by the General Partner are presently unknown.
However, the limited partners will not incur any liability.
GREENHILLS
Greenhills, our joint venture with Signature Homes, is completed. To
date, we have totally recovered our investment in this project and
expect to book a profit in the approximate amount of $225,000. The
final payment from the joint venture was made in August, 1996 in the
amount of $5,994.03. The 1996 tax return will be the last one filed
for the project.
OWENS ROAD PARTNERS
To date, there is one (1) unit left to sell in this 170 unit
condominium project. Emerald Gardens is expected to lose
approximately $950,000.00.
SUBSEQUENT EVENTS
Bellavista Partners, L.P. and Owens Road Partners had notes due from
investors that had purchased lots or homes where a portion of the
selling price was carried back in the form of a note. As of June 30,
1996, only one note remained outstanding. This loan originated during
the quarter ended March 31, 1996, to the buyer of the last home at
Bellavista. The loan matures in September, 1996.
GENERAL PARTNER DEVELOPMENT FEES
The General Partner has voluntarily suspended any development fees due
it from the Rancho Palomino Medical office, Greenhills and Indian
Wells developments as a result of the poor performance of the
Bellavista investment and the Owens Road project. As such, the
General partner is suspending its right to receive approximately
$250,000 in development fees.
<PAGE>
USA CAPITAL LAND FUND, A NEVADA LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Item 2.Management's Discussion and Analysis of Financial Condition and Operating
Results
LIQUIDITY AND CAPITAL RESOURCES
Since January 1, 1996, the Partnerships' cash position has decreased
$1,106,801 to $584,524 as of June 30, 1996. As of June 30, 1996,
Partners' Equity was $819,737 as compared to $3,166,028 at December
31, 1995, largely a result of the January and March 1996 cash
distributions to the limited partners.
For 1996, the Partnership has paid $2,114,701 to the Limited Partners
as liquidating distributions. The General Partner has discontinued
regular quarterly distributions to the partners. In the past, the
General Partner has managed the Partnership's cashflow in a way that
allowed for a continuity of quarterly distributions that were made up
of both a return of limited partners principal and earnings. Future
cash distributions, if any, will primarily be made from existing cash
on hand, sales proceeds received for our Owens Road (Emerald Gardens
Condominiums) investment, minus working capital needs, remediation
costs for the BVP project, and legal costs involved in the Bellavista
lawsuit.
The General Partner did not receive payment of any management or
development fees in the year 1996. The General Partner has decided to
voluntarily suspend any fees due it until further notice. The General
partner may later decide to distribute all or a portion of such
accrued and unpaid fees. Other fees have be received by affiliates of
the General Partner such as real estate commissions and construction
fees as listed in NOTE 2 under "Related Party Transaction".
The Partnership has recognized a $2,140,000 write down on the
Bellavista project, necessary to reflect a more appropriate value for
this investment. A significant portion of this write down was due to
the soils and related problems at Bellavista. Remediation to the
homes have cost BVP in excess of $700,000; however, the General
Partner can not give any assurance that the remediation will be
satisfactory or that additional remediation will not be necessary.
Litigation against the two subcontractors that we feel are responsible
for the soils and settlement related problems is in process and has
been consolidated with the case filed by the homeowners against BVP.
It is impossible to predict the length of time it will take to try the
case of the cost involved. The likely range of costs for litigation
is somewhere between $100,000 and $300,000. The likely time frame to
resolve the case could be six (6) to thirty six (36) months.
Currently, at Bellavista, all homes and lots are sold.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1996
The Partnership showed net income of ($81,404) for the three months
ended June 30, 1996, while the same three months of 1995 had net
income of ($189,735). Expenses for development and lot sales was
$557,386 lower for quarter ended June 30, 1996 as compared to June 30,
1995. General & Administrative expenses also showed a decrease of
$65,323 for the three months ended June 30 of 1996 and 1995
respectively. The income per unit for the three months ended June 30,
1996 was ($2.04). The income per unit for the same three months of
1995 was ($4.76).
Net cash provided by operations and investing activities was $264,720
for the three months ended June 30, 1996, an increase of $142,229 over
the net cash provided by operations and investing activities of
$122,491 at June 30, 1995. Real estate under development decreased to
$29,377 at June 30, 1996 as compared to $1,427,444 at December 31,
1995.
No new loans were originated during the quarter ended June 30, 1996.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996
The Partnership showed net income of ($231,590) for the six months
ended June 30, 1996, while the same six months of 1995 had net income
of ($534,527). Expenses for development and lot sales was $1,013,044
lower for the first six months ended June 30, 1996 as compared to the
first six months of 1995. General and Administrative expenses also
show a decrease of $273,198 for the six months ended June 30, 1996,
with $99,628 and $327,826 being expensed for 1996 and 1995
respectively. The income per unit for the six months ended June 30,
1996 was ($5.80). The income per unit for the same six months of 1995
was ($13.40).
Net cash provided by operations and investing activities was
$1,135,875 for the six months ended June 30, 1996, an increase of
$750,004 over the net cash provided by operations and investing
activities of $385,871 at June 30, 1995.
One loan was originated during the six months ended June 30, 1996, to
the buyer of the last home at Bellavista. This loan matures in
September, 1996.
APPROXIMATE BOOK VALUE
At June 30, 1996, the approximate unit book value of the USA Capital
Land Fund is $20.54. This represents the Partners' Equity of
$819,737.00 divided by the number of units held, 39,901. It should be
noted that unit book value can change due to unforeseen losses and
pending lawsuits both for and against the Partnership.
APPROXIMATE PROJECTED VALUE
After considering our cash balance as of August 12, 1996 along with
expected income from the sale of the last unit at Emerald Gardens and
the payoff of the remaining notes due the Partnership, and with
consideration given to projected expenses for operation and possible
remediation at Bellavista, we can estimate that each limited partner
may receive back between $10.00 and $15.00 per unit if our assumptions
are correct. Additional recoveries from such areas as insurance
claims, if realized, or a victory in our lawsuit against the two sub-
contractors for our alleged damages at Bellavista could significantly
increase this figure.
USA CAPITAL LAND FUND, A NEVADA LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
PART II. OTHER INFORMATION
Item 6.Exhibits and Reports on Form 8-K
(a)Exhibit 1 -Letter dated June 28, 1996 to investors in the USA
Capital Land Fund
(b)Exhibit 2 -Unaudited June 30, 1996 Balance Sheet of USA Partners
Limited, the general partner of USA Capital Land Fund
(c)Reports on Form 8-K - There were no reports on Form 8-K filed for
the three months ended June 30, 1996.
<PAGE>
USA CAPITAL LAND FUND, A NEVADA LIMITED PARTNERSHIP
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 thereunder duly authorized.
USA CAPITAL LAND FUND
A NEVADA LIMITED PARTNERSHIP
Registrant
Al Whalen
Chief Financial Officer for:
USA PARTNERS, LTD., the general partner
for USA Capital Land Fund, a Nevada
limited partnership.
Thomas Hantges
President of:
USA Partners, LTD., the general
partner for USA Capital Land Fund,
a Nevada limited partnership
Date: August 1996
USA CAPITAL LAND FUND, A NEVADA LIMITED PARTNERSHIP
EXHIBIT 1
LETTER DATED JUNE 28, 1996 TO INVESTORS
IN USA CAPITAL LAND FUND
June 28, 1996
Dear Land Fund Investor:
Enclosed, please find a copy of the 10-K for December 31, 1995 as well
as the 10-Q for quarter ended March 31, 1996. Both statements have
been filed with the Securities and Exchange Commission.
In addition to the distributions that we plan to make later this year,
we are also vigorously attempting to prevail and hopefully be awarded
damages in our litigation of the Bellavista matter. Although no
assurance can be given to our achieving a successful outcome in this
matter, proceeds from a monetary victory, if awarded, would be
distributed to all partners in the form of a distribution.
With respect to additional distributions, we are planning our next
principal only distribution in September, which coincides with a
repayment due the Partnership. Prior to January 1994, payments to
limited partners consisted of both a return of principal and earnings.
Distributions made since January 1994 have been principal only.
All books and records pertaining to the Partnership are available for
your inspection Monday through Friday at our office during normal
business hours. If there are any questions, do not hesitate to call
any of us.
Sincerely,
Tom Hantges, President
Al Whalen, Treasurer
David Berkowitz, Secretary
USA Partners, Inc.
General Partner
<PAGE>
USA CAPITAL LAND FUND, A NEVADA LIMITED PARTNERSHIP
EXHIBIT 2
JUNE 30, 1996 BALANCE SHEET (UNAUDITED) OF
USA PARTNERS LIMITED, THE GENERAL PARTNER OF
USA CAPITAL LAND FUND
June 30, 1996
(unaudited)
ASSETS
ASSETS
Cash in bank$ 1,872
Equipment - net 138
Partnership interest - USA Capital Land Fund
TOTAL ASSETS$ 1,964
LIABILITIES AND EQUITY
LIABILITIES AND EQUITY
Stockholders' Equity$ 1,964
TOTAL LIABILITIES AND EQUITY$ 1,964
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