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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10 K-SB
(Mark One)
[X] Annual report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 (Fee Required). For the fiscal year ended December
31, 1998
[ ] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange act of 1934 (No Fee Required).
For the transition from _________to____________
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COMMISSION FILE NO. 0-19963
TMP INLAND EMPIRE II, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0311624
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
801 N. PARKCENTER DRIVE, SUITE 235 92705
SANTA ANA, CALIFORNIA (Zip Code)
(Address of principal executive office)
(714) 836-5503
(Registrant's telephone number, including area code)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
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N/A N/A
Securities to be registered pursuant to Section 12 (g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days Yes [X] No [ ]
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PART I
ITEM 1(a) BUSINESS
INTRODUCTION
TMP Inland Empire II, Ltd., a California Limited Partnership (the
"Partnership"), is a California limited partnership formed in August, 1988, of
which TMP Investments, Inc., a California corporation, and TMP Properties, a
California general partnership, are the General Partners (the "General
Partners"). The Partnership was formed to acquire, from nonaffiliated persons,
parcels of unimproved real property (the "Properties") located primarily in San
Bernardino County, California. A total of three properties were purchased. Two
were sold and the proceeds distributed. The last remaining parcel totaling 18
acres has been zoned commercial.
The remaining Property will be held for investment, appreciation, and ultimate
sale and/or improvement of all or a portion thereof either alone or in
conjunction with a joint venture partner, or it may be traded for an income
producing shopping center or apartment complex. If the Property or portions
there of is developed, the General Partners intend to hold and manage the same
for the production of income until such time that they determine a sale would be
in the best interests of the Partnership and its limited partners (the "Limited
Partners"). Upon the sale of the last Property, the payment of all debts and the
distribution of any remaining proceeds, less necessary reserves, to those
persons entitled thereto pursuant to the Partnership's Agreement of Limited
Partnership (the "Partnership Agreement"), the Partnership will be dissolved.
TMP Inland Empire II, Ltd., a California Limited Partnership, has been formed
under the Revised Limited Partnership Act of the State of California. The rights
and obligations of the Partners in the Partnership are governed by the
Partnership's Agreement of Limited Partnership (the "Partnership Agreement").
The following statements concerning the Partnership Agreement are qualified in
their entirety by reference to the Partnership Agreement, which has been filed
as an Exhibit to Form 10K.
DESCRIPTION OF LIMITED PARTNERSHIP UNITS. The Partnership Agreement authorizes
the issuance and sale of Limited Partnership Units for all cash in multiples of
$1,000 per Unit. A total of 7,250 Limited Partnerships Units are outstanding and
it is not anticipated that any additional Limited Partnership Units will be
issued in the future. Outstanding Units are fully paid and nonassessable.
Between August, 1988 and January, 1989, the Partnership sold an aggregate of
7,250 Units at a price of $1,000 per Unit, or an aggregate of $7,250,000.
THE RESPONSIBILITIES OF THE GENERAL PARTNERS. The General Partners have the
exclusive management and control of all aspects of the business of the
Partnership. On April 1,1998, 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. The General Partners may,
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in their absolute discretion, acquire, mortgage, encumber, hold title to,
pledge, sell, release, or otherwise dispose of real property and interests
therein when and upon such terms as they determine to be in the best interest of
the Partnership and employ such persons, including, under certain circumstances,
Affiliates of the General Partners, as they deem necessary for the efficient
operation of the Partnership. It is provided, however, that the Limited Partners
holding, in aggregate, more than 50% of the then outstanding Units must consent
to the sale of substantially all of the assets of the Partnership other than a
sale occurring in the ordinary course of the Partnership's business. The General
Partners shall receive only such compensation as is provided in the Partnership
Agreement.
LIABILITIES OF LIMITED PARTNERS/NONASSESSABILITY OF INTERESTS. A Limited
Partner's capital contributed to the Partnership is subject to the risks of the
Partnership's business. Except as specifically provided in the Partnership
Agreement, he is not permitted to take any part in the management or control of
the business and he may not be assessed for additional capital contributions.
Assuming that the Partnership is operated in accordance with the terms of the
Partnership Agreement, a Limited Partner is not liable for the liabilities of
the Partnership in excess of his capital contribution and share of his
undistributed profits. Notwithstanding the foregoing, a Limited Partner is
liable for any Distributions made to him if, after such Distributions, the
remaining assets of the Partnership are not sufficient to pay its then
outstanding liabilities, exclusive of liabilities of Limited Partners on account
of their contributions, and liabilities for which recourse is limited to
specific Partnership assets.
The Partnership Agreement provides that the Limited Partners shall not be bound
by, or be personally liable for, the expenses, liabilities, or obligations of
the Partnership.
TERM AND DISSOLUTION. The Partnership will continue for a maximum period ending
December 31, 2019, but may be dissolved at an earlier date, if certain
contingencies occur. Prior to dissolution, Limited Partners may not withdraw
from the Partnership but may, under certain circumstances, assign their Units to
others. (See "Transferability of Units," below.) The contingencies whereby the
Partnership may be dissolved are as follows:
1.The withdrawal, adjudication of bankruptcy, dissolution, or death of a General
Partner, unless the remaining General Partner agree to continue the business
of the Partnership, or if there is no remaining General Partner, all the
Limited Partners agree to continue the Partnership business and elect, by
unanimous consent, one or more new General Partners to continue the business;
2.A Majority Vote of the total outstanding Units in favor of dissolution and
termination of the Partnership; or
3.The removal of a General Partner, unless the remaining General Partner agree
to continue the business of the Partnership, or if there is no remaining
General Partner, a majority of the Limited Partners agree to continue the
business of the Partnership and elect, by a Majority Vote of the total out-
standing Units, one or more new General Partners to continue the Partnership
business.
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VOTING RIGHTS OF LIMITED PARTNERS. The voting rights of the Limited Partners are
set forth in Section 6 of the Partnership Agreement. The Limited Partners have
the right to vote upon the following matters affecting the basic structure of
the Partnership:
1.Amendment of the Partnership Agreement (except for amendments which do not
affect the rights of the Limited Partners);
2.Removal of a General Partner;
3.Admission of a General Partner;
4.The sale of all, or a substantial part, of the assets of the Partnership
other than in the ordinary course of business;
5.The election to continue the business of the Partnership and the appointment
of a successor General Partner after the withdrawal, adjudication of bankrup-
tcy, death, or dissolution of the sole remaining General Partner;
6.The election to continue the business of the Partnership and appointment
of a successor General Partner after the removal of the remaining General
Partner; or
7.Termination and dissolution of the Partnership, other than after sale of all
of the Properties and receipt of all amounts due on any seller carryback
financing.
A majority Vote of the Limited Partnership shall be required for the matters set
forth above to pass and become effective, except for the matters specified in
Item 5, which shall require the unanimous consent of the Limited Partners.
The General Partners may at any time call a meeting of the Limited Partners or
for a vote, without a meeting, of the Limited Partners on matters on which they
are entitled to vote, and shall call for such meeting or vote following receipt
of written request therefore of Limited Partners holding 10% or more of the
total outstanding Units.
Each Limited Partnership Unit shall have equal voting rights.
TRANSFERABILITY OF UNITS. Holders of Units shall have the right to assign one or
more whole Units by written instrument the terms of which are not in
contravention of any of the provisions of the Partnership Agreement.
An assignee of record shall be entitled to receive Distributions from the
Partnership attributable to the Units acquired by reason of such assignment from
and after the effective date of the assignment of such Units to him; however,
the Partnership and the General Partners shall be entitled to treat the assignor
of such Units as the absolute owner thereof in all respects, and shall incur no
liability for allocations of Net Income, Net Loss, or Distributions, or
transmittal of reports and notices required to be given to Limited Partners
which made in good faith to such assignor until such time as written instrument
of assignment has been received by the Partnership and recorded on its books.
The effective date of an assignment of Units (of which assignment the
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Partnership has actual notice) on which the Assignee shall be deemed an Assignee
of record shall not be later than the first day of the fiscal quarter following
the date set forth on the written instrument of assignment.
Any assignment, sale, exchange or other transfer in contravention of any of the
provisions of the Partnership Agreement shall be void and ineffectual, and shall
not bind or be recognized by the Partnership.
An Assignee may only be substituted as a Limited Partner in the place of the
assignor Limited Partner with the prior consent of the General Partners. Any
substituted Limited Partner must agree to be bound by the provisions of the
Partnership Agreement.
BOOKS AND RECORDS. At all times during the term of the Partnership, the General
Partners will keep true and accurate books of account of all the financial
activities of the Partnership. These books of account are kept open for
inspection by the Limited Partners or their representatives at any reasonable
time. The General Partners may make such elections for federal and state income
tax purposes as they deem appropriate and the fiscal year of the Partnership is
the calendar year unless changed by the General Partners with the consent of the
Commissioner of the Internal Revenue Service.
DISTRIBUTIONS, NET INCOME AND NET LOSS
ALLOCATION OF NET INCOME AND NET LOSS FROM OPERATIONS. Until such time that all
Limited Partners have received allocations of Net income from the Partnership
equal to a 6% cumulative, but not compounded, preferred return on adjusted
Capital Contributions (the "Preferred Return"), Net Income shall be allocated
99% to all Limited Partnership Units, which will be further allocated among such
Units on a pro rata basis, and 1% to the General Partners. Until such time that
all Limited Partners have received Distributions equal to their Capital
Contributions plus their Preferred Return, Net Losses shall be allocated 99% to
all Limited Partnership Units, allocated among them on a pro rata basis, and 1%
to the General Partners. Thereafter, Partnership Net Income, Net Loss, and all
items of Partnership deduction and credit shall be allocated 15% to the General
Partners and 85% to all Limited Partners, pro rata, according to the number of
Units owned. The foregoing allocations are subject to certain requirements of
the Internal Revenue Code of 1986, as amended (the "Code"), as set forth in
Section 4.5 of the Partnership Agreement.
ALLOCATION OF PROFITS AND LOSSES ON SALES OF PROPERTY. Profits and Losses on
Sales of Property are allocated as set forth in Section 4.5(f) and 4.5(g),
respectively, of the Partnership Agreement.
DISTRIBUTIONS. Distributions of Distributable Cash from Operations, if any, will
be made annually within 90 days after the end of the Partnership's fiscal year
and shall be allocated 99% to the Limited Partners and 1% to the General Part-
ners until the Limited Partners have received cumulative Distributions in an
amount equal to their Capital Contributions plus their unpaid Preferred Return,
after which time Distributions of Distributable Cash from Operations shall be
allocated 85% to the Limited Partners and 15% to the General Partners. Except
for Distributions on Dissolution described in Section 8.2 of the Partnership
Agreement, Distributions of Cash from Sale or Refinancing of Partnership
Properties shall be distributed to the Partners at such times as the General
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Partners shall determine in the same manner as Distributions of Distributable
Cash from Operations. The General Partners have the right to use Cash from the
Sale or Refinancing of Partnership Properties to pay seller financed debt
without making a Distribution to Partners; provided, however, that sufficient
funds, if available, shall be distributed to the Limited Partners to pay any
resulting state or federal income tax, assuming that all such Limited Partners
are in a 28% tax bracket.
INVESTMENT OBJECTIVES; RISKS
In general, the investment objectives of the Partnership may be summarized as
follows:
(a) Preservation and return of the Partners' capital.
(b) Capital appreciation.
(c) Added value through pre-development activity (zoning, subdivision, site
planning, engineering).
(d) Cash flow after return of capital.
(e) Minimization of risk by maintaining minimum partnership debt.
The General Partners are, at all times, guided by a policy of realizing profit
intended to result in gain for the Limited Partners upon ultimate disposition of
the Properties. There can, however, be no assurance or guarantee that the
decisions made by the General Partners will result in the realization of any
profit.
The Partnership is subject to the risks generally incident to the ownership of
real estate, including the uncertainty of cash flow to meet fixed or variable
obligations; adverse changes in national economic conditions; changes in the
investment climate for real estate investment; lack of geographic
diversification; adverse changes in local market conditions, such as changes in
the supply of, or demand for competing properties in an area; changes in
interest rates and the availability of permanent mortgage funds, which may
render the sale or refinancing of a property difficult or unattractive; changes
in real estate tax rates and other operating expenses, governmental rules
(including, without limitations, zoning laws and fiscal policies); known and
unknown environmental conditions on the property and acts of God that may result
in uninsured losses (including, without limitation, earthquakes and floods).
The purchase of property to be developed or constructed is subject to more risks
than is involved in the purchase of property with an operating history. In the
event the General Partners decide to develop the Properties, the Partnership
will be subject to the risk that there may be unanticipated delays in, or
increases in costs of, development and construction as a result of factors
beyond the control of the General Partners. These factors may include, among
others, strikes, adverse weather, material shortages, and increases in the cost
of labor and materials. Such factors can result in the increased cost of a
project and corresponding depletion of the Partnership's working capital and
reserves, or loss of the Partnership's investment as a result of foreclosure by
a construction or other lender. Additional risks may be incurred where the
Partnership makes periodic progress payments or other advances to the builders
prior to completion of the construction. It should also be noted that the
development of unimproved real property is a time-consuming process which often
involves governmental approval of site and development plans, environmental
studies and reports, traffic studies, and similar items.
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The Partnership may enter into joint ventures in order to accomplish the
development of the Properties. Such transactions may create risks not otherwise
present. For example, the joint venturer's investment objectives may be
inconsistent with the investment objectives of the partnership.
If the Partnership develops the Properties, either alone or in conjunction with
joint venture partners, construction arrangements will be made at that time. As
of the date of this Form 10K, no arrangements have been entered into or
negotiated with any person for the development of any of the Properties.
If the Partnership requires a loan to finance pre-development or development
activities, or to pay off or refinance an existing loan on a given property, the
availability and cost of such a loan is uncertain due to money market
fluctuations. The General Partners are unable to predict the effects of such
fluctuations on the Partnership. Money market conditions which may exist if and
when the Partnership seeks to obtain any financing with respect to the
Partnership for development or other purposes may make such financing difficult
or costly to obtain and may have an adverse effect on the Partnership's ability
to develop the Properties. Additionally, such conditions may also adversely
affect the ability of the Partnership to sell the Properties when a sale is
determined to be in the best interests of the Partnership, and may affect the
terms of any such sale.
The Partnership's investment objectives must be considered speculative and there
is no assurance that the Partnership will fulfill them.
SELLING POLICY
The Partnership seeks to sell all Properties for all cash. However, if the
General Partners deem it to be in the best interests of the Partnership and its
Limited Partners, the Partnership will sell one or more of the Properties in
exchange for receiving part of the purchase price in cash at the time of sale
and receiving the balance of the purchase price on a deferred basis. The
deferred amount will be evidenced by an interest-bearing promissory note secured
by a deed of trust on the Property sold. However, the Partnership does not
intend to carry back any promissory notes unless it obtains a first priority
lien against the Property sold.
COMPETITION
It is anticipated that the Partnership will encounter considerable competition
in the pre-development, development, operation, and eventual sale of the
Properties. Even under the most favorable marketing conditions, there is no
guarantee that the Properties can be pre-developed, developed, operated, or
sold, and if sold, that such sale will be made upon terms favorable to the
Partnership. Similarly, there is no guarantee that the Partnership will be able
to conduct profitable operations on the Properties, if and when they are
developed.
GOVERNMENTAL POLICIES
The Partnership's pre-development and development plans for the Properties, as
well as the value of the Properties, are dependent in large part on governmental
action. The following is a partial list of some, but not all, of the potential
problems which could arise due to governmental action or inaction.
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ZONING/PLANS/MAPS/PERMITS. The Property is zoned commercial, but no assurances
can be given that the City would not attempt to rezone or refuse to issue a
building permit. Zoning changes are dependent on, among other things, whether or
not such change would be consistent with the General and Specific Plan for a
given area. In the event that zoning is changed or if permits are not obtained,
the value of the remaining parcels to the Partnership and to others may be
reduced and the investment results of the Partnership may be materially
adversely affected.
GROWTH INITIATIVES. Many counties and cities in California have been subject to
so called "slow growth" initiatives which could seriously affect the ability to
timely develop properties located within a county or city passing such an
initiative. Although no such initiatives are currently pending, such an
initiative could adversely affect the use or value of those Properties located
within such county or city.
PROPERTY TAX REFORM AND RENT CONTROL. Statewide property tax reform has reduced
real property taxes in California. However, subsequently enacted statewide
implementing legislation may cause real property taxes in California to increase
at a more rapid rate than previously experienced and legislation enacted in
certain municipalities in response to the statewide reform requires owners of
real property to pass through property tax savings to residential and certain
commercial tenants by various means, including rent reduction. It is also
possible that legislation at the state or local level may be enacted in
California which may include some form of rent control applicable to the
Partnership. In addition, certain fees and charges associated with the
acquisition and ownership of real property in California have been increased to
offset decreases in local revenue resulting from the property tax reduction.
OTHER GOVERNMENTAL INTERVENTION. There can be no assurance that there will be no
governmental intervention with respect to the Properties that would adversely
affect the use or value of the Properties. For example, building moratoriums,
changes in general or specific plans, downzoning of the Properties,
unanticipated environmental regulation, and special assessment district city
development fees could impair the value of the Properties owned by the
Partnership.
ENVIRONMENTAL
The Partnership may be required in certain instances to obtain environmental
impact, biological impact or other similar reports prior to development of the
Properties. Such reports may indicate conditions which make it more expensive
(or in rare cases, impossible) to develop a Property in a manner anticipated by
the Partnership, or may cause delays in the development of a Property. If a
Property is contaminated by hazardous materials, the Partnership could incur
substantial clean up costs under federal, state and local laws which could
adversely affect the investment results of the Partnership.
The General Partners know of no environmental conditions on the Properties that
would adversely affect the investment results of the Partnership.
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EMPLOYEES
The Partnership has no employees. Management of the Partnership is provided by
the General Partners.
See Item 10 "Directors and Executive Officers" for information about the General
Partners.
ITEM 1(d). FOREIGN OPERATIONS
The Partnership has no foreign operations in foreign countries.
ITEM 2. PROPERTIES
The Partnership had acquired a total of three (3) Properties. All of the
Properties are in the area of Southern California known as the "Inland Empire."
While no fixed geographical boundary identifies the Inland Empire, the General
Partners consider the Inland Empire to include most of the western portion of
Riverside and San Bernardino counties and to be roughly bounded by the cities of
Corona on the west, the Coachella Valley (Palm Springs area) on the east, the
City of Victorville on the north and Temecula/Murrieta (formerly Rancho
California) on the south. The Partnerships remaining property is in the City of
Fontana, County of San Bernardino.
The Partnership owns or has owned the following properties:
<TABLE>
<CAPTION>
Date Purchase Date Sales
Property Purchased Price Sold Price
<S> <C> <C> <C> <C>
Rialto I 11-04-88 $1,505,000 01-04-89 $2,250,000
Rialto II 11-22-88 $ 827,000 09-22-89 $1,500,000
Fontana 10-28-88 $3,200,000 * *
</TABLE>
* FONTANA. The Fontana parcel was still owned by the Partnership as of December
31,1998. It includes approximately 18.5 acres (gross) located on the south side
of Baseline Avenue and Village Center Drive in Fontana, California and is zoned
for commercial use. This Property is currently listed for sale at $ 2,700,000.
ITEM 3. LEGAL PROCEEDINGS
There are no matters requiring disclosure under Item 3.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Registrants security holders during the
fourth quarter of 1998.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MARKET INFORMATION
As of December 31, 1998, there were approximately 593 record holders of Units of
Limited Partnership Interest. There is no other class of security outstanding or
authorized. To the General Partners knowledge, there has not been, and currently
there does not exist, any trading market for the Units. Accordingly, there was
no trading activity during the fiscal year ended December 31, 1995-1998.
CASH DISTRIBUTIONS
No cash distributions were paid to the Limited Partners during the fiscal years
ended December 31, 1997 and1998. A summary of the provisions of the Partnership
Agreement regarding distributions of cash and allocations of net income and
losses is set forth in Item 1 under the subcaption "Distributions, Net Income
and Net Loss."
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes selected financial data of the Partnership for
the five years ended December 31, 1994 - 1998, and should be read in conjunction
with the more detailed financial statements contained in Item 8 below.
<TABLE>
<CAPTION>
(UNAUDITED)
YEARS ENDED DECEMBER 31
(Not Covered By Independent Auditor's Report)
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest Income $ 3 $ 243 $ 74 $ 1,633 $ 3,468
---------- ---------- ----------- ---------- ---------
Total income $ 3 $ 243 $ 74 $ 1,633 $ 3,468
========== ========= ========== ======= =======
Net income (loss) $ (43,201) $ (16,562) $(2,660,344) $ (367) $ 1,468
========== ========= ========== ======= =======
Net income (loss)
per Unit* $ (5.90) $ (2.26) $ (363.27) $ (0.05) $ .20
========== ========= ============ ======= =========
Cash distribution
per Unit* $ - $ - $ - $ - $ -
========= ======== ========= ======= =========
Total assets $1,034,390 $1,008,115 $ 1,023,477 $3,683,459 $3,684,579
========= ======== ========= ========= =========
*(Based on 7,250 Units outstanding at December 31, 1994-1998)
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSES 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 discussion and analysis contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934 and Sections 27A
of the Securities Act of 1933, 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.
RESULTS OF OPERATIONS
During the period from inception (August 15, 1988) through December 31, 1988,
the Partnership was engaged primarily in the sale of Units of Limited
Partnership Interest and the investment of the subscription proceeds to purchase
parcels of unimproved real property. The Partnership sold two Properties during
1989 for a gross profit, net of all acquisition, carrying and selling costs, of
$1,028,844. Other revenues received during the fiscal years ended December 31,
1994 - 1998 consisted primarily of interest income and income from for-
feiture of nonrefundable deposits.
In compliance with Statement of Financial Accounting Standards No. 121
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Disposed of (SFAS 121), the 1996 financial statements reported an expense for
the decline in fair value of unimproved land of $2,659,594. The 1997 financial
statements originally issued with the auditor's report dated January 28, 1998
reported $1,692,884 of income due to appreciation in fair value of land.
Pursuant to additional review by management and the predecessor accounting firm,
it was determined that SFAS 121 does not provide for recording appreciation in
fair value of a real estate asset. Therefore, the 1997 financial statements were
restated by the predecessor independent accounting firm on August 3, 1998 to
remove the previously reconciled appreciation in fair value of land. In
addition, certain carrying costs of the land that were previously capitalized
have been restated as expenses in the amount of $11,875 for the year ended
December 31, 1998.
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The Partnership's management believes that inflation has not had a material
effect on the Partnership's results of operations or financial condition.
LIQUIDITY AND CAPITAL RESOURCES
The partnership raised a total of $6,564,041, net of syndication costs, from the
sale of Limited Partnership Units. During the period from inception through
December 31, 1992, the Partnership acquired a total of nine Properties for all
cash at a total expenditure of $6,159,225, including carrying costs (such as
interest expense and property taxes). The partnership capitalized the
acquisition costs of the property and direct carrying costs, such as interest
expense and property taxes. The Partnership does not intend to acquire any
additional Properties. The Partnership has no current plans to develop the
Property, and it is expected that no such plans would be undertaken. The
Property was listed for sale in January, 1999. Upon sale, if any, the
Partnership intends to distribute the sales proceeds, less any reserves needed
for final reporting to the Partners.
The Partnership's land is in San Bernardino County. That region of Southern
California has experienced a significant economic recession that has
substantially eroded the value of real estate in that area. The region is
beginning to show some signs of recovery; however, the recovery has been very
slow.
In March, 1998, the General Partners of the Partnership entered into an
agreement (the Financing Agreement) with PacWest Inland Empire, LLC (PacWest), a
Delaware 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 also 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 has agreed to loan and/or secure a loan for 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 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 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 December 31,
1998, PacWest has loaned the Partnership $66,508 under this agreement.
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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. PacWest is paid a fee of $3,972 annually
for its administrative services.
Pursuant to the Financing 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.
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.
-13-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements are filed as a part of this Form 10K-SB:
(I) For the fiscal years ended December 31, 1998 and 1997:
Page No.
Independent Auditors Reports 1, 2
Balance Sheet as of December 31, 1998 3
Statements of Operation for the years ended December 31,
1998 and 1997 4
Statements of Partners' Capital for the years ended
December 31, 1998 and 1997 5
Statements of Cash Flow for the years ended
December 31, 1998 and 1997 6
Notes to Financial Statements 7 - 11
Financial Statement Schedules 12, 13
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission
of the schedule, or because the information required is included in the
Financial Statements and Notes thereto.
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no disagreements with the independent accounting firm. On March 29,
1999, the Registrant filed a Form 8-K in which it terminated the accounting firm
of Balser, Horowitz, Frank & Wakeling and appointed the independent accounting
firm of Swenson Advisors, LLP.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The Partnership has no employees and no directors or executives officers.
Management of the Partnership is provided by the General Partners However, on
April 1, 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
-14-
<PAGE>
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.
TMP Properties, a California general partnership, and TMP Investments, Inc., a
California corporation, are the General Partners of the Partnership. TMP
Properties was formed on July 14, 1978. TMP Properties' principal business has
been the acquisition of undeveloped land and the coordination of activities
necessary to add value to such land, primarily through the predevelopment
process. It has syndicated numerous private real estate limited partnerships,
and eleven public real estate limited partnerships. All of the properties
purchased by such partnerships were located in the State of California except
for one (an office building) which was located in Oklahoma City, Oklahoma. Each
of such limited partnerships involved a specified real property program in which
TMP Properties was the general partner. The general partners of TMP Properties
are William O. Passo, Anthony W. Thompson and Scott E.
McDaniel.
The individual partners of TMP Properties are listed below, together with
information regarding their employment experience and background.
TMP Investment Inc., a California corporation, was formed on December 12, 1984.
TMP Investments Inc. has served in the capacity of a co-General Partner in all
of the TMP sponsored programs since December 1984. In 1993, TMP Investments Inc.
began serving as sole General Partner in all TMP sponsored partnerships. TMP
Investments Inc. has been and will continue to be engaged in asset management,
real estate accounting, budgetary services, and partnership management on behalf
of existing limited partnerships and limited partnerships which it sponsors in
the future. The shareholders of TMP Investments, Inc. were William O. Passo,
Anthony W. Thompson, and Scott E. McDaniel until September 1993, when Mr.
McDaniel sold his share of TMP Investments Inc. to Mr. Passo and Mr. Thompson.
WILLIAM O. PASSO, 57, is a Director and the President of TMP Investments Inc. He
practiced law for 18 years, has been a licensed real estate broker since 1974
and holds registered representative and general principals securities licenses
through the National Association of Securities Dealers, Inc. Mr. Passo received
his Juris Doctorate Degree from UCLA School of Law in 1967. He has been a senior
partner first of Passo, Yates, and Nissen until 1975, then of Passo & Davis
until March 1983 when he resigned from the partnership to take a leading role in
the management of the affairs of TMP Properties. Mr. Passo has been involved in
public and private real estate syndication since 1970, and has acted as
principal, investor, general partner, and counsel in real estate transactions
involving apartments, office buildings, agricultural groves, and unimproved
land. Mr. Passo is a director and officer of William O. Passo, Inc. (dba TMP
Management), a property management company, an officer of TMP Capital Corp., a
NASD registered broker-dealer, and an officer of TMP Realty, a registered real
estate broker.
SCOTT E. MCDANIEL, 52, is a General Partner of TMP Properties. He is a graduate
of the U.S. Naval Academy at Annapolis, majoring in engineering. Mr. McDaniel is
a California licensed general contractor and has been a licensed California real
estate broker since 1976. He was the founder and President of Scott E. McDaniel,
Inc. (dba Regal Realty). Mr. McDaniel has developed office complexes and
industrial space in Southern California and has personally brokered over $125
million of real estate since 1982. Through an affiliated company, DeVille
Construction Co. Inc., Mr. McDaniel has directed general contracting operations
in Southern California since 1982.
-15-
<PAGE>
ANTHONY W. "TONY" THOMPSON, 52 is Director and Vice-President of TMP Investments
Inc. A graduate of Sterling College in 1969, with a Bachelors Degree in Science
and Economics, Mr. Thompson holds the professional designations of Charter Life
Underwriter and chartered Financial Consultant form the American College. Mr.
Thompson is a registered principal with the NASD and is a principal in TMP
Capital Corp., a NASD registered Broker Dealer. Mr. Thompson has been involved
in the securities and the real estate investment fields since 1970, and a
General Partner of TMP since its formation in 1978. Mr. Thompson's primary
responsibility is marketing TMP offerings through the broker dealer community.
ITEM 11. EXECUTIVE COMPENSATION
During the period since the formation of the Partnership (August 15, 1989)
through the fiscal year ended December 31, 1998, the Partnership paid fees to
the General Partners for various services in the amount of $76,887 of which $0
was paid in the year ended December 31,1998. In addition, the General Partners
received collectively $39,787 as their share of Partnership distributions. (See
Item 13. "Certain Relationships and Related Transaction".) The Partnership has
no officers or employees and, therefore, paid no other compensation other than
that paid to the General Partners as indicated above.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1998, the Partnership had 7,250 units of Limited Partnership
interest (the "Units") issued and outstanding. To the knowledge of the General
Partners, no person beneficially owns more the 5% of the Units. The following
table set forth the number of Units beneficially owned as of December 31, 1998
by each officer, director and general partner of the General Partners and by all
such persons as a group.
<TABLE>
<CAPTION>
Number of Percent of
Name of Beneficial Owner Units Class
<S> <C> <C>
William O. Passo 20 0.276%
Anthony W. Thompson 58 0.800%
All officers, directors and 78 1.076%
general partners as a group
(2 persons, including the above)
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH AFFILIATES
The following information summarizes the forms and amounts of compensation (some
of which involve cost reimbursements) paid either by the Partnership, or others,
to the General Partners and their affiliates since the formation of the
Partnership (August 15, 1988) through the fiscal year ended December 31, 1998.
-16-
<PAGE>
The information under "Operating and Liquidation Stage" and "Summary of
Compensation" below also also describes the amounts of compensation to be paid
to the General Partners and their affiliates in the future. None of these
amounts were determined by arm's-length negotiations. Reference is also made to
the Notes to the Financial Statements included elsewhere in this Form 10K for
additional information regarding transactions with affiliates.
<TABLE>
OFFERING AND ORGANIZATION STAGE OF PARTNERSHIP
<CAPTION>
Amount Paid from
Form of Compensation Formation through
and Recipient Description of Payment December 31, 1998
- ------------- ---------------------- -----------------
<S> <C> <C>
Selling Commission and Up to a maximum of 10% of gross $725,000
Due Diligence proceeds, a minimum of which was
Reimbursement reallocated to participating Soliciting
(TMP Capital Corp.) Dealers (which included TMP Capital
Corp.) from Units sold by them. Up to
an additional 0.5% paid to Soliciting
Dealers (which included TMP Capital
Corp.) for due diligence activities.
Reimbursement for Organizational Expenses paid to the $30,057
Organizational Expenses General Partners to reimburse them
(General Partners) (without markup or profit) for
organizational costs actually incurred
such as advertising, mailing,
printing costs, clerical expenses,
legal and accounting fees.
Reimbursement for The General Partners were reimbursed $147,500
Property Expenses (without markup or profit) for all out
(General Partners) of pocket expenses directly related to
the Properties, including the purchase
price of Properties acquired prior to
Partnership formation, out of pocket
carrying costs of such Properties
(such as interest and property taxes)
including actual interest incurred on all
funds advanced for the benefit of the
Partnership, deposits, escrow extension
payments, appraisal fees, expenses of
feasibility and other studies
performed by third parties unaffiliated
with the General Partners and similar
expenses, but not including the General
Partners' overhead, salaries, travel
or like expenses.
-17-
<PAGE>
Property Acquisition For services rendered in connection
Fees (General Partners with the acquisition of the Properties
or an affiliate) acquired by the Partnership, the
General Partners, or an affiliate,
received acquisition compensation
(either denominated as such, or
as a real estate brokerage commission,
or otherwise) in the following
amounts:
(i) Acquisition fees: $347,500
(ii) Real estate brokerage commissions $152,450
</TABLE>
OFFERING AND ORGANIZATION STAGE OF PARTNERSHIP
<TABLE>
<CAPTION>
Amount Paid from
Form of Compensation Formation through
and Recipient Description of Payment December 31, 1998
- ------------- ---------------------- -----------------
<S> <C> <C>
Partnership Management A Partnership Management Fee with $76,887
Fee (General Partners) respect to each Property until
a Property is sold or improvement
of the Property commences in an
annual amount of 1/4 of 1% (.25%)
of the cost of the property, but not
to exceed 2% of such costin the
aggregate.
Leasing and Property For leasing an improved Property, or a $-0-
Management Fees portion thereof, a commission equal to
(General Partners or 7% for the first year's rent (net
an affiliate) lease) or 6% of the first year's rent
(gross lease) decreasing to 2.5% (net lease)
or 2% (gross lease) of the rent for years
eleven through thirty. Upon development of
the Properties, or any of them, an amount up
to 5% of the gross revenues of the
Properties for supervision for the operation
and maintenance of the Properties. Such
leasing and property management fees shall
not exceed the competitive rates that would
be charged by unaffiliated persons.
Interest in Partnership 1% interest in all Partnership $39,787
Allocation of Each allocations of Net Income,
Material Item Net Loss and Distributions
(General Partners) of Distributable Cash from
Operations and of Cash from Sale
or refinancing of the Properties.
-18-
<PAGE>
Subordinated A 15% interest in all Partnership $-0-
Participation allocations of Net Income and
(General Partners) Distributions of Distributable Cash
from Operations and of Cash from the Sale or
Refinancing of the Properties subordinated
to a return of all Limited Partners' Capital
Contributions plus a cumulative,
non-compounded return of 6% per annum on
their Adjusted Capital Contributions.
Subordinated Real Real estate commissions with respect to $-0-
Estate Commission the sale of Properties which are equal
(General Partners or to the lesser of: (I) 3% of the gross
an Affiliate) sales price of a Properties; equal to
one-half the normal and competitive rate
charged by unaffiliated parties, but payment
shall be subordinated to a return of all
Limited Partners' Capital contributions,
plus a cumulative, noncompounded return of
6% per annum on their Adjusted Capital
Contributions.
</TABLE>
SUMMARY OF COMPENSATION. In summary, the Partnership paid securities brokerage
commissions for services performed by TMP Capital Corp. in the sale of the Units
in the amount of $725,000 (including due diligence fees) and reimbursed the
General Partners for expenses incurred in organizing the Partnership and
documenting the offering in the amount of $30,057. The General Partners also
received Property Acquisition Fees and real estate brokerage commissions in the
amounts set forth above, and were reimbursed for out of pocket expenditures made
in connection with the acquisition and carrying costs for the Properties or
studies related thereto. During the operating stage, the partnership will pay
the General Partners an annual Partnership Management Fee for managing the
Partnership equal to 1/4 of 1% of the cost of the Properties, payable annually
in advance with respect to each Property until such time as the Properties are
sold or improvement of the land commences; provided such fee, in the aggregate,
shall not exceed 2% of the cost of the Properties. At such time, if at all, that
the Properties, or any of them, are developed, the General Partners will receive
leasing commissions as described above, and a property management fee in an
amount up to 5% of the gross property revenues, but not to exceed the
competitive rate charged by nonaffiliated persons providing similar services.
The General Partners have a 1% interest in all allocations of Partnership Net
Income until the limited Partners have received allocations of Net Income equal
to a cumulative, noncompounded return of 6% on their Adjusted Capital
Contributions (the "Preferred Return"); and thereafter, the General Partners
will have a 15% interest in all Partnership allocations of Net Income,
Distributions of Distributable Cash from Operations, and Cash from Sale or
Refinancing of Partnership Property and the Limited partners will have an 85%
interest therein. Net Losses and nonrecourse deductions shall be allocated 1%
-19-
<PAGE>
to the General Partners and 99% to the Limited Partners until the Limited
Partners have received distributions equal to their capital contributions plus
their preferred return; and thereafter 85% to the Limited Partners and 15% to
the General Partners; provided however, no allocation of Net Losses shall be
made to a Limited Partners to the extent that the allocation would create or
increase a negative balance in that Limited Partner's capital account. In the
event, a Limited partner may not be allocated Net Losses, net losses shall be
allocated one hundred percent (100%) to the General Partners. If the General
Partners or an Affiliate provide a substantial amount of services with respect
to the sale of a Partnership Property, the General Partners or an Affiliate may
receive a real estate commission in an amount up to one-half of the amount of
competitive real estate commissions, not to exceed 3% of the sales price of such
Property. Both the 15% General Partners' participation and the Partners' real
estate commission are subordinated to a return of all Limited Partners' Capital
Contribution plus a cumulative, non-compounded return of 6% per annum on their
Adjusted Capital contributions.
Thus, only after the Limited Partners have recovered their Capital Contributions
plus the cumulative 6% return discussed above, will the General Partners'
allocation of Distributions of Distributable Cash from Operations and Cash from
Sale or Refinancing of Partnership Property exceed a nominal 1% ownership
interest therein. Such allocation provides built-in incentive for the General
Partners to seek the optimum performance from the Partnership's Properties.
CONFLICTS OF INTEREST
The Partnership is subject to various conflicts of interest from its
relationship with the General Partners. These conflicts include, but are not
limited to:
CONFLICTS IN GENERAL. The interests for the Limited Partners may be inconsistent
with those of the General Partners or their Affiliates when the General Partners
must make policy decisions on behalf of the Partnership. The General Partners,
for instance, might not desire to sell a Property when a sale would be
advantageous to the Limited Partners because of the General Partner's interest
in Distributions of Distributable Cash from Operations and Net Proceeds from the
Sale or Refinancing of the Property. Subject, in certain circumstances, to the
approval of the holders of a majority or other specified voting percentage of
the Units, the General Partners will have the discretion as to when to sell a
Property or portion thereof. The timing of the sale of a Property or any portion
thereof and the terms on which such sale will be made may result in a conflict
of interest. Furthermore, the sale of a Property may result in the recognition
of substantial taxable gain to the General or Limited Partners in different
ratios depending upon the timing of such sale. Accordingly, the decisions as to
when to sell a Property may be advantageous to the General Partners and
disadvantageous to the Limited Partners, or vice versa. The General Partners in
any event will be compelled to make any decisions with respect to the sale or
retention of a Property based upon the best interests of the a Partnership and
its Limited Partners because of the fiduciary duty which they owe to the Limited
Partners.
AVAILABILITY OF MANAGEMENT SERVICE. Under the Partnership Agreement, the General
Partners are obligated to devote as much time as they, in their sole discretion,
deem to be reasonably required for the proper management of the Partnership and
its assets. The General Partners believe that they have the capacity to
discharge their responsibilities to the Partnership notwithstanding
participation in other investment programs and projects. In April 1998, PacWest
Inland Empire, LLC (PacWest)entered into a management, administrative and
consulting 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.
-20-
<PAGE>
INTERESTS IN OTHER ACTIVITIES. The General Partners, or any of their affiliates,
may engage for their own account, or for the account of others, in other
business ventures, whether real estate or otherwise, and neither the Partnership
nor any Limited Partner shall be entitled to any interest therein solely by
reason of any relationship with or to each other arising from the Partnership.
RECEIPT OF COMPENSATION BY THE GENERAL PARTNERS. The payments to the General
Partners set forth above have not been determined by arm's-length negotiations.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K
(a) For a listing of financial statements, reference is made to Item 8 included
in this Form 10K
(b) The Registrant filed no reports on Form 8K during the fourth quarter of the
fiscal year ended December 31, 1998. However, a Form 8K was filed on March
29, 1999.
(c) Exhibits- Those Exhibits required by Item 601 of Regulation S-K which are
applicable to the Registrant are as follows:
(3),(4) and (10.1) Agreement of Limited Partnership and other
material agreements are incorporated by reference to
Exhibits (3),(4) and (10.1) to the Form 10
Registration Statement, SEC File No. 0-19963 filed on
March 19, 1992.
27 Financial Data Schedule
-21-
<PAGE>
TMP INLAND EMPIRE II, LTD
(A California Limited Partnership)
Financial Statements
December 31, 1998 and 1997
<PAGE>
Table of Contents
Reports of Independent Auditors 1-2
Balance Sheet 3
Statements of Operations 4
Statements of Partners' Capital 5
Statements of Cash Flows 6
Notes to Financial Statements 7-11
Supplementary Information 12-13
<PAGE>
Report of Independent Auditors
To the Partners
TMP Inland Empire II, Ltd.
(A California Limited Partnership)
We have audited the accompanying balance sheet of TMP Inland Empire II, Ltd. (A
California Limited Partnership) as of December 31, 1998, and the related
statements of operations, partners' capital, and cash flows for the year then
ended . These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TMP Inland Empire II, Ltd. (A
California Limited Partnership) as of December 31, 1998, and the results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supplementary information contained in Schedule
I is presented for purposes of additional analysis and is not a required part of
the basic financial statements. Such information has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, is stated fairly in all material respects in relation to the
basic financial statements taken as a whole.
The financial statements as of December 31, 1997, were examined by other
auditors. As discussed in Note 7, they expressed an unqualified opinion on
January 26, 1998, and on August 3, 1998 reissued their unqualified opinion for
the year ended December 31, 1997.
Swenson Advisors, LLP
SWENSON ADVISORS, LLP
An Accountancy Firm
Temecula, California
March 26, 1999
-1-
<PAGE>
Independent Auditor's Report
To the Partners
TMP Inland Empire II, Ltd.
(A California Limited Partnership)
We have audited the accompanying balance sheet of TMP Inland Empire II, Ltd. (A
California Limited Partnership) as of December 31, 1997, and the related
statements of income, partners' capital, and cash flows for the year then ended.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TMP Inland Empire II, Ltd. (A
California Limited Partnership) as of December 31, 1997, and the results of its
operations and its cash flows for the year ended, in conformity with generally
accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supplementary information contained in Schedule
I is presented for purposes of additional analysis and is not a required part of
the basic financial statements. Such information has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, is stated fairly in all material respects in relation to the
basic financial statements taken as a whole.
Balser, Horowitz, Frank & Wakeling
BALSER, HOROWITZ, FRANK & WAKELING
An Accountancy Corporation
Santa Ana, California
January 26, 1998, except for Note 6, as to which the date is August 3, 1998
-2-
<PAGE>
TMP INLAND EMPIRE II, LTD.
(A California Limited Partnership)
Balance Sheet
December 31, 1998
<TABLE>
<CAPTION>
Assets
------
<S> <C>
Cash $ 375
Prepaid Expenses 6,880
Investment in Unimproved Land (Note 1) 1,027,135
---------------
Total Assets $ 1,034,390
===============
Liabilities and Partners' Capital
---------------------------------
Due to Affiliates (Note 5) $ 71,038
Franchise Tax Payable 800
Commission Payable to Affiliate (Note 6) 90,000
---------------
Total Liabilities 161,838
---------------
Partners' Capital (Deficit) (Notes 3 and 4)
General Partners (55,857)
Limited Partners; 7,250 Equity Units
Authorized and Outstanding 928,409
Total Partners' Capital 872,552
Total Liabilities and Partners' Capital $ 1,034,390
===============
See Accompanying Notes
</TABLE>
-3-
<PAGE>
<TABLE>
TMP INLAND EMPIRE II, LTD.
(A California Limited Partnership)
Statements of Operations
For the Years Ended December 31, 1998 and 1997
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Income
Interest Income $ 3 $ 243
------------- --------------
Total Income 3 243
------------- --------------
Expenses
Accounting and Financial Reporting 22,372 6,215
Outside Professional Services 5,927 -
General and Administrative 11,271 9,790
Interest Expense 2,834 -
------------- --------------
Total Expense 42,404 16,005
------------- --------------
Loss Before Income Taxes (42,401) (15,762)
------------- --------------
State Franchise Tax 800 800
------------- --------------
Net Loss $ (43,201) $ (16,562)
============= ==============
Allocation of Net Loss
General Partners, in the Aggregate $ (432) $ (166)
============= ==============
Limited Partners, in the Aggregate $ (42,769) $ (16,396)
============= ==============
Limited Partners, per Equity Unit $ (5.90) $ (2.26)
============= ==============
</TABLE>
See Accompanying Notes
-4-
<PAGE>
<TABLE>
TMP INLAND EMPIRE II, LTD.
(A California Limited Partnership)
Statements of Partners' Capital
For the Years Ended December 31, 1998 and 1997
<CAPTION>
General Limited
Partners Partners Total
<S> <C> <C> <C>
Partners' Capital (Deficit)
December 31, 1996 $ (55,259) $ 987,574 $ 932,315
----------- ----------- ---------
Net Loss for 1997 (166) (16,396) (16,562)
----------- ----------- ---------
Partners' Capital (Deficit)
December 31, 1997 (55,425) 971,178 915,753
----------- ----------- ---------
Net Loss for 1998 (432) (42,769) (43,201)
----------- ----------- ---------
Partners' Capital (Deficit)
December 31, 1998 $ (55,857) $ 928,409 $ 872,552
=========== =========== =========
</TABLE>
See Accompanying Notes
-5-
<PAGE>
<TABLE>
TMP INLAND EMPIRE II, LTD.
(A California Limited Partnership)
Statements of Cash Flows
For the Years Ended December 31, 1998 and 1997
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash Flows from Operating Activities
Net Loss $ (43,201) $ (16,562)
Adjustments to Reconcile Net Loss
to Net Cash Provided by (Used In)
Operating Activities:
Increase in Accounts Payable 0 1,200
Increase in Prepaid Expenses (6,880) (6,111)
Increase in Due to Affiliates 69,476 0
------------- --------------
Net Cash Provided by (Used In)
Operating Activities 19,395 (21,473)
------------- --------------
Cash Flows from Investing Activities
Increase in Investment in Unimproved
Land (21,024) 0
------------- --------------
Net Cash Used In Investing Activities (21,024) 0
------------- --------------
Net Decrease in Cash (1,629) (21,473)
Cash, Beginning 2,004 23,477
------------- --------------
Cash, Ending $ 375 $ 2,004
============= ==============
Supplemental Disclosure of Cash Flow Information
- ------------------------------------------------
Cash Paid for Income Taxes $ 800 $ 800
============= ==============
Cash Paid for Interest $ 0 $ 0
============= ==============
Other Disclosures
- -----------------
See Note 6 for information on the Partnership's non-cash financing activities
during the years ended December 31, 1998 and 1997.
</TABLE>
See Accompanying Notes
-6-
<PAGE>
TMP INLAND EMPIRE II, LTD.
(A California Limited Partnership)
Notes to Financial Statements
For the Years Ended December 31, 1998 and 1997
Note 1 - General and Summary of Significant Accounting Policies
General - TMP Inland Empire II, Ltd. (the Partnership) was organized in
-------
1988 in accordance with the provisions of the California Uniform
Limited Partnership Act for the purpose of acquiring, developing and
operating real property in the Inland Empire area of Southern
California.
A summary of the Partnership's significant accounting policies follows:
Accounting Method - The Partnership's policy is to prepare its
------------------
financial statements on the accrual basis of accounting.
Investment in Unimproved Land - Investment in unimproved land is stated
-----------------------------
at the lower of cost or fair value. All costs associated with the
acquisition of a property are capitalized. Additionally, the
Partnership capitalizes all direct carrying costs (such as interest
expense and property taxes). These costs are added to the cost of the
properties and are deducted from the sales prices to determine gains,
if any, when the properties are sold.
Syndication Costs - Syndication costs (such as commissions, printing,
-----------------
and legal fees) totaling $791,514 represent costs incurred to raise
capital and, accordingly, are recorded as a reduction in partners'
capital (see Note 3).
Use of Estimates - The preparation of financial statements in
------------------
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Concentration - All unimproved land parcels held for investment 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 condition in that geographical area. The Partnership attempts to
mitigate any potential risk by continually monitoring the market
conditions and holding the land parcels through any periods of
declining market conditions.
Income Taxes - The Partnership is treated as a partnership for income
-------------
tax purposes and any income or loss is passed through and taxable to
the individual partners. Accordingly, there is no provision for federal
-7-
<PAGE>
TMP INLAND EMPIRE II, LTD.
(A California Limited Partnership)
Notes to Financial Statements
For the Years Ended December 31, 1998and 1997
income taxes in the accompanying financial statements. However, the
minimum California Franchise tax payable annually by the Partnership
is $800.
New Accounting Standards - In June 1998 the Financial Accounting
Standards Board issued Statement of financial Accounting Standards No.
133, "Accounting for Derivative instruments and Hedging Activities."
The new statement requires all derivatives to be recorded on the
balance sheet at fair value and establishes new accounting rules for
hedging instruments. This statement will have no effect on the
financial statements of the Partnership.
Note 2 - Organization of the Partnership
On July 26, 1988, the Partnership was formed with TMP Properties (A
California General Partnership) and TMP Investments, Inc. (A California
Corporation) 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 originally acquired three separate parcels of
commercially zoned real property in San Bernardino County, California.
During 1992, one additional parcel in Riverside County was purchased by
the partnership. The properties were to be held for investment,
appreciation, and ultimate sale and/or improvement of all or a portion
thereof, either alone or in conjunction with a joint venture partner.
Two of the three properties were sold in 1989.
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 offered for sale 7,250 units at $1,000 each to
qualified investors. As of December 31, 1989, all 7,250 units had been
sold for total limited partner contributions of $7,250,000. There have
been no contributions made by the general partners. As described in
Note 1, syndication costs have been recorded as a reduction in
partners' capital.
-8-
<PAGE>
TMP INLAND EMPIRE II, LTD.
(A California Limited Partnership)
Notes to Financial Statements
For the Years Ended December 31, 1998 and 1997
Note 4 - Allocation of Profits, Losses and Cash Distributions
Profits, losses and cash distributions are allocated 99% to the limited
partners and 1% to the General Partners until the limited partners have
received an amount equal to their capital contributions plus a
cumulative, non-compounded return of 6% per annum on their adjusted
capital contributions. At that point, the limited partners are
allocated 85% and the general partners 15% of profits, losses and cash
distributions. There were no distributions in 1998 or 1997.
Note 5 - Agreements With PacWest Inland Empire, LLC
In March 1998, the General Partners of the Partnership entered into an
agreement (the Financing Agreement) with PacWest Inland Empire, LLC
(PacWest), a Delaware 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. In addition,
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. Pursuant to
the Management Agreement, PacWest has acquired the General Partners'
unsubordinated 1% interest in the Partnership and assumed responsibil-
ity for all partnership administration while not replacing any of the
General Partners.
In addition, PacWest has agreed to loan and/or secure a loan for the
Partnership 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 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,
back property taxes and appropriate entitlement costs.
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 service providers to perform certain of the
financial, accounting, and investor relations services for the
-9-
<PAGE>
TMP INLAND EMPIRE II, LTD.
(A California Limited Partnership)
Notes to Financial Statements
For the Years Ended December 31, 1998 and 1997
Partnership. 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
December 31, 1998, the Partnership has an amount due of $66,508 to
PacWest related to the aforementioned agreements.
Note 6 - Related Party Transactions
Syndication costs (see Note 1) netted against partners' capital
contributions include $725,000 of selling commissions paid in prior
years to TMP Capital Corp. for the sale of partnership units of which a
portion was then paid to unrelated registered representatives. William
O. Passo and Anthony W. Thompson were the shareholders of TMP Capital
Corp. until October 1, 1995, when they sold their shares to TMP Group,
Inc.
Investment in unimproved land includes acquisition fees of $198,874
paid in prior years to TMP Properties, TMP Investments, Inc., and the
General Partners, for services rendered in connection with the
acquisition of the properties.
The Partnership was charged $9,790 during the year ended December 31,
1997 by the General Partner and an affiliated company of the General
Partners for office, secretarial and advertising expenses. At December
31, 1998 the Partnership had a payable of $4,530 to the General Partner
and the affiliated company.
See Note 5 regarding information on management of the Partnership
during 1998.
At December 31, 1998, $90,000 is payable to Regal Realty, a company
wholly owned by Scott E. McDaniel, for services rendered relating to
sales of properties prior to 1990. Mr. McDaniel is a partner of TMP
Properties and he was a shareholder of TMP Investments, Inc. until
September 1993 when he sold his shares to Mr. Passo and Mr. Thompson.
Ultimate payment of this amount is contingent on the limited partners
receiving an amount equal to their capital contributions plus a
cumulative, non-compounded return of 6% per annum on their adjusted
capital contributions. As of December 31, 1998 the limited partners had
not received such a return and therefore this amount is not currently
due.
-10-
<PAGE>
TMP INLAND EMPIRE II, LTD.
(A California Limited Partnership)
Notes to Financial Statements
For the Years Ended December 31, 1998 and 1997
Notes 7 - Restatement and Reissuance of 1997 Financial Statements
In compliance with Statement of Financial Accounting Standards No. 121
Accounting for the Impairment of Long-Lived Assets to Be Disposed Of
(SFAS 121), the 1996 financial statements reported an expense for the
decline in fair value of unimproved land of $2,659,615. The 1997
financial statements originally issued with the predecessor auditor's
report dated January 26, 1998 reported $1,692,884 of income due to
appreciation in fair value of land. Pursuant to additional review by
management and the predecessor accounting firm, it was determined that
SFAS 121 does not provide for recording appreciation in fair value of
an asset even in view of previously recording a decline in value.
Therefore, the 1997 financial statements were restated to reverse the
appreciation in fair value of land on August 3, 1998, by the
predecessor accounting firm.
In addition, certain carrying costs of land that were previously
capitalized have been restated as expenses in the amount of $16,005
for the year ended December 31, 1997.
Note 8 - Year 2000 Issue (unaudited)
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 Company'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.
-11-
<PAGE>
SUPPLEMENTARY INFORMATION
-12-
<PAGE>
<TABLE>
TMP INLAND EMPIRE II, LTD
(A California Limited Partnership)
Schedule II - Real Estate and Accumulated Depreciation
(Schedule XI, Rule 12-28, for SEC Reporting Purposes
For the Year Ended December 31, 1998
<CAPTION>
COLUMN A B C D E F G H
- ------------------------------------------------------------------------------------------------------------------------------------
I
COSTS CAPITALIZED
SUBSEQUENT Gross
TO ACQUISITION amount at Estimated
----------------------
Initial Carrying which Carried Accumulated Date of Date Depreciable
Description of Assets Encumbrances Cost Improvement Cost at Year-End Depreciation Construction Acquired Life
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unimproved land-
Fontana, CA -0- $3,427,133 -0- $ 259,617 $ 3,686,750 -0- n/a 10/25/88 n/a
Less valuation
allowance: (2,659,615)
Net carrying value $ 1,027,135
Reconciliation of carrying amount
Beginning balance $1,006,111
Additions
Carrying Costs $21,024
------
Total Additions 21,024
Total Deductions -0-
Ending balance $1,027,135
=========
-13-
</TABLE>
<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: April 15, 1999
----------------------
TMP Inland Empire II, 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. VP
By: TMP Properties, a California General
Partnership as Co-General Partner
By: /S/ WILLIAM O PASSO
------------------------------------
William O. Passo, General Partner
By: /S/ ANTHONY W THOMPSON
------------------------------------
Anthony W. Thompson, General Partner
By: /S/ SCOTT E MCDANIEL
------------------------------------
Scott E. McDaniel, General Partner
