TMP INLAND EMPIRE II, LTD
A California Limited Partnership
Notes to the Financial Statements
September 30,2000
(Unaudited)
Note 1 - General and Summary of Significant Accounting Policies
General - TMP Inland Empire II, Ltd. (the Partnership) was organized in 1988 in
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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
Accounting Method- The Partnership’s policy is to prepare its financial
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statements on the accrual basis of accounting.
Investment in Unimproved Land- Investment in unimproved land is stated at the
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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 when properties are sold.
Syndication Costs- Syndication costs (such as commissions, printing, and legal
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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
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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 entity is treated as a partnership for income tax purposes and
accordingly any income or loss is passed through and taxable to the individual
partners. Accordingly, there is no provision for federal income taxes in the
accompanying financial statements. However, the minimum California Franchise Tax
payable annually by the Partnership is $800.
7
TMP INLAND EMPIRE II, LTD
A California Limited Partnership
Notes to the Financial Statements
September 30,2000
(Unaudited)
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 ("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 real property in
San Bernardino County, California. The properties were to be held for
investment, appreciation, and ultimate sale and/or improvement of all or 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.
Note 4 - Allocation of Profits, Losses and Cash Distributions
Profits, losses, and cash distributions are allocated 99 percent to the limited
partners and 1 percent to the General Partners until the limited partners have
received an amount equal to their capital contributions plus a cumulative,
non-compounded return of 6 percent per annum based on their adjusted capital
account balances. At that point, remaining profits, losses and cash
distributions are allocated 85 percent to the limited partners and 15 percent to
the General Partners. There were no distributions in 2000 or 1999.
8
TMP INLAND EMPIRE II, LTD
A California Limited Partnership
Notes to the Financial Statements
September 30,2000
(Unaudited)
Note 5 - Agreements with PacWest Inland Empire, LLC (PacWest)
In March 1998, the General Partners entered into an agreement (the Financing
Agreement) with PacWest, a Delaware Limited Liability Company, whereby PacWest
paid a total of $300,000 to the General Partners of the Partnership and ten
other related partnerships (the TMP Land Partnerships). 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 the general partners'
distributions; referred to as a "distribution fee" as defined by the Financing
Agreement.
In addition, PacWest has agreed to loan and/or secure a loan for the TMP Land
Partnerships in the amount of $2,500,000. Loan proceeds will be allocated among
the TMP Land Partnerships, based on partnership needs, from recommendations made
by PacWest, and under the approval and/or direction of the general partners. A
portion of these funds will be loaned to the Partnership at 12% simple interest
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.
As of September 30, 2000 the TMP Land Partnerships have been funded
approximately $3,080,000 by PacWest. An addendum to the Financing Agreement
which states PacWest shall be entitled to increase the aggregate amount of the
loan by written agreement is currently being approved by both the General
Partners and PacWest. Upon signing of this addendum, PacWest, can, at their
option and with the written agreement of the General Partners, make additional
advances and the aggregate amount of cash loaned to the TMP Land Partnerships is
not limited to a maximum of $2,500,000.
In April 1998, PacWest entered into the Management Agreement with the General
Partners 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 will charge a fee for its
administrative services equal to an amount not to exceed the average
reimbursements to the General Partners for such services over the past five
years. As of September 30, 2000 and December 31, 1999, the Partnership has a
payable of $299 and $122,031, respectively, including interest, to PacWest
related to the aforementioned agreements.
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.
9
TMP INLAND EMPIRE II, LTD
A California Limited Partnership
Notes to the Financial Statements
September 30,2000
(Unaudited)
Note 6 - Related Party Transactions
Syndication costs (see Notes 1 and 3) 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.
As of September 30, 2000 and December 31, 1999 the Partnership had a payable of
$4,531 to the General Partners and an affiliated company.
As of September 30, 2000 and December 31,1999, $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 September 30, 2000 the
limited partners had not received and do not expect to receive such a return and
therefore this amount is not currently due.
See Note 5 regarding information on management of the Partnership during 2000.
Note 7 - Note Payable
On July 12, 2000, the Partnership borrowed $400,000 from a private party. The
note is secured by a deed of trust on a parcel of land owned by the Partnership
in Fontana, California. The note is due on August 1, 2003. The first payment was
due on August 1, 2000 and will be in the amount of $2,580 representing interest
from July 13, 2000 through July 31, 2000. Interest accrues at 12% per annum
payable in monthly installments of $4000 beginning August 1, 2000. As of
September 30, 2000, $10,281 of interest has been capitalized to investment in
unimproved land.
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TMP INLAND EMPIRE II, LTD.
A California Limited Partnership
September 30, 2000
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis provides information that the
Partnership's management believes is relevant to an assessment and understanding
of the Partnership's results of operations and financial condition. This
discussion should be read in conjunction with the financial statements and
footnotes, which appear elsewhere in this report.
This Quarterly Report on Form 10-QSB contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, which are subject to the "safe harbor" created
by that section. Words such as "expects," "anticipates," "intends," "plans,"
"believes," "seeks," "estimates" and similar expressions or variations of such
words are intended to identify forward-looking statements, but are not the
exclusive means of identifying forward-looking statements in this report.
Additionally, statements concerning future matters such as the features,
benefits and advantages of the Partnership's property regarding matters that are
not historical are forward-looking statements. 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
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The following discussion should be read in conjunction with the attached
financial statements and notes thereto and with the Partnership's audited
financial statements and notes thereto for the fiscal year ended December 31,
1999.
During the period from inception through December 31, 1988, the Partnership was
engaged primarily in the sale of Units of Limited Partnership Interest ("Units")
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 acquisition, carrying and selling costs, of $1,028,844.
Other revenues received during, 1995-1998 consisted primarily of interest income
earned on funds held.
The Partnership recognized losses in 1996 due to the write-down in value of the
Property. The decline in land value was due mainly to the downturn in Southern
California's real estate market.
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TMP INLAND EMPIRE II, LTD.
A California Limited Partnership
September 30, 2000
The Partnership's management believes that inflation has not had a material
effect on the Partnership's results of operations or financial condition.
Fiscal Quarters Ended September 30, 2000 and 1999
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There were no revenues of the Partnership during the three and nine-month
periods ended September 30, 1999. During the nine month period ended September
30, 2000, $1,000 of revenue was recognized for the rental of the property for a
fireworks display and approximately $2,211 of interest income was recognized. No
properties were sold during the periods presented.
Investing activities for the nine months ended September 30, 2000 and 1999 used
approximately $43,800 and $8,900, respectively, most of which was used to pay
development and carrying costs of the unimproved land held for investment.
Financing activities for the nine months ended September 30, 2000 provided
$400,000, relating to proceeds received on the note payable entered into in July
2000.
Total expenses for the three months ended September 30, 2000 compared with the
three months ended September 30, 1999, increased by approximately $1,000 due
primarily to increases in Accounting & Financial Reporting and Outside
Professional Services. Accounting & Financial Reporting increases are
directly related to the timing of the costs incurred to prepare, review, and
file the appropriate financial information of the Partnership. PacWest
contracted with a consultant to provide the Partnership with certain expertise.
The addition of this consultant is the primary explanation for the increase of
$928 in Outside Professional Services for the three-month period ended September
30, 2000. These increases were partially offset by a decrease of approximately
$550 in General and Administrative Expenses and a decrease in Interest Expense
of approximately $1,800 pursuant to the Financing Agreement with PacWest entered
into April 1, 1998.
Total expenses for the nine months ended September 30, 2000 compared with the
nine months ended September 30, 1999, increased by approximately $15,400 due
primarily to increases in Accounting & Financial Reporting, Outside
Professional Services and Interest Expense. Interest Expense increased by $1,578
pursuant to the Financing Agreement with PacWest entered into April 1, 1998.
Accounting & Financial Reporting increases are directly related to the
timing of the costs incurred to prepare, review, and file the appropriate
financial information for the Partnership. Outside Professional Services
increased by $9,758 primarily related to costs incurred to compile, send and
administer a proxy statement sent to all partners relating to the sale of the
Property by the Partnerships' investor relations' service provider. All these
increases were partially offset by a decrease in General and Administrative
Expenses of $3,512 due to reductions in office supplies, postage & copies.
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TMP INLAND EMPIRE II, LTD.
A California Limited Partnership
September 30, 2000
The Partnership had one property at September 30, 2000.
Liquidity and Capital Resources
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The Partnership has raised a total of $6,564,041, net of syndication costs, from
the sale of Units. During the period from inception through December 31, 1988,
the Partnership acquired a total of three properties for all cash at a total
expenditure of $6,159,225.
The Partnership capitalized the acquisition costs of the property and direct
carrying costs, such as interest and property taxes. The Partnership does not
intend to acquire any additional properties.
On July 12, 2000, the Partnership borrowed $400,000 from a private party. The
note is secured by a deed of trust on a parcel of land owned by the Partnership
in Fontana, California. The note is due on August 1, 2003. Interest accrues at
12% per annum payable in monthly installments of $4000 beginning August 1, 2000.
In March 1998, the General Partners entered into the Financing Agreement with
PacWest, whereby PacWest paid a total of $300,000 to the General Partners of the
Partnership and the TMP Land Partnerships. PacWest agreed to pay up to an
additional $300,000 for any deficit capital accounts for these 11 partnerships
in exchange for the rights to distributions from the General Partners; referred
to as a "distribution fee" as defined by the Financing Agreement.
In addition, PacWest 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 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
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.
13
TMP INLAND EMPIRE II, LTD.
A California Limited Partnership
September 30, 2000
As of September 30, 2000 the TMP Land Partnerships have been funded
approximately $3,080,000 by PacWest. An addendum to the Financing Agreement
which states PacWest shall be entitled to increase the aggregate amount of the
loan by written agreement is currently being approved by both the General
Partners and PacWest. Upon signing of this addendum, PacWest, can, at their
option and with the written agreement of the General Partners, make additional
advances and the aggregate amount of cash loaned to the TMP Land Partnerships is
not limited to a maximum of $2,500,000.
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.
In April 1998, PacWest entered into the Management Agreement with the General
Partners 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 an annual fee of $3,972
for its administrative services.
Signatures
Pursuant to the requirements of the Securities exchange Act of 1934; the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 15, 2000
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
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William O. Passo, President
By: \s\ Anthony W. Thompson
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Anthony W. Thompson, Exec. Vice President
By: TMP Properties, A California General Partnership as Co-General Partner
By: \s\ William O. Passo
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William O. Passo, Partner
By: \s\ Anthony W. Thompson
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Anthony W. Thompson, Partner
By: \s\ Scott E. McDaniel
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Scott E. McDaniel Partner
By: JAFCO, Inc., A California Corporation as Chief Accounting Officer
By: \s\ John A. Fonseca
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John A. Fonseca, President
