<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(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, 1997
[ ] 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. 0-20120
TMP INLAND EMPIRE VII, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0416043
(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
- ------------------- ------------------------------
N/A N/A
Securities to be registered pursuant to Section 12 (g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
-------------------------------------
(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. [ ]
<PAGE> 2
PART I
ITEM 1(A). BUSINESS
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INTRODUCTION
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TMP INLAND EMPIRE VII, LTD., a California Limited Partnership (the
"Partnership"), is a California limited partnership formed in July 1990, 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 person,
parcels of unimproved real property (the "Properties") located primarily in
Riverside and San Bernardino Counties, California. Some of the Properties are or
will be planned, zoned and mapped for single family residential purposes, while
others are or will be planned, zoned and mapped for commercial or industrial
uses. Actions by the Partnership to obtain the desired general/specific plan,
zoning and parcel/tract map changes by or approvals of governmental entities,
and to subdivide and site plan, are commonly referred to as "pre-development."
The Properties 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. If the Properties or portions thereof
are developed, the Partnership intends to hold and manage the same for the
production of income until such time that they determine a sale would be in the
best interest of he 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 VII. 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.
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. Between July 20, 1990 and December 31, 1992, the
Partnership sold a total of 8,700 Limited Partnerships Units. As of December 31,
1997, all 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.
<PAGE> 3
THE RESPONSIBILITIES OF THE GENERAL PARTNERS. The General Partners have
the exclusive management and control of all aspects of the business of the
Partnership. In the course of their management, the General Partners may, 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 be 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, 2021, 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
agrees to continue the business of the Partnership, or if there
is no remaining General Partner, all the Limited Partners agree
to continue the business of the Partnership and elect, by
unaimous consent, one or more new General Partners to continue
Partnership business;
2. A Majority Vote of the total outstanding Units in favor of
dissolution and termination of the Partnership; or
<PAGE> 4
3. The removal of a General Partner, unless the remaining General
Partner agrees 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
outstanding Units, one or more new General Partners to continue
the Partnership business.
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 bankruptcy, 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 therefor 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.
<PAGE> 5
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
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 Internal Revenue.
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 16.5% to
the General Partners and 83.5% 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.
<PAGE> 6
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 Partners 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 83.5% to the Limited Partners and 16.5% 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 Partners shall determine in the same manner as
Distributions of Distributable Cash from Operations. The General Partners have
the right to reuse Cash from the Sale of 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
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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,
etc.)
(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 rate and
<PAGE> 7
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 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.
The Partnership may enter into joint ventures in order to accomplish the
development of the Properties. Such transactions may create risks not otherwise
present, such as 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.
<PAGE> 8
SELLING POLICY
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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
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It is anticipated that the Partnership will encounter considerable
competition in the pre-development, development, operation, and eventual sale
appreciation, improvement and ultimate sale during a three to five year holding
period. 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
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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.
ZONING/PLANS/MAPS/PERMITS. Certain of the parcels are not zoned for the
uses anticipated by the Partnership. Applications have been or will be made to
change the zoning for certain of those parcels. As described under Item
2."Properties," some Properties have already been rezoned, but no assurances can
be given that all such rezoning changes will be approved. 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. Further, final parcel/tract
maps have not been approved for all Properties, nor have any grading or building
permits been obtained. In the event that such Properties do not receive the
zoning desired by the General Partners, or if final maps are not approved or
permits not obtained, the value of those 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 of the Properties
located within such county or city.
<PAGE> 9
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 saving 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 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, down-zoning of the Properties
or unanticipated environmental regulation or similar considerations could impair
the value of the Properties, either to the partnership or to others.
ENVIRONMENTAL
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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.
To date, no environmental studies have been done on the Property. The
General Partners know of no environmental conditions on the Properties that
would adversely affect the investment results of the Properties.
EMPLOYEES
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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
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The Partnership has no foreign operations in foreign countries:
<PAGE> 10
ITEM 2. PROPERTIES
The Partnership acquired a total of five 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 Murietta (formerly Rancho California) on
the south.
Included in this area are the communities of Perris, Sun City, Moreno
Valley, Riverside, Beaumont, San Jacinto, Palm Desert, Murietta (formerly Rancho
California) and Elsinore in Riverside County, and Fontana, Rialto, Rancho
Cucamonga, Ontario, San Bernardino Highlands and Chino in San Bernardino County.
The Properties are unimproved and do not produce any operating income or
cash flow. It is possible that future economic conditions, governmental actions
or other factors may deter or prevent the Partnership from pre-developing or
developing the Properties, or any of them. In such even, the potential
profitability, if any, with respect to the Properties would be dependant upon
appreciation of the Properties and the Partnership's ability to refinance and
sell the same. There can be no assurance that the Properties, even if developed
by the Partnership, can be operated or ultimately sold for profit.
The Partnership owns the following properties:
<TABLE>
<CAPTION>
Date Purchase Date Sales
Property Purchased Price Sold Price
-------- --------- ---------- ---- -----
<S> <C> <C> <C> <C>
Perris 9.6 02-21-91 $1,659,000 * *
Victorville 19.55 11-13-90 $1,750,000 * *
Adelanto 18.3 12-03-90 $ 380,000 * *
Victorville 70.35 07-02-91 $1,752,500 * *
Riverside 18.54 08-02-92 $ 673,000 * *
</TABLE>
* All of the Properties were still owned by the Partnership as of
December 31, 1997.
PERRIS 9.6. This Property, consisting of approximately 9.6 net acres, is
located at the southwest corner of the intersection of Nuevo Road and Evans in
the City of Perris, and is currently zoned C-2 (general commercial). The
Property is adjacent to the Park West Specific Plan, which contemplates 2,203
residential dwelling units over 520 acres. Construction of the new town center
is underway on Nuevo and the 215 freeway which is 1 1/2 miles from the Property.
<PAGE> 11
VICTORVILLE 19.55. This Property, consisting of approximately 19.55
acres, is located at the southeast corner of Holly and Highway 395 in the City
of Victorville. Since contracting to buy the Property, the General Partners have
successfully achieved a rezoning from M-I-T (light manufacturing) to C-2-T
(commercial). The intersection at which the Property is located is schedule to
become one of the major intersections in the Victor Valley. Cal Trans has
informally adopted a redesign plan for Highway 395 which will widen it to six
lanes and create traffic signal controlled intersections at Holly and five other
cross streets in the Cities of Victorville and Adelanto. Holly is scheduled to
become a 100 foot wide surface connector.
ADELANTO 18.3. This property, consisting of approximately 18.3 acres, is
located in the City of Adelanto and is currently zoned R-1 (residential). Since
its acquisition, the General Partners have secured approval of a tentative tract
map creating 73 single-family residential lots. The engineering and additional
work necessary to make the map recordable is currently underway, and the
Property is being held for resale. Located at the Northeast corner of Cactus and
Raccoon in the City of Adelanto, the property is part of the area to be included
within the Second Assessment District to bring sewer, water and paved streets to
the Property.
VICTORVILLE 70.35. This Property, consisting of approximately 70.35
acres, is located within the city limits of Victorville, approximately 1/2 mile
east of Highway 395 with Palmdale Drive to the north, and Luna Road to the
south. When the Property was acquired, it was zoned for three residential units
per acre. However, the general plan calls for five units per acre, and the
General Partners have initiated a plan for the Property calling for partial PUD
(Planned Unit Development) zoning and Tentative Tract Maps, which, when taken
together, will create 346 single-family home lots. The Partnership contracted
with Ludwig Engineering to do the final engineering on a deferred payment basis
on these tracts. The final engineering costs are due on sale of Property or
three years, whichever occurs first. The General Partners personally guaranteed
the Partnership's unsecured Note to Ludwig Engineering for this work.
Infrastructure is being brought to the property by a combination of improvements
funded by the City in an Assessment District, and neighboring developers. The
General Partner's business plan is to have the final map ready to record, making
the project much more attractive to a builder.
RIVERSIDE 18.54. This Property, consisting of approximately 18.54 acres,
is located southeast of and adjacent to the intersection of Oleander Avenue and
Decker Road in the Perris Area of Riverside County, California. The Property is
zoned Industrial. Construction of the freeway off-ramp is complete which greatly
enhances the visibility of the Property.
ITEM 3. LEGAL PROCEEDINGS
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There are no matters requiring disclosure under Item 3:
<PAGE> 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters we submitted to a vote of Registrants security holders during
the fourth quarter of 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
- ------- -------------------------------------------------
STOCKHOLDER MATTERS
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MARKET INFORMATION
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As of December 31, 1997, there were approximately 948 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, 1997 1996, 1995, 1994, or 1993.
CASH DISTRIBUTIONS
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There were no cash distributions to the Partners during the fiscal years
ended December 31, 1997 1996, 1995, 1994, or 1993. A summary of the provisions
of the Partnership Agreement regarding distributions of cash and allocations of
net income and losses is set forth below in Item 1, "Business" under the
subcaption "Distributions, Net Income and Net Loss."
ITEM 6. SELECTED FINANCIAL DATA
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The following table summarizes selected financial data of the
Partnership for the years ended December 31, 1997 1996, 1995, 1994, and 1993,
and should be read in conjunction with the more detailed financial statements
contained in Item 8 below.
<PAGE> 13
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED DECEMBER 31
----------------------
(NOT COVERED BY AUDITOR'S REPORT)
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest Income $ 1,139 $ 1,182 $ 1,668 $ 6,113 $ 8,393
Other income - - - - -
Total income $1,925,906 $ 1,182 $ 1,668 $ 6,113 8,393
Net income (loss) $1,925,106 $(3,547,464) $(2,118,961) $ 3,257 5,537
Net income (loss) per $ 207.68 $ (403.68) $ (241.00) $ .37 .63
Cash distribution per $ - $ - $ - $ - $ -
Unit*
Total assets $4,409,082 $ 2,307,755 $ 5,758,528 $7,572,605 $7,568,733
============= =========== ----------- ========== ==========
</TABLE>
*(Based on 8,700 Units Outstanding at December 31, 1993, 1994,
1995, 1996 and 1997.)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSES OF FINANCIAL CONDITION AND
- ------- ----------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
RESULTS OF OPERATIONS
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During the period from inception (July 20, 1990) through December 31,
1991, 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 only cash revenues received during,
1993, 1994, 1995, 1996, and 1997 were from the interest income earned on funds
held. The Partnership losses in 1995 and 1996 were due to write-downs in value
of the Partnership land due to a decline in market value of the land, however,
in 1997 the income resulted from a corresponding recovery due to favorable
market conditions in Southern California real estate.
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
The partnership raised a total of $7,722,751, net of syndication costs,
from the sale of Limited Partnership Units. During the Period from inception
through December 31, 1995, the Partnership acquired a total of five Properties
for all cash at a total expenditure of $7,457,705, including carrying costs
(such as interest expense and property taxes). All costs associated with the
acquisition of the Properties, as well as carrying costs and administrative
expenses, are capitalized (i.e., added to the cost of the Properties) and are
deducted from the sales prices to determine gains (or losses) when the
Properties are sold.
The Partnership does not intend to acquire any additional Properties.
The five Properties are being held for resale. Upon sale, the Partnership
intends to distribute the sales proceeds, less any reserves needed for
operations, to the Partners.
The Partnership owns land in the Riverside and San Bernardino counties.
This region of Southern California continues to experience a significant
economic recession that has substantially eroded the value of all real estate in
the area. The unemployment rate in many parts of this region continues to exceed
fifteen percent, and consumer purchasing power is weak.
Lower home and commercial property prices has driven down the value of
vacant land, and in many instances has made new development financially
unfeasible. This has made it difficult to sell the Partnership land at anything
but liquidation prices. The general partners expect the economic recovery in
this region to be slow. Accordingly, the General Partners intend to meet
currently anticipated cash requirements for at least the next twelve months by
first using cash on hand; second, funds from interest income; third, the sale of
properties; and fourth, from a loan secured by the property.
In March and November 1997, the General Partners procured loans of
$125,000 and $170,750, respectively to provide cash for Partnership operations.
The loans are secured by Partnership land. Management is also attempting to sell
one or more of the remaining parcels of land to meet anticipated cash
requirements. There can be no assurance that management will be successful in
selling one or more of the remaining parcels of land or that there will be
sufficient funds available for anticipated cash requirements for the next twelve
months.
The Partnership had contracted with Ludwig Engineering to do the final
engineering on the Victorville 70 acre parcel. The Partnership has a note
payable to Ludwig for the work performed, plus accrued interest which matures
March 1, 1998.
There are not current plans to further develop any of the parcels, and it is
expected that no such plans would be undertaken unless adequate funding could be
obtained, either from the sale or refinancing of parcels or from a joint venture
partner.
<PAGE> 15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements are filed as a part of this Form 10K:
For the fiscal years ended December 31, 1997, 1996, 1995, and 1994:
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Independent Auditor's Report FS-1
Balance Sheets as of December 31, 1997, and 1996 FS-2
Statements of Income for the years ended December
31, 1997, 1996, and 1995 FS-3
Statements of Partners Capital for the years ended
December 31, 1997, 1996, 1995, and 1994 FS-4
Statements of Cash Flow for the years ended December 31,
1997, 1996, and 1995 FS-5
Notes to Financial Statements FS-6
Financial Statement Schedules FS-10
</TABLE>
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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ----------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
The accounting firm of Balser, Horowitz, Frank & Wakeling ("BHF&W),
whose report is included elsewhere herein with respect to the Partnership's
financial statements for the fiscal years ended December 31, 1997 and 1996, has
provided accounting services to this Partnership and to other limited
partnerships of which the General Partners are the general partners, for many
years.
<PAGE> 16
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.
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. Paso, 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, 56, 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., an
NASD registered broker-dealer, and an officer of TMP Realty, a registered real
estate broker.
<PAGE> 17
SCOTT E. MCDANIEL, 51, is a Director and Vice President of TMP
Investments Inc. 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.
ANTHONY W. "TONY" THOMPSON, 51, 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.
The General Partners have raised over $100,000,000 since 1978 for
properties which they, or partnerships with which they are affiliated, have
purchased.
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
During the period since the formation of the Partnership (March 20,
1990) through the fiscal year ended December 31, 1997, the Partnership paid fees
to the General Partners for various services in the amount of $102,545 of which
$15,419 was paid in the year ended December 31, 1997, 1996, and 1995. The
General Partners did not receive any Partnership distribution during that
period. (See Item 13. "Certain Relationships and Related Transactions".) 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, 1997, the Partnership had 8,700 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, 1997 by each officer, director and general partner of the General Partners
and by all such persons as a group.
<PAGE> 18
<TABLE>
<CAPTION>
Number of Percent of
Name of Beneficial Owner Units Class
- ------------------------ --------- ----------
<S> <C> <C>
William O. Passo 21 0.272%
Anthony W. Thompson 48 0.621%
All officers, directors and 69 0.893%
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 (July 20, 1990) through the fiscal year ended
December 31, 1997. The information under "Operating and Liquidation Stage" and
"Summary of Compensation" below 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.
OFFERING AND ORGANIZATION STAGE OF PARTNERSHIP
<TABLE>
<CAPTION>
Amount Paid from
Form of Compensation Formation through
and Recipient Description of Payment December 31, 1997
-------------------- ---------------------- -----------------
<S> <C> <C>
Selling Commission and Due Up to a maximum of 10% of gross $780,008
Diligence Reimbursement (TMP proceeds, a minimum of which was
Capital Corp.) reallocated to participating Soliciting
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.
</TABLE>
<PAGE> 19
<TABLE>
<CAPTION>
<S> <C> <C>
Reimbursement for Organizational Expenses paid to the $13,426
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 Property The General Partners were reimbursed $351,234
Expenses (General Partners) (without markup or profit) for all out
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.
Property Acquisition Fees For services rendered in connection
(General Partners or an with the acquisition of the Properties
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: $500,000
(II) Real estate brokerage $158,900
commissions
</TABLE>
<PAGE> 20
OFFERING AND ORGANIZATION STAGE OF PARTNERSHIP
<TABLE>
<CAPTION>
Amount Paid from
Form of Compensation Formation through
and Recipient Description of Payment December 31, 1997
-------------------- ---------------------- -----------------
<S> <C> <C>
Partnership Management Fee A Partnership Management Fee with $102,545
(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% (.225%) of the cost of the
property, but not to exceed 2% of such
cost in the aggregate.
Leasing and Property For leasing an improved Property, or a $-0-
Management Fees (General portion thereof, a commission equal to
Partners or an affiliate) 7% for the first year's rent (net
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 $-0-
Allocation of Each Material allocations of Net Income, Net Loss and
Item (General Partners) Distributions of Distributable Cash
from Operations and of Cash from Sale
or refinancing of the Properties.
Subordinated Participation A 16.5% interest in all Partnership $-0-
(General Partners) allocations of Net Income and
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.
</TABLE>
<PAGE> 21
<TABLE>
<CAPTION>
<S> <C> <C>
Subordinated Real Estate Real estate commissions with respect to $-0-
Commission (General Partners the sale of Properties which are equal
or an Affiliate) to the lesser of: (I) 3% of the gross
sales price of a Property; 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 $780,008 (including due diligence fees) and
reimbursed the General Partners for expenses incurred in organizing the
Partnership and documenting the offering in the amount of $13,426. 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 16.5% 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
83.5% interest therein. Net Losses will be allocated to the Partners with
positive Capital Accounts, in accordance with the ratio of their positive
Capital Account balances until no Partner has a positive Capital Account; and
thereafter, Net Losses will be allocated 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 16.5% 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.
<PAGE> 22
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 three 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. The Partnership will not have
independent management, as it will rely on the General Partners and affiliates
for all its management decisions. Other investment projects in which the General
Partners and affiliates participate, either individually or as a general
partner, real estate broker, or investment adviser, may compete with the
Partnership for the time and resources of the General Partners and their
affiliates. The General Partners will, therefore, have conflicts of interest in
allocating management time, services, and functions among the Partnership and
other existing partnerships and businesses, s well as any partnerships or
business entitles which may be organized in the future. 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.
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.
<PAGE> 23
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 STATEMENTS 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, 1997.
(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. 0-20120 filed on April 24,
1992.
27 Financial Data Schedule
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
Dated: March 19, 1998
TMP INLAND EMPIRE VII, 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,
Executive Vice President
By: /s/ RICHARD T. HUTTON, JR.
----------------------------------------
Richard T. Hutton, Jr., Controller
and by TMP Properties, a California General
Partnership, as co-General Partner
By: /s/ WILLIAM O. PASSO
----------------------------------------
William O. Passo, General Partner
By: /s/ SCOTT E. MCDANIEL
----------------------------------------
Scott E. McDaniel, General Partner
By: /s/ ANTHONY W. THOMPSON
----------------------------------------
Anthony W. Thompson, General Partner
<PAGE> 25
TMP INLAND EMPIRE VII, LTD.
(A CALIFORNIA LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
<PAGE> 26
TMP INLAND EMPIRE VII, LTD.
(A CALIFORNIA LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
Table of Contents
Independent Auditor's Report ............................................1
Balance Sheets ..........................................................2
Statements of Income ....................................................3
Statements of Partners' Capital .........................................4
Statements of Cash Flows ................................................5
Notes to Financial Statements ...........................................6-9
Supplementary Information ...............................................10-12
<PAGE> 27
[BALSER, HOROWITZ, FRANK & WAKELING]
Independent Auditor's Report
----------------------------
To the Partners
TMP Inland Empire VII, Ltd.
(A California Limited Partnership)
We have audited the accompanying balance sheets of TMP Inland Empire VII, Ltd.
(A California Limited Partnership) as of December 31, 1997 and 1996, and the
related statements of income, partners' capital, and cash flows for the years
ended December 31, 1997, 1996 and 1995. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide 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 VII, Ltd. (A
California Limited Partnership) as of December 31, 1997 and 1996, and the
results of its operations and its cash flows for the years ended December 31,
1997, 1996 and 1995, in conformity with generally accepted accounting
principles.
Our audits were 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 audits 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 and Wakeling
BALSER, HOROWITZ, FRANK & WAKELING
An Accountancy Corporation
Santa Ana, California
January 26, 1998
<PAGE> 28
TMP INLAND EMPIRE VII, LTD.
(A California Limited Partnership)
Balance Sheets
December 31, 1997 and 1996
Assets
------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash $ 96,862 $ 7,755
Investment in unimproved land,
at lower of cost or fair value 4,280,000 2,300,000
Prepaid expenses 32,220 0
---------- ----------
Total assets $4,409,082 $2,307,755
========== ==========
Liabilities and Partners' Capital
---------------------------------
Due to affiliates $ 10,809 $ 703
Accrued interest payable 27,934 84,365
Franchise tax payable 800 800
Property tax payable 26,214 87,494
Notes payable 613,454 229,628
---------- ----------
Total liabilities 679,211 402,990
---------- ----------
Partners' capital (deficit)
General partners $ (39,629) $ (57,880)
Limited partners; 8,700 equity units
authorized and outstanding 3,769,500 1,962,645
---------- ----------
Total partners' capital 3,729,871 1,904,765
---------- ----------
Total liabilities and partners' capital $4,409,082 $2,307,755
========== ==========
</TABLE>
See Accompanying Notes and Independent Auditor's Report
FS-2
<PAGE> 29
TMP INLAND EMPIRE VII, LTD.
(A California Limited Partnership)
Statements of Income
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income
Appreciation in fair value
of unimproved land $1,824,767 $ 0 $ 0
Interest income 1,139 1,182 1,668
---------- ----------- -----------
Total income 1,825,906 1,182 1,668
---------- ----------- -----------
Expenses
Decline in fair value of
unimproved land 0 3,546,049 2,117,773
Amortization 0 1,797 2,056
---------- ----------- -----------
Total expenses 0 3,547,846 2,119,829
---------- ----------- -----------
Income or (loss) before income taxes 1,825,906 (3,546,664) (2,118,161)
State franchise tax 800 800 800
---------- ----------- -----------
Net income or (loss) $1,825,106 (3,547,464) (2,118,961)
========== =========== ===========
Allocation of net income or (loss)
General partners, in the aggregate $ 18,251 $ (35,475) (21,190)
========== =========== ===========
Limited partners, in the aggregate $1,806,855 $(3,511,989) (2,097,771)
========== =========== ===========
Limited partners, per equity unit $ 207.68 $ (403.68) $ (241)
========== ============ ===========
</TABLE>
See Accompanying Notes and Independent Auditor's Report
FS-3
<PAGE> 30
TMP INLAND EMPIRE VII, LTD.
(A California Limited Partnership)
Statements of Partners' Capital
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
<S> <C> <C> <C>
Partners' capital (deficit),
December 31, 1994 $ (1,215) $ 7,572,405 $ 7,571,190
Net loss for 1995 (21,190) (2,097,771) (2,118,961)
-------- ----------- -----------
Partners' capital (deficit),
December 31, 1995 (22,405) 5,474,634 5,452,229
Net (loss) for 1996 (35,475) (3,511,989) (3,547,464)
-------- ----------- -----------
Partners' capital (deficit)
December 31, 1996 (57,880) 1,962,645 1,904,765
-------- ----------- -----------
Net income for 1997 18,251 1,806,855 1,825,106
-------- ----------- -----------
Partners' capital (deficit)
December 31, 1997 $(39,629) $ 3,769,500 $ 3,729,871
======== =========== ===========
</TABLE>
See Accompanying Notes and Independent Auditor's Report
FS-4
<PAGE> 31
TMP INLAND EMPIRE VII, LTD.
(A California Limited Partnership)
Statements of Cash Flows
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flow from operating activities
Net income or (loss) $1,825,106 $(3,547,464) $(2,118,961)
Adjustments to reconcile net income or (loss)
to net cash (used in) operating activities:
Amortization 0 1,797 2,056
Change in accrued interest payable (56,431) 23,026 61,339
Increase or (decrease) in due to affiliates 10,106 703 (615)
Increase or (decrease) in property tax payable (61,280) 72,962 14,532
Increase in carrying costs (155,233) (97,978) (178,511)
Increase in development costs 0 0 (229,628)
Increase in prepaid expenses (32,220)
Change in fair value of unimproved land (1,824,767) 3,546,049 2,117,773
----------- ------------ -----------
Net cash (used in) operating activities ( 294,719) (905) (332,015)
----------- ------------ -----------
Cash flow from financing activities
Issuance of notes payable 383,826 0 229,628
----------- ------------ -----------
Net cash provided by financing activities 383,826 0 229,628
----------- ------------ -----------
Net increase or (decrease) in cash 89,107 (905) (102,387)
Cash, beginning of year 7,755 8,660 111,047
----------- ------------ -----------
Cash, end of year $ 96,862 $ 7,755 $ 8,660
=========== ============ ===========
Supplemental disclosures of cash flow information
- -------------------------------------------------
Income taxes paid $ 800 $ 800 $ 800
Interest paid 18,131 0 0
</TABLE>
Other disclosures
- -----------------
The Partnership did not enter into any non-cash investing activities, but had
non-cash financing activities (see Note 6). It did not have any short-term
highly liquid investments during the years ended December 31, 1997, 1996 or
1995.
See Accompanying Notes and Independent Auditor's Report
FS-5
<PAGE> 32
TMP INLAND EMPIRE VII, LTD.
(A California Limited Partnership)
Notes to Financial Statements
December 31, 1997, 1996 and 1995
Note 1 - Summary of significant accounting policies
Accounting Method - The Partnership's policy is to prepare its financial
statements on the accrual basis of accounting.
Cash and Cash Equivalents - For purposes of the statements of cash
flows, the Partnership considers all cash in banks and all highly liquid
investments with a maturity of three months or less to be cash
equivalents.
Organization Costs - Organization costs include expenses incurred in the
formation of the Partnership that have been capitalized and that are
being amortized over a period of 40 years prior to 1992 and 5 years
beginning in 1992. Organization costs were fully amortized in 1996.
Investment in Unimproved Land - Investment in unimproved land is stated
at the lower of cost or fair value (see Note 7). All costs associated
with the acquisition of a property are capitalized. Additionally, the
Partnership capitalizes all 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 fees) totaling $1,007,223 represent costs incurred to raise
capital and, accordingly, are recorded as a reduction in partners'
capital (see Note 3).
Estimates - In preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements and revenues and expenses during
the reporting period.
Actual results could differ from these estimates.
Concentration - All unimproved land parcels held for 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. The Partnership attempts to mitigate any potential risk by
monitoring the market condition and holding the land parcels until the
real estate market recovers.
Income Taxes - The entity 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
income taxes in the accompanying financial statements. However, the
minimum California Franchise tax due by the Partnership at December 31,
1997 and 1996 is $800.
FS-6
<PAGE> 33
TMP INLAND EMPIRE VII, LTD.
(A California Limited Partnership)
Notes to Financial Statements
December 31, 1997, 1996 and 1995
Note 2 - Organization of the Partnership
On July 20, 1990, 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, 1996, when they sold their shares to TMP Group,
Inc., and then became the shareholders of TMP Group, Inc.
The Partnership originally acquired four separate parcels of unimproved
real property in Riverside and San Bernardino Counties, 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.
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 8,700 units at $1,000 each to qualified
investors. As of December 31, 1992, all 8,700 units had been sold for
total limited partner contributions of $8,700,000. 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% 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
83.5% and the general partners 16.5% of profits, losses and cash
distributions. There were no distributions in 1997, 1996 or 1995.
FS-7
<PAGE> 34
TMP INLAND EMPIRE VII, LTD.
(A California Limited Partnership)
Notes to Financial Statements
December 31, 1997, 1996 and 1995
Note 5 - Related party transactions
Syndication costs (see Note 1) include $870,000 in 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, 1996, when they sold
their shares to TMP Group, Inc.
Investment in unimproved land includes acquisition fees of $500,000 paid
in prior years to TMP Properties and TMP Investments, Inc., the general
partners, for services rendered in connection with the acquisition of
the properties.
The Partnership paid $15,419 in partnership management fees to the
general partners for each of the years ended December 31, 1997, 1996 and
1995, respectively. The Partnership was also charged $10,468, $9,943,
and $9,042 during the years ended December 31, 1997, 1996 and 1995,
respectively, by the general partner and an affiliated company of the
general partner for office, secretarial and advertising expenses. At
December 31, 1997 the Partnership had a payable of $10,809, to the
general partner and the affiliated company.
Note 6 - Notes payable
The Partnership entered into loan agreements with an outside party who
provided engineering service for various land parcels. The total loan
amount of $317,704 accrues interest at 10% per annum, and the interest
is payable on or before March 1, 1997. The principal amount is payable
in full upon sale of the land parcels or upon recordation of the final
tract maps for the same parcels and is secured by those parcels. The
loans are guaranteed by the three general partners of TMP Properties and
by TMP Properties.
The Partnership entered into a loan agreement with an outside party by
offering parcels owned by the partnership as collateral. The total loan
amount of $125,000 accrues interest at 14% per annum, and the interest
is payable monthly beginning April 1, 1997. This note matures in
February of 1999.
The Partnership entered into a loan agreement with an outside party by
offering parcels owned by the partnership as collateral. The total loan
amount of $170,750 accrues interest at 13.5% per annum, and the interest
is payable monthly beginning November 8, 1997. This note matures in
October of 1999.
FS-8
<PAGE> 35
TMP INLAND EMPIRE VII, LTD.
(A California Limited Partnership)
Notes to Financial Statements
December 31, 1997, 1996 and 1995
Note 7 - Change in the fair value of investment in unimproved land
As of December 31, 1996 and 1995, the total carrying amount of the
investment in unimproved land was reduced by $3,546,049 and $2,117,773,
respectively. This reduction represents the decline in fair values, as
determined by the general partners, and is due mainly to the downturn in
Southern California's real estate market and slow recovery. As of
December 31, 1997, the total carrying amount of the investment in
unimproved land was increased by $1,824,767. This increase is due to
various favorable market conditions within the Southern California real
estate market. The general partners have thus reevaluated the prior
years valuation of unimproved land and determined the corresponding
recovery in value is appropriate.
Note 8 - Property taxes payable
Property taxes payable at December 31, 1997 are as follows:
1996 $ 26,214
========
FS-9
<PAGE> 36
SUPPLEMENTARY INFORMATION
<PAGE> 37
TMP INLAND EMPIRE VII, LTD.
(A California Limited Partnership)
Schedule I - Real Estate and Accumulated Depreciation
(Schedule XI, Rule 12-28, For SEC Reporting Purposes)
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I
COSTS CAPITALIZED Gross
SUBSEQUENT amount
TO ACQUISITION at which Date of Estimated
Initial Carrying Carried at Accumulated Construc- Date Depreci-
Description of Assets Encumbrances Costs Improvements Costs Year-End Depreciation tion Acquired able Life
- --------------------- ------------ ------- ------------ -------- ------------ ------------ --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unimproved land - Perris, CA -0- $ 1,859,244 -0- $190,986 $2,050,230 -0- n/a 2/21/91 n/a
Unimproved land - Victorville, CA-0- 1,937,240 -0- 194,064 2,131,304 -0- n/a 11/13/90 n/a
Unimproved land - Adelanto, CA -0- 451,137 -0- 51,357 502,494 -0- n/a 12/3/90 n/a
Unimproved land - Victorville, CA-0- 2,003,109 $236,116 343,904 2,583,129 -0- n/a 7/2/91 n/a
Unimproved land - Riverside, CA -0- 672,441 -0- 179,458 851,899 -0- n/a 8/25/92 n/a
--- ------------------------ ------- ---------- ---
-0- $6,923,171 $236,116 $959,769 $8,119,056 -0-
=== ========= ======= ======= -======== ===
</TABLE>
Reconciliation of carrying amount
Beginning balance $7,963,822
Additions
Improvements $ -0-
Carrying costs 155,234
--------
Total additions 155,234
----------
Ending balance 8,119,056
Less allowance for decline in the
fair value of unimproved land 3,839,056
----------
$4,280,000
==========
See Accompanying Notes and Independent Auditor's Report
FS-10
<PAGE> 38
TMP INLAND EMPIRE VII, LTD.
(A California Limited Partnership)
Schedule I - Real Estate and Accumulated Depreciation
(Schedule XI, Rule 12-28, For SEC Reporting Purposes)
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I
COSTS CAPITALIZED Gross
SUBSEQUENT amount
TO ACQUISITION at which Date of Estimated
Initial Carrying Carried at Accumulated Construc- Date Depreci-
Description of Assets Encumbrances Costs Improvements Costs Year-End Depreciation tion Acquired able Life
- --------------------- ------------ ------- ------------ -------- ------------ ------------ --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unimproved land - Perris, CA -0- $ 1,859,244 -0- $167,452 $2,026,696 -0- n/a 2/21/91 n/a
Unimproved land - Victorville, CA-0- 1,937,240 -0- 165,235 2,102,475 -0- n/a 11/13/90 n/a
Unimproved land - Adelanto, CA -0- 451,137 -0- 41,361 492,498 -0- n/a 12/3/90 n/a
Unimproved land - Victorville, CA-0- 2,003,109 $236,116 278,908 2,518,133 -0- n/a 7/2/91 n/a
Unimproved land - Riverside, CA -0- 672,441 -0- 151,579 824,020 -0- n/a 8/25/92 n/a
--- ------------------------ ------- ---------- ---
-0- $6,923,171 $236,116 $804,535 $7,963,822 -0-
=== ========= ======= ======= ========= ===
</TABLE>
Reconciliation of carrying amount
Beginning balance $7,865,844
Additions
Improvements $ -0-
Carrying costs 97,978
--------
Total additions 97,978
----------
Ending balance 7,963,822
Less allowance for decline in the
fair value of unimproved land 5,663,822
----------
$2,300,000
==========
See Accompanying Notes and Independent Auditor's Report
FS-11
<PAGE> 39
TMP INLAND EMPIRE VII, LTD.
(A California Limited Partnership)
Schedule I - Real Estate and Accumulated Depreciation
(Schedule XI, Rule 12-28, For SEC Reporting Purposes)
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I
COSTS CAPITALIZED Gross
SUBSEQUENT amount
TO ACQUISITION at which Date of Estimated
Initial Carrying Carried at Accumulated Construc- Date Depreci-
Description of Assets Encumbrances Costs Improvements Costs Year-End Depreciation tion Acquired able Life
- --------------------- ------------ ------- ------------ -------- ------------ ------------ --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unimproved land - Perris, CA -0- $1,859,244 -0- $152,916 $2,012,160 -0- n/a 2/21/91 n/a
Unimproved land - Victorville, CA-0- 1,937,240 -0- 170,178 2,107,418 -0- n/a 11/13/90 n/a
Unimproved land - Adelanto, CA -0- 451,137 -0- 35,501 486,638 -0- n/a 12/3/90 n/a
Unimproved land - Victorville, CA-0- 2,003,109 236,116 237,802 2,477,027 -0- n/a 7/2/91 n/a
Unimproved land - Riverside, CA -0- 672,441 -0- 110,160 782,601 -0- n/a 8/25/92 n/a
--- --------------------- ------- --------- ---
-0- $6,923,171 $236,116 $706,557 $7,865,844 -0-
=== ========= =======-- -======= ========= ===
</TABLE>
Reconciliation of carrying amount
Beginning balance $7,457,705
Additions
Improvements $229,628
Carrying costs 178,511
--------
Total additions 408,139
----------
7,865,844
Less allowance for decline in the
fair value of unimproved land (2,117,773)
----------
Ending balance $5,748,071
==========
See Accompanying Notes and Independent Auditor's Report
FS-12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 96,862
<SECURITIES> 0
<RECEIVABLES> 32,220
<ALLOWANCES> 0
<INVENTORY> 4,280,000
<CURRENT-ASSETS> 4,409,082
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,409,082
<CURRENT-LIABILITIES> 679,211
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,729,871
<TOTAL-LIABILITY-AND-EQUITY> 4,409,082
<SALES> 0
<TOTAL-REVENUES> 1,825,906
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,825,906
<INCOME-TAX> 800
<INCOME-CONTINUING> 1,825,106
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,825,106
<EPS-PRIMARY> 207.68
<EPS-DILUTED> 207.68
</TABLE>
