TMP INLAND EMPIRE VII, 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 VII, Ltd. (the Partnership) was organized in 1990 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, if any, when properties are sold.
Syndication Costs - Syndication costs (such as commissions, printing, and legal
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fees) totaling $1,007,223 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
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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 partnership for income tax purposes and
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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 VII, LTD.
A California Limited Partnership
Notes to the Financial Statements
September 30, 2000
(Unaudited)
Note 2 - Organization of the Partnership
The Partnership was originally formed on July 20, 1990 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 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 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 since its formation. 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 one percent to the General Partners until the limited partners have
received an amount equal to their capital contributions plus a cumulative,
non-compounded return of six percent per annum based on their adjusted capital
account balances. At that point, remaining profits, losses and cash
distributions are allocated 83.5 percent to the limited partners and 16.5
percent to the General Partners. There were no distributions in 2000 or 1999.
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TMP INLAND EMPIRE VII, 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,
reduction of existing debt, property taxes in arrears, appropriate entitlement
costs and partnership operations.
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.
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TMP INLAND EMPIRE VII, LTD.
A California Limited Partnership
Notes to the Financial Statements
September 30, 2000
(Unaudited)
Note 5 - Agreements with PacWest Inland Empire, LLC (PacWest) (continued)
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 an
amount due of $981,846 and $802,191, respectively, including interest, to
PacWest related to the aforementioned agreements.
Note 6 - Related Party Transactions
Syndication costs (see Notes 1 and 3) netted against partners' capital
contributions include $870,000 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 $500,000 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.
See Note 5 regarding information on management of the Partnership during 2000.
Note 7 - Notes Payable
In 1997, the Partnership entered into an amended loan agreement with an outside
party who provided engineering services for various land parcels. The loan
amount of $317,704 accrued interest at 10% per annum, and was originally payable
on or before February 28, 1998. The loan was guaranteed by the general partners
of TMP Properties and by TMP Properties. The note was repaid in full in January
1999.
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TMP INLAND EMPIRE VII, LTD.
A California Limited Partnership
Notes to the Financial Statements
September 30, 2000
(Unaudited)
Note 7 - Notes Payable (continued)
In February 1997, 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 accrued interest at 14% per annum, with the interest payable
monthly beginning April 1, 1997. The principal was originally due in February
1999. In February 1999, the note was amended to extend the due date to February
2001, to decrease the interest rate to 12.25% and reduce the monthly interest
payment to $1,276 beginning on March 1, 1999. For the nine months ended
September 30, 2000, $11,484 of the interest relating to this note has been paid
and capitalized to investment in unimproved land.
In 1997, 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 $233,825 accrues interest at 13.5% per annum, and the interest is payable
monthly. This note was refinanced in November 1999. The original lender was paid
off and the Partnership entered into a new loan agreement. The new loan amount
of $244,000 accrues interest at 12% per annum. The interest payment of $2,440 is
due monthly with the initial interest payment due December 1, 1999. The due date
of the loan is November 2001. For the nine months ended September 30, 2000,
$21,960 of interest relating to this note has been paid and capitalized to
investment in unimproved land.
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TMP INLAND EMPIRE VII, 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 (July 20, 1990) through December 31, 1991, 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 only cash revenues received during
1995-1999 was from the interest income earned on funds held.
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TMP INLAND EMPIRE VII, LTD.
A California Limited Partnership
September 30, 2000
The Partnership recognized losses in 1995 and 1996 due to the write-down in
value of the Partnership land. The decline in land value was due mainly to the
downturn in Southern California’s real estate market.
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 Partnership revenues during the three and nine-month periods ended
September 30, 2000. Partnership revenues for the three and nine month periods
ended September 30, 1999 consisted solely of interest income earned on funds
held. No properties were sold during the periods presented.
Investing activities for the nine months ended September 30, 2000 and 1999 used
approximately $89,000 and $136,000 of cash, respectively; mainly to pay for
development and carrying costs of the land held for investment. Financing
activities for the nine months ended September 30, 1999 used approximately
$308,000 to payoff a note payable.
Total expenses for the three months ended September 30, 2000 compared with the
three months ended September 30, 1999, increased by approximately $12,000 due
primarily to increases in Accounting & Financial Reporting, Outside Professional
Services and Interest Expense. 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. Interest Expense
increased by $9,328 pursuant to the Financing Agreement with PacWest entered
into April 1, 1998. During the nine-month period ended September 30, 2000
PacWest contracted with a consultant to provide the Partnership with certain
expertise. The addition of this consultant is the primary explanation for the
increase in Outside Professional Services for the three-month period ended
September 30, 2000. These increases were partially offset by a decrease in
General & Administrative Expenses of $1,990 due to reductions in Office Supplies
and Postage & Copies.
Total expenses for the nine months ended September 30, 2000 compared with the
nine months ended September 30, 1999, increased by approximately $40,000 due
primarily to increases in Accounting & Financial Reporting, Outside
Professional Services and Interest Expense. Interest Expense increased by
$28,782 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. During the nine-month
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TMP INLAND EMPIRE VII, LTD.
A California Limited Partnership
September 30, 2000
period ended September 30, 2000 PacWest contracted with a consultant to provide
the Partnership with certain expertise. The addition of this consultant is the
primary explanation for the increase in Outside Professional Services for the
nine-month period ended September 30, 2000. These increases were partially
offset by a decrease in General & Administrative Expenses of $5,038 due to
reductions in Office Supplies and Postage & Copies.
Due to Affiliates increases as the Partnership pays its' operating costs. As
discussed above, and pursuant to the Financing Agreement, all funds required to
pay for operating costs are received from PacWest. During the nine month period
ended September 30, 1999, the Partnership paid off one of its' notes payable
which required approximately $365,000 of funds (principal and interest) from
PacWest.
Increases in Property Taxes Payable are directly related to current property
taxes that were due in April & December 2000 not yet paid as of September 30,
2000.
The Partnership had five properties as of September 30, 2000 that are currently
listed for sale at sales prices ranging from $150,000 - $1,900,000. Upon the
sale of each property, the Partnership intends to payback PacWest loans,
including interest, and then distribute the sales proceeds, less any reserves
needed for operations, to the partners.
Liquidity and Capital Resources
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The Partnership has raised a total of $7,722,751, net of syndication costs, from
the sale of 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. 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. The remaining
five properties are being held for resale. Upon sale, if any, 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. That
region of Southern California experienced a significant economic recession that
has substantially eroded the value of real estate in that area. The region is
beginning to show some signs of recovery; however, the recovery has been very
slow.
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TMP INLAND EMPIRE VII, LTD.
A California Limited Partnership
September 30, 2000
In March and November 1997, the General Partners procured loans of $125,000 and
$233,825, respectively to provide cash for partnership operations. The loans are
secured by partnership land. Both these loans were either paid off or
renegotiated during the year ended December 31, 1999. (See Note 7 in the
accompanying financial statements).
The Partnership had a note with Ludwig Engineering for the engineering on the
Victorville 70-acre parcel. This note was paid off in January 1999. (See Note 7
in the accompanying financial statements).
There are no 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.
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.
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.
15
TMP INLAND EMPIRE VII, LTD.
A California Limited Partnership
September 30, 2000
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
$15,998 for its administrative services.
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Signatures
Pursuant to the requirements of the Securities exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 15,2000
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
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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
