-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FQYSF31RRMADZmml3kAVz+H87ir/V8bjwN+YgyCSzpXx6smn7CkAEOtS3FrlCUOA +NgeFShmzH6lCFohbSmcPA== 0000890566-00-000410.txt : 20000331 0000890566-00-000410.hdr.sgml : 20000331 ACCESSION NUMBER: 0000890566-00-000410 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IDM PARTICIPATING INCOME CO II CENTRAL INDEX KEY: 0000832475 STANDARD INDUSTRIAL CLASSIFICATION: FINANCE SERVICES [6199] IRS NUMBER: 330177934 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-16832 FILM NUMBER: 585726 BUSINESS ADDRESS: STREET 1: ONE WORLD TRADE CENTER STREET 2: STE 1000 CITY: LONG BEACH STATE: CA ZIP: 90831 BUSINESS PHONE: 2134980141 MAIL ADDRESS: STREET 1: ONE WORLD TRADE CENTER STREET 2: STE 1000 CITY: LONG BEACH STATE: CA ZIP: 90831-1000 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 Commission file number: 0-16832 IDM Participating Income Company-II (A CALIFORNIA LIMITED PARTNERSHIP) State of California 33-0177934 - --------------------------------------- --------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 2424 S.E. BRISTOL STREET, SUITE 333 NEWPORT BEACH, CALIFORNIA 92660 - --------------------------------------- --------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (713) 706-6271 ------------------------------------ ________________________________________________________________________________ (Former name or former address, if changed since last report) Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED - ------------------- ----------------------------------------- None None Securities registered pursuant to Section 12(g) of the Act: 200,000 LIMITED PARTNERSHIP UNITS Title of class Indicated 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 [ ]. Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K, not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K. [X] State the aggregate market value of the limited partnership units held by non-affiliates computed by reference to the price at which the units were sold, or the average bid and asked prices of such units, as of a specified date within the past 60 days. AT MARCH 31, 2000 - NONE - UNITS NOT TRADED DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registration of Securities on Form 10 dated April 28, 1988 (Registration No. 0-16832) are incorporated herein by reference in Part IV of this Form 10-K. Form 10-K for the fiscal year ended December 31, 1992 filed by the Registrant on April 14, 1993 PART I ITEM 1. BUSINESS IDM Participating Income Company-II, a California Limited Partnership (the "Partnership" or "Registrant"), is a California limited partnership formed in 1986 under the California Revised Limited Partnership Act to make participating loans to affiliates of the General Partner and to other parties ("Borrowers") as determined by the General Partner. The General Partner of the Registrant is IDM Participating Income General Partners' Co. - II. The General Partner of the General Partner of the Registrant is IDM Participating Income Corporation, a wholly owned subsidiary of IDM Corporation. All units of the Registrant's Limited Partnership Interests have been sold for cash resulting in proceeds of $20,000,000, all of which was invested in construction or permanent real estate loans made to the Borrowers. The Partnership's stated objectives are to preserve the Partnership's investment capital, provide quarterly distributions, and provide additional interest upon the sale, refinancing or other disposition of the real estate used as collateral for the participating loans. The Partnership loaned its original funds as construction and/or permanent loans pursuant to a master loan agreement. Each participating loan has been secured by a first or junior deed of trust and assignment of rents on the respective property, is non-recourse against the Borrower, and has a term of the earliest of five years from the date the certificate of occupancy is issued or six years from the date of the loan. IDM Corporation ("IDM"), a California corporation, together with certain affiliates, which had borrowed from the Partnership, reorganized under Chapter 11 of the United States Bankruptcy Code effective on March 22, 1993. As restructured in the bankruptcy of the debtors of the Registrant, collection of the original notes held by the Partnership is dependent upon both the value of the property securing the loans and the continuing credit of the applicable Borrowers. As was the case prior to the bankruptcy of IDM and its affiliated debtor entities, the remaining original secured loans are non-recourse, and if there is default on the loan, the Partnership will only have recourse against the respective property and not any Borrower. Further, to the extent there is any senior secured debt on the property, and a foreclosure results from a default on the senior secured debt, there is a risk that the Partnership might not recover the amount owing or any portion thereof. PLAN OF REORGANIZATION The order confirming the Reorganization Plan of the Borrowers of the Registrant and certain other affiliated debtors (the "Plan") was entered by the United States Bankruptcy Court for the Central District of California, Northern Division on March 10, 1993 and became effective on March 22, 1993. A copy of the Plan was filed as Exhibit 28 to the 1992 Form 10-K and is incorporated herein by reference. The Partnership received a total of 73,607 shares of IDM stock for its aggregate $6,418,355 of IDM undersecured debt which have been distributed to the partners of the Partnership. LOAN SUMMARY In October 1988, the Partnership funded a $1,380,000 loan to Harbor Plaza, Ltd. (an affiliate of the General Partner) to refinance an existing loan on Harbor Plaza located in Port Hueneme, California. The project is comprised of an operating single-story garden office building totaling approximately 14,000 square feet. The loan is secured by a first deed of trust. At December 31, 1995, a reserve of $565,000 was outstanding against this loan. At December 31, 1996, an additional provision of $400,000 was recorded for a total reserve of $965,000. During 1997, the Partnership wrote off $1,030,000 of the outstanding note balance and $24,000 of outstanding interest receivable. The remaining note balance of $350,000 was paid off in January 1998. In October 1989, the Partnership began funding a $12,000,000 loan ($7,100,000 at December 31, 1996) to IDM Apartments Corporation (an affiliate of the General Partner) for the Villa Redondo Apartments project located in Long Beach, California. The project is a 125 unit apartment complex. The loan is secured by a junior deed of trust. Under the Plan, the secured principal balance was reduced to $3,017,000. The remainder was converted to an unsecured non-interest-bearing note due December 31, 1997. IDM Apartments Corporation filed a second Chapter 11 in November 1994. This loan was fully reserved at December 31, 1996. During 1997, the Partnership received a $300,000 principal payment. This payment was recorded as a reserved receivable recovery. In the first quarter of 1997, the remaining note receivable and interest receivable balances were written off against the previously established reserves. 2 In December 1991, the Partnership funded a $3,500,000 loan to IDM Corporation (an affiliate of the General Partner) on Pads A, E, and F of the Beach and Lampson retail center. The borrower repaid $1,100,000 during 1992. The loan is secured by a first deed of trust. Under the Plan, the secured principal balance was reduced to $1,333,000 and the remainder was converted to shares of IDM common stock and distributed to the limited partners of this Partnership. During 1996, IDM Corporation sold Pad F of the Beach and Lampson retail center for $525,000. The net sales proceeds received of $474,085 were repaid to the Partnership and applied as a principal reduction on this loan. During 1996, the remaining principal balance of $858,915 was reserved in its entirety. In 1997, the Partnership funded four new participating loans to affiliates. Each loan is secured by real property and bears interest at a variable rate determined by the Federal Reserve of San Francisco's discount rate plus a 3% premium with a minimum of 12.12% and a maximum of 15.15%. The interest rate can be adjusted the last day of March, June, September and December of each year until note agreement is fulfilled. The current interest rate is 12.12%. Each loan is more fully described below. On April 15, 1997, the Partnership funded a loan to Sierra Pacific Pension Investors '84, an affiliate of the general partner, in the amount of $200,000. The loan is secured by a second trust deed on the Sierra Valencia property located in Tucson, Arizona. Monthly payments of $6,659, consisting of both interest and principal, commenced on May 15, 1997 and shall continue until April 15, 2000, when the indebtedness is due in full. As of December 31, 1999, the loan balance was $32,000. The Partnership entered into two loan agreements with CGS Real Estate Company, Inc., an affiliate of the general partner. On August 1, 1997, the Partnership funded $165,000 to secure financing for a land acquisition in San Diego, California (Sorrento II Land). On December 1, 1997, an additional $316,500 was funded to provide financing for a land acquisition in Long Beach, California (Bally Land). Both loans are secured by second trust deeds and have a term of five years. Interest only payments are due monthly in arrears. In 1998, the Partnership funded an additional $585,000 to CGS Real Estate Company, Inc.. The existing secured loan made in August 1997 was amended, increasing the loan amount to $750,110. The loan term was extended to December 31, 2003. During the first quarter of 2000, the Sorrento II Land was sold. It is anticipated that the Partnership will modify some of the above referenced notes transferring the security to land held for development by CGS Real Estate Company, Inc. On December 24, 1997, the Partnership funded a $372,500 loan to NO-SO, Inc., an affiliate of the general partner, to provide financing for a land development in Phoenix, Arizona. In 1999, CGS Real Estate Company, Inc. purchased the land from NO-SO, Inc. and assumed the loan. The loan is secured by a second deed of trust on the land and has a term of five years. Interest only payments are due monthly in arrears. As of December 31, 1999, the Partnership has total secured notes receivable of $1,471,000. INDEMNIFICATION OF GENERAL PARTNER Section 16 of the Partnership Agreement provides for indemnification of the General Partner by the Partnership under certain circumstances. Generally, the General Partner may be indemnified out of Partnership assets for any loss or liability arising from its conduct whenever such course of conduct does not constitute fraud, gross negligence, or gross misconduct. Indemnification for securities laws violations may be allowed only in certain limited circumstances (see Section 16.2 of the Partnership Agreement). In the case of a liability arising from an alleged violation of the securities laws, the General Partner may obtain indemnification only if the General Partner is successful in defending the action and the court specifically approves the indemnification or, if the action is settled, the court specifically approves the settlement and the indemnification of such settlement. To the extent that any indemnification is paid, the assets of the Partnership will be depleted and the return to a limited partner on his investment may be impaired. As the result of this indemnification arrangement, purchasers of Partnership Units may have a more limited right of action than they would have absent the indemnification provisions in the Partnership Agreement. Furthermore, purchasers of Partnership Units should bear in mind that adequate legal remedies may not be available or affordable in the event they believe that fiduciary obligations have been breached. ITEM 2. PROPERTIES The Partnership owns no physical properties. ITEM 3. LEGAL PROCEEDINGS The Partnership has no material pending legal proceedings. 3 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS As of December 31,1999, the number of security holders is as follows: NUMBER OF NUMBER OF RECORD UNITS HOLDERS --------- --------- Limited Partners 200,000 1,645 ========= ========= These securities are all of the same class, namely, limited partnership interests (units) and were registered pursuant to a registration statement filed under the Securities Act of 1934. The total offering was 200,000 units at $100.00 per unit. No broker or dealer currently makes a market in the units of the Partnership. Accordingly, there are no published price or trading volume figures available for the units. The units have been transferred on an extremely limited extent from time-to-time since the inception of the Partnership; however, the market for the units is highly restricted and sporadic, especially in view of the investor suitability requirements imposed on new purchasers by the various state blue sky laws. 4 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth certain selected historical financial data of the Partnership. The selected operating and financial position data as of and for each of the five years ended December 31, 1999 have been derived from the audited financial statements of the Partnership. This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Financial Statements and Notes thereto. Statement of Operations Information (in thousands, except per unit amounts)
Years Ended December 31, -------------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- Interest income $ 183 $ 159 $ 125 $ 254 $ 332 Recovery of reserved receivables 0 0 300 250 0 General and administrative (58) (73) (61) (64) (22) Provision for possible losses 0 0 (89) (1,099) (1,900) -------- -------- -------- -------- -------- Net income (loss) $ 125 $ 86 $ (275) $ (659) $ (1,590) ======== ======== ======== ======== ======== Net income (loss) per limited partnership units outstanding $ .62 $ .43 $ (1.37) $ (3.26) $ (7.87) ======== ======== ======== ======== ======== Cash distributions per limited Partnership units outstanding $ 0 $ 0 $ 0 $ 0 $ 1.99 ======== ======== ======== ======== ======== Balance Sheet Information (in thousands) December 31, -------------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- Cash/interest receivable (net of reserve) $ 212 $ 9 $ 107 $ 633 $ 41 Loans to affiliates (net of reserve) 1,471 1,542 1,370 415 1,815 Receivables from affiliate 0 0 1 150 0 Prepaid expenses 0 7 0 0 0 -------- -------- -------- -------- -------- Total Assets $ 1,683 $ 1,558 $ 1,478 $ 1,198 $ 1,856 ======== ======== ======== ======== ========
5 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations includes certain forward looking statements reflecting the Partnership's expectations in the near future; however, many factors which may affect the actual results, especially changing regulations, are difficult to predict. Accordingly, there is no assurance that the Partnership's expectations will be realized. Overview: The following discussion should be read in conjunction with the Selected Financial Data (Item 6. of this Form 10-K) and the Partnership's Financial Statements and Notes thereto beginning on page F-1 of this Form 10-K. The bankruptcy proceeding and the Plan, which is discussed in detail in Item 1. Business, has had, and will continue to have, a material and substantial impact on the Partnership's liquidity, capital resources and results of operations, which are discussed below. Results of Operations: COMPARISON OF YEAR ENDED DECEMBER 31, 1999 TO YEAR ENDED DECEMBER 31, 1998. Interest income increased by $24,000 principally as a result of a full year of interest recognized on the funding of an additional $585,000 in 1998 to an affiliate on an existing secured loan. General and administrative expenses decreased by $15,000, primarily due to a decrease in insurance and data processing costs. Further, lower accounting fees were incurred in 1999 when compared to the prior year. COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31, 1997. Interest income increased by $34,000 primarily due to a full year of interest recognized on the funding of four participating loans to affiliates in the 1997. The total amount funded by the Partnership in 1997 was $1,054,000. In addition, one of the loans was funded an additional $585,000 in 1998. The four loans are secured by real property and currently bear interest at 12.12%. The increase in interest income was partially offset due to the acceptance of a $350,000 payoff on the Harbor Plaza Ltd. loan in January 1998. In December 1997, the Partnership wrote down the loan balance to this amount against the previously established reserve and wrote off interest receivable of $24,000. The loan had a prior unreserved balance of $415,000. These loss provisions are reflected in the 1997 statement of operations. Interest income of $99,000 was recognized in 1997 relating to this loan. General and administrative expenses increased by $12,000, principally due to higher insurance and data processing costs incurred in 1998. This increase was partially offset by a decrease in accounting fees. Liquidity and Capital Resources: In 1999, the Partnership's cash position increased primarily due to the partial collection of loans receivable and interest income. The Partnership is in a liquid position at December 31, 1999 with a cash balance of $37,000 and no current liabilities. The Partnership has no plans or commitments for any future capital expenditures. Inflation: The Partnership does not expect inflation to be a material factor in its operations in 2000. 6 YEAR 2000 COMPLIANCE The Year 2000 Compliance issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Partnership's computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. As a result, many companies' software and computer systems may need to be upgraded or replaced in order to comply with Year 2000 requirements. The Partnership did not experience any major system failures or disruptions in operations over the year 2000 transition. All systems have continued to operate as normal. The Partnership did not separately track internal costs related to the Year 2000 issue and Partnership management believes these amounts did not have a material impact on the Partnership's financial position or results of operations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to the Index to Financial Statements on page F-1 of this Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 7 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Registrant has no directors or officers. The General Partner of the Registrant is IDM Participating Income General Partners' Co. - II, which also has no directors or officers. The General Partner of the General Partner of the Registrant is IDM Participating Income Corporation, a wholly owned subsidiary of IDM Corporation. The executive officers and directors of IDM Participating Income Corporation are: Approximate Name Position Age Time in Office ----------------------------------------------------------------- Morris S. Cohen Director 62 5 years William J. Carden Director 55 4 years Morris S. Cohen -Director, IDM Participating Income Corporation. Mr. Cohen's extensive real estate background includes negotiation of joint venture partnerships for property acquisitions, production of syndication packages and direct responsibilities for operations, finance, sales, leasing and property management. Mr. Cohen was a senior level officer with major public and privately held real estate companies and served as President of IDM Participating Income Corporation from April 1995 to October 1996. Mr. Cohen is a graduate of Queens College. William J. Carden - Director, IDM Participating Income Corporation. Mr. Carden is the founder and President of CGS Real Estate Company, Inc., which owns over one million square feet of commercial real estate. Mr. Carden founded DVM Properties, Inc. in 1974, which concentrated on rehabilitation of retail, office, industrial, and commercial real estate. Mr. Carden is a former Director of Bay Financial, a New York Stock Exchange Company, and currently serves as a director of S-P Properties, Inc. and Property Secured Investments, Inc. There have been no events under any bankruptcy act, no criminal proceedings, and no judgments or injunctions material to the evaluation of the ability and integrity of any director or officer during the past five years. ITEM 11. MANAGEMENT REMUNERATION The Registrant is a California Limited Partnership and has no officers or directors. No options to purchase securities of the Registrant have been granted to any person. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT None 8 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS As described in Item 1. Business, the Registrant has loaned funds to IDM Corporation, the parent of the General Partner of the General Partner and to other affiliated entities. In April 1996, IDM Corporation, the parent of the General Partner of the General Partner, entered into a Stock Purchase Agreement with S-P Properties, Inc. Under this agreement, S-P Properties, Inc. purchased 4,006,589 newly issued shares of IDM Corporation common stock, representing 47.5% of the issued and outstanding common stock of IDM Corporation. In conjunction with the stock purchase, the Registrant granted an option to S-P Properties, Inc. to purchase the Villa Redondo note and junior deed of trust, which is fully reserved and has a net book value of $0, for $300,000. The prior Board of Directors of IDM Corporation approved the option. The option price was determined by commissioning a national valuation firm to issue a fairness opinion. This option was exercised December 1997. The $300,000 collected by the Partnership was recorded as a reserved receivable recovery on the 1997 statement of operations. See "Loans to Affiliates" for additional information. In 1999, affiliates of the general partner were reimbursed for accounting, legal and data processing services provided to the Partnership. CGS Real Estate Company, Inc. and its wholly owned subsidiaries received $7,000 for such services in 1999. 9 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K A. EXHIBITS: (3) The Amended and Restated Agreement of Limited Partnership previously filed as Exhibit 3 to the Registrant's Registration of Securities on Form 10 dated April 28, 1988 (Registration No. 0-16832) which is incorporated herein by reference. (10) Master Loan Agreement and Participating Notes previously filed as Exhibit 10 to the Registrant's Registration of Securities on Form 10 dated April 28, 1988 (Registration No. 0-16832) which is incorporated herein by reference. (27) Selected Financial Data (28) The Disclosure Statement and Joint Plan of Reorganization of IDM Corporation and its Affiliated Debtors previously filed as Exhibit 28 to the Registrant's Form 10-K for the fiscal year ended December 31, 1992 filed on April 14, 1993 (Commission No. 0-16832) which is incorporated herein by reference. B. FINANCIAL STATEMENT SCHEDULES The following financial statement schedule and the report of the independent auditors thereon are included herein: 1. Schedule XII - Mortgage Loans on Real Estate - December 31, 1999 All other schedules are omitted as they either are not required or are not applicable, or the required information is set forth in the financial statements and notes thereto. C. REPORTS ON FORM 8-K None 10 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. IDM PARTICIPATING INCOME COMPANY-II, a California Limited Partnership IDM PARTICIPATING INCOME CORPORATION General Partner of the General Partner Date: March 19, 2000 /s/WILLIAM J. CARDEN -------------- -------------------- William J. Carden Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: March 19, 2000 /S/WILLIAM J. CARDEN -------------- -------------------- William J. Carden Director IDM Participating Income Corporation Date: March 19, 2000 /S/MORRIS S. COHEN -------------- -------------------- Morris S. Cohen Director IDM Participating Income Corporation 11 INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE To the Partners of IDM Participating Income Company - II We have audited the financial statements of IDM Participating Income Company - II, a California limited partnership, (the "Partnership") as of December 31, 1999 and 1998, and for each of the three years in the period ended December 31, 1999 and have issued our report thereon dated February 25, 2000. Our audit also included the financial statement schedule of IDM Participating Income Company-II listed in Item 14. This financial statement schedule is the responsibility of the Partnership's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Houston, Texas February 25, 2000 12 IDM PARTICIPATING INCOME COMPANY-II A California Limited Partnership (in thousands) Schedule XII - Mortgage Loans on Real Estate December 31, 1999
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - -------- -------- -------- -------- ---------- Face Carrying Final Amount Amount Maturity Prior Of Of Description Date Liens Mortgages Mortgages - ------------------------------------------------------------------------------------- FIRST MORTGAGES: Retail complex - Beach & Lampson, Stanton, CA Dec 1997 $ 0 $ 859(1) $ 859 SECOND MORTGAGES: Industrial Bldg. - Sierra Valencia, Tucson, AZ Apr 2000 0 200(2) 32 Land - San Diego, CA Dec 2003 0 750(2) 750 Land - Long Beach, CA Dec 2002 0 316(2) 316 Land - Phoenix, AZ Dec 2002 0 373(2) 373 Reserve for possible losses (859) -------- -------- ------------ Total $ 0 $ 2,498 $ 1,471 ======== ======== ============
Column A: All debtors are IDM corporation and other affiliates. Column D: (1) The secured portion of this loan bears interest at 8%. The undersecured portion of the loan has been repaid with newly issued IDM stock. (2) These loans bear a variable interest rate determined by the Federal Reserve of San Francisco's discount rate prevailing on the 25th day of the month preceding the payment due date plus a 3% premium with a minimum of 12.12% and a maximum of 15.15%. The current rate is 12.12%.
RECONCILIATION FOR 1999, 1998, AND 1997: 1999 1998 1997 ----------- ----------- ----------- Balance at beginning of year $ 1,542 $ 1,370 $ 415 Additions during year: New mortgage loans 0 585 1,054 Deductions during year: Collections of principal (71) (413) (34) Provisions for possible losses 0 0 (65) ----------- ----------- ----------- Balance at close of year $ 1,471 $ 1,542 $ 1,370 =========== =========== ===========
The reserve is based on management's assessment of the loans outstanding, the outcome of IDM's plan of reorganization and on prevailing and anticipated economic conditions. 13 INDEX TO FINANCIAL STATEMENTS PAGE Independent Auditors' Report F-2 Balance Sheets - December 31, 1999 and 1998 F-3 Statements of Operations and Partners' Capital - for the years ended December 31, 1999, 1998, and 1997 F-4 Statements of Cash Flows - for the years ended December 31, 1999, 1998, and 1997 F-5 Notes to Financial Statements F-6 F-1 INDEPENDENT AUDITORS' REPORT To the Partners of IDM Participating Income Company - II: We have audited the accompanying balance sheets of IDM Participating Income Company - II, a California limited partnership, (the "Partnership") as of December 31, 1999 and 1998, and the related statements of operations and partners' capital and cash flows for each of the three years in the period ended December 31, 1999. 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such statements present fairly, in all material respects, the financial position of IDM Participating Income Company - II as of December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Houston, Texas February 25, 2000 F-2 IDM PARTICIPATING INCOME COMPANY-II A California Limited Partnership Balance Sheets December 31, 1999 and 1998 (in thousands, except unit amounts) ASSETS 1999 1998 ------ ------ Cash ................................................. $ 37 $ 8 Loans to affiliates (Note 2): Interest receivable ............................. 175 1 Principal, less reserve for possible losses of $859 at December 31, 1999 and 1998, respectively .......................... 1,471 1,542 Prepaid expenses ..................................... 0 7 ------ ------ $1,683 $1,558 ====== ====== LIABILITIES AND PARTNERS' CAPITAL Commitments and contingencies (Note 4) General partner ...................................... $ 440 $ 439 Limited partners: 200,000 units authorized, 200,000 issued and outstanding ....................... 1,243 1,119 ------ ------ Total partners' capital .............................. 1,683 1,558 ------ ------ Total liabilities and partners' capital .............. $1,683 $1,558 ====== ====== Limited partners' equity per unit .................... $ 6.22 $ 5.60 ====== ====== The accompanying notes are an integral part of these financial statements. F-3 IDM PARTICIPATING INCOME COMPANY-II A California Limited Partnership Statement of Operations and Partners' Capital For The Year Ended December 31, 1999 (in thousands, except unit and per unit amounts)
General Limited Partner Partners Total --------- --------- --------- Interest income (Note 2) ............. $ 2 $ 181 $ 183 General and administrative expenses (Note 3) ............... (1) (57) (58) --------- --------- --------- Net income ...................... 1 124 125 Partners' capital - beginning of year ............................ 439 1,119 1,558 Distributions to partners ............ 0 0 0 --------- --------- --------- Partners' capital - end of year ...... $ 440 $ 1,243 $ 1,683 ========= ========= ========= Net income per limited partnership unit outstanding .... $ .62 ========= Number of limited partnership units outstanding ............... 200,000 =========
The accompanying notes are an integral part of these financial statements. F-4 IDM PARTICIPATING INCOME COMPANY-II A California Limited Partnership Statement of Operations and Partners' Capital For The Year Ended December 31, 1998 (in thousands, except unit and per unit amounts)
General Limited Partner Partners Total --------- --------- --------- Interest income (Note 2) ................... $ 2 $ 157 $ 159 General and administrative expenses (Note 3) (1) (72) (73) --------- --------- --------- Net income ............................ 1 85 86 Partners' capital - beginning of year ...... 438 1,034 1,472 Distributions to partners .................. 0 0 0 --------- --------- --------- Partners' capital - end of year ............ $ 439 $ 1,119 $ 1,558 ========= ========= ========= Net income per limited partnership unit outstanding ...................... $ .43 ========= Number of limited partnership units outstanding ..................... 200,000 =========
The accompanying notes are an integral part of these financial statements. F-4A IDM PARTICIPATING INCOME COMPANY-II A California Limited Partnership Statement of Operations and Partners' Capital For The Year Ended December 31, 1997 (in thousands, except unit and per unit amounts)
General Limited Partner Partners Total --------- --------- --------- Interest income (Note 2) ................... $ 1 $ 124 $ 125 Recovery of reserved receivables (Note 2) .. 3 297 300 Provision for possible losses (Note 2) ..... (1) (88) (89) General and administrative expenses (Note 3) (1) (60) (61) --------- --------- --------- Net income ............................ 2 273 275 Partners' capital - beginning of year ...... 436 761 1,197 Distributions to partners .................. 0 0 0 --------- --------- --------- Partners' capital - end of year ............ $ 438 $ 1,034 $ 1,472 ========= ========= ========= Net income per limited partnership unit outstanding ...................... $ 1.37 ========= Number of limited partnership units outstanding ..................... 200,000 =========
The accompanying notes are an integral part of these financial statements. F-4B IDM PARTICIPATING INCOME COMPANY-II A California Limited Partnership Statements of Cash Flows For the Years Ended December 31, 1999, 1998, and 1997 (in thousands) 1999 1998 1997 ------- ------- ------- Cash flows from operating activities: Net income .................................... $ 125 $ 86 $ 275 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Recovery of reserved receivables ......... 0 0 (300) Provision for possible losses ............ 0 0 89 (Increase) decrease in interest receivable (174) 12 20 Decrease in receivable from affiliate .... 0 1 149 Decrease (increase) in prepaid expenses .. 7 (7) 0 (Decrease) increase in accounts payable .. 0 (6) 5 ------- ------- ------- Net cash (used in) provided by operating activities ............................ (42) 86 238 ------- ------- ------- Cash flows from investing activities: Loans to affiliates ........................ 0 (585) (1,054) Collections from loans to affiliates ....... 71 413 334 ------- ------- ------- Net cash provided by (used in) investing activities .................. 71 (172) (720) ------- ------- ------- Net increase (decrease) in cash ............... 29 (86) (482) Cash at beginning of year ................ 8 94 576 ------- ------- ------- Cash at end of year ...................... $ 37 $ 8 $ 94 ======= ======= ======= The accompanying notes are an integral part of these financial statements. F-5 IDM PARTICIPATING INCOME COMPANY-II A California Limited Partnership Notes to Financial Statements 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION IDM Participating Income Company-II, a California limited partnership (the "Partnership"), was formed in 1986 for the purpose of lending funds to various affiliated companies. The General Partner, IDM Participating Income General Partners' Co.-II, an affiliate of IDM Corporation ("IDM"), contributed an amount equal to one percent of the limited partners' contributed capital. All organizational, offering and operating expenses of the Partnership are borne by the General Partner or its affiliates. Profits, losses and distributions are allocated to the partners in accordance with their partnership interest until the partners have received a 12% cumulative annual return, at which time profits, losses and distributions will be allocated 85% among the limited partners and 15% to the General Partner. REORGANIZATION IDM was impacted by an economic recession, especially the decline in real estate values, the state of disarray in the savings and loan industry and the limited availability of commercial real estate loans from domestic and international banks. In addition, IDM's source of public funds was critically reduced in July 1991, as the majority of the dealers who sold IDM partnership units stopped selling these units. Subsequently, IDM suspended distributions to investors and on July 10, 1992, IDM, together with certain affiliates, filed for protection under Chapter 11 of the United States Bankruptcy Code. The Chapter 11 filing allowed IDM as debtor in possession to continue its business operations without interruption under the supervision of the bankruptcy court. On March 10, 1993, an order confirming the Reorganization Plan of IDM (the "Plan") was entered by the United States Bankruptcy Court for the Central District of California, Northern Division. The Plan became effective on March 22, 1993. BASIS OF FINANCIAL STATEMENTS The Partnership maintains its books and prepares its financial statements in accordance with generally accepted accounting principles. However, the Partnership prepares its tax return on the accrual basis of accounting as defined by the Internal Revenue Code with adjustments to reconcile book and taxable income (loss) for differences in the treatment of certain income and expense items. The accompanying financial statements do not reflect any provision for federal or state income taxes since such taxes are the obligation of the individual partners. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. FAIR VALUE OF FINANCIAL INSTRUMENTS The financial instruments of the Partnership at December 31, 1999 and 1998 consist of cash, loans to affiliates, and prepaid expenses. The fair value of cash and prepaid expenses approximates the carrying value due to the short-term nature of these items. Management does not fair value the loans to affiliates due to the related party nature of these receivables. F-6 IDM Participating Income Company - II Notes to Financial Statements Page two LOANS TO AFFILIATES The reserve for possible losses is established by provisions charged to expense. The reserve is based on management's assessment of the loans outstanding, the outcome of IDM's plan of reorganization and on prevailing and anticipated economic conditions. The valuation of the loans outstanding depends on the valuation of the properties securing such loans. The Partnership regularly evaluates the properties securing such loans for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Future undiscounted cash flows of the properties securing such loans are estimated and compared to the carrying amount of the loans to determine if impairment has occurred. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the loans, the Partnership shall recognize a reserve to reduce the carrying amount of the outstanding loan. Because the determination of fair value is based upon projection of future economic events, the amounts ultimately realized at disposition may differ materially from the net carrying value as of December 31, 1999. The cash flows used to determine fair value and net realizable value are based on good faith estimates and assumptions developed by management. Unanticipated events and circumstances may occur and some assumptions may not materialize; therefore, actual results may vary from the estimates and the variances may be material. The Partnership may provide additional write-downs which could be material in subsequent years if real estate markets or local economic conditions change. REVENUE RECOGNITION Interest income is recognized as provided for under the Plan except for when, in the opinion of management, such amounts are uncollectible. CALCULATION OF NET INCOME PER LIMITED PARTNERSHIP UNIT Net income per limited partnership unit is determined by dividing net income by the number of limited partnership units outstanding, 200,000 for all periods presented. RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." These SFAS's, which were effective for the Partnership's fiscal year ending December 31, 1998, establish additional disclosure requirements but do not affect the measurement of the results of operations. During the periods presented, the Partnership did not have any items of comprehensive income. The adoption of SFAS No. 131 had no effect on the Partnership's financial statements as the Partnership operates in only one segment, the lending of funds to affiliated entities. F-6A IDM Participating Income Company - II Notes to Financial Statements Page three 2. LOANS TO AFFILIATES The Partnership made senior and junior mortgage loans to provide financing to IDM Corporation and its affiliated companies as follows (in thousands):
1999 1998 ----------------------------- ----------------------------- Balance Reserve Net Balance Reserve Net ------- ------- ------- ------- ------- ------- IDM Corporation: Beach & Lampson Stanton, CA (due December 1997) ................ $ 859 $ (859) $ 0 $ 859 $ (859) $ 0 Other affiliated companies: Sierra Pacific Pension Investors '84 Sierra Valencia, Tucson, AZ (due April 2000) ................... 32 0 32 103 0 103 CGS Real Estate Company, Inc. ...... Sorrento II Land, San Diego, CA (due December 2003) ................ 750 0 750 750 0 750 CGS Real Estate Company, Inc. ...... Bally Land, Long Beach, CA (due December 2002) ................ 316 0 316 316 0 316 CGS Real Estate Company, Inc. ...... Land Development, Phoenix, AZ (due December 2002) ................ 373 0 373 373 0 373 ------- ------- ------- ------- ------- ------- $ 2,330 $ (859) $ 1,471 $ 2,401 $ (859) $ 1,542 ======= ======= ======= ======= ======= =======
The Beach & Lampson loan was in effect prior to re-organization. Prior to the re-organization, the loan terms included interest as 12.12% payable monthly with all principal due at maturity. The accrual of interest on this loan ceased July 10, 1992. The remaining loans were initiated after the re-organization and are not affected. As of December 31, 1999, the Partnership has total collateralized debt ("Secured Debt") of $1,471,000. In April 1996, IDM Corporation, the parent of the General Partner of the General Partner, entered into a Stock Purchase Agreement with S-P Properties, Inc. Under this agreement, S-P Properties, Inc. purchased 4,006,589 newly issued shares of IDM Corporation common stock, representing 47.5% of the issued and outstanding common stock of IDM Corporation. In conjunction with the stock purchase, the Partnership granted an option to S-P Properties, Inc. to purchase the Villa Redondo note and junior deed of trust, which was fully reserved and had a net book value of $0, for $300,000. The option was approved by the prior Board of Directors of IDM Corporation. The option price was determined by commissioning a national valuation firm to issue a fairness opinion. This option was executed in 1997. The Partnership recorded the $300,000 collected as a reserved receivable recovery on the 1997 statement of operations. In the first quarter of 1997, the remaining note receivable and interest receivable balances were written off against the previously established reserves. F-6B IDM Participating Income Company - II Notes to Financial Statements Page four The remaining Secured Debt in effect prior to re-organization was related to Harbor Plaza, Ltd. Effective January 1, 1994, this borrower's cash flow situation improved and was sufficient to resume current payments of interest at 8% in accordance with the Plan. In 1997, the Partnership recognized interest income of $99,000 related to this loan and wrote off $1,030,000 of the outstanding note balance and $24,000 of outstanding interest receivable. The remaining loan balance of $350,000 was paid off in January 1998. The Beach & Lampson loan was reserved in its entirety during 1996 resulting in a net book value of $0. To the extent that cash flow is available, the Partnership will receive all of its allowed Secured Debt of this loan with interest at 8% per year through December 31, 1997. No interest has been accrued on this loan since the bankruptcy filing. During 1996, IDM Corporation sold Pad F of the Beach and Lampson retail center for $525,000. The net sales proceeds received of $474,085 were repaid to the Partnership and applied as a principal reduction on this loan. In 1997, the Partnership funded four new participating loans to affiliates. Each loan is secured by real property and bears interest at a variable rate determined by the Federal Reserve of San Francisco's discount rate plus a 3% premium with a minimum of 12.12% and a maximum of 15.15%. The interest rate can be adjusted the last day of March, June, September and December of each year until note agreement is fulfilled. The current interest rate is 12.12%. Each loan has a term of five years and is more fully described below. On April 15, 1997, the Partnership funded a loan to Sierra Pacific Pension Investors '84, an affiliate of the general partner, in the amount of $200,000. The loan is secured by a second trust deed on the Sierra Valencia property located in Tucson, Arizona. Monthly payments of $6,659, consisting of both interest and principle, commenced on May 15, 1997 and shall continue until April 15, 2000, when the indebtedness is due in full. For the years ended December 31, 1999, 1998 and 1997, the Partnership recognized interest income of $8,000, $16,000 and $14,000, respectively, related to this loan. As of December 31, 1999, the loan balance was $32,000. The Partnership entered into two loan agreements with CGS Real Estate Company, Inc., an affiliate of the general partner. On August 1, 1997, the Partnership funded $165,000 to secure financing for a land acquisition in San Diego, California (Sorrento II Land). On December 1, 1997, an additional $316,500 was funded to provide financing for a land acquisition in Long Beach, California (Bally Land). Both loans are secured by second trust deeds and have a term of five years. Interest only payments are due monthly in arrears. In 1998, the Partnership funded an additional $585,000 to CGS Real Estate Company, Inc. The existing secured loan made in August 1997 was amended, increasing the loan amount to $750,110. The loan term was extended to December 31, 2003. For the years ended December 31, 1999, 1998 and 1997, the Partnership recognized interest income of $130,000, $97,000 and $9,000, respectively, related to these loans. During the first quarter of 2000, the Sorrento II Land was sold. It is anticipated that the Partnership will modify some of the above referenced notes transferring the security to land held for development by CGS Real Estate Company, Inc. On December 24, 1997, the Partnership funded a $372,500 loan to NO-SO, Inc., an affiliate of the general partner, to provide financing for a land development in Phoenix, Arizona. In 1999, CGS Real Estate Company, Inc. purchased the land from NO-SO, Inc. and assumed the loan. The loan is secured by a second deed of trust and has a term of five years. Interest only payments are due monthly in arrears. For the years ended December 31, 1999, 1998 and 1997, the Partnership recognized interest income of $45,000, $45,000 and $3,000, respectively, related to this loan. F-6C IDM Participating Income Company - II Notes to Financial Statements Page five 3. RELATED PARTY TRANSACTIONS As described in Note 2, the Partnership has loaned funds to IDM Corporation, the parent of the General Partner and to other affiliated entities. Affiliates of the general partner are reimbursed for accounting, legal and data processing services provided to the Partnership. In 1999, 1998 and 1997, CGS Real Estate Company, Inc. and its subsidiaries received $7,000, $9,000 and $14,000, respectively, for such services. IDM Corporation received $15,000 for such services in 1997. No such reimbursements were made in 1998 and 1999. 4. COMMITMENTS AND CONTINGENCIES Section 16 of the Partnership Agreement provides for indemnification of the General Partner by the Partnership under certain circumstances. Generally, the General Partner may be indemnified out of Partnership assets for any loss or liability arising from its conduct whenever such course of conduct does not constitute fraud, gross negligence, or gross misconduct. Indemnification for securities laws violations may be allowed only in certain limited circumstances (see Section 16.2 of the Partnership Agreement). In the case of liability arising from an alleged violation of the securities laws, the General Partner may obtain indemnification only if the General Partner is successful in defending the action and the court specifically approves the indemnification or, if the action is settled, the court specifically approves the settlement and the indemnification of such settlement. To the extent that any indemnification is paid, the assets of the Partnership will be depleted and the return to a limited partner on his investment may be impaired. As the result of this indemnification arrangement, purchasers of Partnership Units may have a more limited right of action than they would have absent the indemnification provisions in the Partnership Agreement. Furthermore, purchasers of Partnership Units should bear in mind that adequate legal remedies may not be available or affordable in the event they believe that fiduciary obligations have been breached. F-6D EX-27 2
5 THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM IDM PARTICIPATING INCOME COMPANY - II DECEMBER 31, 1999 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1999 DEC-31-1999 37,000 0 175,000 0 0 212,000 0 0 1,683,000 0 0 0 0 0 1,683,000 1,683,000 0 183,000 0 0 58,000 0 0 125,000 0 0 0 0 0 125,000 .62 .62
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