SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
PRELIMINARY DRAFT -AUGUST 12, 1997 (3:36PM)
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
Commission File Number: 1-8967
ATLANTIC GULF COMMUNITIES CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 59-0720444
- -------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2601 South Bayshore Drive
MIAMI, FLORIDA 33133-5461
- -------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (305) 859-4000
--------------
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.
[X] Yes ___ No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[X] Yes ___ No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.
There are 11,509,077 shares of the Registrant's Common Stock outstanding as of
August 12, 1997.
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
NO.
----
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1997 and
December 31, 1996 ................................... 1
Consolidated Statements of Operations for the Three
and Six Months Ended June 30, 1997 and 1996 ......... 2
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1997 and 1996 ................. 3
Notes to Consolidated Financial Statements .......... 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ...... 7
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings ................................... 27
Item 2. Change in Securities ................................ 28
Item 4. Submission of Matters to a Vote of Security Holders . 29
Item 6. Exhibits and Reports on Form 8-K .................... 30
SIGNATURES ............................................................ 31
<PAGE>
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1997 and December 31, 1996
(in thousands of dollars)
June 30, December 31,
1997 1996
--------- -----------
ASSETS (unaudited)
------
Cash and cash equivalents $ 4,461 $ 7,050
Restricted cash and cash equivalents 3,971 6,034
Contracts receivable, net 7,979 9,649
Mortgages, notes and other receivables, net 41,119 63,800
Land and residential inventory 140,066 153,417
Property, plant and equipment, net 2,730 2,911
Other assets, net 25,704 20,532
--------- ---------
Total assets $ 226,030 $ 263,393
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Accounts payable and accrued liabilities $ 11,408 $ 16,914
Customers' and other deposits 4,369 5,483
Other liabilities 12,378 15,393
Notes, mortgages and capital leases 130,241 169,215
--------- ---------
158,396 207,005
--------- ---------
Cumulative Redeemable Convertible Preferred Stock
Series A preferred stock 7,796 --
Series B preferred stock 9,055 --
--------- ---------
16,851 --
--------- ---------
Stockholders' equity
Common stock, $.10 par value; 70,000,000
and 15,665,000 shares authorized;
11,595,354 and 9,795,642 shares issued 1,160 980
Contributed capital 132,284 122,123
Accumulated deficit (76,652) (60,706)
Minimum pension liability adjustment (6,000) (6,000)
Treasury stock, 86,277 shares, at cost (9) (9)
--------- ---------
Total stockholders' equity 50,783 56,388
--------- ---------
Total liabilities and stockholders' equity $ 226,030 $ 263,393
========= =========
See accompanying notes to consolidated financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Three and Six Months Ended June 30, 1997 and 1996
(in thousands, except per share data)
(unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- -------------------
Revenues: 1997 1996 1997 1996
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Real estate sales:
Homesite $ 9,532 $ 9,627 $ 12,082 $24,225
Tract 6,042 30,204 12,706 35,949
Residential 2,201 6,451 9,271 9,321
-------- ------- -------- -------
Total real estate sales 17,775 46,282 34,059 69,495
Other operating revenue 852 1,149 1,445 2,282
Interest income 1,517 1,789 2,889 3,130
Other income:
Reorganization reserves 1,365 -- 1,794 1,267
Other income 530 2,509 530 7,329
-------- ------- -------- -------
Total revenues 22,039 51,729 40,717 83,503
-------- ------- -------- -------
Costs and expenses:
Cost of real estate sales:
Homesite 9,268 7,494 11,256 18,413
Tract 5,538 24,906 11,693 29,609
Residential 3,082 4,896 8,398 7,071
-------- ------- -------- -------
Total cost of real estate sales 17,888 37,296 31,347 55,093
Selling expense 1,889 3,272 4,018 5,824
Other operating expense 298 558 628 1,257
Other real estate costs 2,896 4,435 5,802 8,692
General and administrative expense 2,456 2,256 4,656 5,386
Depreciation 169 223 353 472
Cost of borrowing, net of amounts capitalized 4,471 3,098 8,506 6,386
Other expense 642 95 1,353 302
-------- ------- -------- -------
Total costs and expenses 30,709 51,233 56,663 83,412
-------- ------- -------- -------
Income (loss) before extraordinary item (8,670) 496 (15,946) 91
Extraordinary gain on extinguishment of debt -- -- -- 3,770
-------- ------- -------- -------
Net income (loss) $ (8,670) $ 496 $(15,946) $ 3,861
======== ======= ======== =======
Net income (loss) before extraordinary item
per common share $ (.88) $ .05 $ (1.63) $ .01
======== ======= ======== =======
Net income (loss) per common share $ (.88) $ .05 $ (1.63) $ .40
======== ======= ======== =======
Weighted average common shares outstanding 9,863 9,699 9,793 9,716
======== ======= ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996
(in thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(15,946) $ 3,861
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 2,998 2,605
Gain from utility condemnations or sales -- (5,684)
Extraordinary gain from extinguishment of debt -- (3,770)
Other income (1,337) (1,881)
Reorganization items 179 (882)
Land acquisitions (5,572) (7,903)
Other net changes in assets and liabilities:
Restricted cash 2,063 2,738
Receivables 11,697 10,002
Land and residential inventory 19,197 37,295
Other assets (8,668) (6,462)
Accounts payable and accrued liabilities (5,252) (4,867)
Customer deposits (1,114) (1,638)
Other liabilities (483) (1,060)
Other, net -- (261)
-------- --------
Net cash provided by (used in) operating activities (2,238) 22,093
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment, net (172) (167)
Proceeds from sale of property, plant and equipment, net -- 773
Proceeds from utility condemnations or sales -- 25,690
Funds withdrawn from utility trust accounts 12,109 --
-------- --------
Net cash provided by investing activities 11,937 26,296
-------- --------
Cash flows from financing activities:
Borrowings under credit agreements 59,738 25,448
Repayments under credit agreements (99,683) (66,081)
Principal payments on other liabilities (1,218) (2,380)
Proceeds from issuance of common stock 10,000 --
Proceeds from issuance of preferred stock 18,875 --
-------- --------
Net cash used in financing activities (12,288) (43,013)
-------- --------
Increase (decrease) in cash and cash equivalents (2,589) 5,376
Cash and cash equivalents at beginning of period 7,050 3,560
-------- --------
Cash and cash equivalents at end of period $ 4,461 $ 8,936
======== ========
Supplemental cash flow information:
Interest payments, net of amounts capitalized $ 4,889 $ 3,827
======== ========
Reorganization item payments $ 900 $ 2,861
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1997
(unaudited)
(1) The June 30, 1997 financial statements are unaudited and subject to
year-end adjustments. In management's opinion, the interim financial
statements reflect all adjustments, principally consisting of normal
recurring accruals, necessary for a fair presentation of the financial
position and results of operations. Results for interim periods are not
necessarily indicative of results for the full year. For a complete
description of the Company's accounting policies, see "Notes to
Consolidated Financial Statements" included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 ("1996 Annual
Report"). Certain prior year amounts have been reclassified to conform
with the 1997 presentation.
(2) The net income (loss) per common share is based on the weighted average
number of shares of common stock outstanding during the periods. The
effect of any outstanding warrants and options to purchase common stock
on the per share computation was anti-dilutive or not material during
the periods.
(3) The Company capitalizes interest primarily on land inventory being
developed for sale which is subsequently charged to income when the
related asset is sold. Capitalized interest was $1,447,000 and
$2,722,000 for the three and six-month periods ended June 30, 1997,
respectively, and $1,369,000 and $3,261,000 for the three and six-month
periods ended June 30, 1996, respectively.
(4) Revenue from the sale of residential units other than Regency Island
Dunes ("Regency") condominium units is recognized when the earnings
process is complete. Revenue from the sale of Regency condominium units
is recognized using the percentage-of-completion method. Earned revenue
is based on the percentage of costs incurred to date to total estimated
costs to be incurred. This percentage is then applied to the expected
revenue associated with units that have been sold to date. Revenue from
the sale of land is recognized when the cash received, as a percentage
of the sales price, is at least 20% for land sales other than retail
land sales and 10% for retail land sales, the earnings process is
complete and the collection of any remaining receivable is reasonably
assured.
(5) Due to the necessity to establish reserves against future mandatory
debt, and capital and operating expenditures, the Company did not have
Available Cash, as defined in the Company's loan agreements, at June
30, 1997, to enable it to make any interest payments on the Cash Flow
Notes for the six-month period commencing January 1, 1997 and ending
June 30, 1997. In addition, the Company did not have any Available Cash
enabling it to make any interest payments for the year ended December
31, 1996. Interest on the Cash Flow Notes is noncumulative. Therefore,
the Company has not recorded interest expense associated with the Cash
Flow Notes during the six months ended June 30, 1997 and 1996. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
(6) Pursuant to the Company's 1996 Non-Employee Directors' Stock Plan, the
Company issued 12,355 shares of Atlantic Gulf's common stock to the
Non-Employee Directors at a price of $4.3125 per share for the first
quarter of 1997 and 11,158 shares at a price of $5.50 per share for the
second quarter of 1997.
4
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1997
(unaudited)
(7) The Company and AP-AGC, LLC a Delaware limited liability company
("Apollo"), entered into an Amended and Restated Investment Agreement
dated as of February 7, 1997, amended as of March 20, 1997, and amended
and restated as of May 15, 1997 (the "Investment Agreement"). In
addition, the Company, certain of its subsidiaries and Apollo entered
into a Secured Agreement dated as of February 7, 1997, and amended and
restated as of May 15, 1997 (the "Secured Agreement" and, together with
the Investment Agreement, the "Agreements"). Apollo is an affiliate of
Apollo Real Estate Investment Fund II, L.P. ("Apollo Fund II"), a
private real estate investment fund, the general partner of which is
Apollo Real Estate Advisors II, L.P., a New York-based investment fund.
Pursuant to the Agreements, Apollo agreed to purchase from the Company
up to 2,500,000 shares of 20% Series A Cumulative Redeemable
Convertible Preferred Stock (the "Series A Preferred Stock") at a per
share price of $9.88, and 5,000,000 warrants to purchase up to
5,000,000 shares of Common Stock (the "Investor Warrants"), at a per
warrant price of $.06, for an aggregate purchase price of up to $25
million (the "Apollo Transaction"). See Part II. Item 2. CHANGES IN
SECURITIES.
On June 24, 1997, pursuant to the Agreements, Apollo purchased 553,475
shares of Series A Preferred Stock and Investor Warrants to purchase an
additional 1,106,950 shares of Common Stock, for an aggregate purchase
price of $5,534,752.
Also on June 24, 1997, the Company and certain purchasers (the "Private
Purchasers") consummated a private placement pursuant to which the
Private Purchasers purchased for an aggregate price of $20 million; (a)
1,776,199 shares of Common Stock for $10 million, and (b) 1,000,000
shares of 20% Series B Cumulative Redeemable Convertible Preferred
Stock (the "Series B Preferred Stock"), at a per share price of $9.88,
and 2,000,000 Series B Warrants to purchase 2,000,000 shares of Common
Stock at a per warrant price of $.06 for an aggregate purchase price of
$10 million. The Series B Preferred Stock balance at June 30, 1997 is
the total aggregate purchase price of $10 million net of corresponding
Series B Warrants purchased - $0.120 million and net of Series B
issuance costs - $0.825 million for a net Series B Preferred Stock
balance of $9.055 million.
The Series A Preferred Stock, Investor Warrants, Series B Preferred
Stock and Series B Warrants are convertible or exercisable into Common
Stock, at $5.75 per share, subject to certain adjustments.
Of the total proceeds of approximately $25.5 million from the
above-mentioned transactions, $13.3 million were used to reduce the
amount outstanding under the Term Loan and $7.9 million were used to
reduce the amount outstanding under the Reducing Revolving Loan.
On June 30, 1997, pursuant to the Agreements, Apollo purchased, for an
aggregate purchase price of $3,340,000, an additional 334,000 shares of
Series A Preferred Stock and Investor Warrants to purchase an
additional 668,000 shares of Common Stock. The Company used
approximately $3.0 million of these proceeds plus an acquisition loan
of $2.6 million to acquire a 2.9-acre parcel in the
5
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1997
(unaudited)
downtown business district of Fort Lauderdale, Florida upon which the
Company plans to construct a high-rise luxury apartment complex to be
called Las Olas Tower.
The Series A Preferred Stock balance at June 30, 1997 is the total
aggregate purchase price of Series A Preferred Stock issued to Apollo
as of that date - $8.875 million, net of corresponding Investor
Warrants purchased - $.106 million and net of Series A issuance costs -
$.973 million for a net Series A Preferred Stock balance of $7.796
million.
On July 31, 1997, pursuant to the Agreements, Apollo purchased, for an
aggregate purchase price of $8.5 million, an additional 850,000 shares
of Series A Preferred Stock and Investor Warrants to purchase an
additional 1,700,000 shares of Common Stock. On July 31, 1997,
approximately $7.5 million of these proceeds were used to acquire
approximately 600 acres in Frisco, Texas which is near Dallas, Texas.
This property is anticipated to yield approximately 1,725 single family
units.
On August 7, 1997, pursuant to the Agreements, Apollo purchased, for an
aggregate purchase price of $2,590,000, an additional 259,000 shares of
Series A Preferred Stock and Investor Warrants to purchase an
additional 518,000 shares of Common Stock. On August 7, 1997, the
Company utilized approximately $2.5 million of these proceeds plus a
purchase money mortgage of $8.0 million to acquire approximately 515
acres of residential property in the Fort Myers, Florida area in a
project known as West Bay Club. Subsequent to this acquisition, the
Company owns a total of approximately 841 acres in West Bay Club and is
planning to assemble a total of 879 acres in this project which is
anticipated to yield approximately 545 single family homes and 520
high-rise condominium units.
The holders of the Series A Preferred Stock and the Series B Preferred
Stock are entitled to receive, when, as and if declared by the Board of
Directors, out of funds legally available therefore, cash dividends on
each share of preferred stock at an annual rate equal to 20% of the
Liquidation Preference in effect from time to time. All dividends are
cumulative, whether or not declared, on a daily basis from the date on
which the preferred stock is originally issued by the Company, and will
be payable quarterly in arrears on March 31, June 30, September 30, and
December 31 of each year commencing on September 30, 1997. As of June
30, 1997, the Series A Preferred Stock Liquidation Preference was
$8.875 million and the corresponding undeclared but accumulated and
unpaid dividends were $0.023 million. As of June 30, 1997, the Series B
Preferred Stock Liquidation Preference was $10 million and the
corresponding undeclared but accumulated and unpaid dividends were
$0.038 million. The total undeclared but accumulated dividends as of
June 30, 1997 did not materially affect the net income (loss) per
common share.
6
<PAGE>
PART I. - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-------------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
CURRENT BUSINESS
- ----------------
Atlantic Gulf Communities Corporation is a Florida-based real estate
development and asset management company. The Company's primary lines of
business are acquisition, development and sale of new subdivision and scattered
developed homesites, sale of land tracts and residential construction and sales.
Additional lines of business which contribute to the Company's overall
operations include portfolio management of mortgages and contracts receivable
and environmental services.
The Company acquires and develops real estate to: (i) enhance the value
of certain properties, (ii) maintain a continuing inventory of marketable tracts
and (iii) supply finished homesites to independent builders in Florida's fastest
growing markets and in other related markets. The Company's acquisition and
development activities are comprised of four primary functions: business
development, planning, community development and residential construction. See
Item 1. Business in the 1996 Annual Report for a more detailed description of
the Company's current business.
BUSINESS PLAN
- -------------
The Company's goal is to produce superior returns for stockholders by
liquidating predecessor assets, paying off debt, matching overhead to
development and construction activities, and becoming the leading supplier of
finished homesites to independent homebuilders in Florida's fastest growing
markets and in selected primary markets in the southeastern United States,
including North Carolina and Texas. Predecessor assets are those real estate
assets inherited by the Company from its predecessor company and consist of
tracts and scattered homesites located in secondary markets throughout Florida
and in one community in Tennessee.
The Company's business plan is centered on its three principal lines of
business: (i) sales of finished homesites to independent homebuilders, (ii)
sales of tract land to end users as well as to investors and (iii) residential
construction and sales. The intent of the plan is to monetize the Company's
predecessor assets as rapidly as market conditions permit while entering into
new markets with a higher risk-adjusted return potential. The business plan also
contemplates modifying the Company's capital structure by reducing debt,
improving financial flexibility, and reducing overhead by focusing on the
Company's core assets and businesses.
The Company is also actively marketing predecessor assets on a bulk
sale basis as well as on an individual tract/lot basis through the Company's
Atlantic Gulf Land Company. The Company currently has approximately $23.4
million in pending contracts and letters of intent on predecessor assets. There
are no assurances that the above-mentioned negotiations, pending contracts and
letters of intent will result in material sales or in material sales at prices
which, in the aggregate, equal the Company's book value in the properties sold.
See Item 1. Business in the 1996 Annual Report for additional information on the
Company's business plan.
7
<PAGE>
This Quarterly Report includes "forward looking" statements that are
subject to risks and uncertainties. Such forward-looking statements include (a)
expectations and estimates as to the Company's future financial performance,
including growth and opportunities for growth in revenues, net income and cash
flow; (b) estimated and targeted annual unit sales, sales prices, and margins
and (c) those other statements preceded by, followed by or that include the
words "believes," "expects," "intends," "anticipate," "potential" or similar
expressions. For these statements, the Company claims the protection of the safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. The following important factors, in addition to
those discussed elsewhere in this Quarterly Report, could affect the Company's
future results and could cause those results to differ materially from those
expressed in the forward-looking statements: (a) the inability to generate
growth in revenues and net income; (b) the inability to generate sufficient cash
flows from operations to fund capital expenditures and debt service; (c)
unanticipated capital expenditures, including costs associated with real estate
development projects; (d) unanticipated costs, difficulties or delays in
completing or realizing the intended benefits of development projects; (e)
adverse changes in current financial markets and general economic conditions,
including interest rate increases; (f) adverse changes in current real estate
markets and the real estate industry; and (g) actions by competitors.
8
<PAGE>
Results of Operations
---------------------
Comparison of the Six Months Ended June 30, 1997 and 1996
---------------------------------------------------------
The Company's results of operations for the six months ended June 30,
1997 and 1996 are summarized by line of business, as follows:
<TABLE>
<CAPTION>
Combining Results of Operations by Line of Business
---------------------------------------------------
Six Months Ended June 30, 1997
(in thousands of dollars)
(unaudited)
HOMESITE TRACT RESIDENTIAL OTHER BUSINESS ADMINISTRATIVE
SALES SALES SALES OPERATIONS DEVELOPMENT & OTHER TOTAL
----- ----- ----- ---------- ----------- -------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Real estate sales $ 12,082 $ 12,706 $ 9,271 $ $ $ $ 34,059
Other operating revenues 401 1,044 1,445
Interest income 2,198 691 2,889
Other income:
Reorganization reserves 532 1,262 1,794
Other income 530 530
-----------------------------------------------------------------------------------
Total revenues 12,483 12,706 9,271 3,774 2,483 40,717
-----------------------------------------------------------------------------------
Costs and expenses:
Cost of real estate sales 11,256 11,693 8,398 31,347
Selling expense 2,116 1,631 239 32 4,018
Other operating expense 628 628
Other real estate costs:
Property tax, net 1,731 1,731
Other real estate overhead 650 699 138 348 1,347 889 4,071
General and administrative expense 4,656 4,656
Depreciation 7 31 2 62 251 353
Cost of borrowing, net 8,506 8,506
Other expense 96 462 795 1,353
-----------------------------------------------------------------------------------
Total costs and expenses 14,029 14,054 8,777 1,134 1,841 16,828 56,663
-----------------------------------------------------------------------------------
Net income (loss) $ (1,546) $ (1,348) $ 494 $ 2,640 $ (1,841) $ (14,345) $ (15,946)
===================================================================================
9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Combining Results of Operations by Line of Business
---------------------------------------------------
Six Months Ended June 30, 1996
(in thousands of dollars)
(unaudited)
HOMESITE TRACT RESIDENTIAL OTHER BUSINESS ADMINISTRATIVE
SALES SALES SALES OPERATIONS DEVELOPMENT & OTHER TOTAL
----- ----- ----- ---------- ----------- ------- -----
Revenues:
<S> <C> <C> <C> <C> <C> <C> <C>
Real estate sales $ 24,225 $ 35,949 $ 9,321 $ $ $ $ 69,495
Other operating revenue 2,282 2,282
Interest income 2,079 1,051 3,130
Other income:
Reorganization reserves 1,267 1,267
Other income 5,675 1,654 7,329
----------------------------------------------------------------------------------------
Total revenues 24,225 35,949 9,321 10,036 3,972 83,503
----------------------------------------------------------------------------------------
Costs and expenses:
Cost of real estate sales 18,413 29,609 7,071 55,093
Selling expense 2,881 2,037 906 5,824
Other operating expense 1,257 1,257
Other real estate costs:
Property tax, net 30 2,902 2,932
Other real estate overhead 935 864 533 623 1,587 1,218 5,760
General and administrative 5,386 5,386
Depreciation 18 45 14 188 207 472
Cost of borrowing, net 6,386 6,386
Other expense (11) 313 302
----------------------------------------------------------------------------------------
Total costs and expenses 22,236 32,555 8,524 2,098 1,900 16,099 83,412
----------------------------------------------------------------------------------------
Income (loss) before
extraordinary item 1,989 3,394 797 7,938 (1,900) (12,127) 91
Extraordinary gain on
extinguishment of debt 3,770 3,770
----------------------------------------------------------------------------------------
Net income (loss) $ 1,989 $ 3,394 $ 797 $ 7,938 $(1,900) $ (8,357) $ 3,861
========================================================================================
</TABLE>
During the first six months of 1997, the Company incurred a net loss of
$15.9 million compared to net income of $3.9 million during the first six months
of 1996 primarily due to an $11.7 million decrease in the gross margins
generated from real estate sales, a $6.3 million decrease in other income and a
$3.8 million extraordinary gain in the first quarter of 1996 resulting from the
cancellation of debt. The lower gross margins resulted from lower real estate
sales revenues and lower gross margin percentages. Gross margin represents
10
<PAGE>
the difference between the Company's real estate revenue and related cost of
sales. The decrease in other income was principally attributable to a gain of
approximately $4.1 million in the first quarter of 1996 from an $18.75 million
settlement of the Port St. Lucie condemnation litigation.
Homesite Sales
--------------
The net operating results from homesite sales decreased $3.5 million
during the first six months of 1997 compared to the first six months of 1996
primarily due to lower gross margins generated from homesite sales in 1997
resulting from lower homesite sales revenues and lower gross margin percentages.
Revenues from homesite sales decreased $12.1 million in the first six
months of 1997 from the first six months of 1996. The decrease resulted from a
44% decrease in the average sales price per homesite and a 10% decrease in the
number of homesites sold. The decrease in the average sales price was primarily
due to a change in the sales mix. The following table summarizes homesite sales
activity for the six months ended June 30 (in thousands of dollars):
<TABLE>
<CAPTION>
1997 1996
------------------------------------ -------------------------------------
Number Average Number Average
of lots Revenue sales price of lots Revenue sales price
------- ------- ----------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Subdivision homesite
sales 270 $ 8,468 $31.4 542 $18,455 $34.0
Scattered homesite sales 872 3,614 4.1 730 5,770 7.9
----- ------- ----- ----- ------- -----
1,142 $12,082 $10.6 1,272 $24,225 $19.0
===== ======= ===== ===== ======= =====
</TABLE>
The decrease in subdivision homesite sales revenue is primarily due to
approximately $7.6 million of sales in the first six months of 1996 in Julington
Creek Plantation, a project in Jacksonville, Florida, including a bulk sale of
the remaining 126 homesites in this project for $5.6 million in June 1996. In
addition, there was a $3.6 million decrease in sales in Windsor Palms, a project
located in southwest Broward County, Florida. The Company sold the remaining 102
homesites in Windsor Palms for approximately $4.5 million in June 1997.
Partially offsetting these decreases were sales of 41 homesites for $1.3 million
in the first six months of 1997 in West Meadows, a project in Tampa, Florida.
Subdivision revenues for the full year of 1997 are anticipated to be lower than
1996 due to the bulk sale of Julington Creek Plantation in 1996 and the sale of
75% of the inventory in Windsor Palms in 1996, which represented the Company's
two largest subdivision projects at that time. Current subdivision projects
under development along with recently acquired projects and projects to be
acquired, utilizing in part, proceeds from the issuance of Series A Preferred
Stock to Apollo, are anticipated to generate increased subdivision revenues
beginning in 1998. The decrease in the average sales price of subdivision
homesite sales is primarily due to the homesite sales in Julington Creek
Plantation in the first six months of 1996 which yielded an average sales price
of approximately $43,000.
Revenues from scattered homesite sales decreased in the first six
months of 1997 compared to the first six months of 1996 due to a 48% decrease in
the average sales price per homesite, partially offset by a 19.5% increase in
the number of homesites sold. The decrease in the average sales price is
principally due to a 37% decrease in the average sales price in the Company's
Cumberland Cove community in Tennessee and to an increase in bulk sales of
scattered homesites in secondary markets in Florida which yield a lower sales
price. The decrease in the average sales price in Cumberland Cove is primarily
due to the mix of homesites sold. The volume of scattered homesites sales
increased primarily due to the increase in the number of bulk homesites sold.
The Company anticipates it will continue to supplement scattered homesite sales
volume in secondary markets through bulk homesite sales and through the
marketing activities of the Atlantic Gulf Land Company as part of its plan to
accelerate the disposition of assets in secondary real estate markets in
Florida.
11
<PAGE>
Other income in the first six months of 1997 included a $322,000
management fee received from Country Lakes, Ltd., a Virginia limited
partnership, of which the Company is a limited partner. This partnership was
formed to acquire, plan, develop and market approximately 1,750 acres located in
Dade and Broward counties Florida, formerly known as Viacom/Blockbuster Park.
The Company provides the day-to-day management, development, marketing and sales
coordination for the partnership. The $322,000 management fee represented 3.5%
of $9.2 million of revenues from a sale of 280 acres in this project in June
1997.
As of June 30, 1997, the Company had under contract approximately
2,768 scattered homesite lots for $5.9 million and approximately 344 subdivision
homesites for $6.3 million which are anticipated to close in 1997.
Substantially, all of the Company's subdivision homesites currently under
development are under "contract" for sale. As of June 30, 1996, the Company had
approximately 1,030 total homesites under contract totaling approximately $8.6
million.
The homesite sales gross margin percentages were 6.8% in 1997 compared
to 24.0% in 1996. The gross margin percentage in the first six months of 1996
reflects targeted gross margins of 20% to 30% for this line of business. The
lower gross margin percentage in the first six months of 1997 is attributable to
a negative 10% gross margin on the Windsor Palms sales and to an increase in
bulk homesite sales which are priced to sell and therefore yield lower gross
margins. The negative gross margin in Windsor Palms was due to the realization
of a lower than expected sales price for the remaining 102 lots sold in 1997 and
to higher than anticipated costs associated with the entire project. The Company
realized a gross margin of approximately 6.5% on the Windsor Palms project in
its entirety. The gross margin in the first six months of 1997 was 23.0% for
sales other than Windsor Palms and bulk homesite sales.
Homesite selling expense decreased primarily due to a decrease in
direct selling expenses resulting from the decrease in revenues and to a
reduction in costs in Cumberland Cove. Homesite selling expense as a percentage
of revenues increased from 11.9% in 1996 to 17.5% in 1997, primarily due to the
decreased revenues over which to spread fixed selling costs.
Homesite sales other real estate overhead decreased in the first six
months of 1997 compared to the first six months of 1996 primarily due to lower
overhead costs associated with managing the Company's subdivision homesite
projects in Florida's primary real estate markets.
Tract Sales
-----------
The net operating results from tract sales decreased in the first six
months of 1997 compared to the first six months of 1996 primarily due to lower
gross margins generated from tract sales in 1997 resulting from lower tract
sales revenues and lower gross margin percentages.
Revenues from tract sales decreased $23.2 million in the first six
months of 1997 compared to the first six months of 1996 primarily due to several
large sales in 1996 including the sale of the Company's Julington Creek
Plantation project which included $11.6 million of tract acreage and a $9.0
million bulk sale of Summerchase, a project consisting of 320 acres in southwest
Broward County. Tract sales acreages and corresponding revenues from such sales
often vary significantly from quarter to quarter depending on the timing and
size of individual sales. Despite the decrease in tract sales in the first six
months of 1997, tract sales are expected to be a significant source of revenue
for the Company in 1997 due to the Company's plan to monetize the Company's
predecessor assets located in secondary markets. As of June 30, 1997, there were
pending tract sales contracts totaling approximately $15.5 million which,
subject to certain contingencies, are anticipated to close in 1997. Pending
sales contracts increased to approximately $19.1 million as of July 31, 1997
primarily due to the addition of an anticipated sale in 1997 for $5.1 million of
the remaining 1,200 acres
12
<PAGE>
of a parcel known as River Trace in Port St. Lucie. As of June 30, 1996, there
were pending tract sales contracts totaling approximately $15 million.
Tract sales gross margins are summarized as follows for the six months
ended June, 30:
<TABLE>
<CAPTION>
1997 1996
----------------------- ----------------------
Targeted Actual Targeted Actual
Margins Margins Margins Margins
------- ------- ------- -------
<S> <C> <C> <C>
Port LaBelle agricultural acreage 0% (2.3)% 5% -
Julington Creek bulk sale - - - 6.3%
Other tract acreage 5-10% 10.6% 20% 23.0%
</TABLE>
The targeted gross margin is lower for Port LaBelle agricultural
acreage as management has determined that approximately 18,000 acres of the Port
LaBelle agricultural property is not an integral part of the Company's long-term
business strategy. In order to accelerate the disposal of this property, the
sales value for this property was adjusted from a "retail" to a "wholesale"
basis, which reduced the targeted gross margin for this property. During the
first six months of 1997 the Company sold 2,156 acres of Port LaBelle
agricultural property for approximately $2.5 million.
The low gross margin in Julington Creek in 1996 resulted from the bulk
sale of this project in June 1996 as part of the Company's business plan to
monetize certain assets to generate cash to retire debt.
The actual gross margins for other tract acreage in 1997 and 1996
generally reflect the targeted gross margins. The targeted gross margins have
been reduced primarily due to the Company's plan to accelerate land sales in
secondary real estate market locations.
Tract sales selling expenses decreased in the first six months of 1997
compared to the first six months of 1996 primarily due to lower direct selling
expenses resulting from a decrease in revenues. Tract sales selling expense as a
percentage of revenues increased from 5.7% in the first six months of 1996 to
12.8% in the first six months of 1997 primarily due to lower direct selling
expenses associated with several large sales in 1996 including the Summerchase
and Julington Creek sales and to lower revenues in 1997 over which to spread
fixed selling costs.
Residential Sales
-----------------
Net income from residential sales, which includes single family homes
and condominiums, decreased $303,000 during the six months ended June 30, 1997
compared to the corresponding prior year period principally due to a decrease in
the gross margin generated from the Company's Regency Island Dunes condominium
project, partially offset by decreases in selling and other real estate overhead
costs.
13
<PAGE>
Residential sales are summarized as follows for the six months ended
June 30 (in thousand of dollars):
1997 1996
----- -----
Condominium sales - Regency Island Dunes:
First Building $1,310 $2,015
Second Building 7,885 4,526
----- -----
Total condominium sales 9,195 6,541
Single family home sales 76 2,780
----- -----
$9,271 $9,321
====== ======
The revenues and profits associated with Regency Island Dunes
condominium sales are recorded using the percentage of completion method. The
Regency Island Dunes condominium project consists of two 72-unit buildings. As
of December 31, 1995, the Company recorded 97% of the expected revenues and
profits on 61 units that were under contract in the first building as of
December 31, 1995 based on a construction completion percentage of 97%. The
condominium revenues of $2.0 million in the first building during the first six
months of 1996 represent the incremental revenue earned upon the completion of
59 of the 61 units in the first six months of 1996 and the sale and closing of
an additional five units in 1996. The condominium revenues of $1.3 million in
the first building in 1997 represent revenue earned upon the closing of an
additional four units in 1997. As of June 30, 1997, 71 of the 72 units in the
first building have been sold and closed. The revenues of approximately $4.5
million in the second building in the first six months of 1996 were derived from
45 units under contract as of June 30, 1996 with construction on the second
building 30% complete. As of December 31, 1996, the Company recorded 79% of the
expected revenues and profits on 56 units that were under contract in the second
building as of December 31, 1996 based on a construction completion percentage
of 79%. The revenues of approximately $7.9 million in the second building in the
first six months of 1997 were derived from an increase in the completion
percentage from 79% as of December 31, 1996 to 100% as of June 30, 1997 and to
an additional twelve units sold during the first six months of 1997 for a total
of 68 units sold in the second building. As of June 30, 1997, 24 of the 72 units
in the second building have closed and the Company anticipates that all 72 units
in the second building will be sold and closed in 1997.
Single family home sales revenues decreased during the first six months
of 1997 compared to the first six months of 1996 due a decrease in closings from
32 in 1996 to one in 1997. Closings decreased as a result of the Company's
decision in mid-1995 to begin phasing out its single family home business in
predecessor communities and substantially completed the withdrawal in 1996. The
Company may seek to re-enter the single family home business in primary markets
where this business would complement current or potential land development
activities. As of June 30, 1997, the Company had two single family home
residential units in inventory, neither of which were under contract. As of June
30, 1996, the Company had two single family home residential units under
contract totalling $168,000.
Residential sales gross margins are summarized as follows for the six
months ended June 30:
1997 1996
---- ----
Condominiums 9.6% 29.7%
Single family homes (15.8)% 11.1%
The gross margin for condominiums in the first six months of 1997 was
low due to project-to-date adjustments made in the second quarter of 1997
affecting both current and prior period profits resulting from higher than
anticipated construction costs associated with Regency Island Dunes. The overall
gross margin
14
<PAGE>
for this project is anticipated to be approximately 16.5% which is lower than
the targeted gross margin of approximately 20% to 25% for this line of business
due to the higher than anticipated construction costs.
The single family home gross margin in the first six months of 1997 was
generated from one unit which was priced to sell as the Company has withdrawn
from this line of business.
Residential selling expense decreased $667,000 or 74% and decreased as
a percentage of revenues from 9.7% in the first six months of 1996 to 2.6% in
the first six months of 1997. The decreases were due to closing costs incurred
in the first six months of 1996 associated with the closing of 64 condominium
units compared to 28 units closed in the first six months of 1997, an adjustment
to reduce incentive expenses as a result of the decrease in profits associated
with Regency Island Dunes and to a decrease in fixed selling costs as a result
of the phasing-out of the single family home operations.
Other real estate overhead decreased $395,000 or 74% in the first six
months of 1997 compared to the first six months of 1996 primarily due to a
$313,000 reduction in overhead costs associated with the Regency Island Dunes
condominium project, most notably due to a reduction in condominium association
costs. In addition, single family overhead costs decreased due to the
phasing-out of this operation.
Other Operations
----------------
Net income from other operations decreased $5.3 million in the first
six months of 1997 compared to the first six months of 1996 primarily due to a
$5.1 million decrease in other income.
Other operating revenues and expenses decreased in the first six months
of 1997 from the same prior year period primarily due to the absence of revenues
and expenses from the Port LaBelle utility system sold in February 1996 and the
Julington Creek utility system sold in June 1996.
Interest income increased in the first six months of 1997 from the
corresponding prior year period primarily due to adjustments in the first
quarter of 1996 associated with the Company's land mortgage receivable
portfolio, partially offset by a lower average balance of contracts receivable
during the periods under review.
Other income of $532,000 in the first six months of 1997 represents the
amortization of the Company's utility connections reserve. Other income in the
first six months of 1996 included a gain of approximately $4.1 million on an
$18.75 million settlement in March 1996 with the City of Port St. Lucie
regarding litigation pursuant to condemnation proceedings associated with the
taking of the Company's Port St. Lucie system. In addition, other income in the
first six months of 1996 consisted of a gain of $686,000 on the sale of the
Company's Port LaBelle utility system which was sold in February 1996 for $4.5
million and a gain of $865,000 on the sale of the Company's Julington Creek
utility system sold in June 1996 for $6.0 million.
Other operations other real estate overhead decreased 44% in the first
six months of 1997 compared to the first six months of 1996 primarily due to
lower community operations costs associated with the Company's predecessor
assets located in secondary markets in Florida.
Business Development
--------------------
Total business development expenditures were similar in the first six
months of 1997 compared to the first six months of 1996. Business development
expenditures consist primarily of costs associated with the pursuit of business
opportunities in primary market locations within Florida and other southeastern
United States locations.
15
<PAGE>
Business development other expenses included $405,000 in the first six
months of 1997 and $313,000 in the first six months of 1996 representing the
Company's 50% share of the net loss of the Ocean Grove joint venture. The loss
resulted from pre-sales advertising and other selling and overhead costs.
Administrative & Other
----------------------
The net loss from administrative & other activities increased $6.0
million in the first six months of 1997 from the first six months of 1996
principally due to an extraordinary gain of $3.8 million in 1996 resulting from
the cancellation of debt and to a $2.1 million increase in borrowing costs.
Interest income decreased in the first six months of 1997 from the
corresponding prior year period primarily due to a decrease in short term
investment interest income.
Other income included gains of $1.3 million in the first six months of
1997 and $1.3 million in the first six months of 1996 resulting from the
resolution of certain reorganization items. This process is expected to continue
during the remainder of the year with adjustments to be recorded as the final
disposition of various claims and other liabilities is concluded. Other income
also included gains of $250,000 in the first six months of 1997 and
approximately $1.0 million in the first six months of 1996 due to reductions in
the Company's environmental reserve and gains of $250,000 in the first six
months of 1997 and approximately $600,000 in the first six months of 1996 due to
reductions in the Company's land mortgages receivable valuation reserve.
Property tax, net of capitalized property taxes decreased in the first
six months of 1997 compared to the first six months of 1996 primarily due to a
reduction of land inventory not under development. The decrease in inventory
under development corresponds to sales activity and to the completion of various
projects during the intervening period.
Other real estate overhead decreased 27% in the first six months of
1997 compared to the same period in 1996 primarily due to a decrease in legal
costs associated with supporting increased real estate sales activity.
General and administrative expenses decreased $730,000 or 14% in the
first six months of 1997 compared to the first six months of 1996 principally
due to financial advisory and due diligence costs incurred in the first six
months of 1996 associated with the Company's recapitalization efforts.
Cost of borrowing, net of capitalized interest increased $2.1 million
in the first six months of 1997 compared to the same period in 1996 primarily
due to a $1.3 million increase in debt issue costs including a $1.0 million fee
paid to Foothill in 1997 pursuant to an amendment of the Revolving Loan
Agreement on March 31, 1997. Additionally, there was a $539,000 decrease in
interest capitalized to land inventory corresponding to a decrease in land under
development. During the six months ended June 30, 1997 and 1996, the Company did
not accrue interest on its Cash Flow Notes because of the absence of Available
Cash during the periods. See "LIQUIDITY AND CAPITAL RESOURCES."
Other expense in the first six months of 1997 included a $468,000 loss
on the sale of $9.3 million of land mortgage receivables to the First Bank of
Boston in March 1997 for an initial cash distribution of $7.0 million plus a
residual interest in the portfolio. The proceeds were used to reduce corporate
debt and to fund ongoing operations.
In February 1996, the Company recorded an extraordinary gain of
approximately $3.8 million due to the cancellation of approximately $1.9 million
of Unsecured 12% Notes and $1.9 million of Unsecured Cash Flow Notes. These
notes, held in the disputed claims reserve account, were in excess of the
requirements
16
<PAGE>
necessary to satisfy the Company's obligations in accordance with the Company's
plan of reorganization (the "POR").
17
<PAGE>
Comparison of the Three Months Ended June 30, 1997 and 1996
-----------------------------------------------------------
The comparison of the three months ended June 30, 1997 and 1996 should
be read in conjunction with the comparison of the six months ended June 30, 1997
and 1996 for a more comprehensive discussion of the result of operations. The
Company's results of operations for the three months ended June 30, 1997 and
1996 are summarized by line of business, as follows:
<TABLE>
<CAPTION>
Combining Results of Operations by Line of Business
Three Months Ended June 30, 1997
(in thousands of dollars)
(unaudited)
HOMESITE TRACT RESIDENTIAL OTHER BUSINESS ADMINISTRATIVE
SALES SALES SALES OPERATIONS DEVELOPMENT & OTHER TOTAL
----- ----- ----- ---------- ----------- ------- -----
Revenues:
<S> <C> <C> <C> <C> <C> <C> <C>
Real estate sales $ 9,532 $ 6,042 $ 2,201 $ $ $ $ 17,775
Other operating revenue 391 461 852
Interest income 1,080 437 1,517
Other income:
Reorganization reserves 265 1,100 1,365
Other income 530 530
-----------------------------------------------------------------------------------------
Total revenues 9,923 6,042 2,201 1,806 2,067 22,039
-----------------------------------------------------------------------------------------
Costs and expenses:
Cost of real estate sales 9,268 5,538 3,082 17,888
Selling expense 1,205 828 (168) 24 1,889
Other operating expense 298 298
Other real estate costs:
Property tax, net 820 820
Other real estate overhead 287 355 115 160 690 469 2,076
General and administrative 2,456 2,456
Depreciation 3 16 33 117 169
Cost of borrowing, net 4,471 4,471
Other expense 287 355 642
-----------------------------------------------------------------------------------------
Total costs and expenses 10,763 6,737 3,029 491 1,001 8,688 30,709
-----------------------------------------------------------------------------------------
Net income (loss) $ (840) $ (695) $ (828) $ 1,315 $(1,001) $ (6,621) $ (8,670)
=========================================================================================
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Combining Results of Operations by Line of Business
---------------------------------------------------
Three Months Ended June 30, 1996
(in thousands of dollars)
(unaudited)
HOMESITE TRACT RESIDENTIAL OTHER BUSINESS ADMINISTRATIVE
SALES SALES SALES OPERATIONS DEVELOPMENT & OTHER TOTAL
----- ----- ----- ---------- ----------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Real estate sales $ 9,627 $ 30,204 $ 6,451 $ $ $ $ 46,282
Other operating revenue 1,149 1,149
Interest income 1,265 524 1,789
Other income:
Reorganization reserves
Other income 855 1,654 2,509
--------------------------------------------------------------------------------------------
Total revenues 9,627 30,204 6,451 3,269 2,178 51,729
--------------------------------------------------------------------------------------------
Costs and expenses:
Cost of real estate sales 7,494 24,906 4,896 37,296
Selling expense 1,496 1,394 382 3,272
Other operating expense 558 558
Other real estate costs:
Property tax, net 20 1,473 1,493
Other real estate overhead 385 369 111 372 1,003 702 2,942
General and administrative 2,256 2,256
Depreciation 9 27 2 81 104 223
Cost of borrowing, net 3,098 3,098
Other expense (23) 118 95
--------------------------------------------------------------------------------------------
Total costs and expenses 9,361 26,696 5,391 1,031 1,121 7,633 51,233
--------------------------------------------------------------------------------------------
Net income (loss) $ 266 $ 3,508 $ 1,060 $ 2,238 $ (1,121) $ (5,455) $ 496
============================================================================================
</TABLE>
During the second quarter of 1997, the Company incurred a net loss of
$8.7 million compared to net income of $496,000 in the second quarter of 1996
primarily due to a $9.1 million decrease in the gross margins generated from
real estate sales. The lower gross margins resulted from lower real estate sales
revenues and lower gross margin percentages.
19
<PAGE>
Homesite Sales
--------------
The net operating results from homesite sales decreased $1.1 million in
the second quarter of 1997 compared to the second quarter of 1996 despite
similar revenues, primarily due to lower gross margin percentages in the second
quarter of 1997.
Revenues from homesite sales were similar in the second quarter of 1997
compared to the second quarter of 1996 despite a 49% increase in the number of
homesites sold due to a 34% decrease in the average sales price per homesite.
The following table summarizes homesite activity for the three months ended June
30 (in thousands of dollars):
<TABLE>
<CAPTION>
1997 1996
------------------------------------ -------------------------------------
Number Average Number Average
of lots Revenue sales price of lots Revenue sales price
------- ------- ----------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Subdivision homesite
sales 203 $6,999 $34.5 158 $6,373 $40.3
Scattered homesite sales 695 2,533 3.6 445 3,254 7.3
--- ----- --- --- ----- ---
898 $9,532 $10.6 603 $9,627 $16.0
=== ====== ===== === ====== =====
</TABLE>
The increase in subdivision homesite sales revenue is primarily due to
sales in the second quarter of 1997 of $4.5 million in Windsor Palms and $1.1
million in West Meadows and to a $553,000 increase in sales in Lakeside Estates,
partially offset by the bulk sale of the remaining 126 subdivision homesites in
Julington Creek Plantation for $5.6 million in June 1996. The decrease in the
average sales price of subdivision homesite sales is primarily due to the sales
in Julington Creek Plantation in the second quarter of 1996 which yielded an
average selling price of approximately $44,600.
Revenues from scattered homesite sales decreased in the second quarter
of 1997 compared to the second quarter of 1996 due to a 51% decrease in the
average selling price, partially offset by a 56% increase in the number of
homesites sold. The decrease in the average sales price is principally due to a
41.5% decrease in the average sales price in the Company's Cumberland Cove
community in Tennessee and to an increase in bulk sales of scattered homesites
in secondary markets in Florida which yield a lower sales price. The average
sales price in Cumberland Cove decreased from $20,700 in the second quarter of
1996 to $12,100 in the second quarter of 1997 primarily due to the mix of
homesites sold. The volume of scattered homesite sales increased due to the
increase in the number of bulk homesites sold.
Other income in the second quarter of 1997 included a $322,000
management fee received from Country Lakes, Ltd., a Virginia limited
partnership, of which the Company is a limited partner. This partnership was
formed to acquire, plan, develop and market approximately 1,750 acres located in
Dade and Broward counties Florida, formerly known as Viacom/Blockbuster Park.
The Company provides the day-to-day management, development, marketing and sales
coordination for the partnership. The $322,000 management fee represented 3.5%
of $9.2 million of revenues from a sale of 280 acres in this project in June
1997.
The homesite sales gross margin percentages were 2.8% in the second
quarter of 1997 compared to 22.2% in the second quarter of 1996. The gross
margin percentage in the second quarter of 1996 reflects targeted gross margins
of 20% to 30% for this line of business. The lower gross margin percentage in
the second quarter of 1997 is attributable to a negative 10% gross margin on the
Windsor Palms sales and to an increase in bulk homesite sales which are priced
to sell and therefore yield lower gross margins. The negative
20
<PAGE>
gross margin in Windsor Palms was due to the realization of a lower than
expected sales price for the remaining 102 lots sold in the second quarter of
1997 and to higher than anticipated costs associated with the entire project.
The Company realized a gross margin of approximately 6.5% on the Windsor Palms
project in its entirety. The gross margin in the second quarter of 1997 was
22.3% for sales other than Windsor Palms and bulk homesite sales.
Homesite selling expense decreased $291,000 or 19.5% in the second
quarter of 1997 and as a percentage of sales from 15.5% in the second quarter of
1996 to 12.6% in the second quarter of 1997 primarily due a decrease in fixed
selling costs, most particularly in the Cumberland Cove community in Tennessee.
Tract Sales
-----------
The net operating results from tract sales decreased $4.2 million in
the second quarter of 1997 compared to the second quarter of 1996 primarily due
to lower gross margins generated from tract sales in 1997 resulting from lower
tract sales revenues and lower gross margin percentages.
Revenues from tract sales decreased $24.2 million in the second quarter
of 1997 compared to the second quarter of 1996 primarily due to several large
sales during the second quarter of 1996 including the sale of the Company's
Julington Creek Plantation project which included $11.6 million of tract acreage
and a $9.0 million bulk sale of Summerchase, a project consisting of 320 acres
in southwest Broward County. Tract sales acreages and corresponding revenues
from such sales often vary significantly from quarter to quarter depending on
the timing and size of individual sales.
Tract sales gross margins are summarized as follows for the three
months ended June 30:
1997 1996
----------------------- ----------------------
Targeted Actual Targeted Actual
Margins Margins Margins Margins
-------- ------- ------- -------
Julington Creek bulk sale - - - 6.3%
Other tract acreage 5-10% 8.3% 20% 24.5%
The lower gross margin in Julington Creek resulted from the bulk sale
of this project in June 1996 as part of the Company's business plan to monetize
certain assets to generate cash to retire debt.
The actual gross margins in the second quarter of 1997 and the second
quarter of 1996 for other tract acreage generally reflect the targeted gross
margins. The targeted gross margins have been reduced primarily due to the
Company's plan to accelerate land sales in secondary real estate market
locations.
Tract sales selling expense decreased in the second quarter of 1997
compared to the second quarter of 1996 primarily due to lower direct selling
expenses due to a decrease in revenues and to a decrease in fixed selling costs.
Tract sales selling expense as a percentage of revenues increased from 4.6% in
the second quarter of 1996 to 13.7% in the second quarter of 1997 due to lower
direct selling expenses associated with several large sales in the second
quarter of 1996 including the Summerchase and Julington Creek sales and to lower
revenues over which to spread fixed selling costs in the second quarter of 1997.
21
<PAGE>
Residential Sales
-----------------
The net operating results from residential sales, which includes single
family homes and condominiums, decreased $1.9 million during the second quarter
of 1997 compared to the corresponding prior year period. This decrease
corresponds to a decrease in the gross margin generated from the Company's
Regency Island Dunes condominium project, partially offset by a decrease in
selling costs.
Residential sales are summarized as follows for the three months ended
June 30 (in thousand of dollars):
1997 1996
------- -------
Condominium sales - Regency Island Dunes:
First Building $ - $ 1,105
Second Building 2,201 4,526
------- -------
Total condominium sales 2,201 5,631
Single family home sales - 820
------- -------
$ 2,201 $ 6,451
======= =======
The revenues and profits associated with Regency Island Dunes
condominium sales are recorded using the percentage of completion method. The
Regency Island Dunes condominium project consists of two 72-unit buildings. The
condominium revenues of $2.2 million in the second building in the second
quarter of 1997 were derived from an increase in the second building completion
percentage during the quarter from 96% as of March 31, 1997 to 100% as of June
30, 1997 and to four additional units under contract during the quarter from 64
units as of March 31, 1997 to 68 units as of June 30, 1997. The revenues of $4.5
million in the second building in the second quarter of 1996 were derived from
45 units under contract in the second building as of June 30, 1996 with
construction on the second building 30% complete. The condominium revenues of
$1.1 million from the first building in the second quarter of 1996 were
generated primarily from the closing of three units in the second quarter of
1996 which were sold in 1996.
Single family home sales revenues in the second quarter of 1996 were
generated from 10 closings with an average selling of price of $82,000. There
were no closings in the second quarter of 1997 due to the Company's decision in
mid-1995 to withdraw from the single family home business.
Residential sales gross margins are summarized as follows for the three
months ended June 30:
1997 1996
---- ----
Condominiums (40.0)% 27.0%
Single family homes - 4.4%
The gross margin for condominiums in the second quarter of 1997 was
negative due to project-to-date adjustments made in the second quarter of 1997
affecting both current and prior period profits resulting from higher than
anticipated construction costs associated with Regency Island Dunes. The overall
gross margin for this project is anticipated to be approximately 16.5% which is
lower than the targeted gross margin of approximately 20% to 25% for this line
of business due to the higher than anticipated construction costs.
The single family home gross margins in the second quarter of 1996 were
low due to the mix of product sold and to the winding down of this operation.
22
<PAGE>
Residential selling expense decreased in the second quarter of 1997
compared to the second quarter of 1996 and was negative in the second quarter of
1997 primarily due to an adjustment made in the second quarter of 1997 to reduce
incentive expenses, some of which were accrued in prior periods, as a result of
the decrease in profits associated with Regency Island Dunes. Also contributing
to the decrease in selling expenses were lower direct selling expenses due to
lower revenues in the second quarter of 1997 and to a decrease in fixed selling
costs as a result of the phasing-out of the single family home operations.
Other Operations
----------------
Net income from other operations decreased in the second quarter of
1997 compared to the second quarter of 1996 primarily due to an decrease in
other income.
Other operating revenues and expenses decreased in the second quarter
of 1997 from the second quarter of 1996 primarily due to the absence of revenues
and expenses from the Julington Creek utility system sold in June 1996.
Interest income decreased in the second quarter of 1997 from the
corresponding prior year period primarily due to a lower average balance of
contracts receivable during the periods under review.
Other income of $265,000 in the second quarter of 1997 represents the
amortization of the Company's utility connections reserve. Other income in the
second quarter of 1996 consisted primarily of a gain of $865,000 on the sale of
the Company's Julington Creek utilities system sold in June 1996 for $6.0
million.
Other operations other real estate overhead decreased 57% in the second
quarter of 1997 compared to the second quarter of 1996 primarily due to lower
community operations costs associated with the Company's predecessor assets
located in secondary markets in Florida.
Business Development
--------------------
Total business development expenditures were similar in the second
quarter of 1997 compared to the second quarter of 1996. Business development
expenditures consist primarily of costs associated with the pursuit of business
opportunities in primary market locations within Florida and other southeastern
United States locations.
Business development other expenses in the second quarter of 1997 and
in the second quarter of 1996 consisted of the Company's 50% share of the net
loss of the Ocean Grove joint venture. The loss resulted from pre-sales
advertising and other selling and overhead costs.
Administrative & Other
----------------------
The net loss from administrative & other activities increased $1.2
million in the second quarter of 1997 from the second quarter of 1996
principally due to a $1.4 million increase in borrowing costs.
Other income in the second quarter of 1997 included gains of $1.1
million resulting from the resolution of certain reorganization items. This
process is expected to continue during the remainder of the year with
adjustments to be recorded as the final disposition of various claims and other
liabilities is concluded. Other income also included gains of $250,000 in the
second quarter of 1997 and approximately $1.0 million in the second quarter of
1996 due to reductions in the Company's environmental reserve and gains of
$250,000 in the second quarter of 1997 and approximately $600,000 in the second
quarter of 1996 due to reductions in the
23
<PAGE>
Company's land mortgages receivable valuation reserve.
Property tax, net decreased in the second quarter of 1997 compared to
the second quarter of 1996 primarily due to a reduction of land inventory not
under development. This decrease in inventory corresponds to sales activity in
the intervening period.
Other real estate overhead decreased 33% in the second quarter of 1997
compared to the same period in 1996 primarily due to a decrease in legal costs
associated with supporting increased real estate sales activity.
Cost of borrowing, net of capitalized interest increased $1.4 million
in the second quarter of 1997 compared to the same period in 1996 primarily due
to the $1.0 million fee paid to Foothill in 1997 pursuant to an amendment of the
Revolving Loan Agreement on March 31, 1997. During the three months ended June
30, 1997 and 1996, the Company did not accrue interest on its Cash Flow Notes
because of the absence of Available Cash during the periods. See "LIQUIDITY AND
CAPITAL RESOURCES."
Liquidity & Capital Resources
- -----------------------------
As of June 30, 1997, the Company's cash and cash equivalents totaled
approximately $4.5 million. The Company also had restricted cash and cash
equivalents of $4.0 million, which consisted primarily of escrows for the sale
and development of real estate properties, funds held in trust to pay certain
bankruptcy claims and various other escrow accounts. Of the $2.6 million
decrease in cash and cash equivalents during the first six months of 1997, $2.2
million was used in operating activities and $12.3 million was used in financing
activities, partially offset by $11.9 million provided by investing activities.
Cash used in operating activities includes approximately (i) $7.6
million for interest payments, (ii) $5.4 million for property tax payments,
(iii) $9.8 million for construction and development expenditures and (iv) $4.2
million of fees associated with the Company's refinancing and recapitalization
efforts. These uses were offset in part by net cash generated through real
estate sales and other operations.
Cash provided by investing activities consisted of $12.1 million of
funds released on January 2, 1997 from various utility trust accounts which were
funded by the Company during the reorganization proceedings. The terms of these
trusts require the Company to periodically assess the adequacy of the property
in these trusts. Pursuant to a review of these trusts in December 1996, it was
determined that approximately $12.1 million in cash and $6.2 million of notes
could be released from these trust accounts.
Cash used in financing activities includes $37.5 million of principal
payments on January 3, 1997 to repay in full the Company's Unsecured 12% Notes,
a scheduled principal payment of $13.3 million on the Company's Term Loan and
$1.2 million in net principal payments related to the Company's deferred
property tax and Section 365(j) lien obligations arising out of the
reorganization proceedings. These payments were partially offset by proceeds of
$10.0 million from the issuance of Common Stock and approximately $18.9 million
from the issuance of Series A and B Preferred Stock as more fully described
below. In addition, the Company had net borrowings of $5.8 million under the
Reducing Revolving Loan, $2.2 million associated with the financing of the
Company's mortgage and contract receivables and $2.8 million on new project
financings.
The Company has, pursuant to a Revolving Loan Agreement dated as of
September 30, 1996 with Foothill Capital Corporation ("Foothill"), (i) a $20
million working capital facility maturing December 1, 1998 ("Working Capital
Facility"), and a $25 million reducing revolving loan maturing June 30, 1998
("Reducing Revolving Loan "), with principal reductions as set forth below.
Amounts under the Reducing Revolving Loan are available only when (i) the
Working Capital Facility is fully utilized, and (ii) the Company is in
compliance with, among other conditions, a "borrowing base" formula based on the
value of certain of the Company's
24
<PAGE>
assets. Amounts outstanding under the Working Capital Facility bear variable
interest at a rate equal to the variable interest rate, per annum, announced by
Northwest Bank of Minnesota, N.A., as its "base rate" plus two percentage
points. The Reducing Revolving Loan bears variable interest at the "base rate"
plus four percentage points. As of June 30, 1997, the Working Capital Facility
was fully drawn and there was $7.6 million outstanding on the Reducing Revolving
Loan.
The Company's remaining material obligations for 1997 include (i)
principal repayments on the Foothill debt up to $21.7 million as more fully
described below, and (ii) the final principal and interest payments on the
Company's Section 365(j) lien and deferred property tax liabilities totaling
approximately $1.5 million which are due in the third quarter of 1997. The
Company's 1997 business plan also contemplates full year expenditures for
development, construction and other capital improvements estimated at
approximately $50 million, of which a substantial portion will require funding
through individual project development loans or joint venture arrangements, many
of which are already in place. If the Company is unable to obtain the capital
resources to fund these expenditures, the implementation of the Company's
business plan will be adversely affected, thus slowing the Company's expected
revenue growth and increasing the expected time necessary for the Company to
achieve profitability.
On September 30, 1996, the Company closed on three credit facilities
totalling $85.0 million with Foothill (the "Foothill Refinancing"). Pursuant to
the Foothill Refinancing, Foothill has provided the Company with (i) an
extension to December 1, 1998 of the $20 million Working Capital Facility as
discussed above; (ii) a $40 million Term Loan at an interest rate of 15% per
annum, maturing June 30, 1998; and (iii) a Reducing Revolving Loan of up to $25
million maturing on June 30, 1998, as discussed above. The Term Loan requires
principal repayments of one-third on each of December 31, 1997 and June 30,
1998. The commitment under the Reducing Revolving Loan will also be reduced by
one-third on each of December 31, 1997 and June 30, 1998, and the Company will
be required to repay on those dates any amounts outstanding under the Reducing
Revolving Loan in excess of the new commitment amount. At June 30, 1997, the
Company had outstanding the full $20 million under the Working Capital Facility,
approximately $26.7 million under the Term Loan and approximately $7.6 million
of the $16.7 million currently available under the Reducing Revolving Loan.
The Company does not currently have sufficient liquid capital resources
to satisfy the up to $21.7 million of Foothill debt due on December 31, 1997.
However, management believes that the Company, through a combination of sources
as more fully described below, will be able to obtain sufficient liquidity and
capital resources necessary to continue implementing its business plan and to
satisfy its debt obligations as they become due.
The Company's ongoing business plan is to continue to monetize its
non-core tract and scattered homesite assets ("Predecessor assets") to reduce
corporate debt. The Company made substantial progress in this regard as it sold
$55.6 million of tract and scattered homesite assets in 1996 and $15.7 in the
first six months of 1997. In addition, the Company currently has pending under
contract or letter of intent a combination of Predecessor asset sale
transactions which would generate, if consummated, approximately $23.4 million
of cash and notes. The transactions under contract are subject to a variety of
customary conditions, in some cases including a financing condition.
Transactions subject to a letter of intent are also subject to further
negotiation and documentation and there are no assurances that any particular
transaction under contract or letter of intent will be consummated.
As part of the effort to monetize the Predecessor assets pursuant to
its business plan, the Company is actively monetizing mortgage and note
receivables generated from the sale of Predecessor tracts and scattered
homesites. The Company raised approximately $17.8 million of cash proceeds in
1996 and an additional $14.6 million in the first six months of 1997, and
received certain residual interests, from the sale
25
<PAGE>
or refinancing of mortgages or other receivables generated from the sale of
Predecessor real estate assets. These cash proceeds, along with the net cash
proceeds from Predecessor real estate sales, were applied to the reduction of
corporate debt and to fund ongoing operations. The Company plans to continue to
sell or finance mortgages and other receivables generated from the future sale
of Predecessor real estate assets going forward.
As disclosed in Note 7 in the Notes to Consolidated Financial
Statements, the Company closed on a series of preferred and common stock
transactions with (i) Apollo to purchase up to $25 million of Series A Preferred
Stock and warrants to purchase 5,000,000 shares of common stock; and (ii)
through a private placement, the issuance of 1,776,199 shares of Common Stock
for $10 million and $10 million of Series B Preferred Stock with Series B
Warrants to purchase 2,000,000 shares of Common Stock.
As of June 30, 1997, the entire $20 million purchase price for the
full private placement of Series B Preferred Stock, Series B Warrants and Common
Stock was paid as well as $8.9 million of the aggregate $25 million purchase
price corresponding to 887,475 shares of Series A Preferred Stock with Investor
Warrants to purchase 1,774,950 shares of Common Stock.
As of August 8, 1997, an additional $11.1 million was paid by Apollo to
purchase 1,109,000 shares of Series A Preferred Stock with warrants to purchase
2,218,000 shares of Common Stock for a total outstanding of $20 million of the
aggregate $25 million purchase price of the Series A Preferred Stock and
Investor Warrants. As required by the Agreements, these funds have been and will
be used primarily to acquire and develop properties in certain wholly owned
subsidiaries of the Company where Apollo has a first lien over the assets and
stock of such subsidiaries securing the Company's repurchase and redemption
obligations in respect of the Series A Preferred Stock.
The Company plans to issue up to an additional $10 million of Series B
Preferred Stock along with Series B Warrants to purchase up to 2,000,000 shares
of Common Stock to be offered through a rights offering to existing stockholders
and to the holders of warrants issued by the Company in September 1996 to
purchase up to 1,500,000 shares of Common Stock. An S-3 registration statement
has been filed and is currently pending with the Securities and Exchange
Commission. The Company expects to close the transaction October, 1997.
Available Cash is defined in the Company's POR with respect to any
payment period (generally, any six-month period ending June 30 or December 31),
as the sum of all cash receipts (exclusive of borrowed money and certain
delineated cash items) less the sum of payments for operating expenses, all debt
payments (including repurchases of indebtedness), capital expenditures, tax
payments, payments to creditors under the plan of reorganization and creation of
reserves for working capital and other expenses for the next two payment
periods.
Pursuant to the Company's debt agreements, the Company must apply any
Available Cash (i) to the payment of interest due on the Company's unsecured
cash flow notes due December 31, 1998 ("Cash Flow Notes"); (ii) to payments of
outstanding amounts under the Working Capital Facility; and (iii) to repayments
of principal on the Cash Flow Notes.
If there is no Available Cash on a payment date, the then current
interest on the Cash Flow Notes is not due or payable on that payment date or at
any time thereafter. Due to the necessity to establish reserves against future
mandatory debt, capital and operating expenditures, the Company did not have any
Available Cash to enable it to make payments on the Cash Flow Notes through June
30, 1997. Accordingly, the Company did not accrue any interest on the Cash Flow
Notes during the six months ended June 30, 1997 and 1996. Also, based upon the
Company's existing debt obligations, its anticipated net cash flows and its
business plan, management does not anticipate the Company having Available Cash
in the foreseeable future.
26
<PAGE>
Part II. - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
FLORIDA HOME FINDERS, INC. In March, 1995, the Company sold Florida
Home Finders, Inc. ("Florida Home Finders") to the FHF Trust, owned by Ian R.
Law and Benjamin Schiff, for $3.5 million. It has been alleged in litigation
filed against Florida Home Finders that FHF Trust withdrew escrow deposits held
by Florida Home Finders for the benefit of tenant and owner clients and utilized
those funds to purchase a certificate of deposit. It is further alleged that the
certificate of deposit was pledged as security to County National Bank for a
personal loan to Messrs. Law and Schiff, and that a portion of the proceeds of
that loan were utilized to pay the Company approximately $2.0 million of the
amount due under the purchase money note given by FHF Trust in favor of the
Company at the time of the sale of Florida Home Finders. The Company had no
knowledge of the source of the payment.
Subsequent to the foregoing alleged events, the Florida Real Estate
Commission discovered that escrow deposits were missing from Florida Home
Finder's accounts and brought an action in St. Lucie County circuit court
seeking the appointment of a receiver for the property and business of Florida
Home Finders. STATE OF FLORIDA, DEPARTMENT OF BUSINESS AND PROFESSIONAL
REGULATION V. FLORIDA HOME FINDERS, INC. ET AL., Case No. 95-1092-CA 17 (St.
Lucie Cty. Cir. Ct.) A receiver was appointed for Florida Home Finders in
October 1995. In November 1995, the Company intervened in the receivership
proceeding. The receivers have sold the Florida Home Finders' assets (other than
litigation claims against third parties, which have been retained by the
receiver) to All Florida Property Management, Inc., a Florida corporation;
however the sales proceeds are being held by the receiver pending the court's
order directing disbursement.
In November 1995, the receiver filed a lawsuit against several parties,
including the Company, seeking a return and recovery of the missing escrow
deposits. SPIRE V. IAN R. LAW ET AL., Case No. 95- 1300-CA 17 (St. Lucie Cty.
Cir. Ct.). The Company filed a motion to dismiss the complaint, contending that
the complaint failed to identify any knowledge, notice or wrongdoing on the part
of the Company. This case was voluntarily dismissed without prejudice on
February 6, 1997.
The Company agreed with the receiver on May 5, 1997 to a tentative
settlement of all matters pending final documentation, the satisfaction of
certain conditions and court approval. The documentation of the settlement has
been finalized and was submitted to the court for approval on or about August 6,
1997. The terms of the settlement, if approved by the court, will not have a
material, adverse financial affect on the Company.
REGENCY ISLAND DUNES. In connection with the construction of the
Regency Island Dunes Condominium Project in Jensen Beach, Florida, various
disputes have arisen between the Company's subsidiary, Regency Island Dunes,
Inc. ("Regency"), and the general contractor, Foley and Associates Construction
Company, Inc. ("Foley"), regarding completion of the first phase of the project
containing 72 units. As a result, Foley filed suit in the Circuit Court of St.
Lucie County under the caption of FOLEY AND ASSOCIATES CONSTRUCTION, INC. V.
REGENCY ISLAND DUNES, INC. AND ATLANTIC GULF COMMUNITIES CORPORATION, Case No.
96-1569-CA-03 (St. Lucie Cty. Cir. Ct.) alleging breach of the construction
contract, claims for lost profits and delay damages as well as various counts
claiming fraudulent transfers of funds from Regency to the Company. This case
was filed by Foley in addition to Foley's demand for arbitration before the
American Arbitration Association as required pursuant to the terms of the
construction contract between Regency and Foley. Regency has asserted
counterclaims for Foley's failure to properly staff the job and refusal to
perform corrective work which was performed at Regency's expense, and all such
sums incurred by Regency would offset Foley's contract claim. The costs of
corrective work already incurred together with Regency's claims for delay
damages and penalties exceed Foley's claims for the unpaid contract balance. In
addition, in the case
27
<PAGE>
styled Regency Island Dunes Inc. v. Foley and Associates Construction Company,
Inc., Case No. 96-1532 CA-17 (St. Lucie Cty. Cir. Ct.), Regency filed its action
to discharge the construction lien filed by Foley on the basis that the lien
claim was inflated and was recorded against units which had previously been
conveyed to third party purchasers as well as additional lands not included
within the construction contract between the parties. The preceding two cases
have been consolidated and partially stayed pending resolution of the contract
disputes in arbitration. In REGENCY ISLAND DUNES, INC. V. NATIONAL FIRE
INSURANCE COMPANY OF HARTFORD AND FOLEY AND ASSOCIATES CONSTRUCTION COMPANY,
INC., now refiled under Case No. 97-14075, U.S.D.C., Southern District of
Florida, Regency filed suit to recover damages against Foley's surety for
corrective work performed by Regency as well as various other claims for damages
asserted by Regency in the arbitration described above. The arbitration
proceeding commenced on July 1, 1997 and was completed on July 28, 1997. A final
decision is expected from the arbitration panel on or before August 27, 1997. In
addition, based upon a separate construction contract between Regency and Foley
for the construction of the second phase of the Regency Island Dunes Condominium
Project, Foley filed a demand for arbitration in March 1997 asserting breach of
contract relating to change orders, release of retainage and Foley's requests
for extensions of time. The dispute with Foley in connection with the second
phase has escalated and Foley has filed a claim of lien, which includes
retainage, overhead and unauthorized change orders. The Company continues
discussions with Foley to resolve the phase two matters. In the event the
settlement discussions are unsuccessful, the Company and Regency will vigorously
defend the claims asserted by Foley and aggressively pursue their claims against
Foley and the surety.
Item 2. Changes in Securities
---------------------
(a) Effective June 24, 1997, as approved by the Company's stockholders, the
Company's certificate of incorporation was amended to repeal the right of the
holders of its Common Stock to receive, semiannually, mandatory dividends equal
to 25% of the Company's Available Cash (as defined in the Company's POR).
(b) Effective June 24, 1997, as approved by the Company's stockholders, the
Company's certificate of incorporation was amended to authorize the issuance of
Series A Preferred Stock and Series B Preferred Stock. The holders of each
series are entitled to preferential receipt of dividends and preferential
distribution from the assets of the Company upon liquidation, dissolution or
winding up as compared to holders of Common Stock. Holders of the Series A
Preferred Stock, voting as a single class, are entitled to elect three members
of the Company's seven-member Board of Directors.
(c) On June 25, 1997, the Company sold and issued an aggregate of 553,475
shares of Series A Preferred Stock, together with Investor Warrants to purchase
1,106,950 shares of Common Stock, divided evenly among Class A Warrants, Class B
Warrants and Class C Warrants, to Apollo, for an aggregate purchase price of
$5,534,752 in a private placement exempt from registration pursuant to Section
4(2) of the Securities Act of 1933, as amended (the "Securities Act"). Apollo is
an accredited investor as defined in Rule 501 promulgated under the Securities
Act. On June 30, 1997, the Company sold and issued to Apollo an additional
334,000 shares of Series A Preferred Stock and Investor Warrants to purchase
668,000 shares of Common Stock, for an aggregate purchase price of $3,340,000.
On June 25, 1997, the Company sold and issued an aggregate of 1,000,000
shares of its Series B Preferred Stock, together with 1,776,199 shares of Common
Stock and Series B Warrants to purchase 2,000,000 shares of Common Stock,
divided evenly among Series B Class A Warrants, Series B Class B Warrants and
Series B Class C Warrants, to a group of institutional and other sophisticated
investors, for an aggregate purchase price of $20,000,000, in a private
placement exempt from registration pursuant to Section 4(2) of the Securities
Act and Rule 506 promulgated thereunder.
28
<PAGE>
The Series A Preferred Stock and the Series B Preferred Stock are each
convertible at $5.75 per share, at the option of the holder thereof, in whole or
in part, into Common Stock, subject to certain adjustments as provided in the
applicable Certificate of Designations. The Investor Warrants and Series B
Warrants may be exercised at the option of the holder thereof, in whole or in
part, to purchase Common Stock at $5.75 per share, subject to certain
adjustments, at any time within seven years of their respective dates of
issuance, subject to certain terms and conditions set forth in the warrants, and
in the case of the Series B Warrants, in the related Warrant Agreement.
Item 4. Submission of Matters to a vote of Security Holders
---------------------------------------------------
The annual meeting of stockholders was held at the Hyatt Regency Miami, 400 S.E.
Second Avenue, Miami, Florida on June 23, 1997.
The stockholders voted on the following matters as set forth in the Company's
Proxy Statement dated May 21, 1997:
1. APOLLO TRANSACTION. The stockholders approved the proposal to (a) amend
the Company's restated certificate of incorporation, in the form attached as
Appendix A to the Proxy Statement, to, among other things (i) increase the
Common Stock from 15,665,000 shares to 70,000,000 shares and (ii) authorize the
Company's issuance of 4,500,000 shares of preferred stock with a liquidation
preference of $10 per share, of which (x) 2,500,000 shares would be 20%
cumulative redeemable convertible preferred stock, designated as Series A
Preferred Stock, and (y) 2,000,000 shares would be 20% cumulative redeemable
convertible preferred stock, designated as Series B Preferred Stock; (b) approve
certain investment transactions involving, among other things, (i) the issuance
to Apollo of up to 2,500,000 shares of Series A Preferred Stock in the aggregate
amount of $25,000,000 and warrants to purchase 5,000,000 shares of Common Stock,
(ii) the granting to Apollo of representation on the Company's board of
directors (the "Board"), (iii) the issuance and sale in a potential private
placement to certain other investors of up to 1,000,000 shares of Series B
Preferred Stock in the aggregate amount of $10,000,000, newly issued Common
Stock with a fair market value of up to $10,000,000, and warrants to purchase up
to 2,000,000 shares of Common Stock and (iv) subject to compliance with
securities registration and other laws, the making available for sale to
stockholders in a rights offering up to 1,000,000 shares of Series B Preferred
Stock in the aggregate amount of $10,000,000 and warrants to purchase up to
2,000,000 shares of Common Stock; and (c) amend the 1994 non-employee directors'
stock option plan to provide for the extension of the exercise period of those
options held by directors who will resign upon consummation of certain of the
investment transactions. The voting tabulation was as follows: 5,627,429 votes
in favor of the proposal; 654,155 votes against the proposal; and 44,954
abstentions.
2. ELECTION OF DIRECTORS. The stockholders voted to elect three class 2
directors, James W. Apthorp, Jerome J. Cohen and Lawrence B. Seidman, to
three-year terms expiring at the annual meeting of stockholders in 2000 or until
their successors are duly elected and qualified. The voting tabulation for each
nominee was as follows:
James W. Apthorp -- 6,036,163 votes in favor of election; 1,121,729 votes
withheld.
Jerome J. Cohen -- 6,069,626 votes in favor of election; 1,088,266 votes
withheld.
Lawrence B. Seidman -- 6,442,212 votes in favor of election; 715,680 votes
withheld.
Upon consummation of the Apollo Transaction on June 24, 1997, the Board was
reduced from ten to seven
29
<PAGE>
members. James W. Apthorp, Allen A. Blase, Jerome J. Cohen, Raymond Ehrlich,
W.D. Frederick, Jr., Lawrence B. Seidman and John W. Temple resigned as
directors of the Company. To fill the vacancies, the Board appointed the
following directors: Charles K. MacDonald as a class 1 director whose term
expires at the annual meeting in 1999; James M. DeFrancia as a class 3 director
whose term expires at the annual meeting in 1998; and Ricardo Koenigsberger and
Lee Neibart as directors elected by the holders of the Series A Preferred Stock.
J. Larry Rutherford, W. Edward Scheetz and Gerald N. Agranoff also resigned as
directors of the Company so that they could be reappointed to the Board. The
Board reappointed Gerald N. Agranoff as a class 1 director, J. Larry Rutherford
as a Class 2 director and W. Edward Scheetz as a director elected by the holders
of the Company Series A Preferred Stock.
3. REVERSE STOCK SPLIT AND SUBSEQUENT FORWARD SPLIT OF THE COMPANY'S
COMMON STOCK. The stockholders approved the proposal to amend the Company's
restated certificate of incorporation (a) to effect, as determined by the Board
in its discretion, either of two different reverse stock splits of the
outstanding Common Stock as of 5:00 p.m. (Florida time) on the effective date of
the amendment (the "Effective Date"), pursuant to which either (i) each 100
shares then outstanding will be converted into one share (the "1-for-100 Reverse
Split") , or (ii) each 200 shares then outstanding will be converted into one
share (the "1-for-200 Reverse Split" and together with the 1-for-100 Reverse
Split, the "Reverse Split" or "Reverse Splits") and (b) to effect a forward
split of the Common Stock as of 6:00 a.m. (Florida time) on the day following
the Effective Date of the Reverse Split, pursuant to which each share of Common
Stock then outstanding as of such date will be converted into the number of
shares of the Common Stock that each share represented immediately prior to the
Effective Date ("Forward Split"). The voting tabulation was as follows:
6,886,682 votes in favor of the amendment; 98,084 votes against the amendment;
and 47,203 abstentions. Consummation of the Reverse Split would be subject to,
among other things, the approval of Foothill and Apollo, and the availability of
sufficient funds.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) Exhibits required by Item 601 of Regulation S-K
(27) Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on June 5, 1997, pursuant to
Item 5, Other Events, reporting that the Company and Apollo entered into an
Amended and Restated Investment Agreement dated as of February 7, 1997, amended
as of March 20, 1997, and amended and restated as of May 15, 1997.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATLANTIC GULF COMMUNITIES CORPORATION
Date: August 12, 1997 /s/ THOMAS W. JEFFREY
---------------------
Thomas W. Jeffrey
Executive Vice President
and Chief Financial Officer
Date: August 12, 1997 /s/ CALLIS N. CARLETON
----------------------
Callis N. Carleton
Vice President and Controller
(Principal Accounting Officer)
31
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONSOLIDATED BALANCE SHEET AT JUNE 30, 1997 (UNAUDITED) AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
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<NAME> ATLANTIC GULF COMMUNITIES
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 8,432
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<CGS> 31,347
<TOTAL-COSTS> 35,993
<OTHER-EXPENSES> 12,164
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,506
<INCOME-PRETAX> (15,946)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,946)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,946)
<EPS-PRIMARY> (1.63)
<EPS-DILUTED> (1.63)
<F1> The values for receivables and PP&E represent net amounts.
<F2> The Company does not prepare a classified balance sheet, therefore current
assets and current liabilities are not applicable.
</TABLE>
