SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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 11,529,603 shares of the Registrant's Common Stock outstanding as of
May 12, 1998.
<PAGE>
SPECIAL NOTE ABOUT FORWARD LOOKING STATEMENTS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED IN THIS QUARTERLY REPORT ON FORM
10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998, CERTAIN MATTERS DISCUSSED
HEREIN CONTAIN FORWARD LOOKING STATEMENTS BASED ON MANAGEMENT'S EXPECTATIONS
REGARDING, AND EVALUATIONS OF CURRENT INFORMATION ABOUT, THE COMPANY'S BUSINESS
THAT INVOLVE RISKS AND UNCERTAINTIES, AND ARE SUBJECT TO FACTORS THAT COULD
CAUSE ACTUAL FUTURE RESULTS TO DIFFER, BOTH ADVERSELY AND MATERIALLY, FROM
CURRENTLY ANTICIPATED RESULTS, INCLUDING, WITHOUT LIMITATION, THE EFFECT OF
ECONOMIC AND MARKET CONDITIONS; THE CYCLICAL NATURE OF THE REAL ESTATE MARKET IN
FLORIDA AND OTHER SOUTHEAST U.S. PRIMARY MARKETS; THE INDUSTRY AND INDUSTRY
SEGMENT CONDITIONS AND DIRECTIONS; INTEREST RATES; THE AVAILABILITY AND COST OF
FINANCING REAL ESTATE ACQUISITIONS AND DEVELOPMENTS; THE SALEABILITY OF
PREDECESSOR ASSETS; CONSTRUCTION COSTS; WEATHER; THE AVAILABILITY OF HIGH
QUALITY REAL ESTATE PARCELS IN PRIMARY FLORIDA AND OTHER SOUTHEAST U.S. MARKETS;
THE AVAILABILITY AND COST OF MATERIALS AND LABOR; CONSUMER PREFERENCES AND
TASTES; GOVERNMENTAL REGULATION; COMPETITIVE PRESSURES; THE COMPANY'S OWN DEBT
AND EQUITY STRUCTURE AND RELATED FINANCING CONTINGENCIES AND RESTRICTIONS;
MANAGEMENT LIMITATIONS; THE COMPANY'S ABILITY TO CLOSE FINANCINGS OF NEW REAL
ESTATE AT PARTICULAR TIMES RELATIVE TO THE COMPANY'S CASH FLOW NEEDS AT SUCH
TIMES; THE COMPANY'S ABILITY TO REFINANCE EXISTING INDEBTEDNESS; LEGISLATION;
RESOLUTION OF PENDING LITIGATION IN WHICH THE COMPANY IS A DEFENDANT; AND THE
SUCCESS OR LACK THEREOF OF THE COMPANY'S CURRENT DEVELOPMENT PROJECTS.
<PAGE>
TABLE OF CONTENTS
Page
No.
----
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1998 and
December 31, 1997 1
Consolidated Statements of Operations for the Three
Months Ended March 31, 1998 and 1997 2
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1998 and 1997 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 2. Change in Securities 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
<PAGE>
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997
(in thousands, except share amounts and par value)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- ------------
ASSETS (unaudited)
<S> <C> <C>
Cash and cash equivalents $ 4,270 $ 9,188
Restricted cash and cash equivalents 1,379 1,713
Contracts receivable, net 5,695 6,336
Mortgages, notes and other receivables, net 34,196 34,910
Land and residential inventory 129,138 130,506
Property, plant and equipment, net 1,891 1,754
Other assets, net 18,401 18,664
----------- ------------
Total assets $ 194,970 $ 203,071
=========== ============
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Accounts payable and accrued liabilities $ 8,217 $ 13,615
Customers' and other deposits 1,142 1,181
Other liabilities 8,296 8,865
Notes, mortgages and capital leases 132,705 132,408
----------- ------------
150,360 156,069
----------- ------------
Redeemable Preferred Stock
Series A, 20%, $.01 par value; 2,500,000 shares
authorized; 2,500,000 and 2,326,475 shares issued,
liquidation preference of $28,253 as of March 31, 1998
and $25,254 as of December 31, 1997 25,330 22,378
Series B, 20%, $.01 par value; 2,000,000 shares
authorized; 2,000,000 shares issued, liquidation
preference of $22,372 as of March 31, 1998 and
$21,307 as of December 31, 1997 20,500 19,306
----------- ------------
45,830 41,684
----------- ------------
Stockholders' (deficit) equity
Common stock, $.10 par value; 70,000,000
shares authorized; 11,615,876 and
11,607,526 shares issued 1,162 1,161
Contributed capital 126,340 128,930
Accumulated deficit (123,001) (119,052)
Accumulated other comprehensive loss (5,712) (5,712)
Treasury stock, 86,277 shares, at cost (9) (9)
----------- ------------
Total stockholders' (deficit) equity (1,220) 5,318
----------- ------------
Total liabilities and stockholders' (deficit) equity $ 194,970 $ 203,071
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months Ended March 31, 1998 and 1997
(in thousands, except per share data)
(unaudited)
Three Months Ended
March 31,
--------------------
Revenues: 1998 1997
-------- --------
Real estate sales:
Core Homesite $ 2,535 $ 1,469
Core Tract 261 -
Core Residential - 6,994
Predecessor Homesite 896 1,081
Predecessor Tract 5,280 6,664
Other Operations - 76
-------- --------
Total real estate sales 8,972 16,284
Other operating revenue 751 593
Interest income 1,367 1,372
Other income 274 -
-------- --------
Total revenues 11,364 18,249
-------- --------
Costs and expenses:
Cost of real estate sales:
Core Homesite 2,147 1,158
Core Tract 228 -
Core Residential - 5,228
Predecessor Homesite 860 830
Predecessor Tract 5,254 6,155
Other Operations - 88
-------- --------
Total cost of real estate sales 8,489 13,459
Selling expense 1,252 2,129
Other operating expense 302 330
Other real estate costs 1,799 2,906
General and administrative expense 1,839 2,200
Depreciation 170 184
Cost of borrowing, net of amounts capitalized 1,382 4,035
Other expense 405 175
-------- --------
Total costs and expenses 15,638 25,418
-------- --------
Operating loss (4,274) (7,169)
-------- --------
Other income (expense):
Reorganization items 514 429
Miscellaneous (189) (536)
-------- --------
Total other income (expense) 325 (107)
-------- --------
Net loss (3,949) (7,276)
-------- --------
Less:
Accrued preferred stock dividends 2,329 -
Accretion of preferred stock to redemption amount 318 -
-------- --------
2,647 -
-------- --------
Net loss applicable to common stock $ (6,596) $ (7,276)
======== ========
Basic and diluted earnings per common share:
Net loss per common share $ (.57) $ (.75)
======== ========
Weighted average common shares outstanding 11,529 9,722
======== ========
See accompanying notes to consolidated financial statements.
2
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997
(in thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,949) $ (7,276)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,032 1,072
Other (income) expense (75) 81
Reorganization items 51 (175)
Other net changes in assets and liabilities:
Restricted cash 334 30
Receivables 1,164 (2,951)
Land and residential inventory 1,368 6,956
Other assets (321) (4,999)
Accounts payable and accrued liabilities (5,361) (7,404)
Customer deposits (39) 462
Other liabilities (354) (215)
Other, net - -
-------- --------
Net cash used in operating activities (6,150) (14,419)
-------- --------
Cash flow from investing activities:
Additions to property, plant and equipment, net (307) (75)
Proceeds from sale of property, plant and equipment, net - -
Funds withdrawn from utility trust accounts - 12,109
-------- --------
Net cash (used in) provided by investing activities (307) 12,034
-------- --------
Cash flows from financing activities:
Borrowings under credit agreements 6,080 52,857
Repayments under credit agreements (6,276) (53,461)
Principal payments on other liabilities - (1,603)
Proceeds from issuance of preferred stock 1,735 -
-------- --------
Net cash provided by (used in) financing activities 1,539 (2,207)
-------- --------
Decrease in cash and cash equivalents (4,918) (4,592)
Cash and cash equivalents at beginning of period 9,188 7,050
-------- --------
Cash and cash equivalents at end of period $ 4,270 $ 2,458
======== ========
Supplemental cash flow information:
Interest payments, net of amounts capitalized $ 5,302 $ 2,483
======== ========
Reorganization item payments $ 51 $ 1,644
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1998
(unaudited)
(1) The March 31, 1998 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, 1997, as amended by
that certain Amendment to Form 10-K on Form 10-K/A-1, as filed with the
Securities and Exchange Commission (the "SEC") ("1997 Form 10-K").
Certain prior year amounts have been reclassified to conform with the
1998 presentation.
(2) The net loss per common share is computed by deducting accrued
preferred stock dividends and the accretion of preferred stock to the
redemption amount to determine net loss applicable to common stock.
This amount is then divided by 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 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 $3,014,000 and
$1,275,000 for the three months ended March 31, 1998 and 1997,
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) The Company has made an estimate of Available Cash, as defined in the
Company's agreements, at June 30, 1998, and has determined, based on
this estimate, that due to the establishment of reserves against future
mandatory debt, capital and operating expenditures, the Company will
not have Available Cash, at June 30, 1998, to make any interest
payments on the Cash Flow Notes for the six-month period ending June
30, 1998. In addition, the Company did not have Available Cash to make
any interest payments for the twelve-month period ended December 31,
1997. Interest on the Cash Flow Notes is noncumulative. Therefore, the
Company has not recorded interest expense associated with the Cash Flow
Notes during the three months ended March 31, 1998 and 1997. See PART
I. FINANCIAL INFORMATION, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- LIQUIDITY AND
CAPITAL RESOURCES to the Form 10-Q for the fiscal quarter ended March
31, 1998 (the "First Quarter 1998 Form 10-Q") for more information
concerning the Cash Flow Notes.
4
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1998
(unaudited)
(6) Pursuant to the Company's 1996 Non-Employee Directors' Stock Plan, the
Company issued 8,330 shares of Atlantic Gulf's common stock to the
Non-Employee Directors at a price of $4.50 per share for the first
quarter of 1998.
(7) The Company and AP-AGC, LLC, an affiliate of Apollo Real Estate
Advisors, L.P. ("Apollo"), are parties to that certain Investment
Agreement, as amended (the "Investment Agreement," which closed in June
1997 (the "Closing")) pursuant to which Apollo agreed, subject to
certain conditions, to acquire 2.5 million shares 20% Series A
Redeemable Preferred Stock (the "Series A Preferred Stock") from the
Company at a purchase price of $9.88 per share, and warrants to
purchase up to 5 million shares of Common Stock (the "Investor
Warrants"), at a purchase price of $.06 per share, for an aggregate
purchase price of $25 million (the "Apollo Transaction"). As of
December 31, 1997, Apollo had purchased 2,326,475 shares of Series A
Preferred Stock and Investor Warrants to acquire 4,652,950 shares of
Common Stock, for an aggregate purchase price of approximately $23.3
million.
On March 31, 1998, Apollo purchased the remaining 173,525 shares of
Series A Preferred Stock and Investor Warrants to acquire 347,050
shares of Common Stock, for an aggregate purchase price of $1,735,248.
See PART II. OTHER INFORMATION, ITEM 2. CHANGES IN SECURITIES in the
First Quarter 1998 Form 10-Q and the 1997 Form 10-K for more
information concerning the Apollo Transaction.
(8) Redeemable preferred stock consisted of the following at March 31, 1998
and December 31, 1997 (in thousands of dollars):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- ------------
<S> <C> <C>
SERIES A
Gross proceeds $ 25,000 $ 23,265
Accrued dividends 3,253 1,989
----------- ------------
Liquidation Preference amount 28,253 25,254
Less issue costs (3,100) (2,885)
Less warrants purchased (300) (279)
Plus accretion of preferred stock to redemption amount 477 288
----------- ------------
25,330 22,378
----------- ------------
SERIES B
Gross proceeds 20,000 20,000
Accrued dividends 2,372 1,307
----------- ------------
Liquidation Preference amount 22,372 21,307
Less issue costs (1,900) (1,900)
Less warrants purchased (240) (240)
Plus accretion of preferred stock to redemption amount 268 139
----------- ------------
20,500 19,306
----------- ------------
Total redeemable preferred stock $ 45,830 $ 41,684
=========== ============
</TABLE>
5
<PAGE>
ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1998
(unaudited)
(9) As of January 1, 1998, the Company adopted Statement 130, REPORTING
COMPREHENSIVE INCOME. Statement 130 establishes new rules for the
reporting and display of comprehensive income and its components;
however, the adoption of this Statement had no impact on the Company's
net loss or shareholders' equity. Statement 130 requires unrealized
gains or losses on the Company's minimum pension liability adjustments,
which prior to adoption were reported separately in shareholders'
equity to be included in other comprehensive income. Prior year
financial statements have been reclassified to conform to the
requirements of Statement 130.
During the first quarter of 1998 and 1997, comprehensive income
consisted only of the net losses for those periods.
6
<PAGE>
PART I. - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
UNLESS THE CONTEXT CLEARLY INDICATES OTHERWISE, ALL REFERENCES TO (1) THE
"COMPANY" INCLUDE ATLANTIC GULF COMMUNITIES CORPORATION AND ITS DIRECT AND
INDIRECT WHOLLY-OWNED SUBSIDIARIES, (2) "ATLANTIC GULF" REFERS SOLELY TO
ATLANTIC GULF COMMUNITIES CORPORATION AND (3) "PREDECESSOR COMPANY" OR
"PREDECESSOR" REFERS TO GENERAL DEVELOPMENT CORPORATION, ATLANTIC GULF'S
IMMEDIATE PREDECESSOR.
Current Business
- ----------------
The Company is a Florida-based, planned community development and
asset management company. The Company's principal business (its "Core Business")
consists of (1) the acquisition, development and sale of residential homesites
("Homesites") to home builders and commercial, industrial and retail land
("Tracts") in primary markets in Florida and other selected primary markets in
the southeast (the "Southeast") United States (collectively, "Primary Markets"),
(2) the construction and sale of selected vertical residential products,
including oceanfront condominium units and an urban luxury apartment tower
("Vertical Development") and (3) environmental services. The Company is also
engaged in (a) the orderly disposition of scattered Predecessor Homesites (i.e.,
homesites inherited from the Company's Predecessor) and Predecessor Tracts
(i.e., commercial, industrial, institutional, residential, and agricultural
acreage inherited from the Company's Predecessor) in secondary markets
(collectively, the "Predecessor Assets") and (b) portfolio management of
mortgages and contract receivables related to the Predecessor Assets. The
continuing disposition of Predecessor Assets is a run-off business and is not
part of the Company's Core Business.
The Company's Core Business is comprised of four primary functions,
(1) business development, (2) planning, (3) community development and (4)
residential construction. See PART I., ITEM 1. BUSINESS in the 1997 Annual
Report for a more detailed description of the Company's current business.
Business Plan
- -------------
Atlantic Gulf's business plan is to:
o Execute and grow its Core Business, principally the sales of
new Homesites and Tracts, throughout its Primary Markets.
o Capitalize on special opportunities in Vertical Development.
o Complete the orderly disposition of its remaining Predecessor
Assets.
To these ends (1) since 1992, the Company has sold approximately
70,000 acres of Predecessor Tracts and over 10,000 Predecessor Homesites, and
substantially reduced the corporate debt and deferred liabilities which it
inherited from its Predecessor and (2) in 1994, the Company began acquiring
interests in 17 new projects in eight new Primary Markets.
The Company, consistent with and in furtherance of its business
plan, has successfully transitioned itself from a land company holding
principally Predecessor Assets to a leading provider to builders of developed
Homesites in planned communities in Primary Markets.
7
<PAGE>
From 1994 through 1996, the Company acquired interests in new Core
Business assets both directly and, in some cases, indirectly, through joint
venture, limited partnership or similar structures and arrangements
(collectively, "JV Projects"). The Company used these structures and
arrangements because its debt amortization schedules imposed severe capital
constraints on new business growth. In effect, the Company did not have the
capital resources during this period to acquire direct ownership interests in
all of its new projects.
In 1997 and the first quarter of fiscal year 1998, the Company
closed three major equity transactions, raising an aggregate of $55 million (the
"1997 Equity Transactions"). See PART I., ITEM 1. BUSINESS - SIGNIFICANT
BUSINESS DEVELOPMENTS in the 1997 Form 10-K and PART II. OTHER INFORMATION -
ITEM 2. CHANGES IN SECURITIES to this Quarterly Report on Form 10-Q for more
information concerning the 1997 Equity Transactions. The Company used the funds
from the 1997 Equity Transactions and other funds to acquire direct ownership
interest in all of its new Core Business projects in 1997.
The Company's strategy to grow the Homesite segment of its business
is being accomplished in two stages. In the first stage, the Company built sales
volume, principally through JV Projects. Now, in the second stage, the Company
is replacing sold inventory with new projects, acquired principally through
direct ownership.
As of March 31, 1998, the Company owned, directly or through JV
Projects, interests in the following Core Business Homesite projects:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Units Units
Type of Year Closed- Under
Project Ownership Location Acquired Scope of Project (4) to-date Contract
------- --------- -------- -------- -------------------- ------- --------
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sabal Trace D (1) Sarasota County, FL (3) 107 single-family Homesites 28 -
- --------------------------------------------------------------------------------------------------------------------------------
West Meadows D Tampa Bay, FL 1995 1,330 single-family Homesites 310 155
- --------------------------------------------------------------------------------------------------------------------------------
Saxon Woods D Orlando, FL 1997 408 single-family Homesites - 118
- --------------------------------------------------------------------------------------------------------------------------------
Lakeside Estates D Orlando, FL 1994-1995 1,389 single-family Homesites 750 201
- --------------------------------------------------------------------------------------------------------------------------------
West Bay Club D Naples, FL 1995-1997 520 single-family Homesites - -
- --------------------------------------------------------------------------------------------------------------------------------
The Trails of D Dallas, TX 1997 More than 1,600 single-family
West Frisco Homesites - 415
- --------------------------------------------------------------------------------------------------------------------------------
Sunset Lakes JV (2) Broward County, FL 1994 1,512 single-family Homesites
and 263 multi-family units - 1,051
- --------------------------------------------------------------------------------------------------------------------------------
Country Lakes JV Broward County, FL 1995 1,116 single-family Homesites
and 1,930 multi-family units 1,115 1,927
- --------------------------------------------------------------------------------------------------------------------------------
Falcon Trace JV Orlando, FL 1996 878 single-family Homesites 64 363
- --------------------------------------------------------------------------------------------------------------------------------
Cary Glen JV Raleigh/Durham, NC 1996 822 single-family Homesites and
310 multi-family units - -
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) "D" means direct ownership.
(2) "JV" means joint venture.
(3) Transferred from Predecessor Assets to Core Business Assets in 1994.
(4) Varying from project to project, unsold units are developed, under
development or to be developed in the future.
8
<PAGE>
As of March 31, 1998, the Company owned, directly or through JV
Projects, interests in the following Core Business Tracts:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Acres Acres
Type of Year Closed- Under
Project Ownership Location Acquired Scope Of Project to-date Contract
------- --------- -------- -------- ---------------- ------- --------
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sabal Trace D (1) Sarasota County, FL (3) 109 undeveloped residential acres 94 -
- ----------------------------------------------------------------------------------------------------------------------------
West Meadows D Tampa Bay, FL 1997 76 commercial/industrial acres 50 -
- ----------------------------------------------------------------------------------------------------------------------------
Sunset Lakes JV (2) Broward County, FL 1994 10 commercial/industrial acres - 10
- ----------------------------------------------------------------------------------------------------------------------------
Country Lakes JV Broward County, FL 1995 140 commercial/industrial acres - -
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) "D" means direct ownership.
(2) "JV" means joint venture.
(3) Transferred from Predecessor Assets to Core Business Assets in 1994.
As of March 31, 1998, the Company owned, directly or through JV
Projects, interests in the following vertical residential products:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Units Units
Type of Year Closed- Under
Project Ownership Location Acquired Scope Of Project to-date Contract
------- --------- -------- -------- ---------------- ------- --------
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Riverwalk Tower D (1) Fort Lauderdale, FL 1997 373 condominium units and a second
mixed use tower - -
- ----------------------------------------------------------------------------------------------------------------------------
West Bay Club D Naples, FL 1995- 578 high-rise residential units - -
1997
- ----------------------------------------------------------------------------------------------------------------------------
Jupiter Ocean JV (2) Jupiter, FL 1995 155 condominium units (3) - -
Grande
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) "D" means direct ownership.
(2) "JV" means joint venture.
(3) The Company is currently negotiating with the Town of Jupiter in
connection with outstanding land approval issues which may ultimately
result in a reduction in density. See PART I., ITEM 1. BUSINESS -
PRIMARY LINES OF BUSINESS - RESIDENTIAL SALES - CONDOMINIUM SALES -
JUPITER OCEAN GRANDE in the 1997 Form 10-K.
As of March 31, 1998, the Company owned approximately 16,000
Predecessor Homesites and approximately 19,000 acres of Predecessor Tracts in 8
communities.
See PART I., ITEM 1. BUSINESS in the 1997 Form 10-K for more
information concerning the Company's business.
9
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
The Company's results of operations for the three months ended
March 31, 1998 and 1997 are summarized by line of business, as follows:
<TABLE>
<CAPTION>
COMBINING RESULTS OF OPERATIONS BY LINE OF BUSINESS
Three Months Ended March 31, 1998
(in thousands of dollars)
(unaudited)
Core Predecessor
---------------------------- ----------------
Homesite Tract Residential Homesite Tract Other Business Administrative
Sales Sales Sales Sales Sales Operations Development & Other Total
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Real estate sales $ 2,535 $ 261 $ - $ 896 $ 5,280 $ $ $ $ 8,972
Other operating revenues 168 583 751
Interest income 75 1,044 248 1,367
Other income 274 274
----------------------------------------------------------------------------------------------
Total revenues 3,052 261 - 896 5,280 1,627 - 248 11,364
----------------------------------------------------------------------------------------------
Costs and expenses:
Cost of real estate sales 2,147 228 - 860 5,254 8,489
Selling expense 287 43 179 743 1,252
Other operating expense 302 302
Other real estate costs:
Property tax, net 565 565
Other real estate overhead 231 100 206 2 220 475 1,234
General and administrative expense 1,839 1,839
Depreciation 5 6 19 21 119 170
Cost of borrowing, net 562 820 1,382
Other expense 290 115 405
----------------------------------------------------------------------------------------------
Total costs and expenses 2,960 271 115 1,145 6,222 887 220 3,818 15,638
----------------------------------------------------------------------------------------------
Operating income (loss) 92 (10) (115) (249) (942) 740 (220) (3,570) (4,274)
----------------------------------------------------------------------------------------------
Other income (expense):
Reorganization items 266 248 514
Miscellaneous (189) (189)
----------------------------------------------------------------------------------------------
Total other income (expense) - - - - - 266 - 59 325
----------------------------------------------------------------------------------------------
Net income (loss) 92 (10) (115) (249) (942) 1,006 (220) (3,511) (3,949)
----------------------------------------------------------------------------------------------
Less:
Accrued preferred stock dividends 2,329 2,329
Accretion of preferred
stock to redemption amount 318 318
----------------------------------------------------------------------------------------------
- - - - - - - 2,647 2,647
----------------------------------------------------------------------------------------------
Net income (loss) applicable to
common stock $ 92 $ (10) $ (115) $ (249) $ (942) $ 1,006 $ (220) $ (6,158) $ (6,596)
==============================================================================================
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
COMBINING RESULTS OF OPERATIONS BY LINE OF BUSINESS
Three Months Ended March 31, 1997
(in thousands of dollars)
(unaudited)
Core Predecessor
----------------------------- ----------------
Homesite Tract Residential Homesite Tract Other Business Administrative
Sales Sales Sales Sales Sales Operations Development & Other Total
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Real estate sales $ 1,469 $ $ 6,994 $ 1,081 $ 6,664 $ 76 $ $ $ 16,284
Other operating revenues 10 583 593
Interest income 101 1,118 153 1,372
Other income -
---------------------------------------------------------------------------------------------
Total revenues 1,580 - 6,994 1,081 6,664 1,777 - 153 18,249
---------------------------------------------------------------------------------------------
Costs and expenses:
Cost of real estate sales 1,158 - 5,228 830 6,155 88 13,459
Selling expense 179 407 732 803 8 2,129
Other operating expense 330 330
Other real estate costs:
Property tax, net 911 911
Other real estate overhead 171 23 192 344 188 657 420 1,995
General and administrative expense 2,200 2,200
Depreciation 2 2 2 15 29 134 184
Cost of borrowing, net 463 3,572 4,035
Other expense 63 112 175
---------------------------------------------------------------------------------------------
Total costs and expenses 1,573 - 5,772 1,756 7,317 1,098 665 7,237 25,418
---------------------------------------------------------------------------------------------
Operating income (loss) 7 - 1,222 (675) (653) 679 (665) (7,084) (7,169)
---------------------------------------------------------------------------------------------
Other income (expense):
Reorganization items 267 162 429
Miscellaneous (96) (440) (536)
---------------------------------------------------------------------------------------------
Total other income (expense) - - - - - 171 - (278) (107)
---------------------------------------------------------------------------------------------
Net income (loss) $ 7 - $ 1,222 $ (675) $ (653) $ 850 $ (665) $ (7,362) $ (7,276)
=============================================================================================
</TABLE>
During the first quarter of 1998, the Company reported a net loss
applicable to common stock of $6.6 million compared to a net loss applicable to
common stock of $7.3 million during the first quarter of 1997. The loss
decreased primarily due to (1) a $2.3 million reduction in selling expenses,
other real estate costs and general and administrative expenses and (2) a $2.7
million decrease in borrowing costs, partially offset by (3) a $1.8 million
decrease in gross profit from residential sales and (4) a total of $2.6 million
of accrued preferred stock dividends and accretion of preferred stock in the
first quarter of 1998. As discussed below, the decrease in gross profit from
residential sales resulted from the completion and closing of all of the units
in the Company's Regency Island Dunes ("Regency Island") oceanfront condominium
project as of December 31, 1997.
11
<PAGE>
Core Business
- -------------
The results of operations of the Core Business are set forth below.
CORE HOMESITE SALES. Net income from Homesite sales in the first
quarter of 1998 was $92,000 compared to $7,000 in the first quarter of 1997.
Revenues from Homesite sales increased $1.1 million in the first
quarter of 1998 compared to the first quarter of 1997 primarily due to a $1.4
million increase in Homesite sales in West Meadows. The following table
summarizes Homesite sales activity for the three months ended March 31 (in
thousands of dollars):
<TABLE>
<CAPTION>
1998 1997
-------------------------------------- --------------------------------------
Number Average Number Average
of lots Revenue sales price of lots Revenue sales price
------- ------- ----------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
West Meadows 104 $ 1,686 $ 16.2 9 $ 240 $ 26.7
Lakeside Estates 40 849 21.2 49 985 20.1
Sabal Trace - - - 5 176 35.2
Sanctuary - - - 4 68 17.0
------- ------- ----------- ------- ------- -----------
144 $ 2,535 $ 17.6 67 $ 1,469 $ 21.9
======= ======= =========== ======= ======= ===========
</TABLE>
The average selling price in West Meadows decreased due to a bulk
sale of 82 lots for $840,000 in the first quarter of 1998.
Other operating revenues of $168,000 in the first quarter of 1998
and $10,000 in the first quarter of 1997 consisted of management fees earned in
connection with the Sunset Lakes JV Project. The Company's management fee is
equal to 4% of development costs, as defined in the Sunset Lakes JV Project
agreement. The Company's percentage interest in the profits and losses of the
Sunset Lakes JV Project is 65%. Other expense included $174,000 in the first
quarter of 1998 and $63,000 in the first quarter of 1997 representing the
Company's share of the net loss of the Sunset Lakes JV Project. Initial closings
of sales in Sunset Lakes are anticipated during the second quarter of 1998.
Other income of $274,000 in the first quarter of 1998 represented a
net gain on an assignment of a real estate purchase agreement for a residential
project located in the Orlando, Florida area.
As of March 31, 1998, the Company had under contract approximately
889 Homesites for $25.7 million with 13 homebuilders in Lakeside Estates, West
Meadows, The Trails of West Frisco and Saxon Woods. In addition, as of March 31,
1998, the Company's joint venture projects had 3,341 Homesites under contract
with 9 homebuilders, totaling approximately $80.0 million in future gross
revenue of which the Company is a joint venturer. As of March 31, 1997, the
Company had under contract approximately 450 Homesites for approximately $12.2
million in Lakeside Estates, West Meadows and Sanctuary.
The Homesite sales gross margin percentages were 15.3% in the first
quarter of 1998 compared to 21.2% in the first quarter of 1997. The gross margin
in the first quarter of 1997 approximates the targeted gross margin of 20% for
this line of business. The lower gross margin percentage in 1998 is attributable
principally to a reduction in the gross margin percentage at Lakeside Estates
from 21.3% in the first quarter of 1997 to 8.0% in the first quarter of 1998.
This decrease is due to an increase in the estimated
12
<PAGE>
cost to complete this project. The Company anticipates that the impact of the
Lakeside Estates gross margin will decrease on a relative basis as more Homesite
projects come on line during 1998.
Homesite selling expense increased $108,000 in the first quarter of
1998 primarily due to presales advertising and marketing costs associated with
the West Bay Club project.
CORE TRACT SALES. Tract sales in the first quarter of 1998
consisted of one sale of 15 acres for $261,000 in Sabal Trace. There were no
Tract sales in the first quarter of 1997. As of March 31, 1998, the Company's JV
Projects had pending Tract sales contracts of approximately $3.5 million in
future gross revenue.
CORE RESIDENTIAL SALES. Net operating results from residential
sales decreased $1.3 million in the first quarter of 1998 compared to the first
quarter of 1997 due to the absence of revenues and profits from Regency Island
which closed sales of all units as of December 31, 1997.
During 1993, the Company entered the luxury oceanfront condominium
market through the acquisition of the Regency Island project. The Company
completed construction and sold out Regency Island in 1997. In 1995, the Company
acquired the Jupiter Ocean Grande condominium JV Project. The Company has a 50%
interest in this JV Project and anticipates commencing presales on the first
building in Jupiter Ocean Grande in the 1998-1999 selling season. The Company
also anticipates commencing presales of its West Bay Club high-rise residential
units in the 1998-1999 selling season. In 1998, the Company intends to begin
construction of Riverwalk Tower, its first luxury apartment tower.
Residential sales are summarized as follows for the three months
ended March 31 (in thousands of dollars):
1998 1997
--------- --------
Condominium sales - Regency Island:
First Building $ - $ 1,310
Second Building - 5,684
--------- --------
Total condominium sales $ - $ 6,994
========= ========
The revenues and profits associated with Regency Island sales were
recorded using the percentage of completion method. The project consisted of two
72-unit buildings for a total of 144 units, all of which were sold and closed as
of December 31, 1997. The condominium revenues of $1.3 million in the first
building in the first quarter of 1997 represented revenue earned upon the
closing of four units. As of March 31, 1997, 71 of the 72 units in the first
building were sold and closed. As of December 31, 1996, the Company recorded 79%
of the expected revenues and profits on 56 units in the second building, based
on a construction completion percentage of 79%. The revenues of approximately
$5.7 million in the second building in the first quarter of 1997 were derived
from an increase in the completion percentage from 79% to 96% as of March 31,
1997, and to an additional eight units sold and closed during the first quarter
of 1997 for a total of 64 units sold and closed in the second building as of
March 31, 1997.
The gross margin for condominiums in the first quarter of 1997 was
25.3% which was within the targeted gross margin of approximately 20% to 25% for
this line of business.
Residential selling expense and real estate overhead decreased from
a total of $430,000 in the first quarter of 1997 to $0 in the first quarter of
1998 due to the close out of Regency Island in 1997.
13
<PAGE>
Residential sales other expenses consisted of $115,000 in the first
quarter of 1998 and $112,000 in the first quarter of 1997 representing the
Company's share of the net loss of the Jupiter Ocean Grande JV Project. The loss
resulted from pre-sales advertising and other selling and overhead costs.
Predecessor Business
- --------------------
The results of operations of the Predecessor Business are set forth
below.
PREDECESSOR HOMESITE SALES. Net operating results from Predecessor
Homesite sales improved $426,000 in the first quarter of 1998 compared to the
first quarter of 1997 primarily due to a $553,000 decrease in selling expenses.
Revenues from Predecessor Homesite sales decreased $185,000 in the
first quarter of 1998 compared to the first quarter of 1997 primarily due to a
decrease in the number of Predecessor Homesites sold. The following table
summarizes Predecessor Homesite sales activity for the three months ended March
31 (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997
-------------------------------------- ----------------------------------
Average Average
Number sales Number sales
of lots Revenue price of lots Revenue price
------- ------- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Scattered sales 67 $ 347 $ 5.2 135 $ 776 $ 5.7
Bulk sales 82 549 6.7 42 305 7.3
--- ----- ----- --- ------- -----
149 $ 896 $ 6.0 177 $ 1,081 $ 6.1
=== ===== ===== === ======= =====
</TABLE>
Revenues from Predecessor Homesite scattered sales decreased
primarily due a $269,000 decrease in sales in the Company's Cumberland Cove,
Tennessee, project. Sales in Cumberland Cove decreased because this project
began winding down during 1997 and the Company closed its on-site sales
operation in September 1997. Bulk sales of Predecessor Homesites increased due
to an increase in volume. The Company anticipates it will continue to supplement
Predecessor Homesite sales volume through bulk sales as part of its plan to
accelerate the disposition of Predecessor Assets.
As of March 31, 1998, the Company had under contract approximately
215 Predecessor Homesites for $633,000. As of March 31, 1997, the Company had
under contract 119 Predecessor Homesites for $432,000.
The Predecessor Homesite sales gross margin percentages were 4.0%
in the first quarter of 1998 compared to 23.2% in the first quarter of 1997. The
lower gross margin percentage in 1998 is attributable principally to the
decrease in sales in Cumberland Cove which generated a gross margin of 36.8% in
the first quarter of 1997. Predecessor Homesite sales margins were also
adversely affected in 1998 by the increase in bulk sales of Predecessor
Homesites, which generally yield lower margins.
Predecessor Homesite selling expense decreased $553,000 or 75.5% in
the first quarter of 1998 compared to the first quarter of 1997 and decreased as
percentage of revenue from 67.7% in the first quarter of 1997 to 20.0% in the
first quarter of 1998 primarily due to $434,000 reduction in indirect selling
costs at Cumberland Cove due to the closing of the on-site sales operation in
September 1997.
14
<PAGE>
Predecessor Homesite other real estate overhead decreased $92,000,
or 48%, in the first quarter of 1998 compared to the first quarter of 1997
primarily due to a reduction in personnel costs associated with selling and
maintaining Predecessor Assets.
PREDECESSOR TRACT SALES. The net loss from Predecessor Tract sales
increased by $289,000 in the first quarter of 1998 compared to the first quarter
of 1997 primarily due to lower Predecessor Tract sales revenues and a lower
gross margin, partially offset by a decrease in other real estate overhead.
Revenues from Predecessor Tract sales decreased $1.4 million in the
first quarter of 1998 compared to the first quarter of 1997 primarily due to
three large sales (over $1.0 million) in the first quarter of 1997 compared to
two comparable sales in the first quarter of 1998. Tract sales and corresponding
revenues from such sales often vary significantly from period to period
depending on the timing and size of individual sales. As of March 31, 1998,
there were pending Predecessor Tract sales contracts or letters of intent
totaling approximately $14.4 million, which, subject to certain contingencies,
are anticipated to close in 1998. As of March 31, 1997, there were comparable
pending Predecessor Tract sales contracts or letters of intent totaling
approximately $18.0 million.
Predecessor Tract sales gross margins are summarized as follows for
the three months ended March 31:
<TABLE>
<CAPTION>
1998 1997
----------------------------------- ----------------------------------
Targeted Actual Targeted Actual
Margins Margins Margins Margins
------- ------- ------- -------
<S> <C> <C> <C> <C>
Port LaBelle agricultural acreage 0% 0% 0% (2.7)%
Other Predecessor Tract acreage 0% .7% 5-10% 14.3%
</TABLE>
The targeted gross margin is break even for Port LaBelle
agricultural acreage because management determined that approximately 15,000
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 in 1992 from
"retail" to "wholesale", which reduced the targeted gross margin for this
property. During the first quarter of 1998, the Company sold 1,873 acres of Port
LaBelle agricultural property for approximately $1.8 million.
The targeted gross margin for other Predecessor Tract acreage was
reduced to break even in 1998 due to the Company's business plan to accelerate
the liquidation of Predecessor Assets. The actual gross margins for other
Predecessor Tract acreage in 1998 and 1997 generally reflect the targeted gross
margins.
Predecessor Tract sales other real estate overhead decreased
$138,000, a 40% decrease, in the first quarter of 1998 compared to the first
quarter of 1997 primarily due to the discontinuance of the Company's in-house
sales operation in January 1998.
Other Operations
- ----------------
Net income from other operations increased $156,000 in the first
quarter of 1998 compared to the first quarter of 1997 primarily due to a
$186,000 decrease in other real estate overhead.
15
<PAGE>
Other operations other real estate overhead decreased $186,000 in the
first quarter of 1998 compared to the first quarter of 1997 due to the
elimination of community operations costs associated with the Company's
Predecessor Assets as a result of the Company closing its offices in its
Predecessor communities in December 1997.
Other operations cost of borrowing increased $99,000 in the first
quarter of 1998 compared to the corresponding prior year period due to an
increase in debt associated with the financing of a portion of the Company's
land mortgages receivables. The Company raised approximately $19.8 million of
cash proceeds in 1997 from these financings. The proceeds from these financings
were used to reduce corporate debt and to fund ongoing operations.
Other income - reorganization items of $266,000 in the first quarter of
1998 and $267,000 in the first quarter of 1997 represents the amortization of
the Company's utility connections reserve.
Business Development
- --------------------
Total business development expenditures decreased $445,000 in the first
quarter of 1998 compared to the first quarter of 1997 primarily due to (1) a
$219,000 decrease in costs associated with the pursuit of business opportunities
in Primary Markets and (2) a $126,000 decrease in overhead costs due to the
discontinuance of certain projects in 1997.
Administrative & Other
- ----------------------
The net loss from administrative and other activities decreased $1.2
million in the first quarter of 1998 compared to the first quarter of 1997
principally due to a $2.8 million decrease in borrowing costs, partially offset
by $2.3 million of accrued preferred stock dividends in the first quarter of
1998.
Interest income increased in the first quarter of 1998 compared to the
first quarter of 1997 primarily due to an increase in short-term investment
interest income.
Property tax, net of capitalized property taxes decreased in the first
quarter of 1998 compared to the first quarter of 1997 primarily due to a
reduction of land inventory not under development which corresponds to sales
activity during the intervening period.
General and administrative expenses decreased $361,000 in the first
quarter of 1998 compared to the first quarter of 1997 primarily due to decreases
in personnel and legal expenses.
Cost of borrowing, net of capitalized interest, decreased $2.8 million
in the first quarter of 1998 compared to the first quarter of 1997 primarily due
to a $37.0 million decrease in corporate debt and an increase in corporate
interest capitalized to land inventory. During the three months ended March 31,
1998 and 1997, the Company did not accrue interest on its Cash Flow Notes
because of the absence of Available Cash during the periods.
Other income - reorganization items consisted of gains of $248,000 in
the first quarter of 1998 and $162,000 in the first quarter of 1997 resulting
from the resolution of certain reorganization items. Other expense -
miscellaneous of $189,000 in the first quarter of 1998 and $440,000 consisted of
various reserve adjustments and settlements.
During the three months ended March 31, 1998, the Company recorded a
$2.3 million accrual for preferred stock dividends associated with its Series A
and Series B Preferred Stock ("the Preferred Stock"). The dividends were
accumulated but unpaid as of March 31, 1998. The dividend rate is 20% of the
16
<PAGE>
liquidation preference value of the Preferred Stock. The liquidation preference
value of the Preferred Stock is $10 per share, plus accumulated and unpaid
dividends. In addition, the Company accreted $318,000 of the value of its
Preferred Stock to the redemption amount in the first quarter of 1998. The total
of approximately $2.6 million of accrued Preferred Stock dividends and Preferred
Stock accretion was charged to contributed capital in the accompanying March 31,
1998 consolidated balance sheet.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Company's cash and cash equivalents totaled
approximately $4.3 million. The Company also had restricted cash and cash
equivalents of $1.4 million, which consisted primarily of (1) escrows for the
sale and development of real estate properties, (2) funds held in trust to pay
certain bankruptcy claims and (3) various other escrow accounts. Cash and cash
equivalents decreased by $4.9 million during the first quarter of fiscal 1998,
consisting of (a) $6.1 million used in operating activities, (b) $0.3 million
used in investing activities and (c) $1.5 million provided by financing
activities.
Cash used in operating activities during the first quarter of 1998
included approximately (1) $2.3 million for interest payments, (2) $4.1 million
for property tax payments and (3) $3.8 million for construction and development
expenditures. Cash used in operating activities was offset in part by net cash
generated through real estate sales and other operations.
Cash provided by financing activities included proceeds of (1)
approximately $1.7 million from the issuance of Series A Preferred Stock and
related warrants and (2) net borrowings of $1.2 million from new project
financings, partially offset by (3) net principal payments of $1.4 million
associated with the financings of mortgage receivables and Predecessor -
Homesite Contract Receivables.
The Company's operating debt facilities (the "Foothill Debt") with
Foothill Capital Corporation ("Foothill") consists of (1) a $20 million working
capital facility (the "Working Capital Facility"), (2) an $8.3 million remaining
commitment on its reducing revolving loan (the "Reducing Revolving Loan") and
(3) a $13.3 million balance on its term loan (the "Term Loan"). Amounts under
the Reducing Revolving Loan are available only when (a) the Working Capital
Facility is fully utilized and (b) the Company is in compliance with, among
other conditions, a "borrowing base" formula based on the value of certain of
the Company's assets. Amounts outstanding under the Working Capital Facility
bear 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 interest at a variable
"base rate" plus four percentage points. The Term Loan bears interest at the
rate of 15% per annum. As of March 31, 1998, the Company had outstanding (i) the
full $20 million under the Working Capital Facility, (ii) $7.6 million under the
Reducing Revolving Loan and (iii) $13.3 million under the Term Loan.
The Company's material debt obligations for 1998 include (1) up to
$21.7 million of principal payments on the Reducing Revolving Loan and the Term
Loan which are due in full on June 30, 1998, (2) a $39.6 million payment on its
Unsecured 13% Cash Flow Notes due on December 31, 1998, which will fully retire
these obligations (the "13% cash Flow Notes") and (3) the entire balance of the
Working Capital Facility which is due in full on December 1, 1998 (collectively,
the Company's "1998 Debt Obligations"). The Company's 1998 business plan
contemplates approximately $94 million of expenditures for development,
construction and other capital improvements, a substantial portion of which will
be funded 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 obligations and expenditures, the
implementation of the Company's business plan will be adversely affected,
slowing the Company's anticipated revenue growth and increasing the time
necessary to achieve profitability.
17
<PAGE>
The Company does not currently have sufficient liquid funds to satisfy
all of its 1998 Debt Obligations. However, management believes that it will have
sufficient cash resources to satisfy its June 30, 1998 obligations through
various operating sources. In addition, management believes that through a
combination of sources, it will be able to obtain the funds necessary to
continue to implement its business plan and at the same time, satisfy all of its
1998 Debt Obligations as they become due. The Company has begun exploring the
possibility of refinancing some or all of the remaining 1998 Debt Obligations.
Management is reasonably confident that it will be successful in this effort,
although no refinancing commitment is currently in place and there are no
assurances that any such commitment will be received.
The Company's ongoing business plan is to continue to monetize its
Predecessor Assets and to reduce corporate debt. The Company has made
substantial progress in this regard. It sold $55.6 million of Predecessor Assets
in 1996, $41.2 million in 1997 and $6.2 million in the first quarter of 1998. As
of March 31, 1998, the Company had $15.0 million of Predecessor Assets under
contract or letter of intent, consisting of $11.6 million cash and $3.4 million
of mortgage notes. The transactions under contract are subject to customary
conditions, in some cases including a financing condition. Transactions subject
to a letter of intent are also subject to further negotiation and documentation.
While the Company expects to close these transactions in 1998, there can be no
assurance that any particular transaction will be consummated.
The Company is actively monetizing mortgage and note receivables
generated from the sale of Predecessor Assets. The Company raised approximately
$19.8 million cash, and received certain residual interests, in 1997 from the
sale or financing of mortgages and other receivables from the sale of
Predecessor Assets. These cash proceeds, along with the net cash proceeds from
Predecessor Asset sales, were used to reduce corporate debt and fund ongoing
operations.
On March 31, 1998, AP-AGC LLC ("Apollo") purchased 173,525 shares of
Series A Preferred Stock and Investor Warrants to purchase 347,050 shares of
Common Stock, for an aggregate purchase price of $1,735,248, pursuant to the
terms of that certain Amended and Restated Investment Agreement by and between
the Company and Apollo (the "Investment Agreement"). See NOTE (7) to the
Company's Consolidated Financial Statements for the fiscal quarter ended March
31, 1998, included herewith, PART I., ITEM 1. BUSINESS - SIGNIFICANT BUSINESS
DEVELOPMENTS in the 1997 Form 10-K and ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS - STOCK PURCHASES BY APOLLO PURSUANT TO THE TERMS OF THE
INVESTMENT AGREEMENT in the 1997 Form 10-K/A-1 for more information concerning
Apollo's purchases of Series A Preferred Stock and Investor Warrants. Apollo has
now purchased all of the Series A Preferred Stock and Investor Warrants covered
by the Investment Agreement.
As required by the Company's Agreements with Apollo, the proceeds from
the sale of the Series A Preferred Stock have been, and will be, used primarily
to acquire and develop properties through a wholly owned special purpose
subsidiary of the Company ("SP Subsidiary") and through subsidiaries of SP
Subsidiary. The Company's repurchase and redemption obligations in respect of
the Series A Preferred Stock (but not the Series B Preferred Stock) are secured
by (1) a junior lien on substantially all of the assets of the Company and its
subsidiaries, except for SP Subsidiary's capital stock and its assets, and (2) a
senior lien on SP Subsidiary's capital stock and its assets.
Pursuant to certain debt agreements, the Company must apply any
Available Cash to (1) the payment of interest due on the Company's Unsecured
Cash Flow Notes due December 31, 1998 ("Cash Flow Notes"), (2) payments of
outstanding amounts under the Working Capital Facility, and (3) repayments of
principal on the Cash Flow Notes. Available Cash is defined, with respect to 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 Company's POR and creation of reserves for working capital and other
expenses for the next two payment periods.
18
<PAGE>
If there is no Available Cash on a payment date, the interest otherwise
payable on such date on the Cash Flow Notes is reduced to $0 and does not
accrue. Due to the establishment of reserves against future mandatory debt,
capital and operating expenditures, Available Cash is anticipated to be $0 as of
June 30, 1998 and was $0 during the twelve month period ending December 31,
1997. Accordingly, the Company did not accrue interest during the three months
ended March 31, 1998 and 1997 on its Cash Flow Notes. Also, based upon the
Company's existing debt obligations, its anticipated net cash flows and its
business plan, management does not anticipate the Company will have any
Available Cash during the remainder of 1998.
PART II. - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On March 31, 1998, AP-AGC LLC ("Apollo") purchased 173,525 shares of
Series A Preferred Stock and Investor Warrants to purchase 347,050 shares of
Common Stock, for an aggregate purchase price of $1,735,248, pursuant to the
terms of that certain Amended and Restated Investment Agreement by and between
the Company and Apollo (the "Investment Agreement"). See Note (7) to the
Company's Consolidated Financial Statements for the fiscal quarter ended March
31, 1998, included herewith, PART I., ITEM 1. BUSINESS - SIGNIFICANT BUSINESS
DEVELOPMENTS in the 1997 Form 10-K and ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS - STOCK PURCHASES BY APOLLO PURSUANT TO THE TERMS OF THE
INVESTMENT AGREEMENT in the 1997 Form 10-K/A-1 for more information concerning
Apollo's purchases of Series A Preferred Stock and Investor Warrants. Apollo has
now purchased all of the Series A Preferred Stock and Investor Warrants covered
by the Investment Agreement.
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
None
19
<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: May 12, 1998 /s/ Thomas W. Jeffrey
------------------------------
Thomas W. Jeffrey
Executive Vice President
and Chief Financial Officer
Date: May 12, 1998 /s/ Paula J. Cook
------------------------------
Paula J. Cook
Vice President and Controller
(Principal Accounting Officer)
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1998 (UNAUDITED) AND
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS THEN ENDED (UNAUDITED)
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000771934
<NAME> Atlantic Gulf Communities Corporation
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,649
<SECURITIES> 0
<RECEIVABLES> 39,891
<ALLOWANCES> 0
<INVENTORY> 129,138
<CURRENT-ASSETS> 0
<PP&E> 1,891
<DEPRECIATION> 0
<TOTAL-ASSETS> 194,970
<CURRENT-LIABILITIES> 0
<BONDS> 132,705
45,830
0
<COMMON> 1,162
<OTHER-SE> (2,382)
<TOTAL-LIABILITY-AND-EQUITY> 194,970
<SALES> 8,972
<TOTAL-REVENUES> 11,364
<CGS> 8,489
<TOTAL-COSTS> 10,043
<OTHER-EXPENSES> 3,888
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,382
<INCOME-PRETAX> (6,596)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,596)
<EPS-PRIMARY> (.57)
<EPS-DILUTED> (.57)
</TABLE>
