SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to __________________
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Commission file number 0-15932
BF ENTERPRISES, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 94-3038456
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
100 Bush Street
Suite 1250
San Francisco, California 94104
(Address of principal executive offices)
Issuer's telephone number, including area code (415) 989-6580
------------------------------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)has been
subject to such filing requirements for the past 90 days. Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of November 12, 1998:
3,615,293 shares of $.10 par value Common Stock
<PAGE>
BF ENTERPRISES, INC. AND SUBSIDIARIES
I N D E X
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Page
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
- Consolidated balance sheets..................................3
- Consolidated statements of income............................4
- Consolidated statements of stockholders' equity .............5
- Consolidated statements of cash flows .......................6
- Notes to financial statements ...............................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .....................................11
PART II OTHER INFORMATION
Item 1. Legal Proceedings . . . . . ...................................13
Item 6. Exhibits and Reports on Form 8-K ..............................14
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
BF ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 3,673 $ 4,038
Marketable securities 697 280
Receivables 103 89
Real estate rental property, net of depreciation 2,280 2,318
Real estate inventory held for current sale
and land held for future development 15,228 13,657
Lease contract receivable 634 599
Deferred tax assets 120 46
Other assets 783 815
-------- --------
TOTAL ASSETS $ 23,518 $ 21,842
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Payables and accrued liabilities $ 1,367 $ 1,531
Subordinated debentures, unmatured 719 719
------- -------
Total liabilities 2,086 2,250
------- -------
Stockholders' equity:
Common stock, $.10 par value
Authorized - 10,000,000 shares
Issued and outstanding -
3,619,793 and 3,670,193 shares 362 367
Capital surplus 16,206 16,614
Retained earnings 4,742 2,547
Net unrealized gains from marketable equity securities 122 64
------- -------
Total stockholders' equity 21,432 19,592
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 23,518 21,842
------- -------
------- --------
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
3
<PAGE>
BF ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Real estate sales $ 1,166 $ 749 $ 2,785 $ 2,619
Real estate rental income 460 461 1,381 1,381
Interest and dividends 47 78 159 215
Other -- 2 -- 10
------ ------ ------ ------
1,673 1,290 4,325 4,225
------ ------ ------ ------
Costs and Expenses:
Cost of real estate sold 238 86 587 538
Depreciation and amortization 23 23 72 72
Interest on subordinated debentures 14 14 39 42
General and administrative 471 384 1,432 1,229
------ ------ ------ ------
746 507 2,130 1,881
------ ------ ------ ------
Income before income taxes 927 783 2,195 2,344
Provision for income taxes -- -- -- --
------ ------ ------ ------
Net income $ 927 $ 783 $ 2,195 $ 2,344
------ ------ ------ ------
------ ------ ------ ------
Net income per share:
Basic $ .26 $ .21 $ .60 $ .63
------ ------ ------ ------
------ ------ ------ ------
Diluted $ .23 $ .19 $ .54 $ .57
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
4
<PAGE>
BF ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
1998 1997
---- ----
<S> <C> <C>
Common stock:
Beginning of period $ 367 $ 373
Purchases of common stock - par value (5) (4)
-------- -------
End of period $ 362 $ 369
-------- -------
-------- -------
Capital surplus:
Beginning of period $ 16,614 $ 17,078
Purchases of common stock - excess over par value (408) (280)
-------- --------
End of period $ 16,206 $ 16,798
-------- --------
-------- --------
Retained earnings (deficit):
Beginning of period $ 2,547 $ (532)
Net income 2,195 2,344
-------- ---------
End of period $ 4,742 $ 1,812
-------- ---------
-------- ---------
Net unrealized gains from marketable equity securities:
Beginning of period $ 64 $ 36
Gain during period 58 31
-------- ---------
End of period $ 122 $ 67
-------- ---------
-------- ---------
Accumulated comprehensive income (loss):
Beginning of period $ 2,611 $ (496)
-------- ---------
Net income 2,195 2,344
Unrealized gains from marketable
equity securities 58 31
-------- ---------
Comprehensive income for period 2,253 2,375
-------- ---------
End of period $ 4,864 $ 1,879
-------- ---------
-------- ---------
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
5
<PAGE>
BF ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,195 $ 2,344
Adjustments to reconcile net income to net cash provided
by operating activities:
Gains from sales of real estate (2,198) (2,081)
Net cash proceeds from sales of real estate 1,532 1,577
Real estate development costs (2,348) (758)
Reimbursement of real estate development costs 1,459 673
Mortgage loan payments -- 100
Changes in certain assets and liabilities:
Increase (decrease) in receivables (14) 30
Increase in lease contract receivable (35) (197)
Increase in payables and accrued liabilit 15 24
Increase in deferred tax assets (74) --
Other, net 54 (202)
------- ------
Total adjustments to net income (1,609) (834)
------- ------
Net cash provided by operating activities 586 1,510
Cash flows from investing activities:
Purchases of marketable securities (359) (113)
------- ------
Net cash used by investing activities (359) (113)
------- ------
Cash flows from financing activities:
Reductions in subordinated debentures (179) (517)
Purchases of the Company's common stock (413) (284)
------- ------
Net cash used by financing activities (592) (801)
------- ------
Net increase (decrease) in cash and cash equivalents:
Cash and cash equivalents at beginning of period (365) 596
Cash and cash equivalents at end of period 4,038 5,098
------- ------
$ 3,673 $ 5,694
------- ------
------- ------
Supplemental disclosures of cash flow information:
Cash paid during the period for interest
(net of amount capitalized) $ 39 $ 42
------- -------
------- -------
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
6
<PAGE>
BF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Note A - Interim Financial Information
The accompanying consolidated financial statements of BF Enterprises, Inc.
(the "Company")and its subsidiaries have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission ("SEC") and, in
management's opinion, include all adjustments necessary for a fair presentation
for the interim period reported. Certain information and note disclosures
normally included in annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to SEC rules or regulations. It is suggested that these financial statements
be read in conjunction with the financial statements and the notes thereto
included in the Company's Form 10-KSB for the year ended December 31, 1997 and
in the Company's Form 10-Q for the quarterly period ended September 30, 1997.
Note B - New Accounting Pronouncement
In the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130).
SFAS 130 requires the reporting of income in a format that includes income from
operations added to unrealized gains or losses from investments in marketable
securities, which are accounted for as a separate component of stockholders'
equity. Comprehensive income has been presented in the accompanying
Consolidated Statements of Stockholders' Equity.
Note C - Earnings Per Share
In March 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128).
SFAS 128 requires the disclosure of basic earnings per share and modifies
existing guidance for computing fully diluted earnings per share. Under the
new standard, basic earnings per share is computed as earnings divided by
weighted average shares, excluding the dilutive effects of stock options and
other potentially dilutive securities. Diluted earnings per share give effect
to such dilutive securities. The Company adopted the disclosure requirements
7
<PAGE>
BF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
of SFAS 128 in the fourth quarter of 1997. Earnings per share data for the
periods reported have been computed as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $ 927 $ 783 $ 2,195 $ 2,344
------ ------ ------- -------
------ ------ ------- -------
Weighted average number of
shares outstanding:
Common stock 3,635 3,697 3,650 3,704
Common stock equivalents -
stock options (1) 395 402 404 372
------ ------ ------ ------
4,030 4,099 4,054 4,076
------ ------ ------ ------
------ ------ ------ ------
Net income per share:
Basic - based on weighted average
number of shares of common stock
outstanding $ .26 $ .21 $ .60 $ .63
------ ------ ------ ------
------ ------ ------ ------
Diluted - based on weighted average
number of shares of common stock
and common stock equivalents
outstanding $ .23 $ .19 $ .54 $ .57
------ ------ ------ ------
------ ------ ------ ------
<FN>
(1) Computation is based on the treasury stock method using the average
market price.
</FN>
</TABLE>
Note D - Real Estate Rental Property
Real estate rental property is an office building and 16 acres of land in Tempe,
Arizona. In 1995, the Company entered into a 10-year net lease with Bank One,
Arizona, NA, a subsidiary of Banc One Corporation. The lease provided for the
phased occupancy and rental of space by Bank One during 1995, with rental of the
8
<PAGE>
BF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
entire premises commencing January 1, 1996. AtDecember 31, 1997, contractual
rental revenues from the lease with Bank One are projected as follows:
1998 $ 1,707,200
1999 1,826,000
2000 1,848,000
2001 1,936,000
2002 1,953,600
2003 and after 4,285,600
On January 1, 1996, as required by generally accepted accounting principles, the
Company began amortizing on a straight-line basis (1) income from the new lease
with Bank One, resulting in annual real estate leasing income of $1,815,000 for
the period ending February 28, 2005, and (2) a related $423,000 lease
commission, with annual amortization expense of $46,000 over the same period.
Note E - Real Estate Inventory Held for Current Sale and Land
Held for Future Development
Real estate inventory held for current sale and land held for future development
consists primarily of approximately 450 acres in the Company's master-planned,
mixed use development known as Meadow Pointe near Tampa, Florida. The parcels
within this project are in various stages of development. Parcels on which the
Company has completed substantially all of its development activities are
considered to be held for current sale. Parcels on which development is not yet
complete are considered to be held for future development. These assets were
carried at a cost of $15,084,000 at September 30, 1998 and $13,529,000 at
December 31, 1997, which the Company believes was less than their fair value.
9
<PAGE>
BF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
It is the Company's policy to review and update its projections on the Meadow
Pointe project on a regular basis. Periodic cumulative adjustments to cost of
sales are made to reflect the results of these reviews. As a result, gross
margins and related percentages, derived on a period to period basis, may not
be directly comparable.
Note F - Stockholders' Equity
From time to time, the Company purchases shares of its common stock, primarily
in the open market. During the nine months ended September 30, 1998, the
Company purchased 50,400 shares of its common stock for an aggregate amount of
$413,000. During the nine months ended September 30, 1997, the Company
purchased 41,600 shares of its common stock for an aggregate amount of $284,000.
10
<PAGE>
Item 2. Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
Results of Operations
- ---------------------
Net income of $927,000 and $2,195,000, respectively, in the three months and
nine months ended September 30, 1998, included gains of $928,000 and $2,198,000
from sales of property within the Company's Meadow Pointe project near Tampa,
Florida. In the three months and nine months ended September 30, 1997, net
income was $783,000 and $2,344,000, respectively, and included gains of $663,000
and $2,081,000 from sales of Meadow Pointe property. The Company sold 246
developed residential lots at Meadow Pointe during the nine months ended
September 30, 1998, which represented an 11% increase from the same period
of 1997.
Meadow Pointe sales results for the nine months ended September 30, 1997
included aggregate revenue and cost of $274,000 and $166,000, respectively,
for a two-acre church site, a one-acre day care center site and a model home.
There were no such revenues or costs in the comparable 1998 period.
The Company's reported gains from property sales at Meadow Pointe are based in
part upon estimates of the total revenues and costs to be derived by the Company
over the life of the project. The Company periodically reviews these estimates
and makes cumulative adjustments to reflect any revised estimates. Property
sales at Meadow Pointe are dependent upon, among other things, the strength of
the general economy in the Tampa area, residential mortgage interest rates,
competitive residential developments serving the same group of home buyers and
other factors related to the local Tampa real estate market.
Interest and dividends from investments accounted for $47,000 and $159,000 of
revenues in the three months and nine months ended September 30, 1998,
respectively, and $78,000 and $215,000 in comparable periods in 1997. The
decline in investment revenue from 1997 was due to a reduction in the amount
of funds available for investment.
General and administrative expenses in the three months and nine months ended
September 30, 1998 were, respectively, $87,000 and $203,000 higher than in the
comparable periods in 1997, due principally to higher employee compensation and
benefits expenses and higher than anticipated legal fees.
11
<PAGE>
Liquidity and Capital Resources
- -------------------------------
At September 30, 1998, the Company held $4,370,000 in cash, cash equivalents and
marketable securities, as compared to $2,086,000 for all short-term and long-
term liabilities.
From time to time the Company purchases shares of its common stock, primarily in
the open market (see Note F of Notes to Financial Statements).
The Company has financed expenditures relating to the development of Meadow
Pointe primarily through the issuance of capital improvement revenue bonds by a
series of community development districts encompassing the project. During the
period February 1992 through September 1998, these districts issued
approximately $75,000,000 of capital improvement revenue bonds, including
$14,235,000 issued in September 1998. The company anticipates that any further
expenditures will be financed through the issuance of additional bonds by one
of these districts, cash generated from operations, and cash currently on hand.
The statements in this Report on Form 10-QSB regarding Meadow Pointe property
sales, financing of Meadow Pointe expenditures and any other statements which
are not historical facts are forward looking statements. Such statements
involve risks and uncertainties, including, but not limited to, competition,
general economic conditions, ability to manage and continue growth and other
factors detailed in the Company's filings with the Securities and Exchange
Commission. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual outcomes may vary
materially from those indicated.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
California Franchise Tax Board Litigation
-----------------------------------------
In February 1996, the Company's predecessor, on behalf of the
Company, filed a complaint against the California Franchise Tax
Board (the "FTB") for a refund of assessed income taxes and accrued
interest for the year ended December 31, 1981. The suit arises out
of the FTB's assessment for 1981 taxes, based on its contention
that a loss attributable to the 1981 acquisition by the Company's
predecessor of a warrant for the purchase of its common stock
should have been treated as a business deduction rather than a non-
business deduction. The Company appealed the FTB's assessment to
the California State Board of Equalization, which denied the appeal
in July 1994. In March 1995, the Company made payment to the FTB
of the assessment and accrued interest and filed a request for
refund in the full amount of that payment. The Company's request
for refund was denied and the action described above was filed.
On May 30, 1997, the Court granted the FTB's motion for summary
judgment. The Company appealed this judgment.
On September 21, 1998, the Court of Appeal reversed the ruling of
the trial court and held that the Company's predecessor was
properly entitled to deduct against its California Corporate
Franchise Tax, the non-business loss it had incurred. On October
16, 1998, the Petition of the FTB for Rehearing was denied. The
FTB's time to file a Petition for Review to the Supreme Court of
California has expired.
Meadow Pointe Litigation
------------------------
In March 1998, an action was commenced in the Pasco County, Florida
Circuit Court against a subsidiary of the Company and others
relating to the Meadow Pointe development. The Amended Complaint
alleges that certain individuals who purchased homes assumed that
a homeowners association had been established for the development.
Plaintiffs seek money damages from all defendants named in the
Amended Complaint, except for the Company's subsidiary. The only
relief sought against the Company's subsidiary is an injunction
compelling the subsidiary to operate and maintain architectural
control at Meadow Pointe.
13
<PAGE>
On July 2, 1998, the Court granted the subsidiary's motion to sever
and denied the subsidiary's motion to dismiss. Accordingly, on
July 13, 1998, plaintiffs filed a Severed Complaint against the
Company's subsidiary, which seeks injunctive relief and declaratory
relief, but no damages.
On October 16, 1998, the Court granted summary judgment in favor of
the Company's subsidiary on Count 1 of the Severed Complaint for
Declaratory Relief. The Court ruled that the recently established
voluntary homeowners association for Meadow Pointe, to which the
Company's subsidiary had assigned certain of its rights pursuant to
the Declarations of Restrictions recorded in the public records of
Pasco County, Florida, had standing to enforce said Declarations of
Restrictions. Plaintiffs have moved for reconsideration of the
Court's ruling, and that motion is currently pending. On November
3, 1998, the Company's subsidiary moved for summary judgment on the
remaining count for injunctive relief. The Company believes that
it has meritorious defenses to the claims made against its
subsidiary, and it intends to continue to vigorously contest the
action.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits: None
(b) Reports on Form 8-K
The registrant did not file any reports on Form 8-K during the
period covered by this report.
14
<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.
BF ENTERPRISES, INC.
(Registrant)
Date: November 12, 1998 /s/ Brian P. Burns
----------------------------
Brian P. Burns
Chairman of the Board, President
and Chief Executive Officer
(Duly Authorized Officer)
Date: November 12, 1998 /s/ S. Douglas Post
------------------------------
S. Douglas Post
Vice President, Controller, Treasurer,
Chief Accounting Officer and Assistant
Secretary
(Principal Accounting Officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Sep-30-1998
<CASH> 3,673
<SECURITIES> 697
<RECEIVABLES> 103
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 23,518
<CURRENT-LIABILITIES> 0
<BONDS> 719
0
0
<COMMON> 362
<OTHER-SE> 21,070
<TOTAL-LIABILITY-AND-EQUITY> 23,518
<SALES> 2,785
<TOTAL-REVENUES> 4,325
<CGS> 587
<TOTAL-COSTS> 587
<OTHER-EXPENSES> 1,504
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39
<INCOME-PRETAX> 2,195
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,195
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,195
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
