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 June 30, 1999, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to __________________
------------------------------------
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 July 30, 1999:
3,478,899 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 statements of financial position.....................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 ........................................10
PART II OTHER INFORMATION
Item 1. Legal Proceedings ................................................13
Item 6. Exhibits and Reports on Form 8-K .................................13
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BF ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 4,660 $ 3,347
Marketable securities 764 712
Receivables 248 74
Real estate rental property,
net of depreciation 2,242 2,267
Real estate inventory held for current sale
and land held for future development 15,824 16,005
Lease contract receivable 666 661
Deferred tax assets 138 95
Other assets 722 757
--- ---
TOTAL ASSETS $ 25,264 $ 23,918
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Payables and accrued liabilities $ 1,296 $ 1,441
Subordinated debentures, unmatured 714 719
--- ---
Total liabilities 2,010 2,160
----- -----
Stockholders' equity:
Common stock, $.10 par value
Authorized - 10,000,000 shares
Issued and outstanding -
3,511,949 and 3,578,599 shares 351 358
Capital surplus 15,217 15,887
Retained earnings 7,497 5,376
Other accumulated comprehensive income 189 137
--- ---
Total stockholders' equity 23,254 21,758
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 25,264 $ 23,918
======== ========
</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 Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Real estate sales $ 1,116 $ 969 $1,855 $1,619
Real estate rental income 460 460 921 921
Interest and dividends 54 56 100 112
Other 8 -- 40 --
---- ---- ---- ----
1,638 1,485 2,916 2,652
----- ----- ----- -----
Costs and Expenses:
Cost of real estate sold 251 199 436 349
Depreciation and amortization 24 25 48 49
Interest on subordinated debentures 13 12 25 25
General and administrative 461 506 942 961
--- --- --- ---
749 742 1,451 1,384
--- --- ----- -----
Income before income taxes 889 743 1,465 1,268
Benefit for income taxes -- -- (656) --
--- --- ---- ---
Net income $ 889 $ 743 $2,121 $1,268
===== ===== ====== ======
Net income per share:
Basic $ .25 $ .20 $ .60 $ .35
===== ===== ====== ======
Diluted $ .23 $ .18 $ .54 $ .31
===== ===== ====== ======
Average shares used in computing
basic net income per share 3,520 3,651 3,546 3,658
Average shares used in computing
diluted net income per share 3,882 4,058 3,926 4,067
</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>
Six Months Ended
June 30,
------------
1999 1998
---- ----
<S> <C> <C>
Common stock:
Beginning of period $ 358 $ 367
Purchases of common stock - par value (11) (2)
Exercise of stock options - par value 4 --
--- ---
End of period $ 351 $ 365
====== ======
Capital surplus:
Beginning of period $15,887 $16,614
Purchases of common stock - excess over par value (775) (202)
Exercise of stock options - excess over par value 105 --
--- ---
End of period $15,217 $16,412
======= =======
Retained earnings:
Beginning of period $ 5,376 $ 2,547
Net income 2,121 1,268
----- -----
End of period $ 7,497 $ 3,815
======= =======
Other accumulated comprehensive income:
Beginning of period $ 137 $ 64
Gain during period 52 84
-- --
End of period $ 189 $ 148
====== =======
Accumulated comprehensive income:
Beginning of period $ 5,513 $ 2,611
------- -------
Net income $ 2,121 $ 1,268
Unrealized gains from marketable
equity securities 52 84
-- --
Comprehensive income for period $ 2,173 $ 1,352
------- -------
End of period $ 7,686 $ 3,963
======= =======
</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>
Six Months Ended
June 30,
------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,121 $ 1,268
Adjustments to reconcile net income to net
cash provided by operating activities:
Gains from sales of real estate (1,419) (1,270)
Net cash proceeds from sales of real estate 1,188 924
Real estate development costs (1,300) (1,485)
Reimbursement of real estate development costs 1,712 337
Changes in certain assets and liabilities:
Decrease (increase) in receivables (174) 29
Increase in lease contract receivable (5) (11)
Increase (decrease) in payables and
accrued liabilities (41) 157
Other, net 17 (35)
-- ---
Total adjustments to net income (22) (1,354)
--- ------
Net cash provided by (used by) operating
activities 2,099 (86)
Cash flows from investing activities:
Purchases of marketable securities -- (359)
--- ----
Net cash used by investing activities -- (359)
Cash flows from financing activities:
Reductions in subordinated debentures (109) (88)
Purchases of the Company's common stock (786) (204)
Proceeds from exercise of stock options 109 --
--- ---
Net cash used by financing activities (786) (292)
---- ----
Net increase (decrease) in cash and cash equivalents 1,313 (737)
Cash and cash equivalents at beginning of period 3,347 4,038
----- -----
Cash and cash equivalents at end of period $ 4,660 $ 3,301
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for interest
(net of amount capitalized) $ 25 $ 25
======= =======
</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, 1998 and in the
Company's Form 10-Q for the quarterly period ended June 30, 1998.
Note B - Earnings Per Share
Earnings per share data for the periods reported have been computed as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $ 889 $ 743 $2,121 $1,268
===== ===== ====== ======
Weighted average number of
shares outstanding:
Common stock 3,520 3,651 3,546 3,658
Common stock equivalents -
stock options (1) 362 407 380 409
-- --- --- --- ---
3,882 4,058 3,926 4,067
===== ===== ===== =====
Net income per share:
Basic - based on weighted average
number of shares of common stock
outstanding $ .25 $ .20 $ .60 $ .35
====== ====== ====== ======
Diluted - based on weighted average
number of shares of common stock
and common stock equivalents
outstanding $ .23 $ .18 $ .54 $ .31
====== ====== ====== ======
</TABLE>
(1) Computation is based on the treasury stock method using the average
market price.
7
<PAGE>
BF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Note C - 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
entire premises commencing January 1, 1996. At December 31, 1998, contractual
rental revenues from the lease with Bank One are projected as follows:
1999 1,826,000
2000 1,848,000
2001 1,936,000
2002 1,953,600
2003 1,975,600
2004 and after 2,310,000
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 D - 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 397 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 $15,824,000 at June 30, 1999 and $16,005,000 at
December 31, 1998, which the Company believes was less than their fair value.
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.
8
<PAGE>
BF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Note E - Benefit for State Income Taxes
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 arose 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 amount the Company
paid to the FTB, after reimbursement by the Company's predecessor of the related
federal and state income tax benefits, was approximately $400,000. The
Company's request for refund was denied and the action described above was
filed. In May 1997, the Court granted the FTB's motion for summary judgement
and dismissed the Company's action. The Company filed an appeal of the judgement
with a California Court of Appeal. In late 1998, the Appellate Court
unanimously upheld the Company's position. The Appellate Court ordered
reimbursement to the Company of the entire amount originally paid to the FTB,
plus interest to the date of reimbursement.
Reimbursement of $926,000 was received from the FTB in April 1999. In the three
months ended March 31, 1999, the Company recorded a state income tax benefit of
$656,000, after deduction of related federal and state income taxes of $270,000
that are the liability of the Company's predecessor.
Note F - Stockholders' Equity
From time to time, the Company purchases shares of its common stock, primarily
in the open market. During the six months ended June 30, 1999, the Company
purchased 102,650 shares of its common stock for an aggregate amount of
$786,000. During the six months ended June 30, 1999, the Company purchased
24,400 shares of its common stock for an aggregate amount of $204,000.
In April 1999 an officer of the Company exercised options for the purchase of
36,000 shares of the Company's common stock. The Company received proceeds of
$109,000 from the exercise of these options.
9
<PAGE>
Item 2. Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations.
----------------------------------------------
Results of Operations
- ---------------------
Net income of $889,000 and $2,121,000 in the three months and six months ended
June 30, 1999, included gains of $865,000 and $1,419,000 from sales of property
within the Company's Meadow Pointe project near Tampa, Florida and, in the six
month period, included a $656,000 benefit for state income taxes deriving from
the Company's successful suit against the California Franchise Tax Board for
reimbursement of a 1981 assessment (see Note E of Notes to Financial
Statements). In the three months and six months ended June 30, 1998, net income
was $743,000 and $1,268,000 and included gains of $770,000 and $1,270,000,
respectively, from sales of Meadow Pointe property. The Company sold 224
developed residential lots at Meadow Pointe during the six months ended
June 30, 1999, and 146 lots in the same period of 1998. Construction activities
and sales were seriously hampered by heavy rains in the Tampa area during the
first half of the 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 $54,000 and $100,000 of
revenues in the three months and six months ended June 30, 1999, respectively,
and $56,000 and $112,000 in comparable periods in 1998. The decline in
investment revenue in the 1999 periods was due to lower interest rates.
General and administrative expenses in the three months and six months ended
June 30, 1999 were, respectively, $19,000 and $45,000 lower than in the
comparable periods in 1998, due principally to lower employee compensation
and benefits expenses.
Liquidity and Capital Resources
- -------------------------------
At June 30, 1999, the Company held $5,424,000 in cash, cash equivalents and
marketable securities, as compared to $2,010,000 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).
10
<PAGE>
The Company's business plan calls for substantial expenditures during the next
several years relating to the planned development of Meadow Pointe. During the
period February 1992 through September 1998, two community development districts
encompassing the Meadow Pointe project issued approximately $74.9 million of
capital improvement revenue bonds. The Company currently anticipates the need
for approximately $5 million of additional financing by one of the districts.
The proceeds of such financing have been and are expected to be used to
construct infrastructure improvements necessary for the development and sale of
residential lots, and multifamily and commercial parcels, in Meadow Pointe.
The Company intends to pay for its future expenditures at Meadow Pointe and its
other operating expenses (including those related to debenture payments) with
(i) cash generated from sales of property within Meadow Pointe and its other
operations, and (ii) cash and cash equivalents on hand. There can be no
assurance that the Company will generate sufficient cash or have sufficient
cash and cash equivalents on hand to cover such expenditures.
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.
Year 2000
- ---------
The Company utilizes a number of computer software programs in conducting its
business, primarily for financial and administrative purposes. The Company has
addressed the "Year 2000 Problem" by upgrading its internal systems to the
extent that the Company's software applications contain source code that is
able to appropriately interpret the upcoming year "2000" and beyond. The cost
of these upgrades was not material to the Company's financial position or
results of operations.
In addition, the Company is dependent to varying extents on the software
applications of certain organizations with and through which it conducts
business. The Company is in the process of identifying the extent of the Year
2000 problem which may exist within relevant outside organizations. The impact
of the Year 2000 problem on those organizations is not known, however,
management does not believe that impact will have a material adverse effect on
the Company's financial position or results of operations. In management's
opinion, the primary risk of a Year 2000 problem within its operations is a
possible slowdown in the processing of information needed to complete short-term
transactions. It is not believed that it would affect the time frame for
11
<PAGE>
completion of the Meadow Pointe project or the value of other Company assets.
The Company does not have a Year 2000 contingency plan as it does not believe
that a worst case scenario would have a material adverse effect on its financial
position or results of operations.
Qualitative and Quantitative Disclosures About Market Risk
- ----------------------------------------------------------
The Company holds certain cash equivalents and marketable securities for non-
trading purposes which are sensitive to changes in market value. In addition,
the Company has issued debt which is subject to floating rates of interest. The
Company does not believe that changes in the market value of these financial
instruments will have a material impact, either favorable or unfavorable, on its
financial position or results of operations. The Company has not in the past
engaged in transactions requiring the use of derivative financial instruments
either for hedging or speculative purposes, and has no plans to do so in the
future.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
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.
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 judgement 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. On November 3, 1998, the Company's subsidiary moved for
summary judgement on the remaining count for injunctive relief. The
Court denied that motion on December 7, 1998, but on December 14, 1998,
plaintiffs voluntarily dismissed the count for injunctive relief.
Certain plaintiffs then filed a notice of appeal on January 27, 1999
from the Court's October 16, 1998 Order. That appeal is currently
pending. 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.
The Company is not a party to any other pending legal proceedings
except routine litigation incidental to its business.
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.
13
<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: August 6, 1999 /s/ Brian P. Burns
------------------------
Brian P. Burns
Chairman of the Board, President
and Chief Executive Officer
(Duly Authorized Officer)
Date: August 6, 1999 /s/ S. Douglas Post
-------------------------
S. Douglas Post
Vice President, Controller, Treasurer,
Chief Accounting Officer and
Assistant Secretary
(Principal Accounting Officer)
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Jun-30-1998
<CASH> 4,660
<SECURITIES> 764
<RECEIVABLES> 248
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 25,264
<CURRENT-LIABILITIES> 0
<BONDS> 714
0
0
<COMMON> 351
<OTHER-SE> 22,903
<TOTAL-LIABILITY-AND-EQUITY> 25,264
<SALES> 1,855
<TOTAL-REVENUES> 2,916
<CGS> 436
<TOTAL-COSTS> 436
<OTHER-EXPENSES> 990
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25
<INCOME-PRETAX> 1,465
<INCOME-TAX> (656)
<INCOME-CONTINUING> 2,121
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,121
<EPS-BASIC> .54
<EPS-DILUTED> .54
</TABLE>
