<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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 1-9885
Legend Properties, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 36-3465359
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1420 Fifth Avenue, Suite 4200, Seattle, Washington 98101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (206) 464-0123
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. YES [x]. NO [ ].
Shares of common stock outstanding as of May 10, 1997: 6,290,874.
<PAGE> 2
LEGEND PROPERTIES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at
March 31, 1997 and December 31, 1996................. 3
Consolidated Statements of Operations for the
Three Months Ended March 31, 1997 and 1996........... 4
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1996........... 5
Notes to Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........ 10-14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................... 15
Item 6. Exhibits and reports of Form 8-K..................... 17
SIGNATURES ..................................................... 23
</TABLE>
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LEGEND PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Real estate inventory $101,593,828 $103,762,798
Assets held for sale 25,451,424 25,436,375
Cash and cash equivalents 1,152,597 1,529,898
Restricted cash and investments 20,498,951 22,491,305
Accounts and notes receivable 1,771,431 1,893,838
Receivables from related parties 1,765,114 1,987,481
Property and equipment, net 21,778,851 19,860,865
Intangible assets, net 2,278,899 2,325,406
Other assets, net 4,929,052 4,822,163
------------ -------------
$181,220,147 184,110,129
------------ ------------
Liabilities and Stockholders' Equity
------------------------------------
Notes payable to banks and others 84,353,269 86,700,617
Payables to related parties 50,899,336 47,609,097
Accounts payable 5,081,969 5,655,401
Other notes and liabilities 11,527,822 12,662,828
Minority interests 505,289 492,910
Stockholders' equity :
Common stock, $.01 par value. Authorized 100,000,000 shares;
issued 6,277,548 shares and outstanding 6,276,744 shares
62,776 62,776
Additional paid-in capital 43,772,331 43,793,708
Accumulated deficit (14,971,329) (12,855,892)
Treasury stock, 804 shares of common stock (11,316) (11,316)
------------ ------------
Total stockholders' equity 28,852,462 30,989,276
- -------------------------------------------------------------------------------------------------------------------
$181,220,147 184,110,129
===================================================================================================================
</TABLE>
See accompanying notes to the Consolidated Financial Statements and
management's discussion and analysis of financial condition and results of
operations.
<PAGE> 4
LEGEND PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------------------------------------------
Revenues:
<S> <C> <C>
Real estate sales $ 10,330,638 6,361,048
Club operations 2,073,849 1,872,342
Patient service 673,924 633,716
Rent 631,026 618,803
Other 275,984 124,906
------------- -----------
Total revenues 13,985,421 9,610,815
------------- -----------
Costs and expenses:
Real estate 7,723,662 4,731,122
Club operations 1,588,414 1,232,191
Patient service direct costs 356,235 325,781
Rental operations 99,413 91,721
Other 24,085 20,436
Selling, general and administrative 3,820,163 1,836,096
Depreciation and amortization 418,798 392,308
------------- -----------
Total costs and expenses 14,030,770 8,629,655
------------- -----------
Operating income (loss) (45,349) 981,160
------------- -----------
Other income (expense):
Interest income 473,840 119,392
Interest income, related party 36,068 36,569
Interest expense, including loan cost amortization (1,639,517) (1,203,784)
Interest expense, related party (1,118,268) (125,093)
Other, net 190,168 117,345
------------- -----------
Net other expense (2,057,709) (1,055,571)
------------- ------------
Loss before minority interests (2,103,058) (74,411)
Minority interests in losses (earnings) of consolidated (12,379) 33,676
subsidiaries
------------- -----------
Net loss $ (2,115,437) (40,735)
===========================
Net loss per share $ (.34) $ (.01)
============================
Weighted average number of common shares outstanding 6,276,744 4,386,986
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the Consolidated Financial Statements and
management's discussion and analysis of financial condition and results of
operations.
<PAGE> 5
LEGEND PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,115,437) (40,735)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 714,194 538,795
Related party interest expense not paid 1,055,070 -
Related party interest income not collected (36,067) -
Minority interests in earnings (losses) 12,379 (34,142)
Change in certain assets and liabilities, net of effect of
acquisitions:
Decrease (increase) in real estate inventory 2,168,970 (149,914)
Increase in accounts and notes receivable and
other assets (300,771) (641,672)
Decrease in accounts payable and other notes
and liabilities (1,708,438) (723,435)
--------------- -------------
Net cash used in operating
activities (210,100) (1,051,103)
--------------- -------------
Cash flows from investing activities:
Decrease (increase) in restricted cash and investments 1,992,354 (895,316)
Purchase of property and equipment (2,284,433) (1,450,987)
Loans to related parties (20,000) -
Collection of loans to related parties 278,434 546,834
Investments and acquisitions, net of cash acquired - 104,540
--------------- -------------
Net cash used in investing activities (33,645) (1,694,929)
--------------- -------------
Cash flows from financing activities:
Proceeds from notes payable to bank and others 16,297,173 4,528,963
Repayment of notes payable to bank and others (18,644,521) (4,446,801)
Proceeds from loans from related parties 2,235,169 6,230,989
Repayment of contract payable - (1,500,000)
Purchase of fractional shares (21,377) -
--------------- -----------
Net cash provided by (used in) (133,556) 4,813,151
financing activities
--------------- -----------
Net increase (decrease) in cash (377,301) 2,067,119
and cash equivalents
Cash and cash equivalents at beginning of period 1,529,898 578,906
--------------- -----------
Cash and cash equivalents at end of period $ 1,152,597 2,646,025
--------------- -----------
Non cash financing activity - contribution to equity of notes
and interest payable from stockholder, net of receivable - 21,663,015
==================================================================================================================
</TABLE>
See accompanying notes to the Consolidated Financial Statements and
management's discussion and analysis of financial condition and results of
operations.
<PAGE> 6
LEGEND PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
1. BASIS OF PRESENTATION
Legend Properties, Inc. formerly known as Banyan Mortgage Investment Fund
(Banyan) is the surviving corporation from the December 31, 1996 merger (the
Merger) with RGI U.S. Holdings (RGI/US) (see note 2).
For financial reporting purposes, the Merger was treated as a recapitalization
of RGI/US, with RGI/US as the acquiror of Banyan; which changed its name to
Legend Properties, Inc. upon the effectiveness of the Merger. Therefore, as of
December 31, 1996, the historical consolidated financial statements of Legend
Properties, Inc. are those of RGI/US. Prior to the Merger, RGI/US was a
wholly-owned subsidiary of RGI Holdings, Inc. (Holdings). As of March 31, 1997,
Holdings owns approximately 79% of the outstanding common shares of Legend
Properties, Inc.
The consolidated financial statements include the accounts of Legend Properties,
Inc. and its subsidiaries (Legend or the Company). In the opinion of management,
the accompanying unaudited consolidated financial statements contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows for
the periods presented. Certain financial statement items from the prior year
have been reclassified to be consistent with the current year financial
statement presentation. All significant intercompany accounts and transactions
have been eliminated in consolidation.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements and the related disclosures contained in the
Company's Annual Report on Form 10-K/A for the year ended December 31, 1996,
filed with the Securities and Exchange Commission.
The results of operations for the three months ended March 31, 1997 are not
necessarily indicative of the results to be expected for the full fiscal year.
2. ACQUISITION OF BANYAN
Effective December 31, 1996, RGI/US was merged with and into Banyan. Banyan's
certificate of incorporation was amended to convert each twenty-five shares of
Banyan's issued and outstanding common stock into one issued and outstanding
share (Reverse Split). Additionally, the name of Banyan was changed to Legend
Properties, Inc. After giving effect to the Reserve Split, all outstanding
shares of RGI/US were converted into 4,386,986 shares of Banyan's common stock.
<PAGE> 7
LEGEND PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
For accounting purposes, the merger was treated as a recapitalization of RGI/US,
with RGI/US as the acquiror of Banyan.
The purchase price of Banyan by RGI/US was calculated as follows:
<TABLE>
<S> <C>
Banyan common shares outstanding at December 31, 1996 47,307,527
Fair market value per share on or about April 12, 1996 $.46875
-------
Purchase price $22,175,403
===========
</TABLE>
The business combination was accounted for under the purchase method of
accounting, wherein the purchase price was allocated to the assets acquired and
liabilities assumed based upon their relative fair values. Results of operations
of this acquired company have been included in the consolidated financial
statements from the acquisition date.
The purchase price related to the acquisition was allocated as follows:
<TABLE>
<S> <C>
Real estate inventory $50,835,299
Assets held for sale 7,991,701
Cash 477,000
Other 2,215,000
-----------
Fair value of assets acquired 61,519,000
Less liabilities 39,344,000
-----------
$22,175,000
===========
</TABLE>
The allocation of the purchase price is preliminary, and is based upon fair
values that were determinable, and estimates of fair values that were not yet
determinable. In particular, the values assigned to real estate inventory were
based upon appraisals and discounted estimated future cash flows, when
appraisals were not available. The calculated fair values of the real estate
inventory were adjusted downward on a pro rata basis to arrive at the
"allocated" fair value of real estate inventory. Finalization of the appraisals
will likely result in adjustments to the allocation of the purchase price to the
net assets acquired. In addition, the final settlement of the litigation
described in note 4 may result in the assumption of additional liabilities by
Legend, thereby resulting in adjustments to the allocation of the purchase
price.
3. BORROWINGS FROM AFFILIATES
Defaults
As of December 31, 1996, mortgage notes payable to Holdings with outstanding
principal balances totaling $30,649,872 (the Loans) were in default. On April
15, 1997, Legend announced that it had signed a stipulation and settlement
agreement to resolve various lawsuits filed against the Company in Delaware
State Court ("Delaware Litigation") (Note 4). The Agreement is subject to, among
other things, final court approval. A final hearing is scheduled for June 19,
1997. As part of this settlement, Holdings has agreed to, among other things,
(i) defer interest due on the Loans until December 31, 1997; (ii) forebear on
any defaults existing on the Loans as of the effective date of the settlement
until December 31, 1997; and (iii) effective January 1, 1997, reduce the
interest rate on the Loans to the lower of the prime rate plus 2% (10.25% at
January 1, 1997) or LIBOR plus 2.5% (8.1% at January 1, 1997). Until the
settlement is approved by the court and becomes effective, management does not
expect to be able to satisfactorily restructure or refinance the Loans.
If and when the settlement is approved, management expects to enter into
discussions with Holdings and/or other third party lenders to restructure or
refinance the Loans.
<PAGE> 8
LEGEND PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
From January 1 to March 31, 1997, Legend had short-term borrowings from Holdings
of approximately $2.2 million. In conjunction with the announcement of the
settlement of the Delaware Litigation (See Note 4 "Delaware Litigation"),
Holdings agreed to, among other things, provide Legend with a line of credit in
the aggregate principal amount of $8.5 million, bearing interest at the prime
rate plus 2% (10.5% at March 31, 1997). Draws on the $8.5 million line of credit
mature on December 31, 1997, and are secured by a second mortgage on certain
real estate inventory. Through May 10 1997, Legend had borrowed approximately
$7.6 million under the credit line. The proceeds were used to, among other
things, pay an unsecured note payable to Holdings, with a principal balance of
$400,000, repay the $2.2 million borrowed during the first quarter of 1997, and
pay the accrued interest on the above loans. The remaining proceeds were (will
be) used to fund outstanding merger costs, costs associated with the settlement
of the lawsuits, and development, construction and operating costs associated
with the properties.
4. CONTINGENCIES AND LITIGATION
Legend has significant indebtedness maturing in 1997 and will not be able to
satisfy these obligations without restructuring or refinancing. However, due to
the uncertainty related to the litigation described in this note, Legend is
unable to satisfactorily negotiate such transactions. Management believes that
if the litigation is satisfactorily resolved in the near term, Legend's debt can
be refinanced or restructured to enable its obligations to be met.
On October 31, 1996, a lawsuit was filed in Delaware State court by two of
Banyan's stockholders on behalf of themselves and all of the non-defendant
stockholders of Banyan, against Legend and certain of its directors and
officers.
The plaintiffs have alleged, among other things, that Banyan's board of
directors breached its fiduciary duties by failing to seek alternative change of
control transactions, other than the merger with RGI/US, or appropriately
evaluate the alternative of liquidating Banyan. Plaintiffs further alleged that
the merger unfairly diluted the voting and equity interests of Banyan's
stockholders since Holdings, the parent of RGI/US, ended up owning approximately
79% of Banyan's common stock. In addition, the plaintiffs alleged that the proxy
statement circulated by Banyan in connection with the annual meeting held to
consider and vote upon the merger was misleading and failed to disclose certain
material information. Among other remedies, the plaintiffs sought to enjoin the
merger and require the defendants to undertake additional activities to maximize
stockholder value and disclose certain additional information to Banyan's
stockholders in connection with considering the merger.
On November 13, 1996, another Banyan stockholder filed an action asserting
allegations substantially similar to those in the action filed on October 31.
These two suits were ultimately consolidated by the Delaware Court of Chancery
on December 11, 1996 under the case number C.A. No. 15287. The parties
subsequently engaged in discovery, including producing and reviewing documents
and taking depositions of certain of Banyan's former officers, as well as that
of one of Banyan's directors. Plaintiff filed a motion for preliminary
injunction and an opening brief in support of that motion on November 15, 1996.
On December 24, 1996, the plaintiffs served and filed a consolidated amended and
supplemental complaint repeating the allegations made in the initial complaint
and adding additional factual allegations that Banyan had failed to properly
consider acquisition proposals submitted by third parties to acquire Banyan. The
amended complaint also claimed that purchases made by Holdings during December
of shares of Banyan's common stock from third parties constituted unlawful vote
buying. Certain of the plaintiffs in the Delaware action then filed an
individual action in Federal court in New York against RGI/US, Holdings and
Legend's president, Kenneth L. Uptain, alleging, among other things, that these
purchases constituted an illegal tender offer (New York Action).
On January 8, 1997, the plaintiffs filed an application pursuant to Section
225(b) of the General Corporation Laws of the State of Delaware seeking judicial
review of the certified vote on the merger. Plaintiffs contended that: (i) the
merger was approved by fewer than 210,000 votes; (ii) many shareholders had
sought to revoke proxies previously cast in favor of the merger; and (iii)
Banyan had announced varying results of the vote. The plaintiffs sought an
expedited hearing on the Section 225 application. The Delaware Court
subsequently scheduled a hearing on the plaintiffs' application for relief under
Section 225 for March 4, 1997. The parties engaged in discovery incident to that
application, including a review of documents obtained from the independent
inspector of election for the annual meeting, as well as other third parties and
taking depositions of certain of the plaintiffs' class representatives. The
hearing scheduled for March 4, 1997 was subsequently postponed without date at
the direction of the Delaware court. In the interim, the parties entered into
discussions with a view towards finding a mutually agreeable basis for resolving
the litigation.
On April 15, 1997, Legend announced that it had reached a stipulation and
settlement agreement to settle this lawsuit. As part of this settlement,
Holdings has agreed to, among other things, (i) defer interest due on the
Morgens and SoGen loans (the Loans) until December 31, 1997; (ii) forebear on
any defaults existing on the Loans as of the effective date of the settlement
until December 31, 1997; (iii) effective January 1, 1997, reduce the interest
rate on the Loans to the lower of the prime rate plus 2% (10.25% at January 1,
1997) or LIBOR plus 2.5% (8.1% at January 1, 1997); (iv) provide Legend with a
line of credit in the aggregate principal amount of $8.5 million, a portion of
which will be utilized to repay Holdings for advances previously made to Legend;
and (v) repurchase up to $300,000 of Legend's shares of common stock from time
to time on the open market over the next twelve months subject to compliance
with the SEC's rules and regulations relating to open market repurchase
programs.
The judge to which this matter has been assigned in the Delaware Chancery Court
has not raised any objections to the settlement agreement and has signed an
order scheduling a final hearing on the matter for June 19, 1997. The parties
to the lawsuit are in the process of sending notice to all of the class members
of this settlement. As part of the settlement, the plaintiffs filed a second
consolidated and amended supplemental complaint repeating the allegations
contained in their previous complaints and adding claims underlying their
application pursuant to Section 225 of the General Corporation Law of the State
of Delaware. In addition, the amended complaint added Holdings and RGI/US as
defendants. All of the defendants have answered this complaint denying all of
the allegations.
Contemporaneously with and in conjunction with the resolution of this Delaware
litigation, the plaintiffs, as well as the defendants in the New York action,
have agreed to settle and dismiss the matter. As part of this settlement,
Holdings has agreed to purchase all of the shares owned by John Hinson, John
Temple and Gary Goldberg, the named plaintiffs in the Delaware lawsuits, for
$13.25 per share ($0.53 prior to the reverse split). In return, Messrs. Hinson,
Temple and Goldberg have agreed not to purchase or otherwise acquire any of
Legend's securities until April 2002, or until such time as Holdings no longer
owns 25% or more of Legend's equity, whichever occurs first.
Illinois Litigation
On September 1, 1995, an action was filed in the Circuit Court of Cook County,
Illinois entitled: Monterey County Partners et al v. BMIF Monterey County
Limited Partnership et al; 95 CH 8456 (Illinois Litigation). The plaintiffs in
the Illinois Litigation were as follows: (a) Monterey County Partners, a
partnership which itself was a partner of Banyan's subsidiary, BMIF Monterey
County Corp., a partnership known as BMIF Monterey County Limited Partnership
(Ownership Partnership), which is the entity that owned the Laguna Seca project;
(b) Investors Liquidating Trust, a Delaware Trust which has been alleged to own
(i) 100% of the common stock of VMS Laguna Seca, Inc., the 1% general partner of
VMS Laguna Seca Limited Partnership, which is an alleged 90% partner in Monterey
County Partners; and (ii) the 99% limited partnership interest in VMS Laguna
Seca Limited Partnership; and (c) VMTGZ Mortgage Investors, L.P. II, the
principal beneficiary of Investors' Liquidating Trust.
Named in the case as defendants, in addition to the Ownership Partnership
and BMIF Monterey County Corp. were: (a) Leonard G. Levine, former President of
Banyan and (b) Banyan Management Corp., the company which provided
administrative services to Banyan pursuant to an Administrative Services
Agreement (as amended). Mr. Levine and Banyan Management Corp. were subsequently
dismissed from this litigation, but were later rejoined by a Third Amendment
Complaint.
The original complaint sought: (i) the removal of BMIF Monterey County Corp. as
the general partner of the Ownership Partnership (BMIF Monterey County Limited
Partnership) and the replacement with Kimball Small Residential Properties,
Inc., a partner in Monterey County Partners as the new general partner; (ii)
declaratory relief that BMIF Monterey County Corp. was not entitled to any
"priority return" or "preferred return" on its capital account in the Ownership
Partnership; (iii) avoidance of an alleged fraudulent transfer whereby the
Ownership Partnership became the owner of the project after the default in 1991
on Banyan's former mortgage loan to Monterey county Partners upon which Banyan
had initiated foreclosure proceeds which culminated in the execution of the
Ownership Partnership agreement; and the creation of a capital account in an
amount not less than approximately $4,800,000 in favor of Monterey County
Partners; (iv) an accounting; and (v) a constructive trust to be created for the
benefit of one of the plaintiffs. Numerous counts of the plaintiff's complaint
and various theories of recovery were stricken on Banyan's motions after which
the matter proceeded to trial on January 13, 1997 (see below).
On October 10, 1995, a companion action was filed in the Superior Court of
Monterey County, California entitled: Monterey County Partners, et al. v. BMIF
Monterey County Limited Partnership, et al; Case No. 105280 (California
Litigation).
The plaintiff entity, which was a partner with Banyan's subsidiary, BMIF
Monterey County Corp., in the limited partnership known as BMIF Monterey
County Limited Partnership, which owns the Laguna Seca Ranch property (Ownership
Partnership) filed suit in its own name and derivatively on behalf of the
Ownership Partnership against the Ownership Partnership and each of the
participant entities in the Morgens Loan (Morgens defendants), which loan is
partially guaranteed by the Ownership Partnership, which partial guaranty is
collateralized by a deed of trust recorded against the Laguna Seca Ranch
property.
The California Litigation alleged fraudulent transfer and conspiracy and sought
the following as remedies: (i) to set aside the Deed of Trust and the
obligations of the Ownership Partnership under the Morgens Loan guaranty; (ii)
to quiet title to the Laguna Seca Ranch project, declaring null and void the
interest of Morgens under the Deed of Trust; and (iii) an award of attorneys'
fees and costs. After a variety of motions, the California Court set a status
hearing in the California Litigation for January 31, 1997 in an effort to award
the results of the trial in the Illinois Litigation.
Trial in the Illinois Litigation commenced on January 13, 1997. After four days
of testimony, the parties commenced settlement negotiations, and on January 21,
1997 all parties to the Illinois Litigation and the California Litigation
executed and delivered an Omnibus Settlement Agreement pursuant to which, among
other things: (i) the California Litigation and the Illinois Litigation were
dismissed with prejudice, (ii) all parties executed and delivered mutual
releases; (iii) Legend paid to the plaintiffs the sum of $200,000; (iv) the
Morgens defendants paid the sum of $50,000 to the plaintiffs; (v) Limited
partnership interests held by the plaintiffs in Legend's Laguna Seca Ranch,
Chapman's Landing and Southbridge/Wayside properties were assigned and conveyed
to subsidiaries of Legend; and (vi) certain ancillary litigation among some of
the parties was settled and dismissed.
The execution and delivery of the aforesaid Omnibus Settlement Agreement allows
Legend to enjoy 100% ownership of the Laguna Seca Ranch, Chapman's Landing and
Southbridge/Wayside Village properties without minority interests and is
expected to facilitate financing or other strategic alternatives with respect to
these projects.
<PAGE> 9
LEGEND PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
5. SUBSEQUENT EVENTS
In April 1997, the Company's board of directors authorized Legend to acquire up
to $300,000 of the Company's common stock on the open market from time to time
over the next 12 months, subject to compliance with the SEC's rules and
regulations relating to open market repurchase programs. On April 30, 1997,
Holdings purchased 34,130 shares of Legend common stock from the Company at a
per share price of $11.72, or $400,004. On or about May 1, 1997, the Company
purchased 20,000 shares of Legend common stock from an unrelated third party for
$5.50 per share, or $110,000.
6. NEW ACCOUNTING PRONOUNCEMENT
In the first quarter of 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share." This statement specifies the computation, presentation, and disclosure
requirements for earnings per share. SFAS No. 128 is designed to improve the
earnings per share information provided in financial statements by simplifying
the existing computational guidelines, revising the disclosure requirements and
increasing the comparability of earnings per share data. SFAS No. 128 is
effective for financial statements for periods ending after December 15, 1997,
including interim periods, and earlier adoption is not permitted. When adopted,
the Company will be required to restate its earnings per share data for all
prior periods presented. In the opinion of management, the adoption of SFAS No.
128 will not have a material effect on the Company's calculation of earnings
per share.
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Certain statements in this quarterly report that are not historical fact
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Without limiting the foregoing, words
such as "anticipates," "expects," "intends," "plans" and similar expressions are
intended to identify forward-looking statements. These statements are subject to
a number of risks and uncertainties. For a discussion of the factors affecting
the company's business plan, see the company's 1996 Annual Report on Form
10-K--management's discussion and analysis--"factors affecting Legend's business
plan." Actual results could differ materially from those projected in the
forward-looking statements. The company undertakes no obligation to update these
forward-looking statements to reflect future events or circumstances.
Legend Properties, Inc., formerly known as Banyan Mortgage Investment Fund
(Banyan), is the surviving corporation from the December 31, 1996 merger (the
Merger) with RGI U.S. Holdings (RGI/US).
For financial reporting purposes, the Merger was treated as a recapitalization
of RGI/US, with RGI/US as the acquiror of Banyan. As of December 31, 1996, the
historical consolidated financial statements of RGI/US became those of Legend
Properties, Inc.
RGI/US owned, operated and developed real estate through its wholly-owned
subsidiaries, American Property Investments, Inc. (API) and Grand Harbor
Associates, Inc. (GHA). API owns a 164,724 square foot shopping center located
in Lynnwood, Washington (the Lynnwood Center). RGI/US listed the Lynnwood Center
for sale during 1996. GHA owns a 90% interest in Grand Harbor Property Holdings,
Inc. (GHPH) , Oak Harbor Property Holdings Inc. and Quality Life Services, L.P.
(collectively OHPH), entities that own: (i) Grand Harbor, a 772-acre residential
golf community development project located in Vero Beach, Florida; (ii) Oak
Harbor, a 116-acre, adult retirement community also located in Vero Beach,
Florida; and (iii) the Royal Palm Convalescent Center, a skilled nursing center
licensed for 72 beds and located in Vero Beach, Florida in close proximity to
Oak Harbor.
During 1996, operating results primarily consisted of the operations of Grand
Harbor, Oak Harbor and the Lynnwood Center. Operating results for the first
quarter ended March 31, 1997 also include the operations of the
Southbridge/Wayside Village, Chapman's Landing and Laguna Seca Ranch projects
owned by Banyan (now Legend). Currently, Legend intends to focus on continuing
the development of infrastructure, amenities and residential units at Grand
Harbor and Oak Harbor consistent with approved zoning and development plans.
Additionally, Legend intends to develop and sell land parcels at
Southbridge/Wayside Village and Chapman's Landing. The Company's ability to
fully implement its business plan is dependent on, among other things, the
Company securing satisfactory construction financing related to certain
developments. In connection with Legend's current plan to focus on these land
and residential developments, Legend is marketing the Lynnwood Center and Laguna
Seca Ranch properties for sale, and anticipates selling them by December 31,
1997.
The cash flow for each of Legend's projects can differ substantially from
reported earnings, depending on the status of the development cycle. The initial
years of development require significant cash outlays for, among other things,
land acquisition, obtaining zoning and other approvals, construction of
amenities (including golf courses and club houses and recreation centers), model
homes, sales and administrative facilities, major roads, utilities, general
landscaping and interest. Since these initial costs are generally capitalized,
this can result in income reported for financial statement purposes during the
initial years significantly exceeding cash flow. However, after the initial
years of development, when these expenditures are made, cash flow can
significantly exceed earnings reported for financial statement purposes, as
costs and expenses include charges for substantial amounts of previously
expended and capitalized costs.
LIQUIDITY AND CAPITAL RESOURCES
Legend's cash and cash equivalents balance at March 31, 1997, and December 31,
1996, was $1,152,597 and $1,529,898, respectively. The decrease in the first
quarter of 1997 is attributable to cash utilized in operating, investing and
financing activities of $210,100, $33,645 and $133,556, respectively.
Cash Flows from Operating Activities: For the quarter ended March 31, 1997,
Legend utilized cash in operating activities of $210,100, compared to $1,051,103
for the quarter ended March 31, 1996.
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Cash utilized in operations in the quarter ended March 31, 1997 was primarily
due to the following:
o Net losses of $2,115,437 for the quarter ended March 31, 1997, due
primarily to the Southbridge, Chapman's Landing and Laguna Seca Ranch
developments. Due to delays caused during the Merger proceedings and
by the litigation discussed below, Legend was unable to start
development and construction activities at the Southbridge and
Chapman's Landing properties as early as originally anticipated, and
the Company was unable to close on any lot sales at these
developments during the first quarter of 1997;
o An increase in other assets of $300,771 and a decrease in other
liabilities of $1,708,438 for the quarter ended March 31, 1997. These
increases and decreases were generally due to the timing of the
payment of certain liabilities, including advances from customers, and
prepaid expenses, and can vary significantly from period to period
depending on the status of the development cycle for each of Legend's
properties. Due to the nature of Legend's business, significant
fluctuations in operating assets and liabilities are not considered
unusual;
o Construction and development costs incurred at Grand Harbor and Oak
Harbor of $5,554,692 for the quarter ended March 31, 1997. During the
period, Oak Harbor completed the construction of a 24 unit condominium
building and Grand Harbor introduced three new product types.
Partially offset by the following:
o Costs of real estate sales at Grand Harbor and Oak Harbor $7,723,662
for the first quarter of 1997, due to sales of 12 units and 16 units
at Grand Harbor and Oak Harbor, respectively. During the first quarter
of 1996, 17 residential units at Grand Harbor were sold, however the
sale of units at Oak Harbor did not begin until October 1996;
o Related party interest expense of $1,055,070 was not paid during the
quarter ended March 31, 1997. Legend has significant borrowings from
related parties, primarily RGI Holdings, Inc. (Holdings). As of
December 31, 1996, and during the first quarter of 1997, certain of
Legend's loans from Holdings were in default and interest payments on
these and other payables to Holdings were not made. During the first
quarter of 1996, Holdings contributed 21,663,015 of notes and interest
payable, net of receivables, to equity. As a result, there were no
significant outstanding borrowings from related parties at March 31,
1996;
o Depreciation and amortization expense was $714,194, related primarily
to Grand Harbor and Oak Harbor. As of June 30, 1996, management
decided to dispose of the Lynnwood Center and discontinued recording
depreciation on the Lynwood Center assets.
Cash Flows From Investing Activities: During the first quarter of 1997 Legend
utilized cash flow in investing activities of $33,645 compared to $1,694,929 in
the comparable quarter of 1996. The amount of cash flow utilized in investing
activities for the first quarter of 1997 was primarily due to Legend purchasing
$2,284,433 of property and equipment partially offset by the release of
restricted cash and investments of $1,992,354 during 1997. The additions to
property and equipment occurred primarily at Oak Harbor, and substantially
represented the construction of the Assisted Care Living Facility (ACLF). The
ACLF is anticipated to be completed during the third quarter of 1997. At
December 31, 1996, Legend had, among other things, restricted cash deposited
with a lender for the construction of the ACLF. As construction occurred on the
ACLF during the first quarter of 1997, the lender released certain of these
restricted amounts to Oak Harbor to fund the construction. In addition, net
customer deposits previously received for the rental and sale of real estate
were released to Grand Harbor and Oak Harbor. In addition, Legend collected
$278,434 of loans to related parties.
Cash Flows from Financing Activities: During the quarter ended March 31, 1997,
Legend utilized cash flow in financing activities of $133,556 compared to cash
flow generated in financing activities of $4,813,151 for the comparable quarter
of 1996. The 1997 amount was primarily due to proceeds from $18,532,342 on
borrowings ($2,235,169 from a related party), offset by repayments of
$18,644,521. Additionally, during the first quarter of 1997, Legend paid $21,377
to purchase fractional shares which resulted from the December 31, 1996 reverse
stock split.
During the three months ended March 31, 1997, Legend borrowed $2,235,169 from
Holdings and used the proceeds to fund operating costs and costs associated with
the Merger and various lawsuits. In April of 1997, Holdings agreed to, among
other things, provide Legend with a line of credit in the aggregate principal
amount of $8.5 million. Through May 10, 1997, Legend borrowed approximately $7.6
million under the line of credit, a portion of which was utilized to repay
Holdings for the abovementioned advances. The remaining borrowings were used
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
primarily to fund construction, development and operating costs as well as costs
associated with the Merger and litigation filed against the Company.
The Company borrowed an additional $16,297,173 ($2,910,704 at Grand Harbor and
$13,386,469 at Oak Harbor), which was used primarily to "refinance" existing
construction and development revolving loans, and to fund certain construction
and development costs. Repayments of $18,644,521 were primarily at Grand Harbor
($13,429,423) and Oak Harbor ($5,174,508), and were made from funds generated
through the preceding refinancings and through sales of residential units and
club memberships.
In April 1997, the Company's board of directors authorized Legend to acquire up
to $300,000 of the company's common stock on the open market from time to time
over the next 12 months, subject to compliance with the SEC's rules and
regulations relating to open market repurchase programs. On April 30, 1997,
Holdings purchased 34,130 shares on Legend common stock from the Company at a
share price of $11.72, or $400,004. On or about May 1, 1997, the Company
purchased 20,000 shares of Legend common stock from an unrelated third party
for $5.50 per share, or $110,000.
Historically, Legend has used internally generated funds, third party borrowings
and funds from Holdings and affiliated entities for construction and development
purposes. The business plan of Legend contemplates the continued development of
Southbridge/Wayside Village, Grand Harbor and Oak Harbor and the initiation of
development activities at the Chapman's Landing project.
Legend's business plan for Southbridge/Wayside Village, Chapman's Landing, Grand
Harbor and Oak Harbor contemplates development expenses during the year ended
December 31, 1997 of approximately $34 million. Legend has obtained
approximately $20 million of construction financing for Grand Harbor and Oak
Harbor, and anticipates obtaining construction financing of approximately $11
million for Southbridge/Wayside Village and Chapman's Landing. Legend
anticipates that the additional $3 million needed to fund development expenses
will be generated through the sale of the Lynnwood Center and Laguna Seca Ranch
properties, by operations and/or partially funded with proceeds from the $8.5
million line of credit provided by Holdings. The Company's ability to fully
implement its business plan is dependent upon, among other things, the Company
securing satisfactory construction financing related to certain developments.
Management of Legend recognizes that its remaining cash and cash equivalents at
March 31, 1997 will not be sufficient to implement and complete its current
business plan for each of the properties. In addition to the $8.5 million
funding from Holdings, Legend is marketing the Laguna Seca Ranch and the
Lynnwood Center properties for sale in order to provide the Company additional
funding for its planned development activities.
On April 15, 1997, Legend announced that it had signed a stipulation and
settlement agreement to resolve various lawsuits filed against the Company. The
agreement is subject to, among other things, final court approval. A final
hearing is scheduled for June 19, 1997. Until the settlement is approved by the
court and becomes effective, management does not expect to be able to
satisfactorily restructure or refinance certain of its existing debt obligations
that mature on December 31, 1997 and in 1998. If and when the settlement is
approved, management expects to enter into discussions with Holdings and/or
other third party lenders to restructure or refinance certain of its existing
debt obligations which mature on December 31, 1997 and during 1998. The
Company's ability to meet its cash flow needs is dependent upon its success in
obtaining construction financing at its development properties, as well as its
ability to restructure or refinance certain of its existing debt obligations.
Legend's independent auditors in their report dated April 15, 1997, stated that
they were unable to express, and did not express, an opinion on Legend's 1996
consolidated financial statements (the Disclaimer of Opinion). This inability
was caused by uncertainties regarding the finalization of a settlement of a
class action lawsuit. The Independent Auditors' Report states that "Because of
the significance of the uncertainties regarding the lawsuit discussed in the
preceding paragraph, we are unable to express, and we do not express, an
opinion on the 1996 consolidated financial statements". In the opinion of
management of Legend, the underlying reason for the failure of KPMG Peat Marwick
LLP, Legend's independent auditors, to render an opinion on Legend's 1996
consolidated financial statements, as disclosed in the Disclaimer of Opinion, is
the uncertainty surrounding the finalization of a settlement of the class action
lawsuit.
Additionally, the Independent Auditors' Report states that "Legend Properties,
Inc. has substantial indebtedness maturing in 1997 and does not have sufficient
resources to satisfy these obligations without restructuring or refinancing
certain of this indebtedness. These matters raise substantial doubt about the
ability of Legend Properties, Inc. to continue as a going concern".
Management of Legend also believes that once the settlement of the lawsuit is
approved and becomes effective, they will be able to satisfactorily restructure
of refinance certain indebtedness maturing in 1997 and 1998.
Upon satisfactory resolution of the lawsuits the underlying basis for the
Disclaimer of Opinion will have been eliminated.
RESULTS OF OPERATIONS
1997 compared with 1996
Results of operations for the three months ended March 31, 1997, include the
expenses of Southbridge/Wayside Village, Chapman's Landing and Laguna Seca
Ranch, whereas the results of operations for 1996 do not contain these results.
As a result, Legend believes that its consolidated statement of operations for
the three months ended March 31, 1997, are not comparable with its consolidated
statement of operations for the three months ended March 31, 1996. To allow for
comparability of period-to-period variances, the results of operations for the
three months ended March 31, 1997, are compared to unaudited pro forma results
of operations for the three months ended March 31, 1996 ("Pro Forma 1996"). The
Pro Forma 1996 information has been prepared as if the acquisition of Banyan had
been made on January 1, 1996.
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Proforma
for the three months ended March 31, 1997 March 31, 1996
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Real estate sales $ 10,330,638 6,361,048
Club operations 2,073,849 1,872,342
Patient service 673,924 633,716
Rent 631,026 824,362
Other 275,984 124,906
-------------- -----------
Total revenues 13,985,421 9,816,374
-------------- -----------
Costs and expenses:
Real estate 7,723,662 4,731,122
Club operations 1,588,414 1,232,191
Patient service direct costs 356,235 325,781
Rental operations 99,413 321,126
Other 24,085 20,436
Selling, general and administrative 3,820,163 3,370,221
Depreciation and amortization 418,798 397,712
-------------- -----------
Total costs and expenses 14,030,770 10,398,589
-------------- -----------
Operating loss (45,349) (582,215)
-------------- -----------
Other income (expense):
Interest income 473,840 129,745
Interest income, related party 36,068 36,569
Interest expense (1,639,517) (2,547,004)
Interest expense, related party (1,118,268) (125,093)
Other, net 190,168 536,317
-------------- -----------
Net other expense (2,057,709) (1,969,466)
-------------- -----------
Loss before equity in
income of investee (2,103,058) (2,551,681)
and minority interests
Equity in income of investee - 979,831
Minority interests in losses (earnings) of consolidated (12,379) 33,676
subsidiaries
-------------- -----------
Net loss $ (2,115,437) (1,538,174)
-------------- -----------
</TABLE>
Total revenues in the three months ended 1997, and for Pro Forma 1996 were
$13,985,421 and $9,816,374, respectively. The increase in total revenues is
primarily due to an increase in real estate sales of $3,969,590 to $10,330,638
in 1997 from $6,361,048 in Pro Forma 1996. In the three months ended March 31,
1997, real estate sales at Grand Harbor and Oak Harbor were $4,563,636 and
$5,767,002, respectively. A total of 12 Grand Harbor residential units were sold
during the first quarter of 1997 at an average sale price of approximately
$380,000 as compared to 17 units sold during the comparable quarter of Pro Forma
1996 at an average sale price of approximately $375,000. The fourth quarter of
1996 was the first quarter of sales of residential units at Oak Harbor. A total
of 16 Oak Harbor units were sold during the first quarter of 1997 at an average
sale price of approximately $360,000. Overall occupancy at the Lynnwood Center
at March 31, 1997 and 1996 was approximately 95% and 89%, respectively.
Due to delays incurred during the merger proceedings and by the lawsuits, Legend
was unable to start development and construction activities at the Southbridge
and Chapman's Landing properties as early as originally
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
anticipated, and the Company was unable to close on any lot sales at these
developments during the first quarter of 1997. Legend has begun to pre-sell lots
to builders for delivery starting in the second quarter of 1997. The Company
currently has signed contracts to deliver more than 250 lots with a total value
in excess of $7.8 million, and has letters of intent to deliver an additional
450 lots. Although the Company anticipates that the letters of intent will be
converted into signed contracts and result in sales, the letters of intent do
not represent firm "sales contracts", and there can be no assurances that any
sales will result from these or any other letters of intent. In addition, the
Company continues to negotiate with other builders for additional residential
lot sales contracts.
Total costs and expenses increased $3,632,181 to $14,030,770 for the three
months ended March 31, 1997, from $10,398,589 for Pro Forma 1996. The increase
was primarily due to increased real estate sales at Oak Harbor and general and
administrative costs. Real estate sales gross margin as a percentage of real
estate sales amounted to 25% for the three months ended March 31, 1997. The
margin remained approximately the same as the margin in the comparable period of
the prior year, however, gross margin percentages may vary materially on
individual units from period to period based on the type of unit sold. Selling,
general and administrative (SG&A) expenses increased $449,942 to $3,820,163 for
the three months ended March 31, 1997, from $3,370,221 in Pro Forma 1996. The
increase was primarily due to an increase in SG&A expenses at the corporate
office and at Oak Harbor. The Oak Harbor increases were due to the fact that the
Oak Harbor sales organization was not fully operational in the first quarter of
1996. The increase in corporate office costs were due primarily to the one-time
transition and legal costs associated with the merger and the related lawsuits
of approximately $750,000, the costs associated with establishing a Legend
corporate office in Seattle, offset by the savings realized by eliminating the
Banyan corporate office in Chicago.
Interest income increased $343,594 to $509,908 for the three months ended
March 31, 1997, from $166,314 in Pro Forma 1996, primarily due to increased
earnings on restricted cash accounts.
Interest expense increased only slightly to $2,757,785 for the three months
ended March 31, 1997, from $2,672,097 in Pro Forma 1996. However, related party
interest expense increased to $1,118,268 for the three months ended March 31,
1997, from $125,093 in Pro Forma 1996. The shift in interest expense to related
party in 1997 was primarily due to Holdings purchasing the Loans from third
parties in May of 1996 and the Merger of Banyan and RGI/US in December 1996,
which resulted in the Loans being "related party" loans.
Other income decreased $346,149 to $190,168 for the three months ended March 31,
1997, from $536,317 in Pro Forma 1996, primarily due to the receipt of $418,972
by Banyan in respect of its interest in a liquidating trust in Pro Forma 1996.
Equity in income of investee decreased $979,831 to zero for the three months
ended March 31, 1997. The Pro Forma 1996 amount related to an investment in a
joint venture held by Banyan, which was sold during 1996.
The combination of the above changes resulted in a net loss of $2,115,437
($0.34 per share) for the three months ended March 31, 1997, as compared to a
net loss of $1,538,174 ($.25 per share) for Pro Forma 1996.
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 31, 1996, a lawsuit was filed in Delaware State court by two of
Banyan's stockholders on behalf of themselves and all of the non-defendant
stockholders of Banyan, against Legend and certain of its directors and
officers.
The plaintiffs have alleged, among other things, that Banyan's board of
directors breached its fiduciary duties by failing to seek alternative change of
control transactions, other than the merger with RGI/US, or appropriately
evaluate the alternative of liquidating Banyan. Plaintiffs further alleged that
the merger unfairly diluted the voting and equity interests of Banyan's
stockholders since Holdings, the parent of RGI/US, ended up owning approximately
79% of Banyan's common stock. In addition, the plaintiffs alleged that the proxy
statement circulated by Banyan in connection with the annual meeting held to
consider and vote upon the merger was misleading and failed to disclose certain
material information. Among other remedies, the plaintiffs sought to enjoin the
merger and require the defendants to undertake additional activities to maximize
stockholder value and disclose certain additional information to Banyan's
stockholders in connection with considering the merger.
On November 13, 1996, another Banyan stockholder filed an action asserting
allegations substantially similar to those in the action filed on October 31.
These two suits were ultimately consolidated by the Delaware Court of Chancery
on December 11, 1996 under the case number C.A. No. 15287. The parties
subsequently engaged in discovery, including producing and reviewing documents
and taking depositions of certain of Banyan's former officers, as well as that
of one of Banyan's directors. Plaintiff filed a motion for preliminary
injunction and an opening brief in support of that motion on November 15, 1996.
On December 24, 1996, the plaintiffs served and filed a consolidated amended and
supplemental complaint repeating the allegations made in the initial complaint
and adding additional factual allegations that Banyan had failed to properly
consider acquisition proposals submitted by third parties to acquire Banyan. The
amended complaint also claimed that purchases made by Holdings during December
of shares of Banyan's common stock from third parties constituted unlawful vote
buying. Certain of the plaintiffs in the Delaware action then filed an
individual action in Federal court in New York against RGI/US, Holdings and
Legend's president, Kenneth L. Uptain, alleging, among other things, that these
purchases constituted an illegal tender offer (New York Action).
On January 8, 1997, the plaintiffs filed an application pursuant to Section
225(b) of the General Corporation Laws of the State of Delaware seeking judicial
review of the certified vote on the merger. Plaintiffs contended that: (i) the
merger was approved by fewer than 210,000 votes; (ii) many shareholders had
sought to revoke proxies previously cast in favor of the merger; and (iii)
Banyan had announced varying results of the vote. The plaintiffs sought an
expedited hearing on the Section 225 application. The Delaware Court
subsequently scheduled a hearing on the plaintiffs' application for relief under
Section 225 for March 4, 1997. The parties engaged in discovery incident to that
application, including a review of documents obtained from the independent
inspector of election for the annual meeting, as well as other third parties and
taking depositions of certain of the plaintiffs' class representatives. The
hearing scheduled for March 4, 1997 was subsequently postponed without date at
the direction of the Delaware court. In the interim, the parties entered into
discussions with a view towards finding a mutually agreeable basis for resolving
the litigation.
On April 15, 1997, Legend announced that it had reached a stipulation and
settlement agreement to settle this lawsuit. As part of this settlement,
Holdings has agreed to, among other things, (i) defer interest due on the
Morgens and SoGen loans (the Loans) until December 31, 1997; (ii) forebear on
any defaults existing on the Loans as of the effective date of the settlement
until December 31, 1997; (iii) effective January 1, 1997, reduce the interest
rate on the Loans to the lower of the prime rate plus 2% (10.25% at January 1,
1997) or LIBOR plus 2.5% (8.1% at January 1, 1997); (iv) provide Legend with a
line of credit in the aggregate principal amount of $8.5 million, a portion of
which will be utilized to repay Holdings for advances previously made to Legend;
and (v) repurchase up to $300,000 of Legend's shares of common stock from time
to time on the open market over the next twelve months subject to compliance
with the SEC's rules and regulations relating to open market repurchase
programs.
The judge to which this matter has been assigned in the Delaware Chancery Court
has not raised any objections to the settlement agreement and has signed an
order scheduling a final hearing on the matter for June 19, 1997. The parties
to the lawsuit are in the process of sending notice to all of the class members
of this settlement. As part of the settlement, the plaintiffs filed a second
consolidated and amended supplemental complaint repeating the allegations
contained in their previous complaints and adding claims underlying their
application pursuant to Section 225 of the General Corporation Law of the State
of Delaware. In addition, the amended complaint added Holdings and RGI/US as
defendants. All of the defendants have answered this complaint denying all of
the allegations.
Contemporaneously with and in conjunction with the resolution of this Delaware
litigation, the plaintiffs, as well as the defendants in the New York action,
have agreed to settle and dismiss the matter. As part of this settlement,
Holdings has agreed to purchase all of the shares owned by John Hinson, John
Temple and Gary Goldberg, the named plaintiffs in the Delaware lawsuits, for
$13.25 per share ($0.53 prior to the reverse split). In return, Messrs. Hinson,
Temple and Goldberg have agreed not to purchase or otherwise acquire any of
Legend's securities until April 2002, or until such time as Holdings no longer
owns 25% or more of Legend's equity, whichever occurs first.
Illinois Litigation
On September 1, 1995, an action was filed in the Circuit Court of Cook County,
Illinois entitled: Monterey County Partners et al v. BMIF Monterey County
Limited Partnership et al; 95 CH 8456 (Illinois Litigation). The plaintiffs in
the Illinois Litigation were as follows: (a) Monterey County Partners, a
partnership which itself was a partner of Banyan's subsidiary, BMIF Monterey
County Corp., a partnership known as BMIF Monterey County Limited Partnership
(Ownership Partnership), which is the entity that owned the Laguna Seca project;
(b) Investors Liquidating Trust, a Delaware Trust which has been alleged to own
(i) 100% of the common stock of VMS Laguna Seca, Inc., the 1% general partner of
VMS Laguna Seca Limited Partnership, which is an alleged 90% partner in Monterey
County Partners; and (ii) the 99% limited partnership interest in VMS Laguna
Seca Limited Partnership; and (c) VMTGZ Mortgage Investors, L.P. II, the
principal beneficiary of Investors' Liquidating Trust.
Named in the case as defendants, in addition to the Ownership Partnership
and BMIF Monterey County Corp. were: (a) Leonard G. Levine, former President of
Banyan and (b) Banyan Management Corp., the company which provided
administrative services to Banyan pursuant to an Administrative Services
Agreement (as amended). Mr. Levine and Banyan Management Corp. were subsequently
dismissed from this litigation, but were later rejoined by a Third Amendment
Complaint.
The original complaint sought: (i) the removal of BMIF Monterey County Corp. as
the general partner of the Ownership Partnership (BMIF Monterey County Limited
Partnership) and the replacement with Kimball Small Residential Properties,
Inc., a partner in Monterey County Partners as the new general partner; (ii)
declaratory relief that BMIF Monterey County Corp. was not entitled to any
"priority return" or "preferred return" on its capital account in the Ownership
Partnership; (iii) avoidance of an alleged fraudulent transfer whereby the
Ownership Partnership became the owner of the project after the default in 1991
on Banyan's former mortgage loan to Monterey county Partners upon which Banyan
had initiated foreclosure proceeds which culminated in the execution of the
Ownership Partnership agreement; and the creation of a capital account in an
amount not less than approximately $4,800,000 in favor of Monterey County
Partners; (iv) an accounting; and (v) a constructive trust to be created for the
benefit of one of the plaintiffs. Numerous counts of the plaintiff's complaint
and various theories of recovery were stricken on Banyan's motions after which
the matter proceeded to trial on January 13, 1997 (see below).
On October 10, 1995, a companion action was filed in the Superior Court of
Monterey County, California entitled: Monterey County Partners, et al. v. BMIF
Monterey County Limited Partnership, et al; Case No. 105280 (California
Litigation).
The plaintiff entity, which was a partner with Banyan's subsidiary, BMIF
Monterey County Corp., in the limited partnership known as BMIF Monterey
County Limited Partnership, which owns the Laguna Seca Ranch property (Ownership
Partnership) filed suit in its own name and derivatively on behalf of the
Ownership Partnership against the Ownership Partnership and each of the
participant entities in the Morgens Loan (Morgens defendants), which loan is
partially guaranteed by the Ownership Partnership, which partial guaranty is
collateralized by a deed of trust recorded against the Laguna Seca Ranch
property.
The California Litigation alleged fraudulent transfer and conspiracy and sought
the following as remedies: (i) to set aside the Deed of Trust and the
obligations of the Ownership Partnership under the Morgens Loan guaranty; (ii)
to quiet title to the Laguna Seca Ranch project, declaring null and void the
interest of Morgens under the Deed of Trust; and (iii) an award of attorneys'
fees and costs. After a variety of motions, the California Court set a status
hearing in the California Litigation for January 31, 1997 in an effort to award
the results of the trial in the Illinois Litigation.
Trial in the Illinois Litigation commenced on January 13, 1997. After four days
of testimony, the parties commenced settlement negotiations, and on January 21,
1997 all parties to the Illinois Litigation and the California Litigation
executed and delivered an Omnibus Settlement Agreement pursuant to which, among
other things: (i) the California Litigation and the Illinois Litigation were
dismissed with prejudice, (ii) all parties executed and delivered mutual
releases; (iii) Legend paid to the plaintiffs the sum of $200,000; (iv) the
Morgens defendants paid the sum of $50,000 to the plaintiffs; (v) Limited
partnership interests held by the plaintiffs in Legend's Laguna Seca Ranch,
Chapman's Landing and Southbridge/Wayside properties were assigned and conveyed
to subsidiaries of Legend; and (vi) certain ancillary litigation among some of
the parties was settled and dismissed.
The execution and delivery of the aforesaid Omnibus Settlement Agreement allows
Legend to enjoy 100% ownership of the Laguna Seca Ranch, Chapman's Landing and
Southbridge/Wayside Village properties without minority interests and is
expected to facilitate financing or other strategic alternatives with respect to
these projects.
Other than as noted in this Item, the Company is not aware of any other
material pending legal proceedings as of May 10, 1997.
<PAGE> 16
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit No.
- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of April 12, 1996 as amended and
restated as of May 20, 1996, by and among RGI/US, RGI Holdings, Inc. and
the Registrant, together with Amendment to Agreement and Plan of Merger
dated as of September 17, 1996.(5)
3.1 Amended and Restated Certificate of Incorporation of the Registrant.(5)
3.2 Bylaws of Registrant, as amended and restated as of July 1, 1996.(2)
10.1 Second Amendment of Leonard G. Levine's Employment Contract dated
December 31, 1992.(3)
10.2 Form of Director Stock Option Agreements dated July 1, 1993, July 24,
1994 and July 7, 1995.(3)
10.3 Form of Executive Stock Option Agreements dated July 1, 1993, January
12, 1994 and February 8, 1995.(3)
10.4 Omitted
10.5 Loan Modification Agreement, dated as of May 20, 1996, by and between
Registrant and RGI Holdings, Inc. (SoGen Loan)(4)
10.6 Form of Second Loan Modification Agreement, by and between Legend
Properties, Inc. and RGI Holdings, Inc. (SoGen Loan)(6)
10.7 Loan Modification Agreement, dated as of May 21, 1996, by and between
Registrant and RGI Holdings, Inc. (Morgens Loan)(4)
10.8 Form of Second Loan Modification Agreement, by and between Legend
Properties, Inc. and RGI Holdings, Inc. (Morgens Loan)(6)
10.9 Registration Rights Agreement, dated as of May 21, 1996, by and
between Registrant and RGI Holdings, Inc.(5)
10.10 Master Construction Contract dated as of June 28, 1991 by and among
GHA Harbor Associates, GHA Grand Harbor, Ltd., GHA St. David's, Ltd.,
GHA Wood Duck, Ltd., GHA Harbor Ltd., GHA Newport, Ltd., GHA River
Club, Ltd., GHA Coventry, Ltd. and Proctor Construction Company.(1)
10.11 Profit Sharing Agreement dated as of June 28, 1991 by and among Proctor
Construction Company, Andlinger Properties Capital L.P. and Grand
Harbor Associates, Inc.(1)
10.12 Stipulation and Agreement of Settlement dated April 15, 1997, by and
among John A. Hinson, John W. Temple, Gary M. Goldberg, Walter E. Auch,
Sr., Robert M. Ungerleider, RGI Holdings, Inc. and Legend Properties,
Inc. (f/k/a Banyan Mortgage Investment Fund)(6)
10.13 Third Amendment to Administrative Services Agreement, dated March 31,
1997 by and between Banyan Management Corp. and Legend Properties, Inc.
(f/k/a Banyan Mortgage Investment Fund)(5)
</TABLE>
<PAGE> 17
- --------------
(1) Incorporated by reference to the Registrant's Registration
Statement on Form S-4 (Registration Number 333-12415) dated September 20,
1996.
(2) Incorporated by reference to the Registrant's Report on Form 10-Q for the
quarter ended June 30, 1996.
(3) Incorporated by reference to the Registrant's Report on Form 10-K for the
year ended December 31, 1995.
(5) Incorporated by reference to the Registrant's Report on Form 8-K dated May
20, 1996.
(6) Incorporated by reference to the Registrant's Report on Form 10-K/A for
the year ended December 31, 1996.
(7) Incorporated by reference to Registrant's Report on Form 8-K dated April
15, 1997.
<PAGE> 18
(b) The following reports on Form 8-K were filed during the quarter ended
March 31, 1997:
(1) A current report on Form 8-K was filed on January 14, 1997, disclosing
the following:
ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
(a) On December 31, 1996, RGI U.S. Holdings, Inc., a Washington
corporation ("RGI/US"), was merged with and into the Registrant
in accordance with the General Corporation Law of the State of
Delaware and the Washington Business Corporation Act (the
"Merger"). The Merger was accomplished pursuant to the Agreement
and Plan of Merger dated April 12, 1996, as amended and restated
as of May 20, 1996 by and among RGI/US, RGI Holdings, Inc. ("RGI
Holdings") and the Registrant, together with the Amendment to
Agreement and Plan of Merger dated September 17, 1996. The Merger
occurred following the approval of the Merger by the stockholders
of the Registrant at its annual meeting on December 17, 1996 (the
"Annual Meeting"). As a result of the Merger, each of the 1,000
issued and outstanding shares of RGI/US common stock (all of
which was held by RGI Holdings, Inc., a Washington corporation
("RGI Holdings")) was converted into 4,386,986 newly-issued
shares of the Registrant's Common Stock, resulting in RGI
Holdings beneficially owning approximately 79% of the outstanding
common stock of the Registrant and all other stockholders owning
approximately 21%.
On May 21, 1996, in connection with the purchase by RGI Holdings
of 298,666 shares of the Registrant's authorized but unissued
common stock (on a post-reverse split basis), Mr. Kenneth Uptain,
the president and a director of both RGI/US and RGI Holdings, was
elected to fill a vacancy on the Registrant's board of Directors.
The Registrant's Board of Directors also consisted of two outside
directors, Messrs. Walter E. Auch, Sr. and Robert Ungerlieder. At
the Annual Meeting, the Registrant's stockholders re-elected Mr.
Auch and elected Fred E. Welker III, an outside director and Olav
Revhaug, the Chief Financial Officer of Resource Group
International Inc., a parent of RGI Holdings to the Registrant's
Board of Directors.
(b) RGI Holdings has pledged 4,685,652 shares of the Registrant's
Common Stock beneficially owned by it to Fokus Bank ASA as
security for a loan agreement between RGI Holdings and Fokus
Bank. Upon the occurrence of an "Event of Default" under the loan
agreement, Fokus Bank may receive all dividends from the shares
of the Registrant's Common Stock beneficially owned by RGI
Holdings and could vote or sell such shares in accordance with
applicable securities laws.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
(a) See Item 1 above for a description of the Merger. Additional
information regarding the Merger is set forth in the Proxy
Statement/Prospectus contained in the Registrant's Registration
on Form S-4 filed on September 20, 1996 (Registration No. 333-
12415), as supplemented, incorporated herein by this reference.
<PAGE> 19
(b) RGI/US a Washington corporation and a wholly-owned subsidiary of
RGI Holdings, which is an indirect majority-owned subsidiary of
Resource Group International Inc. ("RGI Inc."). RGI Inc. is an
indirect subsidiary of RGI (Antilles) N.V. a Netherlands Antilles
limited liability company ("RGI Antilles"). RGI Antilles has
agreed to merge with Aker ASA, a Norwegian corporation with
interests in cement and building materials as well as oil and gas
technology. This merger is expected to be completed by the end of
February 1997.
RGI/US owned, operated and developed real estate through two
wholly-owned subsidiaries, Grand Harbor Associates, Inc. ("Grand
Harbor Associates") and American Property Investments, Inc.
("American Property Investments"). Grand Harbor Associates owns a
90% interest in corporations that own; (i) Grand Harbor, a
772-acre residential golf community development project located
in Vero Beach, Florida; (ii) Oak Harbor, a 116-acre planned
352-unit adult retirement community also located in Vero Beach,
Florida; and (iii) the Royal Palm Convalescent Center, a skilled
nursing center licensed for 72 beds and located in Vero Beach,
Florida in close proximity to Oak Harbor. American Property
Investments owns a 164,724 square foot shopping center located in
Lynnwood, Washington (the "Lynnwood Center") that is listed for
sale. The Registrant intends to continue the development of the
properties owned by Grand Harbor Associates and to sell the
Lynnwood Center.
The Registrant's executive offices are now located at U.S. Bank
Centre, 1420 5th Avenue, 42nd Floor, Seattle, Washington
98101-2333, and its telephone number is (206) 464-0200.
ITEM 5. OTHER EVENTS
At the Annual Meeting, the Registrant's stockholders also
approved amendments to the Registrant's Certificate of
Incorporation to reclassify, combine and convert each 25 issued
and outstanding shares of Common Stock into one issued and
outstanding share (the "Reverse Split"), to change the name of
the Registrant to "Legend Properties, Inc.," to make the
Registrant's existence perpetual, and to authorize 5,000,000
shares of preferred stock. Under the Registrant's new Certificate
of Incorporation, the Board of Directors is no longer classified
and all directors will be elected annually; provided however,
that Mr. Ungerleider's current term does not expire until 1998.
Trading in the Registrant's shares on the New York Stock Exchange
ceased immediately prior to effectiveness of the Merger. Upon
effectiveness of the Merger, the Registrant's Common Stock was
approved for quotation on a "when issued" basis on the Nasdaq
SmallCap Market under the symbol "LPRO."
<PAGE> 20
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(a) Financial Statements of Business Acquired
It is impracticable for the Registrant to provide the required
financial statements at this time. Such statements will be filed
when they are available. The Registrant anticipates filing such
statements on or about March 14, 1997.
(b) Pro Forma Financial Information
It is impracticable for the Registrant to provide the required
financial statements at this time. Such statements will be filed
when they are available. The Registrant anticipates filing such
statements on or about March 14, 1997.
(c) Exhibits
2.1 Agreement and Plan of Merger dated April 12, 1996, as
amended and restated as of May 20, 1996 by and
among RGI/US, RGI Holdings and the Registrant, together
with the Amendment to Agreement and Plan of Merger
dated September 17, 1996 (incorporated by reference to
Exhibit 2.1 to the Registration Statement on Form S-4
filed on September 20, 1996 (File No. 333-12415)).
2.2 Supplement to Proxy Statement/Prospectus dated November
7, 1996 (incorporated by reference to Supplement filed
on November 7, 1996 (File No. 1-9885)).
2.3 Supplement to Proxy Statement/Prospectus dated December
16, 1996 (incorporated by reference to Supplement filed
on December 16, 1996 (File No. 1-9885)).
99.1 Press Release of the Registrant dated December 31,
1996.
<PAGE> 21
(2) A current report on Form 8-K was filed on January 14, 1997, disclosing
the following:
ITEM 5. OTHER EVENTS
On January 22, 1997, two lawsuits previously filed against the Registrant
in Illinois and California were dismissed. The lawsuits were the 1995 action
filed in the Circuit Court of Cook County, Illinois entitled "Monterey County
Partners, et. al. v. BMIF Monterey County Limited Partnership et al, case number
95 CH 8456" and the 1995 action filed in the Superior Court of Monterey County,
California entitled "Monterey County Partners, et al. v. BMIF Monterey County
Limited Partnership, et al., case number 10528." The lawsuits were dismissed as
part of an omnibus settlement agreement and mutual release of claims among the
all of the parties, including the Registrant, its lenders, and certain limited
partners who held a subordinated interest in the Registrant's real estate
development projects in California, Maryland and Virginia. In addition, a "Lis
Pendens" which had been filed to block the sale of the Laguna Seca Ranch
property in Monterey, California was removed. As part of the omnibus settlement
agreement, the plaintiffs transferred to the Registrant their limited
partnership interests in the Registrant's California, Virginia and Maryland
properties and the Registrant made a $200,000 one time payment to the
plaintiffs.
The dismissals and settlement agreement will allow the Registrant to
finalize its plans to sell the Laguna Seca property and removes potential
claims relating to the properties being developed by the Registrant in Virginia
and Maryland.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(c) Exhibits
99.1 Press Release of the Registrant dated January 27, 1997.
<PAGE> 22
(3) A current report on Form 8-K was filed on March 3, 1997, disclosing
the following:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
Financial statements of (i) RGI U.S. Holdings, Inc.; (ii) Grand
Harbor Associates and Affiliates; (iii) the Oak Harbor Affiliated
Companies; and (iv) Banyan Mortgage Investment Fund (incorporated
by reference to the Registration Statement on Form S-4 filed on
September 20, 1996 (File No. 333-12415) -- See Exhibit 2.1 below).
(b) PRO FORMA FINANCIAL INFORMATION
Historical pro forma condensed consolidated financial information,
balance sheet, statements of operations and notes to pro forma
condensed consolidated financial information of Legend Properties
Inc. (incorporated by reference to the Registration Statement on
Form S-4 filed on September 20, 1996 (File No. 333-12415) -- See
Exhibit 2.1 below).
(c) EXHIBITS
2.1 Agreement and Plan of Merger dated April 12, 1996, as amended
and restated as of May 20, 1996 by and among RGI/US, RGI
Holdings and the Registrant, together with the Amendment to
Agreement and Plan of Merger dated September 17, 1996
(incorporated by reference to Exhibit 2.1 in the Registration
Statement on Form S-4 filed on September 20, 1996. (File No.
333-12415)).
2.2 Supplement to Proxy Statement/Prospectus dated November 7,
1996 (incorporated by reference to Supplement filed on
November 12, 1996 (File No. 1-9685)).
2.3 Supplement to Proxy Statement/Prospectus dated December 16,
1996 (incorporated by reference to Supplement filed on
December 16, 1996 (File No. 1-9885)).
99.1 Press Release of the Registrant dated January 27, 1996.
(4) A current report on Form 8-K was filed on April 16, 1997, disclosing
the following:
ITEM 5. OTHER EVENTS
On April 15, 1997, Legend Properties, Inc. ("Legend") announced
that it had reached an agreement in principle to settle various lawsuits. The
agreement is subject to, among other things, court approval. As part of the
settlement, the plaintiffs will likely file a second consolidated amended and
supplemental complaint repeating the allegations contained in their previous
complaints and adding the claims underlying their application pursuant to
Section 225 of the Delaware Code. In addition, RGI Holdings, Inc. and RGI/US
will likely be added as defendants solely for purposes of the settlement. All
of the defendants will subsequently answer this complaint and have consented to
a conditional certification of the lawsuit as a plaintiff class action pursuant
to Rules 23(a) and 23(b)(1)-(2) of the Court of Chancery of the State of
Delaware. As part of this settlement, RGI Holdings, Inc. has agreed to, among
other things: (i) defer interest due on the loans previously known as the
Morgens Loan and the SoGen Loan (collectively, the "Loans") and now owned by
RGI Holdings, Inc. until December 31, 1997; (ii) forebear on any defaults
existing on the Loans as of the effective date of the settlement until December
31, 1997; (iii) effective January 1, 1997, reduce the interest rate on the
Loans to the lower of the prime rate plus 2% (10.25% at January 1, 1997) or
LIBOR plus 2.5% (8.1% at January 1, 1997); (iv) provide Legend with a line of
credit in the aggregate principal amount of $8.5 million, a portion of which
will be utilized to repay RGI Holdings, Inc. for advances previously made to
Legend; and (v) repurchase up to $300,000 of Legend's shares of common stock
from time to time on the open market over the next twelve months subject to
compliance with the Securities Exchange Commission's rules and regulations
relating to open market repurchase programs. Until the settlement is approved
by the court and becomes effective, management does not expect to be able to
satisfactorily restructure or refinance the Loans. If and when the settlement
is approved, management expects to enter into discussions with RGI Holdings,
Inc. and/or other third party lenders to restructure or refinance the Loans.
The parties will schedule a hearing during the week of April 21, 1997, to
submit the settlement to the Delaware court for its preliminary review.
The Stipulation and Agreement of Settlement dated April 15, 1997,
by and among John A. Hinson, John W. Temple, Gary M. Goldberg, Walter E. Auch,
Sr., Robert M. Ungerleider, RGI Holdings, Inc. and Legend Properties, Inc.
(f/k/a Banyan Mortgage Investment Fund) is attached hereto as Exhibit 10.1.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
EXHIBITS:
10.1 Stipulation and Agreement of Settlement dated April 15,
1997, by and among John A. Hinson, John W. Temple, Gary M.
Goldberg, Walter E. Auch, Sr., Robert M. Ungerleider, RGI
Holdings, Inc. and Legend Properties, Inc. (f/k/a Banyan
Mortgage Investment Fund)
10.2 Form of Second Loan Modification Agreement, by and between
Legend Properties, Inc. And RGI Holdings, Inc. (SoGen Loan)
10.3 Form of Second Loan Modification Agreement, by and between
Legend Properties, Inc. And RGI Holdings, Inc. (Morgens Loan)
<PAGE> 23
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.
LEGEND PROPERTIES, INC.
By: /s/ Kenneth L. Uptain Date: May 15, 1997
--------------------------------------
Kenneth L. Uptain, President and
Chief Executive Officer
<PAGE> 24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No.
- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) LEGEND
PROPERTIES INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS MARCH 31,
1997 AND 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) MARCH
31, 1997 QUARTERLY REPORT FILED ON FORM 10-Q AND 1996 ANNUAL REPORT FILED ON
FORM 10-K
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 21,651,548<F1>
<SECURITIES> 0
<RECEIVABLES> 1,771,431
<ALLOWANCES> 0
<INVENTORY> 127,045,252
<CURRENT-ASSETS> 0
<PP&E> 25,519,452
<DEPRECIATION> 3,740,601
<TOTAL-ASSETS> 181,220,147
<CURRENT-LIABILITIES> 0
<BONDS> 84,353,269
0
0
<COMMON> 62,776
<OTHER-SE> 28,789,686
<TOTAL-LIABILITY-AND-EQUITY> 181,220,147
<SALES> 10,330,638
<TOTAL-REVENUES> 13,985,421
<CGS> 7,223,662
<TOTAL-COSTS> 14,030,770
<OTHER-EXPENSES> 2,057,709
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,757,785
<INCOME-PRETAX> (2,103,058)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,115,437)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,115,437)
<EPS-PRIMARY> (.34)
<EPS-DILUTED> (.34)
<FN>
<F1>CASH INCLUDES RESTRICTED CASH AND INVESTMENTS OF $20,498,591
</FN>
</TABLE>
