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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 JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________.
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.)
13662 OFFICE PLACE, SUITE 201, WOODBRIDGE,VIRGINIA 22192
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (703) 680-2226
---------------
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 August 10, 1998: 6,290,874.
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TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1998 (unaudited) and December 31, 1997.......3
Consolidated Statements of Operations for the Six Months Ended June 30, 1998
and 1997 (unaudited).................................................................4
Consolidated Statements of Operations for the Three Months Ended June 30,
1998 and 1997 (unaudited)............................................................5
Consolidated Statements of Cash Flows for the Six Months Ended June 30,
1998 and 1997 (unaudited)............................................................6
Notes to Consolidated Financial Statements (unaudited)...............................7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations...........................................................................9
Item 3 Quantitative and Qualitative Disclosures about Market Risks.........................15
</TABLE>
PART II - OTHER INFORMATION
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Item 1. Legal Proceedings...................................................................16
Item 4. Submission of Matters to a Vote of Security Holders.................................17
Item 6. Exhibits and Reports of Form 8-K....................................................18
Signatures ....................................................................................19
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LEGEND PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------------
Assets
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<S> <C> <C>
Real estate inventory $ 112,390,570 103,857,159
Cash and cash equivalents 622,057 12,732,681
Restricted cash and investments 16,879,445 15,230,538
Accounts and notes receivable 1,052,555 1,012,877
Property and equipment, net 25,050,688 25,759,305
Intangible assets, net 1,737,957 1,828,470
Other assets, net 2,241,889 2,449,522
--------------------------------------
$ 159,975,161 162,870,552
--------------------------------------
Liabilities and Stockholders' Equity
------------------------------------
Notes payable to banks and others 60,198,529 60,411,332
Payables to related parties 75,733,442 72,893,927
Accounts payable 2,738,021 3,406,650
Other notes and liabilities $ 9,944,709 9,407,537
--------------------------------------
148,614,701 146,119,446
-------------------------------------
Stockholders' equity :
Common stock, $.01 par value. Authorized 10,000,000 shares;
6,311,678 shares issued and 6,290,874 shares outstanding 63,117 63,117
Additional paid-in capital 44,171,103 44,171,103
Accumulated deficit (32,752,444) (27,361,798)
Treasury stock, 20,804 shares (121,316) (121,316)
--------------------------------------
Total stockholders' equity 11,360,460 16,751,106
- -----------------------------------------------------------------------------------------------------------
$ 159,975,161 162,870,552
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</TABLE>
See accompanying notes to the Consolidated Financial Statements
3
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LEGEND PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
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1998 1997
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<S> <C> <C>
Revenues:
Real estate sales $ 18,814,371 17,304,362
Club operations 3,235,964 3,009,145
Patient service 1,319,875 1,353,459
Rent - 1,250,752
Other 1,212,064 860,138
---------------------------------
Total revenues 24,582,274 23,777,856
---------------------------------
Operating costs and expenses:
Real estate sales 12,367,446 13,297,818
Club operations 3,481,965 2,815,954
Patient service direct costs 873,981 716,041
Rental operations - 197,631
Other 484,939 331,415
Selling, general and administrative 7,538,584 7,345,680
Depreciation and amortization 1,058,834 765,857
---------------------------------
Total operating costs and expenses 25,805,749 25,470,396
---------------------------------
Operating loss (1,223,475) (1,692,540)
---------------------------------
Other income (expense):
Interest income 464,434 798,574
Interest income, related party - 72,537
Interest expense, including loan cost amortization (2,540,823) (3,837,860)
Interest expense, related party (2,467,719) (2,500,922)
Other, net 376,937 234,557
---------------------------------
Net other expense (4,167,171) (5,233,114)
---------------------------------
Loss before minority interests (5,390,646) (6,925,654)
Minority interests in loss of consolidated subsidiaries - 252,716
---------------------------------
Net loss $ (5,390,646) (6,672,938)
---------------------------------
Net loss per share - basic and diluted $ (0.86) (1.06)
---------------------------------
Weighted average number of common shares outstanding 6,290,874 6,281,695
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</TABLE>
See accompanying notes to the Consolidated Financial Statements
4
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LEGEND PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
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1998 1997
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<S> <C> <C>
Revenues:
Real estate sales $ 8,983,230 6,610,018
Club operations 1,421,717 1,468,244
Patient service 605,843 679,535
Rent - 619,726
Other 751,843 340,275
----------------------------------
Total revenues 11,762,633 9,717,798
----------------------------------
Operating costs and expenses:
Real estate sales 6,752,770 5,574,156
Club operations 1,673,209 1,248,788
Patient service direct costs 419,981 359,806
Rental operations - 98,218
Other 278,129 143,532
Selling, general and administrative 3,371,153 3,668,067
Depreciation and amortization 539,938 347,059
----------------------------------
Total operating costs 13,035,180 11,439,626
----------------------------------
Operating loss (1,272,547) (1,721,828)
----------------------------------
Other income (expense):
Interest income 198,681 324,734
Interest income, related party - 36,469
Interest expense, including loan cost amortization (1,185,481) (2,198,343)
Interest expense, related party (1,192,931) (1,382,654)
Other, net 25,000 119,026
----------------------------------
Net other expense (2,154,731) (3,100,768)
----------------------------------
Loss before minority interests (3,427,278) (4,822,596)
Minority interests in loss of consolidated subsidiaries - 265,095
----------------------------------
Net loss $ (3,427,278) (4,557,501)
----------------------------------
Net loss per share - basic and diluted $ (0.54) (0.72)
----------------------------------
Weighted average number of common shares outstanding 6,290,874 6,286,591
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</TABLE>
See accompanying notes to the Consolidated Financial Statements
5
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LEGEND PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
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1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,390,646) (6,672,938)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,352,109 1,436,275
Related party interest expense not paid 2,836,914 2,398,185
Related party interest income not collected - (72,537)
Minority interests in loss - (252,716)
Change in certain assets and liabilities:
Decrease (increase) in real estate inventory (8,533,411) 2,557,834
Increase in accounts and notes receivable and other assets (69,214) (325,071)
Decrease in accounts payable and other notes and liabilities (131,456) (6,186,567)
----------------------------------
Net cash used in operating activites (9,935,704) (7,117,535)
----------------------------------
Cash flows from investing activities:
Decrease (increase) in restricted cash and investments (1,648,907) 2,927,236
Purchase of property and equipment (259,704) (3,606,729)
Loans to related parties - (20,000)
Collection of loans to related parties - 298,434
----------------------------------
Net cash used in investing activities (1,908,611) (401,059)
----------------------------------
Cash flows from financing activities:
Proceeds from notes payable to bank and others 12,129,886 14,833,266
Repayment of notes payable to bank and others (12,342,689) (20,568,177)
Proceeds from loans from related parties 2,600 13,416,271
Payment of loan fees (56,106) -
Sale of common shares - 400,003
Purchase of fractional shares - (131,377)
----------------------------------
Net cash provided by (used in) financing activities (266,309) 7,949,986
----------------------------------
Net (decrease) increase in cash and cash equivalents (12,110,624) 431,392
Cash and cash equivalents at beginning of period 12,732,681 1,529,898
----------------------------------
Cash and cash equivalents at end of period $ 622,057 1,961,290
----------------------------------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest,
net of amount capitalized of $1,013,027 in 1998
and $359,263 in 1997 $ 1,734,478 2,873,219
----------------------------------
</TABLE>
See accompanying notes to the Consolidated Financial Statements
6
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LEGEND PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
1. BASIS OF PRESENTATION
Legend Properties, Inc. (Legend or the Company) 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, Inc. (RGI/US).
Prior to the Merger, RGI/US was a wholly-owned subsidiary of RGI Holdings, Inc.
(Holdings). As of June 30, 1998, Holdings owns approximately 80% of the
outstanding common shares of Legend Properties, Inc.
The consolidated financial statements include the accounts of Legend and its
subsidiaries. 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 for the year ended December 31, 1997, filed
with the Securities and Exchange Commission.
The results of operations for the six months ended June 30, 1998 are not
necessarily indicative of the results to be expected for the full fiscal year.
2. ACQUISITION OF REAL ESTATE
On March 6, 1998 Ashburn Corporate Center, LC (Ashburn), a majority owned
subsidiary of the Company, acquired the initial phase of the Ashburn Corporate
Center comprised of approximately 88 acres for a total purchase price of
approximately $7,098,021 including closing costs and allocated fees. Acquisition
of the second phase, comprised of approximately 28 acres, has not yet occurred.
Total purchase price for this parcel, including estimated closing costs and
allocated fees is approximately $3,919,641.
The Ashburn Corporate Center is a commercial business park development project
located in Loudoun County, Virginia planned for office and flex/tech uses. The
project is fully improved with sewer, water and roadways in place.
Ashburn is owned 82% by the Company which serves as the managing partner. The
remaining 18% is owned by unaffiliated third parties. The Company is entitled
to: first, an 18% preferred return; second, return of its capital contribution;
and thereafter, a declining percentage of cash flows (80% to 60%) until it
achieves certain internal rates of return on its capital contribution.
The acquisition was funded with two loans in the amounts of $5,500,000 and
$440,000, which mature on September 6, 1999. The interest rate on both loans is
18%, payable monthly.
3. RELATED PARTY TRANSACTIONS
On July 9, 1998 the Company executed a letter agreement for the advancement of
$6,500,000 from Holdings. The advance is secured by a first mortgage on certain
real estate inventory and bears interest at the prime rate plus 1 percent to 1.5
percent. Principal and accrued interest are due the earlier of April 1,
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1999 or within 5 days of the disposition of certain property or the financing of
certain activities with external lenders. As of August 10, 1998 the Company has
borrowed $3,800,000 under the agreement.
4. NOTES PAYABLE TO BANKS AND OTHERS
Due to the Company's failure to make a certain minimum principal payment, a
mortgage note payable to bank in the principal amount of $8,643,233 is in
default. The Company was required to reduce the principal balance to $7,000,000
as of May 20, 1998 as required in the loan agreement. The Company is negotiating
with the bank for the pay off of the entire loan balance, which will eliminate
the event of default.
5. CONTINGENCIES
The Company is subject to various lawsuit arising in the ordinary course of
business. The Company is of the opinion that the outcome of any such lawsuits
will not have a material adverse effect on its operations.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Legend Properties, Inc., formerly known as Banyan Mortgage Investment Fund
(Legend or the Company), is the surviving corporation from the December 31, 1996
merger (the Merger) of Banyan Mortgage Investment Fund (Banyan) with RGI U.S.
Holdings, Inc. (RGI/US). For financial reporting purposes, the Merger was
treated as a recapitalization of RGI/US, with RGI/US as the acquirer of Banyan.
Prior to the Merger, RGI/US was a wholly-owned subsidiary of RGI Holdings, Inc.
(Holdings). As of June 30, 1998, Holdings owns approximately 80% of the
outstanding common shares of Legend.
The Company's strategy is to realize and enhance the market potential of its
core assets. The Company currently controls more than 5,000 acres of land in two
master planned communities (Southbridge and Chapman's Landing), a commercial
business park development (the Ashburn Corporate Center), a residential golf
community (Grand Harbor) and a retirement community (Oak Harbor).
Grand Harbor is a 772-acre residential golf community located in Vero Beach,
Florida. Oak Harbor is a 116-acre retirement community also located in Vero
Beach, Florida. The Royal Palm Convalescent Center is a skilled nursing care
facility licensed for 72 beds located in Vero Beach, Florida (Oak Harbor and
Royal Palm are collectively referred to as Oak Harbor). Southbridge is a
2,685-acre development located in Prince William County, Virginia. Chapman's
Landing is a 2,227-acre parcel located in Charles County, Maryland.
The Ashburn Corporate Center is a 116-acre commercial business park development
project located in Loudoun County, Virginia planned for office and flex/tech
uses. The project is fully improved with sewer, water and roadways in place. On
March 6, 1998 the Company closed on the initial acquisition of 88 acres.
Acquisition of the remaining 28 acres has not yet occurred. Subsequent to the
second quarter, the Company began marketing its interest in the project. Strong
development and leasing activity in the corridor, driven by high technology
companies, has created an opportunity to achieve an acceptable return from the
outright sale of the project rather then proceeding with development as
originally planned.
The Company is currently focused on continuing the development of infrastructure
and residential units at Grand Harbor and Oak Harbor consistent with approved
zoning and development plans. Additionally, the Company intends to develop and
sell land parcels at Southbridge and Chapman's Landing. The Company's ability to
fully implement its business plan is dependent on, among other things, securing
short-term and long-term financing on acceptable terms.
The Company has been negotiating with the State of Maryland regarding the
possible sale of all or a part of the Chapman's Landing project. Negotiations,
the disclosure of which is limited by a confidentiality agreement, have
continued for several months. According to media reports, the State of Maryland
has budgeted funds for a possible acquisition. Although negotiations continue,
the finalization of an agreement is not certain and the Company continues to
pursue the state wetlands permit to allow development to commence. The
development plan for Chapman's Landing could be substantially revised depending
upon the outcome of the negotiations with the State of Maryland and the progress
of the issuance of the wetlands permit.
In December 1997, three individuals filed a request for a contested case hearing
challenging the issuance of a Groundwater Appropriation Permit by the Maryland
Department of the Environment for the Chapman's Landing project. The plaintiffs
sought to have the Groundwater Appropriation Permit invalidated since they
contended the permit was originally issued improperly.
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During March and April of 1998, oral arguments were heard in the contested case
hearing. The contested case hearing is an administrative appeal before a
Maryland Administrative Law Judge. A ruling on the hearing has not yet been
issued. The Company is contesting this case vigorously and expects to prevail.
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 1997 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.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has utilized internally generated funds, third party
borrowing and loans from Holdings and affiliated entities to fund its
construction and development activities, and ongoing operating expenses. During
the six months ended June 30, 1998, the Company did not borrow any additional
funds from Holdings, but utilized existing cash and cash equivalents and third
party borrowings to fund its development, construction and operating activities.
On July 9, 1998 the Company executed a letter agreement with Holdings for the
advancement of $6,500,000 to fund certain development and construction
activities and to repay a loan with an external lender. As of August 10, 1998
the Company has drawn $3,800,000 under the agreement.
As of June 30, 1998, the Company's debt obligations totaled $135,931,971 of
which $91,293,487 matures by June 30, 1999 and an additional $35,530,576 by June
30, 2000. A substantial portion of the debt that matures by June 30, 1999
relates to loans from Holdings, of which $58,692,797 matures on April 1, 1999.
The Company's business plan for 1998 contemplates expenditures of approximately
$27,000,000 for the continued development and construction at Southbridge,
Chapman's Landing, Grand Harbor and Oak Harbor. For Grand Harbor and Oak Harbor,
the Company anticipates utilizing existing construction lines for the majority
of the approximate $16 million of construction financing required, but must
arrange financing for the remainder. For Southbridge and Chapman's Landing, the
Company must arrange development financing of approximately $13 million. The
excess borrowings of approximately $2 million are intended to replace a portion
of the internally funded development costs from 1997 at Southbridge with
external borrowings. In addition to the expenditures noted above, the Company
anticipates expenditures of approximately $9 million for acquisition and
development of Ashburn during 1998. External financing of $5,940,000 is already
in place.
As noted above, the Company has substantial existing debt obligations maturing
in late 1998 and early 1999 and requires additional financing to advance its
business plan. As of June 30, 1998 the Company had $622,057 of cash and cash
equivalents, which will not be sufficient to fund these obligations. The Company
anticipates meeting its debt obligations in the remainder of 1998 from existing
and internally generated cash resources, the release of restricted cash pledged
as collateral on certain debt, and from refinancings. However, there can be no
assurance that the Company will be able to refinance the existing indebtedness
or obtain the necessary construction and development financing to implement its
business plan or that, if available, the terms and conditions will be acceptable
to the Company. If the Company is unable to secure the necessary additional
financing or capital when needed, the business plans for its projects will
likely be materially revised, which would have a material adverse effect on the
Company's financial condition and results of operations.
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For each of the Company's projects, cash flow generated from operations can
differ substantially from earnings, depending on the status of the development
cycle. At the Southbridge and Chapman's Landing properties, which are in the
initial stages of development, significant cash outlays are required for, among
other things, land acquisitions, obtaining zoning and other regulatory
approvals, construction of amenities (including golf courses, clubhouses and
recreation centers), sales facilities, major roads, utilities, general
landscaping and debt service. Since a major part of these initial expenditures
are capitalized, income reported for financial statement purposes during the
initial years may significantly exceed operating cash flow. At the Grand Harbor
and Oak Harbor properties, which have completed the initial stages of
development, operating cash flow can exceed earnings reported for financial
statement purposes, since expenses include charges for substantial amounts
previously capitalized.
Legend's cash and cash equivalents balance at June 30, 1998, and December 31,
1997, was $622,057 and $12,732,681 respectively. The decrease in the six months
ended June 30, 1998 is attributable to cash utilized in operating, investing and
financing activities of $9,935,704, $1,908,611 and $266,309 respectively.
Cash Flows from Operating Activities: For the six months ended June 30, 1998,
Legend utilized cash in operating activities of $9,935,704.
Cash utilized in operations in the six months ended June 30, 1998 was primarily
due to the following:
- - Net losses of $5,390,646, due primarily to operating losses at the Oak
Harbor, Southbridge and Chapman's Landing developments, substantial
interest expense as well as corporate overhead expenses. These losses
are partially offset by an operating profit at the Grand Harbor
project. Sales at Oak Harbor were less than anticipated and lower than
the comparable period of 1997, while Southbridge experienced delays in
lot development due to an extremely wet winter and spring in the
Washington D.C. area, and closed on only 20 lots in the six months
ended June 30, 1998. Due to delays in obtaining the final permits and
the ongoing negotiations with the State of Maryland, the Company has
only commenced limited development at Chapman's Landing, but continues
to incur substantial expense to obtain the final permits required for
significant development to begin. Grand Harbor generated an operating
profit, mainly because of the sale of a 20-acre parcel of raw land and
the sale of 38 residential units, compared to 24 units in 1997.
- - An increase in real estate inventory of $8,533,411. The primary reason
for this increase was the acquisition of the initial parcel in the
Ashburn Corporate Center and related development activity totaling
approximately $8.1 million. In addition, construction of residential
units continued at Grand Harbor and Oak Harbor. Development activities
continued at Southbridge in order to develop finished lots for expected
deliveries in 1998 and beyond under existing contracts, however
development activities were slow during the early part of the year
because of the extremely wet winter in the area. In total, land
acquisition, development and construction activities totaled
$20,900,857. This was offset by sales of 38 and 9 units at Grand Harbor
and Oak Harbor, respectively, 20 residential lot sales at Southbridge
and the sale of a 20-acre parcel of raw land at Grand Harbor. These
sales reduced inventory by $12,367,446.
- - An increase in accounts and notes receivable and other assets of
$69,214 and a decrease in accounts payable and other liabilities of
$131,456 during the six months ended June 30, 1998. Fluctuations in
these accounts are generally due to the timing of the payment of
certain liabilities, including trade payables, advances from customers,
prepaid expenses, and the collection of accounts and notes receivable.
These fluctuations can vary significantly from period to period
depending on the timing of sale closing, and development and
construction activities. Due to the nature of Legend's business,
significant fluctuations in operating assets and liabilities are not
considered unusual.
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Partially offset by the following:
- - Related party interest expense of $2,836,914 was accrued but not
paid during the six months ended June 30, 1998 pursuant to the terms
of the loan agreements.
- - Depreciation and amortization of $1,352,109 related primarily to
fixed assets at Grand Harbor and Oak Harbor and amortization of
deferred loan costs.
Cash Flows from Investing Activities: For the six months ended June 30, 1998,
Legend utilized cash flow in investing activities of $1,908,611. Cash utilized
in investing activities was attributable to an increase in customer deposits and
other restricted cash at Grand Harbor and Oak Harbor, the establishment of
development cash escrows for the Ashburn project. In addition property and
equipment was purchased for a total of $259,704.
Cash Flows from Financing Activities: For the six months ended June 30, 1998,
Legend utilized net cash from financing activities in the amount of $266,309.
The Company borrowed an additional $12,129,886 from external parties ($5,940,000
at Ashburn, $4,728,617 at Grand Harbor and $1,461,269 at Oak Harbor). The
borrowings at Ashburn was used to finance the first takedown of land acquisition
described above, while the borrowings at Grand Harbor and Oak Harbor was used
primarily to fund certain construction and development costs. Repayments on
external debt totaled $12,342,689 (Grand Harbor $8,973,475 and Oak Harbor
$3,369,214). Repayments were made primarily from funds generated through sales
of residential units and club memberships and from existing cash resources.
RESULTS OF OPERATIONS
Six months ended June 30, 1998 compared with 1997
Results of operations for the six months ended June 30, 1998, include the
consolidated revenues and expenses of Southbridge, Chapman's Landing, Grand
Harbor, Oak Harbor and the Ashburn Corporate Center, whereas the results of
operations for the six months ended June 30, 1997 include the consolidated
revenues and expenses of Southbridge, Chapman's Landing, Grand Harbor, Oak
Harbor, Laguna Seca Ranch and the Lynnwood Center. Both the Laguna Seca Ranch, a
565-acre parcel located in Monterey, California, and the Lynnwood Center, a
164,724 square foot shopping center located in Lynnwood, Washington, were sold
in the fourth quarter of 1997.
Total revenues for the six months ended June 30, 1998 and 1997 were $24,582,274
and $23,777,856, respectively. The increase of $804,418 was primarily due to
increases in real estate sales at Grand Harbor and Southbridge which were
partially offset by a decrease in real estate sales at Oak Harbor and fact that
1997 results included rent revenues for the Lynnwood Center.
Real estate sales increased $1,510,009 to $18,814,371 in the six months ended
June 30, 1998 from $17,304,362 in the comparable period of 1997. A total of 38
residential units were sold at Grand Harbor during the six months ended June 30,
1998 at an average sale price of approximately $328,000 as compared to 24 units
sold during the comparable period of 1997 at an average sale price of
approximately $370,000. Also included in real estate revenues for Grand Harbor
for the six months ended June 30, 1998 is the sale of a 20 acre land parcel for
a sales price of approximately $1.9 million. There were no land parcel sales in
the comparable period of 1997. A total of 9 residential units were sold at Oak
Harbor during the six months ended June 30, 1998, at an average sale price of
approximately $397,000, compared to 22 units in the six months ended June 30,
1997, at an average sale price of approximately $371,000. The significant
decrease in the number of units sold at Oak Harbor is due to the fact that
construction of the first 24 unit condominium building was completed during
March 1997 at which time the majority of the units, which had been contracted
for, closed. Since sales prices range from $165,000 to approximately $1,100,000
depending on unit type and location at Grand Harbor and Oak Harbor, the average
sales price of residential units may fluctuate significantly from period to
period depending upon the type and location of product sold.
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At Southbridge, even though lot development activities were delayed due to an
extremely wet winter and spring in the Washington D.C. area, the Company was
able to close on the sale of 20 residential lots in the six months ended June
30, 1998, at an average sales price of $ 42,500, compared to 6 lots in the
comparable period of 1997, at an average sales price of approximately $43,000.
Only limited development has commenced at Chapman's Landing, due to delays in
obtaining the final permits and the negotiations with the State of Maryland as
discussed above.
As a result of the sale of the Lynnwood Center in November 1997 there were no
rent revenues recognized during the six months ended June 30, 1998 compared to
$1,250,752 in 1997.
Revenues from club operations at Grand Harbor and Oak Harbor increased $226,819.
Grand Harbor club operations revenue increased by $58,241 to $2,882,948 in the
six months ended June 30,1998 from $2,824,707 in the comparable period of 1997,
due primarily to the increase in overall memberships and related activities. Oak
Harbor club operations revenue increased $308,378 to $492,816 for the six months
ended June 30, 1998 as compared to $184,438 in 1997, due primarily to the
increase in membership and since club operations did not begin until March 1,
1997.
Total operating costs and expenses increased $335,353 to $25,805,749 in the six
months ended June 30, 1998, from $25,470,396 for the comparable period of 1997.
The increase was due primarily to increases in real estate sales expense, club
operations expense at Grand Harbor and Oak Harbor and selling, general and
administrative expenses overall. These increases were partially offset by an
increase in the gross margin on units sold.
Real estate sales expense increased due to the increase in the number of units
sold. Gross margin as a percentage of real estate sales was 34% (29% excluding
the sale of the 20 acre land parcel at Grand Harbor) for the six months ended
June 30, 1998, compared to 23% for the comparable period in 1997. Gross margins
realized on the sale of residential units at Grand Harbor and Oak Harbor may
fluctuate significantly from period to period depending upon the type of product
sold and the number of "trade in" sales. Gross margin on residential lot sales
at Southbridge remained consistent at 20%.
Expenses related to club operations increased $666,011 to $3,481,965 in the six
months ended June 30, 1998, from $2,815,954 in the comparable period of 1997.
The increase resulted from higher membership and activities at the Grand Harbor
and Oak Harbor clubs and the fact that the Oak Harbor club did not commence
operations until March 1, 1997.
Selling, general and administrative (SG&A) expenses increased $192,904 to
$7,538,584 in the six months ended June 30, 1998, from $7,345,680 in the six
months ended June 30, 1997. The increase in SG&A resulted primarily from
increased sales activity at Grand Harbor, Oak Harbor and Southbridge, and from
increased expenses at Chapman's Landing, mainly related to the ongoing
negotiations with the State of Maryland and legal fees associated with legal
proceeding related to the permits. These increases were partially offset by a
decrease in corporate overhead, since the 1997 results included significant
legal expenses related to the lawsuit challenging the Merger which was settled
in November 1997 and did not impact 1998 results.
Depreciation and amortization expense increased to $1,058,834 in the six months
ended June 30, 1998 from $765,857 in 1997, due primarily to the commencement of
depreciation on the Oak Harbor clubhouse and assisted living facility.
Interest income decreased $334,140 to $464,434 for the six months ended June 30,
1998, from $798,574 in 1997, primarily due to a reduction in the restricted cash
account.
13
<PAGE> 14
Interest expense to external lenders decreased $1,297,037 to $2,540,823 in the
six months ended June 30, 1998, from $3,837,860 in 1997, due to a net reduction
in outstanding external indebtedness, resulting primarily from the sale of the
Lynnwood Center and sales of residential units at Grand Harbor and Oak Harbor,
partially offset by the Ashburn Corporate Center acquisition. In contrast,
related party interest expense was relatively unchanged with a small increase
attributable to a net increase in related party indebtedness resulting from
additional borrowings for operations and development at the properties,
partially offset by a reduction in the average interest rate on indebtedness to
related parties and higher levels of interest capitalization for development
activities at Southbridge.
The combination of the above changes resulted in a net loss of $5,390,646 ($0.86
per share) for the six months ended June 30, 1998, as compared to a net loss of
$6,672,938 ($1.06 per share) for the six months ended June 30, 1997.
Three months ended June 30, 1998 compared to 1997
Total revenues for the three months ended June 30, 1998 and 1997 were
$11,762,633 and $9,717,798, respectively. The increase of $2,044,835 was
primarily due to increases in real estate sales at Grand Harbor, Oak Harbor and
Southbridge which were partially offset by the fact that 1997 results included
rent revenues for the Lynnwood Center.
Real estate sales increased $2,373,212 to $8,983,230 in the three months ended
June 30, 1998 from $6,610,018 in the comparable period of 1997. A total of 22
residential units were sold at Grand Harbor during the three months ended June
30, 1998 at an average sale price of approximately $281,000 as compared to 12
units sold during the comparable period of 1997 at an average sale price of
approximately $360,000. There were no land parcel sales in the three months
ended June 30, 1998 or 1997. A total of 5 residential units were sold at Oak
Harbor during the three months ended June 30, 1998, at an average sale price of
approximately $434,000, compared to 6 units in the three months ended June 30,
1997, at an average sale price of approximately $339,000. During the three
months ended June 30, 1998, 12 residential lots were sold at Southbridge at an
average sales price of $ 42,500 compared to 6 lots during the comparable period
of 1997 at an average sales price of approximately $43,000.
Total operating costs and expenses increased $1,595,554 to $13,035,180 in the
three months ended June 30, 1998, from $11,439,626 for the comparable period of
1997. The increase was due primarily to an increase in real estate sales
expense, due to an increase in the number of units sold, and an increase in club
operations expense at Grand Harbor and Oak Harbor, which was partially offset by
an increase in the gross margin on units sold and lower selling, general and
administrative expense.
Gross margin as a percentage of real estate sales was 25% for the three months
ended June 30, 1998, compared to 16% for the comparable period in 1997.
Expenses related to club operations increased $424,421 to $1,673,209 in the
three months ended June 30, 1998, from $1,248,788 in the comparable period of
1997. The increase resulted from higher membership and activities at the Grand
Harbor and Oak Harbor clubs.
Selling, general and administrative (SG&A) expenses decreased $296,914 to
$3,371,153 in the three months ended June 30, 1998, from $3,668,067 in the three
months ended June 30, 1997. The decrease in SG&A resulted primarily from a
decrease in corporate overhead, mainly due to significant legal expenses in 1997
related to the lawsuit challenging the Merger. This decrease was partially
offset by increased sales activity at Grand Harbor, Oak Harbor and Southbridge,
and also from increased expenses at Chapman's Landing, mainly related to the
ongoing negotiations with the State of Maryland and legal fees associated with
legal proceeding related to the permits.
14
<PAGE> 15
Depreciation and amortization expense increased to $539,938 in the three months
ended June 30, 1998 from $347,059 in 1997, due primarily to the commencement of
depreciation on the Oak Harbor clubhouse and assisted living facility.
Interest income decreased $126,053 to $198,681 for the three months ended June
30, 1998, from $324,734 in 1997, primarily due to a reduction in the restricted
cash account.
Interest expense to external lenders decreased $1,012,862 to $1,185,481 in the
three months ended June 30, 1998, from $2,198,343 in 1997, due to a net
reduction in outstanding external indebtedness, resulting primarily from the
sale of the Lynnwood Center and sales of residential units at Grand Harbor and
Oak Harbor, partially offset by the Ashburn Corporate Center acquisition.
Related party interest expense decreased due to higher levels of interest
capitalization for development activities at Southbridge and a reduction in the
average interest rate on indebtedness to related parties which was partially
offset by an increase due to additional borrowings from related parties for
operations and development at the properties.
The combination of the above changes resulted in a net loss of $3,427,278 ($0.54
per share) for the three months ended June 30, 1998, as compared to a net loss
of $4,557,501 ($0.72 per share) for the three months ended June 30, 1997.
Computer Systems
The Company has conducted a review of its computer systems to identify the
systems that could be affected by the "Year 2000" issue and has initiated an
implementation plan to resolve the issue. The Year 2000 problem is the result of
computer programs being written using two digits rather than four to define
the applicable year. Any of the Company's programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a major system failure or miscalculations. The
Company presently believes that, with modifications to existing software and
converting to new software, the Year 2000 problem will not pose significant
operational problems for the Company's computer systems as so modified and
converted. Additionally, the Company does not expect the Year 2000 problem to
have a material effect on its financial position or results of operations.
However, if such modifications and conversions are not completed timely, the
Year 2000 problem may have a material impact on the financial position or
operations of the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company does not engage in trading currencies or in any hedging activities.
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to various lawsuits arising in the ordinary course of
business. The Company is of the opinion that the outcome of any such lawsuits
will not have a material adverse effect on its operations.
ITEM 3. DEFAULTS UNDER SENIOR SECURITIES
Due to the Company's failure to make a certain minimum principal payment, a
mortgage note payable to bank in the principal amount of $8,643,233 is in
default. The Company was required to reduce the principal balance to $7,000,000
as of May 20, 1998 as required in the loan agreement. The Company is negotiating
with the bank for the pay off of the entire loan balance, which will eliminate
the event of default.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Shareholders of the Company was held on June 30, 1998.
The shareholders voted on the election of five directors to hold office until
the next Annual Meeting of Shareholders. The shareholders voted to elect the
following individuals:
<TABLE>
<CAPTION>
Votes For Votes Withheld
<S> <C> <C>
Walter E. Auch, Sr. 5,767,119 100,599
Robert M. Ungerleider 5,768,695 99,023
Fred E. Welker, III 5,769,431 98,287
Jon Alvar Oyasaeter 5,769,590 99,128
Jan Petter Storetvedt 5,769,384 98,334
</TABLE>
The shareholders also voted their concurrence with the selection of KPMG Peat
Marwick LLP as the Company's principal independent accountants for the fiscal
year ending December 31, 1998, voting as follows:
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions
<S> <C> <C>
5,778,686 74,303 14,729
</TABLE>
16
<PAGE> 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
<TABLE>
<S> <C>
EXHIBIT NO.
3.1 Amended and Restated Certificate of Incorporation of the Registrant.(1)
3.2 Bylaws of Registrant, as amended and restated as of July 1, 1996.(2)
10.1 Employment contract dated March 31, 1998 by and between Legend Properties, Inc. and Edward F. Podboy. (3)
10.2 Loan Modification Agreement, dated as of May 20, 1996, by and between Registrant and RGI Holdings, Inc. (4)
10.3 Loan Modification Agreement, dated as May 21, 1996, by and between Registrant and RGI Holdings, Inc. (4)
10.4 Form of Director Stock Option Agreements dated July 1, 1993, July 24, 1994 and July 7, 1995 (5)
10.5 Form of Executive Stock Option Agreements dated July 1, 1993, January 12, 1994 and February 8, 1995 (5)
27.1 Financial Data Schedule
</TABLE>
- ----------
<TABLE>
<S> <C>
(1) Incorporated by reference to the Registrant's Report on Form 10-K for the year ended December 31, 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, 1997.
(4) Incorporated by reference to the Registrant's Report on Form 8-K dated May 20, 1996.
(5) Incorporated by reference to the Registrant's Report on Form 10-K for the year ended December 31, 1995.
</TABLE>
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the quarter ended June 30, 1998.
17
<PAGE> 18
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.
Date: August 14, 1998 LEGEND PROPERTIES, INC.
By: /s/ EDWARD F. PODBOY
-------------------------------------
Edward F. Podboy, President,
Chief Executive Officer
LEGEND PROPERTIES, INC.
By: /s/ ROBERT B. CAVOTO
-------------------------------------
Robert B. Cavoto
Chief Financial Officer
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LEGEND
PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS JUNE 30,
1998 AND 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH JUNE 30,
1998 QUARTERLY REPORT FILED ON FORM 10-Q AND 1997 ANNUAL REPORT FILED ON FORM
10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 17,501,502
<SECURITIES> 0
<RECEIVABLES> 1,052,555
<ALLOWANCES> 0
<INVENTORY> 112,390,570
<CURRENT-ASSETS> 0
<PP&E> 30,831,547
<DEPRECIATION> 5,780,859
<TOTAL-ASSETS> 159,975,161
<CURRENT-LIABILITIES> 0
<BONDS> 60,198,529
0
0
<COMMON> 63,117
<OTHER-SE> 11,297,343
<TOTAL-LIABILITY-AND-EQUITY> 159,975,161
<SALES> 18,814,371
<TOTAL-REVENUES> 24,582,274
<CGS> 12,367,446
<TOTAL-COSTS> 25,805,749
<OTHER-EXPENSES> 4,161,171
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,008,542
<INCOME-PRETAX> (5,390,646)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,390,646)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,390,646)
<EPS-PRIMARY> (0.86)
<EPS-DILUTED> (0.86)
</TABLE>
