<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 JUNE 30, 2000
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.)
3755 7TH TERRACE, SUITE 301, VERO BEACH, FLORIDA 32960
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (561) 778-0180
---------------
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 June 30, 2000: 6,290,874.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at June 30, 2000 (unaudited)
and December 31, 1999....................................................3
Condensed Consolidated Statements of Operations for the Three Months
Ended June 30, 2000 and 1999 (unaudited).................................4
Condensed Consolidated Statements of Operations for the Six Months
Ended June 30, 2000 and 1999 (unaudited).................................5
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2000 and 1999 (unaudited).................................6
Notes to Condensed Consolidated Financial Statements (unaudited).........8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................11
Item 3 Quantitative and Qualitative Disclosures about Market Risks.............18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.......................................................19
Item 6. Exhibits and Reports of Form 8-K........................................20
Signatures ........................................................................21
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LEGEND PROPERTIES, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF RGI HOLDINGS, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------------------------------
Assets
------
<S> <C> <C>
Real estate inventory $ 74,445,847 75,806,841
Cash and cash equivalents 1,081,510 2,902,359
Restricted cash and investments 13,435,932 10,602,370
Accounts and notes receivable 2,456,982 3,106,856
Property and equipment, net 22,320,239 22,869,703
Intangible assets, net 1,369,907 1,446,007
Other assets, net 8,288,298 10,954,824
--------------------------
$ 123,398,715 127,688,960
--------------------------
Liabilities and Stockholders' (Deficit) Equity
----------------------------------------------
Notes payable to banks and others $ 19,474,924 21,587,213
Payables to related parties 88,418,784 88,661,961
Accounts payable 3,257,926 3,354,368
Other notes and liabilities 14,187,313 12,785,204
--------------------------
125,338,947 126,388,746
--------------------------
Stockholders'(deficit) equity :
Common stock, $.01 par value. Authorized 10,000,000 shares;
6,311,678 shares issued and 6,290,874 shares outstanding
at June 30, 2000 and December 31, 1999 63,117 63,117
Additional paid-in capital 44,171,103 44,171,103
Accumulated deficit (46,053,136) (42,812,690)
Treasury stock, 20,804 shares at June 30, 2000 and December
31, 1999 (121,316) (121,316)
--------------------------
Total stockholders' (deficit) equity (1,940,232) 1,300,214
--------------------------
$ 123,398,715 127,688,960
--------------------------
</TABLE>
See accompanying notes to the Condensed Consolidated Financial Statements
3
<PAGE> 4
LEGEND PROPERTIES INC. AND SUBSIDIARIES
(A SUBSIDIARY OF RGI HOLDINGS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
2000 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Real estate sales $ 7,125,807 9,827,051
Club operations 2,171,143 1,764,560
Patient services 717,796 727,056
Other 943,112 689,396
---------------------------
Total revenues 10,957,858 13,008,063
---------------------------
Operating costs and expenses:
Real estate sales 5,725,958 7,112,070
Club operations 2,170,075 1,960,528
Patient services 586,366 518,418
Other 190,413 748,215
Selling, general and administrative 2,830,445 3,529,437
Depreciation and amortization 406,405 450,717
---------------------------
Total operating costs and expenses 11,909,662 14,319,385
---------------------------
Operating loss (951,804) (1,311,322)
---------------------------
Other income (expense):
Interest income 158,049 116,960
Interest expense, including loan cost amortization (160,800) (638,135)
Interest expense, related party (2,200,612) (1,914,336)
--------------------------
Net other expense (2,203,363) (2,435,511)
--------------------------
Loss before income tax benefit (3,155,167) (3,746,833)
Income tax benefit 1,069,309 -
---------------------------
Net loss $ (2,085,858) (3,746,833)
---------------------------
Net loss per share - basic and diluted $ (0.33) (0.60)
---------------------------
Weighted average number of common shares outstanding 6,290,874 6,290,874
-------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the Condensed Consolidated Financial Statements
4
<PAGE> 5
LEGEND PROPERTIES INC. AND SUBSIDIARIES
(A SUBSIDIARY OF RGI HOLDINGS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Real estate sales $ 20,453,035 24,850,412
Club operations 4,897,582 3,953,229
Patient services 1,412,900 1,421,213
Other 1,374,442 1,436,322
--------------------------
Total revenues 28,137,959 31,661,176
--------------------------
Operating costs and expenses:
Real estate sales 15,976,165 18,102,800
Club operations 4,425,982 4,111,196
Patient services 1,102,002 1,023,142
Other 694,000 1,323,458
Selling, general and administrative 5,561,619 8,745,564
Depreciation and amortization 824,301 897,241
--------------------------
Total operating costs and 28,584,069 34,203,401
expenses
--------------------------
Operating loss (446,110) (2,542,225)
--------------------------
Other income (expense):
Interest income 271,167 323,795
Interest expense, including loan cost (369,091) (1,478,624)
amortization
Interest expense, related party (4,387,421) (3,792,629)
--------------------------
Net other expense (4,485,345) (4,947,458)
--------------------------
Loss before income tax benefit (4,931,455) (7,489,683)
Income tax benefit 1,691,009 -
--------------------------
Net loss $ (3,240,446) (7,489,683)
---------------------------
Net loss per share - basic and diluted $ (0.52) (1.19)
---------------------------
Weighted average number of common shares outstanding 6,290,874 6,290,874
--------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the Condensed Consolidated Financial Statements
5
<PAGE> 6
LEGEND PROPERTIES, INC. AND SUBSIDIARIES
(A SUSIDIARY OF RGI HOLDINGS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,240,446) (7,489,683)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 824,301 897,241
Amortization of loan costs 96,130 135,368
Related party interest expense not paid 4,387,421 3,708,602
Gain on sale of property and equipment (47,309) -
Deferred tax benefit (1,691,009) -
Change in certain assets and liabilities:
Decrease (increase) in real estate inventory and assets for 1,360,994 (288,437)
sale
Decrease in accounts and notes receivable and
other assets 217,782 3,670,863
Increase (decrease) in accounts payable and other notes
and liabilities 1,305,667 (1,664,739)
--------------------------
Net cash provided by operating activities 3,213,531 (1,030,785)
--------------------------
Cash flows from investing activities:
(Increase) decrease in restricted cash and investments (2,833,562) 7,059,848
Proceeds from sale of property and equipment 286,587 560,499
Purchase of property and equipment (438,015) (390,339)
--------------------------
Net cash (used in) provided by investing activities (2,984,990) 7,230,008
--------------------------
Cash flows from financing activities:
Proceeds from notes payable to bank and others 6,333,484 8,430,196
Repayment of notes payable to bank and others (8,445,773) (19,183,348)
Proceeds of loans from related parties 127,044 3,750,000
Repayments of loans from related parties - (2,248,279)
Payment of loan fees and other (64,145) (88,303)
--------------------------
Net cash used in financing activities (2,049,390) (9,339,734)
--------------------------
Net decrease in cash and cash equivalents (1,820,849) (3,140,511)
Cash and cash equivalents at beginning of period 2,902,359 4,446,864
--------------------------
Cash and cash equivalents at end of period $ 1,081,510 1,306,353
--------------------------
(Continued)
---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the Condensed Consolidated Financial Statements
6
<PAGE> 7
LEGEND PROPERTIES, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF RGI HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest, net of amount
capitalized of $554,429 in 2000 and $502,579 in 1999 $ 246,150 1,247,636
------------------------------------------------------------------------------------------------
Supplemental Disclosure of Non-cash Operating and Financing
Transactions:
Decrease in other assets and related party debt due
to utilization of deferred tax asset $ 4,757,642 -
-------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the Condensed Consolidated Financial Statements
7
<PAGE> 8
LEGEND PROPERTIES, INC. AND SUBSIDIARIES
(A SUBSIDIARY OF RGI HOLDINGS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2000
1. BASIS OF PRESENTATION
Legend Properties, Inc. (the Company or Legend) 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, 2000, Holdings owns approximately 80% of the outstanding common
shares of the Company.
The condensed consolidated financial statements include the accounts of Legend
and its subsidiaries . In the opinion of management, the accompanying unaudited
condensed 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. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
These condensed 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,
1999, filed with the Securities and Exchange Commission.
The results of operations for the six months ended June 30, 2000 are not
necessarily indicative of the results to be expected for the full fiscal year.
2. LIQUIDITY
As of June 30, 2000, the Company's debt obligations, including payables to
related parties of $88,418,784, totaled $107,893,708 of which $3,537,361 matures
by December 31, 2000 and an additional $6,761,214 by December 31, 2001. None of
these maturities relate to payables to related parties. In addition to the debt
maturities under existing financings, the Company requires additional financing
to advance its business plan. As of June 30, 2000, the Company had $1,081,510 of
cash and cash equivalents, which will not be sufficient to fund these
obligations.
The Company expects to meet its existing debt obligations that mature during
2000 by the renewal and extension of existing construction lines, and internally
generated funds from real estate sales and operations. Based on alternatives
available, management believes that sufficient funds will be available to meet
its obligations during 2000. If sufficient funds are not available from the
above sources, the Company anticipates delaying certain quarterly interest
payments to Holdings as allowed under the debt agreements. The Company also has
available, if needed, a $5 million credit facility from Holdings, which was
unused at June 30, 2000.
For future construction and development activities, the Company anticipates
utilizing existing construction lines or securing additional construction lines
or development financing as noted above. Once construction lines or development
financing are secured, they are typically renewed on an annual basis.
There can be no assurance that the Company will be able to secure the necessary
construction and development financing to implement its plan or that, if
available, the terms and conditions will be
8
<PAGE> 9
acceptable to the Company. If the Company is unable to secure the necessary
additional financing or capital when needed, the 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. See the Company's 1999
annual report or Form 10-K "Factors affecting Legend's Business Plan."
3. INCOME TAXES
Income tax benefit attributable to loss from continuing operations was
$1,691,009 and $0 for the six months ended June 30, 2000 and 1999, respectively.
The entire deferred tax asset of $1,691,009 was recorded in other assets at June
30, 2000. The 2000 income tax benefit resulted from the anticipated utilization
of the Company's 2000 operating loss by an affiliated consolidated tax group,
pursuant to a Tax Sharing and Allocation Agreement.
4. OPERATING SEGMENTS
The Company's reportable operating segments are distinct operations that service
differing markets. The real estate segment consists of the development,
construction and sales activities for all of the Company's properties. The club
operations segment consists of the clubhouse and related activities for Grand
Harbor and Oak Harbor. Patient services consist of the Royal Palm Convalescent
Center which offers skilled nursing care, and Somerset House which offers
assisted living care. Summarized information concerning the reportable segments
for the three and six months ended June 30, 2000 and 1999, is presented in the
following table.
Six Months Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
Other,
Club Patient Corporate and
($000's omitted) Real Estate Operations Services Eliminations Total
------------------------------------------------------------------------------------------------------
2000
<S> <C> <C> <C> <C> <C>
Revenues $ 20,453 4,898 1,413 1,374 28,138
Operating costs and expenses (19,813) (5,044) (1,858) (1,869) (28,584)
Other income/ expenses (2,927) - (120) 253 (2,794)
---------------------------------------------------------------
Net income (loss) $ (2,287) (146) (565) (242) (3,240)
===============================================================
1999
Revenues $ 24,850 3,953 1,421 1,437 31,661
Operating cost and expenses (23,046) (5,294) (1,751) (4,112) (34.203)
Other income/expenses (4,322) (61) (148) (416) (4,947)
---------------------------------------------------------------
Net income (loss) $ (2,518) (1,402) (478) (3,091) (7,489)
===============================================================
</TABLE>
9
<PAGE> 10
Three Months Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
Other,
Club Patient Corporate and
($000's omitted) Real Estate Operations Services Eliminations Total
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
</TABLE>
<TABLE>
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2000
Revenues $ 7,126 2,171 718 943 10,958
Operating costs and expenses (7,811) (2,448) (968) (683) (11,910)
Other income/ expenses (1,648) - (44) 558 (1,134)
---------------------------------------------------------------
Net income (loss) $ (2,333) (277) (294) 818 (2,086)
===============================================================
1999
Revenues $ 9,827 1,764 727 690 13,008
Operating cost and expenses (9,254) (2,348) (870) (1,847) (14,319)
Other income/expenses (2,150) (18) (85) (183) (2,436)
---------------------------------------------------------------
Net income (loss) $ (1,577) (602) (228) (1,340) (3,747)
===============================================================
</TABLE>
5. MERGER
On October 15, 1999, the Company received a proposal from Holdings for the
merger of the Company with a wholly-owned subsidiary of Holdings. The Company's
Board of Directors established a special committee to evaluate and consider the
proposal. On January 6, 2000 the Board of Directors approved a merger and the
Company and Holdings executed a Merger Agreement where Holdings will acquire all
of the outstanding shares, not currently held by Holdings, for $0.50 per share
in cash. The merger is subject to, among other things, approval by the
shareholders and compliance with all applicable regulatory and governmental
requirements.
On July 31, 2000, the Company filed the final amendment to information statement
with the Securities and Exchange Commission. The Company anticipated filing the
definitive information statement in mid August which will be mailed to all
stockholders of record. The special meeting of stockholders is anticipated to be
held in late August or early September.
<PAGE> 11
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 (the
Company or Legend), 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), a wholly owned subsidiary of RGI Holdings, Inc.
(Holdings).
The Company's strategy is to realize and enhance the market potential of its
remaining assets. The Company currently controls approximately 2,700 acres of
land in a master planned community (Southbridge), a residential golf community
(Grand Harbor), and a retirement community (Oak Harbor.)
Grand Harbor, including the Grand Harbor Golf and Beach Club, is a 772-acre
residential golf community located in Vero Beach, Florida. Oak Harbor, including
the Oak Harbor Club, Royal Palm Convalescent Center and Somerset House, is a
116-acre retirement community also located in Vero Beach, Florida. The Royal
Palm Convalescent Center and Somerset House are skilled nursing care and
assisted living facilities. Southbridge is a 2,685-acre master planned
development located in Prince William County, Virginia.
The Company is currently focused on continuing the development of
infrastructure, amenities, residential land parcels and residential units at
Grand Harbor, Oak Harbor and Southbridge consistent with approved zoning and
development plans. At Southbridge, the Company is attempting to rezone the
future phases of the project to allow continuation of its development plan. The
Company's ability to fully implement these objectives is dependent on, among
other things, securing short-term and long-term financing related to the
development on acceptable terms. There can be no assurance that the Company will
be able to obtain the necessary financing on acceptable terms, if at all.
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 1999 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
borrowings and loans from related parties (primarily Holdings), to fund its
construction and development activities, and ongoing operating expenses.
Deferral of interest due to Holdings pursuant to the terms of the loan
agreements has also allowed the Company to maintain and preserve its liquidity
and capital resources.
As of June 30, 2000, the Company's debt obligations, including payables to
related parties of $88,418,784, totaled $107,893,708 of which $3,537,361 matures
by December 31, 2000 and an additional $6,761,214 by December 31, 2001. None of
these maturities relate to payables to related parties. In addition to the debt
maturities under existing financings, the Company requires additional financing
to advance its business plan. As of June 30, 2000, the Company had $1,081,510 of
cash and cash equivalents, which will not be sufficient to fund these
obligations.
During the six months ended June 30, 2000, the Company utilized existing cash
and cash equivalents and third party borrowings to fund its development and
construction activities.
11
<PAGE> 12
During 2000, the Company contemplates continued expenditures for the development
of residential lots and construction of residential homes at Grand Harbor, Oak
Harbor and Southbridge, so that finished units and lots will be available during
2000 and beyond to satisfy existing real estate sales contracts. For Grand
Harbor and Oak Harbor, the Company anticipates utilizing existing construction
lines for the majority of the construction financing and securing additional
construction lines from existing third party lenders for the remainder. At
Southbridge, the Company must arrange for development financing.
The Company expects to meet its existing debt obligations that mature during
2000 by the renewal and extension of existing construction lines, and internally
generated funds from real estate sales and operations. Based on alternatives
available, Management believes that sufficient funds will be available to meet
its obligations during 2000. If sufficient funds are not available from the
above sources, the Company anticipates delaying certain quarterly interest
payments to Holdings as allowed under the debt agreements. The Company also has
available, if needed, a $5 million credit facility from Holdings, which was
unused at June 30, 2000.
For future construction and development activities, the Company anticipates
utilizing existing construction lines or securing additional construction lines
or development financing as noted above. Once construction lines or development
financing are secured, they are typically renewed on an annual basis.
There can be no assurance that the Company will be able to secure the necessary
construction and development financing to implement its 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 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. See the Company's 1999 Annual Report on Form 10-K
"Factors Affecting Legend's Business Plan".
For each of Legend's projects, cash flow generated from operations can differ
substantially from reported earnings, depending on the status of the development
cycle. At Southbridge, which is in the initial stages of development,
significant cash outlays are required for, among other things, land
acquisitions, processing zoning and other regulatory approvals, construction of
amenities, sales facilities, major roads, utilities, general landscaping and
debt service. Since a major part of these initial expenditures is 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.
Six Months Ended June 30, 2000
The Company had cash and cash equivalents of $1,081,510 and $2,902,359 at June
30, 2000 and December 31, 1999, respectively. The decrease during the six months
ended June 30, 2000 is attributable to $2,984,990 and $2,049,390 in cash being
used in investing and financing activities, respectively, which was partially
offset by cash provided by operating activities of $3,213,531.
Cash Flows from Operating Activities: For the six months ended June 30, 2000,
the Company generated cash flow from operating activities of $3,213,531,
primarily due to the following:
- A decrease in real estate inventory of $1,360,994, primarily due to the
sale of 30 units at Grand Harbor, 7 units at Oak Harbor, and 64
finished residential lots and 200 unfinished residential lots at
Southbridge, which reduced inventory by $13,507,172. These decreases
were offset by additional development and construction costs of
$12,146,178. Construction of residential units at Grand Harbor and Oak
Harbor and development of residential lots at Southbridge continues so
that finished units and lots will be available during the remainder of
2000 and beyond to satisfy existing contracts.
- Related party interest expense of $4,387,421 that was accrued but not
paid pursuant to the terms of the loan agreements.
12
<PAGE> 13
- A decrease in accounts and notes receivable and other assets and an
increase in accounts payable and other notes and liabilities of
$217,782 and $1,305,667, respectively. Fluctuations in these
accounts are generally due to the timing of the collection of accounts
and notes receivable and the payment of certain liabilities, including
trade accounts payable, advances from customers and prepaid expenses.
These fluctuations can vary significantly from period to period
depending on the timing of sale closings, and development and
construction activities. Due to the nature of the Company's business,
significant fluctuations in these operating assets and liabilities are
not considered unusual.
- Depreciation and amortization of $824,301 and amortization of loan costs
of $96,130 related primarily to fixed asset depreciation and loan cost
amortization for Grand Harbor and Oak Harbor.
Partially offset by the following:
- A net loss of $3,240,446 due to substantial interest expense, corporate
overhead and operating losses at Oak Harbor and Southbridge, which were
partially offset by an operating profit at Grand Harbor and the income
tax benefit recorded. Grand Harbor's operating profit resulted from
the sale of residential units which more than offset the operating
losses generated from club operations. At Oak Harbor, operating losses
from club and assisted living operations exceeded the operating profit
generated from the sale of residential units. Residential lot sales at
Southbridge were not sufficient for the project to cover its marketing
and overhead costs which resulted in a slight operating loss.
- Income tax benefit of $1,691,009 that was recorded but not received,
related to the income tax benefit anticipated to be realized by the
utilization of the Company's 2000 operating loss.
Cash Flows from Investing Activities: For the six months ended June 30, 2000,
the Company utilized $2,984,990 in cash flow from investing activities. Customer
deposits increased due to sales activity which increased restricted cash and
investments $2,833,562. Proceeds from sale of property and equipment totaled
$286,587 which relates to the Company's disposition of various equipment. Funds
were utilized for the purchase of $438,015 of property and equipment.
Cash Flows from Financing Activities: The Company used $2,049,390 in cash flows
from financing activities during the six months ended June 30, 2000. Borrowings
from third-party lenders used primarily to fund certain construction and
development costs at Grand Harbor and Oak Harbor totaled $6,333,484. Debt
repayments to third party lenders totaled $8,445,773, resulting from the sale of
residential units and club memberships at Grand Harbor and Oak Harbor. Payment
of loan fees totaled $64,145.
Six Months Ended June 30, 1999
The Company had cash and cash equivalents of $1,306,353 and $4,446,864 at June
30, 1999 and December 31, 1998, respectively. The decrease during the six
months ended June 30, 1999 is attributable to $1,030,785 and $9,339,734 in cash
being used in operating and financing activities, respectively, which was
partially offset by cash provided by investing activities of $7,230,008.
13
<PAGE> 14
Cash Flows from Operating Activities: For the six months ended June 30, 1999,
the Company utilized cash flow from operating activities of $1,030,785,
primarily due to the following:
- Net losses of $7,489,683 due to substantial interest expenses,
corporate overhead, including severance costs of $850,000 and operating
losses at Oak Harbor, Southbridge, and Ashburn, offset by an operating
profit at Grand Harbor. Ashburn incurred certain costs associated with
holding the property during the period it has been held for sale
without any related revenues. Grand Harbor's operating profits have
resulted from the timing of unit closing which are traditionally higher
during the first half and better than expected sales results.
- A slight increase in real estate inventory of $288,437 primarily due to
the acquisition of the second parcel in Ashburn and additional costs
for construction and development of $13,729,871. These increases were
offset by the sale of 39 units at Grand Harbor, 16 units at Oak Harbor,
and 74 residential lots at Southbridge, which reduced inventory by
$15,628,840. Construction of residential units at Grand Harbor and Oak
Harbor and development of residential lots at Southbridge continues so
that finished units and lots would be available during the remainder of
1999 and beyond to satisfy existing contracts.
Partially offset by the following:
- Depreciation and amortization of $1,032,609 related primarily to fixed
asset depreciation and loan cost amortization for Grand Harbor and Oak
Harbor.
- Related party interest expense of $3,708,602 that was not paid pursuant
to the terms of the loan agreements.
- A decrease in accounts and notes receivable and other assets of
$3,670,863 partially offset by a decrease in accounts payable an other
notes and liabilities of $1,664,739. Fluctuations in these accounts
are generally due to the timing of the payments or collections related
to certain assets and liabilities, including trade accounts payable,
advances from customers, prepaid expenses, and accounts and notes
receivable. These fluctuations can vary significantly from period to
period depending on the timing of closings, and construction and
development activities. Due to the nature of the Company's business,
significant fluctuations in these operating assets and liabilities are
not considered unusual.
Cash Flows from Investing Activities: For the six months ended June 30, 1999,
the Company generated cash flow from investing activities of $7,230,008. Certain
deposits that were held as collateral against a bank loan were released and used
to pay down that debt pursuant to a renegotiated loan agreement. Moreover,
customer deposits declined as a result of sales activity which, when combined
with the release of the deposit, caused a decline in restricted cash and
investments of $7,059,848. Proceeds from sale of property and equipment totaled
$560,499 which relates to the Company's disposition of a corporate condo. All of
these were partially offset by the purchase of $390,339 of property and
equipment.
Cash Flows from Financing Activities: The Company used $9,339,734 in cash for
financing activities during the six months ended June 30, 1999. Borrowings from
third-party lenders used primarily to fund certain construction and development
costs at Grand Harbor and Oak Harbor totaled $8,430,196. A portion of the debt
repayments of $19,183,348 relate to the loan payment made from the release of
the deposit that was discussed previously. The remainder resulted from the sale
of residential units and club memberships at Grand Harbor and Oak Harbor. In
addition, the Company borrowed $3,750,000 from related parties which was used to
repay $2,248,279 of maturing related party debt and a portion of maturing third
party lender debt.
RESULTS OF OPERATIONS
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<PAGE> 15
Results of operations for the six months ended June 30, 2000, consisted of the
consolidated revenues and expenses of Grand Harbor, Oak Harbor and Southbridge,
whereas the results of operations for the six months ended June 30, 1999
consisted of the consolidated revenues and expenses of Grand Harbor, Oak Harbor,
Southbridge, and Ashburn. Ashburn's two parcels were acquired in March 1998 and
April 1999 and sold during September 1999.
Six months ended June 30, 2000 compared with 1999
Total revenues for the six months ended June 30, 2000 and 1999 were $28,137,959
and $31,661,176, respectively.
Real estate sales revenues decreased $4,397,377 for the six months ended June
30, 2000 as compared to 1999 due to a decline in sales at Grand Harbor, Oak
Harbor and Southbridge. Grand Harbor's sales declined from 39 units in 1999 to
30 units in 2000. The average sale price increased from $366,000 to $379,000. At
Oak Harbor sales declined from 16 units at an average sales price of $342,000
during 1999 versus 7 units at an average sale price of $426,000 in 2000. Sales
prices range from $165,000 to $1,100,000 at Grand Harbor and Oak Harbor, and
accordingly average sales prices may fluctuate significantly from period to
period.
Southbridge sold 64 finished residential lots at an average sales price of
approximately $51,000 during the first six months of 2000, as compared to 74
finished lots at an average sale price of $41,000 for the first six months in
1999. In addition, 200 unfinished lots were sold in bulk at an average sale
price of $4,000 during the first six months of 2000. The decrease in finished
lots sold resulted from delays in the development of finished lots that would
be available for delivery because of wet weather and labor shortages
experienced by certain contractors. Finished lot sales prices range from
$24,000 to over $65,000 at Southbridge and accordingly, average sales prices
may fluctuate from period to period.
Partially offsetting the decline in real estate sales revenues was the increase
in club operations revenues. Continued sales activities at both Grand Harbor and
Oak Harbor was the chief component in the rise of club membership and the
corresponding operating revenues between the six months ended June 30, 2000 and
1999.
Patient service revenues remained relatively unchanged in the six months ended
June 30, 2000, compared to the same period in 1999, due to fairly stable patient
levels.
A decline in real estate sales expense and selling, general and administrative
costs were primarily responsible for the decrease in operating costs and
expenses between the six months ended June 30, 2000 and 1999.
Gross margin as a percentage of real estate sales was 22% for the six months
ended June 30, 2000, compared to 27% for the comparable period in 1999. Gross
margins realized on the sale of residential units at Grand Harbor and Oak Harbor
may fluctuate significantly depending upon the type of product sold. Changes in
the mix of product types sold accounts for the decline in the gross margin
between 2000 and 1999.
Club operations costs and expenses increased $314,786 between 1999 and 2000.
This increase is chiefly due to the increase in club operations that was
discussed earlier. Club operations for Grand Harbor are an amenity provided to
Grand Harbor residences in order to promote real estate sales, while the Oak
Harbor Club is in its initial stages of operations. Profitability of these
operations can vary from period to period depending upon sales volume and
operating costs, which are linked to factors such as the seasonal nature of
their usage depending on the time of year, overall membership levels, and
similar factors.
Patient services costs and expenses remained relatively constant between 1999
and 2000 which is attributable to stable patient levels.
Selling, general and administrative decreased $3,183,946 between 1999 and 2000
due primarily to a decrease in marketing costs as well as a reduction of payroll
related costs. Also contributing to the decline
15
<PAGE> 16
was the elimination of the costs of holding Ashburn which was sold during 1999.
Certain incentive compensation decreased in 2000 as compared to 1999 and
$600,000 in severance and relocation costs were recorded in 1999 that were not
incurred in 2000.
Total other expense decreased primarily due to a reduction of third party
interest expense between 1999 and 2000. Interest expense declined due to a net
reduction in external indebtedness that was attributable to the repayment of the
Ashburn loan upon its sale in September 1999 and sales of residential units at
Grand Harbor and Oak Harbor. The increase in related party interest expense
between 1999 and 2000 is due to the higher outstanding loan payable to related
parties which is attributable to the capitalization of unpaid interest on these
advances into the loan payable balance on December 31, 1999.
The combination of the above changes resulted in a net loss of $3,240,446 ($0.52
per share) for the six months ended June 30, 2000, as compared to a net loss of
$7,489,683 ($1.19 per share) for the six months ended June 30, 1999.
Three months ended June 30 , 2000 compared with 1999
Total revenues for the three months ended June 30, 2000 and 1999 were
$10,957,858 and $13,008,063, respectively.
Real estate sales revenues decreased $2,701,244 for the three months ended June
30, 2000 as compared to 1999 due to a decline in sales at Grand Harbor, Oak
Harbor and Southbridge. Grand Harbor's sales declined from 16 units in 1999 to
10 units in 2000. The average sale price increased from $327,000 to $398,000. At
Oak Harbor sales declined from 7 units at an average sales price of $365,000
during 1999 versus 1 unit at a sales price of $375,000 in 2000. Sales prices
range from $165,000 to $1,100,000 at Grand Harbor and Oak Harbor, and
accordingly average sales prices may fluctuate significantly from period to
period.
Southbridge sold 38 finished residential lots at an average sales price of
approximately $50,000 during the three months ended June 30, 2000, as compared
to 34 finished lots at an average sale price of $37,000 for the corresponding
period in 1999. Finished lot sales prices range from $24,000 to over $65,000 at
Southbridge and accordingly, average sales prices may fluctuate from period to
period.
Partially offsetting the decline in real estate sales revenues was the increase
in club operations revenues. Continued sales activities at both Grand Harbor and
Oak Harbor was the chief component in the rise of club membership and the
corresponding operating revenues between the three months ended June 30, 2000
and 1999.
Patient service revenues remained relatively unchanged in the three months ended
June 30, 2000, compared to the same period in 1999, due to fairly stable patient
levels.
A decline in selling, general and administrative costs was primarily responsible
for the decrease in operating costs and expenses between the three months ended
June 30, 2000 and 1999.
Gross margin as a percentage of real estate sales was 20% for the three months
ended June 30, 2000, compared to 28% for the comparable period in 1999. Gross
margins realized on the sale of residential units at Grand Harbor and Oak Harbor
may fluctuate significantly depending upon the type of product sold. Changes in
the mix of product types sold accounts for the decline in the gross margin
between 2000 and 1999.
Club operations costs and expenses increased $209,547 between 1999 and 2000.
This increase is chiefly due to the increase in club operations that was
discussed earlier. Club operations for Grand Harbor are an amenity provided to
Grand Harbor residences in order to promote real estate sales, while the Oak
Harbor Club is in its initial stages of operations. Profitability of these
operations can vary from period to period depending upon sales volume and
operating costs, which are linked to factors such as the seasonal nature of
their usage depending on the time of year, overall membership levels, and
similar factors.
16
<PAGE> 17
Patient services costs and expenses remained relatively constant between 1999
and 2000 which is attributable to stable patient levels.
Selling, general and administrative decreased $698,992 between 1999 and 2000
due primarily to a decrease in marketing costs as well as a reduction of
payroll related costs. Also contributing to the decline was the elimination of
the costs of holding Ashburn which was sold during 1999. Certain incentive
compensation decreased in 2000 as compared to 1999 and $600,000 in severance
and relocation costs were recorded in 1999 that were not incurred in 2000.
Total other expense decreased primarily due to a reduction of third party
interest expense between 1999 and 2000. Interest expense declined due to a net
reduction in external indebtedness that was attributable to the repayment of
the Ashburn loan upon it's sale in September 1999 and sales of residential
units at Grand Harbor and Oak Harbor. The increase in related party interest
expense between 1999 and 2000 is due to the higher outstanding loan payable to
related parties which is attributable to the capitalization of unpaid interest
on these advances into the loan payable balance on December 31, 1999.
The combination of the above changes resulted in a net loss of $2,085.858
($0.33 per share) for the three months ended June 30, 2000, as compared to a
net loss of $3,746,833 ($0.60 per share) for the three months ended June 30,
1999.
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<PAGE> 18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISKS
The Company is exposed to market risks associated with interest changes on the
debt used to fund its construction, development, and operating activities. The
Company's interest rate risk management objective is to limit the impact of
interest rate changes on earnings and cash flow and to lower overall borrowing
costs. The Company uses a mixture of fixed rate debt, interest rate swap
agreements, and offsetting financial instruments such as annuity contracts to
mitigate this risk. The Company does not enter into other derivative financial
instruments for speculative purposes.
The Company's interest rate risk is monitored by management. The table below
presents the principal amounts, weighted-average interest rates and fair values
required to evaluate the expected cash flows of the Company under debt and
related agreements and its sensitivity to interest rate changes at June 30,
2000.
<TABLE>
<CAPTION>
There Fair
(000,000's omitted) 2000 2001 2002 2003 2004 -after Total Value
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate debt 0.2 0.3 0.4 0.4 0.5 2.6 4.4 4.4
Average interest rate 6.3% 6.3% 6.3% 6.3% 6.3% 6.3%
Variable rate LIBOR debt 0.1 0.2 0.2 33.4 0.0 0.0 33.9 33.9
Average interest rate 9.2% 9.2% 9.2% 9.2% 0.0% 0.0%
Variable rate prime debt 1.6 3.7 0.0 58.3 0.0 0.0 63.6 63.6
Average interest rate 11.3% 11.4% 11.5% 11.5% 0.0% 0.0%
Variable rate bank cost of funds 1.6 2.6 1.8 0.0 0.0 0.0 6.0 6.0
debt
Average interest rate 9.1% 9.1% 9.1% 0.0% 0.0% 0.0%
</TABLE>
The table incorporates those exposures that exist as of June 30, 2000, and does
not consider those exposures or positions which could arise after that date. As
a result the Company's cost of funds with respect to interest rate fluctuations
will depend on the exposures that arise after June 30, 2000, the Company's
hedging strategy during that period and interest rates.
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<PAGE> 19
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Podboy
In April, 2000, Edward F. Podboy, Jr., the Company's former Chief Executive
Officer, filed a lawsuit in the United States District Court for the Eastern
District of Virginia against the Company. Mr. Podboy is seeking in excess of
approximately $1 million in damages against the Company for breach of contract
involving amounts that Mr. Podboy claims are due to him in connection with
serving as the Company's Chief Executive Officer. The Company believes that Mr.
Podboy's claims are without merit and intends to vigorously defend the lawsuit.
General Legal Matters
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.
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<PAGE> 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT NO.
----------
<S> <C>
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 Edward F. Podboy's Employment Contract dated March 31, 1998(3)
10.2 Credit Agreements, Notes and Warrants between Registrant and Morgens
Waterfall, Vintiadis & Co, Inc.(4)
10.3 Loan Modification Agreement, dated as May 20, 1996, by and between Registrant
and RGI Holdings, Inc. (SoGen Loan) (5)
10.4 Loan Modification Agreement, dated as of May 21, 1996, by and between
Registrant and RGI Holdings, Inc. (Morgens Loan) (5
10.5 Registration Rights Agreement, dated as of May 21,1996, by and between
Registrant and RGI Holdings,Inc. (5)
10.6 Second Stipulation and Agreement of Settlement, signed September 17, 1997, In Re:
Banyan Mortgage Investment Fund Shareholders Litigation.(6)
27.1 Financial Data Schedule
99.1 Form of Director Stock Option Agreements dated July 1, 1993, July
24,1994 and July 7, 1995.(7)
99.2 Form of Executive Stock Option Agreements dated July 1, 1993, January 12, 1994 and
February 8, 1995.(7)
-------------------------------------------------------------------------------------------
(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 Exhibits 10(a) through 10(n) to the Registrant's Report
on Form 10-k for the year ended December 31, 1994.
(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 for the quarter
ended September 30, 1997.
(7) 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:
There were no reports on Form 8-K filed during the quarter ended June
30, 2000:
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<PAGE> 21
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, 2000 LEGEND PROPERTIES. INC
By: /s/ Peter J. Henn
---------------------
Peter J. Henn
President and Chief Executive Officer
By: /s/ Robert B. Cavoto
------------------------
Robert B. Cavoto
Chief Financial Officer
21
