<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED OCTOBER 1, 1996 COMMISSION FILE NO. 0-24010
DELTA HOLDING, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
WASHINGTON 91-1420744
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
258 SW 43RD ST., SUITE A
RENTON WASHINGTON 98055
(Address of principal executive offices) (Zip code)
ISSUER'S TELEPHONE NUMBER: (206) 251-9192
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months
(or for such shorter Period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days. YES NO X
----- -----
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13, or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by
court. YES X NO
----- -----
At November 14, 1996, 484,128 shares of common stock of the issuer were
outstanding.
Transitional Small Business Disclosure Format (Check One): YES X NO
---- ----
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DELTA HOLDING, INC.
FORM 10-QSB
For the Quarter Ended October 1, 1996
INDEX
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheet at October 1, 1996. . . 3
Consolidated Statements of Operations for the
Nine Months Ended October 1, 1996 and
September 30, 1995 . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the
Nine Months Ended October 1, 1996 and
September 30, 1995 . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . 6 - 7
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations . 8 - 11
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K. . . . . 12
SIGNATURES . . . . . . . . . . . . . . . . . . . . 13
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DELTA HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
October 1, December 31,
1996 1995
---------- -----------
(unaudited) (audited)
ASSETS
Equipment and furniture:
Equipment 8 8
Furniture 2 2
------- -------
10 10
Less: accumulated depreciation (4) (2)
------- -------
6 8
Property held for sale 1,926 9,229
Cash and cash equivalents 621 656
Accounts receivable (less allowance for doubtful
accounts of $37,000 at October 1, 1996 and
December 31, 1995) 50 116
Inventory, prepaid expenses, and other assets 33 96
------- -------
TOTAL ASSETS 2,636 10,105
------- -------
------- -------
LIABILITIES
Accounts payable 21 454
Accrued expenses 46 483
Long term debt 2,167 11,319
------- -------
TOTAL LIABILITIES 2,234 12,256
------- -------
STOCKHOLDERS' EQUITY
Common stock ($1 par, 1,500,000 shares authorized,
484,128 shares issued and outstanding) 484 484
Paid-in capital 6,074 6,074
Accumulated deficit (6,156) (8,709)
------- -------
TOTAL STOCKHOLDERS' EQUITY 402 (2,151)
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 2,636 10,105
------- -------
------- -------
See notes to consolidated financial statements.
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DELTA HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
For The For The
Three Months Ended Nine Months Ended
------------------------- ---------------------------
October 1, September 30, October 1, September 30,
1996 1995 1996 1995
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Revenue $381 $1,710 $2,506 $4,790
Operating expenses 229 1,225 1,954 3,815
-------- -------- -------- --------
Gross margin from operations 152 485 552 975
Selling and administrative expenses 146 260 707 875
-------- -------- -------- --------
Income (loss) before other income (expense) 6 225 (155) 100
Other income (expense):
Interest income 13 17 38 108
Interest expense (88) (251) (553) (760)
Gain (loss) on disposal of assets 2,762 (17) 3,223 (17)
-------- -------- -------- --------
Total 2,687 (251) 2,708 (669)
-------- -------- -------- --------
Income (loss) from continuing operations 2,693 (26) 2,553 (569)
Discontinued operations:
Operating income (loss) 9 (409)
Gain on disposal 2,263 2,263
-------- -------- -------- --------
Gain from discontinued operations 2,272 1,854
-------- -------- -------- --------
Net income (loss) $2,693 $2,246 $2,553 $1,285
-------- -------- -------- --------
-------- -------- -------- --------
Net income (loss) per share:
Income (loss) from continuing operations $5.56 ($0.05) $5.27 ($1.18)
Income from discontinued operations 4.69 3.83
-------- -------- -------- --------
Net income $5.56 $4.64 $5.27 $2.65
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average number of shares outstanding 484,128 484,128 484,128 484,128
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See notes to consolidated financial statements.
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DELTA HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
For The
Nine Months Ended
-------------------------
October 1, September 30,
1996 1995
---------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) from continuing operations $2,553 ($569)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 225 459
Loss (gain) on sale of assets (3,223) 17
Increase in long term debt due to addition
of accrued interest 553 760
Changes in assets and liabilities:
Accounts receivable 66 (5)
Inventory, prepaid expenses, and other assets 63 (6)
Accounts payable (433) (132)
Accrued expenses (437) 160
Discontinued operations, net (629)
------- ------
Net cash provided (used) by operating activities (633) 55
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of property (net of
transaction costs) 10,428 567
Additions to property, equipment, and fixtures (125) (69)
------- ------
Net cash provided by investing activities 10,303 498
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long term debt (9,705) (602)
------- ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (35) (49)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 656 632
------- ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $621 $583
------- ------
------- ------
See notes to consolidated financial statements.
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DELTA HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
________________________________________________________________________
1. BASIS OF PRESENTATION
The accompanying financial statements reflect all adjustments which
are, in the opinion of management, necessary for a fair statement of
the results for the interim periods presented. All such adjustments
are of a normal recurring nature.
2. NET INCOME (LOSS) PER SHARE
Net income (loss) per share computations are based on the net income
(loss) and the weighted average number of shares outstanding. The
computation is presented for both continuing and discontinued
operations.
3. COMMON STOCK ISSUANCE CONTINGENCY
Under the terms of the Company's Second Amended Plan of
Reorganization (the Plan) which became effective on September 7,
1993 following the approval by a majority of the creditors, certain
obligations secured by deeds of trust matured on September 1, 1996
or the date upon which the property securing the obligation was
sold. If the proceeds from the sale of the underlying property were
not sufficient to retire the obligation in full, or if the creditors
chose to receive stock at the maturity date, the Company was
required to issue shares of common stock having a fair value equal
to the unpaid portion. As of November 14, 1996, the date of this
report, all such properties have been sold and all obligations
secured by deeds of trust have been paid in full. Therefore, no
effect is given to this contingency in the accompanying financial
statements.
4. DISCONTINUED OPERATIONS
On August 1, 1995, the Company sold its warranty operations in a
transaction in which it transferred all the assets and liabilities
of the warranty operations to the buyer. The Company received no
compensation, other than the relief from warranty-related
liabilities, in the transaction. The book value of the assets
trans-ferred was $5,453,000. The book value of liabilities
transferred was $7,716,000, giving rise to a gain of $2,263,000 on
the transaction.
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For income tax purposes, the transaction resulted in a loss, due to
the substantial difference between the book and the tax basis of
certain assets and liabilities involved in the transaction.
Therefore, no income tax benefit was recorded for the transaction as
this loss adds to the previously existing net operating losses,
whose realizability is uncertain.
The warranty operations are classified as discontinued and treated
as a separate item in the statement of operations and the cash flow
statement. For the three month period ended September 30, 1995, the
revenue for the warranty operations was $523,000; during the same
period the operating income was $9,000. For the nine month period
ended September 30, 1995, the revenue was $4,211,000 and the
operating loss was $409,000.
5. SALE OF PROPERTY
On February 12, 1996, the Company sold the Leopold Retirement Inn,
one of the properties held for sale. The sale price was $1,654,000
and the gain on the trans-action was $96,000. On May 16, 1996, the
Company sold the Best Western Lakeway Inn, another of its properties
held for sale. The sale price was $3,300,000 and the gain on the
transaction was $365,000.
On August 30, 1996, the Company sold two of its properties in
Colorado Springs held for sale - the Rockledge Apartments and the
Carmel Apartments. The Rockledge was sold for $4,800,000 and the
gain on the transaction was $2,193,000. The Carmel was sold for
$1,450,000 and the gain on the transaction was $569,000.
6. SUBSEQUENT EVENTS
On October 28, 1996, the Company sold a property in Security,
Colorado - the Kit Carson Apartments. The sale price was $2,750,000
and the gain on the transaction was approximately $1,185,000. As
part of the sale, all obligations secured by deeds of trust on the
property were paid in full. These obligations had matured on their
due date of September 1, 1996. Interest was paid to the closing date.
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DELTA HOLDING, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
BACKGROUND
Continuing operations consist of the property-owning activities of the
Company. Included are the Leopold Retirement Inn, an independent living
facility for the elderly in Bellingham, Washington; the Best Western
Lakeway Inn, a full-service hotel also located in Bellingham; and several
apartment buildings located in or near Colorado Springs, Colorado.
Discontinued operations consist of the activities carried out under the
trade name of Delta Warranty, and includes the marketing and distribution
of extended service contracts and surge suppression equipment coupled with
extended service contracts. This business segment is treated as
discontinued operations as this business was sold August 1, 1995. The
results of its operations are reported separately.
FOR THE THREE MONTHS ENDED OCTOBER 1, 1996 vs. THE THREE MONTHS ENDED
SEPTEMBER 30, 1995
Revenues from property operations decreased 78%, from $1,710,000 in 1995 to
$381,000 in 1996, a decrease of $1,329,000. All of the decrease was caused
by the loss of revenue from the disposal of the following properties: the
Delta Financial Center office building sold in August 1995, the Leopold
Retirement Inn sold in February 1996, the Best Western Lakeway Inn sold in
May 1996, and the Rockledge and Carmel Apartments in August 1996.
Operating expenses for the property operations decreased 81% from
$1,225,000 in 1995 to $229,000 in 1996, a decrease of $996,000. The
reduction in operating expenses was proportional to the reduction in
revenue.
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Selling and administrative expenses decreased 43% from $260,000 in 1995 to
$146,000 in 1996, a decrease of $114,000. This decrease was due to lower
payroll expenses which were partially offset by higher professional fees
resulting from legal work relating to the sale of various properties.
Combining the reduced revenues, the proportionately reduced operating
expenses, and decreased selling and administrative expenses, the operating
results before interest and other income/expenses decreased from a profit
of $225,000 in 1995 to $6,000 in 1996. Interest income decreased slightly
from $17,000 in 1995 to $13,000 in 1996. Interest expense decreased from
$251,000 in 1995 to $88,000 in 1996, reflecting decreased mortgages and
deeds of trust balances resulting from the sale of the various properties.
The 1996 statement of operations contains a gain of $2,762,000 from the
disposal of assets resulting primarily from the sale of the Rockledge
Apartments and the Carmel Apartments.
FOR THE NINE MONTHS ENDED OCTOBER 1, 1996 vs. THE NINE MONTHS ENDED
SEPTEMBER 30, 1995
Revenues from the property operations decreased 48%, from $4,790,000 in
1995 to $2,506,000 in 1996, a decrease of $2,284,000. All of the decrease
was caused by the loss of revenue from the disposal of the following
properties: the Delta Financial Center office building sold in August
1995, the Leopold Retirement Inn sold in February 1996, the Best Western
Lakeway Inn sold in May 1996, and the Rockledge Apartments and Carmel
Apartments in August 1996.
Operating expenses for the property operations decreased 48% from
$3,815,000 in 1995 to $1,954,000 in 1996, a decrease of $1,861,000. The
reduction in operating expenses was proportional to the reduction in
revenue.
Selling and administrative expenses decreased 19% from $875,000 in 1995 to
$707,000 in 1996, a decrease of $168,000. This decrease was due to lower
payroll expenses and reduced advertising expenses, partially offset by
higher professional fees resulting from legal work relating to the sale of
various properties.
Page 9 of 13
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Combining the reduced revenues, the proportionately reduced operating
expenses, and decreased selling and administrative expenses, the operating
results before interest and other income/expenses decreased from a profit
of $100,000 in 1995 to a loss of $155,000 in 1996. Interest income
decreased from $108,000 in 1995 to $38,000 in 1996, due to the loss of
interest-bearing restricted investments held in the warranty business
during 1995. Interest expense decreased from $760,000 in 1995 to $553,000
in 1996, reflecting decreased mortgages and deeds of trust balances
resulting from the sale of the Leopold Inn, Lakeway Inn and Rockledge and
Carmel Apartments..
The 1996 statement of operations contains a gain of $3,223,000 from the
disposal of assets. $365,000 of this amount is from the sale of the Best
Western Lakeway Inn in May 1996. Another $96,000 is from the sale of the
Leopold Inn in February 1996. The gain on the sale of the Rockledge
Apartments was $2,193,000 while the Carmel Apartments had a gain of
$569,000.
DISCONTINUED OPERATIONS
The warranty operations recorded an operating profit of $9,000 in the three
months ended September 30, 1995 and a loss of $409,000 for the nine months
ended the same date. The warranty operations also incurred negative cash
flow of $629,000 during the nine month period. Because of these losses and
negative cash flows, the Board of Directors decided to sell the warranty
business, resulting in the transaction completed on August 1, 1995. In
that transaction, the Company transferred all warranty business assets and
liabilities to the buyer. The Company received no compensation, other than
the relief from the warranty-related liabilities, in the transaction.
Because the liabilities transferred substantially exceeded the assets
transferred, the Company recorded a gain of $2,263,000 on the sale. (Note
4 provides more details on the warranty operations.)
FINANCIAL CONDITION, LIQUIDITY AND FUTURE PLANS
At October 1, 1996, the Company had total assets of $2,636,000, total
liabilities of $2,234,000 and stockholders' equity of $402,000. The major
asset of the Company is property, which comprises $1,926,000 of the total
assets. All of the property is categorized as property held for sale and
therefore carried at the lower of cost or net realizable value. It is the
intention of the Board to sell all property, retire the related secured
debt and other liabilities, and return any remaining funds to the
shareholders.
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The Directors have initiated this process and intend to complete it as soon
as possible. To facilitate this process and to reduce expenses until such
time as the residual funds can be returned to shareholders, the Directors
intend to submit a plan to the shareholders to convert the Company to a
liquidating trust. To be approved, shareholders representing 66.67% of the
total outstanding shares must approve the plan.
The major liability of the Company at October 1, 1996 was debt secured by
the properties, totaling $2,167,000. Of this amount, $137,000 is in the
form of first mortgages to banks, with the remaining $2,030,000 in the form
of deeds of trust. The deeds of trust matured on September 1, 1996.
As disclosed in Note 6, these deeds of trust were paid in full on October
28, 1996 when the Company sold the Kit Carson Apartments in Security,
Colorado. The sale price of the Kit Carson Apartments was $2,750,000 and
the gain on the transaction was approximately $1,185,000.
At October 1, 1996, the Company had $621,000 cash on hand and $50,000 in
accounts receivable. Accounts payable and accrued expenses totaled
$107,000. Given this positive working capital, the Company is able to meet
its obligations as they come due.
Gordon Cheadle Terry L. Switzer
President and Vice Chairman of the Board Vice President, Finance
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DELTA HOLDING, INC.
PART II. OTHER INFORMATION
Item 6 - Reports on Form 8-K
a) Form 8-K on reporting date of August 30, 1996.
Item Reported: Item 2 - Disposition of Assets. Sale of Rockledge
and Carmel Apartments. Exhibit: Commercial Contracts to Buy and
Sell Real Estate.
b) Form 8-K on reporting date of October 28, 1996.
Item Reported: Item 2 - Disposition of Assets. Sale of Kit Carson
Apartments. Exhibit: Commercial Contract to Buy and Sell Real
Estate.
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DELTA HOLDING, INC.
FORM 10-QSB
For the Quarter Ended October 1, 1996
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
DELTA HOLDING, INC.
(Registrant)
Date: November 14, 1996
----------------------------------------
Gordon Cheadle
Date: November 14, 1996
----------------------------------------
Terry L. Switzer, Vice President,
Finance and Operations
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> OCT-01-1996
<CASH> 621,000
<SECURITIES> 0
<RECEIVABLES> 50,000
<ALLOWANCES> 37,000
<INVENTORY> 33,000
<CURRENT-ASSETS> 0<F1>
<PP&E> 10,000
<DEPRECIATION> 4,000
<TOTAL-ASSETS> 2,636,000
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 2,167,000
0
0
<COMMON> 484,000
<OTHER-SE> (82,000)
<TOTAL-LIABILITY-AND-EQUITY> 2,636,000
<SALES> 2,506,000
<TOTAL-REVENUES> 2,506,000
<CGS> 1,954,000
<TOTAL-COSTS> 1,954,000
<OTHER-EXPENSES> 707,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 553,000
<INCOME-PRETAX> 2,553,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,553,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,553,000
<EPS-PRIMARY> 5.27
<EPS-DILUTED> 5.27
<FN>
<F1>DELTA IS A PROPERTY-OWNING COMPANY AND PROPERTY MANAGING COMPANY. THEREFORE IT
DOES NOT HAVE A CLASSIFIED BALANCE SHEET AS TO LONG TERM/CURRENT ASSETS AND
LIABILITIES, THEREFORE CURRENT ASSETS AND CURRENT LIABILITIES ARE 0.
</FN>
</TABLE>
