SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
____________
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended April 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
Commission File Number: 0-20530
HILCOAST DEVELOPMENT CORP.
(Exact name of registrant as specified in its charter)
Delaware 65-0346040
(State of Incorporation) (I.R.S. Employer Identification No.)
19146 Lyons Road, Boca Raton, Florida 33434
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 407-487-9630
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of class)
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
This report contains a total of 20 pages.
HILCOAST DEVELOPMENT CORP. AND SUBSIDIARIES
PART I. Financial Information
Item 1. Financial Statements
The consolidated financial statements included herein have been
prepared by the registrant, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been consolidated or omitted pursuant to
such rules and regulations; however, the registrant believes that
the disclosures are adequate to make the information presented not
misleading. It is suggested that these consolidated financial
statements be read in conjunction with the financial statements and
the notes thereto included in the registrant's Annual Report on
Form 10-K for the fiscal year ended July 31, 1995.
The consolidated financial statements for the interim periods
included herein, which are unaudited, include, in the opinion of
management, all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the financial position and
results of operations of the registrant for the periods presented.
The results of operations for the interim periods should not be
considered indicative of results to be expected for the full year.
HILCOAST DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
Apr.30, Jul.31,
ASSETS (Note 3) 1996 1995
--------------- ------- -------
Cash:
Unrestricted $ 19 $ 46
Restricted 875 764
Inventories and properties held
for development and sale (Note 2) 31,963 35,383
Property and equipment, net of
accumulated depreciation 19,295 19,110
Prepayments and other assets 2,992 2,834
------- -------
$55,144 $58,137
======= =======
LIABILITIES
-----------
Borrowings (Note 3) $47,126 $48,611
Accounts payable, accruals and
other liabilities 4,012 4,680
Deposits, principally from customers 2,171 1,933
Deferred income taxes 175 640
------- -------
Total liabilities 53,484 55,864
------- -------
Contingencies (Note 5)
STOCKHOLDERS' EQUITY
--------------------
Common Stock; $.01 par; shares authorized
6,000,000; outstanding 2,362,320 24 24
Additional paid-in capital 2,481 2,481
Deficit (845) (232)
------- -------
Total stockholders' equity 1,660 2,273
------- -------
$55,144 $58,137
======= =======
See accompanying notes to consolidated financial statements.
HILCOAST DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
April 30, April 30,
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
Revenues:
Sales:
Condominium apartments $ 8,275 $ 6,462 $22,291 $27,779
Land and other 142 153 256 2,613
Recreation and maintenance fees 2,090 1,912 6,126 5,589
Other (Note 4) 1,092 1,001 2,711 2,802
--------- --------- --------- ---------
11,599 9,528 31,384 38,783
--------- --------- --------- ---------
Expenses:
Cost of sales:
Condominium apartments 7,412 5,215 19,559 22,635
Land and other 118 120 206 2,430
Operating costs 2,074 1,937 5,714 5,646
Interest:
Incurred 1,309 1,259 4,025 3,800
Capitalized (715) (829) (2,274) (2,520)
Depreciation 321 310 955 937
Selling and marketing 1,060 758 2,843 3,173
General and administrative 378 436 1,335 1,420
--------- --------- --------- ---------
11,957 9,206 32,363 37,521
--------- --------- --------- ---------
Income (loss) before income taxes (358) 322 (979) 1,262
Income tax expense (benefit) (132) 112 (366) 480
--------- --------- --------- ---------
Net income (loss) (226) 210 (613) 782
Preferred stock dividends - (83) - (333)
--------- --------- --------- ---------
Net income (loss) available
for common stockholders ($ 226) $ 127 ($ 613) $ 449
========= ========= ========= =========
Net income (loss) per common share:
Primary and fully diluted ($.10) $.05 ($.26) $.18
========= ========= ========= =========
Average common shares considered
outstanding:
Primary and fully diluted 2,362,320 2,503,828 2,362,320 2,503,692
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
HILCOAST DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands)
Additional
Common Paid-In
Stock Capital Deficit
------ ---------- -------
Balance, July 31, 1995 $24 $2,481 ($232)
Net loss for the nine months
ended April 30, 1996 - - (613)
--- ------ ----
Balance, April 30, 1996 $24 $2,481 $845
=== ====== ====
See accompanying notes to consolidated statements.
HILCOAST DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended
April 30,
-----------------
1996 1995
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($ 613) $ 782
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 955 937
Deferred income tax expense (benefit) (465) 475
Changes in assets and liabilities:
Decrease in inventories and properties
held for development and sale 3,562 3,594
(Increase) decrease in restricted cash (111) 214
Increase in prepayments and other assets (158) (149)
Decrease in accounts payable, accruals
and other liabilities (668) (622)
Increase (decrease) in deposits 238 (296)
------- -------
Net cash provided by operating activities 2,740 4,935
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (1,282) (253)
------- -------
Net cash used by investing activities (1,282) (253)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 14,018 17,476
Repayments on borrowings (15,503) (21,843)
Cash dividends paid on Preferred Stock - (375)
Proceeds on issuance of Common Stock - 15
------- -------
Net cash used by financing activities (1,485) (4,727)
------- -------
Net decrease in unrestricted cash during period (27) (45)
Unrestricted cash at beginning of period 46 157
------- -------
Unrestricted cash at end of period $ 19 $ 112
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 4,057 $ 3,733
======= =======
Income taxes $ 187 $ 5
======= =======
SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIES:
Redemption of Preferred Stock in exchange
for note payable $ - $ 5,000
======= =======
See accompanying notes to consolidated financial statements.
HILCOAST DEVELOPMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BUSINESS
Hilcoast Development Corp. (the "Company") is engaged in the
design, development, construction, marketing and sale of
condominium apartments at Century Village at Pembroke Pines
("Century Village"), an adult condominium project in southeast
Florida, the operation of the recreation facilities located at the
project ("Recreation Facilities") and certain other real estate
related businesses.
The Company is also engaged in the development and sale of single
family homesites in a golf course community known as Glen Abbey in
Volusia County, Florida.
(2) INVENTORIES AND PROPERTIES HELD FOR DEVELOPMENT AND SALE
Inventories and properties held for development and sale consist of
the following (in thousands):
Apr. 30, July 31,
1996 1995
-------- --------
Century Village:
Land under development for
condominium buildings $12,303 $16,041
Condominium buildings completed
or under construction 15,243 15,243
Unamortized capitalized interest 1,996 1,643
------- -------
29,542 32,927
Land under development, Volusia
County, Florida (Glen Abbey),
including unamortized capital-
ized interest of $555 and $459 2,421 2,456
------- -------
$31,963 $35,383
======= =======
Substantially all inventories and properties held for development
and sale are pledged as collateral for indebtedness (Note 3).
(3) BORROWINGS
Borrowings, substantially consisting of mortgage notes collateralized by all
major assets of the Company, are summarized as follows (in thousands):
Apr. 30, July 31,
1996 1995
-------- --------
Mortgage notes payable to CV Reit,
Inc. ("CV Reit") (Note 3(a)):
Term Loan $25,000 $26,477
Lines of Credit 14,855 12,140
Other 7,208 9,499
------- -------
47,063 48,116
------- -------
Levy Note (Note 3(b)) - 390
Other 63 105
------- -------
63 495
------- -------
$47,126 $48,611
======= =======
(a) CV Reit
Term Loan/Lines of Credit
At April 30, 1996, the Company's borrowings from CV Reit primarily
consisted of a term loan (the "Term Loan") and $17 million
revolving lines of credit (the "Lines of Credit"). The Term Loan
and $7.5 million of the Lines of Credit bear interest, payable
monthly, at prime (8.25% at April 30, 1996) plus 3%, but in any
event not less than 9% nor more than 11%, and mature on July 31,
1998, except as described below with respect to the conversion of
the Term Loan. The remaining $9.5 million of the Lines of Credit
bears interest, payable monthly, as follows: (i) $3 million at
prime plus 3%, with a floor of 11%, which matures on May 31, 1997;
(ii) $2.5 million at 12.5% of which $2 million matures on February
28, 1997 and $.5 million on May 31, 1997; and (iii) $4 million at
12% of which $2 million matures on July 31, 1996 and $2 million on
November 30, 1996. The Term Loan and the Lines of Credit are
collateralized by all major assets of the Company. The amount of
available funds under the Lines of Credit is limited based upon
available collateral, as defined. Specific release prices,
principally for the condominium apartments at Century Village, are
required to be applied as permanent reductions of the Lines of
Credit.
Upon the earlier to occur of delivery of the last unit at Century
Village or July 31, 1998, the Term Loan will be converted to a $25
million, 11%, 25 year self-amortizing loan providing for equal
monthly payments of principal and interest (the "Permanent Loan").
The Permanent Loan will be collateralized by a first mortgage on
the Recreation Facilities and may not be prepaid without incurring
a prepayment penalty equal to the greater of 5% of the amount
prepaid or an amount determined pursuant to a formula based upon
the yield of certain U.S. Treasury Issues.
Until the Permanent Loan is satisfied in full, the wholly-owned
subsidiary of the Company which owns the Recreation Facilities will
not be permitted to incur or guarantee additional debt financing,
except for that related to the operation of the Recreation
Facilities.
Other
Other borrowings consist of approximately $7.2 million in mortgage
notes, which bear interest, generally payable quarterly, at rates
ranging from 10% to 12% and which are collateralized by the
Recreation Facilities and certain land under development. These
notes mature principally during fiscal 1998 and include $2.2
million which requires principal payments based upon specific
release prices of condominium apartments or homesites delivered.
Letters of Credit
At April 30, 1996, there was approximately $.6 million outstanding
in letters of credit issued by CV Reit to municipalities in
connection with certain of the Company's development requirements
at Century Village and Glen Abbey. In addition, a $1.5 million
letter of credit has been issued by a bank for the benefit of the
State of Florida, guaranteed by CV Reit, which allows the Company
to utilize up to that amount of customer deposits previously
required to be held in restricted escrow accounts.
(b) Levy Note
In September 1994, the Company and H. Irwin Levy entered into an
unsecured revolving credit agreement ("Levy Note") allowing the
Company to borrow up to $750,000 from Mr. Levy, in the event the
Company's availability under the CV Reit Lines of Credit does not
exceed $50,000. The Levy Note bears interest, payable monthly, at
prime plus 1/2% and matures on May 1, 1997. As of April 30, 1996,
amounts borrowed under the Levy Note had been repaid.
(4) OTHER REVENUES
Other revenues consist of the following (in thousands):
Three Nine
Months Ended Months Ended
April 30, April 30,
-------------- --------------
1996 1995 1996 1995
------ ------ ------ ------
Golf course operations $ 385 $ 407 $ 878 $ 883
Real estate brokerage 255 204 784 797
Social program activities 233 207 510 493
Title insurance agency 101 72 260 309
Consulting fees (a) 30 30 107 90
Other 88 81 172 230
------ ------ ------ ------
$1,092 $1,001 $2,711 $2,802
====== ====== ====== ======
________
(a) Effective July 31, 1992, the Company and CV Reit entered into
a consulting and advisory agreement under which the Company
provides investment, advisory, consulting and administrative
services to CV Reit, excluding matters related to the
Company's indebtedness to CV Reit. The agreement, which
originally expired on July 31, 1994, has been extended to July
31, 1996, provides for payment of monthly fees of $10,000 plus
reimbursement of out of pocket expenses, and may be terminated
upon 180 days notice by the Company and upon 30 days notice by
CV Reit.
(5) CONTINGENCIES
See Part II, Item 1 for a discussion of the Company's Legal
Proceedings.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
The Company's primary source of revenues is the design,
development, construction, marketing and sale of condominium
apartments at the Century Village at Pembroke Pines ("Century
Village"), an adult condominium project in southeast Florida, and
the operation of the recreation facilities located at the project
("Recreation Facilities"). Significant information pertaining to
deliveries of condominium apartments at Century Village is
presented below.
Deliveries - Three Months Ended April 30,
--------------------------------------------------
1996 1995
--------------------------------- ---------------------------------
Number Average Number Average
of Units Revenues Sales Gross of Units Revenues Sales Gross
Delivered (000's) Price Margin Delivered (000's) Price Margin
--------- -------- ------- ------ --------- ------- ------- ------
109 $8,275 $75,900 10% 81 $6,462 $79,800 19%
Deliveries - Nine Months Ended April 30,
--------------------------------------------------
1996 1995
--------------------------------- ---------------------------------
Number Average Number Average
of Units Revenues Sales Gross of Units Revenues Sales Gross
Delivered (000's) Price Margin Delivered (000's) Price Margin
--------- -------- ------- ------ --------- ------- ------- ------
300 $22,291 $74,300 12% 358 $27,779 $77,600 19%
Revenues from sales of condominium apartments are recognized only
upon the closing (delivery) of the sales contract. Fluctuations in
average sales prices and gross margins at Century Village are
generally a function of the location of condominium buildings (e.g.
lakefront) and to a lesser extent, the mix of condominium
apartments within the building.
A comparison of the Company's inventories and backlog (under
contract for sale but not yet delivered) at Century Village
follows:
April 30, 1996 April 30, 1995
----------------------- -----------------------
Number of Number of
Condominium Apartments Condominium Apartments
----------------------- -----------------------
Completed Completed
or Under or Under
Construction Backlog Construction Backlog
------------ --------- ------------ ---------
Completed but not
yet delivered 114 69 51 51
Under construction 700 158 740 188
--- --- --- ---
814 227 791 239
=== === === ===
Aggregate sales
value (000's) $18,167 $18,560
Average sales price $80,000 $77,700
A comparison of the Company's new sales orders at Century Village
is presented below:
Three Nine
Months Ended Months Ended
April 30, April 30,
---------------- ----------------
1996 1995 1996 1995
------- ------- ------- -------
New sales orders (a) 107 125 308 316
Aggregate sales value
(000's) $ 8,252 $ 9,544 $23,442 $24,586
Average sales price $77,100 $76,400 $76,100 $77,800
______
(a) Net of cancellations.
Results of Operations
For the three and nine months ended April 30, 1996, the Company
reported a net loss attributable to common stock of $226,000 and
$613,000, respectively, on total revenues of $11.6 million and
$31.4 million, as compared to net income attributable to common
stock of $127,000 and $449,000 on revenues of $9.5 million and
$38.8 million for the corresponding periods ended April 30, 1995.
The decline in net income was principally due to fewer condominium
apartments delivered during the comparable three and nine month
periods and reductions in gross margins (sales revenues less cost
of sales, as a percentage of sales) as presented in the preceeding
tables.
The decrease in gross margins reflects lower average per unit sales
prices of $3,900 and $3,300 for the quarter and nine month periods,
respectively, primarily attributable to the commencement of
deliveries in November 1995 in a section where there are no
lakefront buildings. Gross margins declined also due to higher per
unit cost of sales for all units delivered in fiscal 1996,
primarily attributable to an overall rise in construction costs
(spurred by normal cost increases and by additional requirements
imposed by governmental agencies) and site improvement costs, which
were partially offset by lower per unit land costs associated with
units delivered in the aforementioned section. Based upon the 227
sales contracts in backlog for Century Village at April 30, 1996,
a significant portion of which are expected to be delivered within
the next six months, the Company anticipates an increase in average
per unit sales prices. Conversely, the Company anticipates a
slight decrease in the average per unit cost of sales which should
result in an increase in the gross margin for the remainder of
fiscal 1996.
During the nine months ended April 30, 1996, revenues from land
sales consisted of the delivery of seven improved homesites at Glen
Abbey for $256,000. Revenues from land sales for the nine months
ended April 30, 1995 included the sale of unimproved land in
Coconut Creek, Florida for approximately $2 million, the cost of
which approximated sales proceeds, and the sale of 16 improved
homesites at Glen Abbey for $638,000. Sales and development
activities at Glen Abbey during the remainder of fiscal 1996 are
not expected to have a significant effect on the Company's results
of operations.
For the quarter ended April 30, 1996 and 1995, recreation and
maintenance fees were $2.1 million and $1.9 million, respectively,
consisting of $1.5 million and $1.4 million, respectively, of
revenues pursuant to long-term leases ("Recreation Leases") of the
Recreation Facilities with owners of approximately 6,800 Century
Village condominium apartments delivered through April 30, 1996,
and $.6 million and $.5 million, respectively, of revenues from
master management agreements, under which the Company provides
certain maintenance and community services. For the nine months
ended April 30, 1996 and 1995, recreation and maintenance fees were
$6.1 million and $5.6 million, respectively, comprised of $4.4
million and $4 million attributable to the Recreation Leases, and
$1.7 million and $1.6 million, respectively, attributable to master
management revenues. These revenues will continue to increase
annually principally due to future deliveries of condominium
apartments and specified contractual increases in monthly fees in
accordance with the Recreation Leases. The Recreation Leases and
the master management agreements provide that increases and
decreases in operating costs are passed through to the unit owners,
subject to a guaranteed rate generally for three years.
Other revenues for the comparable three and nine month periods
ended April 30, 1996 and 1995 were relatively stable and
principally consisted of revenues from the golf course operations
at Century Village, real estate brokerage commissions at the four
Century Village communities in southeast Florida, social program
activities at the Recreation Facilities and title insurance agency
services principally provided on sales at Century Village (see Note
4 to Consolidated Financial Statements). Other revenues are
expected to decrease slightly during the remainder of fiscal 1996
due to decreased seasonal activities.
Operating costs for the comparable three and nine month periods
ended April 30, 1996 and 1995 were relatively stable and consisted
principally of costs incurred for the operation of the Recreation
Facilities, the master management agreements, and the ancillary
operations noted above. Operating cost increases, if any, related
to the Recreation Facilities and master management agreements are
generally passed through to unit owners at Century Village in the
form of increased recreation and maintenance fees, subject to the
aforementioned three year guarantee. Operating costs are expected
to decrease slightly during the remainder of fiscal 1996 due to
decreased seasonal activities.
Interest incurred for both quarters ended April 30, 1996 and 1995
approximated $1.3 million. For the comparable nine month periods,
interest incurred increased from $3.8 million in 1995 to $4 million
in 1996. After deducting interest capitalized principally to real
estate inventories at Century Village and Glen Abbey, net interest
expense amounted to $.6 million and $.4 million, respectively, for
the quarters ended April 30, 1996 and 1995, and $1.7 million and
$1.3 million, respectively, for the comparable nine month periods.
This increase reflects interest resulting from the redemption of
the Company's $5 million 10% Preferred Stock in exchange for a $5
million 10% note, effective March 31, 1995; reduced capitalized
interest resulting from lower average inventories on which to
capitalize interest due to an increased number of units completed
but not yet delivered; partially offset by reductions in other
borrowings. The Company does not anticipate that interest incurred
will fluctuate significantly during the remainder of fiscal 1996.
During both quarters ended April 30, 1996 and 1995, selling and
marketing costs incurred amounted to approximately $1 million. For
the comparable nine month periods, costs incurred were also stable
at approximately $3.1 million. Selling and marketing costs
incurred are capitalized and amortized to expense as condominium
apartments are delivered at Century Village, based on the average
capitalized cost per apartment sold. While the average per unit
selling and marketing costs amortized to expense during the
quarters ended April 30, 1996 and 1995 remained stable, for the
comparable nine month periods, the expense per unit increased to
$9,400 from $8,800. Although selling and marketing costs incurred
are not expected to fluctuate significantly during the remainder of
fiscal 1996, the per unit amortization may increase or decrease
based on the level of new sales contracts.
General and administrative expenses consist primarily of corporate
overhead and administration of Century Village, and decreased
slightly during the three and nine months ended April 30, 1996 as
compared to 1995. However, during the nine months ended April 30,
1996, the Company expensed approximately $190,000 in legal fees in
connection with certain litigation (see Part II, Item 1 - Legal
Proceedings) which was more than offset by a reduction in overhead,
principally insurance expense. The Company anticipates that legal
fees to be incurred in connection with the aforementioned
litigation will decline during the remainder of the fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended April 30, 1996, the Company generated net
cash flow from operating activities of $2.7 million, as compared to
$4.9 million during the corresponding period in 1995. The primary
source of cash flow was net reductions in real estate inventories
amounting to $3.6 million during each nine month period. As a
result of the positive cash flow from operations, for the
comparable nine month periods ended in 1996 and 1995, the Company
was able to reduce net borrowings by $1.5 million and $4.4 million,
respectively. In addition, during 1996, the Company increased its
property and equipment by $1.3 million, principally consisting of
the construction of a new health club at Century Village. Although
the Company has been successful in generating positive cash flow
from operating activities, there is no assurance that the Company
will be able to achieve or sustain positive cash flow from
operating activities in the future.
The Company's borrowings at April 30, 1996 amounted to $47.1
million and were substantially due to CV Reit. See Note 3 to
Consolidated Financial Statements for a description of the
Company's borrowings. The amount due includes $25 million, which
presently requires monthly interest only payments but which is
scheduled to be converted by July 31, 1998 to an 11%, 25 year self-amortizing
loan providing for equal monthly payments of principal
and interest. Substantially all of the remaining indebtedness
($7.2 million, excluding the lines of credit - see below) matures
in fiscal 1998, including $2.2 million, which requires principal
payments based on specific release prices of condominium apartments
or homesites delivered. The Company's borrowings require interest
payments generally on a monthly basis.
The Company's cash flow from operations, net of its construction
and other operating requirements, has not been sufficient to
satisfy its payment obligations required under its borrowings.
Consequently, the Company has relied on borrowings under its lines
of credit from CV Reit (the "Lines of Credit" - see Note 3 to
Consolidated Financial Statements), which amounted to $13 million
at July 31, 1995. Principally as a result of the construction pace
at Century Village, the Company determined that the availability
under the Lines of Credit was not sufficient to satisfy the
Company's cash flow requirements. Accordingly, the Company
requested and CV Reit agreed in August 1995 to an increase in the
Lines of Credit, to a maximum of $17 million, which matures as
follows: $2 million in fiscal 1996, $7.5 million in fiscal 1997
and $7.5 million in fiscal 1998. The Company also has a revolving
credit agreement with H. Irwin Levy, Chairman of the Board and
Chief Executive Officer of the Company, under which the Company may
borrow up to $750,000 through May 1997 (the "Levy Note" - see Note
3 to Consolidated Financial Statements). At April 30, 1996, the
outstanding balance of the Lines of Credit was $14.9 million and
there was no balance outstanding under the Levy Note. The Company
anticipates that funds generated in the ordinary course of business
and availability expected under the Lines of Credit and the Levy
Note will be sufficient to satisfy its cash flow needs.
The amount of available funds under the Lines of Credit is limited
based on available collateral, as defined. At April 30, 1996, the
available collateral exceeded the outstanding balance of the Lines
of Credit by approximately $3.4 million. The Company also is
restricted from incurring or guaranteeing additional debt financing
under certain circumstances (see Note 3 to Consolidated Financial
Statements). Substantially all the Company's assets are pledged as
collateral for the Company's borrowings.
The Company attempts to minimize its investment in inventory. In
addition to construction of condominium apartments at Century
Village and development of homesites at Glen Abbey, significant
capital outlays for amenities and infrastructure are required in
advance of deliveries of apartments and homesites. The Company has
no material commitments for capital expenditures other than those
incurred in connection with its development and construction
activities in the ordinary course of business at Century Village
and Glen Abbey. To complete Century Village, the Company will
incur costs in connection with the remaining approximately 980
apartments to be delivered, including the construction of the
condominium buildings and the remaining Recreation Facilities, and
infrastructure improvements, including the installation of water
and sewer service, drainage facilities, paving and grading, and
landscaping. The most significant portion of the Company's
investment in the Recreation Facilities was completed prior to the
Company's acquisition of the Century Village assets in July 1992.
At Glen Abbey, homesite improvements will include water and sewer
service, drainage facilities, and paving and grading.
The Company's current major business activities consist of
development and other real estate related activities principally at
Century Village. As of April 30, 1996, 87% of the planned
community had been delivered and approximately 980 condominium
apartments remained to be constructed and/or delivered. Prior to
completion of Century Village, the Company will explore various
alternatives for development of future real estate projects. If
the Company engages in future real estate development activities,
it will require outside financing which may or may not be
available. In the event the Company decides not to engage in any
further real estate development activities, its long-term revenues
are anticipated to be generated principally from net revenues
derived under the long-term Recreation Leases, net of the related
debt service requirement, and from earnings on funds expected to be
available from deliveries of Century Village condominium
apartments. In that event, the Company anticipates that its
revenues will be sufficient to satisfy its cash requirements.
However, there is no assurance that revenues will be sufficient for
such purposes.
INFLATION
The Company, as well as the home building industry in general, may
be adversely affected during periods of high inflation, primarily
because of higher material, labor and financing costs. In
particular, interest rates on a significant portion of the
Company's borrowings are variable, subject to a floor of 9% and a
ceiling of 11%. Increases in the prime rate could result in
further increased interest cost to the Company in addition to
possible reduced sales activity, potentially resulting in reduced
profitability. The Company may attempt to pass through to its
customers any increases in costs through increased selling prices.
However, this may not always be possible due to competitive factors
in the marketplace.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board recently issued SFAS
No.121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, which the Company will be
required to implement for its fiscal year ended July 31, 1997.
The statement requires that long-lived assets must be reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. If
the sum of the expected future cash flows (undiscounted and without
interest charges) from an asset to be held and used is less than
the carrying value of the asset, an impairment loss must be
recognized in the amount of the difference between the carrying
value and fair value. Assets to be disposed must be valued at the
lower of carrying value or fair value less costs to sell.
Management believes that if this standard were to be implemented
currently, there would not be an impairment loss; however, until it
is implemented, management will periodically reassess the Company's
situation in relation to SFAS No.121.
PART II. Other Information
Item 1 - Legal Proceedings:
On September 16, 1993, the Company filed a Complaint in the Circuit
Court, Seventh Judicial Circuit, in and for Volusia County,
Florida, seeking unspecified damages against a utility company,
claiming inverse condemnation and trespass at the Company's Glen
Abbey project. On March 18, 1994, the Court granted a Motion for
Summary Judgment holding the defendant liable for trespass and
inverse condemnation. On April 5, 1995, the Court vacated the
Summary Judgment and in February 1996, the Court ruled that the
Company is not entitled to recovery under the theory of inverse
condemnation. The trespass claims, which include a claim for
damages caused by flooding, have not been tried and no trial date
has been set.
The Company is in the process of appealing the Court's decision.
If the Appellate Court reverses the order, the inverse condemnation
damages claim would be remanded to the Circuit Court. The Company
also expects to pursue its trespass claims.
The Company is unable to predict the outcome of its appeal or the
amount of damages, if any, which may be awarded to the Company on
either the trespass or inverse condemnation claims. In addition,
any award of damages to the Company will be subject to appeal by
the defendant and, accordingly, there can be no assurance that the
Company will ultimately recover any damages.
Item 6 - Exhibits and Reports on Form 8-K:
(a) Exhibits:
(10)(i) Second Extension Agreement, dated May 1, 1996,
extending the maturity date of the following Note to May
1, 1997: $750,000 Promissory Note, dated September 15,
1994, from NewCen Communities, Inc. to H. Irwin Levy.
(11) Statement Regarding Computation of Earnings Per
Share
(27) Financial Data Schedule
(b) Reports on Form 8-K:
The Company was not required to file Form 8-K
during the quarter for which this report is filed.
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.
HILCOAST DEVELOPMENT CORP.
_____________________________
(Registrant)
June 13, 1996 /S/ JACK JAIVEN
_________________________________
Jack Jaiven, Executive Vice
President and Principal Financial
and Accounting Officer
Exhibit (10)(i)
H. IRWIN LEVY
100 Century Blvd.
West Palm Beach, FL 33417
May 1, 1996
NewCen Communities, Inc.
13460 SW 10th St.
Pembroke Pines, FL 33027
Attn: Mr. Jack Jaiven, Vice President
RE: SECOND EXTENSION AGREEMENT
$750,000.00 Revolving Credit Facility
Gentlemen:
This letter is intended to confirm and memorialize our
understanding and agreement in connection with the referenced
matter.
H. Irwin Levy is the "Payee" under that certain Promissory Note
(the "Note") dated September 15, 1994 in the principal sum of up
to Seven Hundred Fifty Thousand Dollars and no/100 ($750,000.00 -
the "Committed Amount") and that certain Extension Agreement
dated April 28, 1995, whereby the time for payment of the
outstanding principal balance of the indebtedness evidenced by
the Note was extended until and including the first day of May
1996. The Payee, also referred to as the "Lender" under that
certain Loan Agreement drafted as a letter agreement of even date
with the Note, has agreed to further extend the time for payment
of the indebtedness evidenced by the Note.
NewCen Communities, Inc., the "Maker" under the Note and the
"Borrower" under the subject Loan Agreement, acknowledges that it
has requested the extension herein and further does hereby
certify, confirm and agree that the Loan Agreement and Note are
in full force and effect, are valid and enforceable in accordance
with their terms and are not subject to any defenses or offsets
of any kind or nature whatsoever.
The parties agree, in consideration of the premises and other
good and valuable considerations, the receipt and sufficiency
whereof is hereby acknowledged, that: (1) the time for payment of
the outstanding principal balance of the indebtedness evidenced
by the Note shall be and is hereby further extended until and
including the first day of May, 1997; (2) during the period
commencing on the date hereof and ending on and including May 1,
1997, the principal balance outstanding shall bear interest at a
floating rate equal to the Wall Street Journal Prime Rate (as
said term is defined in the Note) per annum; and, (3) on or
prior to the date hereof, Borrower shall pay to Lender a
commitment fee of 0.25% of the Committed Amount ($1,875.00).
NewCen Communities, Inc.
Attn: Michael S. Rubin
May 1, 1996
page 2 of 2
All other terms and conditions of the Loan Agreement and of the
Note, as hereinabove modified and extended, shall remain fully
enforceable throughout the extended term of the Note.
Kindly countersign this letter in the place designated below to
acknowledge and confirm your agreement to the foregoing.
Very truly yours,
/s/ H. Irwin Levy
H. Irwin Levy
Confirmed, acknowledged and agreed:
NEWCEN COMMUNITIES, INC.
By: /s/ Jack Jaiven
Jack Jaiven, Vice President
EXHIBIT (11)
HILCOAST DEVELOPMENT CORP.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Three Months Ended Nine Months Ended
April 30, April 30,
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
PRIMARY AND FULLY DILUTED:
Net income (loss) ($226,000) $127,000 ($613,000) $449,000
========= ========= ========= =========
Weighted average common
shares outstanding 2,362,320 2,362,320 2,362,320 2,362,064
Common stock equiva-
lents - stock options - 141,508 - 141,628
--------- --------- --------- ---------
Totals 2,362,320 2,503,828 2,362,320 2,503,692
========= ========= ========= =========
Net income (loss) ($.10) $.05 ($.26) $.18
per share ========= ========= ========= =========
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> APR-30-1996
<CASH> 894<F1>
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 31,963
<CURRENT-ASSETS> 0
<PP&E> 24,554
<DEPRECIATION> 5,259
<TOTAL-ASSETS> 55,144
<CURRENT-LIABILITIES> 0
<BONDS> 47,126
0
0
<COMMON> 24
<OTHER-SE> 1,636
<TOTAL-LIABILITY-AND-EQUITY> 55,144
<SALES> 22,547
<TOTAL-REVENUES> 31,384
<CGS> 19,765
<TOTAL-COSTS> 19,765
<OTHER-EXPENSES> 9,892
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,751
<INCOME-PRETAX> (979)
<INCOME-TAX> (366)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (613)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> (.26)
<FN>
<F1>Includes $875 of restricted cash.
</FN>
</TABLE>
