<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------
FORM 10-Q/A
AMENDMENT #1
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED OCTOBER 31, 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
------ ------
1
<PAGE> 2
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,
1996.
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.
2
<PAGE> 3
HILCOAST DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
Oct.30, Jul.31,
ASSETS (Note 3) 1996 1996
----------------- ----------- ---------
(Unaudited) (Audited)
<S> <C> <C>
Cash:
Unrestricted $ 57 $ 21
Restricted 740 773
Inventories and properties held
for development and sale (Note 2) 29,428 30,234
Property and equipment, net of
accumulated depreciation 19,380 19,754
Prepayments and other assets 2,847 2,813
------- -------
$52,452 $53,595
======= =======
LIABILITIES
-----------
Borrowings (Note 3) $43,344 $45,348
Accounts payable, accruals and
other liabilities 4,802 3,993
Deposits, principally from customers 1,965 2,033
Deferred income taxes 430 386
------- -------
Total liabilities 50,541 51,760
------- -------
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 (594) (670)
------- -------
Total stockholders' equity 1,911 1,835
------- -------
$52,452 $53,595
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
HILCOAST DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
--------------------
1996 1995
Revenues: --------- ---------
<S> <C> <C>
Sales:
Condominium apartments $ 8,529 $ 7,705
Land and other 40 114
Recreation and maintenance fees 2,179 1,999
Other (Note 4) 663 628
--------- --------
11,411 10,446
Expenses: --------- --------
Cost of sales:
Condominium apartments 6,934 6,792
Land and other 30 88
Operating costs 1,865 1,701
Interest:
Incurred 1,211 1,349
Capitalized (627) (772)
Depreciation 341 317
Selling and marketing 1,079 899
General and administrative 457 435
--------- --------
11,290 10,809
--------- --------
Income (loss) before income taxes 121 (363)
Income tax expense (benefit) 45 (137)
--------- --------
Net income (loss) $ 76 ($226)
========= =========
Net income (loss) per common share:
Primary and fully diluted $ .03 ($.09)
========= =========
Average common shares considered
outstanding:
Primary and fully diluted 2,362,320 2,362,320
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
HILCOAST DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Paid-In
Stock Capital Deficit
------ ---------- -------
<S> <C> <C> <C>
Balance, July 31, 1996 $24 $2,481 ($670)
Net income for the quarter
ended October 31, 1996 - - 76
--- ------ ------
Balance, October 31, 1996 $24 $2,481 ($594)
=== ====== ======
</TABLE>
See accompanying notes to consolidated statements.
5
<PAGE> 6
HILCOAST DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
------------------
1996 1995
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 76 ($ 226)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 341 317
Deferred income tax expense (benefit) 44 (141)
Changes in assets and liabilities:
Decrease in inventories and properties
held for development and sale 867 1,025
Decrease (increase) in restricted cash 33 (244)
Increase in prepayments and other assets (34) (31)
Increase in accounts payable, accruals
and other liabilities 809 143
(Decrease) increase in deposits (68) 203
------- -------
Net cash provided by operating activities 2,068 1,046
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (28) (150)
------- -------
Net cash used by investing activities (28) (150)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 3,805 6,133
Repayments on borrowings (5,809) (6,947)
------- -------
Net cash used by financing activities (2,004) (814)
------- -------
Net decrease in unrestricted cash during period 36 82
Unrestricted cash at beginning of period 21 46
------- -------
Unrestricted cash at end of period $ 57 $ 128
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,233 $ 1,352
======= =======
Income taxes $ - $ 94
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
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):
<TABLE>
<CAPTION>
Oct. 31, July 31,
1996 1996
-------- --------
<S> <C> <C>
Century Village:
Land under development for
condominium buildings $10,189 $11,499
Condominium buildings completed
or under construction 14,575 14,197
Unamortized capitalized interest 1,917 1,972
------- -------
26,681 27,668
Land under development, Volusia
County, Florida (Glen Abbey),
including unamortized capital-
ized interest of $638 and $586 2,747 2,566
------- -------
$29,428 $30,234
======= =======
</TABLE>
Substantially all inventories and properties held for development and sale are
pledged as collateral for indebtedness (Note 3).
7
<PAGE> 8
(3) BORROWINGS
Borrowings, substantially consisting of mortgage notes col-lateralized by all
major assets of the Company, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Oct. 31, July 31,
1996 1996
-------- --------
<S> <C> <C>
Mortgage notes payable to CV Reit,
Inc. ("CV Reit") (Note 3(a)):
Term Loan $25,000 $25,000
Lines of Credit 11,680 13,415
Preferred Stock Redemption Note 5,000 5,000
Land Acquisition Note 322 564
Glen Abbey Note 1,308 1,320
Other 34 49
------- -------
$43,344 $45,348
======= =======
</TABLE>
(A) CV REIT
TERM LOAN/LINES OF CREDIT
At October 31, 1996, the Company's borrowings from CV Reit primarily consisted
of a term loan (the "Term Loan") and $15 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 October 31, 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 $7.5 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) $2
million at 12% which matured 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.
8
<PAGE> 9
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 $6.6 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 $1.6 million which requires principal payments based upon specific
release prices of condominium apartments or homesites delivered.
LETTERS OF CREDIT
At October 31, 1996, there was approximately $65,000 outstanding in letters of
credit issued by CV Reit to municipalities in connection with certain of the
Company's development requirements at Century Village. 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 account.
(B) LEVY NOTE
The Company and H. Irwin Levy have 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 extended.
9
<PAGE> 10
(4) OTHER REVENUES
Other revenues consist of the following (in thousands):
<TABLE>
<CAPTION>
Three
Months Ended
October 31,
--------------
1996 1995
------ ------
<S> <C> <C>
Real estate brokerage $ 196 $ 227
Golf course operations 174 161
Title insurance agency 123 83
Social program activities 70 63
Consulting fees (a) 53 47
Other 47 47
------ ------
$ 663 $ 628
====== ======
</TABLE>
- --------
(a) Principally in connection with 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, 1997, 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.
(6) PROPOSED MERGER
On August 9, 1996, the Company's Board of Directors received an unsolicited
proposal from H. Irwin Levy, the Company's Chairman
10
<PAGE> 11
of the Board and Chief Executive Officer, contemplating a merger of the Company
and a newly formed acquisition company to be organized by Mr. Levy, pursuant to
which each of the Company's outstanding shares of common stock would be
converted into $6.00 in cash ("Merger Consideration"). A special independent
committee of the Board was appointed to consider the proposal and in connection
therewith, engaged Patricof & Co. Capital Corp. ("Patricof"), an investment
banking firm as its financial advisor.
On November 12, 1996, Patricof delivered its oral opinion to the special
committee and the Board to the effect that the Merger Consideration is fair to
the Company's public shareholders from a financial point of view. On that
date, the special committee and Board approved the terms of the Merger
Agreement and recommended that the shareholders approve and adopt such
agreement. The parties have executed the Merger Agreement. The proposed merger
is subject to approval by the Company's shareholders and a number of other
material conditions, including compliance with all applicable regulatory and
governmental requirements. Accordingly, there can be no assurance that the
proposed merger will be consummated.
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.
<TABLE>
<CAPTION>
Deliveries - Three Months Ended October 31,
--------------------------------------------------------------------
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
--------- -------- ------- ------ --------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
107 $8,529 $79,700 19% 100 $7,705 $77,100 12%
</TABLE>
11
<PAGE> 12
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:
<TABLE>
<CAPTION>
October 31, 1996 October 31, 1995
----------------------- -----------------------
Number of Number of
Condominium Apartments Condominium Apartments
----------------------- -----------------------
Completed Completed
or Under or Under
Construction Backlog Construction Backlog
------------ --------- ------------ --------
<S> <C> <C> <C> <C>
Completed but not
yet delivered 106 66 59 20
Under construction 656 124 731 204
--- --- --- ---
762 190 790 224
=== === === ===
Aggregate sales
value (000's) $15,228 $17,013
Average sales price $80,100 $76,000
</TABLE>
RESULTS OF OPERATIONS
For the three months ended October 31, 1996, the Company reported net income
of $76,000, on total revenues of $11.4 million, as compared to a net loss of
$226,000 on revenues of $10.4 million for the corresponding period ended
October 31, 1995. The increase in net income was principally due to a 7%
higher gross margin (sales revenues less cost of sales, as a percentage of
sales).
The increase in gross margin reflects higher average per unit sales prices of
$2,600, primarily attributable to the delivery
12
<PAGE> 13
of a greater number of units located in lakefront buildings and lower per unit
land costs for certain units delivered. Based upon the 190 sales contracts in
backlog for Century Village at October 31, 1996, a significant portion of
which are expected to be delivered within the next nine months, the Company
anticipates a slight increase in average per unit sales prices which is
expected to be substantially offset by an increase in the average per unit cost
of sales. Accordingly, the Company does not expect a significant change in the
gross margin for the remainder of fiscal 1997.
For the first quarter of fiscal 1997, the Company entered into 70 new sales
contracts (net of cancellations) at Century Village with an aggregate sales
value of $5.4 million and an average sales price of $77,600. During the
corresponding period in fiscal 1996, there were 105 new sales contracts with an
aggregate sales value of $7.9 million and an average sales price of $75,400.
Management believes that the decline in the Company's sales activity is
attributable to a number of reasons which include an overall general decline in
sales orders in the residential real estate market and an increase in the
average prices of units being offered for sale at Century Village. The Company
cannot predict whether the decline in sales activity will continue.
For the quarters ended October 31, 1996 and 1995, recreation and maintenance
fees were $2.2 million and $2 million, respectively, consisting of $1.6 million
and $1.4 million, respectively, of revenues pursuant to long-term leases
("Recreation Leases") of the Recreation Facilities with owners of 7,018 Century
Village condominium apartments delivered through October 31, 1996, and $.6
million of revenues during each quarter from master management agreements under
which the Company provides certain maintenance and community services. 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 increased slightly during the quarter ended October 31, 1996 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
13
<PAGE> 14
at Century Village (see Note 4 to Consolidated Financial Statements). Other
revenues are expected to increase during the second and third quarters of
fiscal 1997 due to increased use of the golf course and greater participation
in social activities during the winter season.
Operating costs for the three month periods ended October 31, 1996 and 1995
were $1.9 million and $1.7 million, respectively, 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 passed through to unit owners at Century Village in
the form of increased recreation and maintenance fees, subject to the
aforementioned three year guarantee. The increase in operating costs during
the current quarter is primarily the result of the opening of Club Health, a
12,000 square foot health club which is part of the Recreation Facilities, in
August 1996. Operating costs are expected to increase during the second and
third quarters of fiscal 1997 due to increased seasonal activities.
Interest incurred for the quarters ended October 31, 1996 and 1995 was $1.2
million and $1.3 million, respectively. After deducting interest capitalized
principally to real estate inventories at Century Village and Glen Abbey, net
interest expense amounted to $.6 million for each quarter.
During the quarters ended October 31, 1996 and 1995, selling and marketing
costs expensed amounted to approximately $1.1 million and $.9 million,
respectively. 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. Selling and
marketing expense is expected to fluctuate during the remainder of fiscal 1997
based on fluctuations in the number of sales and deliveries.
General and administrative expenses consist primarily of corporate overhead and
administration of Century Village, and increased slightly during the three
months ended October 31, 1996. During the three months ended October 31, 1996,
the Company expensed approximately $100,000 in professional fees in connection
with the proposed merger (see Note 6 to Consolidated Financial Statements)
which was partially offset by a significant reduction in legal fees incurred in
connection with certain litigation (see Part II, Item 1 - Legal Proceedings).
14
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended October 31, 1996, the Company generated net cash
flow from operating activities of $2.1 million, as compared to $1 million
during the corresponding period in 1995. The primary source of cash flow was
net reductions in real estate inventories amounting to $.9 million and $1
million, respectively. In addition, during 1996, there was a $.9 million
increase in accounts payable and accruals. As a result of the positive cash
flow from operations, for the three month periods ended in 1996 and 1995, the
Company was able to reduce net borrowings by $2 million and $.8 million,
respectively. 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 October 31, 1996 amounted to $43.3 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, presently requiring monthly interest only payments but 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 ($6.6 million, excluding the lines of credit - see
below) matures in fiscal 1998, including $1.6 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.
Since inception, the Company's cash flow from operations has been sufficient to
enable the Company to reduce its aggregate borrowings. However, in order to
satisfy its obligations under its term borrowings, from time to time, 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). At
October 31, 1996, availability under the Lines of Credit was $15 million, of
which $7.5 million matures during fiscal 1997 and $7.5 million matures 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(b) to Consolidated Financial Statements). At October 31, 1996, the
outstanding balance of the Lines of Credit was $11.7 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
15
<PAGE> 16
Lines of Credit and the Levy Note will continue to 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 October 31, 1996, the available
collateral exceeded the outstanding balance of the Lines of Credit by
approximately $5.1 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 762 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.
Substantially all of the Recreation Facilities have already been completed. 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
October 31, 1996, 90% of the planned community had been delivered and 762
condominium apartments remained to be constructed and/or delivered. 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.
16
<PAGE> 17
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
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.
FORWARD LOOKING INFORMATION: CERTAIN CAUTIONARY STATEMENTS
Certain statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere in this Form 10-Q,
that are not related to historical results, are forward looking statements.
Actual results may differ materially from those projected or implied in the
forward looking statements. Further, certain forward looking statements are
based upon assumptions of future events which may not prove to be accurate.
These forward looking statements involve risks and uncertainties including but
not limited to the Company's future cash flows and liquidity, gross margins,
revenues and expenses, the effect of conditions in the residential real estate
market and the economy in general, the level and volatility of interest rates,
as well as certain other risks described in this report. Subsequent written
and oral forward looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by cautionary
statements in this paragraph and elsewhere described in this Form 10-Q.
17
<PAGE> 18
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 has appealed 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.
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ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits:
(27) Financial Data Schedule (for SEC use only).
(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.
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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)
January 16, 1997 /S/ JACK JAIVEN
---------------------------------
Jack JAIVEN, Executive Vice
President and Principal Financial
and Accounting Officer
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