SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Quarterly Period Ended: March 31, 1998
Commission File Number: 0-21900
SUNDANCE HOMES, INC.
(Exact name of registrant as specified in its charter)
Illinois 36-3111764
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
201 N. Wells, Suite 1800, Chicago, Illinois 60606
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 338-3300
Indicate by check mark whether the registrant 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).
Yes X No
Indicate by check mark whether the registrant has been subject to
such filing requirements for the past 90 days.
Yes X No
At May 14, 1998, there were 7,807,875 shares outstanding of the
registrant's Common Stock ($0.01 par value).
<PAGE>
SUNDANCE HOMES, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
Page
No.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets-
March 31, 1998 (unaudited) and September 30, 1997 1
Consolidated Statements of Income (unaudited) -
three months and six months ended March 31, 1998 and 1997 2
Consolidated Statements of Cash Flows (unaudited) -
six months ended March 31, 1998 and 1997 3
Notes to Consolidated Financial Statements 4-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-12
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURE PAGE 14
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
SUNDANCE HOMES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<CAPTION>
March 31, September 30,
1998 1997
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,256 $ 4,615
Real estate inventories 99,352 80,787
Prepaid expenses and other assets 1,865 1,566
Property and equipment, net 3,762 3,289
Deferred project start-up costs 3,638 3,726
Income tax receivable - 565
Total assets $ 112,873 $ 94,548
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued construction liabilities $ 21,102 $ 23,711
Other accrued expenses 2,362 1,976
Customer deposits 2,655 2,116
Notes and mortgages payable 54,575 33,087
Deferred income taxes payable 1,006 1,604
Subordinated notes payable to Principal Shareholer 4,193 4,193
Total liabilities 85,893 66,687
Minority interest (192) (182)
Shareholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares authorized,
none issued or outstanding - -
Common stock, $0.01 par value, 20,000,000 shares authorized,
7,807,875 shares issued and outstanding 78 78
Additional paid-in capital 26,978 26,977
Retained earnings 116 988
Total shareholders' equity 27,172 28,043
Total liabilities and shareholders' equity $ 112,873 $ 94,548
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in thousands, except per share data)
(unaudited)
<CAPTION>
Three months ended Six months ended
March 31, March 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Residential sales $ 25,244 $ 15,131 $ 44,878 $ 37,843
Cost of sales 22,694 14,499 39,836 35,461
Gross profit 2,550 632 5,042 2,382
Selling expenses 2,311 1,801 4,164 3,611
General and administrative expenses 1,207 1,504 2,330 2,402
Loss before benefit for income taxes (968) (2,673) (1,452) (3,631)
Benefit for income taxes (387) (1,069) (581) (1,452)
Net loss $ (581) $ (1,604) $ (871) $ (2,179)
Net loss per share $ (0.07) $ (0.21) $ (0.11) $ (0.28)
Weighted averagage of
shares outstanding 7,808 7,807 7,808 7,807
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<CAPTION>
Six months ended
March 31,
1998 1997
<S> <C> <C>
Operating activities:
Net loss $ (871) $ (2,179)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 725 463
Deferred income taxes (598) (112)
Changes in operating assets and liabilities:
Real estate inventories (18,565) (118)
Prepaid expenses and other assets (299) (1,071)
Income tax receivables 565 -
Deferred project start up costs 88 (1,132)
Accounts payable and accrued construction liabilities (2,609) (12,073)
Other accrued expenses 376 (3,332)
Customer deposits 539 888
Net cash used for operating activities (20,649) (18,666)
Investing activities - Property and equipment, net (1,198) (732)
Financing activities:
Borrowings under line of credit 54,976 55,450
Repayments of line of credit (40,614) (36,772)
Borrowings under notes payable 7,908 -
Repayments of notes payable (782) (1,881)
Contributions from minority interest - 8
Distributions to minority interest - (119)
Net cash provided by financing activities 21,488 16,686
Net decrease in cash and cash equivalents (359) (2,712)
Cash and cash equivalents:
Beginning of period 4,615 4,501
End of period $ 4,256 $ 1,789
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
SUNDANCE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - PRINCIPLES OF CONSOLIDATION
The accompanying interim consolidated financial statements
include the accounts of Sundance Homes, Inc. and its
subsidiaries ("the Company"). These financial statements are
unaudited, but in the opinion of management contain all
adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial condition and
results of operations of the Company.
The interim consolidated financial statements should be read
in conjunction with the consolidated financial statements and
notes thereto for the year ended September 30, 1997 included
in the Company's Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission on December 23, 1997.
The results of operations for the three months ended March 31,
1998 are not necessarily indicative of the results to be
expected for the entire fiscal year.
NOTE 2 - REAL ESTATE INVENTORIES
<TABLE>
Real estate inventories are summarized as follows (in thousands):
<CAPTION>
March 31, September 30,
1998 1997
<S> <C> <C>
Work-in-process:
Land and development $ 37,759 $ 33,682
Construction inventory 38,531 29,732
Completed homes:
Models 7,674 6,668
Speculative homes 3,893 912
Capitalized overhead 4,387 3,146
Capitalized interest 7,108 6,647
$ 99,352 $ 80,787
</TABLE>
Model homes are constructed to help market a development and
include allocations of land and development and other
allocable costs. Speculative homes represent non-model homes
which are substantially complete and are not subject to a
sales contract.
<PAGE>
NOTE 3 - PROPERTY AND EQUIPMENT
<TABLE>
Property and equipment are summarized as follows (in thousands):
<CAPTION>
March 31, September 30,
1998 1997
<S> <C> <C>
Model home upgrades and furnishings $ 5,352 $4,307
Equipment and furniture 3,213 3,147
Vehicles 393 379
Leasehold improvements 123 52
9,081 7,885
Accumulated depreciation 5,319 4,596
$ 3,762 $ 3,289
</TABLE>
NOTE 4 - NOTES PAYABLE
<TABLE>
Notes and mortgages payable are summarized as follows (in thousands):
<CAPTION>
March 31, September 30,
1998 1997
<S> <C> <C>
Revolving credit loan $45,180 $30,818
Other notes payable 9,395 2,269
$ 54,575 $ 33,087
</TABLE>
On February 7, 1997 the Company entered into an Amended and
Restated Revolving Credit Loan Agreement (the "Loan Agreement"),
with two banks that replaced the previous financing arrangements
with the banks. The Loan Agreement provides a $60 million line
of credit. The borrowings were secured by the real estate assets
of the Company, with certain exceptions. Borrowings under the
Loan Agreement bear interest at LIBOR plus 275 basis points for
borrowings up to $40 million, and prime plus .5% for borrowings in
excess of $40 million, plus certain customary fees. The Loan
Agreement was scheduled to mature on February 1, 1999. Available
borrowings under the Loan Agreement are reduced by the amount of
letters of credit outstanding. The Loan Agreement includes
certain customary representations and covenants, including
restrictions on the Company's ability to pay dividends and
maintenance of certain financial ratios. As of March 31, 1998,
the Company had violated certain covenants as set forth in the
Loan Agreement, including those related to the Company's projects
exceeding three stories, and certain financial covenants,
specifically, those related to net worth and net income.
<PAGE>
On April 30, 1998, the Company entered into a new $80 million
Revolving Credit Loan Agreement (the "New Loan Agreement") with
LaSalle National Bank, American National Bank and BankBoston,
which replaced the Loan Agreement. The three banks participate
in the $80 million facility as follows: LaSalle National Bank,
$35 million; American National Bank, $25 million; and BankBoston,
$20 million. The borrowings are secured by the real estate assets
of the Company with certain exceptions. Borrowings under the New
Loan Agreement bear interest at LIBOR plus 300 basis points for
borrowings up to $70 million and prime plus .75% for borrowings in
excess of $70 million, plus certain customary fees. The New Loan
Agreement is scheduled to mature on February 1, 2000. Available
borrowings under the New Loan Agreement are reduced by the amount
of letters of credit outstanding. The New Loan Agreement
includes certain representations and covenants, including
restrictions on the Company's ability to pay dividends and the
maintenance of certain financial ratios.
During the quarter ended March 31, 1998, while the Company was
securing its New Loan Agreement, the Company entered into four
interim financing arrangements to provide funding for certain
projects which were not provided for under the Company's then
existing Loan Agreement.
On February 24, 1998, the Company borrowed $487,000 on an
unsecured basis from Maurice Sanderman, the Company's Chairman
and President. The unsecured note was at a rate of prime plus
3.0% with a maturity date of October 1, 1998. These funds were
used to pay the property taxes for 1996 and 1997 which became due
on a building owned by the Company at 201 N. Wells, Chicago,
Illinois. The payment of these taxes were not provided for under
the terms of the then existing Loan Agreement. The Company has
entered into a contract to sell this property. This loan is
scheduled to be repaid at the closing of the sale.
On March 16, 1998, the Company entered into a $15 million
Construction Loan Agreement with LaSalle National Bank with a
maturity date of February 20, 1999, at a rate of Prime plus 1.0%.
Advances under this loan totaled $4,931,562 and were used to
provide construction funds for the Company's Erie Tower Project
located at 375 West Erie Street, Chicago, Illinois. Concurrent
with the funding of the New Loan Agreement, on May 12, 1998, this
Construction Loan Agreement was repaid in full.
On March 17, 1998, in order to acquire the property located at
3228-3244 North Halsted, Chicago, Illinois, the Company entered
into two interim financing arrangements. The first was a
promissory note with Cohen Financial Corporation in the amount of
$1.6 million at a rate of prime plus 1.0% with a maturity date of
October 1, 1998. This note was secured by a mortgage on the
property located at 3228-3244 North Halsted Street, Chicago,
Illinois. The second, was an unsecured note in the amount of
$890,000 from Maurice Sanderman, the Company's Chairman and
President. The unsecured note was at a rate of prime plus 3.0%
with an expiration date of October 1, 1998. Concurrent with the
funding of the New Loan Agreement, on May 12, 1998, both notes
were repaid in full.
On May 1, 1998, Erie Center Lofts, Inc., a wholly owned
subsidiary of the Company, entered into a Secured Subordinated
Promissory Note with a maturity date of June 30, 1999, and an
interest rate of twenty percent (20%) with Maurice Sanderman, the
Company's Chairman and President. The note is secured by a
junior mortgage on the property commonly known as Erie Tower
located at 421 West Erie Street in Chicago, Illinois. This
transaction was required under the New Loan Agreement as a
partial substitute for $4 million of "additional equity
financing" related to the Erie Tower Project. Principal payments
under this note may only be paid out of net sales proceeds from
the sale of units within Erie Tower only after all advances made
under the New Loan Agreement related to the Erie Tower project
have been repaid.
Notes payable to land sellers are non-interest bearing and are
repaid through application of agreed upon amounts from the
proceeds of individual home sale closings.
<PAGE>
NOTE 5 - SHAREHOLDER NOTES PAYABLE
As part of the public offering and recapitalization of the
Company on July 9, 1993, the Company issued promissory notes to
the Principal Shareholder. The notes are subordinate to the
Company's bank indebtedness, bear interest at 7.5% per annum,
compounded daily, and originally matured in two equal annual
installments on the first and second anniversaries of the
offering. On September 30, 1997, the maturity date of the notes
was extended to September 30, 1998. Payment of the outstanding
principal balances are subject to certain restrictions under the
Loan Agreement and the New Loan Agreement (Note 4).
NOTE 6 - CONTINGENCIES
The Company is frequently required, in connection with the
development of its projects, to obtain performance or other
maintenance bonds or letters of credit in lieu thereof. The
amount of such obligations outstanding at any time varies in
connection with the Company's pending development activities.
These obligations are typically extinguished through the
Company's completion of specified subdivision improvements and
infrastructure. In the event any such obligations are drawn
upon, the Company would be obligated to reimburse the issuing
surety company or bank. There have been no such draws during the
three months ended March 31, 1998 or the year ended September 30,
1997.
The Company currently leases 15,500 square feet of office space
in Schaumburg, Illinois where its Suburban Properties Division is
located. Certain equipment is also currently leased under non-
cancelable operating leases.
Additionally, the Company is involved in various routine legal
proceedings which the Company believes to be incidental to the
conduct of its business.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion of the Company's results of operations
and financial condition should be read in conjunction with the
consolidated interim financial statements of the Company and the
notes thereto contained herein, as well as the Company's Annual
Report on Form 10-K for the year ended September 30, 1997, as
filed with the Securities and Exchange Commission on December 23,
1997.
OVERVIEW
During the quarter ended March 31, 1998 as compared to the
quarter ended March 31, 1997 the Company's residential sales
increased by approximately $10 million or 67%, the Company's
gross profit increased by almost $2 million or over 300%, and the
Company's net loss decreased by over $1 million or 64%. In
addition, the average sales price per home closed increased by
$18,000 from $166,300 to $184,300.
The Company closed 137 homes during the quarter ended March 31,
1998, a 50% increase over the 91 homes closed during the quarter
ended March 31, 1997.
The Company's aggregate sales value in backlog at March 31, 1998
increased by 12.2% or $7.1 million to $65.3 million when compared
to $58.2 million at March 31, 1997. In addition, the average
sales price per home of the 326 homes in backlog at March 31,
1998 increased by over $25,000 per home to $200,320 from $175,300
at March 31, 1997 when compared to the 332 homes in backlog at
March 31, 1997.
Urban Development
The Company's wholly owned division which develops property under
the name Chicago Urban Properties, Inc. continued to expand its
operations during the second quarter of Fiscal 1998.
The Erie Centre Loft project consisting of 106 units is over 94%
sold out with 77% of the units delivered as of March 31, 1998.
The remaining units are scheduled for delivery in the third and
fourth quarters of Fiscal 1998.
The Michigan Avenue Loft project consisting of 60 units is over
90% sold out. During the quarter ended March 31, 1998 the first
12 units were delivered. The remaining units are scheduled for
delivery during the third and fourth quarters of Fiscal 1998.
Immediately contiguous to the Erie Centre Lofts, the Company is
constructing a 24-story building which will contain 126
condominium apartments and 251 parking spaces. This project is
currently almost 40% sold with initial occupancy scheduled for
early 1999.
During the three months ended March 31, 1998 the Company opened
for sale three new projects in the Chicago urban market. These
projects include two new loft conversion projects located at 625
W. Jackson Street, Chicago, IL and 942 West Madison Street,
Chicago, IL. In addition, the Company's 130 unit new
construction project at 3232 North Halsted, Chicago, IL opened
for sale and is currently over 50% sold out. Initial deliveries
for each of these three new projects are expected to occur in
Fiscal 1999.
<PAGE>
Suburban Communities
During the quarter ended March 31, 1998, The Company's
Suburban Properties Division continued its growth in the suburban
entry-level and move-up markets in both existing and newly-opened
communities. Sutton on the Lake located in Lake County
delivered 27 homes in the quarter and wrote 50 new contracts.
Heartland Meadows in South Elgin, a development of nearly 700
homes which is nearing close-out, delivered 34 homes and wrote 30
new contracts. In Lake in the Hills, the Company's Bellchase
project wrote 31 new contracts and delivered 14 homes.
The Company also continued it's expansion into the Southwest
Suburban market. Cedar Creek in Matteson and Walnut Pointe in
Bolingbrook opened for sales in February and took 19 new
contracts between them. The Suburban Properties Division also
took an aggressive growth posture in the south suburban market by
contracting the to acquire approximately 400 developed lots in
the Villages of Lockport and Orland Park.
The Company's custom and semi-custom division, Rembrandt
Homes delivered 12 homes and took 19 new contracts during the
quarter in it's two primary projects, The Conservancy in Gurnee
and St. Andrews in Vernon Hills.
<TABLE>
Results of Operations
The following table sets forth, for the three months and six
months ended, the percentage of the Company's residential sales
represented by each income statement line item presented.
<CAPTION>
Three months ended Six months ended
March 31, March 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Residential sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 89.9% 95.8% 88.8% 93.7%
Gross profit 10.1% 4.2% 11.2% 6.3%
Selling expenses 9.2% 11.9% 9.3% 9.5%
General and administrative expenses 4.8% 10.0% 5.2% 6.3%
Loss before benefit for income taxes (3.9)% (17.7)% (3.3)% (9.5)%
Benefit for income taxes (1.5)% (7.1)% (1.3)% (3.8)%
Net loss (2.4)% (10.6)% (2.0)% (5.7)%
</TABLE>
<PAGE>
Residential Sales
Sales, which are recognized upon the closing and delivery of
homes increased $10.1 million or 66.8%, to $25.2 million, for the
three months ended March 31, 1998 as compared to $15.1 million
for the three months ended March 31, 1997. The Company also
experienced increased sales revenue for the six months ended
March 31, 1998 as compared to the comparable period in 1997.
Sales revenue increased $7.0 million, or 18.6%, from $37.8 for
the six months ended March 31, 1997 to $44.8 for the six months
ended March 31, 1998. This increase, for the quarter ended March
31, 1998, was primarily due to the increase in homes closed from
91 during the three months ended March 31, 1997 to 137 in the
three months ended March 31, 1998, which resulted primarily from
closings at its two loft conversion projects on Erie Street and
Michigan Avenue under the Company's urban division. The average
sales price per homes closed increased by $18,000 or 11.0% to
$184,300 in the quarter ended March 31, 1998 from $166,300 in the
quarter ended March 31, 1997.
Cost of Sales
Cost of sales, as a percentage of revenues, decreased by 5.9
percentage points to 89.9% of sales for the quarter ended March
31, 1998 as compared to 95.8% for the quarter ended March 31,
1997. Cost of sales, as a percentage of revenues, decreased by
4.9 percentage points to 88.8% for the six months ended March 31,
1998 as compared to 93.7% for the six months ended March 31,
1997. Total cost of sales increased by $8.2 million from $14.5
million in the quarter ended March 31, 1997 to $22.7 million in
the quarter ended March 31, 1998. Total cost of sales increased
by $4.4 million from $35.4 million in the six months ended March
31, 1997 to $39.8 million in the six months ended March 31, 1998.
The primary reason for this increase was the increased number of
deliveries during the quarter and the six month period ended
March 31, 1998.
Gross Profit
Gross profit as a percentage of sales increased to 10.1% for the
quarter ended March 31, 1998, compared to 4.2% for the same
period in 1997. Gross profit as a percentage of sales increased
to 11.2% for the six months ended March 31, 1998, compared to
6.3% for the same period in 1997. These increases are
attributable to the Company's continued closings in its urban
division, continued closings in the Company's new custom suburban
project and increased margins in the Company's suburban homes.
Selling, General and Administrative Expenses
Selling expenses as a percentage of revenues decreased by 2.7
percentage points from 11.9% of sales for the quarter ended March
31, 1997 to 9.2% of sales for the quarter ended March 31, 1998.
Selling expenses as a percentage of revenues decreased by 0.2
percentage points from 9.5% of sales for the six months ended
March 31, 1997 to 9.3% of sales for the six months ended March
31, 1998. The decrease in selling expenses for the quarter ended
March 31, 1998, as a percentage of revenues, was primarily a
direct result of the increase in sales revenue during the
quarter. Actual selling expenses increased by $0.5 million from
$1.8 million during the quarter ended March 31, 1997 to $2.3
million for the quarter ended March 31, 1998 and increased by
$0.6 million from $3.6 million during the six months ended March
31, 1997 to $4.2 million for the six months ended March 31, 1998.
This increase, for the quarter and six months ended March 31,
1998, resulted primarily from variable costs associated with
increased deliveries, as well as, increased advertising
expenditures resulting from the opening of five new communities.
<PAGE>
General and administrative expenses decreased by $0.3 million or
20% to $1.2 million for the three months ended March 31, 1998
compared to $1.5 million for the three months ended March 31,
1997. General and administrative expenses decreased by $0.1
million or 3.0% to $2.3 million for the six months ended March
31, 1998 compared to $2.4 million for the six months ended March
31, 1997. As a percentage of sales, general and administrative
expenses decreased by 5.2% from 10.0% of sales for the quarter
ended March 31, 1997 to 4.8% of sales for the quarter ended March
31, 1998. As a percentage of sales, general and administrative
expenses decreased 1.1% from 6.3% of sales for the six months
ended March 31, 1997 to 5.2% of sales for the six months ended
March 31, 1998. These decreases reflect the Company's continuing
efforts to reduce overhead expenditures at all levels.
Income Taxes
The provision for income taxes for the three and six months ended
March 31, 1998 and 1997 reflect management's estimate of the
Company's effective tax rate of approximately 40%.
Seasonality and Variability in Quarterly Results
The Company has experienced, and expects to continue to
experience, significant seasonal and quarterly variability in
residential sales and net income.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by or used for operating activities varies from
period to period, due primarily to the Company's houseline
inventory activity, land and building acquisition and development
requirements, and in lesser part to the Company's net income.
Net cash used for operating activities for the six months ended
March 31, 1998 increased by approximately $2.0 million to $20.6
million compared to net cash used for operating activities of
$18.6 million in the comparable period in 1997 primarily due to
the increase in real estate inventories.
On February 7, 1997 the Company entered into an Amended and
Restated Revolving Credit Loan Agreement (the "Loan Agreement"),
with two banks that replaced the previous financing arrangements
with the banks. The Loan Agreement provides a $60 million line
of credit. The borrowings were secured by the real estate assets
of the Company, with certain exceptions. Borrowings under the
Loan Agreement bear interest at LIBOR plus 275 basis points for
borrowings up to $40 million, and prime plus .5% for borrowings in
excess of $40 million, plus certain customary fees. The Loan
Agreement was scheduled to mature on February 1, 1999. Available
borrowings under the Loan Agreement are reduced by the amount of
letters of credit outstanding. The Loan Agreement includes
certain customary representations and covenants, including
restrictions on the Company's ability to pay dividends and
maintenance of certain financial ratios. As of March 31, 1998,
the Company had violated certain covenants as set forth in the
Loan Agreement, including those related to the Company's projects
exceeding three stories, and certain financial covenants,
specifically, those related to net worth and net income.
On April 30, 1998, the Company entered into a new $80 million
Revolving Credit Loan Agreement (the "New Loan Agreement") with
LaSalle National Bank, American National Bank and BankBoston,
which replaced the Loan Agreement. The three banks participate
in the $80 million facility as follows: LaSalle National Bank,
$35 million; American National Bank, $25 million; and BankBoston,
$20 million. The borrowings are secured by the real estate assets
of the Company with certain exceptions. Borrowings under the New
Loan Agreement bear interest at LIBOR plus 300 basis points for
borrowings up to $70 million and prime plus .75% for borrowings in
excess of $70 million, plus certain customary fees. The New Loan
Agreement is scheduled to mature on February 1, 2000. Available
borrowings under the New Loan Agreement are reduced by the amount
of letters of credit outstanding. The New Loan Agreement
includes certain representations and covenants, including
restrictions on the Company's ability to pay dividends and the
maintenance of certain financial ratios.
<PAGE>
During the quarter ended March 31, 1998, while the Company was
securing its New Loan Agreement, the Company entered into four
interim financing arrangements to provide funding for certain
projects which were not provided for under the Company's then
existing Loan Agreement.
On February 24, 1998, the Company borrowed $487,000 on an
unsecured basis from Maurice Sanderman, the Company's Chairman
and President. The unsecured note was at a rate of prime plus
3.0% with a maturity date of October 1, 1998. These funds were
used to pay the property taxes for 1996 and 1997 which became due
on a building owned by the Company at 201 N. Wells, Chicago,
Illinois. The payment of these taxes were not provided for under
the terms of the then existing Loan Agreement. The Company has
entered into a contract to sell this property. This loan is
scheduled to be repaid at the closing of the sale.
On March 16, 1998, the Company entered into a $15 million
Construction Loan Agreement with LaSalle National Bank with a
maturity date of February 20, 1999, at a rate of Prime plus 1.0%.
Advances under this loan totaled $4,931,562 and were used to
provide construction funds for the Company's Erie Tower Project
located at 375 West Erie Street, Chicago, Illinois. Concurrent
with the funding of the New Loan Agreement, on May 12, 1998, this
Construction Loan Agreement was repaid in full.
On March 17, 1998, in order to acquire the property located at
3228-3244 North Halsted, Chicago, Illinois, the Company entered
into two interim financing arrangements. The first was a
promissory note with Cohen Financial Corporation in the amount of
$1.6 million at a rate of prime plus 1.0% with a maturity date of
October 1, 1998. This note was secured by a mortgage on the
property located at 3228-3244 North Halsted Street, Chicago,
Illinois. The second, was an unsecured note in the amount of
$890,000 from Maurice Sanderman, the Company's Chairman and
President. The unsecured note was at a rate of prime plus 3.0%
with an expiration date of October 1, 1998. Concurrent with the
funding of the New Loan Agreement, on May 12, 1998, both notes
were repaid in full.
On May 1, 1998, Erie Center Lofts, Inc., a wholly owned
subsidiary of the Company, entered into a Secured Subordinated
Promissory Note with a maturity date of June 30, 1999, and an
interest rate of twenty percent (20%) with Maurice Sanderman, the
Company's Chairman and President. The note is secured by a
junior mortgage on the property commonly known as Erie Tower
located at 421 West Erie Street in Chicago, Illinois. This
transaction was required under the New Loan Agreement as a
partial substitute for $4 million of "additional equity
financing" related to the Erie Tower Project. Principal payments
under this note may only be paid out of net sales proceeds from
the sale of units within Erie Tower only after all advances made
under the New Loan Agreement related to the Erie Tower project
have been repaid.
The Company believes that the current facility together with its
cash flow from operations will be sufficient to fund projected
near term requirements including land acquisition and any
relevant market opportunities as well as its plans to expand its
inventory of developed land.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various routine legal
proceedings incidental to the conduct of its business.
Management believes that none of these legal
proceedings will have a material adverse impact on the
financial condition or results of operations of the
Company.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held
on March 25, 1998. As described in the Company's Proxy
Statement Dated January 27, 1998, the two matters
submitted to a vote of security holders were the
election of two directors as Class I directors of the
Company and the proposal to approve the Second
Amendment to the Sundance Homes, Inc. 1993 Directors'
Stock Option Plan.
In the election of directors, each holder of Common
Stock was entitled to vote the number of shares owned
by such shareholder for as many persons as there were
directors to be elected (in this case two directors),
or to cumulate such votes and give one candidate as
many votes as equaled the number of directors being
elected (in this case two directors) multiplied by the
number of such shares or to distribute such cumulative
votes in any proportion among any number of candidates.
Nominees who received the greatest number of votes, up
to the number of directors to be elected, were elected.
<TABLE>
The following summarizes the results of the shareholder vote:
<CAPTION>
a) Election of Directors
Votes in Votes Authority Broker Non-
Name of Director Nominee Favor Opposed Absentions Withheld Votes
<S> <C> <C> <C> <C> <C>
Class I (Terms Expire in 2001)
Gerald Ginsburg 6,800,365 - - 36,750 -
Joseph Atkin 6,800,365 - - 36,750 -
</TABLE>
<TABLE>
b) The shareholders voted to approve the Second Amendment to
the Sundance Homes, Inc. 1993 Directors' Stock Option Plan
<CAPTION>
Votes in Votes Authority Broker Non-
Favor Opposed Abstentions Withheld Votes
<S> <C> <C> <C> <C> <C>
6,722,405 103,510 11,200 - -
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
Exhibit No. 10.1 - Unsecured Promissory Note dated February 24,
1998 issued to Maurice Sanderman
Exhibit No. 10.2 - Unsecured Promissory Note dated March 17, 1998
issued to Maurice Sanderman
Exhibit No. 10.3 - Secured Subordinated Promissory Note dated
May 1, 1998 issued to Maurice Sanderman
Exhibit No. 27.1 - Financial Data Schedule
<PAGE>
SIGNATURE PAGE
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.
SUNDANCE HOMES, INC.
By: /S/ Joseph R. Atkin Date: May 15, 1998
Joseph R. Atkin, Vice President
and Chief Financial Officer
UNSECURED PROMISSORY NOTE
FOR VALUE RECEIVED, SUNDANCE HOMES, INC., an Illinois
corporation (the "Obligor"), promises to pay to the order of
Maurice Sanderman ("Payee"), the principal sum of
Four Hundred and Eighty-Six Thousand, Nine Hundred and Five
Dollars and Thirty-Four Cents ($486,905.34), upon the following
terms:
1. The principal amount, which was used by Sundance Homes, Inc.
to pay 1996 and 1997 property taxes on the property known as 201
N. Wells., shall be due and payable on or before October 1, 1998.
2. Interest on the unpaid principal balance of this Note shall
accrue at the rate of prime + 3 per annum compounded daily based
on a 360 day year. Interest shall be payable upon the repayment
of the principal on or before October 1, 1998. Interest is
payable form February 27, 1998 on $148,888.54 of the total amount
outstanding and from February 24, 1998 on the balance of
$338,016.80
3. All payments hereunder shall be made in the lawful money of
the United States of America at the office of Obligor in Chicago,
Illinois or at such other address as the Payee may designate in
writing to the Debtor.
4. No failure on the part of the Payee to exercise, and no
delay in exercising any right or remedy hereunder shall operate
as a waiver thereof; nor shall any single or partial exercise by
the Payee of any right or remedy hereunder preclude any other or
further exercise thereof or the exercise of any other right or
remedy.
<PAGE>
5. The provisions of this Note shall be binding on the Debtor
and its successors and assigns and the terms and provisions of
this Note shall inure to the benefit of Payee and the Payee's
successors and assigns. This Note may be amended, supplemented
or changed, and any provision hereof waived, only by a written
instrument making specific reference to this Note signed by the
party against whom enforcement of any such amendment, supplement,
change or waiver is sought. The Debtor agrees to pay all costs
of collection, including, without limitation, attorney's fees, in
the event any principal or interest is not paid when due.
6. This Note shall be governed and controlled as to validity,
enforcement, interpretation, construction, effect and in all
other respect by the laws and decisions of the Sate of Illinois,
other than principles of conflicts of law. If any provision of
this Note or the application thereof to any party or circumstance
is held invalid or unenforceable, the remainder of this Note and
the application of such provision to other parties or
circumstances will not be affected thereby and the provisions of
this Note shall be severable in any such instance.
IN WITNESS WHEREOF, Debtor has executed this Note effective
as of May 1, 1998.
SUNDANCE HOMES, INC.
By: ____/s/ Joseph R. Atkin______
Joseph R. Atkin
Its: ___Vice President___________
UNSECURED PROMISSORY NOTE
FOR VALUE RECEIVED, SUNDANCE HOMES, INC., an Illinois
corporation (the "Obligor"), promises to pay to the order of
Maurice Sanderman ("Payee"), the principal sum of
Eight Hundred and Ninety Thousand Dollars ( $890,000.00_),
upon the following terms:
1. The principal amount, which was used by Sundance to
partially acquire the property located at 3232 North Halsted,
Chicago, Illinois, shall be due and payable on or before October
1, 1998.
2. Interest on the unpaid principal balance of this Note shall
accrue at the rate of prime + 3 per annum compounded daily based
on a 360 day year beginning March 17, 1998. Interest shall be
payable upon the repayment of the principal on or before October
1, 1998.
3. All payments hereunder shall be made in the lawful money of
the United States of America at the office of Obligor in Chicago,
Illinois or at such other address as the Payee may designate in
writing to the Debtor.
4. No failure on the part of the Payee to exercise, and no
delay in exercising any right or remedy hereunder shall operate
as a waiver thereof; nor shall any single or partial exercise by
the Payee of any right or remedy hereunder preclude any other or
further exercise thereof or the exercise of any other right or
remedy.
5. The provisions of this Note shall be binding on the Debtor
and its successors and assigns and the terms and provisions of
this Note shall inure to the benefit of Payee and the Payee's
successors and assigns. This Note may be amended, supplemented
or changed, and any provision hereof waived, only by a written
instrument making specific reference to this Note signed by the
party against whom enforcement of any such amendment, supplement,
change or waiver is sought. The Debtor agrees to pay all costs
of collection, including, without limitation, attorney's fees, in
the event any principal or interest is not paid when due.
<PAGE>
6. This Note shall be governed and controlled as to validity,
enforcement, interpretation, construction, effect and in all
other respect by the laws and decisions of the Sate of Illinois,
other than principles of conflicts of law. If any provision of
this Note or the application thereof to any party or circumstance
is held invalid or unenforceable, the remainder of this Note and
the application of such provision to other parties or
circumstances will not be affected thereby and the provisions of
this Note shall be severable in any such instance.
IN WITNESS WHEREOF, Debtor has executed this Note effective
as of the 17th day of March 1998.
SUNDANCE HOMES, INC.
By: ___/s/ Joseph R. Atkin_______
Joseph R. Atkin
Its: __________________________
Vice President
SECURED SUBORDINATED PROMISSORY NOTE-NON-RECOURSE
FOR VALUE RECEIVED, ERIE CENTER LOFTS, INC., an Illinois
corporation (the "Obligor"), promised to pay to the order of
Maurice Sanderman ("Payee"), the principal sum of TWO MILLION
FIVE HUNDRED THOUSAND DOLLARS ($2,500,000), upon the following
terms:
1. The principal amount of this Note, if not sooner paid, shall
be due and payable on June 30, 1999.
2. Interest on the from time to time unpaid principal balance
of this Note shall accrue from the date hereof at the rate of 20%
per annum compounded daily, based on a 360 day year. Accrued
interest shall be payable from time to time as permitted under
that certain Subordination Agreement dated April 30, 1998 by and
among Payee, Sanderman Descendants Trust U/A/D 12/29/92 and
LaSalle National Bank, as agent (the "Subordination Agreement")
with any accrued interest unpaid as of June 30, 1999 being due
and payable on such date.
3. The Payee irrevocably agrees that any and all claims that
Payee may now or at any time hereafter have against the Obligor
under this Note with respect to the payment of principal and
interest on this Note are and shall be subordinated in right of
payment as provided under the Subordination Agreement.
4. Recourse for payment of principal and interest on this Note
is limited to the assets of the Obligor which consist of that
certain property commonly known as Erie Tower located at 421 West
Erie Street, Chicago, Illinois ("Erie Tower") subject to thereon
set forth in the Subordination Agreement. Neither Sundance
Homes, Inc. or any other entity shall have any obligations or
liability on this Note whatsoever.
5. This Note may be prepaid by the Obligor at any time without
premium or penalty, provided that all accrued and unpaid interest
hereon must first be paid. If and to the extent Net Sales
Proceeds as defined in the Subordination Agreement are available
for payment on this Note pursuant to the Subordination Agreement,
such Net Sales Proceeds shall be applied by Obligor first against
all accrued and unpaid interest hereon, and then in prepayment of
the principal amount of this Note.
6. This Note is secured by a Junior Mortgage on the Erie Tower.
7. All payments hereunder shall be made in the lawful money of
the United States of America at the office of Obligor in Chicago,
Illinois or at such other address as the Payee may designate in
writing to the Obligor.
<PAGE>
8. So long as any principal or interest remains outstanding on
this Note, Obligor shall neither declare nor permit any dividends
to be paid, shall not permit any inter-company transfers to
occur, shall not distribute or pay out any funds for any reason,
and shall not allow any other distributions to be made on account
of its capital stock.
9. No failure on the part of the Payee to exercise, and no
delay in exercising any right or remedy hereunder shall operate
as a waiver thereof; nor shall any single or partial exercise by
the Payee of any right or remedy hereunder preclude any other or
further exercise thereof or the exercise of any other right or
remedy.
10. The provisions of this Note shall be binding on the Obligor
and its successors and assigns and the terms and provisions of
this Note shall inure to the benefit of Payee and the Payee's
successors and assigns. This Note may be amended, supplemented
or changed, and any provision hereof waived, only by a written
instrument making specific reference to this Note signed by the
party against whom enforcement of any such amendment, supplement,
change or waiver is sought. Subject to Paragraphs 3 and 4
hereof, the Obligor agrees to pay all costs of collection,
including without limitation, attorney's fees, in the event any
principal or interest is not paid when due.
11. This Note shall be governed and controlled as to validity,
enforcement, interpretation, construction, effect and in all
other respect by the laws and decisions of the State of Illinois,
other than principles of conflicts of law. If any provision of
this Note or the application thereof to any party or circumstance
is held invalid or unenforceable, the remainder of this Note and
the application of such provision to other parties or
circumstance will not be affected thereby and the provisions of
this Note shall be severable in any such instance.
IN WITNESS WHEREOF, Obligor has executed this Note
effective as of the 1st day of May, 1998.
ERIE CENTER LOFTS, INC.
By: ___/s/ Joseph R. Atkin_______________
Joseph R. Atkin
Its: ______________________________________
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,256
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 99,352
<CURRENT-ASSETS> 103,608
<PP&E> 3,762
<DEPRECIATION> 0
<TOTAL-ASSETS> 112,873
<CURRENT-LIABILITIES> 31,318
<BONDS> 54,575
0
0
<COMMON> 78
<OTHER-SE> 26,978
<TOTAL-LIABILITY-AND-EQUITY> 112,873
<SALES> 44,878
<TOTAL-REVENUES> 44,878
<CGS> 39,836
<TOTAL-COSTS> 46,330
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (1,452)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,452)
<INCOME-TAX> (581)
<INCOME-CONTINUING> (581)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (871)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> 0
</TABLE>
