<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
---------------
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.........................4-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................9-15
PART II OTHER INFORMATION
Item 1. Legal Proceedings...................................................16
Item 4. Submission of Matters to a Vote of Security Holders.................16
Item 6. Exhibits and Reports on Form 8-K....................................17
SIGNATURE PAGE................................................................18
<PAGE>
PART I. FINANCIAL INFORMATION
As discussed in Note 1 to the Consolidated Financial Statements, certain amounts
for the three and six months ended March 31, 1998 have been restated.
Item 1. Financial Statements
SUNDANCE HOMES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
March 31,
1998 September 30,
(restated) 1997
------------------ -----------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,256 $ 4,615
Real estate inventories 97,538 80,787
Deferred income taxes 1,175 -
Prepaid expenses and other assets 1,865 1,566
Property and equipment, net 3,762 3,289
Deferred project start-up costs - 3,726
Income tax receivable - 565
------------------ -----------------
Total assets $ 108,596 $ 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 payable 54,575 33,087
Notes payable to Principal Shareholder - -
Deferred income taxes - 1,604
Subordinated notes payable to Principal Shareholder 4,193 4,193
------------------ -----------------
Total liabilities 84,887 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 (deficit) (3,155) 988
------------------ -----------------
Total shareholders' equity 23,901 28,043
------------------ -----------------
Total liabilities and shareholders' equity $ 108,596 $ 94,548
================== =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31,
----------------------------- -----------------------------
1998 1997* 1998 1997*
(restated) (restated)
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Residential sales $ 25,059 $15,131 44,480 $ 37,843
Cost of residential sales 23,306 14,436 41,283 35,311
-------------- ------------- ------------- --------------
Gross profit 1,753 695 3,197 2,532
Selling expenses 2,387 1,864 4,047 3,761
General and administrative expenses 1,206 1,504 2,330 2,402
-------------- ------------- ------------- --------------
Income (loss) before provision (benefit) for income
taxes (1,840) (2,673) (3,180) (3,631)
Provision (benefit) for income taxes (735) (1,069) (1,271) (1,452)
-------------- ------------- ------------- --------------
Income (loss) before cumulative effect of change in
accounting policy $(1,105) $(1,604) $ (1,909) $(2,179)
Cumulative effect of change in accounting policy, net
of related tax effect - - (2,234) -
-------------- ------------- ------------- --------------
Net income (loss) $(1,105) $ (1,604) $ (4,143) $ (2,179)
============== ============= ============= ==============
Net income (loss) per share $ (0.14) $ (0.21) $ (0.53) $ (0.28)
============== ============= ============= ==============
Weighted average number of shares outstanding 7,808 7,807 7,808 7,807
============== ============= ============= ==============
</TABLE>
* As discussed in Note 1 to the Consolidated Financial Statements, certain
amounts for the three and six month periods ended March 31, 1997 have been
reclassified to conform to the 1998 financial presentation.
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
SUNDANCE HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six months ended
March 31,
----------------------------
1998 1997*
(restated)
------------ ------------
<S> <C> <C>
Operating activities:
Income (loss) before cumulative effect of change in accounting policy $ (4,143) $ (2,179)
Adjustments to reconcile net income (loss) to net cash provided by
(used for) operating activities:
Depreciation and amortization 725 463
Deferred income taxes 947 (112)
Minority Interest (10) -
Changes in operating assets and liabilities:
Real estate inventories (16,751) (118)
Prepaid expenses and other assets (299) (1,071)
Income tax receivables 565 -
Deferred project start up costs - (1,132)
Accounts payable and accrued construction liabilities (2,609) (12,073)
Other accrued expenses 386 (3,332)
Customer deposits 539 888
------------ ------------
Net cash provided by (used for) operating activities (20,650) (18,666)
------------ ------------
Investing activities:
Property and equipment, net (1,198) (732)
------------ ------------
Net cash provided by (used for) investing activities (1,198) (732)
------------ ------------
Financing activities:
Borrowings under notes payable 62,884 55,450
Repayments of notes payable (41,396) (38,653)
Proceeds of stock options exercised 1 -
Contributions from minority interest - 8
Distributions to minority interest - (119)
------------ ------------
Net cash provided by (used for) financing activities 21,489 16,686
------------ ------------
Net increase (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
============ ============
</TABLE>
* As discussed in Note 1 to the Consolidated Financial Statements, certain
amounts for the six month period ended March 31, 1997 have been reclassified to
conform to the 1998 financial presentation.
The accompanying notes are an integral part of these financial statements.
3
<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.
Reclassification of Results of Operations
Certain amounts for three and six months ended March 31, 1997 were reclassified
to conform to the 1998 financial presentation.
Change in Accounting Policy
Effective October 1, 1997 the Company adopted Statement of Position (SOP) No
98-5, reporting on the costs of start-up activities. Costs of start up
activities and organization costs are expensed as incurred. The cumulative
effect of this change in accounting decreased net assets at October 1, 1997 by
$2,234,000.
Restatement of Results of Operations
Residential Sales have been adjusted to defer the recognition of certain parking
unit sales until legal title transfers to the buyer.
Gross Profit has been adjusted to reflect the deferral of certain parking unit
sales until legal title transfers to the buyer. Additionally, gross profit as
been adjusted to reflect changes in construction estimates not recognized on a
timely basis and to reflect the change in the Company's method of accounting for
pre-operative start-up costs.
Selling Expenses have been adjusted to reflect the change in the Company's
method of accounting for pre-operative start-up costs.
4
<PAGE>
NOTE 2 - REAL ESTATE INVENTORIES
- --------------------------------
Real estate inventories are summarized as follows (in thousands):
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
(restated)
------------------- --------------------
<S> <C> <C>
Work-in-process:
Land and development $37,759 $33,682
Construction inventory 36,717 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
------------------- --------------------
$97,538 $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.
NOTE 3 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
March 31, 1998 September 30, 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>
5
<PAGE>
NOTE 4 - NOTES PAYABLE
- ----------------------
<TABLE>
<CAPTION>
Notes and mortgages payable are summarized as follows (in thousands):
March 31, September 30, 1997
1998
--------------------- ---------------------
<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 1/2% 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 3/4% 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.
6
<PAGE>
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.
7
<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
1/2% 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.
8
<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,
the Company's gross profit increased by $0.8 million, and the Company's net loss
decreased $0.5 million. In addition, the average sales price per home closed
increased by $16,700 from $166,300 to $183,000.
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.
9
<PAGE>
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.
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 its 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.
10
<PAGE>
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.
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31,
------------------------------ ------------------------------
1998 1997* 1998 1997*
(restated) (restated)
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Residential sales 100.0% 100.0% 100.0% 100.0%
Cost of residential sales 93.0% 95.4% 92.8% 93.3%
-------------- -------------- -------------- --------------
Gross profit 7.0% 4.6% 7.2% 6.7%
Selling expenses 9.5% 12.3% 9.1% 9.9%
General and administrative expenses 4.8% 9.9% 5.2% 6.3%
-------------- -------------- -------------- --------------
Income (loss) before provision (benefit) for
income taxes (7.3)% (17.7)% (7.1)% (9.5)%
-------------- -------------- -------------- --------------
Provision (benefit) for income taxes (2.9)% (7.1)% (2.9)% (3.8)%
-------------- -------------- -------------- --------------
Income (loss) before cumulative effect
of change in accounting policy (4.4)% (10.6)% (4.3)% (5.8)%
Cumulative effect of change in accounting policy,
net of related tax effect - % - % 5% - %
-------------- -------------- -------------- --------------
Net income (loss) (4.4)% (10.6)% (9.3)% (5.8)%
============== ============== ============== ==============
</TABLE>
*As discussed in Note 1 to the Consolidated Financial Statements, certain
amounts for the three and six month periods ended March 31, 1997 have been
reclassified to conform to the 1998 financial presentation.
Residential Sales
Sales, which are recognized upon the closing and delivery of homes increased
$10 million or 65.6%, to $25.1 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
$6.6 million, or 17.5%, from $37.8 for the six months ended March 31, 1997 to
$44.5 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 $16,700 or 10.0%
to $183,000 in the quarter ended March 31, 1998 from $166,300 in the quarter
ended March 31, 1997.
11
<PAGE>
Cost of Sales
Cost of sales, as a percentage of revenues, decreased by 2.4 percentage points
to 93.0% of sales for the quarter ended March 31, 1998 as compared to 95.4% for
the quarter ended March 31, 1997. Cost of sales, as a percentage of revenues,
decreased by .5 percentage points to 92.8% for the six months ended March 31,
1998 as compared to 93.3% for the six months ended March 31, 1997. Total cost of
sales increased by $8.9 million from $14.4 million in the quarter ended March
31, 1997 to $23.3 million in the quarter ended March 31, 1998. Total cost of
sales increased by $6.0 million from $35.3 million in the six months ended March
31, 1997 to $41.3 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 7.0% for the quarter ended
March 31, 1998, compared to 4.6% for the same period in 1997. Gross profit as a
percentage of sales increased to 7.2% for the six months ended March 31, 1998,
compared to 6.7% 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 2.8 percentage points
from 12.3% of sales for the quarter ended March 31, 1997 to 9.5% of sales for
the quarter ended March 31, 1998. Selling expenses as a percentage of revenues
decreased by 0.8 percentage points from 9.9% of sales for the six months ended
March 31, 1997 to 9.1% 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 $1.9 million during the
quarter ended March 31, 1997 to $2.4 million for the quarter ended March 31,
1998 and increased by $0.2 million from $3.8 million during the six months ended
March 31, 1997 to $4.0 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.
12
<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 40.0%.
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 1/2% 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.
13
<PAGE>
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 3/4% 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.
14
<PAGE>
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.
15
<PAGE>
PART II. OTHER INFORMATION
Item 3. 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.
16
<PAGE>
The following summarizes the results of the shareholder vote:
a) Election of Directors
<TABLE>
<CAPTION>
Votes in Votes Authority Broker
-------- ----- --------- ------
Name of Director Nominee Favor Opposed Abstentions Withheld Non-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 -
<CAPTION>
b) The shareholders voted to approve the Second Amendment to
the Sundance Homes, Inc. 1993 Directors' Stock Option Plan
Votes in Votes Authority Broker
-------- ----- --------- ------
Favor Opposed Abstentions Withheld Non-Votes
----- ------- ----------- -------- ---------
<S> <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(1)
Exhibit No. 10.2 - Unsecured Promissory Note dated March 17,
1998 issued to Maurice Sanderman(1)
Exhibit No. 10.3 - Secured Subordinated Promissory Note dated
May 1, 1998 issued to Maurice Sanderman(1)
Exhibit No. 27.1 - Financial Data Schedule
(1) Exhibits were previously filed with the form 10Q on May 15, 1998
17
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SUNDANCE HOMES, INC.
By: /s/ Joseph R. Atkin Date: January 13,1999
-----------------------------------
Joseph R. Atkin, Vice President
and Chief Financial Officer
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<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> 95,538
<CURRENT-ASSETS> 104,834
<PP&E> 3,762
<DEPRECIATION> 0
<TOTAL-ASSETS> 108,596
<CURRENT-LIABILITIES> 31,318
<BONDS> 54,575
0
0
<COMMON> 78
<OTHER-SE> 26,978
<TOTAL-LIABILITY-AND-EQUITY> 108,596
<SALES> 44,480
<TOTAL-REVENUES> 44,480
<CGS> 41,283
<TOTAL-COSTS> 47,660
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,180)
<INCOME-TAX> (1,271)
<INCOME-CONTINUING> (1,271)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (2,234)
<NET-INCOME> (4,143)
<EPS-PRIMARY> (0.53)
<EPS-DILUTED> 0
</TABLE>
