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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d)
-
of the Securities Exchange Act of 1934
For the Fiscal Year Ended September 30, 1999
[_] 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 33-89076
WEITZER HOMEBUILDERS INCORPORATED
(Exact name of registrant as specified in its charter)
Florida 65-0502494
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
7270 N.W. 12/th/ Street
Suite 410
Miami, Florida 33126
(Address of principal executive offices)
(305) 599-8100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Class A Common
Stock, $.01 Par Value
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
------- -------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of January 27, 2000 was approximately $6,700,000 based on the
$1.75 closing price for the Class A Common Stock as reported on the over-the-
counter market on such date.
As of January 27, 2000, Weitzer Homebuilders Incorporated had 33,434,468
shares of Class A Common Stock, $.01 par value, and 1,500,000 shares of Class B
Common Stock, $.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain exhibits listed in Part IV are incorporated by reference to certain of
the Company's public filings made pursuant to the Securities Exchange Act of
1934, including the Company's Annual Report on Form 10-K for the fiscal years
ended September 30, 1996 and 1998, the Company's quarterly reports on Form 10-Q
for the quarters ended March 31, 1996 and June 30, 1996, and the Company's
Registration Statement on Form S-1 filed pursuant to the Securities Exchange Act
of 1933, as amended.
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PART I
ITEM 1. BUSINESS
General
Weitzer Homebuilders Incorporated (the "Company"), organized in Florida in
1994, is engaged, through its subsidiaries, primarily in the design,
construction and sale of single-family homes and townhomes in Miami-Dade and
Broward Counties located in South Florida. The Company offers a wide variety of
moderately priced homes that are designed to appeal to the entry level and first
time move-up buyers. Since inception, the Company has delivered over 2,700
homes, including 429 in the fiscal year ended September 30, 1999. Base sales
prices of the Company's homes range from approximately $84,000 to $260,000 and
the average sales price of homes delivered during the fiscal year ended
September 30, 1999 was approximately $125,200. At present, the Company is
offering homes for sale in eight communities. At September 30, 1999, the Company
had 935 available lots for sale. There is no assurance that all lots available
for home construction will in fact be used for construction of homes since
construction and sales of homes are subject to a variety of factors, including,
without limitation, general and local economic conditions, availability of
financing, interest rates and government regulation.
The Company's principal executive offices are located at 7270 N.W. 12/th/
Street, Suite 410, Miami, Florida 33126, (305) 599-8100.
Recent Developments
On August 2, 1999, Century Partners Group, Ltd. ("Century"), a Florida
limited partnership, purchased an aggregate 8,855,000 shares of Class A and
Class B common stock of the Company, from Chai Capital, Ltd. ("Chai"), the
Company's principal shareholder prior to this transaction, which resulted in a
change in control of the Company. In addition, Century acquired options to
purchase, directly from the Company, 22,123,893 shares of the Company's Class A
Common Stock at an exercise price of $1.13 per share (the "Options"), in
consideration of the payment of $1,130,998. The options provided the exercise
price may be tendered in cash or by conveyance to the Company, assets having a
fair market value equal to the exercise price.
On September 2, 1999 and September 30, 1999, Century exercised their
options and received 22,123,893 aggregate shares of Class A Common Stock of the
Company, at $1.13 per share. As consideration for issued shares, Century
conveyed to the Company cash, cash equivalents, Century's interest in five
limited partnerships and certain other assets. Three of the limited partnerships
conveyed were wholly owned subsidiaries of Century and the other two limited
partnerships were 50% owned by Century.
As a result of the above transactions, as of September 30, 1999, Century
had obtained an 89.7% interest in the Company. Under generally accepted
accounting principles, Century's basis in the Company is pushed down to the
separate financial statements of the Company. As a result, to the extent of this
89.7% change in ownership, assets and liabilities of the
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Company were adjusted to their fair value, capital was adjusted to reflect
Century's purchase price for its ownership interest, including a
reclassification of the predecessor's accumulated deficit against additional
paid in capital and the difference between Century's basis in its interest in
the Company and its proportionate share of the fair value of the net assets was
recorded as goodwill.
Comparative financial statements and notes to the consolidated financial
statements for periods prior to the change in control are reflected at their
historical amounts as previously reported by the Company ("predecessor basis").
Operating Strategy
The current operating strategy of the Company emphasizes the following
elements:
Affordable Housing and Value Pricing. The Company offers a wide variety of
affordable to moderately priced homes that are designed to appeal to the entry-
level and first time move-up buyers. The Company strives to price its homes
competitively, while providing perceived innovative designs, including
architectural details and amenities in several of its projects typically found
in more expensive homes, such as cathedral ceilings, recessed lighting, glass
block, security and intercom systems. The Company's models afford prospective
homebuyers a variety of options and features so that they may customize their
designs to suit their needs. In fiscal year 1999, the Company built both
detached single-family homes and townhomes, each of which was offered in three
different product types.
Construction Warranty. The Company acts as the general contractor for its
projects and requires that its subcontractors and suppliers use quality, durable
materials in the construction of its homes. The Company generally provides home
buyers with at least a one-year warranty on workmanship and building materials
and a ten-year structural warranty.
Cost Controls. In general, the Company attempts to reduce certain risks in the
homebuilding industry and maximize its financial resources by: (i) acquiring
land for development through seller financing (which generally allows for more
favorable payment terms and lower closing costs); (ii) utilizing options and
other similar agreements whereby the Company provides a relatively small deposit
to obtain the right to purchase a specified number of lots over some period of
time so long as it exercises a certain number of options pursuant to a periodic
takedown schedule; (iii) obtaining required zoning entitlements prior to
purchasing land; (iv) for the most part, beginning construction of a home only
after execution of a sales contract, receipt of a down payment and, where
applicable, the buyer's receipt of mortgage approval; (v) using subcontractors
on a fixed price basis; and (vi) obtaining volume discounts on construction
materials.
South Florida Market. Although the Company is continuously evaluating locations
for new residential communities, the Company anticipates that in the near term
its business will continue to be conducted principally in South Florida. Based
on the Company's knowledge of the South Florida homebuilding market, the Company
believes it has certain competitive advantages in such market, including
understanding of and experience with, the local market; controls and cost
savings that result from the Company's centralized operations; and an
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experienced sales force that is generally employed on a long-term basis rather
than project-by-project basis.
Land Acquisition and Development
The Company acquires both improved building lots ready for construction,
and tracts of land that require site improvements prior to construction.
Generally, the Company attempts to acquire or control of at least 70 lots in a
development to achieve economies of scale in its marketing activities. When
contemplating the purchase of land for development, the Company considers the
cost of the land, the desirability of the proposed project to targeted
homebuyers, population growth patterns, competitive conditions and available
financing. The Company's land purchase agreements are typically subject to
numerous conditions, including, but not limited to, the Company's ability to
obtain or verify the necessary zoning and other governmental approvals for the
proposed subdivision. During the investigation period, the Company also confirms
the availability of utilities, conducts hazardous waste and other environmental
analyses, arranges construction financing and completes its marketing
feasibility studies. As a result, the Company is generally able to begin
development activities soon after closing the land purchase.
The Company devotes time and effort in developing a design and marketing
concept for each of its subdivisions, which includes a determination of size,
style and price range of the homes, layout of streets, layout of individual lots
and overall community design. The product line offered in a particular
subdivision depends upon many factors, including the housing generally available
in the area, the needs of the particular market and the Company's cost of lots
in the subdivision. The Company then undertakes development activities that
include site planning, engineering and construction of roads, sewer, water and
drainage facilities.
Summary of Residential Projects
The following information concerns the projects currently being developed
as of September 30, 1999:
<TABLE>
<CAPTION>
Current Projects Under Construction Homes
Delivered Range of Base
Number Since Lot Year Home Prices
Name Location Of Homes Inception Inventory Opened (000s)
- ---- -------- -------- --------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Malibu Bay Broward County 500 266 234 1997 $ 86 - 107
Harmony Lakes Broward County 407 360 47 1995 $120 - 176
Hammocks Broward County 151 151 0 1995 $120 - 144
Tesoro at Forest Lakes Miami-Dade County 251 217 34 1996 $107 - 130
Serena Lakes II Miami-Dade County 376 376 0 1993 $ 86 - 107
Lago Del Sol Miami-Dade County 284 167 117 1997 $ 84 - 87
Fiesta Miami-Dade County 70 32 38 1998 $100 - 130
Los Castillos at Windsor Palms Broward County 102 21 81 1998 $210 - 260
Las Costa/Savannah Miami-Dade County 332 36 296 1997 $108 - 227
Dimensions Miami-Dade County 88 0 88 1998 $124 - 148
--------------------------------
Total 2,561 1,626 935
================================
</TABLE>
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<TABLE>
<CAPTION>
Current Projects Under Construction Homes
Planned Delivered Planned Range of Base
Number Since Lot Year Home Prices
Name Location Of Homes Inception Inventory Opened (000s)
---- -------- -------- --------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Century Park at Flagler Miami-Dade County 766 0 766 2000 $100 - 150
</TABLE>
Descriptions of the Company's projects follow:
Malibu Bay. Located in Pembroke Pines, Broward County, Florida, this
townhome community of 500 lots is offered to the first time homebuyer.
Community amenities include a clubhouse and recreation facility, pool/sun
deck, tennis courts and basketball court. The townhomes range from 1,083 to
1,385 square feet and are priced from $85,990 to $107,490.
Harmony Lakes. Located in the Town of Davie, in Broward County, Florida,
this community has 236 single-family homes targeted to first-time move-up
buyers and 171 townhomes targeted to entry-level buyers, retirees and
first-time move-up buyers as well. The community contains a recreation
facility complete with community pool. The single-family homes range from
1,870 to 2,750 square feet and are priced from $151,990 to $179,990. The
townhomes range from 1,834 to 2,121 square feet and are priced from
$115,990 to $124,990.
Hammocks. Located in the City of Deerfield Beach, in Broward County,
Florida, includes 151 single-family homes. This lakeside community targets
both the entry-level buyer and the first-time move-up buyer. This community
is sold out.
Serena Lakes II. Located in Southwest Miami-Dade County, Florida, this
townhome community was offered to first time homebuyers. This lakeside
community has been completely sold-out.
Tesoro at Forest Lakes. Located in West Kendall, Miami-Dade County Florida,
this townhome/villa community of 251 lots is located in the master planned
community of Forest Lakes. Tesoro at Forest Lakes targets the entry-level
homebuyer. The townhome/villas range from 1,423 to 1,850 square feet and
are priced from $112,990 to $130,990.
Lago del Sol. Located in Southwest Miami-Dade County, Florida, this
townhome community of 284 lots is offered to first time homebuyers.
Community amenities include a cabana, pool and sun deck. The townhomes
range from 1,262 to 1,358 square feet and are priced from $88,490 to
$91,990.
Fiesta. Located in Southwest Miami-Dade County, Florida, this community is
near the Serena Lakes community and includes 70 single-family homes.
Targeting first-time homebuyers, the homes range from 1,300 to 1,900 square
feet and are priced from $100,000 to $130,000.
Los Castillos at Windsor Palms. This community of 102 upscale homes located
in Miramar, Southwest Broward County, Florida, targets move-up buyers and
provides larger homes ranging from 2,500 to 3,600 square feet at base
selling prices ranging from $210,000 to $260,000.
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Las Costas/Savannah. Located in Northwest Miami-Dade County, Florida, this
community consists of 40 single-family homes, 173 attached single-family homes
and 119 condo-villas. Centrally located within the Doral area, the community
targets entry-level homebuyers as well as first time move-up buyers. The single-
family homes range from 2,420 to 3,245 square feet and are priced from $197,900
to $226,900. The attached single-family homes range from 1,550 to 2,150 square
feet and are priced from $143,900 to $161,900. The condo-villas range from 1,170
to 1,800 square feet and are priced from $107,900 to $130,900.
Dimensions. Located in Northwest Miami-Dade County Florida, within the Doral
location. The community consists of 88 townhomes. The community is targeted to
first-time homebuyers and retirees. The homes range from 1,332 to 1,778 square
feet and are priced from $123,900 to $147,900.
Century Park at Flagler. Centrally located in Southwest Miami-Dade, this
community consists of approximately 48 acres of undeveloped real estate. The
community is currently being developed and it is planned to consist of 74
townhomes and 692 condo-villas.
Construction
The Company, directly or indirectly through affiliates, acts as the general
contractor for the construction of its residential developments. The general
contractor's functions include monitoring the construction of each project
(including monitoring compliance with zoning and building codes), participating
in all significant design and building decisions, coordinating the activities of
subcontractors and suppliers and controlling the quality and cost of the work.
Subcontractors and material suppliers typically are retained after competitive
bidding at a fixed price for a specific project, and the Company does not have
any long-term contracts with any of its subcontractors. The Company generally
requires that its subcontractors agree to its standard terms regarding matters
such as frequency of payments, standards of work and materials and maintenance
of insurance. The Company generally utilizes more than one subcontractor for
each type of work to minimize increased costs and delays that might result if
one of its subcontractors experiences financial or other difficulties.
The Company has a fully integrated construction and accounting software
package that utilizes the critical path method as the basis of the system. The
critical path method details the integral steps necessary for the complete
construction of a home and sets forth specific milestones and the timing
necessary to achieve the milestones so that the Company can track the progress
of the construction on each of its homes. All data is updated on a daily basis
resulting in current information by project and by individual unit to increase
the likelihood of, among other things, timely completion of homes under
construction.
The Company does not maintain significant inventories of construction
materials except for materials for homes under construction and a limited amount
of other materials. Generally, the construction materials used in the Company's
operations are readily available from numerous sources, including affiliates of
the Company, but prices can fluctuate due to various factors, including
increased demand or supply shortages. Whenever possible, the Company negotiates
agreements for price and volume discounts with national, regional or local
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suppliers of materials, which either the Company or its subcontractors will
purchase. In addition, in the event any raw materials are acquired from
affiliates of the Company, the Company believes that such procurement of raw
materials is on terms no less favorable than available through third parties.
The Company does not have any long-term contractual commitments with suppliers
of building materials. The Company may from time to time experience industry-
wide shortages of certain raw materials, and as a result, prices of materials
can fluctuate significantly. In addition, stringent building codes, which were
adopted in Miami-Dade County and Broward County, have increased costs of homes.
The Company generally has been able to pass along cost increases to the
prospective buyers, but there is no assurance that increased costs will not have
a material adverse effect on the Company's operations.
Marketing and Sales
The Company sells substantially all of its homes through employees who work
from sales offices located at the model homes in each project. The Company also
sells its homes through independent real estate brokers. Sales personnel assist
prospective homebuyers by providing them with floor plans, information on
prices, options and custom features and tours of model homes. Sales personnel
are trained by the Company and are periodically updated on the availability of
financing, construction schedules, marketing and advertising plans. Most of the
sales personnel are employed on a long-term rather than on a project-by-project
basis, which the Company believes results in reduced training costs and a more
motivated and experienced sales force.
Each model complex typically consists of three to five models. Most models
are fully merchandised to accentuate the design and size of the home. The
merchandising is based upon the demographics and lifestyles of the target buyer.
Upgrades in many of the Company's current homes include ceramic tiles, oversized
kitchens and a separate shower and roman tub in master baths, Spanish tile
roofs, brick paved driveways and walkways, security systems, and an upgraded
designer appliance package. Each project's sales center typically contains
graphic displays of the floor plans and a community site plan, as well as
information on the history of the Company.
The Company's advertising program encompasses various media. Signage is a
primary medium, which is implemented when land is acquired. Upon the completion
of the models, a full advertising campaign typically begins using newspaper,
radio and direct mail. In addition, the Company provides incentives to
independent real estate brokers as a means of ensuring broker participation.
The volume and timing of the Company's home sales are substantially
affected by the opening of new residential developments. Generally, a
residential development will generate a high sales volume in the early period of
its existence (due primarily to the wide choice of available lots), with sales
activity decreasing as the project matures. In addition, the Company's ability
to sell its homes is dependent, in large part, upon the ability of its buyers to
obtain financing. The Company does not finance the purchase of homes in its
communities but rather refers customers to a variety of mortgage lenders for
their financing needs. The Company has experienced significant variability in
sales on a quarterly basis as a result of,
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among other things, the timing of home closings, the cyclical nature of the
homebuilding industry, changes in prevailing interest rates and other economic
factors and changes in the costs of materials and labor.
Through its relationships with mortgage companies, the Company monitors the
availability of governmental programs offering low interest mortgage financing
to prospective homebuyers as a means to market and increase the Company's demand
for its homes. When programs become available, the Company reviews the terms of
the program and the requisite commitment fee to determine whether it will submit
a bid for the Company to obtain low interest financing for qualified homebuyers.
The Company's home closings are also dependent on the availability of
homeowner's insurance. Primarily as a result of Hurricane Andrew, there is a
widespread shortage of available private insurance for homeowners in the State
of Florida. The State of Florida has created a joint underwriting association to
provide insurance coverage to homeowners who cannot obtain private insurance;
however, such State provided insurance affords homeowners less protection than
is typically provided by private insurance carriers at greater costs and may not
be purchased during periods in which there is an active tropical storm, which
could threaten the State.
Customer Service and Quality Control
The Company's customer service personnel are responsible for pre-closing,
quality control home inspections with the buyer and responding to post-closing
customer needs. The participation of customer service personnel, in management's
opinion, reduces post-closing repair costs, fosters the Company's reputation for
quality and service and leads to repeat and referral business. The Company
provides homebuyers with a limited warranty program which, in general, provides
home buyers with at least a one-year warranty on workmanship and building
materials through the Bonded Builders Home Warranty program, a privately insured
program that establishes standards for the acceptable condition of a home and
resolution of disputes. Historically, the Company has not incurred any material
costs relating to warranty claims or defects in construction.
Government Regulation and Environmental Matters
In developing a project, the Company must obtain the approval of numerous
governmental authorities regulating such matters as permitted land uses and
levels of density, the installation of utility services such as water and waste
disposal and the dedication of acreage for open space, parks, schools and other
community purposes. Several authorities in Florida have imposed impact fees as a
means of defraying the cost of providing certain governmental services to
developing areas, and the amount of these fees has increased significantly
during recent years. Other Florida and local laws require the use of specific
construction materials, which reduce the need for energy-consuming heating and
cooling systems, or are expected to withstand certain wind speeds. Miami-Dade
County and Broward County have enacted more stringent building codes as a result
of Hurricane Andrew, which have resulted in increased costs of construction. The
State of Florida and counties and cities within the State have also, at times,
declared moratoriums on the issuance of building permits
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and imposed other restrictions in areas where the infrastructure (e.g., roads,
schools, parks, water and sewage treatment facilities and other public
facilities) does not reach minimum standards, all of which could have a material
adverse effect on the Company's business. To date, the governmental approval
processes and the restrictive zoning, moratoriums and allocation systems have
not had a material adverse effect on the Company's development activities.
The Company is subject to a variety of federal, state and local statutes,
ordinances, rules and regulations concerning protection of health and the
environment. The particular environmental laws, which apply to any given
community, vary greatly according to the community site, the site's
environmental conditions and the present and former uses of the site. These
environmental laws may result in delays, cause the Company to incur substantial
compliance and other costs and prohibit or severely restrict development in
certain environmentally sensitive regions or areas. Prior to consummating the
purchase of land, the Company engages independent environmental engineers to
evaluate such land for the presence of hazardous or toxic materials, wastes or
substances. The Company has not been materially adversely affected to date by
the presence or potential presence of such materials.
Under various federal, state and local environmental laws, ordinances and
regulations, the Company, as a current or previous owner or operator of real
property, may be held liable for the costs of removal or remediation of certain
hazardous or toxic substances, including, without limitations, asbestos-
containing materials, that could be located on, in or under such property. Such
laws and regulations often impose liability whether or not the owner or operator
knew of, or was responsible for, the presence of the hazardous or toxic
substances. The cost of any required remediation or removal of the substances
could be substantial and the Company's liability as an owner or operator as to
any property is generally not limited under such laws and regulations, and could
exceed the property's value and the Company's aggregate assets. The Company's
ability to sell, rent or develop a property, or to borrow using a property as
collateral may be adversely affected by the presence of the substances or
failure to remediate such substances properly. Under these laws and regulations,
the Company, as an owner, operator, or any entity who arranges for the disposal
of hazardous or toxic substances, such as asbestos-containing materials, at a
disposal site, may also be liable for these costs, as well as certain other
costs, including governmental fines and injuries to persons or properties. To
date, the Company, has not incurred any significant costs of removal or
remediation of such hazardous toxic substances. However, the presence, with or
without the Company's knowledge, of hazardous or toxic substances at any
property held or operated by the Company, could adversely affect the Company's
business, operating results and financial condition. The Company is not aware of
any environmental conditions at any of the projects under construction or
development.
To varying degrees, certain permits and approvals may be required to
complete the residential developments currently being planned by the Company,
including land development permits (water, sewer, paving and drainage), sales
center permits, model home permits and building permits. The process of
obtaining permits and approvals is an ongoing process in the ordinary course of
business that the Company is engaged in as it develops and constructs homes for
its current and future planned projects. The ability of the Company to obtain
necessary approvals and permits for these projects is often beyond the Company's
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control, and could restrict or prevent the development of otherwise desirable
property. The length of time necessary to obtain permits and approvals increases
the carrying costs of unimproved property acquired for the purpose of
development and construction. In addition, the continued effectiveness of
permits already granted is subject to factors such as changes in policies, rules
and regulations and their interpretation and application. To minimize these
risks, the Company generally restricts land purchases to tracts that have or
will have zoning and all other related entitlements. To date, the Company has
not encountered any material difficulties in obtaining permits and does not
currently anticipate any material difficulties in obtaining permits in the
future.
Competition
The homebuilding industry is highly competitive and fragmented. The Company
competes on the basis of a number of interrelated factors, including location,
reputation, amenities, design, quality and price, with numerous large and small
builders, including some builders with nationwide operations and greater
financial, marketing, sales and other resources. At times competitors may offer
homes at discounted prices for financial reasons. The Company also competes for
residential sales with individual resale of existing homes and condominiums,
including sales of homes at deeply discounted prices by lenders, banks and other
similar institutions.
The Company also competes with other homebuilders for the acquisition of
lots. Competition for available lots varies from market to market depending on
supply and is based primarily on price, reputation and ability to build, market
and sell homes.
Warranties, Bonds and Other Obligations
The Company is often required, in connection with the development of its
projects, to obtain performance or maintenance bonds or letters of credit in
favor of governmental authorities and others. The amount of such obligations
outstanding at any time varies in accordance with the Company's pending
construction activities. In the event any such obligations are drawn upon
because of the Company's failure to build required infrastructure, the Company
would be obligated to reimburse the issuing surety company or bank. At September
30, 1999, the Company had approximately $645,000 in letters of credit and
performance bonds outstanding in connection with its development and
construction activities.
The Company generally provides homebuyers with at least a one-year warranty
on workmanship and building materials and, in certain instances such as when
financing is provided through a government loan or where city codes require, a
ten-year structural warranty. The cost of providing extended warranties and
warranty services was not material during the fiscal year ended September 30,
1999. The subcontractors who perform most of the actual construction in turn
provide warranties of workmanship to the Company typically of one year in
duration following completion of their work and perform substantially all of the
warranty work at no cost to the Company. The Company has not sustained any
material claims for warranty services under its ten-year structural warranty
program.
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The Company also has obligations to subsidize homeowners' associations in
certain of its residential developments up to a pro rata portion of expenses
based on the number of lots, which have not been closed in such developments. To
date, the Company has incurred minimal costs to subsidize homeowner's
associations, as such associations revenues have been adequate to cover their
operating costs.
Employees
At September 30, 1999, the Company employed approximately 70 full-time
employees. Of the total number of employees approximately 35 worked in
construction, 20 worked in sales and marketing and 15 were employed in
administration. None of the Company's employees are represented by unions.
Management considers its employees relations to be good.
Directors and Executive Officers of the Registrant
The following table sets forth information, with respect to each person who
is currently an executive officer or director of the Company, as indicated
below.
NAME AGE POSITION
Sergio Pino 43 Chairman of the Board, President and Chief
Executive Officer
Emiliano de la Fuente, Jr. 51 Vice President of Finance and Chief
Financial Officer
Luis P. Rabell 56 Vice President of Operations
Armando J. Guerra 48 Director
Jose Cancela 42 Director
Harry Weitzer 58 Director
Michael Ambrosio 52 Director
Lawrence Hellring 52 Director
Sergio Pino, age 43, has served as Chairman of the Board, President and
Chief Executive Officer of the Company since August 1999. Mr. Pino, since its
formation in January 1997, has also served as President and Chief Executive
Officer of Century Partners Group, Ltd., a company engaged in the business of
real estate development in South Florida and the Company's principal
shareholder. Mr. Pino also founded Century Plumbing Wholesale, Inc. in November
1997 and served as President of the Latin Builders Association (1989-1992), as a
Director of Union Planters Bank (1998-present) and is a member of the Greater
Miami Chamber of Commerce and C.A.M.A.C.O.L., the Latin Chamber of Commerce.
Emiliano de la Fuente, Jr., age 51, has served as Vice President of Finance
and Chief Financial Officer of the Company since August 1999. Mr. de la Fuente
has also serves as Chief Financial Officer of Century Partners Group, Ltd., the
Company's principal investor, since May 1998. Prior to joining Century Partners
Group, Mr. de la Fuente served as Chief Financial Officer of a Miami real estate
and asset management group. Mr. de la Fuente has
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over 15 years experience in the real estate industry as well as over 10 years
experience with publicly held companies. Mr. de la Fuente has degrees in
Accounting and Personnel Management from the University of Miami. He is a
Florida CPA.
Luis P. Rabell, age 56, has served as Vice President of Operations of the
Company since August 1999. Prior to Joining the Company, Mr. Rabell served as
executive vice president of Landstar Homes' South Florida Division from August
1998 to August 1999. Before that, he served as Chief Operating Officer and Chief
Financial Officer of The Adler Companies. Mr. Rabell has over 25 years
experience in the real estate industry. Mr. Rabell is a licensed general
contractor and real estate broker.
Armando J. Guerra, age 48, has served as a member of the Company's Board of
Directors from August 1999 until the present. Mr. Guerra has and continues to
serve as President of Sedano's Pharmacy and Discount Stores, Inc., which he
founded in May 1977 and currently operates as a 13 unit chain of pharmacies in
South Florida. Mr. Guerra is also Vice President of Sedano's Supermarkets, Inc.,
a 27 unit chain of retail food markets, and has served in such capacity since
1977. Mr. Guerra is an honorary director of the Latin Builders Association and a
director of the regional Board of Union Planters Bank. Mr. Guerra also serves as
a director of the American Red Cross blood services.
Jose Cancela, age 42, has served as a member of the Company's Board of
Directors from August 1999 until the present. Mr. Cancela has served as
President of Radio Unica Corp. since July 1998 and oversees the day-to-day
operations of Radio Unica Network, a Spanish-language radio network. Mr. Cancela
also served as Executive Vice President of Telemundo, a Spanish-language
television network from 1992 to 1998. Mr. Cancela has more than 20 years of
media industry experience, including 13 years with Univision, also a television
network. Mr. Cancela is the current Chairman of the Greater Miami Chamber of
Commerce and is Chairman of the Advisory Board of First Union Bank of Miami-Dade
and Monroe Counties. Mr. Cancela also served as Chairman of the Public Health
Trust of Jackson Memorial Hospital from 1990 to 1992.
Harry Weitzer, age 58, has served as Director of the Company since its
formation in June 1994. Mr. Weitzer had served as Chairman of the Board and
Chief Executive Officer of the Company from its formation in June 1994 until
August 1999.
Michael Ambrosio, age 52, has served as a Director of the Company since May
1996. Mr. Ambrosio is vice president of Simkins Industries, Inc. and Executive
Vice President of Westfield Financial Corp., the real estate investment division
of Simkins Industries, Inc., with whom he has been associated for the past six
years.
Lawrence Hellring, age 52, has served as a Director of the Company since
March 1996. Mr. Hellring is President and owner of Superior Windows Corp. Mr.
Hellring has been associated with Superior Windows Corp., a privately held
manufacturing company for the past eleven years.
<PAGE>
ITEM 2. PROPERTIES
The corporate headquarters of the Company is located at 7270 N.W. 12th
Street, Suite 410, Miami, Florida, which is also the principal operation
facility for its construction operations. The Company is currently developing
several residential projects. See Part I, Item 1. Business - Summary of
Residential Projects for a listing and descriptions of the Company's projects.
ITEM 3. LEGAL PROCEEDINGS
The Company has been involved from time to time in litigation arising in
the ordinary course of business. The Company is not currently a party to any
litigation that the Company believes could have a material adverse effect on the
financial position or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended September 30, 1999.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market information
The Company's Class A Common Stock has been trading on the over-the-counter
Bulletin Board ("OTC-BB") since June 9, 1998 under the symbol "WTZRA". The
Company's Class A Common Stock had been traded on Nasdaq from April 26, 1995 to
June 8, 1998. Prior to that time, there was no public market for the Class A
Common Stock. There is no established public trading market for the Company's
Class B Common Stock. The following sets forth the range of high and low bid
prices for the Class A Common Stock, as reported on the OTC-BB during each of
the quarters presented. The quotations set forth below are inter-dealer
quotations, without retail mark-ups, markdowns or commissions and do not
necessarily represent actual transactions.
Class A Common Stock
--------------------
Quarterly Period Ended High Bid Low Bid
---------------------- -------- -------
September 30, 1999 $2.625 $1.438
June 30, 1999 2.813 1.250
March 31, 1999 1.563 0.300
December 31, 1998 0.560 0.220
September 30, 1998 0.438 0.406
June 30, 1998 0.594 0.438
March 31, 1998 0.938 0.906
December 31, 1997 0.875 0.719
As of January 28, 2000, there were approximately 59 holders of record of
the Company's Class A Common Stock. This number does not include approximately
1,000 beneficial owners of the Common Stock whose shares are held in the names
of various dealers, clearing agencies, banks, brokers and other fiduciaries.
Dividends
Pursuant to the Company's Articles of Incorporation, prior to the Earnings
Achievement Date (as hereinafter defined), the holders of the Common Stock are
entitled to receive, if, when and as declared by the Board of Directors of the
Company to the extent funds are legally available, dividends at the rate of (i)
$.325 per share per annum, with respect to the Class A Common Stock, and (ii)
$.001 per share per annum, with respect to the Class B Common Stock, payable
quarterly on the fifteenth day of February, May, August and November of each
year. For periods following the Earnings Achievement Date, holders of the Class
A Common
<PAGE>
Stock and the Class B Common Stock are entitled to receive such dividends, in
equal amounts per share, as may be declared from time to time by the Board of
Directors out of funds legally available.
The "Earnings Achievement Date" is a date which is 10 business days
following the filing by the Company with the Securities and Exchange Commission
of the first Form 10-Q or Form 10-K, as the case may be (the "SEC Report"),
which reflects that, as of the last day of the period to which such SEC Report
relates, the Company has had an aggregate of $7,500,000 of Operating Income
earned since April 1, 1995 (the "Earnings Achievement"). "Operating Income" of
the Company for any fiscal period means the Consolidated Net Income for such
period, (x) increased or decreased by all income tax expense or benefit for such
period, and (y) decreased by all dividends paid or accrued during such period.
"Consolidated Net Income" of the Company for any period means the consolidated
income or loss of the Company and its subsidiaries as set forth on the Company's
consolidated statement of income for any such fiscal period and as determined in
accordance with generally accepted accounting principles consistently applied,
provided that (i) the results of operations of any person acquired in a pooling
of interests transaction for any period prior to the date of such acquisition
shall be excluded, and (ii) (a) any gains or losses from assets sales or
reserves related thereto (other than a disposition of housing inventory in the
ordinary course of business), (b) any gains or losses upon the extinguishments
of indebtedness and any extraordinary gains or losses, shall be excluded. No
later than (i) 45 days after the end of the Company's fiscal quarter which is
not the year-end or (ii) 90 days after the fiscal year-end, as the case may be,
the Chief Financial Officer of the Company shall determine if the Earnings
Achievement has occurred.
The Company is also restricted under the terms of its existing loan
agreements from declaring or paying any dividends or making any other
distributions on any shares of capital stock of the Company.
The Company's Board of Directors had determined that it is in the best
interests of the Company and its shareholders to retain all earnings and to
forego the cash dividend payments on its outstanding shares of Class A and Class
B Common Stock since August 1996. The Company's determination to forego such
payments was based in part, on the Board of Directors' continued determination
that such cash was necessary to maintain the Company's then current level of
operations and, would be better used to facilitate the Company's growth. Cash
dividends on the Class A and Class B Common Stock are cumulative, and
accordingly, the amount of such dividends would inure for the benefit of the
Company's shareholders. The Company accrues such dividends on its financial
statements only if and when the Company's Board of Directors declared such
dividends. The Company will continue to evaluate future cash dividend payments
depending upon then current business conditions, opportunities for growth and on
the then current financial condition of the Company. Accordingly, no assurance
can be given as to when the Company plans on resuming, if at all, the
declaration of such cash dividends and/or the payment of such cash dividends.
Each share of Class B Common Stock can be converted into one share of Class
A Common Stock if the Earnings Achievement Date (as defined) has occurred and
all
<PAGE>
accumulated and unpaid dividends on the Class A Common Stock have been declared
and paid in full.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company's relevant periods. As a result of the change in control of the Company,
a new basis of accounting (purchase accounting basis) was established for the
Company, effective September 30, 1999. Accordingly, to the extent of the change
in ownership, the assets and liabilities of the Company were adjusted to fair
value, capital was adjusted to reflect Century's purchase price for its
ownership interest and the difference between Century's basis in its interest in
the Company and its proportionate share of the fair value of the net assets was
recorded as goodwill. Financial information for periods prior to the change in
control are reflected at their historical amounts as previously reported by the
Company.
The table treats the 1995 Weitzer Entities Exchange on a basis similar to a
pooling of interests, which has the effect of combining all companies as if the
combination had been effective for the periods presented. Prior to May 1995, the
Company conducted substantially all of its operations through the Weitzer
Homebuilding Partnerships. During that time, the Company used the equity method
to account for its investment in the Weitzer Homebuilding Partnerships and,
accordingly, the selected consolidated financial data of the Company during this
time do not include the revenues, assets or equity of the Weitzer Homebuilding
Partnerships. Subsequent to May 1995, the Company consolidated the operations of
the Weitzer Homebuilding Partnerships with the financial statements of the
Company. The selected consolidated financial data should be read in conjunction
with the consolidated financial statements of the Company and the notes thereto
included elsewhere herein. The selected consolidated financial data of the
Company for the five fiscal years ended September 30, 1999 have been derived
from the Company's audited consolidated financial statements.
Selected Financial Information for the Company
<TABLE>
<CAPTION>
INCOME STATEMENT DATA: YEARS ENDED SEPTEMBER 30,
1995 1996 1997 1998 1999(2)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sales of homes $ 13,450,684 $ 37,391,780 $ 55,419,763 $ 50,599,859 $ 53,701,005
Equity in earnings of 50% (1)
owned affiliated partnership 686,711 - - - -
Net income (loss) 68814 (2,962,046) (3,168,279) (784,858) (2,258,925)
Net income (loss) per share $ 0.03 $ (0.81) $ (0.82) $ (0.19) $ (0.29)
Average number of shares
outstanding 2,277,950 3,649,204 3,860,254 4,158,688 7,921,675
Dividends declared per share $ 0.08 $ 0.24 $ - $ - $ -
<CAPTION>
BALANCE SHEET DATA: AS OF SEPTEMBER 30,
1995 1996 1997 1998 1999(2)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Land and construction-in
progress $ 30,167,295 $ 31,505,383 $ 39,181,888 $ 40,023,538 $ 64,632,674
Total assets 36,922,360 39,673,788 41,446,861 43,100,283 77,708,982
Total liabilities 26,887,489 32,379,779 37,321,131 38,759,411 47,591,302
Shareholders' equity 10,054,871 7,294,009 4,125,730 4,340,872 30,117,680
</TABLE>
<PAGE>
Selected Combined Financial Information of the Company and the Weitzer
Homebuilding Partnerships
September 30, 1995 (unaudited)
- ---------------------------------------------------
INCOME STATEMENT DATA:
Sales of homes $37,669,019
Cost of homes sold 31,876,433
Other costs and expenses 3,531,052
Net income 2,261,534
(1) Equity in earnings of 50%-owned affiliated partnerships represents the
Company's share of the income of the Weitzer Homebuilding Partnerships.
Each partnership's income was allocated to the partners first as a
preferred return on partners' capital, with the balance of income shared
equally; all losses were shared equally. Selected combined financial
information of the Weitzer Homebuilding Partnerships is set forth below.
(2) During September 1999, Century acquired an aggregate 22,123,893 shares of
Class A Common Stock of the Company. As consideration for the exercise of
the shares, Century conveyed to the Company $2,404,355 in cash and cash
equivalents and net assets of $16,846,619. The assets and liabilities
conveyed were recorded by the Company at historical carrying value because
Century and the Company were entities under common control at the exercise
date. On an audited proforma basis, revenues for the year ended September
30, 1999 would have increased by $10,077,756, the net loss would have
decreased by $517,707, and the proforma loss per share would have decreased
to $0.22 per share, had the exercise of options occurred on October 1,
1998. The operations of the conveyed partnerships for the year ended
September 30, 1998 were not significant.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for the historical information contained herein, certain statements
made in this Form 10-K may constitute forward looking statements and quotes;
within the meaning of the Securities Act of 1933, as amended as the Securities
Exchange Act of 1934. These statements may involve risks and uncertainties,
including, but not limited to, economic, competitive, governmental, and
technological factors affecting the Company's operations, markets, products,
services, and prices and other factors discussed in the Company's other filings
with the Securities and Exchange Commission. The following discussion and
analysis should be read in conjunction with the audited consolidated financial
statements of the Company and the notes thereto.
Results of Operations
General
- -------
Backlog and Available Lots for Sale or Under Option or Contract. The
following table sets forth the Company's backlog, the lots for sale and the lots
for construction for the periods presented. The backlog consists of homes under
sales contract and includes homes under construction, as well as homes that have
been sold but not started. At September 30, 1999, approximately 70% of the homes
in backlog were under construction. The lots for sale refer to the number of
lots the Company has acquired on which it plans to construct homes and exclude
homes under sales contracts included in backlog. The lots under development
reflect lots in projects that are currently being developed or that are planned
for future development. The lots under option or contract reflect the lots as to
which the Company has an option or contract to acquire, but whose acquisition
has not closed. There can be no assurances that
<PAGE>
settlements of homes subject to sales contract will occur or that all of the
available lots for sale will be built on, or that the available lots under
option or contract will be acquired or built on. The Company estimates that the
cancellation rate on homes for which a sales contract was signed for the fiscal
year ended September 30, 1999 was approximately 15%.
Backlog of Homes, Available Lots for Sale and Available Lots Under Option or
- ----------------------------------------------------------------------------
Contract
- --------
<TABLE>
<CAPTION>
September 30,
1999 1998
-------------------------------
<S> <C> <C>
Number of homes in backlog 451 237
Aggregate sales value of homes in backlog $59,317,000 $30,652,000
Lots for sale 935 743
Lots under development 766 0
Lots under option or contract 694 0
</TABLE>
Comparison of the Years Ended September 30, 1999 and 1998
- ---------------------------------------------------------
Revenues from home sales increased 6% from approximately $50.6 million for
the year ended September 30, 1998 to approximately $53.7 million for the year
ended September 30, 1999. This change is attributable to an increase in the
average selling price of homes delivered, from approximately $115,000 for the
year ended September 30, 1998 to approximately $125,000 for the year ended
September 30, 1999. The total number of homes delivered decreased from 440 to
429.
Cost of homes sold increased from approximately $44.5 million for the year
ended September 30, 1998 to approximately $49.2 million for the year ended
September 30, 1999. This change is primarily attributable to an increase in the
average cost of homes sold. Cost of homes sold, as a percentage of homes sales,
increased from 87.8% for the year ended September 30, 1998 to 91.6% for the year
ended September 30, 1999. The 3.8% increase of cost of homes sold, as a
percentage of sales is primarily attributable to the inclusion of approximately
$883,000 of impairment charges in the cost of homes sold for the year ended
September 30, 1999. The impairment charges incurred related to the Company's
assessment of the recoverability of certain long-lived assets.
Selling, general and administrative ("SG&A") expenses decreased from
approximately $6.5 million for the year ended September 30, 1998 to
approximately $5.9 million for the year ended September 30, 1999. SG&A expenses,
as a percentage of total revenues, decreased from 12.7% for the year ended
September 30, 1998 to 10.8% for the year ended September 30, 1999. The decrease
is primarily a result of Management's cost control initiatives.
Depreciation and amortization expenses increased from approximately
$776,000 for the year ended September 30, 1998 to approximately $1.4 million for
the year ended September 30, 1999. The increase is primarily attributable to the
acceleration in the amortization of certain capitalized loan fees, which
amounted to approximately $400,000, as discussed in Note 6 to the consolidated
financial statements in Item 8 of this Form 10-K.
<PAGE>
Comparison of the Years Ended September 30, 1998 and 1997
- ---------------------------------------------------------
Revenues from home sales decreased 9% from approximately $55.4 million for
the year ended September 30, 1997 to approximately $50.6 million for the year
ended September 30, 1998. This change is attributable to a decrease in the
number of homes delivered, from 484 to 440. The average selling price of homes
delivered in fiscal 1998 of approximately $115,000 was equivalent to the average
selling price in fiscal 1997.
Cost of homes sold decreased from approximately $51.7 million for the year
ended September 30, 1997 to approximately $44.5 million for the year ended
September 30, 1998, primarily as a result of the decrease in the number of homes
delivered. Cost of homes sold, as a percentage of homes sales, decreased from
93.4% for the year ended September 30, 1997 to 87.8% for the year ended
September 30, 1998. The 5.6% decrease of cost of homes sold, as a percentage of
sales is primarily attributable to the inclusion of $2,652,000 of impairment
charges in the cost of homes sold for the year ended September 30, 1997. The
impairment charges incurred related to the Company's assessment of the
recoverability of certain project costs.
Selling, general and administrative ("SG&A") expenses increased from
approximately $6.2 million for the year ended September 30, 1997 to
approximately $6.5 million for the year ended September 30, 1998. SG&A expenses,
as a percentage of total revenues, increased from 11.1% for the year ended
September 30, 1997 to 12.7% for the year ended September 30, 1998. The increase
is primarily a result of additional loan fees incurred pursuant to a loan
agreement. Such additional loan fees have been eliminated for future periods due
to the refinancing of the related loans.
Depreciation and amortization expenses increased from approximately
$592,000 for the year ended September 30, 1997 to approximately $776,000 for the
year ended September 30, 1998. The increase is attributable to the depreciation
on model furnishings purchased during the year ended September 30, 1998.
Liquidity and Capital Resources
As is typical in the homebuilding industry, the Company will require both
short-term and long-term financing. Such needs will depend upon the Company's
construction volume, asset turnover and land acquisitions to conduct its
principal operations. The Company's most significant sources of funds are
proceeds realized from home closings; proceeds from acquisition, development and
construction financing provided by financial institutions or other lenders; and
seller financing for land purchases. The Company will continue seeking to
procure additional outside financing in both the short-and long-term, as more
fully described below, for its future projects and on-going capital
requirements. There can be no assurance that the Company can obtain such
additional financing.
On June 30, 1999, the Company obtained an increase of $1.8 million on its
land and construction loans with Ohio Savings Bank. The terms of the increase
did not affect changes to the existing loan terms. On August 2, 1999, Chai
Capital Ltd. ("Chai") converted an aggregate of $4,000,000 in convertible
subordinated debentures, principal amount then outstanding, into 7,142,857
shares of the Company's Class A Common Stock. On August 2,
<PAGE>
1999, Century purchased an aggregate of 8,855,000 shares of the Company's Class
A and Class B Common Stock directly from Chai for $10,000,000.
In addition, on August 2, 1999, Century acquired options with an exercise
price of $1.13 per share to purchase an aggregate 22,123,893 shares of the
Company's Class A Common Stock (the "Options") directly from the Company in
consideration for $1,130,998.
The transactions with Chai and Century required the consents of certain
lenders. In connection with the granting of such consents, payments on certain
acquisition, development and construction loans payable were accelerated and are
payable by January 2000.
Pursuant to the Company's Articles of Incorporation, the holders of Common
Stock are entitled to receive, if, when and as declared by the Board of
Directors of the Company, to the extent funds are legally available therefore,
dividends at the rate of $0.325 per share per annum, with respect to the Class A
Common Stock, and $0.001 per share per annum, with respect to the Class B Common
Stock. The Company's Board of Directors had determined that it is in the best
interests of the Company and its shareholders to retain all earnings and to
forego the cash dividend payments on its outstanding shares of Class A and Class
B Common Stock since August 1996. The Company's determination to forego such
payments was based in part, on the Board of Directors' continued determination
that such cash was necessary to maintain the Company's then current level of
operations and, would be better used to facilitate the Company's growth. Cash
dividends on the Class A and Class B Common Stock are cumulative, and
accordingly, the amount of such dividends would inure for the benefit of the
Company's shareholders. The Company will accrue such dividends on its financial
statements only if and when the Company's Board of Directors declares such
dividends. The Company will continue to evaluate future cash dividend payments
depending upon then current business conditions, opportunities for growth and on
the then current financial condition of the Company. Accordingly, no assurance
can be given as to when the Company plans on resuming, if at all, the
declaration of such cash dividends and/or the payment of such cash dividends
(see "Dividends"). As of September 30, 1999, cumulative unpaid dividends in
arrears amounted to $4.0 million. The Company will accrue such dividends on its
financial statements only if and when declared by the Company's Board of
Directors.
At September 30, 1999, the Company had borrowings from banks and third
parties aggregating approximately $42.1 million. Scheduled and estimated
maturities of the Company's borrowings for the years ended September 30, 2000,
2001 and 2002 are expected to be approximately $22.4 million, $11.2 million and
$8.5 million, respectively. The Company anticipates that within the next twelve
months it will fund, in part, its debt payments and required expenditures
relating to its existing communities, including certain development costs,
primarily with cash flow from home sales and construction/development financing.
To the extent cash flow from operations is not sufficient to satisfy such
obligations or maintain its current level of operations based on its current
volume of home sales at such time, the Company will attempt to procure
additional equity or debt financing; although, no assurance can be given that
such financing can be obtained on terms deemed favorable to the Company. To the
extent the Company is unable to procure such financing on terms deemed favorable
to the Company, the Company may be forced to curtail its then current level of
operations.
<PAGE>
The Company is continually exploring opportunities to purchase parcels of
land for its homebuilding operations and is, at any given time, in various
stages of proposing, making offers for, and negotiating the acquisition of
various parcels, whether outright or through options. The closing of the
contemplated purchases are, in most cases, subject to a number of conditions,
including the Company's completion of a satisfactory due diligence investigation
and obtaining certain required regulatory approvals for development, and
procurement of necessary financing on terms deemed favorable by the Company.
The Company's loan agreements require the Company to maintain certain
financial ratios. In order to satisfy certain of these covenants for fiscal
1998, the Company obtained a modification of the loan agreement covenants and a
waiver of compliance from the relevant lending institution. At September 30,
1999, the Company was in compliance with its loan covenants, as modified.
Cash Flows. During the year ended September 30, 1999, the Company had
approximately $4.4 million of net cash provided from operating activities,
primarily resulting from a decrease in construction in progress resulting from
the sale of homes. The Company had cash used in investing activities during the
fiscal year ended September 30, 1999, mainly related to deposits on future
projects, which to date have required investments of approximately $200,000. The
Company had cash used in financing activities during the fiscal year ended
September 30, 1999 of $2.2 million. Based on the timing of construction loan
draws and the repayment of outstanding construction loans on sold homes during
the fiscal year, the Company reduced its net construction financing by
approximately $5.7 million. The Company consummated a transaction with Century,
in which options to issue 22,123,893 shares of the Company's Class A Common
Stock were issued in exchange for $1.1 million. The options were exercised in
exchange for cash, cash equivalents, Century's interest in five limited
partnerships and certain other assets.
Variability of Operating Results; Factors Affecting Future Results of
Operations and Liquidity
The Company has experienced and expects to continue to experience,
significant variability in sales and net income as a result of, among other
things, the stage of development of its projects, the timing of home closings,
the cyclical nature of the homebuilding industry, changes in the costs of
materials and labor, and the changes in prevailing interest rates and other
economic factors. The Company's new sales contracts and home closings typically
vary from period to period depending primarily on the stages of development of
its projects. In the early stages of a project's development, the Company incurs
significant start-up costs associated with, among other things, project design,
land acquisition and development, zoning and permitting, construction and
marketing expenses. Since revenues are recognized only upon the transfer of
title at the closing of a sale of a home, there are no revenues during the early
stages of a project. During the later stages of a project, however, costs are
lower in relation to the revenues recognized. Accordingly, the Company's
historical financial performance is not necessarily a meaningful indicator of
future results and, in general, Management expects that financial results may
vary significantly from period to period. The Company's results of operations
and liquidity could be affected by prevailing interest rates. Lower interest
rates may result in increased demand for homes, increased sales, lower financing
costs and lower costs of homes sold, while higher interest rates may result in
lower
<PAGE>
demand for homes, lower sales, higher financing costs and higher costs of homes
sold and, subsequently, reduced profitability. Although the Company has not
experienced a sharp decline in the demand for its homes during recent periods in
which interest rates have risen, any increases in interest rates could result in
such a decline and have a material adverse effect on the Company's future
results of operations and liquidity.
Inflation
The Company, as well as the homebuilding industry in general, may be
adversely affected during periods of high inflation, primarily because of higher
land and construction costs. In addition, higher mortgage interest rates may
significantly affect the affordability of permanent mortgage financing to
prospective purchasers. Inflation also increases the Company's interest costs
and costs of labor and materials. The Company attempts to pass through to its
homebuyers any increases in costs through increased selling prices and, for the
past three fiscal years, inflation has not had a material adverse effect on the
Company's results of operations. There is no assurance, however, that inflation
will not have a material adverse impact on the Company's future results of
operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At September 30, 1999, the Company was not invested in any markets risk
sensitive instruments held for either trading purposes or for purposes other
than trading. As a result, the Company is not subject to interest rate risk,
foreign currency exchange rate risk, commodity price risk, or other relevant
market risks, such as equity price risk.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL
STATEMENTS AND SCHEDULES
Reports of Independent Accountants
Consolidated Balance Sheets at September 30, 1999 (purchase accounting basis)
and 1998 (predecessor basis)
Consolidated Statements of Operations for the Years Ended September 30, 1999,
1998 and 1997 (predecessor basis)
Consolidated Statements of Shareholders' Equity for the Years Ended September
30, 1999, 1998 and 1997 (predecessor basis)
Consolidated Statements of Cash Flows for the Years Ended September 30, 1999,
1998 and 1997 (predecessor basis)
Notes to Consolidated Financial Statements
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Weitzer Homebuilders Incorporated:
We have audited the accompanying consolidated balance sheet (purchase accounting
basis) of Weitzer Homebuilders Incorporated and Subsidiaries (the "Company") as
of September 30, 1999, and the related consolidated statements of operations,
shareholders' equity and cash flows (predecessor basis) for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Weitzer Homebuilders
Incorporated and Subsidiaries as of September 30, 1999, and the results of their
operations and their consolidated cash flows for the year then ended in
conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Schedule II - Valuation and
Qualifying Accounts is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic consolidated
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic consolidated financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic consolidated financial
statements taken as a whole.
DELOITTE & TOUCHE LLP
Miami, Florida
January 26, 2000
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Weitzer Homebuilders Incorporated:
We have audited the accompanying consolidated balance sheet of Weitzer
Homebuilders Incorporated and Subsidiaries as of September 30, 1998, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Weitzer
Homebuilders Incorporated and Subsidiaries as of September 30, 1998, and the
consolidated results of their operations and their consolidated cash flows for
the year then ended in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Schedule II - Valuation and
Qualifying Accounts is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic consolidated
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic consolidated financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic consolidated financial
statements taken as a whole.
McKEAN, PAUL, CHRYCY, FLETCHER & CO.
Miami, Florida
November 25,1998
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Weitzer Homebuilders Incorporated and Subsidiaries
We have audited the accompanying consolidated balance sheet of Weitzer
Homebuilders Incorporated and Subsidiaries as of September 30, 1997 and 1996,
and the related consolidated statements of operations, shareholder's equity, and
cash flows for each of the three years in the period ended September 30, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Weitzer
Homebuilders Incorporated and Subsidiaries as of September 30, 1997 and 1996,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended September 30, 1997, in conformity with
generally accepted accounting principles.
The financial statements referred to above have been prepared assuming that the
Company will continue as a going concern. The Company has bonds payable in the
amount of $3.75 million, which have a scheduled maturity in June 1998.
Management's plans to restructure or refinance the bonds payable are also
discussed in the notes to the 1997 financial statements (not presented
separately herein). If the Company is unable to achieve any of the alternatives
discussed in the notes to the 1997 financial statements (not presented
separately herein), there is substantial doubt about the Company's ability to
continue as a going concern. The accompanying consolidated financial statements
do not include any adjustments relating to the recoverability of asset carrying
amounts or the amount of liabilities that might result should the Company be
unable to continue as a going concern.
PricewaterhouseCoopers LLP
Miami, Florida
December 12, 1997
<PAGE>
WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 (purchase accounting basis) AND
SEPTEMBER 30, 1998 (predecessor basis)
<TABLE>
<CAPTION>
ASSETS 1999 1998
------ ---- ----
<S> <C> <C>
Cash $ 2,395,002 $ 482,879
Land and land development costs 39,327,397 22,773,115
Construction-in-progress 25,305,277 17,250,423
Model furnishings 290,023 695,031
Deferred loan costs 281,935 690,352
Goodwill 5,799,942 -
Investments in unconsolidated partnerships 1,463,391 -
Other assets 2,846,015 1,208,483
-----------------------------------
$ 77,708,982 $ 43,100,283
===================================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Customer deposits $ 2,253,529 $ 1,334,428
Accounts payable and accrued liabilities 3,250,605 5,189,413
Acquisition, development, and construction loans payable 41,377,879 27,814,542
14% convertible subordinated debentures - 4,000,000
Notes and loans payable 709,289 421,028
-----------------------------------
47,591,302 38,759,411
-----------------------------------
Commitments and contingencies (Note 12)
Shareholders' equity:
Preferred Stock, $.01 par, 5,000,000 shares authorized,
none issued - -
Class A Common Stock, $.01 par, 40,000,000 shares
authorized, 33,412,718 and 4,145,968 shares issued and
outstanding in 1999 and 1998 334,128 41,460
Class B Common Stock, $.01 par, 1,500,000 shares
authorized, issued and outstanding 15,000 15,000
Additional paid-in capital 29,768,552 11,313,093
Accumulated deficit - (7,028,681)
-----------------------------------
30,117,680 4,340,872
-----------------------------------
$ 77,708,982 $ 43,100,283
===================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(predecessor basis)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
Sales of homes $ 53,701,005 $ 50,599,859 $ 55,419,763
Interest income 39,657 125,122 159,142
Other income 462,367 235,285 285,313
--------------------------------------------
54,203,029 50,960,266 55,864,218
--------------------------------------------
Operating costs and expenses:
Costs of homes sold 49,179,140 44,451,097 51,743,605
Selling expenses 3,924,266 4,352,620 4,349,641
General and administrative expenses 1,949,314 2,107,037 1,825,403
Depreciation and amortization 1,385,737 776,432 591,866
Goodwill write-off - - 331,570
Discontinued land acquisition expense - - 92,215
Interest expense 23,497 57,938 98,197
--------------------------------------------
56,461,954 51,745,124 59,032,497
--------------------------------------------
Net loss $ (2,258,925) $ (784,858) $ (3,168,279)
============================================
Basic and fully diluted loss per common share $ (0.29) $ (0.19) $ (0.82)
============================================
Weighted average number of common shares
outstanding 7,921,675 4,158,688 3,860,254
============================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Class A Common Stock Class B Common Stock Additional
--------------------- --------------------
Number Number Paid-in Accumulated
Of shares Amount of shares Amount Capital Deficit Total
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1996
(predecessor basis) 2,360,254 23,603 1,500,000 15,000 10,330,950 (3,075,544) 7,294,009
Net loss - - - - - (3,168,279) (3,168,279)
---------- -------- --------- ------- ----------- ----------- -----------
Balance at September 30, 1997
(predecessor basis) 2,360,254 23,603 1,500,000 15,000 10,330,950 (6,243,823) 4,125,730
Proceeds from issuance of
common stock at $.56 per share 1,785,714 17,857 - - 982,143 - 1,000,000
Net loss - - - - - (784,858) (784,858)
---------- -------- --------- ------- ----------- ----------- -----------
Balance at September 30, 1998
(predecessor basis) 4,145,968 $ 41,460 1,500,000 $15,000 $11,313,093 $(7,028,681) $ 4,340,872
---------- -------- --------- ------- ----------- ----------- -----------
Conversion of $4,000,000
subordinated debentures 7,142,857 71,429 - - 3,928,571 - 4,000,000
Proceeds from the issuance of
options to purchase 22,123,893
shares of common stock at
$1.13 per share - - - - 1,130,998 - 1,130,998
Issuance of 22,123,893 shares
of common stock at $1.13 per
share in exchange for cash,
cash equivalents, partnership
interests and certain other
assets 22,123,893 221,239 - - 16,631,454 - 16,852,693
Purchase accounting basis
adjustment resulting from the
change in control transaction - - - - (3,235,564) 9,287,606 6,052,042
Net loss - - - - - (2,258,925) (2,258,925)
---------- -------- --------- ------- ----------- ----------- -----------
Balance at September 30, 1999
(purchase accounting basis) 33,412,718 $334,128 1,500,000 $15,000 $29,768,552 $ - $30,117,680
========== ======== ========= ======= =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,258,925) $ (784,858) $ (3,168,279)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation, amortization and other non cash charges 1,385,737 776,432 821,341
Non cash charge for impairment of long lived assets 883,150 - 2,652,000
Changes in assets and liabilities:
Restricted escrow funds - 82,105 206,767
Land, land development costs, and construction-in-progress 6,861,719 (841,605) (10,328,505)
Other assets (528,738) (44,829) 57,175
Customer deposits 338,666 160,686 (492,379)
Accounts payable and accrued liabilities (2,319,411) 2,182,773 431,325
------------------------------------------------------
6,621,123 2,315,562 (6,652,276)
------------------------------------------------------
Net cash provided by (used in) operating activities 4,362,198 1,530,704 (9,820,555)
------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (21,077) (1,404) (148,780)
Proceeds from sale (purchase of) model furnishings (60,754) (586,236) 359,128
Deposits on future projects (165,504) - 1,945,277
------------------------------------------------------
Net cash provided by (used in) investing activities (247,335) (587,640) 2,155,625
------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Acquisition, development, and construction loan borrowings 33,242,158 54,595,585 47,399,418
Payments on acquisition, development, and construction loans (38,982,580) (55,951,556) (41,393,413)
Proceeds from (repayments of) 10% bonds payable - (3,750,000) 309,693
Payments on 5% debentures - - (1,185,000)
Deferred loan cost payments (185,932) (722,873) -
Proceeds from issuance of stock options 1,130,998 - -
Proceeds from issuance of common stock 2,404,355 1,000,000 -
Proceeds from issuance of 14% debentures - 4,000,000 -
Notes payable borrowings 400,000 425,000 99,002
Payments on notes payable (211,739) (292,864) (227,295)
------------------------------------------------------
Net cash provided by (used in) financing activities (2,202,740) (696,708) 5,002,405
------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 1,912,123 246,356 (2,662,525)
CASH BEGINNING OF PERIOD 482,879 236,523 2,899,048
------------------------------------------------------
CASH END OF PERIOD $ 2,395,002 $ 482,879 $ 236,523
======================================================
Supplemental disclosures of cash flow information:
Cash paid for interest, net of amounts capitalized $ 23,497 $ 57,938 $ 98,197
======================================================
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
On August 2, 1999, an aggregate principal amount of $4,000,000 subordinated
debentures were converted into 7,142,857 shares of Class A Common Stock.
On September 2, 1999 and September 30, 1999, an aggregate 22,123,893 shares of
Class A Common Stock were issued in exchange for net assets of $16,846,619,
inclusive of cash and cash equivalents of $2,404,355.
Effective September 30, 1999, as a result of the pushdown of Century's basis,
the Company recorded goodwill of $5,799,942 and increased additional paid-in
capital by $6,052,042. Also, the predecessor's accumulated deficit of
$9,287,606 was reclassified against additional paid-in capital.
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
WEITZER HOMEBUILDERS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Weitzer Homebuilders Incorporated was incorporated under the laws of the
State of Florida in June 1994, and engages, through its wholly owned
subsidiaries, in the design, construction and sale of moderately priced
single-family residences and townhouses in Miami-Dade and Broward counties
in South Florida.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation
---------------------------------------
The accompanying consolidated financial statements include the accounts of
Weitzer Homebuilders Incorporated and all wholly owned subsidiaries,
collectively known as "the Company". The Company's investment in
partnerships in which less than a controlling interest is held are
accounted for by the equity method. All significant intercompany
transactions and balances have been eliminated.
During August and September 1999, Century Partners Group, Ltd. ("Century")
acquired a 89.7% controlling interest in the Company. As a result of the
change in ownership, a new basis of accounting ("Purchase Accounting
Basis") was established for the Company effective September 30, 1999. (See
Note 3 to the consolidated financial statements).
Accounting Estimates
--------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.
Revenue Recognition
-------------------
Sales of homes and all related costs are recognized as revenue and costs of
homes sold, respectively, when sales are closed and title passes to the new
homeowner.
Long Lived Assets
-----------------
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets to be Disposed Of",
long lived assets such as land, construction in-progress and goodwill are
reviewed for events or changes in circumstances, which would indicate that
carrying amounts of the asset might not be recoverable. In the event that
facts and circumstances indicate that the carrying value of the assets may
be impaired, an evaluation of recoverability would be performed. If an
evaluation were required, the estimated future undiscounted cash flow
associated with the assets would be compared to the carrying amount to
determine if a write-down to fair value is required.
<PAGE>
Land and Construction-in-Progress
---------------------------------
Land and construction-in-progress are stated at the lower of cost or fair
value and consists of land and land development costs, direct construction
costs, and other costs. Land and land development costs are allocated to
housing units based on their relative sales value. Direct construction
costs are assigned to housing units based on specific identification. All
other costs are allocated to housing units based on a pro rata basis. The
Company capitalizes interest, real estate taxes and similar development
costs incurred during the development and construction period. Interest
capitalized during fiscal year 1999, 1998 and 1997 amounted to $3,028,541,
$3,472,035 and $2,522,984, respectively.
During the fiscal years ending September 30, 1999 and 1997, the Company
recorded an adjustment of approximately $883,000 and $2,652,000,
respectively, to reduce the carrying value of land, land development and
construction-in-progress to its fair value. These amounts have been
included in costs of homes sold in the accompanying consolidated financial
statement of operations. Certain of the key assumptions used in the
evaluation include sales price history, absorption history and cost of
construction, which includes estimates and an interest factor.
Model Furnishings
-----------------
Model furnishings are stated at cost. Depreciation is being provided on
the straight-line method over the estimated useful lives of the
furnishings.
Investments in Unconsolidated Partnerships
------------------------------------------
The Company's investments in partnerships in which less than a controlling
interest is held are accounted for by the equity method.
Deferred Loan Costs
-------------------
Costs incurred in connection with borrowings and the issuance of bonds and
debentures of the Company are deferred and amortized over the term of the
related debt.
Goodwill
--------
Goodwill represents the excess of the purchase price over the fair value of
net assets acquired and is being amortized by the Company over a 20-year
period on a straight-line basis (see Note 3). During the period ended
September 30, 1997, the Company determined that its then recorded goodwill
could not be realized and, accordingly, recorded a charge for the remaining
balance of $331,570.
Fair Value of Financial Instruments
-----------------------------------
Carrying amounts of certain of the Company's financial instruments
including cash, accrued payroll, accrued liabilities, and borrowings
approximate fair value because of
<PAGE>
their short-term maturities. Variable rate borrowings are fixed to market
indices and thereby approximate fair value.
Warranties
----------
The Company subcontracts virtually all segments of construction to others
and its contracts require the subcontractors to repair or replace any
deficient items related to their trade. Historically, the Company has not
sustained any material claims related to warranty matters.
Income Taxes
------------
Deferred tax assets and liabilities are recorded based on the differences
between financial statement and income tax bases of the Company's assets
and liabilities using enacted tax rates in effect for the year in which
these differences are expected to reverse. The Company establishes
valuation allowances against its deferred tax asset accounts, when
necessary, to more accurately reflect tax benefits that are expected to be
realized by the Company in the future.
Loss Per Share
--------------
Basic loss per common share is computed by dividing net loss attributable
to common stockholders by the weighted average number of shares of common
stock outstanding during the year. Diluted loss per share, which assumes
that the stock options and warrants (see Note 9) are exercised, is not
presented because the effect would be anti-dilutive. The weighted average
shares outstanding used in the computation of net loss attributable to
common shares are as follows:
<TABLE>
<CAPTION>
Weighted Average Shares Outstanding
For the Years Ended
-------------------
1999 1998 1997
---------------------------------------
<S> <C> <C> <C>
Class A Common Stock 6,421,675 2,658,688 2,360,254
Class B Common Stock 1,500,000 1,500,000 1,500,000
---------------------------------------
7,921,675 4,158,688 3,860,254
=======================================
</TABLE>
Recent Accounting Pronouncements
--------------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130, ("SFAS No.130") Reporting Comprehensive Income, which
establishes standards for reporting and display of comprehensive income and
its components (revenue, expenses, gains, and losses) in a full set of
general-purpose financial statements. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. The adoption of SFAS No. 130 did
not impact the Company's results of operations, cash flows or financial
position.
<PAGE>
In June 1997, the FASB issued Statement No. 131, ("SFAS No. 131")
Disclosures about Segments of an Enterprise and Related Information, which
establishes standards for reporting information about a company's operating
segments and related disclosures about its products, services, geographic
areas and major customers in annual and interim financial statement, SFAS
No. 131 is effective for fiscal years beginning after December 15, 1997.
The Company has adopted this statement in fiscal year 1999. The adoption
of this statement did not impact the Company's results of operations, cash
flows or financial position.
In June 1998, the FASB issued SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities. The statement requires the recognition
of all derivatives in the balance sheet as either assets or liabilities
measured at fair value. In June 1999, the FASB issued SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement 133, which delayed the adoption of
SFAS No. 133 for one year. As a result of SFAS No. 137, the Company will
not be required to adopt SFAS until fiscal 2001. The Company has not yet
determined the impact SFAS No. 133 will have on its financial position or
results of operation when such statement is adopted.
3. CHANGE IN CONTROL
On August 2, 1999, Century purchased an aggregate 8,855,000 shares of Class
A and Class B common stock of the Company directly from Chai Capital, Ltd.
("Chai"), the Company's principal shareholder prior to this transaction,
for $10,000,000. In addition, Century acquired options to purchase an
aggregate 22,123,893 shares of the Company's Class A Common Stock at an
exercise price of $1.13 per share (the "Options"), directly from the
Company, in consideration of $1,130,998. On September 2, 1999 and
September 30, 1999, Century exercised their option and received 22,123,893
aggregate shares of Class A Common Stock of the Company $1.13 per share.
As consideration for issued shares, Century conveyed to the Company cash,
cash equivalents, Century's interest in five limited real estate
partnerships and certain other assets.
As a result of this change in control transaction, as of September 30,
1999, Century had obtained a 89.7% interest in the Company. Under
generally accepted accounting principles, Century's basis in the Company is
pushed down to the separate financial statements of the Company ("purchase
accounting basis"). As a result, to the extent of this 89.7% change in
ownership, assets and liabilities of the Company were adjusted to fair
value, capital was adjusted to reflect Century's purchase price of its
ownership interest, including a reclassification of the predecessors
accumulated deficit against additional paid-in capital and any difference
between Century's basis in its interest in the Company and its
proportionate share of the fair value of the net assets was recorded as
goodwill. As of September 30, 1999, the company's basis in Century was as
follows:
<TABLE>
<S> <C>
Total purchase price, including $600,000 of acquisition costs and
liabilities incurred $ 10,600,000
Less: Fair value of assets acquired 4,800,058
----------
Goodwill (excess of cost basis over fair value of assets acquired) $ 5,799,942
==========
</TABLE>
<PAGE>
The assets and liabilities conveyed in connection with the exercise of the
options were recorded at historical carrying value because Century and the
Company were under common control at the exercise date. With respect to
the assets and liabilities received upon the exercise of the options, on an
unaudited proforma basis, revenues would have increased by $10,077,756, the
net loss would have decreased by $517,707 and the proforma loss per share
would have decreased to $0.22 per share, had the exercise of the options
occurred on October 1, 1998. The operations of the conveyed partnerships
for the year ended September 30, 1998 were not significant.
Comparative financial statements and notes to the consolidated financial
statements for periods prior to the change in control are reflected at
their historical amounts as previously reported by the Company (predecessor
basis).
4. CONSTRUCTION IN PROGRESS
Construction in progress consists of the following at September 30, 1999
and 1998:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Direct construction costs $ 20,027,237 $ 11,839,713
Construction period interest,
property taxes, overhead and other 5,278,040 5,410,710
------------- -------------
$ 25,305,277 $ 17,250,423
============= =============
</TABLE>
5. INVESTMENT IN UNCONSOLIDATED PARTNERSHIPS
As a result of the change in control discussed in Note 3, effective
September 30, 1999, the Company owns a 50% interest in two limited
partnerships, Century/Dadeland Gardens, Ltd. and Dadeland Towers, Ltd. that
is operating 150 rental apartment units and developing 580 condominium
units.
Condensed combined financial information of these partnerships as of
September 30, 1999 is as follows:
<PAGE>
Century/Dadeland Gardens, Ltd. and Dadeland Towers, Ltd.
Condensed Combined Balance Sheet
As of September 30, 1999
(unaudited)
<TABLE>
<S> <C>
Assets
Cash $ 500
Building and improvements, net 6,676,931
Other Assets 442,462
-------------
Total assets $ 7,119,893
=============
Liabilities and capital
Accounts payable and accrued expenses $ 203,400
Mortgage notes payable 4,983,320
-------------
Total liabilities 5,186,720
-------------
Capital of:
The Company 1,463,391
Others 469,782
-------------
Total capital 1,933,173
-------------
Total liabilities and capital $ 7,119,893
=============
</TABLE>
The operations of the partnerships for the period from their acquisition
through September 30, 1999 were not significant.
6. NOTES AND LOANS PAYABLE
Notes and loans payable consist of the following at September 30, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Land acquisition, development and construction loans with specified
principal payments due as underlying lots, which collateralize the
loan, are sold; interest payable monthly at rates ranging from prime
to prime plus 1.5%. At September 30, 1999, the prime rate was 8.25%. $ 41,377,879 $ 27,814,542
Notes, loans and capital lease obligations, paid monthly,
collateralized by certain assets with interest rates ranging from
8.25% to prime plus 1%. 709,289 421,028
----------- -----------
$ 42,087,168 $ 28,235,570
=========== ===========
</TABLE>
The following are the scheduled and estimated maturities of notes and loan
payable at September 30, 1999: 2000 $ 22,376,356
2001 11,210,812
2002 8,500,000
-------------
$ 42,087,168
=============
<PAGE>
One of the loan agreements requires the Company to maintain a minimum
tangible net worth, and a certain ratio of liabilities to shareholders'
equity. In order to satisfy certain of these covenants for fiscal year
1998, the Company obtained waivers of compliance from the relevant lending
institution through September 30, 1999. At September 30, 1999, the Company
believes it is in compliance with its loan covenants. In addition, the
loan agreements restrict the Company from declaring or paying any dividends
or make any other distributions on any shares of capital stock of the
Company.
The change in control transaction described in Note 3 to the consolidated
financial statements, required consents of certain lenders. In connection
with the granting of such consents, payments on certain acquisition,
development and construction loan payable were accelerated and are payable
by January 31/st/, 2000. Due to the acceleration of the loan payments, the
Company also accelerated the amortization of the associated deferred loan
fees. This resulted in additional amortization expense of approximately
$400,000, which is included in "Depreciation and amortization" in the
accompanying condensed consolidated financial statements. The Company also
incurred expenses of approximately $350,000 in connection with the
transaction, which are included in "General and administrative" in the
accompanying condensed consolidated financial statements.
7. 14% COVERTIBLE SUBORDINATED DEBENTURES
On July 28, 1998, the Company issued $4,000,000 of 14% Convertible
Subordinated Debentures ("the Debentures") and 1,785,714 shares of the
Company's authorized and unissued $.01 par value per share Class A Common
Stock at $.56 per share ($1,000,000 in aggregate) to a Florida limited
partnership, of which the then President of the Company was among the
limited partners, for an aggregate $5,000,000. In addition, such President
contributed 1,500,000 shares of Class B Common Stock of the Company to the
partnership. The Debentures were due in July 2001 and were convertible at
the option of the holder into shares of the Company's Class A Common Stock
at a conversion price of $.56 per share, and are subordinate to any senior
debt of the Company. The proceeds of the financing were used by the
Company primarily to repay the outstanding principal amount plus accrued
interest on the Company's outstanding 10% bonds in June 1998. In addition,
pursuant to the terms of the Debentures, the Company could not incur any
new debt in excess of $200,000 per annum and could not issue any securities
in the future (other than securities issuable upon exercise and/or
conversion of currently outstanding derivative securities) without the
prior consent of the Partnership.
On August 2, 1999 the holder of the Debentures exercised the conversion
feature of said Debentures and received 7,142,857 shares of the Company's
Class A Common Stock at $.56 per share.
<PAGE>
8. INCOME TAXES
The components of net deferred taxes at September 30, 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
Deferred tax assets 1999 1998
------------------------------
<S> <C> <C>
Net operating loss carryfowards 2,639,200 $ 2,148,000
Accrued expenses - 56,000
Deferred writedown of assets 539,400 459,000
Deferred contributions 11,400 8,500
Fixed assets 84,100 -
-----------------------------
3,274,100 2,671,500
Less valuation allowance (3,274,100) (2,671,500)
-----------------------------
Net deferred tax assets $ - $ -
============== =============
</TABLE>
Reconciliation of the differences between income taxes (benefit) computed
at federal statutory tax rates and the Company's recorded provision
(benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------
<S> <C> <C> <C>
Expected tax benefit at Federal statutory rate (34.00)% (34.00)% (34.00)%
State income tax (benefit), net ( 3.63)% ( 3.63)% ( 3.63)%
Valuation allowance (37.63)% (37.63)% (37.63)%
-----------------------------------
Income tax expense (benefit) 0.0 % 0.0 % 0.0 %
===================================
</TABLE>
As of September 30, 1999, the Company estimates it has net operating losses
of approximately $7,015,000. Due to the conversion of certain debt
instruments and Common Stock issued during 1999, which resulted in a change
of ownership, the net operating losses could be limited in the future.
Such carryforwards will expire beginning in the year 2008 through the year
2019. During the year ended September 30, 1999, the Company recorded an
additional valuation allowance of $602,600 on its deferred tax assets to
reduce the total to an amount that Management believes will ultimately be
realized. SFAS No. 109 requires a valuation allowance be recorded against
tax assets, which are not likely to be realized. Based upon past
performance and the uncertain nature of their ultimate realization, the
Company established a valuation allowance against these carryforward items
and will be recognizing the benefits only as reassessment demonstrates they
are realizable.
9. STOCK-BASED COMPENSATION
In connection with its initial public offering, the Company sold to certain
lead underwriters, for nominal consideration, warrants to purchase from the
Company's 160,000 shares of Class A Common Stock. The warrants are
outstanding and exercisable at a price of $7.80 per share of Class A Common
Stock through April 26, 2000. The warrants also provide for adjustment in
the number of shares of Class A Common Stock issuable upon the exercise
thereof as a result of certain subdivisions and combinations of the Class A
Common Stock. The warrants grant to the holders thereof certain rights of
registration of the securities issuable upon the exercise of the warrants.
<PAGE>
In March 1995, the Company granted, to the Company's then President,
options to purchase 150,000 shares of Class A Common Stock exercisable at
$7.80 per share for a period of four years commencing April 26, 1996. In
February 1997, the Company granted to directors and certain employees
options to purchase 620,000 shares of Class A Common Stock exercisable at
$1.75 per share for a period of 10 years. The options vest ratably over a
5-year period or immediately upon a change in control of the Company,
except for options to purchase 65,000 shares, which vested immediately. In
May 1999, the Company granted to certain employees options to purchase
24,500 shares of Class A Common Stock exercisable at $1.84 per share for a
period of 10 years. The options vested immediately.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS' No. 123"). SFAS No. 123 requires expanded disclosure
of stock based compensation arrangements with employees, and encourages,
but does not require compensation costs to be measured based on the fair
value of the equity instrument awarded. Companies are permitted to
continue to apply Accounting Principles Board Opinion No. 25 ("APB 25"),
which recognizes compensation cost based on the intrinsic value of the
equity instrument awarded. The Company will continue to apply APB 25 to
its stock based compensation awards. Accordingly, no compensation costs
related to employee options have been recognized in the consolidated
financial statements of the Company. Had compensation cost been determined
based on the fair market value at the grant dates for awards consistent
with the methods prescribed by SFAS No. 123, the Company's net loss and net
loss per share per in fiscal 1999, 1998 and 1997 would have been increased
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net loss:
As reported $(2,258,925) $(784,858) $(3,168,279)
==========================================
Pro forma $(2,301,800) $(916,378) $(3,281,532)
==========================================
Loss per share:
As reported $ (0.29) $ (0.19) $ (0.82)
==========================================
Pro forma $ (0.29) $ (0.22) $ (0.85)
==========================================
</TABLE>
The fair value of the fiscal year 1997, 1998 and 1999 option grants was
estimated on the date of grant using the Black-Scholes option-pricing model
with the following assumptions: risk free interest rates of 6.75%, dividend
yield of 0%, expected lives of 0 years and volatility of 78%. The weighted
average fair value of options granted was $1.37 for the year ended
September 30, 1997 and $1.13 for the years ended September 30, 1998 and
1999.
A summary of the status of the Company's stock-based option awards during
September 30, 1999, 1998 and 1997, and changes during the years then
ending, is presented below:
<PAGE>
<TABLE>
<CAPTION>
1999 1999 1999
Weighted Weighted Weighted
Average Average Average
Options Price Options Price Options Price
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at the beginning
of the year 850,000 $ 3.95 905,000 $ 3.82 310,000 $ 7.80
Granted 24,500 1.84 - - 620,000 1.75
Exercised - - - - - -
Forfeited (140,000) (1.75) (55,000) (1.75) (25,000) (1.75)
-----------------------------------------------------------------------------
Outstanding at year end 734,500 $ 4.31 850,000 $ 3.95 905,000 $ 3.82
============= ============= =============
Exercisable at end of year 734,500 475,000 375,000
============= ============= =============
</TABLE>
10. CAPITAL STOCK
The Class A Common Stock and the Class B Common Stock vote together as a
single class and are entitled to one vote per share, unless otherwise
required by applicable law and regulation.
In accordance to the Company's Articles of Incorporation, prior to the
Company having earned an aggregate of $7.5 million of adjusted operating
income (as defined), the holders of Common Stock are entitled to receive
dividends, to the extent funds are legally available, at the rate of $0.325
per share per annum for Class A Common Stock and $0.001 per share per annum
for Class B Common Stock, payable on a quarterly basis. Since August 1996,
the Board of Directors of the Company has elected to forego the regularly
scheduled cash dividend payments on its outstanding shares of Class A
Common Stock and Class B Common Stock. Cash dividends on the Class A and
Class B Common Stock are cumulative, and accordingly, the amount of such
dividends would inure for the benefit of the Company's shareholders. The
Company accrues such dividends on its financial statements only if and when
the Company's Board of Directors declares such dividends. As of September
30, 1999, cumulative unpaid dividends in arrears amounted to approximately
$4,000,000.
Each share of Class B Common Stock can be converted into one share of Class
A Common Stock if the Earnings Achievements Date (as defined) has occurred
and all accumulated and unpaid dividends on the Class A Common Stock have
been declared and paid in full.
11. RELATED PARTY TRANSACTIONS
Effective as of January 1, 1999, the Company entered into a five-year
employment agreement (the "Employment Agreement"), with Mr. Harry Weitzer,
its former Chairman, President and Chief Executive Officer, whereby he
agreed to devote substantially all of his business time to the affairs of
the Company. The Employment Agreement provided for an initial salary of
$350,000, with annual cost of living adjustments as well as provisions for
bonuses, reimbursements of business expenses, provision for automobile,
health insurance and related benefits. Effective August 2, 1999, Mr.
Weitzer's Employment Agreement was terminated and he entered into a five
month Consulting
<PAGE>
Agreement with the Company whereby he agreed to devote substantially all of
his business time to the affairs of the Company. In consideration for
acting as a consultant to the Company, Mr. Weitzer is paid $29,167 per
month.
Michael Ambrosio, a Director of the Company, entered into an agreement with
the Company in September 1998 to furnish consulting services. The
agreement provides that Mr. Ambrosio will be paid a monthly fee of $3,000,
on a month-to-month basis. The agreement for consulting services was
canceled on August 2, 1999. For the fiscal year ended September 30, 1999,
Mr. Ambrosio was paid $30,000.
Effective August 2, 1999, the Company and Century, the Company's principal
shareholder, share office space and certain other resources. The Company
has entered into an agreement with Century, in which the expenses incurred
for the shared space and resources are to be allocated between the two
entities according to their proportionate share of the office square
footage utilized. The Company currently occupies 90% of the space. The
future expense allocation based on lease agreements for the shared space
and resources is as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
% 2000 2001 2002 2003
--------------------------------------------
The Company 90% 69,260 72,853 75,767 74,195
Century 10% 7,696 8,095 8,419 8,244
--------------------------------------------
Combined total 100% 76,956 80,948 84,186 82,439
============================================
</TABLE>
The expense allocated to the Company for shared office space during the
year ended September 30, 1999 was $8,355.
On September 22, 1999, the Company borrowed $400,000 from Century, the
Company's principal shareholder. The loan bears no defined terms, but it
is considered an advance against future 7% debentures. The loan amount is
included in "Notes and loan payables" of the Company's consolidated balance
sheet, and the related interest expense for the year ended September 30,
1999 was $615.
12. COMMITMENTS AND CONTINGENCIES
Performance Bonds
-----------------
In accordance with certain governmental requirements, the Company has
caused performance bonds and letters of credit aggregating $645,000 at
September 30, 1999, to be issued to governmental agencies for certain of
the projects to secure the completion of required improvements.
Litigation
----------
The Company is involved from time to time in litigation arising in the
ordinary course of its business none of which is expected to have a
material adverse effect on the Company's consolidated financial position,
results of operations or cash flows.
<PAGE>
WEITZER HOMEBUILDER INCORPORATED AND SUBSIDIARES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Charged to
Beginning Cost and Other Balance at
of Year Expenses Accounts Deduction End of Year
-------------- -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1999
Allowances deducted from assets for
Deferred taxes $ 2,671,500 $ 602,600 $ - $ - $ 3,274,100
============== ============== ============= =========== ============
YEAR ENDED SEPTEMBER 30, 1998
Allowances deducted from assets for
Deferred taxes $ 2,376,500 $ 295,000 $ - $ - $ 2,671,500
============== ============== ============= =========== ============
YEAR ENDED SEPTEMBER 30, 1997
Allowances deducted from assets for
Deferred taxes $ 1,130,400 $ 1,246,100 $ - $ - $ 2,376,500
============== ============== ============= =========== ============
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
As previously reported by the Company on Form 8-K, dated December 2, 1999,
effective as of November 30, 1999, the Company engaged Deloitte & Touche LLP
("Deloitte"), as the Company's independent accountants to audit the financial
statements of the Company and its subsidiaries for the fiscal year ended
September 30, 1999, replacing McKean, Paul, Chrycy, Fletcher & Co. ("McKean")
who were dismissed as of November 30, 1999. The selection of Deloitte was
approved by the Audit Committee of the Board of Directors.
McKean served as the Company's independent auditors for the fiscal year
ended September 30, 1998. Their report on the financial statements for the
fiscal year ended September 30, 1998 did not contain an adverse opinion nor a
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principles.
In connection with the audit of the Company's financial statements for the
fiscal year ended September 30, 1998, and in the subsequent interim period
preceding McKean's dismissal, there were no disagreements on any matters of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure which if not resolved to their satisfaction would have caused
them to make references to the matter in their report.
<PAGE>
PART III
ITEM 10. DIRECTOR AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding the Company's Directors and Executive
Officers is included in Part I under "Directors and Executive Officers of
the Registrant".
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning
all cash and non-cash compensation paid or accrued for services rendered to
the Company during the fiscal years ended September 30, 1997, 1998, 1999 to
the Company's Chief Executive Officer and each of the Company's four other
most highly compensated Executive Officers, who was serving as Executive
Officers of the Company as of September 30, 1999, and two additional
individuals for whom disclosure would have been provided but for the fact
that such individuals were not serving as Executive Officers of the Company
at the end of the last completed fiscal year. All Executive Officers of the
Company (through February 28, 1999) were employees of an employee leasing
company named Paychex Business Solutions, Inc. (f/k/a National Business
Solutions, Inc.).
Summary Compensation Table (1)
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Other Restricted Securities All
Annual Stock Underlying LTIP Other
Fiscal Salary Bonus Compensation Awards Options/ Payouts Compensation
Name and Principal Position Year ($) ($) ($) (#) SARs ($) ($) ($)
- ------------------------- ---- --- --- --- --- -------- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sergio Pino 1999 0 0 0 0 0 0 0
Chairman of the Board 1998 0 0 0 0 0 0 0
President and Chief 1997 0 0 0 0 0 0 0
Executive Officer
Emiliano de la Fuente 1999 10,000 0 0 0 0 0 0
Chief Financial Officer 1998 0 0 0 0 0 0 0
1997 0 0 0 0 0 0 0
Luis Rabell 1999 31,000 0 0 0 0 0 0
Vice President of 1998 0 0 0 0 0 0 0
Operations
1997 0 0 0 0 0 0 0
Harry Weitzer (2) 1999 289,000 0 58,000 0 150,000 0 0
1998 323,000 0 0 0 0 0 0
1997 319,000 0 0 0 250,000 0 0
James Rosewater (3) 1999 110,000 0 0 0 0 0 0
1998 120,000 0 0 0 0 0 0
1997 110,000 0 0 0 50,000 0 0
</TABLE>
<PAGE>
(1) The amounts reflected in the above table do not include any amounts for
perquisites and other personal benefits extended to the named executive
officers. The aggregate amount of such compensation for the named
executive officer did not exceed 10% of the total annual salary and bonus
of such executive officer and, accordingly, has been omitted from the
table.
(2) Mr. Harry Weitzer served as Chairman of the Board, President and Chief
Executive Officer of the Company since its formation in 1994 until August
2, 1999. Mr. Harry Weitzer resigned his position effective August 2, 1999,
and entered into a consulting agreement for real estate consulting services
through December 31, 1999.
(3) Mr. James Rosewater resigned as Vice-President of Sales and Marketing
effective August 2, 1999 and subsequently left the employ of the Company in
September 24, 1999.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
<TABLE>
<CAPTION>
Shares Number of Securities Underlying Value of Unexercised In-the-Money
Acquired on Value Unexercised Options/SARs at Options/SARs at September 30,
Name(2) Exercise Received September 30, 1999(#) 1999($)(1)
- ------------------------------------------------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
=======================================================================
<S> <C> <C> <C> <C> <C> <C>
Harry Weitzer - - 400,000 0 - -
Jim Rosewater - - 50,000 0 - -
</TABLE>
(1) The closing price for the Class A Common Stock as reported by the OTC
Bulletin Board on September 30, 1999 was $1.6875.
Compensation of Directors
Directors who are not employees and who do not otherwise receive
compensation from the Company are entitled to $2,000 per Board meeting attended
in addition to the reimbursement of reasonable expenses incurred in attending
meetings. Directors who are officers or employees of the Company receive no
additional compensation for service as Directors, other than reimbursement of
reasonable expenses incurred in attending meetings. During the fiscal year
ended September 30, 1999, the Company made no other payments to Directors with
respect to participation on Board committees. See "Certain Relationships and
Related Transactions" for compensation paid by the Company to certain Directors
for consulting services and relationships of several Directors with Chai
Capital, Ltd., a former affiliate of the Company.
Employment Contracts and Termination of Employment and Change in Control
Arrangements
Effective as of January 1, 1999, the Company entered into a five-year
employment agreement (the "Employment Agreement"), with Mr. Harry Weitzer, its
former Chairman, President and Chief Executive Officer, whereby he agreed to
devote substantially all of his business time to the affairs of the Company.
The Employment Agreement provided for an initial salary of $350,000, with annual
cost of living adjustments. In addition, the Employment Agreement provided for
bonuses, reimbursement of business expenses, provision of an automobile, health
insurance and related benefits. Effective August 2, 1999, Mr. Weitzer's
Employment Agreement was terminated and he entered into a five month Consulting
Agreement with the Company whereby he agreed to devote substantially all of his
business time to the
<PAGE>
affairs of the Company. In consideration for acting as a consultant to the
Company, Mr. Weitzer is paid $29,167 per month.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of January 27, 2000, the number and
percentage of outstanding shares of Class A and Class B Common Stock owned
beneficially by (i) each shareholder known by the Company to own more than 5% of
the outstanding shares of Class A Common Stock and/or Class B Common Stock; (ii)
each Director of the Company; (iii) all Directors and Executive Officers as a
group; and (iv) all employees of the Company as a group.
<TABLE>
<CAPTION>
Class A Class B
------------------------------------- -------------------------------------
Amount and Amount and
Nature, Nature
Name and Address of Beneficial Percent of Beneficial Percent
of Beneficial Owner(1) Ownership of Class Ownership of Class
- ------------------- ------------------- -------------- ------------------- --------------
<S> <C> <C> <C> <C>
Sergio Pino (2) (2) (3) (3)
Jose Cancela (2) (2) (3) (3)
Armando Guerra (2) (2) (3) (3)
Harry Weitzer(5) 786,785 2.4% -- --
Michael Ambrosio(5) (4) * -- --
Lawrence Hellring(5) 10,000 * -- --
Century Partners Group, Ltd. 29,478,893 88.2% 1,500,000 100%
All Directors and Executive Officers
as a group (8 persons) 796,785 (2)(4) 2.4% -- --
All employees as a group (69
persons) 6,900 * -- --
</TABLE>
* Less than 1%.
(1) Address for all persons listed is c/o Weitzer Homebuilders Incorporated,
7270 N.W. 12th Street, Suite 410, Miami, Florida 33126.
(2) The reporting person claims indirect beneficial ownership by his status as
a Director and shareholder in a corporation, which is the general partner
of Century, which owns 29,478,893 shares of Class A Common Stock of the
Company.
(3) The reporting person claims indirect beneficial ownership by his status as
a Director and shareholder in a corporation, which is the general partner
of Century, which owns 1,500,000 shares of Class B Common Stock of the
Company.
(4) Represents 29,505 shares of Class A Common Stock acquired by a trust of
which Mr. Ambrosio's wife is a beneficiary.
(5) Represents current members of the Company's Board of Directors who are not
standing for re-election.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 2, 1999, Century Partners Group, Ltd. ("Century"), a Florida
limited partnership, purchased an aggregate 8,855,000 shares of Class A and
Class B common stock of the Company, from Chai Capital, Ltd. ("Chai"), the
Company's principal shareholder prior to this transaction, which resulted in a
change in control of the Company. In addition, Century acquired options to
purchase, directly from the Company, 22,123,893 shares of the Company's Class A
Common Stock at an exercise price of $1.13 per share (the "Options"), in
consideration of the payment of $1,130,998. The options provided the exercise
price may be tendered in cash or by conveyance to the Company, assets having a
fair market value equal to the exercise price.
On September 2, 1999 and September 30, 1999, Century exercised their option
and received 22,123,893 aggregate shares of Class A Common Stock of the Company
$1.13 per share. As consideration for issued shares, Century conveyed to the
Company cash, cash equivalents, Century's interest in five limited partnerships
and certain other assets. Three of the limited partnerships conveyed were
wholly owned subsidiaries of Century and the other two limited partnerships were
50% owned by Century.
As a result of the above transactions, as of September 30, 1999, Century
had obtained a 89.7% interest in the Company. In addition, at the closing of the
Chai transaction, two of the Company's then five directors resigned, the
Company's Board of Directors was expanded to six persons and the Company
appointed Sergio Pino, Armando Guerra and Jose Cancela to the Company's Board of
Directors.
Effective as of January 1, 1999, the Company entered into a five-year
employment agreement (the "Employment Agreement") with Mr. Harry Weitzer, its
former Chairman, President and Chief Executive Officer, whereby he agreed to
devote substantially all of his business time to the affairs of the Company.
The Employment Agreement provided for an initial salary of $350,000, with annual
cost of living adjustments. In addition, the Employment Agreement provided for
bonuses, reimbursement of business expenses, provision of an automobile, health
insurance and related benefits. As of August 2, 1999, Mr. Weitzer's Employment
Agreement was terminated and he entered into a five month Consulting Agreement
with the Company whereby he agreed to devote substantially all of his business
time to the affairs of the Company. In consideration for acting as a consultant
to the Company, Mr. Weitzer is paid $29,167 per month.
Michael Ambrosio, a Director of the Company, entered into an agreement with
the Company in September 1998 to furnish consulting services. The agreement
provides that Mr. Ambrosio will be paid a monthly fee of $3,000, on a month-to-
month basis. The agreement was canceled on August 2, 1999. For the fiscal year
ended September 30, 1999, Mr. Ambrosio was paid $30,000. A trust for the
benefit of Mr. Ambrosio's wife is a limited partner of Chai. Mr. Ambrosio is an
officer and director of Chai Capital Corp., the general partner of Chai.
Effective August 2, 1999, Mr. Rosewater resigned Vice-President of Sales
and Marketing of the Company and left the employ of the Company on September 24,
1999. Upon his resignation as an employee, as a result of the change in
control, Mr. Rosewater was paid the sum of $75,000, which amount was funded by
Chai in accordance with its previously executed agreements between Chai and
Century.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. The following exhibits, including those incorporated by
reference.
Exhibit
Number Description
-----------
3.1** Amended and Restated Articles of Incorporation of the Company
3.2* By-Laws of the Company
10.1* Indemnification Agreement dated as of September 30, 1994, between
the Company and Harry Weitzer
10.2* Option Agreement for the Purchase of Common Stock dated as of
March 22, 1994 between the Company and Harry Weitzer
10.3*** Agreement for Purchase and Sale dated June 14, 1995, between Dade
Residential Developers, Inc. and Webster Grant Land Company
10.4***** First Amendment To First Amended And Restated Agreement For
Purchase And Sale dated January 30, 1998 between Chapel Trail
Associates, Ltd. and Webster Grant Land Company.
10.5***** Unconditional And Continuing Guaranty Agreement And Indemnity
Agreement dated May 6, 1998 between Weitzer Homebuilders
Incorporated and Ohio Savings Bank
10.6***** Unconditional And Continuing Guaranty Agreement And Indemnity
Agreement dated August 20, 1998 between Weitzer Homebuilders
Incorporated and Ohio Savings Bank
21.1**** Subsidiaries of the Company
23.1 Consent of independent accountants
23.2 Consent of independent certified public accountants
23.3 Independent auditor's consent
27.1 Financial data schedule
* Incorporated herein by reference to the exhibit bearing the same number and
filed as a part of the Company's Registration Statement on Form S-1 filed
on April 26, 1995 (File No. 33-89076).
** Incorporated herein by reference to the exhibit filed as a part of the
Company's report on Form 10-Q for the three months ended March 31, 1996.
<PAGE>
*** Incorporated herein by reference to the exhibit filed as a part of the
Company's report on Form 10-Q for the three months ended June 30, 1996.
**** Incorporated herein by reference to the exhibit filed as a part of the
Company's report on Form 10-K for the fiscal year ended September 30,
1996.
***** Incorporated herein by reference to the exhibit filed as a part of the
Company's report on Form 10-K for the fiscal year ended September 30,
1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, as of the 27th
day of January, 2000.
WEITZER HOMEBUILDERS INCORPORATED
By: /S/SERGIO PINO
--------------
Sergio Pino
Chairman of the Board, and Chief
Executive Officer (Principal Executive
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/S/ARMANDO GUERRA
- ------------------------
Armando Guerra Director January 27, 2000
/S/JOSE CANCELA
- ------------------------
Jose Cancela Director January 27, 2000
/S/HARRY WEITZER
- ------------------------
Harry Weitzer Director January 27, 2000
/S/MICHAEL AMBROSIO
- ------------------------
Michael Ambrosio Director January 27, 2000
/S/LAWRENCE HELLRING
- ------------------------
Lawrence Hellring Director January 27, 2000
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-8 of our report dated December 12, 1997 relating to the
financial statements and financial statements schedules of Weitzer Homebuilders
Incorporated, which appears in Weitzer Homebuilders Incorporated's Annual Report
on Form 10-K for the year ended September 30, 1999.
/S/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Miami, Florida
January 28, 2000
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
As independent certified public accountant, we hereby consent to the
incorporation our report dated November 25, 1998, which appears in Weitzer
Homebuilders Incorporated Form 10-K for the year ended September 30, 1999, into
the Company's previously filed Registration Statements on Form S-8 File No. 333-
84167 and Form S-8 File No. 333-92797.
/S/McKEAN, PAUL, CHRYCY, FLETCHER & CO.
McKEAN, PAUL, CHRYCY, FLETCHER & CO.
Miami, Florida
January 28, 2000
<PAGE>
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-84167 and 333-92797 of Weitzer Homebuilders Incorporated on Form S-8 of our
report dated January 26, 2000 appearing in this Annual Report on Form 10-K of
Weitzer Homebuilders Incorporated for the year ended September 30, 1999.
DELOITTE & TOUCHE LLP
Miami, Florida
January 31, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> SEP-30-1999 SEP-30-1998
<PERIOD-START> OCT-01-1998 OCT-01-1997
<PERIOD-END> SEP-30-1999 SEP-30-1998
<CASH> 2,395,002 482,879
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 64,632,674 40,023,538
<CURRENT-ASSETS> 4,591,341 1,898,835
<PP&E> 290,023 1,268,383
<DEPRECIATION> 0 (573,352)
<TOTAL-ASSETS> 77,708,982<F1> 43,100,283
<CURRENT-LIABILITIES> 47,591,302 38,759,411
<BONDS> 0 0
0 0
0 0
<COMMON> 349,128 56,460
<OTHER-SE> 29,768,552 4,284,412
<TOTAL-LIABILITY-AND-EQUITY> 77,708,982 43,100,283
<SALES> 53,701,005 50,599,859
<TOTAL-REVENUES> 54,203,029 50,960,266
<CGS> 49,179,140 44,451,097
<TOTAL-COSTS> 49,179,140 44,451,097
<OTHER-EXPENSES> 7,259,317 7,236,089
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 23,497 57,938
<INCOME-PRETAX> (2,258,925) (784,858)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,258,925) (784,858)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,258,925) (784,858)
<EPS-BASIC> (0.29) (0.19)
<EPS-DILUTED> (0.29) (0.19)
<FN>
<F1>Includes $5,799,942 of Goodwill
</FN>
</TABLE>
