U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1998.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ........... to ............
Commission File No. 33-85102
SEVEN FIELDS DEVELOPMENT COMPANY
(Name of small business issuer in its charter)
PENNSYLVANIA 25-1561828
(State of Incorporation) (I.R.S. Employer Identification No.)
2200 Garden Drive, Suite 200, Mars, PA 16046-7846
(Address of principal executive office with Zip Code)
Issuer's telephone number (724) 776-5070
Check whether the issuer (1) has filed all reports required to be filed by
Sections 13 or 15(d) of the Exchange Act 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 XX No ___
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
As of September 11, 1998 there were 3,484,560 shares of the
issuer's beneficial interests outstanding
Transitional Small Business Disclosure Format
Yes ____ No XX
<PAGE>
<TABLE>
SEVEN FIELDS DEVELOPMENT COMPANY
Form 10-QSB
FOR THE NINE MONTHS ENDED JULY 31, 1998 AND 1997
PART I - Financial Information
The following financial information is provided in response to Items 1
and 2 of Form 10-QSB.
Item 1 - Financial Statements
SEVEN FIELDS DEVELOPMENT COMPANY
BALANCE SHEETS
AS OF JULY 31, 1998 AND OCTOBER 31, 1997
<CAPTION>
ASSETS
1998 1997
<S> <C> <C>
Cash $ 322,715 $ 225,807
Temporary investments 427,820 195,710
Total Cash & Temporary Investments $ 750,535 $ 421,517
Accounts and notes receivable, net of
allowances of $56,892 and $57,589 188,132 197,690
Mortgage notes receivable 533,085 61,114
Capitalized development costs 4,553,890 5,365,267
Capitalized house construction costs,
net of allowances 3,258,583 3,687,231
Prepaid expenses and deposits 67,406 391,600
Property not currently under
development, net of
allowances of 123,788 3,302,534 3,077,133
Tenant security deposits 40,740
Deferred income tax assets 2,601,932 3,483,784
Property, Buildings &
Equipment
Land $ 481,860 $ 359,725
Buildings 1,294,346 3,373,859
Equipment and furnishings 872,065 1,393,155
Construction in progress 449,757
Total Property, Buildings and
Equipment $ 2,648,271 $
5,576,496
Accumulated Depreciation (561,803) (2,055,493)
Total Property, Buildings and
Equipment, Net Of
Accumulated Depreciation $ 2,086,468 $ 3,521,003
Total Assets $ 17,342,565 $ 20,247,079
</TABLE>
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<TABLE>
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
LIABILITIES
<CAPTION>
1998 1997
<S> <C> <C>
Accounts payable and accrued expenses $ 111,248 $ 696,329
Accrued estimated costs related to
developed lots and townhouses sold 932,671 812,427
Notes payable - credit lines 320,000 918,157
Mortgages payable 982,441 1,785,570
Customer deposits and advances 141,126 133,046
Tenant security deposits 40,740
General unsecured debt - minority
investors 9,501,710 9,897,933
General unsecured debt -
Seven Fields (Del), Inc. 46,374,702 48,306,984
Total Liabilities $ 58,363,898 $ 62,591,186
<CAPTION>
SHAREHOLDERS' DEFICIENCY
<S> <C> <C>
Shares of beneficial interest, $1 par value
5,000,000 shares authorized,
3,484,560 shares issued and outstanding $ 3,484,560 $ 3,484,560
Shareholders' deficit - excess of
non-discharged debt over assets on
November 7, 1987 (Date of reorganization) (52,235,399) (52,235,399)
Retained earnings, since November 7, 1987
(Date of reorganization) 7,729,506 6,406,732
Total Shareholders' Deficiency $(41,021,333) $(42,344,107)
Total Liabilities and
Shareholders' Deficiency $ 17,342,565 $ 20,247,079
</TABLE>
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<TABLE>
SEVEN FIELDS DEVELOPMENT COMPANY
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 31, 1998 AND 1997
<CAPTION>
1998 1997
<S> <C> <C>
Gross Revenue
Rental income $ 18,961 $ 129,323
Fees & other operating income 17,296 17,165
Water revenue 47,414 44,206
Developed lot and house sales 2,430,595 2,481,337
Townhouse unit sales 393,250
$ 2,514,266 $ 3,065,281
Costs & Expenses
Cost of Developed Lots &
Houses Sold $ 2,091,332 $ 1,760,648
Cost of Townhouses Sold $ 503 $ 187,135
Other Operating Expenses* $ 127,713 $ 233,315
General & Administrative Expenses* $ 153,810 $ 178,189
Depreciation Expense $ 32,262 $ 72,410
Operating Income $ 108,646 $ 633,584
Interest Expense* $ 9,568 $ (19,637)
Interest Income $ 19,374 $ 7,794
Income Before Provision for Income Taxes $ 137,588 $ 621,741
Provision for Income Taxes $ 46,352 $ 240,000
Net Income $ 91,236 $ 381,741
Net Income Per Share,
Basic and Fully Diluted $ .03 $ .11
Weighted Average Number of Shares 3,484,560 3,484,560
<FN>
* See details on following page.
</TABLE>
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<TABLE>
SEVEN FIELDS DEVELOPMENT COMPANY
STATEMENTS OF OPERATIONS - CONTINUED
DETAILS OF OTHER OPERATING EXPENSES,
GENERAL AND ADMINISTRATIVE EXPENSES, AND INTEREST EXPENSE
FOR THE THREE MONTHS ENDED JULY 31, 1998 AND 1997
<CAPTION>
1998 1997
<S> <C> <C>
Other Operating Expenses
Payroll, payroll taxes and benefits $ 171,966 $ 201,826
Repairs & maintenance 38,695 53,873
Utilities 28,682 32,064
Insurance 23,460 40,565
Property taxes 6,745 36,030
Other operating supplies & services 27,910 31,138
Total Other Operating Expenses $ 297,458 $ 395,496
Less Expenses Capitalized To
Development and Construction (169,745) (162,181)
Net Other Operating Expenses $ 127,713 $ 233,315
General And Administrative Expenses
Payroll, payroll taxes and benefits $ 93,282 $ 107,269
Professional fees 15,524 14,038
Other general and administrative
expenses 62,161 72,326
Total General and Administrative
Expenses $ 170,967 $ 193,633
Less Expenses Capitalized To
Development and Construction (17,157) (15,444)
Net General and Administrative
Expenses $ 153,810 $ 178,189
Interest Expense
Total Interest Expense $ 30,079 $ 69,364
Less Interest Capitalized to
Development and House
Construction $ (39,647) $ (49,727)
Net Interest Expense $ (9,568) $ 19,637
</TABLE>
<PAGE>
<TABLE>
SEVEN FIELDS DEVELOPMENT COMPANY
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JULY 31, 1998 AND 1997
<CAPTION>
1998 1997
<S> <C> <C>
Gross Revenue
Rental income $ 165,682 $ 393,632
Fees & other operating income 49,916 51,414
Water revenue 128,841 117,001
Developed lot and house sales 6,671,670 6,024,144
Townhouse unit sales 4,135,586 778,724
$11,151,695 $ 7,364,915
Costs & Expenses
Cost of Developed Lots &
Houses Sold $ 5,825,246 $ 4,512,385
Cost of Townhouses Sold $ 1,913,470 $ 427,870
Other Operating Expenses* $ 467,652 $ 579,074
General & Administrative Expenses* $ 593,890 $ 590,261
Depreciation Expense $ 165,982 $ 216,714
Operating Income $ 2,185,455 $ 1,038,611
Interest Expense* $ (31,208) $ (95,912)
Interest Income $ 50,379 $ 20,401
Income Before
Provision for Income Taxes $ 2,204,626 $ 963,100
Provision for Income Taxes $ 881,852 $ 386,000
Net Income $ 1,322,774 $ 577,100
Net Income Per Share,
Basic and Fully Diluted $ .38 $ .17
Weighted Average Number of Shares 3,484,560 3,484,560
<FN>2
* See details on following page.
</TABLE>
<PAGE>
<TABLE>
SEVEN FIELDS DEVELOPMENT COMPANY
STATEMENTS OF OPERATIONS - CONTINUED
DETAILS OF OTHER OPERATING EXPENSES,
GENERAL AND ADMINISTRATIVE EXPENSES, AND INTEREST EXPENSE
FOR THE NINE MONTHS ENDED JULY 31, 1998 AND 1997
<CAPTION>
1998 1997
<S> <C> <C>
Other Operating Expenses
Payroll, payroll taxes and benefits $ 514,473 $ 575,395
Repairs & maintenance 98,683 139,650
Utilities 77,735 90,723
Insurance 76,980 101,535
Property taxes 70,454 112,939
Other operating supplies & services 92,340 69,687
Total Other Operating Expenses $ 930,665 $ 1,089,929
Less Expenses Capitalized To
Development and Construction (463,013) (510,855)
Net Other Operating Expenses $ 467,652 $ 579,074
General And Administrative Expenses
Payroll, payroll taxes and benefits $ 311,556 $ 306,668
Professional fees 92,946 105,805
Other general and administrative
expenses 240,859 224,120
Total General and Administrative
Expenses $ 645,361 $ 636,593
Less Expenses Capitalized To
Development and Construction (51,471) (46,332)
Net General and Administrative
Expenses $ 593,890 $ 590,261
Interest Expense
Total Interest Expense $ 123,862 $ 171,155
Less Interest Capitalized to
Development and House Construction $ (92,654) $ (75,243)
Net Interest Expense $ 31,208 $ 95,912
</TABLE>
<PAGE>
<TABLE>
SEVEN FIELDS DEVELOPMENT COMPANY
STATEMENT OF RETAINED EARNINGS
FOR THE NINE MONTHS ENDED JULY 31, 1998
<S> <C>
Retained earnings - beginning $ 6,406,732
Net income for the nine month period 1,322,774
Retained earnings - ending $ 7,729,506
</TABLE>
<PAGE>
<TABLE>
SEVEN FIELDS DEVELOPMENT COMPANY
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 1998 AND 1997
<CAPTION>
1998 1997
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 1,322,774 $ 577,100
Provision for deferred income taxes 881,852 386,000
Depreciation 165,982 216,714
Capitalized development costs incurred (939,999) (1,496,386)
Capitalized house construction
costs incurred (3,625,737) (3,757,246)
Cost of lots & houses sold 5,580,360 4,238,722
Changes in other assets & liabilities:
Mortgage notes receivable (471,971) 410
Other assets 374,492 237,787
Other liabilities (497,497) 45,977
Net Cash Flows Provided By
Operating Activities $ 2,790,256 $ 449,078
Cash Flows From Investing Activities:
Additions to property, buildings and
equipment $ (80,666) $ (490,554)
Sale of property, buildings & equipment 1,349,219 188,475
Total Cash Flows Provided By (Used In)
Investing Activities $ 1,268,553 $ (302,079)
Cash Flows From Financing Activities:
Repayment of general unsecured debt $(2,328,505) $ (997,931)
Net borrowings on credit lines 1,505,500
Proceeds from borrowings 310,000
Repayment of loans payable (1,711,286) (554,489)
Total Cash Flows Used In
Financing Activities $(3,729,791) $ (46,920)
Net Increase in Cash And
Temporary Investments $ 329,018 $ 100,079
Cash & Temporary Investments,
Beginning of Period $ 421,517 $ 401,870
Cash & Temporary Investments,
End of Period $ 750,535 $ 501,949
Interest Expense Included in
Net Income Above $ 31,208 $ 95,912
Interest Paid & Included in Capitalized
Development & House Construction Costs $ 92,654 $ 75,243
Total Interest Paid $ 123,862 $ 171,155
</TABLE>
<PAGE>
SEVEN FIELDS DEVELOPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JULY 31, 1998 AND 1997
Basis of Presentation
The financial statements included herein have been prepared by the
Registrant, without audit, for filing with the Securities and Exchange
Commission pursuant to the rules and regulations of said commission. The
financial information presented herein, while not necessarily indicative of
results to be expected for the year, reflects adjustments comprising normal
recurring accruals which in the opinion of the Registrant are necessary for
the fair statement of the results for the periods indicated. This financial
information should be read in conjunction with the financial statements and
notes thereto included in the Registrant's Annual Report for the two years in
the period ended October 31, 1997.
For comparative purposes, certain 1997 amounts have been reclassified to
conform to the presentation adopted in 1998.
<PAGE>
Part I - Item 2 Management Discussion and Analysis
of Financial Condition and Results
of Operations
Financial Condition
The Company's financial condition improved due to generation of net profit of
$1,322,774 in the first nine months of 1998. The Company obtained a $250,000
mortgage note from National City Bank which is collateralized by the real
estate office building constructed by the Company. The Company also
purchased two single family lots in the Nevillewood sub-division south of
Pittsburgh, PA. The lots were purchased for a total of $120,000 with
mortgage notes of $60,000 granted to the seller, CMS Nevillewood Limited
Partnership. Four multi-family lots were also purchased for a total of
$112,000 from these sellers. Such lots were bought under an agreement
providing for purchase of a total of thirty-two lots at $28,000 each over the
next two years. Management intends to construct homes for sale on such lots
to enhance income and to strengthen the image and resultant ultimate value of
Seven Fields Development Company upon liquidation.
The Company also obtained a $2,250,000 line of credit from National City Bank
to be used for construction activities. Such note is collateralized by the
corresponding developed lots. To date no amounts have been borrowed under
this line of credit.
The Company was successful in selling all of the remaining 74 townhouse units
in 1998. As part of the sale of 65 of these units, the Company granted a
$487,000 mortgage to the buyer. The remaining proceeds from the sale were
used to pay off the PNC Bank, N.A. mortgage in full and to fund a
distribution to investors in February, 1998 of over $2.3 million.
Additionally, notes payable on lines of credit were reduced by over $628,000
due to pay offs at the time of sale of the related houses.
Inventory at the end of the third quarter of 1998 consist of ten single
family homes, in various stages of construction, including three homes under
agreement of sale and seven homes available for sale. Also in inventory are
thirty multi-family homes, in various stages of construction, including two
model homes, five homes under agreement of sale and twenty-three homes
available for sale. Also in inventory are the two single family lots and the
four multi-family lots located in Nevillewood.
Results of Operations for the Nine Month Periods
In 1998, rental income decreased from the prior year's period by almost
$228,000 due to the sale of townhouse units. Since 74 of these townhouse
units were sold in 1998 and ten were sold in 1997, gross revenue from
townhouse unit sales increased in 1998 by over $3.5 million. Developed lot
and house sales increased from 1997 to 1998 by nearly $650,000 due to sales
of fourteen lots, ten houses, twenty-two multi-family units, and two
commercial parcels in 1998, compared with fourteen lots, ten houses,
seventeen multi-family units and three commercial lots a year earlier. As a
result of the above variations, total gross revenue in the period increased
by almost $3.8 million from the prior year's period.
Cost of developed lots and houses sold increased by over $1.3 million in 1998
and cost of townhouses sold increased by nearly $1.5 million in 1998; both
such variations are due primarily to corresponding proportionate changes in
sales volumes.
<PAGE>
Part I - Item 2 Management Discussion and Analysis
of Financial Condition and Results
of Operations
Results of Operations for Nine Month Periods (Con't)
From 1997 to 1998 other operating expenses decreased by over $100,000 and
depreciation expense decreased by over $50,000 due primarily to the first
quarter 1998 sale of the remainder of the townhouses.
Gross interest expense decreased from 1997 to 1998 due to pay offs of the
townhouse mortgage and credit lines, while net interest expense also
decreased due to greater capitilization of interest to land development and
home construction activities.
Due to the variations previously indicated, the Company's income, before
provision for income taxes, increased from 1997 to 1998 by over $1.2 million.
The Company recognized a provision for income tax in 1998 of $881,852; such
amount serves to reduce deferred income tax assets and it is anticipated that
no income tax will be paid this year. Upon adopting Financial Accounting
Standard #109 ("FAS 109") in 1994 the Company recognized a $4 million dollar
deferred tax asset, and, annually, values the realizability of such asset
based on the Company's ability to generate sufficient revenue in future
years. Based on the assets the Company currently owns and its development
plans, it is estimated that the deferred tax assets will be utilized upon
development and sale of the Company's remaining property, and the Company has
begun, effective November 1, 1996, recognizing tax expense at a combined
federal and state rate of 40%.
<PAGE>
Part II - Item 1 Legal Proceedings
None
<PAGE>
OTHER INFORMATION
Item 6. Exhibits and Other Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the
quarter ended July 31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Seven Fields Development Company
Date: 9/8/98 By: George K. Wright, Vice-President
Date: 9/8/98 By: Lynn Hoffman-Kyle, Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JUL-31-1998
<CASH> 750,535
<SECURITIES> 0
<RECEIVABLES> 778,109
<ALLOWANCES> (56,892)
<INVENTORY> 11,115,007
<CURRENT-ASSETS> 0
<PP&E> 2,648,271
<DEPRECIATION> (561,803)
<TOTAL-ASSETS> 17,342,565
<CURRENT-LIABILITIES> 0
<BONDS> 56,858,853
0
0
<COMMON> 3,484,560
<OTHER-SE> (44,505,893)
<TOTAL-LIABILITY-AND-EQUITY> 17,342,565
<SALES> 10,936,097
<TOTAL-REVENUES> 11,151,695
<CGS> 7,738,716
<TOTAL-COSTS> 8,966,240
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,208
<INCOME-PRETAX> 2,204,626
<INCOME-TAX> 881,852
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,322,774
<EPS-PRIMARY> .38
<EPS-DILUTED> 0
</TABLE>
