U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the fiscal year ended October 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [No Fee Required]
For the transition period from ...... to .......
Commission file number
SEVEN FIELDS DEVELOPMENT (PA), INC.
(Name of small business issuer in its charter)
Pennsylvania 25-1752570
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2200 GARDEN DRIVE, SUITE 200, MARS, PA 16046-7846
(Address of principal executive offices)
(Zip Code)
Issuer's telephone number (412) 776-5070
Securities registered under Section 12(b) of the Exchange Act:
Title of each class
Name of each exchange on which registered
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $1.00 per share
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 of the past 90 days.
Yes X No.
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will
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-KSB or any amendment to this Form 10-KSB. [ X ]
Issuer's revenues for its most recent fiscal year: $10,288,781.
-1-
<PAGE>
The aggregate market value of the issuer's voting stock held by non-
affiliates as of January 24, 1997 is indeterminable. There is no known
market for the issuer's common stock, and the terms of any private sales of
such common stock which did occur are not known to the issuer.
As of January 24, 1997 there were 2,905,682 shares of the issuer's common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
Transitional Small Business Disclosure Format (check one):
Yes ; No X
-2-
<PAGE>
PART I
Item 1. Description of Business
Background and Reorganization
Seven Fields Development (PA), Inc. (the "Company" or "Seven Fields PA")
is a Pennsylvania corporation which, through its indirect, majority-owned
subsidiary, Seven Fields Development Company, a Pennsylvania business trust
(the "Trust"), engages in the business of managing multi-family residential
rental units and developing and selling real estate in the western
Pennsylvania area.
The Company was incorporated by Seven Fields Development Corporation (the
"Corporation") in 1994 as part of the Corporation's comprehensive plan
(the "Reorganization Plan") to reorganize the Corporation from a
Pennsylvania business corporation into a Pennsylvania business trust (the
"1995 Reorganization"). Pursuant to the Reorganization Plan, the following
actions were taken:
(1) The Company made an offer (the "Exchange Offer") to acquire all of the
outstanding shares of common stock of the Corporation ("Corporation Stock")
and all outstanding general unsecured subordinated debt of the Corporation
("Corporation Debt") in exchange for shares of common stock of the Company
("Company Stock") on the basis of one share of Company Stock for each unit
consisting of a combination of one share of Corporation Stock plus $19
original principal amount of Corporation Debt.
(2) The Corporation formed Seven Fields (DEL), Inc. ("Seven Fields DEL") as
a wholly owned subsidiary of the Company and formed the Trust as a
Pennsylvania business trust.
(3) The Corporation formed Seven Fields Management, Inc. as a wholly-owned
subsidiary of the Company to be the sole trustee of the Trust.
(4) The Corporation and the Trust entered into an Agreement of Plan of
Merger (the "Merger Agreement") pursuant to which the Corporation merged
with and into the trust and each shareholder of the Corporation received
one share of beneficial interest in the Trust (a "Trust Share") in exchange
for each share of Corporation Stock held of record.
(5) Each of the Company, the Trust, Seven Fields DEL and Seven Fields
Management adopted plans of liquidation.
In accordance with the Reorganization Plan, shareholders of the Corporation
were asked to approve the proposed Merger and to accept the Exchange Offer.
Holders of approximately 83% of the outstanding Corporation Stock and
Corporation Debt accepted the Exchange Offer and received shares of Company
Stock in exchange thereof. The Merger was approved by the shareholders of
the Corporation at the Corporation's annual meeting held on March 31, 1995,
and on April 30, 1995, the Exchange Offer and the Merger were consummated.
In the Merger, those holders of Corporation Stock and Corporation Debt who
did not accept the Exchange Offer, together with the Company as the holder
of all Corporation Stock tendered in the Exchange Offer, received Trust
Shares in exchange for their Corporation Stock. Such persons also continue
to hold their Corporation Debt which became an obligation of the Trust as
a result of the Merger (hereinafter referred to as "Trust Debt" or
"Investor Debt").
-3-
<PAGE>
The purpose of the 1995 Reorganization was to consolidate the economic and
voting interests of those Corporation shareholders who accepted the
Exchange Offer into a single equity security, and to eliminate, on a
consolidated entity basis, the large shareholders' deficit which was
created as a result of the Corporation's reorganization under Chapter 11
of the Federal Bankruptcy Code on November 7, 1987.
The Company acts strictly as a holding company and is the sole shareholder
of Seven Fields Management, which is the sole trustee of the Trust, and
Seven Fields DEL, which owns approximately 83% of the outstanding Trust
Shares and Trust Debt.
Seven Fields Development Corporation (November 7, 1987 through April 30,
1995)
The Corporation was the surviving corporation in the merger of four
predecessor corporations (the "Predecessors") pursuant to an Amended Plan
of Reorganization dated January 15, 1987 (the "Bankruptcy Plan"), which was
approved and confirmed by order of the United States Bankruptcy Court for
the Western District of Pennsylvania (the "Bankruptcy Court") entered
October 21, 1987 (the "Confirmation Date").
The Predecessors had marketed and sold investments in multi-family
residential housing developments in Western Pennsylvania. From 1976 to 1986,
the Predecessors received approximately $57,000,000 of investment funds
from over 2,600 investors (the "Investors"). Investors' investment balances,
including reinvestment of returns, exceeded $69,000,000 when the Predecessors
filed petitions for reorganization under Chapter 11 of the U.S. Bankruptcy
Code in 1986.
Pursuant to the Bankruptcy Plan, the stock and interests of the Predecessor's
shareholders were canceled and the approximately 2,600 Investors received
shares of Corporation Stock with a par value equal to 5% of their claims
(approximately $3.5 million). The remaining 95% of the Investors' claims
(approximately $66.6 million) were deemed to be general unsecured debt of
the Corporation subordinated to existing liens and priorities and any
future secured debt of the Corporation. Furthermore, the Bankruptcy Plan
prohibited the holders of the Corporation Debt from filing any suit, taking
any judgment or undertaking, continuing or completing any collection
activities. Payment on the Corporation Debt would be determined and made
from time to time by the Board of Directors of the Corporation as and when
funds were available.
The Bankruptcy Plan further provided that the Corporation, as may be
authorized by its Board of Directors, would periodically distribute
available funds, without interest, in pro rata repayment of the claims of
the Investors and that all activities of the Corporation would seek to
achieve the goal of full payment of all claims of the Investors (the holders
of Corporation Stock and Corporation Debt). The Trust, as the survivor to
the Merger, remains subject to the Bankruptcy Plan.
Operating Activities (November 7, 1987 through October 31, 1996)
Since it commenced business on November 7, 1987, the Company, (unless
otherwise indicated, Company, as used hereinafter, refers to the Company
and its subsidiaries existing since November 7, 1987), had limited prior
experience in managing rental properties, developing land or constructing
dwelling units, has focused its attention primarily on the following
activities:
1. Managing, leasing and ultimately selling its rental properties.
-4-
<PAGE>
2. Developing an organizational structure and recruiting personnel
to manage the several diverse business activities of the Company.
3. Providing extensive information to federal agencies for pending
litigation against certain former shareholders of the Predecessors
and others.
4. Negotiating with the Pennsylvania Department of Environmental
Resources ("DER") and other governmental agencies and with the
Seven Fields Borough to permit development of its Butler County,
Pennsylvania property known as Seven Fields.
5. Developing and implementing a master development plan for the
Seven Fields property.
6. Developing and selling its undeveloped property as individual
residential and commercial lots.
7. Constructing and selling homes.
The ultimate goal of the Company is to enhance the liquidation value of
its assets so as to return to its stockholders the maximum amount at the
earliest possible time.
In furtherance of its plan to liquidate, the Company is in the process of
developing the unimproved land at Seven Fields for the purpose of building
and selling residential and commercial units. In March 1991, the Company
completed a Master Plan for development of Seven Fields. Seven Fields
Borough agreed in concept with the Master Plan and on December 9, 1991
adopted a zoning ordinance which effectively implemented the Master Plan.
The Master Plan consists of 18 separately identifiable parcels; of which
seven are designated single family containing 260 acres, five are
designated multifamily containing 59 acres, five are designated commercial
containing 86 acres and one is designated high density containing five
acres. In 1992, the Company acquired forty adjacent acres located in
Cranberry Township that are designated for single family use.
In August 1990, the Company began construction of one single family home
at Seven Fields under the trade name "Hawthorne Construction Company".
During fiscal 1995, the Company began construction of nine homes and 21
multi-family units, sold 13 homes and 21 multi-family units and at
October 31, 1995, had an inventory of nine homes and 21 multi-family units.
And in fiscal 1996 the Company began construction of 18 additional homes
and 23 multi-family units, sold 13 homes and 18 multi-family units, and at
October 31, 1996 had 14 homes and 26 multi-family units either completed or
under construction.
The Company's home construction activities have proceeded by subdivisions
and phases. In the Brandywine Woods Subdivision, the Company is
constructing single family homes having sales prices between $150,000 and
$180,000. The Colonial Heights Subdivision is divided into three phases
with single family homes ranging in price from $190,000 to $250,000. In
the Company's Brandywine Commons Subdivision, the Company is constructing
fourplex units which are being offered at prices ranging between $115,000
and $160,000. During 1995, the Company commenced development of the
Northridge Manor Subdivision, a 45 lot single family home subdivision
located on 17 acres north of Rt. 228, and the Georgetowne Manor Subdivision,
a 77 unit townhouse subdivision located on 10 acres near the Company's
existing townhouses. In 1996 development commenced in the Hawthorne
Commons Subdivision of 96 fourplex units and in the Northridge Estates
Subdivision of 56 single family lots. Homes in the Northridge Manor
Subdivision are expected to sell for prices ranging from $175,000 to
$210,000, and townhouse units in the Georgetowne Manor Subdivision are
being sold for $90,000 to $120,000. Homes in Hawthorne Commons and
5
<PAGE>
Northridge Estates are expected to range in price between $140,000 and
$170,000 and between $200,000 and $230,000 respectively. The Company is also
offering its existing townhouses for sale at prices ranging between $70,500
and $80,900. The Company is doing all of the construction of the fourplexes
and townhouses as well as 100% of the construction in the Northridge Manor
Subdivision, 75% of the construction in the Brandywine Woods Subdivision,
20% of the construction in the Colonial Heights Subdivision and 10% in the
Northridge Estates Subdivision. Approximately eight other builders are
currently constructing homes at Seven Fields.
During fiscal 1994, the Company completed construction of a community
swimming pool and bath house which was donated to the Borough of Seven Fields
(the "Borough"). The Company also has developed and donated to Seven Fields
Borough a playground and community center. In 1996 the Company completed
development of baseball and soccer fields and sold them to the Borough. The
costs of the land for the playground and community center, the swimming pool
and other assets which were developed for the entire project and donated to
the Borough, are treated as costs of the entire development and a
proportionate part of each such cost is included in the cost of each lot sold.
In fiscal 1995, the Company completed construction of an office building at
Seven Fields (the "Office Building"), began development of areas north of
Rt. 228 for the first time, and developed and sold its first commercial lot.
The Office Building, which consists of 9,434 usable square feet plus a
garage-basement, is used as the Company's offices and maintenance facility.
The Company leases one floor of the Office Building to the Borough as its
municipal offices. The Company has granted the Borough an option to
purchase the building at fair market value during the term of its five year
lease. The Company, so as to facilitate its plans to develop the property
north of Rt. 228, is expending significant amounts to make utility service
available to such property. This cost, is being allocated to the
subdivisions north of Rt. 228.
During fiscal 1996, improvements to the Mars-Crider Road, an important access
road in Cranberry Township and Seven Fields Borough to the Company's
subdivisions north of Route 228, were begun at a projected cost of $700,000.
In addition, the Company has commenced discussions with several interested
prospective buyers for five separate parcels of its commercial property and
is in discussions with the Pennsylvania Department of Transportation
("PennDot") regarding possible required upgrade to Route 228 so as to
facilitate planned development of the Company's commercial property north
of Route 228. Any cost associated with any required upgrading of Route 228,
will be allocated to the commercial properties north of Route 228.
The Company, under the name "Castle Creek Water Company", provides and
charges the residents of Seven Fields Borough and parts of Cranberry and
Adams Townships for water services under authority granted it by the
Pennsylvania Public Utilities Commission ("PUC") on November 29, 1991.
The area in which Seven Fields is located has seen increasing residential and
commercial development in the past few years due to its proximity to
Pittsburgh, which is enhanced by Interstate 279 which directly connects the
area to downtown Pittsburgh.
During fiscal 1995 demand for the Company's single family homes declined
in response to the general imbalance of supply and demand of single family
homes in the northern suburbs of Pittsburgh. In fiscal 1996, demand
improved significantly, however, sales were slowed as a result of the
severe winter and wet spring weather in 1996. Demand remained strong for
the townhouses and the Brandywine Commons fourplex units. A general decline
in interest rates has been beneficial to the Company in its development,
however competition also continues to intensify. The Company's stature was
enhanced by winning the 1995 "Top Community" award presented jointly by the
Builder's Association and the Realtor's Association of Metropolitan
Pittsburgh.
-6-
<PAGE>
The real estate development business has substantial inherent risks, any of
which might have a serious effect on the Company's future development plans.
Most notably, these risks include possible new governmental regulations, or
revised interpretation or application of existing regulations. Changes in
the economy which might tend to reduce the demand for the Company's
developed lots and houses are possible. Increased competition could occur
from other developers or builders. Presently there are numerous other
developments which are under construction and will provide substantial
competition to the Company. A substantial increase in home mortgage
interest rates historically has caused an almost immediate decline in demand
for new housing, which could have a dramatic negative impact on the
Company's plans.
The Company's prime property was carved from Cranberry Township, which has
continued to be one of the higher growth areas and better real estate
markets in Pennsylvania. The Company, via rental rate increases and the
imposition of water service charges, has been able to raise rental rates
at its Seven Fields property. Future economic stagnation, if it affects the
southern Butler County area, could inhibit the Company's ability to sell its
lots and houses in a timely manner. However, the Company believes it is well
positioned to respond accordingly because of the phased nature of its
development activities.
At this time, the business of the Company is not seasonal in nature, nor is
it dependent upon any patents or trademarks. However, the ability of the
Company to carry on the development of its most important property, Seven
Fields, depends upon procuring the necessary governmental approvals,
licenses and permits and in generating internally, or obtaining from
outside sources sufficient capital to facilitate this development activity.
The Company presently employs 34 full-time and 5 part-time employees.
Sources of materials required by the Company for its development and
construction activities are ample. The Company purchases its materials
from suppliers which sell primarily to the home construction industry
in western Pennsylvania, and the Company is not dependent on any one
supplier for its materials. The cost of materials in the home construction
industry has historically fluctuated significantly on a national basis
as a result of changes in supply and demand for particular meterials.
The Company incurrs significant cost so as to comply with various
environmental laws. Such costs are considered a normal cost of operations
and have not historically caused the Company's selling prices for lots and
houses to be uncompetitive.
The Company has again deferred construction of its planned garden apartments,
and except for approximately $500,000 to be spent in fiscal 1997 for general
development purposes, its plans do not include any material capital
expenditure except those planned costs related to the creation of lots and
buildings to be sold in the near term. The estimated costs to
be incurred during the period fiscal 1997-2001 for the development of
residential and commerical lots and construction of residential and
commercial building units is summarized on page 9.
-7-
<PAGE>
The following schedules summarize the Company's capitalized development cost
and its development plans for the five years ending October 31, 2001.
Capitalized Development And Construction Costs
Land Development
<TABLE>
<CAPTION>
October 31, 1996
<S> <C> <C> <C> <C>
Net Unsold Capitalized
Acres Lots Units Costs
Single Family
Colonial Heights Phases I, II and III 82 158 9 $ 188,156
Brandywine Woods 34 75 8 157,600
Northridge Manor 17 45 38 709,665
Northridge Estates 31 56 46 1,228,115
Multi Family
Brandywine Commons 9 44 2 32,947
Georgetowne Manor 10 77 69 785,994
Hawthorne Commons 24 96 96 1,302,336
Commercial
Phase P 18 6 5 394,705
Phase Q 5 3 1 202,935
Future Phases
(Single, Multi Family & Commercial) 245 N/A N/A 2,150,075
Total Development 475 N/A N/A $ 7,152,528
Other
Moon Township and Capitalized
Townhouse Costs 40 N/A N/A $ 658,894
House Construction
Houses Completed
(Including One Model Home) 5 $ 663,705
Houses Under Construction-
Single Family 9 756,704
Fourplex and Townhouse
Units Completed 4 368,545
Fourplex and Townhouse
Units Under Construction 22 666,196
Additional Housing Starts
(Nominal Costs Incurred) 297,393
Garden Apartment Development Costs 125,699
Total House Construction 2,878,242
Less Valuation Reserve (36,039)
Net Capitalized House
Construction Costs $ 2,842,203
Commercial Office and
Multifamily Construction
and Water Authority Assets
Office $ 1,263,208
Water Authority 352,240
1,615,448
Total Capitalized Development
and Construction Costs $12,269,073
</TABLE>
-8-
<PAGE>
Estimated Additional Costs
To Be Incurred Fiscal 1997-2001 (000's)
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
<S> <C> <C> <C> <C> <C>
Total Development
Costs $ 852 $ 2,052 $ 640 $ 336 $ 1,400
Building Costs 5,564 7,948 6,876 5,352 4,552
Total Development And
Building Costs $ 6,416 $ 10,000 $ 7,516 $ 5,688 $ 5,952
<CAPTION>
Financial Information Relating to Industry Segments
and Classes of Products
Year Ended October 31, (000's)
1996 1995
<S> <C> <C>
Sales to Unaffiliated Customers
Rental and General Operations $ 801 $ 1,080
Land Development, House Construction and
PUC Regulated Services 9,488 9,205
Total Sales $ 10,289 $ 10,285
Operating Income
Rental and General Operations $ (253) $ (224)
Land Development, House Construction and
PUC Regulated Services 1,984 1,510
Total Operating Income $ 1,731 $ 1,286
Identifiable Assets
Rental and General Operations $ 7,861 $ 8,704
Land Development, House Construction and
PUC Regulated Services (Including Land
Held for Future Development) 11,569 10,332
Total Identifiable Assets $ 19,430 $ 19,036
<FN>
See Item 7. Financial Statements
</TABLE>
Item 2. Description of Property
The Company's principal asset is a real estate development known as Seven
Fields, located mainly in the Borough of Seven Fields and partially in
Adams and Cranberry Township, Butler County, Pennsylvania. The development
consists of 540.2 acres, of which 24.5 acres are in Adams Township, and
40 acres are in Cranberry Township.
When the Company commenced business in 1987, Seven Fields consisted of a
townhouse development on approximately 27 acres and approximately 513 acres
of mostly undeveloped land. The townhouse complex originally had a total
of 237 rental units owned by the Company, 39 units owned by individual
homeowners, a swimming pool, tennis courts, playground and sewage disposal
plant.
In 1989 the Company began offering its townhouse units for sale and as of
October 31, 1996, had sold a total of 146 units. The Company estimates it
will take at least two years to sell the remaining units.
-9-
<PAGE>
Rent for the units owned by the Company averages approximately $700 per
month, excluding gas, electric, and water charges. The occupancy rate of
the available rental units exceeds 95%. The Company has been withholding
vacant units from rental so as to facilitate their sale. See Note 3 to
Financial Statements.
The Company's remaining property located in the Borough, Cranberry Township
and Adams Township consists of approximately 20 separate, partially
developed and undeveloped residential and commercial parcels. The areas
south of Rt. 228 have been subdivided and improved with roads, sidewalks
and underground utility lines. The areas north of Rt. 228 are currently
being improved and development there will continue in 1997. See Item 1.
Description of Business and Note 12 to the Financial Statements.
The property in Adams Township includes a horse stable and a house trailer
which the Company currently leases to a third party for $1,650 per month.
Subsequent to October 31, 1996, the Company entered into an agreement to sell
this property consisting of 15 acres for $495,000.
The Company constructed a 9,434 square foot office building in 1995 part of
which is used for its operations and the remainder is leased to Seven Fields
Borough.
The Company also owns approximately 40 acres of unimproved commercial and
residential property located in Moon Township, Allegheny County,
Pennsylvania (the "Moon Township Property") In connection with the
settlement of certain litigation in November 1995, the Company acquired
clear title to the 50% interest in this property which it did not previously
hold. See Item 3. Legal Proceedings.
The Company also holds certain mortgage notes receivable. See Item 6.
"Management's Discussion and Analysis or Plan of Operation Financial
Condition" and Note 4 to Financial Statements.
The mortgages and other outstanding liens on the Company's Seven Fields
property are discussed in Item 6. "Management's Discussion and Analysis or
Plan of Operation-Financial Condition".
In management's opinion, the Company's properties are adequately covered by
insurance.
Item 3. Legal Proceedings
The Company is not a party to any currently pending legal proceedings. On
November 15, 1995, the Company settled all outstanding litigation with Thomas
and Barbara Reilly (The "Reillys"), East Pointe Construction Company, TWBJT
Realty Enterprises, Inc. and certain members of the Reilly family. The
significant terms of such settlement are as follows:
1. All outstanding litigation, including a shareholders derivative action
against the Board of Directors and management of the Corporation was
discontinued and withdrawn.
2. The Moon Township Property was transferred to the Company free and clear
of all claims of the Reilly's, their family and related corporations. Prior
to this settlement, the Company had been granted a 50% interest in the Moon
Township Property as a result of a settlement reached in 1988 with Edward
Krall, a former shareholder of the Predecessors.
3. The Company paid $175,000 to the Reilly's out of certain escrowed proceeds
of the Company's sale, at auction in 1988, of 69 Arabian horses.
4. The parties agreed to submit to the United States District Court for the
Western District of Pennsylvania (the "Court") the question of ownership of
45 acres of land adjacent to Seven Fields in Adams Township, Butler County,
Pennsylvania, including the Reilly residence. On November 16, 1996, the
Court decided the Reilly's should retain ownership of this property. No
amount had been reflected in the Company's balance sheets for this claim.
10-
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to security holders for a vote during the
fourth quarter of the Company's fiscal year ended October 31, 1996.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
(a) Market Information. There is no established public trading market
for the Company Stock and the Company is not aware of the terms of any
transactions in Company Stock.
(b) Holders. As of October 31, 1996, there were 2,170 holders of the
Company Stock, which is the only outstanding class of equity of the Company.
(c) Dividends. The Company's directors intend to make annual distributions
on its Company Stock and on December 15, 1995, made its first distribution of
$1,656,399 or 56 cents per share, and subsequent to the balance sheet date
on December 12, 1996, made a distribution of $825,121 or 29 cents per share.
Such distributions are considered return of capital distributions by the
Company.
Item 6. Management's Discussion and Analysis or Plan of Operation.
The following discussion is an analysis of the Company's financial condition
and results of operations for the fiscal years ended October 31, 1996 and
1995. This discussion should be read in conjunction with the Company's
financial statements and notes thereto included elsewhere herein. All
references herein to a fiscal year refer to the Company's fiscal year ended
on October 31 of such year.
Business Plan and Objectives
The Company's primary business objective is to repay, to the fullest extent
possible as soon as possible, the claims of the Investors. Based upon the
combined total of appraised market values of the Company's properties, the
Company does not believe it will be able to return to its shareholders 100%
of the investment they made in the Company's Predecessors. Nevertheless,
as required by the Bankruptcy Plan, the Company plans to pursue this
objective by continuing to develop and sell its existing properties. See
Item 1 Description of Business. The Company has no present plans to acquire
and develop any other properties except minor acquisitions which might
enhance the development of existing properties.
The Company, since the bankruptcy reorganization, has expended substantial
effort and resources in resolving many of the hurdles necessary to carry out
its plans. A master plan for development of its existing properties has
been prepared, zoning approval for the plan has been accomplished, municipal
sewage service has become available, and all known necessary governmental
requirements can be met in order to facilitate the continued timely and
economic development of its property. See Item 1. Description of Business.
Financial Condition
The Company's shareholders' equity was $6,027,000 at October 31, 1996
compared to $5,980,000 at October 31, 1995. The increase of $47,000 is
attributable to distributions to holders of Company Stock in the amount of
$1,657,000 and net income of $1,703,000. As described previously in Item 1,
the Company has adopted a plan of liquidation. Although it is expected that
this liquidation will not occur until at least the year 2000-2005, the
-11-
<PAGE>
Company's financial condition is not expected to improve significantly since
it is the Company's stated plan to return to its shareholders as much of
their investment as soon as possible.
When the Company emerged from bankruptcy on November 7, 1987, the Company's
liabilities exceeded its assets because of the $66.6 million of Corporation
Debt which was not discharged by the Bankruptcy Plan. Upon commencement of
its operations, the Company had $6.4 million of additional liabilities,
$5.3 million of which was indebtedness secured by mortgages on the Company's
real estate holdings and $694,000 of which were administrative costs incurred
in the Bankruptcy Court proceedings. The Company's assets upon commencement
of operations totaled $18.1 million, and its opening shareholders' deficit
was $54.8 million. As of October 31, 1996, such deficit had decreased
principally because of profits generated from operations and the Company's
recognition of a $4.1 million deferred tax asset in fiscal 1994 as a
result of the Company's adoption of FAS 109. See "Recent Accounting
Developments".
The Reorganization Plan which was effective April 30, 1995, was designed to
facilitate the elimination of the large shareholder deficit created on
November 7, 1987. This result was accomplished by 83% of the outstanding
Corporation Debt and Corporation Stock being exchanged for Company Stock.
This exchange had the effect of converting $49,135,104 of Corporation Debt
into additional paid in capital at October 31, 1996. The Merger and related
reorganization was accounted for in a manner similar to a pooling of
interests, therefore the financial statements for all periods presented have
been recast to reflect the reorganization as if it had occurred on the first
day of the earliest period presented. Consequently the balance sheets of
the Company at October 31, 1996 and 1995, reflect a positive shareholders'
equity of $6,026,776 and $5,979,890 respectively.
The Company, in 1987, recorded its principal assets land, buildings,
equipment and furnishings at their appraised value as determined by
appraisals performed in 1986 in connection with the Bankruptcy Court
proceedings.
Because of the many unresolved questions regarding the operation of the
Predecessors and the resulting legal complexities involved in the
reorganization of the Predecessors into the Company pursuant to the
Bankruptcy Plan, the Company has calculated its income (loss) for purposes
of preparing its post-bankruptcy reorganization federal and state tax returns
by adjusting the basis of its assets for tax purposes to an amount estimated
to approximate the Investors' original investment, including reinvestments,
less deductions for depreciation allowed or allowable.
The Company also filed lawsuits against the shareholders of and companies
affiliated with the Predecessors to recover certain assets. To the extent
that the Company has been successful in recovering any such assets, the
shareholders' equity has increased by the amount of any such recovery. On
November 15, 1995, the Company settled all existing litigation. See Item 3.
Legal Proceedings.
As part of such settlement, the Company received clear title to the second
50% interest in the Moon Township Property. The Company preliminarily
believes that the value of the entire property may not be greater than the
amount currently included as a Company asset for its 50% interest. The
Company has not recorded an additional amount for this second 50% interest
pending determination of the property's value. In December 1995, the Company
also settled a dispute with another Investor who had transferred some of his
investment to the Reillys. As a result of these settlements and settlement
of an outstanding proof of claim, the Company recorded a net increase to its
shareholders' deficit at reorganization in the amount of $68,555 during 1995.
The Company's financial condition improved during fiscal 1995 and 1996 as a
result of the generation of net income of $1,327,000, and $1,703,000
respectively.
-12-
<PAGE>
The Company's investment in residential and commercial development phases
from which lots are currently being sold and phases from which lots can be
sold in the first half of 1997 increased by $2,087,000 during fiscal 1996
to $5,020,000 at October 31, 1996. The Company's inventory of completed,
unsold lots increased from 177 to 274 in fiscal 1996. During fiscal 1996
the Company completed construction in its 45 lot Northridge Manor
Subdivision, has begun construction of townhouses in the 77 lot Georgetowne
Manor Subdivision, begun construction in the 96 unit Hawthorne Commons
Subdivision, and the 56 lot Northridge Estates Subdivision. The Office
Building was completed in fiscal 1995 at a cost of $1,263,000, and is
partially occupied by the Company for its offices and maintenance facilities
with the remainder leased to the Borough. During 1995 the Company completed
preliminary site preparation on 18 and five acre commercial phases and sold
one lot from the five acre phase for $240,000. Since October 31, 1995, the
status of the Company's remaining commercial parcels from which it intends
to sell lots during 1997 is 1) one additional .8 acre lot from the five acre
parcel was sold for $123,900, 2) the Company has entered into an agreement
to sell a 3.5 acre lot for $370,000 from its 5 acre parcel, 3) an option has
been granted for the sale of the 18 acre parcel. The option price is
$87,500 per usable acre if closed before September 30, 1997 and at higher
prices if closed later than September 30, 1997. 4) The 15 acre site of the
barn and horse arena is under agreement of sale for $495,000, 5) and the
7 acre parcel adjacent to the barn is under agreement of sale for a price of
$450,000. The Company does not plan to invest significant additional
amounts in these phases. However, when the Company develops the town center
commercial area, it intends to lease the land and buildings developed and
constructed, and will spend significant resources in developing this
property, however this project is not expected to begin until 1998.
During fiscal 1995 the Company commenced development activities north of
Route 228, which required extending utilities to this area and creating a
second intersection on Route 228. These activities cost in excess of
$500,000 during 1995. During 1996, the Company spent $300,000 of the
total estimated needed to upgrade Mars-Crider Road. These activities were
needed to facilitate the development of the Company's property north
of Route 228, and its commercial properties at the new intersection with
Route 228. In November 1995, the Company secured a $750,000 loan from PNC
Bank, N.A. secured by a mortgage on its Office Building, and also negotiated
a $1,000,000 line of credit with National City Bank. In 1996, the Company
secured additional lines of credit of $1,000,000 and $750,000 with First
Western Bank, the proceeds of which will be used for the construction of
homes in the Company's Hawthorne Commons and Georgetowne Manor Subdivisions.
The Company had $2,732,000 invested in completed and partially completed
residential units at October 31, 1996 compared to $1,961,000 at October 31,
1995. Such investment increased during fiscal 1996 since the Company had
40 completed and partially completed units at October 31, 1996 compared to
30 at October 31, 1995. At fiscal year end 1996, 15 units were actually
complete compared to six in 1995 and the construction on the remaining 25
was more advanced than in the prior year.
All new performance and maintenance bonding requirements were met through
the Company's commercial bonding line. At October 31, 1996, the Company had
bonds outstanding of approximately $2,400,000.
The Company's cash position declined by $806,477 during fiscal 1996 primarily
as a result of an increase of $2,752,000 in its net investment in lots and
houses, repaid General Unsecured Debt of $339,621 and distributed $1,656,000
to its common stockholders, offset by cash from net income of $1,703,000, and
recovery of basis on the sale of townhouse units of $857,000.
Subsequent to the balance sheet date on December 12, 1996, the Company
repaid an additional $169,811 of its general unsecured subordinated debt and
distributed $828,121 to its shareholders. It is the Company's plan to make
annual distributions in partial repayment of its Investor Debt, and as a
return of capital to its common stockholders.
-13-
<PAGE>
Results of Operations Fiscal 1996 and 1995
The Company's income before taxes for fiscal 1996 was $1,703,000, an
increase of $328,000 from fiscal 1995's income before taxes of $1,375,000.
Operating income for fiscal 1996 increased from fiscal 1995 by $443,000
or 34%.
The improvement in operating income was the result of a $212,000 increase
in gross profit on the sale of houses and lots, primarily because of slightly
higher volumes, a decrease in general and administrative costs of $375,000
primarily as a result of higher 1995 legal costs associated with pre-
reorganization legal matters and the 1995 reorganization, and a decline in
rental revenues of $257,000 as a result of the sale of townhouses, leaving
fewer available for rent, and a decrease in operating costs because of fewer
townhouses rented and more costs capitalized to development activities.
Interest income declined from $163,000 in fiscal 1995 to $53,000 in fiscal
1996 as a result of the Company having less excess cash available to invest
during 1996 than 1995.
During fiscal 1996, the Company generated gross revenues of $10,289,000, an
amount almost identical to 1995. Gross revenues from sales of houses and
developed lots increased by $306,000 in fiscal 1996 from 1995, townhouse
sales decreased by $33,000 and rental revenues declined by $258,000 in fiscal
1996.
The Company's cost of lots and houses sold, expressed as a percentage of
sales, decreased slightly from 84.8% in fiscal 1995 to 82.2% in fiscal 1996.
The cost of townhouses sold in fiscal 1996 expressed as a percentage of
sales increased slightly 49.3% in 1995 to 50.1% in fiscal 1996 primarily as
a result of the need to make more improvements to townhouses being sold,
and slightly higher sales prices in fiscal 1996. The average sales price of
townhouses sold in fiscal 1996 was $74,200 compared to $71,500 in fiscal
1995, however, the Company also expended funds to improve the townhouses so
as to facilitate their sale.
The Company's activity levels for house construction, lot sales, and
townhouse sales during fiscal 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
Fiscal 1995 Fiscal 1996
<S> <C> <C>
Lot Sales - Commercial 1 2
Lot Sales - Single & Multi-Family 45 55
Townhouse Sales - New Construction 8
Single Family House Sales 13 13
Fourplex House Sales 21 10
Townhouse Sales - Original Construction 43 41
</TABLE>
The two commercial lots sold in fiscal 1996 generated $378,700 in gross
revenue compared to $240,000 for the one lot sold in fiscal 1995; the 55
single and multi-family lots sold in fiscal 1996 generated gross revenues
of $1,794,000 or an average of $32,200, compared to gross revenues of
$1,388,000 for 45 lots sold in fiscal 1995 or an average of $30,800. The
change in average lot price is a result of a change in the mix of lots sold
in 1996; 18 of the lower priced Brandywine Commons fourplex lots and
Georgetown Manor Townhouses were sold compared to 21 in 1995. Brandywine
Commons lots are priced at approximately $22,000 and Georgetowne Manor lots
are priced at $18,000 compared to single family lots which are priced in the
$35,000 to $40,000 range, so the average lot price can vary significantly
based on the mix between single family and multi-family lots sold. During
fiscal 1996 gross profit increased by $122,000 from the sale of single family
and multi family lots, and by $66,000 from the sale of commercial lots.
The Company's revenue from the sale of single family houses was $2.1 million
in fiscal 1996 compared to $1.8 million in fiscal 1995. This increase is a
-14-
<PAGE>
result of the mix of houses sold in fiscal 1996 and a decline in the average
price of houses sold due to a change in the mix of houses sold since 13
single family houses were sold in 1996 and 1995, but the average price of
houses was $23,000 higher than in 1995. In fiscal 1996, 3 of the 13 houses
sold were from the lower priced Brandywine Woods Subdivision compared to 11
of the 13 sold in fiscal 1995. The Brandywine Woods houses are smaller than
the houses in the Company's other subdivisions. However, the Company
generated revenues of $1.3 million from the sale of 10 fourplex units
during fiscal 1996 compared to $2.6 million in fiscal 1995 from the sale of
21 fourplex units. The gross profit generated from the sale of fourplex
units declined from $351,000 in fiscal 1995 to $162,000 in fiscal 1996.
During 1996, the Company also generated gross revenue of $743,000 and gross
profits of $58,000 from the sale of 8 newly constructed townhouse units from
its 77 unit Georgetowne Manor Subdivision.
Liquidity and Capital Resources
The Company has pursued the development of its property in phases. It has
used cash generated from the sale of its properties to reduce pre-
reorganization debt, to develop its property and to fund the litigation
efforts to recover assets from former shareholders of the Predecessors.
Future development and building activities will require significantly larger
amounts of capital. While the Company believes, as it has stated in its
prior filings with the Securities and Exchange Commission, that these
development activities can be financed internally, through the sale of lots
and dwelling units, the Company has come to realize that it will not be able
to optimize the development of its assets and therefore maximize the total
amount of distributions to Investors, unless it is able to more readily
obtain financing for its development activities. The Company believes that
internally financed development would proceed at a much slower pace than the
Company now believes is necessary to achieve its primary goals of
liquidating its holdings as quickly as possible and maximizing the total
amount of distributions to Investors. The Company has found that it can
optimize the value which it receives for its assets by simultaneously
developing multiple parcels, which enables the Company to offer a variety of
housing products priced at different levels. However, in order to
simultaneously develop multiple parcels, the Company requires more cash than
it is able to generate internally.
The Company's primary objective is to repay to the fullest extent possible,
and at the earliest possible time, the investment of the Investors
represented by the Company Stock, the Trust Debt, and the Trust Shares. To
this end, it distributed $2.0 million of the net proceeds from the sale of
its Virginia Manor property in February 1993, made additional distributions
of $1.3 million in December 1993, $2.0 million in December 1994, $2.0
million in December 1995, $1.0 million in December 1996 and intends to make
additional future distributions which will further deplete the Company's
capital resources. Because the Company has the dual objective of maximizing
the cumulative return to its Investors, which is best accomplished through
expanded development and construction activities, and to repay the Investors
as soon as possible, which management believes is best accomplished by annual
distributions, it is important that the Company procure external sources of
capital to facilitate accomplishing both of these objectives. Management
also believes that since a market for the Company Stock, the Trust Debt and
the Trust Shares has not developed, it is important to provide the Investors
with some return of their investment.
Until 1994, the Company was unable to obtain capital via commercial lending
channels because of outstanding litigation and its capital structure. At
the end of fiscal 1994, the Company obtained a five year, $1.7 million
mortgage loan to replace an existing mortgage loan. The Company also has
established a bonding line in the amount of $2.0 million collateralized by
a first mortgage on 30 of its rental townhouses. During 1996 the Company
also borrowed an additional $750,000 secured by a mortgage on its Office
Building and negotiated a $1,000,000 line of credit to be used for the
construction of houses in its Northridge Manor Subdivision, a $1,000,000
line of credit to be used for the construction of fourplexes in its Hawthorne
Commons Subdivision and on November 25, 1996, the Company obtained a $750,000
-15-
<PAGE>
line of credit to be used for the construction of townhouses in its
Georgetowne Manor Subdivision.
The Company will continue to incur significant development costs related to
development activities north of Rt. 228. These development costs which
exceeded $500,000 in fiscal 1996 and are expected to exceed $500,000 in 1997,
are not related to any specific phase of development but the entire
undeveloped area north of Rt. 228. Therefore the payback on these
expenditures is longer term than expenditures made for the development of
specific phases. During fiscal 1997, the Company expects to generate
significant cash flows from the sale of lots and houses in its Brandywine
Woods, Colonial Heights, Brandywine Commons, Northridge Manor, Georgetowne
Manor, Hawthorne Commons and Northridge Estates Subdivisions, and from the
sale of commercial lots. See Item 1. Description of Business and Note 12 to
the Financial Statements. However, it also expects to have significant cash
outflows related to multifamily site development both north and south of
Rt. 228. In addition, the Company expects to continue to generate
significant cash flows from the sale of its townhouse units.
During fiscal 1995, cash flows from operating activities were reduced to
$990,000 primarily as a result of the Company having increased its
investment in its inventory of completed and under construction lots and
houses by $1,281,000. Nearly $500,000 of this increase related to general
development north of Rt. 228. This net investment offsets the cash generated
by the Company's reduction in the townhouse mortgages in which it had
invested during fiscal 1994. The Company incurred a net cash outflow of
$190,000 from investing activities which was the result of its $1.1 million
investment in the construction of its Office Building and additional site
work, sewer tap in fees, and architectural services related to its planned
garden apartments. As a result of the sale of 43 of its townhouses, the
Company also recovered $972,000 of the remaining cost basis of these
townhouses. Cash flows from financing activities resulted in a net cash
outflow of $2,081,000 because of the repayment in December 1994 of
$2,027,000 of Company Debt and a $54,000 repayment on its mortgage. In
fiscal 1996 cash flows from operating activities were reduced as a result of
the Company increasing its investment in its inventory of completed and
under construction lots and houses by $2,752,000. Of this increase
approximately $500,000 related to the Company's project to improve
Mars-Crider Road, utilities necessary to facilitate the development of the
property north of Route 228 and construction of the intersection necessary
to cross Route 228. In November 1995, the Company received proceeds from a
$750,000 loan secured by a mortgage on its Office Building. These proceeds
were intended to replenish the Company's cash which had been significantly
reduced as a result of its investment in the Office Building. These loan
proceeds also helped to facilitate the Company's $339,000 partial repayment
of Company Debt and distribution to Common Stockholders of $1,656,000 on
December 15, 1995. Subsequent to the date of the balance sheet on
December 12, 1996, the Company distributed $169,811 in partial repayment of
its debt and a $828,121 liquidation distribution to its Common Stockholders.
Recent Accounting Developments
The Company adopted FAS No. 115 "Accounting for Certain Investments in Debt
and Equity Securities" on November 1, 1994. The effect of adopting this new
standard had no impact on the Company's financial condition or results of
operations.
The Company will be required to adopt FAS No 121 "Accounting For The
Impairment Of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of."
FAS No 121 establishes standards for determining when an asset impairment
should be recognized based primarily on an undiscounted cash flow model.
The Company has deferred adoption of this new standard which must be adopted
not later than November 1, 1996, pending review of its impact. Initially the
Company does not believe that there will be a material impact when this
standard is adopted.
-16-
<PAGE>
Item 7. Financial Statements
The financial statements of the Company are set forth following Item 13
of this Form 10-KSB.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 9. Director's, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
Certain information about the directors of the Company is set forth below.
Each of the Directors serves for a three year term expiring in the year
indicated. Prior to the merger, except for directors first elected
subsequent to April 30, 1995, each of the directors was also a director of
the Corporation.
<TABLE>
<CAPTION>
Name Age Director Director of the Term
Since Corporation Expires
Since
<S> <C> <C> <C> <C>
Guy E. Bubb 75 1994 1988 1998
Michael Burkhart 53 1996 N/A 1996
Samuel A. Goldberg 72 1994 1988 1999
William J. Janusey 73 1994 1989 1998
Alexander Lindsay, Jr. 50 1994 1990 1997
Paul Voytik 72 1994 1988 1997
George K. Wright 70 1994 1988 1997
</TABLE>
<TABLE>
<S> <C> <C> <C>
Darell L. Craig 46 Chief Operating Employed Since
Officer 1991
Roman Polnyj 46 Chief Financial Employed Since
Officer 1992
</TABLE>
Guy E. Bubb was employed by Allegheny Ludlum Steel Corporation, Pittsburgh,
Pennsylvania, a manufacturer of specialty steel, for 31 years until January
1985 when he retired. For the 10 years prior to this retirement, he held
the position of Director of Personnel with responsibility for 6,000
employees. From 1978 to April 1994, Mr. Bubb served as a director of
Southwest National Corp. and its subsidiary, Southwest National Bank in
Greensburg, Pennsylvania. He currently serves as a director of Allegheny
Valley Hospital in Natrona Heights, Pennsylvania, and as President of
Allegheny Valley Health Systems, a non-profit hospital organization, in
Natrona Heights, Pennsylvania.
Michael Burkhart has been a Certified Public Accountant since 1972 and is a
member of the American Institute of Certified Public Accountants, the
Pennsylvania Institute of Certified Public Accountants and the National
Association of Certified Valuation Analysts. Mr. Burkhart has practiced in
public accounting since 1968, has been a partner with Hinds, Lind, Miller &
Co., Certified Public Accountants, until 1995 when he founded his present
firm. Much of Mr. Burkhart's professional background involves working with
construction and development companies in the tax, accounting and management
services areas.
-17-
<PAGE>
Samuel A. Goldberg was employed by the Mine, Safety and Health Administration
of the United States Department of Labor, as Manager of an Analytical
Laboratory for Industrial Hygiene from 1970 to December 1985 when he retired.
As manager, his responsibilities included preparing a budget, determining
personnel and equipment requirements and preparing bid submission on
chemical analysis instruments. He currently serves as a member of the Board
of Directors of East Boro's J.W.V. Housing Corporation and East Boro's
J.W.V. Homeless Veterans Corporation.
William J. Janusey is an architect who has been in private practice for over
30 years. His experience consists of the design of schools, residences,
motels, historical restorations, churches, public institutions, hospitals,
commercial establishments, interior decorating, and light industrial plants.
In 1960 he opened an office for the practice of architecture in Pittsburgh,
Pennsylvania and functioned under the name of William J. Janusey &
Associates. His experience involved the complete design and supervision of
entire projects up to $14,000,000 in cost, and included all phases of
building design and construction, such as management, contract preparation,
administration, negotiations with banking authorities, control of all
construction documents, writing of specifications, submitting cost estimates,
bidding procedures and field supervision of construction work. Over 1,200
buildings have been constructed to date from the firm's design and
construction drawings and specifications during the past 30 years.
Alexander H. Lindsay, Jr. is the President of the law firm of Lindsay,
Jackson & Martin, P.C. in Butler, Pennsylvania, and specializes in
litigation. He is a former Butler County and Cranberry Township solicitor.
From 1975 until 1980, he was an Assistant United States Attorney for the
Western District of Pennsylvania, and from 1977 until 1980 he was Chief of
the Public Corruption Section of the United States Attorney's Office
in Pittsburgh. From 1972 to 1973 he was an Assistant District Attorney for
Butler County. He is a 1968 graduate of Washington and Jefferson College
and a 1971 graduate of the University of Pittsburgh School of Law. Mr.
Lindsay is a director of Southwest National Corp. and its subsidiary,
Southwest National Bank.
Paul Voytik has been Chairman and Chief Executive Officer of the Corporation
since January 1989 and President of the Corporation since February 1988. He
was employed at Westinghouse Electric Corporation for 29 years, 24 of which
he served as an Engineering Manager, until his retirement in November 1985.
Thereafter, he served as a consultant to Westinghouse until 1986. In 1986
he became Vice President and is a director of Piedmont Atlantic Corporation,
which engaged in land development in Chapel Hill, North Carolina. He has
over 35 years of experience in building, contracting, and land development.
George Wright has been Vice President of the Corporation since February 1988.
He was employed by Gulf Research & Development for 42 years until his
retirement in February 1985. At the time of his retirement, he held the
position of Director of Safety Security & Fire Prevention for a 95-acre
research complex of Gulf Oil Corporation.
Darell Craig has been employed by the Registrant as Chief Operating Officer
since September 1991. A graduate of the University of Pittsburgh, Mr. Craig
has been manager of land development and single/multifamily home
construction for over twenty years.
Roman Polnyj has been employed by the Registrant as Chief Financial Officer
since May 1992. Mr. Polnyj holds Masters and Bachelors degrees from
Duquesne University in business administration and was previously employed by
Mellon Bank from 1980 to 1991 holding positions as an Assistant Vice
President and Manager in the real estate division, departmental controller
and financial analyst.
The Company is not aware of any director, officer or beneficial owner of
more than ten percent of its common stock who failed to file on a timely
basis forms required by Section 16(a) of the Exchange Act during the fiscal
year ended October 31, 1996.
The Board of Directors of the Company does not have an audit or compensation
committee. The duties that would be delegated to such committees
are handled by the full Board.
-18-
<PAGE>
Item 10. Executive Compensation
The following table is a summary of certain information concerning the
compensation awarded or paid to, or earned by, the Company's chief executive
officer during each of the last three fiscal years. No officer or director
of the Company had total annual salary and bonus in excess of $100,000
during any of the last three fiscal years.
<TABLE>
Summary Compensation Table
<CAPTION
Long-term compensation
Annual compensation
Awards Payouts
<S> <C> <C> <C> <C> <C> <C> <C> <C>
All
Restricted Payouts Other
Name and Other Stock Options/ LTIP Compen-
principal Fiscal Salary Bonus Annual Awards SARs payouts sation
position Year ($) ($) Comp.($) ($) ($) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Paul Voytik 1996 37,354 0 0 N/A 0 N/A 0
(President 1995 38,746 0 0 N/A 0 N/A 0
and Chief 1994 32,118 0 0 N/A 0 N/A 0
Executive
Officer)
</TABLE>
Each Director is paid a fee of $400 per Board meeting attended.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of January 24, 1997 regarding
the amount and nature of ownership of Company Stock by each of the directors
of the Company, and by all of the directors and executive officers of the
Company as a group. Each such individual has sole voting and investment
power with respect to the shares listed except as otherwise indicated in the
footnotes to the table.
<TABLE>
<CAPTION>
Percentage of
Name and Address of Amount and Nature of Outstanding
Beneficial Owner (1) Beneficial Ownership Company Shares
<S> <C> <C>
Paul Voytik 13,599.89 (2) *
George K. Wright 14,173.63 (2) *
Samuel A. Goldberg 745.97 *
Guy E. Bubb 9,384.71 *
William J. Janusey 2,451.40 (2) *
Alexander Lindsay, Jr. 0 0
Michael Burkhart 0 0
All directors and
executive officers of
the Company as a
group (9 persons) 40,355.60 1.39
<FN>
* Indicates ownership of less than 1% of the Company Stock.
(1) The address of each person is 2200 Garden Drive, Suite 200, Mars,
Pennsylvania 16046.
(2) All shares held jointly with spouse.
</TABLE>
The Company knows of no person who has or shares voting power and/or
investment power with respect to more than 5% of the outstanding Company
stock.
-19-
<PAGE>
Item 12. Certain Relationships and Related Transactions
None.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
3.1 Articles of Incorporation of Seven Fields Development (PA),
Inc. (5)
3.2 By-Laws of Seven Fields Development (PA), Inc. (5)
10.1 Rates, rules and regulations governing the distribution of
water service - PA Public Utility Commission (3)
10.3 Mortgage Note dated October 28, 1994, of Seven Fields
Development Company to PNC Bank, National Association (6)
10.4 Open End Mortgage and Security Agreement dated October 28,
1994, between Seven Fields Development Company and PNC Bank,
National Association (6)
10.5 Assignment of Rents, Leases and Profits dated October 28,
1994, between Seven Fields Development Company and PNC Bank,
National Association (6)
10.6 Amendment to Loan documents of October 28, 1994, and release
from mortgage between Seven Fields Development Company and PNC
Bank, National Association dated May 1, 1996 (8)
-20-
<PAGE>
<S> <C>
10.7 Amendment to loan documents of October 28, 1994 related to
financial covenant for maintenance of minimum tangible net
worth, between Seven Fields Development Company and PNC Bank,
National Association (8)
10.8 Surety Agreement dated October 28, 1994, between Seven
Fields Development Company and Allegheny Surety Company (6)
10.9 Mortgage dated October 28, 1994, between Seven Fields
Development
Company and Allegheny Surety Company (6)
10.10 Settlement Agreement with former majority shareholder (7)
10.11 Promissory Note dated November 29, 1995, to PNC Bank (7)
10.12 Open End Mortgage and Security Agreement dated November 29,
1995, to PNC Bank (7)
10.13 Assignment of Rents dated November 29, 1995, to PNC Bank (7)
10.14 Revolving Line of Credit Loan Agreement dated November 13,
1995, between Seven Fields Development Company and Integra
Bank (7)
10.15 Open End Mortgage and Security Agreement dated November 13,
1995, between Seven Fields Development Company and Integra
Bank (7)
10.16 Agreement for Assignment of Sales Agreements and Contract
Deposits dated November 13, 1995, between Seven Fields
Development Company and Integra Bank (7)
10.17 Office Lease dated August 1, 1995, between Seven Fields
Development Company and The Borough of Seven Fields (7)
10.18 Management and Administrative Services Agreement dated
April 30, 1995, (7)
10.19 Revolving line of credit loan agreement, open-end mortgage
and security agreement, and revolving line of credit note
dated August 13, 1996, between Seven Fields Development
Company and First Western Bank, National Association (8)
10.20 Revolving line of credit loan agreement, open-end mortgage
and security agreement, cross-default agreement, and revolving
line of credit note dated November 25, 1996 , between Seven
Fields Development Company and First Western Bank, National
Association (8)
21 List of subsidiaries of Seven Fields Development (PA), Inc. (5)
27 Financial data schedule
99 Deed of Trust of Seven Fields Development Company (5)
(1) Filed as exhibit to the Seven Fields Development Corporation's
Registration Statement on Form 10 filed October 23, 1989, and
incorporated herein by reference.
(2) Filed as exhibit to the Seven Fields Development Corporation's
Annual Report on Form 10-K filed February 13, 1991, and
incorporated herein by reference.
(3) Filed as exhibit to the Seven Fields Development Corporation's
Annual Report on Form 10-K filed January 29, 1992, and
incorporated herein by reference.
-21-
<PAGE>
<S> <C>
(4) Filed as exhibit to the Seven Fields Development Corporation's
Annual Report on Form 10-K filed February 10, 1993, and
incorporated herein by reference.
(5) Filed as exhibit to the Company's Registration Statement
on Form S-4, File No. 33-85102, and incorporated herein by
reference.
(6) Filed as exhibit to Seven Fields Development Corporation's
Annual Report on Form 10-KSB filed January 27, 1995, and
incorporated herein by reference.
(7) Filed as exhibit to Seven Fields Development Company's Annual
Report on Form 10-KSB filed January 26, 1996, and incorporated
herein by reference.
(8) Filed as exhibit to Seven Fields Development Company's Annual
Report on Form 10-KSB filed January 24, 1997, and incorporated
herein by reference.
</TABLE>
(b) Reports on Form 8-K.
None
-22-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
SEVEN FIELDS DEVELOPMENT (PA), INC.
By PAUL VOYTIK
Paul Voytik
President
Date: January 24, 1997
In accordance with the Exchange Act, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated as directors of
Seven Fields Development (PA), Inc.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/PAUL VOYTIK President (Principal Executive
______________
Paul Voytik Officer) and Director January 24, 1997
/s/ROMAN POLNYJ Chief Financial Officer (Principal
______________
Roman Polnyj Financial and Accounting Officer) January 24, 1997
/s/GEORGE K. WRIGHT
______________
George K. Wright Director January 24, 1997
/s/SAMUEL A. GOLDBERG
_______________
Samuel A. Goldberg Director January 24, 1997
/s/MICHAEL BURKHART
________________
Michael Burkhart Director January 24, 1997
<PAGE>
SEVEN FIELDS DEVELOPMENT (PA), INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page Reference
Independent Auditors' Report F-1
Balance Sheets
at October 31, 1996 and October 31, 1995 F-2
Statements of Operations for the years ended October 31, 1996
and October 31, 1995 F-4
Statements of Shareholders' Equity for the years ended
October 31, 1996 and October 31, 1995 F-6
Statements of Cash Flows for the years ended October 31, 1996
and October 31, 1995 F-7
Notes to Financial Statements F-8
F
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Seven Fields Development (PA), Inc.
Mars, PA
We have audited the accompanying consolidated balance sheets of Seven Fields
Development (PA), Inc. and subsidiaries (the "Company") as of October 31,
1996 and October 31, 1995, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the two years
in the period ended October 31, 1996. 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 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 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 the Company
as of October 31, 1996 and October 31, 1995 and the consolidated results of
their operations and their cash flows for each of the two years in the period
ended October 31, 1996, in conformity with generally accepted accounting
principles.
O'Connor, Greenblatt & Company
December 18, 1996
Sewickley, PA
F-1
<PAGE>
SEVEN FIELDS DEVELOPMENT (PA), INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF OCTOBER 31, 1996 AND 1995
</TABLE>
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
1996 1995
Cash $ 252,504 $ 2,887
Temporary investments, Note 10 149,825 1,205,919
Total Cash And Temporary Investments 402,329 1,208,806
Certificate of deposit 53,755 23,885
Cash escrow - horses 184,550
Accounts and notes receivable, net of
allowances of $57,552 and $58,308 168,614 241,601
Mortgage notes receivable, Note 4 61,807 186,681
Capitalized development costs, Notes 2,12 5,020,059 2,944,303
Capitalized house construction costs,
net of allowances, Notes 2,12 2,842,203 1,961,255
Prepaid expenses and deposits 481,519 282,492
Property not currently under development,
Notes 2, 12 2,791,363 2,995,685
Tenant security deposits 51,485 79,220
Deferred income tax assets, Note 9 3,992,000 3,992,000
Property, Buildings And Equipment,
Notes 2, 3, 6, 7
Land 386,789 452,061
Buildings 3,914,327 5,217,808
Equipment and furnishings 1,347,903 1,397,097
Construction in progress 317,124
Total Property, Buildings And
Equipment 5,649,019 7,384,090
Accumulated Depreciation (2,083,587) (2,447,881)
Total Property, Buildings And
Equipment, Net Of Accumulated
Depreciation 3,565,432 4,936,209
Total Assets $19,430,566 $19,036,687
<FN>
See Notes to Financial Statements.
</TABLE>
F-2
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Accounts payable and accrued expenses $ 509,923 $ 419,924
Accrued estimated costs related to
developed lots and townhouses sold, Note 2 590,920 267,973
Notes payable - credit lines, Note 6 130,000
Mortgages payable, Note 7 1,958,581 1,645,985
Customer deposits and advances 95,137 61,714
Tenant security deposits 51,485 79,220
Legal settlement payable, Note 5 175,000
General unsecured debt - minority investors,
Notes 1, 8, 11 10,067,744 10,406,981
Total Liabilities 13,403,790 13,056,797
<CAPTION>
SHAREHOLDERS' EQUITY
<S> <C> <C>
Shares of beneficial interest, $1 par value,
10,000,000 shares authorized, 2,905,682
shares issued and outstanding,
Notes 1, 2, 11 2,905,682 2,905,960
Additional paid in capital 49,713,983 51,375,083
Shareholders' deficit - excess of
non-discharged debt over assets on
November 7, 1987, (Date of
reorganization) Notes 1, 2 (52,235,399) (52,240,537)
Retained earnings, since November 7, 1987,
(Date of reorganization) 5,642,510 3,939,384
Total Shareholders' Equity 6,026,776 5,979,890
Total Liabilities And
Shareholders' Equity $19,430,566 $19,036,687
</TABLE>
F-3
<PAGE>
SEVEN FIELDS DEVELOPMENT (PA), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Gross Revenue
Apartment rentals $ 726,762 $ 984,378
Fees & other operating income 74,622 95,959
Water revenue 136,434 126,386
Developed lot & house sales 6,308,330 6,002,613
Townhouse unit sales 3,042,633 3,075,848
10,288,781 10,285,184
Costs And Expenses
Cost of Developed Lots And Houses Sold 5,185,294 5,091,927
Cost Of Townhouses Sold 1,523,056 1,517,937
Other Operating Expenses* 753,477 874,210
General & Administrative Expenses* 766,768 1,140,045
Depreciation Expense 331,269 375,127
8,559,864 8,999,246
Operating Income 1,728,917 1,285,938
Interest Expense* (78,517) (74,106)
Interest Income 52,726 163,419
Income Before Provision for Income Taxes 1,703,126 1,375,251
Provision For Income Taxes, Note 9 48,000
Net Income $ 1,703,126 $ 1,327,251
Net Income Per Share, Note 2 $ .49 $ .38
<FN>
* See details on the following page.
See Notes To Financial Statements.
</TABLE>
F-4
<PAGE>
SEVEN FIELDS DEVELOPMENT (PA), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS - CONTINUED
DETAILS OF OTHER OPERATING EXPENSES,
GENERAL AND ADMINISTRATIVE EXPENSES AND INTEREST EXPENSE
FOR THE YEARS ENDED OCTOBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Other Operating Expenses
Payroll, payroll taxes and benefits $ 697,813 $ 666,067
Repairs and maintenance 205,623 216,735
Utilities 135,792 109,339
Insurance 118,257 154,819
Property taxes 152,822 184,499
Other operating supplies and services 77,792 92,264
Total Other Operating Expenses 1,388,099 1,423,723
Less Cost Capitalized To Development
And Construction (634,622) (549,513)
Net Other Operating Expenses $ 753,477 $ 874,210
General And Administrative Expenses
Payroll, payroll taxes and benefits $ 391,402 $ 406,084
Professional fees 129,515 105,763
Professional fees related to litigation
and pre-reorganization issues 43,736 396,912
Other general and administrative expenses 240,227 282,532
Total General And Administrative Expenses 804,880 1,191,291
Less Costs Capitalized To Development And
Construction (38,112) (51,246)
Net General And Administrative Expenses $ 766,768 $ 1,140,045
Interest Expense
Total interest expense $ 184,075 $ 154,051
Less interest capitalized to development and
house construction (105,558) (79,945)
Net Interest Expense $ 78,517 $ 74,106
</TABLE>
F-5
<PAGE>
SEVEN FIELDS DEVELOPMENT (PA), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1996 AND 1995
Addi-
<TABLE>
<CAPTION>
Share-
holders' Retained
Addi- Deficit Earnings Total
tional As Of Since Share
Paid In November 7, November 7, holders'
Shares Amount Capital 1987 1987 Equity
<S> <C> <C> <C> <C> <C> <C>
Balance
October
31, 1994 2,905,960 $2,905,960 $53,033,850 $(52,171,982) $2,612,133 $6,379,961
Pre-
November
7, 1987
Share-
holder
Adjust-
ment (30,004) (30,004)
Adjust-
ment
Related
To
Trust
Debt 23,360 23,360
Net Settle-
ment-
Former
Majority
Share-
holder
And
Related
Share-
holders (38,551) (38,551)
Return Of
Capital
Distri-
bution (1,682,127) (1,682,127)
Net Income-
Year Ended
October 31,
1995 1,327,251 1,327,251
Balance
October
31, 1995 2,905,960 $2,905,960 $51,375,083 $(52,240,537) $3,939,384 $5,979,890
Return
Of
Capital
Distri-
bution (1,656,399) (1,656,399)
Shares
Donated
To The
Company
And
Retired (278) (278) (4,701) 5,138 159
Net
Income-
Year
Ended
October
31, 1996 1,703,126 1,703,126
Balance
October
31,
1996 2,905,682 $2,905,682 $49,713,983 $(52,235,399) $5,642,510 $6,026,776
<FN>
See Notes To Financial Statements.
</TABLE>
F-6
<PAGE>
SEVEN FIELDS DEVELOPMENT (PA), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1996 AND 1995
<TABLE>
<S> <C> <C>
Cash Flows From Operating Activities 1996 1995
Net income $ 1,703,126 $ 1,327,251
Provision for income taxes 48,000
Depreciation 331,269 375,127
Capitalized development costs incurred (3,304,530) (2,036,064)
Capitalized house construction costs incurred (4,575,589) (4,633,020)
Cost of lots and houses sold 5,127,737 5,388,355
Changes in other assets and liabilities:
Restricted cash 184,550 (2,085)
Mortgage notes receivable 124,874 618,539
Other assets (128,174) 40,278
Other liabilities 243,792 (135,489)
Net Cash Flows Provided By (Used In)
Operating Activities (292,945) 990,892
Cash Flows From Investing Activities:
Additions to property, buildings & equipment (134,788) (1,162,419)
Sale of property, buildings, & equipment 1,174,296 972,214
Total Cash Flows Provided By (Used In)
Investing Activities 1,039,508 (190,205)
Cash Flows From Financing Activities:
Repayment of Investor Debt (339,237) (344,630)
Return of capital distribution (1,656,399) (1,682,127)
Proceeds from borrowings 880,000
Repayment of existing mortgage (437,404) (54,015)
Total Cash Flows Used In Financing Activities (1,553,040) (2,080,772)
Net Decrease In Cash And Temporary Investments (806,477) (1,280,085)
Cash And Temporary Investments,
Beginning of Period 1,208,806 2,488,891
Cash And Temporary Investments, End of Period $ 402,329 $ 1,208,806
Interest Expense Included In Net
Income From Operating Activities Above $ 78,517 $ 74,106
Interest Paid And Included In Capitalized
Development Costs And Houses Under Construction 105,558 79,945
Adjustment for Accrued Interest Expense 1,607
Total Interest Paid $ 184,075 $ 155,658
Income Taxes Paid None None
Supplemental Schedule Of Noncash Investing And
Financing Activities:
Settlement of Lawsuits With Former
Majority Shareholder $ 60,804
Pre-November 7, 1987 Shareholder Adjustment $ 28,504
Other Investor Adjustments $ (4,860)
<FN>
See Notes To Financial Statements.
</TABLE>
F-8
<PAGE>
SEVEN FIELDS DEVELOPMENT (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
Note 1 Organization And Business
Seven Fields Development (PA), Inc. (the "Company" or "Seven Fields PA") was
formed in 1994 as part of a comprehensive restructuring of Seven Fields
Development Corporation (the "Corporation"), in which (1) holders of 83% of
the Corporation's common stock and general unsecured subordinated debt
("Investor Debt") exchanged such stock and debt for common stock of Seven
Fields PA, and (2) Seven Fields Development Company, a Pennsylvania business
trust (the "Trust") merged with and into the Corporation (the "Merger"),
with the Trust as the surviving entity. In the Merger the holders of the
Corporation's common stock, which included Seven Fields PA and the holders who
did not elect to participate in the above described exchange, received
shares of beneficial interest in the Trust ("Trust Shares"). Such persons
also retained their Investor Debt, which became an obligation of the Trust
as the successor, by merger, to all of the assets and liabilities of the
Corporation. As part of the restructuring, Seven Fields PA contributed all
of the Trust Shares and Investor Debt which it received in the exchange and
the Merger to its wholly-owned subsidiary, Seven Fields (DEL), Inc. ("Seven
Fields DEL").
Organization Structure, Management And Objectives
The Trust was formed for the purpose of merging with the Corporation and
thereafter serving as the operating subsidiary of Seven Fields PA carrying
on the business of the Corporation with the objective of maximizing the
value of its assets and effecting a dissolution and complete liquidation of
its business assets and affairs as soon as practical. Such liquidation is
expected to occur over an extended period of time, as its assets are sold
and developed in a manner designed to maximize distributions to the
Investors as defined below.
The sole trustee of the Trust is Seven Fields Management, Inc. ("Seven Fields
Management") which is also a wholly-owned subsidiary of Seven Fields PA.
The directors and officers of Seven Fields Management are the same persons
who were the directors and officers of the Corporation, and are also the
directors and officers of Seven Fields PA.
The Trust as survivor of the merger, remains subject to the Bankruptcy Plan
under which Seven Fields Development Corporation commenced operations on
November 7, 1987, as more fully described below.
Business And Operations
The Company's current major activities are: the development of its
undeveloped property located in Seven Fields Borough, Butler County PA;
rental of the more than 90 townhouse units located in Seven Fields Borough;
sale of these existing townhouse units as individual residences; and
operation of the municipal water service for Seven Fields Borough. All of
these activities focus on the single goal of maximizing the assets of Seven
Fields PA and ultimately distributing such assets to its Investors in
complete liquidation at the earliest appropriate time.
F-9
<PAGE>
SEVEN FIELDS DEVELOPMENT (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
Note 1 Continued
Since bankruptcy reorganization of the Corporation in 1987 as described
below, the Company has sold three rental properties, repaid four million
dollars of debt other than Investor Debt, and returned approximately $7.3
million to its Investors, as a result of payments on Investor Debt, and
distributions to its common stockholders.
The Company is not actively acquiring additional property for development,
however it expects that it will not be until at least the year 2000-2005
before development of its remaining undeveloped property at Seven Fields
is completed.
The Company - Before November 7, 1987 (Date of Reorganization)
The Corporation was formed pursuant to an amended plan of reorganization
effective November 7, 1987, (the "Plan"). The Corporation, formerly known
as Earned Capital Corporation, was the surviving company of the
reorganization proceedings of Earned Capital Corporation, Managed Properties,
Inc., Canterbury Village, Inc. and Eastern Arabian, Inc. (the "Debtors")
all of which merged, pursuant to the plan, to form the Corporation.
The Debtors were formed in 1976 primarily for the purpose of marketing and
managing investments in multi-family residential housing developments. From
1976 until May 1986, when the Debtors filed for reorganization under
Chapter 11 of the Federal Bankruptcy Code, they had acquired four significant
real estate projects. The Debtors obtained funding to acquire and/or
develop these projects by selling to investors what was purported to be
percentage interests in a particular real estate development which would be
managed by the Debtors. From 1976 to 1986 the Debtors received approximately
$57,000,000 from over 2,600 investors (the "Investors"). These Investors
had no management control over the Debtors' affairs. Management of the
Debtors was vested exclusively with four stockholders who owned 100% of the
stock of the Debtors. Investors' investment balances, including
reinvestments, exceeded $69,000,000 when the Debtors filed petitions for
reorganization with the Bankruptcy Court.
The Plan Of Reorganization And The Company Subsequent to November 7, 1987
The following summary of the Plan applies to Seven Fields PA's operating
subsidiary, the Trust, and not to the capital structure of Seven Fields PA,
since the reorganization which was consummated in 1995 resulted in the
exchange of 83% of the Investor Debt and Stock for common stock of Seven
Fields PA.
The Plan on November 7, 1987, transferred 100% ownership of the Debtors
from the four former stockholders to the more than 2,600 Investors, merged
the four debtors into the surviving corporation, removed the former
shareholders from involvement in the management or ownership of the
reorganized company, and required the repayment in full of all debt,
secured and unsecured, to creditors on the same terms as agreements then
in existence. The Plan also, despite assets with a fair market value far
less than the obligation of the Company to the Investors, did not reduce
the face amount of the Company's obligation to those Investors. The
liability to the Investors, representing 95% of the Investors' claims,
F-10
<PAGE>
SEVEN FIELDS DEVELOPMENT (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
Note 1 Continued
remained a general unsecured debt of the Company and the Company waived
discharge of such debt. These non-discharged debts are subordinated to
any existing liens and priorities and any future secured debt, and the
claimant-creditor, his heirs, assigns or successors, may not file suit or
take any judgment, or undertake any collection activities.
The general, unsecured debt issued to the Investors bears no interest and
is subordinate to existing and future secured debt. As indicated above,
the Plan specified that this debt would be paid as soon as possible. The
repayment of this debt, subsequent to the reorganization in 1995, occurs at
the Trust level, which requires the Trust to make all such repayments of
the Investor Debt on a pro-rata basis to all of the debt holders. Seven
Fields PA, through its subsidiary Seven Fields DEL, holds the debt interest of
those investors who accepted the exchange offer (83%). As a result of
maintaining this intercompany debt structure, as repayments of the Debt are
made by the Trust to Seven Fields PA, Seven Fields PA intends to distribute
such amounts to its shareholders as return of capital distributions. As
repayment of Investor Debt occurs at the Trust level, 83% of such
repayments will be made to Seven Fields PA, so that on a consolidated basis,
for every $100 distribution, $17 will represent a repayment of Investor Debt
and $83 will represent a return of capital distribution to the common
stockholders of the Company.
Note 2 Summary Of Significant Accounting Policies
Principles Of Consolidation
The consolidated financial statements include Seven Fields PA, Seven Fields
DEL, Seven Fields Management, Inc., and the Seven Fields Development Company.
Intercompany accounts and transactions are eliminated in the consolidated
financial statements.
Reorganization
Merger And Basis Of Presentation
The Merger, which became effective April 30, 1995, qualifies as a tax-free
reorganization and was accounted for in a manner similar to a pooling of
interests. Accordingly, the Company's financial statements have been
restated to include the results of Seven Fields Development Corporation for
all periods prior to May 1, 1995.
For comparative purposes, certain 1995 amounts have been reclassified to
conform to the presentation adopted in 1996.
Reorganization on November 7, 1987
Although the Corporation was the successor in the merger of the four Debtors
pursuant to the Plan, the Company has been treated for accounting purposes
as if it were a newly created corporation. Most significantly, the
Corporation's assets upon reorganization were stated at their appraised
value instead of historical cost. Total assets of the Corporation at
November 7, 1987 were $18,145,669, including fair market value for all real
estate and horses in the amount of $16,792,582 and historical cost for all
other assets of $1,353,087.
F-11
<PAGE>
SEVEN FIELDS DEVELOPMENT (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
(CONTINUED)
Note 2 Continued
Use of Estimates
The presentation of the Company's financial statements requires management
to make estimates and assumptions that affect the amounts reported at the
date of the financial statements for assets, liabilities, revenues and
expenses and disclosures of contingencies. Actual results could differ from
those estimates. The Company makes significant estimates related to common
area development costs which it expects to incur in the future, and costs
to complete specific subdivisions of lots from which lots are being sold.
Fixed Assets And Depreciation
Fixed assets are recorded at cost except for assets transferred to the
Corporation pursuant to the Plan, which are recorded at appraised values
determined in the reorganization proceedings. The carrying value of such
assets is estimated to be not in excess of net realizable value. No
accumulated depreciation was recorded as of the Corporation's reorganization
on November 7, 1987, and straight line and double declining balance methods
utilizing the half year convention in the year of acquisition have been used
since reorganization. The Company selected estimated useful lives for the
assets received pursuant to the Plan which approximates the original
estimated lives of personal property and the residual lives of the real
property.
Recovery Of Pre-Reorganization Assets And Resolution Of Pre-Reorganization
Claims Assets recovered from the shareholders and related parties of the
predecessors and pre-reorganization claims against the Company are treated
as an adjustment of Pre-Reorganization Deficit at November 7, 1987.
Development Costs And Other Capitalized Costs
It is the Company's policy to capitalize all material costs related to the
development of its property. Costs, including but not limited to legal,
engineering, planning and construction, which are specifically identifiable
to each phase, are capitalized to the individual phase, and costs incurred
which benefit all phases being developed or to be developed in the future
are allocated to those phases. Costs which are included in the general and
administrative cost center and are directly related to development activities
are capitalized to the development phases under construction during the
period incurred. Material interest costs are capitalized during the
construction period of each phase based on the average interest rate of the
debt outstanding. The full cost of construction, including overhead and
construction period interest has been capitalized.
Estimated costs for amenities and common areas related to phases from which
lots are being sold are accrued and a proportionate part of such costs are
included in the cost of lots sold.
Revenue Recognition
Revenue is recognized on the sale of lots when settlement occurs, or the
collectibility of any related receivable is reasonably assured and the
Company has substantially completed all obligated development related to
the lots sold.
Revenue is recognized upon settlement for houses which are constructed
provided construction is substantially complete. Revenue is recognized on
the sale of its townhouse units at settlement. Sales of lots, or housing
F-12
<PAGE>
SEVEN FIELDS DEVELOPMENT (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
(CONTINUED)
Note 2 Continued
units from phases or multi-unit buildings where development or construction
is not substantially complete are accounted for in accordance with the
percentage of completion method, based on estimated costs to be incurred.
Rental revenue from townhouses is recognized on a monthly basis. Leases
with residential tenants are of a six month or one year duration and are
typically renewed by the tenant.
Public Utility Commission "PUC" Regulated Activities
The Company earns fees for the water services it provides the residents of
Seven Fields Borough.
In accordance with regulations promulgated by the PUC, permission from the
PUC is required to establish, or change the rates charged customers.
Accounting policies, procedures, and rules established by the PUC must be
adhered to.
Capitalized Development And House Construction Costs
The cost of the inventory of unsold lots is determined based on the lower of
the average lot cost or market. The cost of unsold constructed houses is
based on the lower of cost or market for each house.
Provision For Losses
Provisions for losses on notes and accounts receivable and lots and houses
are charged to operations when it is determined that the investment in these
assets is impaired.
Cash And Cash Equivalents (Cash And Temporary Investments)
For purposes of the statement of cash flows, the Company considers all highly
liquid investments, not otherwise restricted, with a maturity of three months
or less at the time of purchase to be cash equivalents.
Change Of Accounting Principle And Recent Accounting Developments
FAS No. 115 "Accounting For Certain Investments In Debt And Equity
Securities" issued by the Financial Accounting Standards Board was adopted
effective November 1, 1994. FAS 115 requires companies to recognize gains
and losses due to the fluctuation of market value of such securities. There
was no financial impact as a result of adopting this new standard, and no
material impact is anticipated in the future.
In March 1995 the Financial Accounting Standards Board issued FAS No. 121
"Accounting For The Impairment Of Long-Lived Assets And For Long-Lived Assets
To Be Disposed Of". FAS No. 121 establishes standards for determining when
an asset impairment should be recognized based primarily on an undiscounted
cash flow model. Pending review of its impact, adoption of this new standard
which must be adopted not later than November 1, 1996, has been deferred.
Initially the Company does not believe that there will be a material impact
when this standard is adopted.
Minority Interest
Seven Fields PA owns, through its subsidiary Seven Fields DEL, 83% of the
outstanding shares of the Trust resulting in a 17% minority interest. Under
generally accepted accounting principles, it is not appropriate to reflect
a negative (i.e., a debit balance) minority interest in a balance sheet.
Therefore, in the balance sheet of Seven Fields PA there is no minority
interest reflected because there is a capital deficiency in the Trust.
F-13
<PAGE>
SEVEN FIELDS DEVELOPMENT (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
(CONTINUED)
Note 2 Continued
Similarly, there is no minority interest provision reflected in Seven Fields
PA's statement of operations because of such capital deficiency. Although
17% of any future earnings of the Trust will accrue to the benefit of the
minority shareholders of the Trust, no such minority interest will be
reflected in the statement of operations so long as the Trust continues to
have a capital deficiency, and as a result a negative minority interest.
Earnings Per Share
Earnings per share have been calculated to give effect to the earnings which
accrue to the benefit of the minority shareholders, although under generally
accepted accounting principles such minority interests may not be reflected
in the balance sheet or statement of operations so long as the capital
deficiency exists in the Trust.
The computation of earnings per share is as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Consolidated Net Income $1,703,126 $1,327,251
Less Net Income Accruing to Minority Interest
in Trust (17%) 282,935 216,415
Net Income Applicable to Seven Fields
PA Shareholders $1,420,191 $1,110,836
Weighted Average Shares Outstanding 2,905,728 2,905,960
Earnings Per Share .49 .38
</TABLE>
Weighted average number of shares are adjusted to reflect retroactive
changes related to settlements with shareholders relating to the
Corporation's reorganization on November 7, 1987.
Note 3 Real Estate Rental Activities
A summary of the historical cost of properties held for rent located at
Seven Fields consisting of 91 and 132 residential townhouse units at October
31, 1996, and 1995 respectively, a commercial office building and two
commercial units, all of which are included in property, buildings and
equipment on the balance sheets, is as follows:
<TABLE>
<CAPTION>
October 31,
1996 1995
<S> <C> <C>
Land $ 386,789 $ 452,061
Buildings 3,914,327 5,217,808
Equipment and Improvements 359,349 647,211
4,660,465 6,317,080
Accumulated Depreciation 1,564,229 2,137,115
$ 3,096,236 $ 4,179,965
</TABLE>
F-14
<PAGE>
SEVEN FIELDS DEVELOPMENT (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
(CONTINUED)
Note 3 Continued
Tenant leases are typically of 6 to 12 month duration. Individual tenants
usually renew their leases upon expiration, however the Company is in the
process of liquidating its rental townhouses. During 1995, construction of
a two story office building having 9,434 usable square feet was completed.
The Company occupies 4,717 square feet and rents 4,717 square feet to the
Borough of Seven Fields under terms of a five year lease which expires
July 31, 2000. The Borough is required to pay all utilities and 50% of the
operating costs of the building. The building also contains a basement
which the Company utilizes for its operations. The Company has granted the
Borough an option to purchase the building at the end of the lease at fair
market value to be determined on the basis of the average of two appraisals.
Minimum lease payments to be received under non-cancelable operating leases
at October 31, 1996, are as follows:
<TABLE>
<S> <C>
1997 $ 321,677
1998 31,545
1999 35,083
2000 28,302
Thereafter
Total $ 416,607
</TABLE>
Note 4 Mortgage Notes Receivable (Mortgage Assignments)
Commencing in 1993, the Company began financing the purchase of certain of
the townhouse units it sold to individuals. Such financing is facilitated
by the Company receiving an assignment of the mortgage note granted by the
buyer of the individual townhouse to the mortgagee - Howard Hanna Financial
Services. The Company has not perfected its security interest in the
underlying collateral in that it is its policy to not record these
assignments with the Butler County Recorder of Deeds. It is intended that
these mortgages are to be sold in the open market when market conditions
are favorable.
The Company held the following mortgage note assignments at October 31, 1996,
and 1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Number of Mortgage Notes 1 3
Approximate Average Interest Rate 8.125% 7.875%
Final Maturity Date (Predominate) 2024 2024
Face Amount of Mortgage Notes $ 62,910 $188,125
Carrying Amount of Mortgage Notes
(Market Value) $ 61,807 $186,682
</TABLE>
F-15
<PAGE>
SEVEN FIELDS DEVELOPMENT (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
(CONTINUED)
Note 4 Continued
Reconciliation of the Carrying Amounts of Notes
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Beginning Balances $ 186,682 $ 805,220
Principal Collected (1,160) (5,476)
Notes Sold (124,055) (637,225)
Market Valuation Change and Realized
Gains or (Losses) 340 24,163
Ending Balance $ 61,807 $ 186,682
Delinquent Loans 0 1
Principal Amount of Delinquent Loans 0 $ 63,627
</TABLE>
Note 5 Litigation
All litigation with the former majority shareholder of the Debtors has been
concluded as a result of a settlement which was finalized in November 1995.
The significant terms of this settlement are:
1. The second 50% of the land held by the Company in co-tenancy has been
transferred to the Company. The value of this 50% interest has not been
finally determined and no additional amount has been included
as an asset in the balance sheet.
2. The shareholders' derivative action filed against current management
has been discontinued and withdrawn.
3. All counterclaims asserted by the former majority shareholder have been
discontinued and withdrawn.
4. The Company has disbursed $175,000 of the horse escrow account to the
former majority shareholder.
5. Both parties agreed to let the court decide the question of ownership of
the 45 acres and former majority shareholder's residence (The "Reillys"),
and agreed that the court's decision on this property would be non-
appealable. On November 16, 1996, the court decided to allow the Reilly's
to retain title to this property. No amount had been included in the
Company's balance sheets for this claim.
6. The Corporation shares and debt owned by the former majority shareholder
have been canceled.
Note 6 Notes Payable - Credit Lines
The Company entered into a revolving credit line in the amount of $1,000,000
with National City Bank in November, 1995. Interest is payable monthly at
the bank's prime rate plus 1%. The credit line is to be used for individual
house construction in the Northridge Manor Subdivision and is secured by a
F-16
<PAGE>
SEVEN FIELDS DEVELOPMENT (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
(CONTINUED)
Note 6 Continued
mortgage on the Company's property in that subdivision. The credit line
matures December 1, 1998 and advances outstanding more than 12 months are
to be repaid over a 48 month term. National City may call the notes
outstanding on May 15 of each year, however, the Company is allowed 180 days
to repay the balance in full. The total amount outstanding as of October 31,
1996 was $130,000, and bears interest at 9 1/4% per annum.
In August 1996 the Company also entered into a revolving credit line of
$1,000,000 with First Western Bank, with interest payable monthly at the
bank's prime rate plus 3/4%. The credit line is to be used for constructing
up to 12 homes in the Hawthorne Commons Subdivision, and is secured by the
Company's property in that subdivision. Borrowings are limited to $80,000
for each house, and any outstanding principal is required to be repaid upon
the sale of each house. At October 31, 1996, the Company has no amount
outstanding under this line of credit.
Subsequent to the balance sheet date on November 25, 1996, the Company also
arranged a third revolving line of credit in the amount of $750,000. The
proceeds under this credit line are restricted to the construction of
townhouses in the Company's Georgetowne Manor Subdivision. Advances under
this credit line will bear interest at First Western Bank's prime rate plus
1/2%, and must be repaid by November 30, 1997.
Note 7 Mortgages Payable
The Company is obligated under a floating rate mortgage note in the amount
of $1,231,025 at October 31, 1996. Interest is based on the bank's prime
rate plus 5/8%, or fixed annually at the bank's fully absorbed cost of funds,
plus 2 1/2%. The rate of interest has been fixed at 8% through April 30,
1997. Repayments are in equal monthly principal and interest installments
of $17,391 with a final balloon payment due November 1, 1999. The mortgage
note is collateralized by 36 rental townhouse units having a net book value
of approximately $737,000 and an approximate fair market value of $2,600,000
based on the recent sales prices of townhouses.
On November 29, 1995, the Company granted PNC Bank a mortgage on its office
building to secure a term loan in the amount of $750,000. The proceeds of
this loan were used to replenish its working capital, and to carry on its
development and construction activities. This office building was completed
in August 1995 at a cost of $1,263,207. Interest is based on PNC's prime
rate plus 1/2% or is fixed at 2 1/4% above PNC's fully absorbed cost of
funds and is being amortized over a 15 year term, but matures on December 10,
2000. At October 31, 1996, monthly principal and interest payments are
$7,265 based on the current interest rate of 8.12%, which has been fixed
through December 10, 1999.
The Company must also comply with certain financial covenants including at
all times having a tangible net worth (defined as net worth plus general
unsecured debt less deferred tax assets) of $10,000,000, a current ratio of
2 to 1; debt to net worth (adjusted for general unsecured debt and deferred
tax assets) of .5 to 1; and debt service coverage of 1.1 to 1. Prior to
December 5, 1996, the Company was required to maintain tangible net worth of
$12,425,000 at the end of its fiscal year and $11 million during the year.
F-17
<PAGE>
SEVEN FIELDS DEVELOPMENT (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31 1996 AND 1995
(CONTINUED)
Note 7 Continued
During 1996 the Company's net worth did not meet these requirements, and
PNC Bank has waived such non compliance, and on December 5, 1996 reset the
net worth covenant at $10 million. It is anticipated that this net worth
covenant will periodically be reduced in future years to facilitate the
Company's planned liquidation of its assets and distributionof proceeds
of such liquidation to its debtholders and shareholders. There are also
certain penalties if prepayments exceed specified amounts. Aggregate
maturities of long term debt at October 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 125,204
1998 145,756
1999 158,163
2000 897,688
2001 631,770
</TABLE>
Surety And Mortgage
The Company is contingently liable under terms of a $2,000,000 mortgage it
granted a commercial surety company on five of its buildings containing 30
townhouse units at its Seven Fields complex. These townhouses, having an
approximate book value of $610,000 at October 31, 1996 and an estimated fair
market value based on recent sales of individual townhouses of $2,200,000,
serve as collateral for performance and maintenance bonds issued by the
surety company totaling $2,400,000, related to the Company's land
development. To date, the Company has successfully completed, to the extent
possible, and to the satisfaction of the Borough, each of its previous
subdivisions and each of its prior bonds have been duly released.
Note 8 Fair Value Of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of financial instruments at October 31, 1996:
Cash and temporary investments: The carrying amount reported in the balance
sheet for cash and temporary investments approximates fair value.
Certificates of deposit, accounts and notes receivable, deposits, and
accounts payable: The carrying amounts of these assets and liabilities in
the balance sheet approximates fair value.
General unsecured debt - minority investors The carrying amount of general
unsecured debt - minority investors of $10,067,744 is materially in excess of
the fair value of these financial instruments. As more fully described in
Notes 1 and 11, the general unsecured debt is non interest bearing, has no
maturity date and legal action by the debt holder to collect is precluded.
Furthermore, since the Company emerged from bankruptcy proceedings in 1987,
there have been no known sales of the debt in the open market. The amount
of this debt, which is ultimately repaid, and the timing of such repayment,
is totally dependent upon the Company's success in developing its property
and liquidating and distributing its assets to the debtholders and
F-18
<PAGE>
SEVEN FIELDS DEVELOPMENT (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31 1996 AND 1995
(CONTINUED)
Note 8 Continued
shareholders. Consequently, this debt is more characteristic of an equity
instrument having a preference upon liquidation, bears no interest or
dividend rate, has no fixed cash stream, or maturity date. It is not
practicable to determine the fair value of the general unsecured debt.
Notes Payable - Credit lines and mortgages payable: The carrying amounts of
notes payable - credit lines and mortgages payable approximates fair value
since interest rates of the mortgages and credit line notes approximates
interest rates currently available to the Company on other debt instruments
and all of credit line interest rates are of a variable nature.
Note 9 Income Taxes
The Company recognized deferred tax assets of $4,080,000 on November 1, 1993,
as a result of adopting statement of financial accounting standard No. 109
"Accounting For Income Taxes". The net deferred tax asset of $4,080,000 is
a result of the higher tax basis of assets than the basis recognized for
financial reporting purposes at the time of reorganization. Recognition of
the deferred tax assets reduced the Shareholders' Deficit created at
reorganization.
At October 31, 1996, the Company has Federal and state net operating loss
carryforwards for tax purposes which, if not utilized, expire as follows:
<TABLE>
<CAPTION>
October 31, Federal State
<S> <C> <C> <C>
1997 $ 1,000,000
1998 1,000,000
2003 $ 2,501,469
2004 3,911,434
2005 4,605,975
2006 626,911
2007 870,453
2008 3,892,382
2009 1,202,522
2010 1,125,182
2011 456,576
Total $ 19,192,904 $ 2,000,000
</TABLE>
For Pennsylvania income tax purposes, losses of not more than $500,000 per
year from fiscal years ending October 31, 1989 through October 31, 1994
are available to offset taxable income of not more than $500,000 generated
in fiscal 1997 and 1998. Losses of not more than $1,000,000 generated in
fiscal 1996 may be used to offset income generated in fiscal years 1997 and
1998. The maximum net operating loss that may be used in any fiscal year
is $1,000,000.
F-19
<PAGE>
SEVEN FIELDS DEVELOPMENT (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
(CONTINUED)
Note 9 Continued
Adoption of FAS 109 permitted the Company to recognize deferred tax assets
substantially equivalent to the estimated tax benefits to be derived from
the excess of the tax basis of the Company's assets at reorganization over
the asset amounts used for financial reporting purposes. The Company has
also estimated the extent to which the deferred tax asset should be reduced
by a valuation allowance so that the asset will not be carried in excess of
its estimated realizable value.
The net realizability of the deferred income tax assets is re-evaluated
annually. The deferred tax asset which the Company estimated will be
realizable is calculated annually to be an amount not to exceed 7 times the
average pre-tax income for the latest two fiscal years at the tax rates in
effect at that time. The Company's ability to utilize its deferred tax assets
is based solely on its ability to generate sufficient pre tax-income in the
future, prior to its complete liquidation, which is limited by the total
property which the Company has available to develop in the future. As more
fully explained in Note 1, the Company does not intend to acquire additional
property to develop, but intends to develop its existing property,
liquidate its remaining assets, and distribute its assets to its Investors.
It is estimated that this process will not be completed until the years
2000-2005.
At October 31, 1996, the significant components of the deferred tax assets
are as follows:
<TABLE>
<CAPTION>
Federal State Total
<S> <C> <C> <C>
Tax over financial reporting basis
of assets originating at
reorganization $ 2,573,293 $ 840,011 $ 3,413,304
Net operating loss carryforwards
resulting from the utilization
of the higher tax basis of
assets since reorganization 6,457,009 199,800 6,656,809
Potential Tax Benefit at
October 31, 1996 9,030,302 1,039,811 10,070,113
Valuation Allowance - Reduction
for estimated unutilized
deferred tax assets 5,863,302 214,811 6,078,113
Net Deferred Tax Assets $ 3,167,000 $ 825,000 $ 3,992,000
</TABLE>
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Year Ended
October 31
1996 1995
<S> <C> <C>
Deferred:
Federal $ (157,000) $ (10,000)
State 157,000 58,000
Provision For Income Taxes $ 0 $ 48,000
</TABLE>
F-20
<PAGE>
SEVEN FIELDS DEVELOPMENT (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
(CONTINUED)
Note 9 Continued
A reconciliation of income taxes with the amounts which would result from
applying the US statutory rate follows:
<TABLE>
<CAPTION>
Year Ended
1996 1995
<S> <C> <C>
Tax at U.S. Statutory Rate $ 579,701 $ 467,593
State Income Taxes Net Of Federal
Benefit 112,418 90,677
State Deferred Tax Adjustment For
Rate Change 18,000
Utilization of Deferred Income Tax
Assets (692,119) (528,270)
Provision For Income Taxes $ 0 $ 48,000
</TABLE>
Note 10 Temporary Investments
Temporary investments at October 31, 1996, and 1995 consist of $148,825 and
$1,205,919 respectively invested in PNC Bank's PNC Investment Short Term
Common Trust Fund. The underlying securities which consist of U.S. Treasury
and U.S. Government Agency obligations and repurchase agreements relating to
such obligations have average maturities of 20 to 60 days. The proceeds are
deposited automatically to the Company's operating account as needed. Cost
and market value of temporary investments are identical to each other at
October 31, 1996, and 1995 respectively.
Note 11 Capital Stock And Subordinated Debt
The Corporation, at the time of its reorganization on November 7, 1987, as
prescribed by the Plan, issued to the Investors certificates intended to
represent shares of common stock and general unsecured debt of the
Corporation. The certificates representing the shares stated (a) the number
of shares issued, (b) total amount of the Investor's claim and (c) the
amount of such claim as represented by the shares and the undischarged
indebtedness owed to Investors by the Corporation. The certificates also
have the following statement printed thereon: "The equity and debt interests
represented hereby are not severable." The Board of Directors of the
Corporation, on August 25, 1989, passed a resolution which provided that the
shares and the debt held by each Investor shall be severable and separately
transferable.
As a result of the reorganization effective April 30, 1995, 83% or
$50,796,205 of the Investor Debt and 83% of the common stock was exchanged
for common stock in Seven Fields PA. Therefore, the general unsecured debt
and common stock outstanding on the October 31, 1996 and 1995 balance sheets
have the following characteristics:
F-21
<PAGE>
SEVEN FIELDS DEVELOPMENT (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
OCTOBER 31, 1996 AND 1995
(CONTINUED)
Note 11 Continued
General Unsecured Debt (Subordinated Debt)
: Subordinate to all existing debt at Reorganization
(November 7, 1987).
: Subordinate to all future secured debt incurred.
: Non-interest bearing.
: Legal action to collect is precluded.
: No voting rights.
: Issued at 95% of face value of Investors account balance
regardless of the value of the underlying assets available to
pay this debt.
: This debt as reflected on the Company's balance sheet is to be
repaid by periodic distributions as determined appropriate by the
Company's Board of Directors. When such distributions are made
for every $17 of debt repaid, it is the intent of the Company to
distribute to its shareholders $83 as a liquidating distribution.
These circumstances were created by the 1995 reorganization which
was structured so as to assure proportionality of the interests
between those Investors which accepted the exchange offer and
those Investors who did not accept the exchange offer. The
economic interests of the Investors remained proportional because
of the ownership of the debt of the Corporation which was
exchanged for the common stock of Seven Fields PA which was not
canceled, but was transferred to Seven Fields DEL, a wholly owned
subsidiary of Seven Fields PA. Therefore, as the Trust repays the
debt; for every $17 of debt paid to the non-exchanging Investors,
$83 will be repaid on the debt held by Seven Fields DEL. It is
the Company's intent that all such repayments of debt received by
Seven Fields DEL will be distributed to Seven Fields PA, which in
turn will be distributed to the common stockholders of Seven
Fields PA as a return of capital distribution.
Common Stock
: Voting Stock - One vote per share.
: Dividends - If and when declared by the Board of Directors.
Note 12 Capitalized Development Costs, House Construction Costs, PUC
regulated Water Costs And Property Held For Investment And Future Development
The Company has incurred substantial costs in continuing the development of
certain of the property located at Seven Fields, Butler County, PA. The
Company's development and house construction activities for the years ended
October 31, 1996 and October 31, 1995 are summarized below for each of the
areas of significant activity.
F-22
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
<PAGE>
SEVEN FIELDS DEVELOPMENT (PA), INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
(CONTINUED)
Note 12 Continued
The following information summarizes development activities for 1996.
<TABLE>
<CAPTION>
Com-
Colon- mercial Com-
ial North mercial
Heights Pointe Retail & Brandy- Brandy- North George-
I, II Center Service wine wine Ridge town
& III Phase P Phase Q Woods Commons Manor Manor
<S> <C> <C> <C> <C> <C> <C> <C>
Acres 82 18 5 34 9 17 10
Total Lots 158 6 3 75 44 45 77
Unsold Lots 9 5 1 8 2 38 69
Balance
October
31, 1995 $399,963 $471,484 $202,348 $387,800 $195,036 $685,185 $573,645
1996 Costs
Capitalized:
Reclassify
Land Costs
Engineering &
Supervision 3,937 6,150 17,603 15,093 18,979 25,462 27,359
Excavation &
Construc-
tion 65,528 1,647 44,934 14,649 11,382 142,597 287,338
Overhead
Allocated 1,584 3,972 1,584 1,584 2,388 3,972 3,972
Interest 5,400
Total
Accumulated
Costs 471,012 483,253 266,469 419,126 227,785 857,216 897,714
Less Cost of
Houses And
Lots Sold 282,856 88,548 63,534 261,526 194,838 147,551 111,720
Balance
October 31,
1996 $188,156 $394,705 $202,935 $157,600 $ 32,947 $709,665 $785,994
Classi-
fication
of Costs:
House
Construc-
tion &
Develop-
ment 188,156 394,705 202,935 157,600 32,947 709,665 785,994
Unutilized
Land
Property,
Plant &
Equipment $188,156 $394,705 $202,935 $157,600 $ 32,947 $709,665 $785,994
</TABLE>
F-23
<PAGE>
<TABLE>
<CAPTION>
Single
Moon, And
North Un- Townhouse, Multi-
Ridge Hawthorne utilized Water & Office Family
Estates Commons Parcels Other Building Houses Total
<S> <C> <C> <C> <C> <C> <C>
31 24 245 40 3
56 96
46 96
$2,356,397 $1,015,303 $1,580,331 $1,961,257 $ 9,828,749
$ 265,302 $ 317,481 (431,358) (317,123) 165,698
55,426 88,050 106,222 2,000 521,858 888,139
1,144,554 858,861 111,674 5,065 3,848,023 6,536,252
3,972 7,944 7,140 38,112
30,150 30,000 40,008 105,558
1,499,404 1,302,336 2,150,075 1,022,368 1,263,208 6,536,844 17,396,810
271,289 11,234 3,694,641 5,127,737
$1,228,115 $1,302,336 $2,150,075 $1,011,134 $1,263,208 $2,842,203 $12,269,073
1,228,115 1,302,336 17,606 2,842,203 7,862,262
2,150,075 641,288 2,791,363
352,240 1,263,208 1,615,448
$1,228,115 $1,302,336 $2,150,075 $1,011,134 $1,263,208 $2,842,203 $12,269,073
</TABLE>
<TABLE>
<CAPTION>
Residential & Residential &
Commercial Commercial
Estimated Additional Costs To Be Land Building
Incurred In Next 5 Years Development Development
Total
<S> <C> <C> <C>
1997 $ 852,000 $ 5,564,000 $ 6,416,000
1998 2,052,000 7,948,000 10,000,000
1999 640,000 6,876,000 7,516,000
2000* 336,000 5,352,000 5,688,000
2001* 1,400,000 4,552,000 5,952,000
<FN>
* Incomplete Data
</TABLE>
F-24
<PAGE>
SEVEN FIELDS DEVELOPMENT (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
(CONTINUED)
Note 12 Continued
The following information summarizes development activities for 1995.
<TABLE>
<CAPTION>
Colonial Commer- Commer- Brandy- Brandy- North
Heights cial cial wine wine Ridge
I, II & Phase P Phase Q Woods Commons Manor
III
<S> <C> <C> <C> <C> <C> <C>
Acres 82 18 5 34 9 17
Total Lots 158 6 3 75 44 45
Unsold Lots 17 6 2 20 12 45
Balance
October 31,
1994 $633,270 $242,569 $117,406 $646,340 $521,400
1995 Costs
Capitalized:
Reclassify
Land Costs 125,003
Engineering &
Supervision 5,991 22,293 14,990 5,431 2,576 67,076
Excavation &
Construction 67,256 198,878 124,323 18,896 14,313 477,062
Overhead
Allocated 4,044 4,044 4,044 4,044 4,044 4,044
Interest 3,700 1,900 12,000
Total Accumulated
Costs 710,561 471,484 262,663 674,711 542,333 685,185
Less Cost of
Houses And
Lots Sold 310,598 60,315 286,911 347,297
Balance
October 31,
1995 $399,963 $471,484 $202,348 $387,800 $195,036 $685,185
Classification
of Costs:
House
Construction &
Development 399,963 471,484 202,348 387,800 195,036 685,185
Unutilized Land
Property, Plant
& Equipment $399,963 $471,484 $202,348 $387,800 $195,036 $685,185
</TABLE>
F-25
<PAGE>
<TABLE>
<CAPTION>
Office &
George- Unutil- Moon Twp., Garden Single Multi-
town ized Water And Apart- Family Family
Manor Parcels Other ments Houses Houses Total
<S> <C> <C> <C> <C> <C> <C>
10 300 40 3
77
77
$2,170,643 $ 977,540 $ 550,553 $ 743,029 $ 879,663 $ 7,482,413
$197,145 (322,148)
15,512 123,507 11,155 33,056 75,394 125,424 502,405
343,888 369,105 38,390 968,602 1,668,095 2,177,676 6,466,484
900 15,290 10,120 50,574
16,200 18,000 12,230 13,016 77,046
573,645 2,356,397 1,027,085 1,580,331 2,498,748 3,195,779 14,578,922
11,782 1,593,904 2,139,366 4,750,173
$573,645 $2,356,397 $1,015,303 $1,580,331 $ 904,844 $1,056,413 $9,828,749
573,645 28,840 904,844 1,056,413 4,905,558
2,356,397 639,288 2,995,685
347,175 1,580,331 1,927,506
$573,645 $2,356,397 $1,015,303 $1,580,331 $ 904,844 $1,056,413 $9,828,749
</TABLE>
<TABLE>
<CAPTION>
Residential
& Commercial Residential
Estimated Additional Costs To Land & Commercial
Be Incurred in Next 5 Years Development Construction Total
<S> <C> <C> <C>
1996 $2,974,000 $7,016,000 $ 9,990,000
1997 2,244,000 9,534,000 11,778,000
1998 614,000 7,422,000 8,036,000
1999* 174,000 6,102,000 6,276,000
2000* 1,791,000 4,782,000 6,573,000
<FN>
* Incomplete Data
</TABLE>
F-26
<PAGE>
SEVEN FIELDS DEVELOPMENT (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
(CONTINUED)
Note 13 Business Segment Information
<TABLE>
<CAPTION>
1996 1995
Develop- Develop-
ment ment
Con- Con-
Rental & struction Rental & struction
General & PUC General & PUC
Operations Activities Total Operations Activities Total
<S> <C> <C> <C> <C> <C> <C>
Gross
Operating
Revenue $ 801 $ 9,488 $ 10,289 $ 1,080 $ 9,205 $ 10,285
Costs &
Operating
Expenses 787 7,442 8,229 975 7,649 8,624
Depreciation
Expense 269 62 331 329 46 375
Operating
Income (Loss) (255) 1,984 1,729 (224) 1,510 1,286
Total
Identifiable
Assets 7,862 11,569 19,431 8,704 10,332 19,036
Capital
Expenditures $ 16 $ 119 $ 135 $ 98 $ 1,064 $ 1,162
</TABLE>
Note 14 Concentration Of Credit Risks
The Company's customers are the general public for the rental of apartments
in its rental project and customers, mostly its tenants, to which water
utility services are provided. The Company has historically incurred
minimal credit losses.
The Company began financing certain of the sales of its townhouses during
1993. The mortgage originator, in whose name the mortgage is recorded as
a first mortgage on the townhouse sold, assigns the mortgage note to the
Company, which assumes all of the market and credit risks related to the note.
As of October 31, 1995 and 1996, the Company held $186,682 and $61,807
respectively of these mortgage note assignments. The Company's interest in
the underlying collateral is not perfected in that it is the Company's
policy to not record the mortgage note assignments with the Butler County
Recorder of Deeds. The Company recognized gains of $340 in 1996 and gains
of $24,163 in 1995 on these mortgage notes as a result of changes in market
interest rates. The Company will continue to be susceptible to possible
future losses as long term interest rates continue to fluctuate. The risk
of such losses can be somewhat mitigated by the higher yield earned on the
mortgage note assignments held by the Company, than it earns on other funds
it invests short term.
Note 15 Environmental Matters
The Company knows of no environmental risks associated with its properties
and operations.
Note 16 Related Party Transactions
A shareholder and director of the Company provided the Company with
certain design and architectural services and was paid $210 for such
services. In addition, the law firm in which a director of the Company,
is a principal was paid $8,445 for legal services provided to the
Company. The Company's management believes that the Company received
services of economic value equivalent to the amounts paid.
F-27
<PAGE>
SEVEN FIELDS DEVELOPMENT (PA), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
(CONTINUED)
Note 17 Subsequent Events
Additional Distribution on General Unsecured Debt
The Company made its fifth distribution in partial repayment of its General
Unsecured Debt on December 12, 1996 in the amount of $169,811 and its second
distribution to its Common Stockholders in the amount of $828,121.
F-28
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
[DESCRIPTION] FDS FOR ANNUAL 10KS
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<CASH> 402,329
<SECURITIES> 53,755
<RECEIVABLES> 287,973
<ALLOWANCES> 57,552
<INVENTORY> 10,653,625
<CURRENT-ASSETS> 0
<PP&E> 5,649,019
<DEPRECIATION> (2,083,587)
<TOTAL-ASSETS> 19,430,566
<CURRENT-LIABILITIES> 0
<BONDS> 12,026,325
<COMMON> 2,905,682
0
0
<OTHER-SE> 3,121,094
<TOTAL-LIABILITY-AND-EQUITY> 19,430,566
<SALES> 9,487,397
<TOTAL-REVENUES> 10,288,781
<CGS> 6,708,350
<TOTAL-COSTS> 8,559,864
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,517
<INCOME-PRETAX> 1,703,126
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,703,126
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,703,126
<EPS-PRIMARY> .49
<EPS-DILUTED> 0
</TABLE>
