10-Q 1 0001.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 Commission file number: 1-8967 ATLANTIC GULF COMMUNITIES CORPORATION (Exact name of registrant as specified in its charter) Delaware 59-0720444 (State or jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 4800 N. FEDERAL HWY, SUITE 105 E BOCA RATON, FLORIDA 33431 (Address of principal executive offices) (Zip Code) (561) 620-0029 (Registrant's telephone number, including area code) APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest date practicable: There were 12,382,241shares of the Registrant's common stock, $.10 par value per share (the "Common Stock"), outstanding as of August 7, 2000. SPECIAL NOTE ABOUT FORWARD LOOKING STATEMENTS EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED IN THIS QUARTERLY REPORT ON FORM 10-Q FOR THE FISCAL QUARTER ENDED JUNE 30, 2000, CERTAIN MATTERS DISCUSSED HEREIN, INCLUDING PART II., ITEM 2., "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," CONTAIN FORWARD LOOKING STATEMENTS BASED ON MANAGEMENT'S EXPECTATIONS REGARDING, AND EVALUATIONS OF CURRENT INFORMATION ABOUT, THE COMPANY'S BUSINESS THAT INVOLVE RISKS AND UNCERTAINTIES, AND ARE SUBJECT TO FACTORS THAT COULD CAUSE ACTUAL FUTURE RESULTS TO DIFFER, BOTH ADVERSELY AND MATERIALLY, FROM CURRENTLY ANTICIPATED RESULTS, INCLUDING, WITHOUT LIMITATION, THE EFFECT OF ECONOMIC AND MARKET CONDITIONS; THE CYCLICAL NATURE OF THE REAL ESTATE MARKET IN LUXURY/RESORT AND NON-LUXURY/RESORT MARKETS IN FLORIDA AND COLORADO; THE INDUSTRY AND INDUSTRY SEGMENT CONDITIONS AND DIRECTIONS; INTEREST RATES; THE AVAILABILITY AND COST OF FINANCING REAL ESTATE ACQUISITIONS AND DEVELOPMENTS; CONSTRUCTION COSTS; WEATHER; THE AVAILABILITY AND COST OF MATERIALS AND LABOR; CONSUMER PREFERENCES AND TASTES; GOVERNMENTAL REGULATION; COMPETITIVE PRESSURES; THE COMPANY'S OWN DEBT AND EQUITY STRUCTURE, RELATED FINANCING CONTINGENCIES AND RESTRICTIONS AND THE COMPANY'S ABILITY TO CURE EXISTING DEFAULTS UNDER CERTAIN OF ITS DEBT AGREEMENTS; MANAGEMENT LIMITATIONS; THE COMPANY'S ABILITY TO CLOSE FINANCINGS OF NEW REAL ESTATE AT PARTICULAR TIMES RELATIVE TO THE COMPANY'S CASH FLOW NEEDS AT SUCH TIMES; THE COMPANY'S ABILITY TO REFINANCE EXISTING INDEBTEDNESS; LEGISLATION; RESOLUTION OF PENDING LITIGATION IN WHICH THE COMPANY IS A DEFENDANT; THE SUCCESS OR LACK THEREOF OF THE COMPANY'S CURRENT DEVELOPMENT PROJECTS; AND THE SUCCESS OR LACK THEREOF OF THE COMPANY'S STRATEGIC ALTERNATIVE INITIATIVE. TABLE OF CONTENTS ----------------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999...............................................2 Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2000 and 1999.....................3 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2000 and 1999.............................4 Notes to Consolidated Financial Statements......................5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................8 PART II. OTHER INFORMATION Item 1. Legal Proceedings.............................................29 Item 2. Changes in Securities.........................................29 Item 3. Defaults Upon Senior Securities...............................29 Item 4. Submission of Matters to a Vote of Security Holders...........29 Item 5. Other Information.............................................29 Item 6. Exhibits and Reports on Form 8-K..............................29 SIGNATURES....................................................................30 i UNLESS THE CONTEXT CLEARLY INDICATES OTHERWISE, ALL REFERENCES HEREIN TO (1) "ATLANTIC GULF" REFER SOLELY TO ATLANTIC GULF COMMUNITIES CORPORATION, (2) THE "COMPANY" INCLUDE ATLANTIC GULF AND ITS DIRECT AND INDIRECT WHOLLY OWNED SUBSIDIARIES AND (3) THE "PREDECESSOR COMPANY" REFER SOLELY TO GENERAL DEVELOPMENT CORPORATION (ATLANTIC GULF'S CORPORATE PREDECESSOR) AND ITS DIRECT AND INDIRECT SUBSIDIARIES. PART I. FINANCIAL INFORMATION [THE REMAINDER OF THIS PAGE LEFT BLANK INTENTIONALLY.] 1 ITEM 1. FINANCIAL STATEMENTS ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets June 30, 2000 and December 31, 1999 (in thousands, except share amounts and par value) ASSETS June 30, December 31, ------ 2000 1999 ---- ---- (Unaudited) Cash and cash equivalents $ 3,345 $ 8,148 Restricted cash and cash equivalents 1,023 2,147 Contract receivables, net 1,248 2,048 Mortgages, notes and other receivables, net 5,242 7,926 Land and residential inventory 125,665 121,116 Property, plant and equipment, net 10,352 12,750 Other assets, net 3,412 8,817 --------- --------- Total assets $ 150,287 $ 162,952 ========= ========= LIABILITIES AND STOCKHOLDERS' DEFICIT ------------------------------------- Accounts payable and accrued liabilities $ 20,343 $ 19,386 Other liabilities 11,620 9,778 Notes and mortgages payable 135,842 145,378 --------- --------- 167,805 174,542 Commitments and Contingencies Redeemable Preferred Stock Series A, 20%, $.01 par value, 2,500,000 shares authorized; 2,500,000 shares issued and outstanding, having a liquidation preference of $43,829 and $39,754 as of June 30, 2000 and December 31, 1999, respectively 42,826 38,310 Series B, 20%, $.01 par value; 2,000,000 shares authorized; 2,000,000 shares issued and outstanding, having a liquidation preference of $34,706 and $31,480 as of June 30, 2000 and December 31, 1999, respectively 34,031 30,531 --------- --------- 76,857 68,841 Common stockholders' deficit Common stock, $.10 par value, 70,000,000 shares authorized; 12,821,432 shares issued and outstanding as of June 30, 2000 and December 31, 1999 1,281 1,281 1999 Contributed capital 94,385 102,402 Accumulated deficit (183,156) (177,229) Accumulated other comprehensive loss (6,746) (6,746) Treasury stock, 439,191 shares, at cost (139) (139) --------- --------- Total common stockholders' deficit (94,375) (80,431) --------- --------- Total liabilities and common stockholders' deficit $ 150,287 $ 162,952 ========= ========= See accompanying notes to consolidated financial statements. 2 ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations Three and Six Months Ended June 30, 2000 and 1999 (in thousands, except per share data) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, Revenues: 2000 1999 2000 1999 ---- ---- ---- ---- Real estate sales: Homesite $ 10,219 $ 9,993 16,870 $ 17,635 Commercial 283 911 3,185 6,229 -------- -------- -------- -------- Total real estate sales 10,502 10,904 20,055 23,864 Other operating revenue 1,415 1,081 4,047 3,340 Interest income 124 164 922 1,045 -------- -------- -------- -------- Total revenues 12,041 12,149 25,024 28,249 Costs and expenses: Cost of real estate sales: Homesite 9,240 8,360 15,029 15,247 Commercial 238 621 2,632 4,524 -------- -------- -------- -------- Total cost of real estate sales 9,478 8,981 17,661 19,771 Inventory Valuation Reserve 900 3,424 900 3,424 Selling expense 1,587 1,702 3,343 3,535 Operating expense 499 1,463 1,397 1,840 Real estate costs 1,044 2,430 1,697 4,167 General and administrative expense 1,513 3,372 2,225 7,025 Cost of borrowing, net of amounts capitalized 2,159 964 3,311 2,751 Other expense - 217 1,135 407 -------- -------- -------- -------- Total costs and expenses 17,180 22,553 31,669 42,920 -------- -------- -------- -------- Operating loss (5,139) (10,404) (6,645) (14,671) Other income (expense): Reorganization items - 146 710 685 -------- -------- -------- -------- Total other income (expense) 0 146 710 685 -------- -------- -------- -------- Net loss income (5,139) (10,258) (5,935) (13,986) Less: Accrued preferred stock dividends 3,739 3,076 7,301 6,007 Accretion of preferred stock to redemption amount 358 347 714 691 Modification of preferred stock security interest - - - 2,380 -------- -------- -------- -------- 4,097 3,423 8,015 9,078 -------- -------- -------- -------- Net loss applicable to common stock $ (9,236) $(13,681) $(13,950) $(23,064) ======== ======== ======== ======== Basic and diluted net loss per common share $ (.75) $ (1.08) $ (1.13) $ (1.86) ======== ======== ======== ======== Weighted average common shares outstanding 12,382 12,638 12,382 12,402 ======== ======== ======== ========
See accompanying notes to consolidated financial statements. 3 ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Six Months Ended June 30, 2000 and 1999 (in thousands of dollars) (Unaudited) Six Months Ended June 30, 2000 1999 ---- ---- Cash flows from operating activities: Net loss $ (5,935) $(13,986) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization 299 2,083 Other expense (income) 1,138 (6) Inventory valuation reserves 900 - Loss on sale of property, plant and equipment (3) - Other net changes in assets and liabilities: Restricted cash 1,124 345 Receivables 3,382 7,603 Land and residential inventory (2,811) (6,119) Other assets 4,267 (4,323) Accounts payable and accrued liabilities 4,638 (917) Customer and other deposits 1,644 - Other liabilities (3,475) (702) -------- -------- Net cash provided by (used in) operating activities 5,167 (16,022) -------- -------- Cash flow from investing activities: Additions to property, plant and equipment, net (434) (784) -------- -------- Net cash used in investing activities (434) (784) -------- -------- Cash flows from financing activities: Borrowings under credit agreements 15,420 93,784 Repayments under credit agreements (24,956) (83,782) -------- -------- Net cash (used in) provided by financing activities (9,536) 10,002 -------- -------- Decrease in cash and cash equivalents (4,803) (6,804) Cash and cash equivalents at beginning of period 8,148 9,413 -------- -------- Cash and cash equivalents at end of period $ 3,345 $ 2,609 ======== ======== Supplemental cash flow information: Interest payments, net of amounts capitalized $ 1,026 $ 3,086 ======== ======== See accompanying notes to consolidated financial statements. 4 ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2000 (Unaudited) (1) The June 30, 2000 financial statements are unaudited and subject to year-end adjustments. In management's opinion, the interim financial statements reflect all adjustments, principally consisting of normal recurring accruals, necessary for a fair presentation of the financial position and results of operations. Results for interim periods are not necessarily indicative of results for the full year. For a complete description of the Company's accounting policies, see "Notes to Consolidated Financial Statements" included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999 ("1999"), as filed with the Securities and Exchange Commission (the "SEC") on April 14, 2000 ("1999 Form 10-K"). Certain prior year amounts have been reclassified to conform with the fiscal year 2000 ("2000") presentation. (2) Net income (loss) per share of common stock of the Company ("Common Stock") is computed by (a) deducting from net income (loss) all accrued preferred stock dividends, accretion of preferred stock to redemption amount and other preferred stock charges from net income (loss) to determine net income (loss) applicable to Common Stock and (b) then dividing net income (loss) applicable to Common Stock by the weighted average number of shares of Common Stock outstanding during the periods. The effect of any outstanding warrants and options to purchase Common Stock on the per share computation was anti-dilutive during the periods. (3) The Company capitalizes interest primarily on land inventory being developed for sale which is subsequently charged to Cost of real estate sales when the related asset is sold. Capitalized interest was $3,934,000 and $10,339,000 for the three and six months ended June 30, 2000, respectively, and $6,043,000 and $10,197,000 for the three and six months ended June 30, 1999, respectively. (4) Revenue from the sale of land is recognized when all the criteria for sales pursuant to SFAS 66, Accounting for Sales of Real Estate, have been met. 5 ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2000 (Unaudited) (5) Redeemable preferred stock which includes the 20% Cumulative Redeemable Convertible Preferred Stock, Series A (the "Series A Preferred Stock), and the 20% Cumulative Redeemable Convertible Preferred Stock, Series B (the "Series B Preferred Stock") consisted of the following at June 30, 2000, December 31, 1999, and June 30, 1999 (in thousands of dollars): June 30, December 31, June 30, 2000 1999 1999 ---- ---- ---- SERIES A PREFERRED STOCK: Gross proceeds $ 25,000 $ 25,000 $ 25,000 Accrued dividends 18,829 14,754 11,059 -------- -------- -------- Liquidation Preference amount 43,829 39,754 36,059 Less issue costs (3,104) (3,104) (3,104) Less warrants purchased (300) (300) (300) Plus accretion of preferred stock to redemption amount 2,401 1,960 1,526 -------- -------- -------- Total Series A Preferred Stock 42,826 38,310 34,181 SERIES B PREFERRED STOCK: Private Placement June 24, 1997: Gross proceeds 10,000 10,000 10,000 Accrued dividends 8,028 6,352 4,832 -------- -------- -------- Liquidation Preference amount 18,028 16,352 14,832 -------- -------- -------- Less issue costs (950) (950) (950) Less warrants purchased (120) (120) (120) Plus accretion of preferred stock to redemption amount 770 634 500 -------- -------- -------- 17,728 15,916 14,262 Rights Offering November 19, 1997: Gross proceeds 10,000 10,000 10,000 Accrued dividends 6,678 5,128 3,721 -------- -------- -------- Liquidation Preference amount 16,678 15,128 13,721 Less issue costs (950) (950) (950) Less warrants purchased (120) (120) (120) Plus accretion of preferred stock to redemption amount 695 557 423 -------- -------- -------- 16,303 14,615 13,074 -------- -------- -------- Total Series B Preferred Stock 34,031 30,531 27,336 -------- -------- -------- Total Redeemable Preferred Stock $ 76,857 $ 68,841 $ 61,517 ======== ======== ======== 6 ATLANTIC GULF COMMUNITIES CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2000 (Unaudited) (6) During the six months ended June 30, 2000 and 1999, comprehensive loss consisted only of the net losses for those periods. (7) Segment Reporting
SIX MONTHS ENDED JUNE 30, 2000: Luxury/ Non-Luxury/ Resort Resort Predecessor Operations Operations Assets Other Total --------------------------------------------------------------- Total Revenues $ 11,152 $ 6,004 $ 2,899 $ 4,969 $ 25,024 ======== ======== ======== ======== ======== Gross Margin $ 1,979 $ 184 $ 231 $ - $ 2,394 ======== ======== ======== ======== Inventory valuation reserve - (900) - - (900) Joint Venture valuation reserve - (1,138) - - (1,138) -------- -------- -------- -------- -------- 1,979 (1,854) 231 - 356 Unallocated revenues (expenses), net (6,291) -------- Net Loss $ (5,935) ======== SIX MONTHS ENDED JUNE 30, 1999: Luxury/ Non-Luxury/ Resort Resort Predecessor Operations Operations Assets Other Total --------------------------------------------------------------- Total Revenues $ 4,862 $ 14,986 $ 4,016 $ 4,385 $ 28,249 ======== ======== ======== ======== ======== Gross Margin $ 998 $ 2,339 $ 756 $ - $ 4,093 ======== ======== ======== ======== Unallocated revenues (expenses), net (18,079) -------- Net Loss $(13,986) ========
(8) The Company is currently in default under project indebtedness for the Chenoa Project. Management of the Company is in negotiations with its lenders to address such defaults. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CURRENT BUSINESS The Company is a Florida-based, planned community development and asset management company. The Company's business consists of: - Luxury/Resort Operations, consisting of the acquisition, development and sale of real estate projects ("Luxury/Resort Projects") in which the Company engages in one or more of the following activities: Homesite development, construction of Vertical Residential Units (i.e., single family housing, condominiums and timeshare units), and construction and operation of equity golf clubs and other amenities ("Amenities"). The Company has two existing Luxury/Resort Projects, one located in Florida (the West Bay Club Project) and another located in Colorado (the Chenoa Project) ("Luxury/Resort Markets"). - Other Operations, consisting principally of: -- Non-Luxury/Resort Operations, formerly referred to as Primary Market Operations, consisting of the development and sale of existing real estate projects containing residential Homesite components such as single-family lots, multi-family lots/units and residential tract sales ("Homesites") and/or non-residential components such as commercial, industrial, office and institutional ("Commercial Development") in primary markets in Florida ("Primary Markets"). The Company has one existing Non-Luxury/Resort Operation, located in the Orlando area (the Saxon Woods Project). -- Receivables Portfolio Management, consisting of portfolio management of Mortgage Receivables (as defined below) and Contract Receivables (as defined below) resulting principally from the sale or other disposition of Predecessor Assets (as defined below). The Company is also engaged in the orderly disposition of scattered Predecessor Homesites (as defined below) and Predecessor Tracts (as defined below) located in secondary markets in Florida and Tennessee (collectively, "Predecessor Assets"). As discussed below, the continuing disposition of Predecessor Assets is a run-off business and not part of the Company's Core Business. See ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS - PROJECTS SOLD IN 1999 AND 2000 for a brief description of the Projects sold during the past 19 months. 8 CORE BUSINESS GENERAL. The Company's Core Business consists of two principal business lines: - Development and sale of Luxury/Resort Projects; and - Other Operations, principally including the sale of Non-Luxury/Resort Projects and Receivables Portfolio Management. LUXURY/RESORT PROJECTS. The Company is engaged in the development and sale of master planned Luxury/Resort Projects in Luxury/Resort Markets in Florida and Colorado. A Luxury/Resort Market is typically not a Primary Market in terms of the volume of new single family home construction permits, but relative demand is usually strong and the average retail price of new construction is usually much higher. Also, there is much less focus in a Luxury/Resort Market on industrial or employment growth in the area or the quality of schools, and more focus on natural and/or man-made amenities. REMAINING UNSOLD LOTS/UNITS/ACRES IN THE LUXURY/RESORT PROJECTS, BY PROJECT. The following table summarizes the number of remaining unsold lots/units/acres at the Company's Luxury Resort Projects, by Project, as of June 30, 2000:
Lots/Units/Acres at June 30, 2000 (1) ---------------------------------------------------------------------------------------- Homesites Vertical Residential Units Commercial Single Family Single Family Multi-Family Timeshare Cabins Development Total Total Total Total Total Total Total Total Total Total Lots Entitled Units Entitled Units Entitled Units Entitled Acres Entitled ---------------------------------------------------------------------------------------- OWNED PROPERTIES ---------------- West Bay Club................ 167 167 54 54 401 401 - - 5 5 Chenoa....................... 412 - - - 41 - 75 - 5 - ---------------------------------------------------------------------------------------- Owned Properties............. 579 167 54 54 442 401 75 - 10 5 ----------------------------------------------------------------------------------------
(1) Varying by Project, unsold units are developed, under development or to be developed in the future. 9 OTHER OPERATIONS. NON-LUXURY/RESORT PROJECTS. The Company is engaged in the sale of Non-Luxury/Resort Projects in Florida. The Company defines a Non-Luxury/Resort Market as a geographic market in which more than 5,000 single family home construction permits are issued annually. REMAINING UNSOLD LOTS/UNITS IN THE NON-LUXURY/RESORT PROJECTS, BY PROJECT. The following table summarizes the number of remaining unsold lots/units at the Company's Non-Luxury Resort Projects, by Project, as of June 30, 2000: LOTS/UNITS AT JUNE 30, 2000 (1) ------------------------------- Single Family Total Total Lots Entitled ------------------------------- OWNED PROPERTIES Saxon Woods ..................... 348 348 West Meadows (2)................. 545 545 ------------------------------- Total All Properties............. 893 893 =============================== (1) Varying by Project, unsold units are developed, under development or to be developed in the future. (2) This project was replatted to include an additional 79 lots, prior to its sale in July 2000. RECEIVABLES PORTFOLIO MANAGEMENT. The Company is actively engaged in the management and collection of a portfolio of (1) contract receivables originated by the Predecessor Company's homesite installment sales program (the "Contract Receivables") and (2) mortgage receivables generated primarily from the Company's sales of Predecessor Tracts (the "Mortgage Receivables," which, together with the Contract Receivables, are collectively referred to as the "Receivables Portfolio"). As of June 30, 2000 and December 31, 1999, the portfolio of Contract Receivables had a net book value of $1.2 million and $2.0 million, respectively. As of June 30, 2000 and December 31, 1999, the portfolio of Mortgage Receivables had a net book value of $3.2 million and $6.2 million, respectively. 10 PREDECESSOR ASSETS The following table summarizes the Company's Predecessor Homesite Inventory by secondary market area as of June 30, 2000: PREDECESSOR HOMESITE INVENTORY (IN HOMESITES)
Other Total Standard Developed Buildable Other Predecessor Market Area Buildable Lots (1) Reserved (2) Restricted (3) Homesites ------------------------------------------------------------------ North Port 3,246 9 68 128 3,451 Port Charlotte 1,780 74 116 134 2,104 Port St. Lucie 352 24 64 48 488 Port Malabar 41 1 1,755 1,550 3,347 Port Labelle 740 - 32 1,054 1,826 Silver Springs Shores 519 79 2044 274 2,916 Cumberland Cove 2 - - 1 3 Other 22 - - 2 24 ------------------------------------------------------------------ Total 6,702 187 4,079 3,191 14,159 ------------------------------------------------------------------
(1) Includes commercial/industrial and other premium lots. (2) Includes 3,795 lots held for Utility Reserves. (3) Represents Predecessor Homesites which may not be buildable due to lack of utility availability or engineering or title issues, and may only be sold under certain conditions. The Company's inventory of Predecessor Homesites that is not buildable has declined and is expected to decline further as currently non-buildable Predecessor Homesites become buildable. These Predecessor Homesites become buildable as the communities in which these lots are located grow and extend utility services to these lots and the Company satisfies title or engineering issues with respect to these lots. The Company's plans are to continue to take the appropriate actions to convert these lots to buildable Predecessor Homesites consistent with market demand and to monetize these assets and repay debt. 11 The following table summarizes the Company's Predecessor Commercial Development Inventory by secondary market area as of June 30, 2000: PREDECESSOR COMMERCIAL DEVELOPMENT INVENTORY Total Market Area Acres ---------------------- ----------- North Port 237 Port Charlotte 843 Port St. Lucie 218 Port Malabar 600 Port Labelle 215 Silver Springs Shores 31 Cumberland Cove 685 Other 39 ----------- Total 2,868 =========== The decrease in inventory from December 31, 1999 is primarily a result of sales activity during the intervening period in accordance with the Company's plan of disposal of Predecessor Assets. See PART I, ITEM 1. BUSINESS - PREDECESSOR ASSETS of the 1999 Form 10-K for information concerning the Predecessor Homesite and Predecessor Commercial Development Inventory. 12 RESULTS OF OPERATIONS COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 The Company's results of operations for the six months ended June 30, 2000 and 1999, respectively, are summarized below: COMBINING RESULTS OF REAL ESTATE OPERATIONS Six Months Ended June 30, 2000 (in thousands)
Non- Luxury/ Luxury/ Resort Resort Predecessor Operations Operations Assets Total --------------------------------------------------- Revenues: Real estate sales Homesite ............................ $ 9,099 $ 6,004 $ 1,767 $ 16,870 Commercial .......................... 2,053 - 1,132 3,185 --------------------------------------------------- Total real estate sales ................ 11,152 6,004 2,899 20,055 Costs and expenses: Cost of real estate sales Homesite ............................ 7,566 5,820 1,643 15,029 Commercial .......................... 1,607 - 1,025 2,632 --------------------------------------------------- Total cost of real estate sales ........... 9,173 5,820 2,668 17,661 --------------------------------------------------- Gross margin real estate sales ............ $ 1,979 $ 184 $ 231 $ 2,394 =================================================== Results of Joint Venture Operations(1)..... $ - $ (1,138) $ - $ (1,138) ===================================================
(1) Included in "other expense" in the Consolidated Statements of Operations. 13 COMBINING RESULTS OF REAL ESTATE OPERATIONS Six Months Ended June 30, 1999 (in thousands)
Non- Luxury/ Luxury/ Resort Resort Predecessor Operations Operations Assets Total --------------------------------------------------- Revenues: Real estate sales Homesite ............................ $ 4,862 $ 10,486 $ 2,287 $ 17,635 Commercial .......................... - 4,500 1,729 6,229 Total real estate sales ................ 4,862 14,986 4,016 23,864 Costs and expenses: Cost of real estate sales Homesite ............................ 3,864 9,406 1,977 15,247 Commercial .......................... - 3,241 1,283 4,524 --------------------------------------------------- Total cost of real estate sales ........... 3,864 12,647 3,260 19,771 --------------------------------------------------- Gross margin real estate sales ............ $ 998 $ 2,339 $ 756 $ 4,093 =================================================== Results of Joint Venture Operations(1)..... $ (373) $ (34) $ - $ (407) ===================================================
(1) Included in "other operating revenue" in the Consolidated Statements of Operations. OVERVIEW. The Company reported a net loss applicable to Common Stock of $13.9 million in the first six months of 2000, compared to a net loss of $23.1 million applicable to Common Stock in the first six months of 1999. The decrease in net loss of $9.2 million was due primarily to (1) a $4.7 million decrease in general and administrative expenses, (2) a $1.1 million decrease in total preferred stock charges, (3) a $2.5 million decrease in real estate costs (4) a $3.9 decrease in other operating cost, partially offset by (5) a $1.1 million reserve charge reducing the carrying value of the Falcon Trace Joint Venture Project and (6) a $1.7 million decrease in sales gross margin. LUXURY/RESORT OPERATIONS. HOMESITES. Revenues from Homesite sales increased by $4.2 million to $9.1 million in the first six months of 2000, compared to $4.9 million in the first six months of 1999. The $4.2 million increase was due primarily to the increase in marketing and public awareness for the West Bay Club Project. Homesite sales began at the West Bay Club Project during the first six months of 1999. The Homesite sales gross margin percentage was 16.8% in the first six months of 2000 compared to 20.5% in the first six months of 1999. The 3.7% decrease in Homesite sales gross margin was due primarily to the increase in unit production cost at the West Bay Club Project. As of June 30, 2000, the Company had under contract 168 Homesites for $11.3 million in the West Bay Club Project. As of December 31, 1999 and June 30, 1999, the Company had under contract 156 and 182 Homesites for $8.3 million and $9.8 million, respectively, in the West Bay Club Project. 14 COMMERCIAL DEVELOPMENT. Revenues from Commercial Development were $2.1 million in the first six months of 2000, compared to $0 in the first six months of 1999. The $2.1 million increase was primarily due to the sale to Albertson's at the West Bay Project during the first six months of 2000. The Commercial Development sales gross margin percentage was 21.7% in the first six months of 2000. JOINT VENTURES. Results of Joint Ventures in the first six months of 2000 were $0, compared to a net loss of $373,000 for the first six months of 1999. The $373,000 decrease in Joint Venture net loss was due to the sale of the Jupiter Ocean Grande Project during 1999. NON-LUXURY/RESORT OPERATIONS. HOMESITES. Revenues from Homesite sales decreased by $4.5 million to $6.0 million in the first six months of 2000, compared to $10.5 million in the first six months of 1999. The $4.5 million decrease was due primarily to a declining inventory balance in 2000 as compared to 1999. Total inventory decreased significantly from the final sale of The Trails of West Frisco Project in December 1999. The Homesite sales gross margin decreased by 7.2% to 3.1% in the first six months of 2000, compared to 10.3% in the first six months of 1999. The 7.2% decrease in Homesite sales gross margin was due primarily to a decline in the gross margins associated with the Lakeside Estates and West Meadows Project. The higher than expected development costs resulted in a break-even margin for Lakeside Estates final sell out and a 4.5% margin for the West Meadows project. As of June 30, 2000, the Company had under contract 545 Homesites for $5.9 million in the West Meadows Project. As of December 31, 1999, the Company had under contract 72 Homesites for $3.2 million in the Lakeside Estates, the Saxon Woods and the West Meadows Projects. And, as of June 30, 1999, the Company had under contract 770 Homesites for $24.4 million in the Lakeside Estates, the Saxon Woods, the West Meadows and The Trails of West Frisco Projects. As of June 30, 2000, the Company was party to a contract to sell its West Meadows project. The closing of the sale is scheduled to occur during the third quarter of 2000. See ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - PROJECTS SOLD IN 1999 AND 2000 for further details on the sale and pending sale of the Lakeside Estates and West Meadows projects. 15 COMMERCIAL DEVELOPMENT. Revenues from Commercial Development were $0 in the first six months of 2000, compared to $4.5 million in the first six months of 1999. The $4.5 million decrease in revenues from Commercial Development was due to the lack of inventory for sale. In January 1999, the Company sold the remaining 26 acres of Non-Luxury/Resort property, located at the West Meadows Project, for $4.5 million. JOINT VENTURES. Loss from Joint Ventures in the first six months of 2000 were $1.1 million, compared to a net loss of $34,000 for the first six months of 1999. The $1.1 million additional loss on JV Projects was primarily due to an investment valuation reserve charge related to the Falcon Trace JV Project. In March 2000, the Company sold the Falcon Trace JV Project for approximately $6.4 million. No gain or loss was realized on the sale. As of June 30, 2000, the Company's JV projects had no remaining homesites under contract or available for sale. As of December 31, 1999 and June 30, 1999, the Company's JV Projects had six and 595 Homesites under contract for approximately $282,000 and $28.1 million, respectively, in future gross revenue, a portion of which is allocable to the Company as a joint venturer. PREDECESSOR ASSETS. PREDECESSOR HOMESITES. Revenues from Predecessor Homesite sales decreased by $520,000 to $1.8 million in the first six months of 2000, compared to $2.3 million in the first six months of 1999. The $520,000 decrease was due primarily to the elimination of sales staff responsible for the sale of Predecessor Homesites during the first six months of 2000, compared to the first six months of 1999. The Predecessor Homesite sales gross margin percentage decreased by 6.6% to 7.0% in the first six months of 2000, compared to 13.6% in the first six months of 1999. The 6.6% decrease in Predecessor Homesite sales gross margin is due primarily to a decrease in the average sales price. As of June 30, 2000, the Company had under contract approximately 752 Predecessor Homesites for $895,000. As of December 31, 1999 and June 30, 1999, the Company had under contract 1,103 and 137 Predecessor Homesites for $1.6 million and $614,000, respectively. PREDECESSOR TRACTS. Revenues from Predecessor Tract sales of $1.1 million in the first six months of 2000 were comparable to $1.7 in the first six months of 1999. A comparable number of Predecessor Tracts were sold in the first half of 2000, compared to the first half of 1999. The Predecessor Tract sales gross margin percentage decreased by 16.3% to 9.5% in the first six months of 2000, compared to 25.8% in the first six months of 1999. The 16.3% decrease in Predecessor Tracts sales gross margin was consistent with the Company's accelerated plan of disposal of its Predecessor Assets. As of June 30, 2000, there were pending Predecessor Tract sales contracts or letters of intent totaling approximately $276,000. As of December 31, 1999 and June 30, 1999, there were pending Predecessor Tract sales contracts or letters of intent totaling approximately $1.3 million and $1.8 million, respectively. 16 OTHER RESULTS OF OPERATIONS. OTHER OPERATING REVENUE. Other operating revenue increased by $600,000 to $5.0 million in the first six months of 2000, compared to $4.4 million in the first six months of 1999. The $1.0 million increase was primarily due to (1) $1.6 million received from the sale of land, previously recorded in lieu of payment for a loan receivable, (2) a $1.2 million increase in commission income received from the various property sales offices and (3) a $547,000 increase in resort revenue related to the West Bay Club Project, partially offset by (4) a $1.9 million decrease in management fee revenue related to the Country Lakes and Sunset Lakes Joint Venture Projects sold in 1999 and (5) a $790,000 decrease in environmental service revenue related to the sale of Environmental Quality, Inc., a wholly-owned subsidiary of the Company ("EQ Lab"), in 1999. INVENTORY VALUATION RESERVE. Inventory Valuation Reserve Expense decreased by $2.5 million to $900,000 in the first six months of 2000, compared to $3.4 million in the first six months of 1999. The $2.5 million decrease was primarily due to (1) an additional reserve of $900,000 recorded in 2000 for the West Meadows Project offset by (2) the Crestwood Project valuation of $3.4 million recorded in 1999. SELLING EXPENSE. Selling Expense of $3.3 million for the first six months of 2000 was comparable to $3.5 million for the first six months of 1999. OPERATING EXPENSE. Operating expense decreased by $3.9 million to $1.4 million in the first six months of 2000, compared to $5.3 in the first six months of 1999. The $3.9 million decreased was primarily due to (1) a $3.5 million decrease in due diligence work related to Crestwood Lakes and other acquisitions expensed in 1999 (2) an $840,000 decrease due to the sale of EQ Lab in 1999 partially offset by (3) a $456,000 decrease due to the growth in Amenities at the West Bay Club Project, which is directly related to an increase in club memberships. REAL ESTATE COSTS. Real estate costs decreased by $2.5 million to $1.7 million in the first six months of 2000, compared to $4.2 million in the first six months of 1999. The $2.5 million decrease was due primarily to the combined savings of salaries, property taxes and other administrative expenses, which resulted from the bulk sales of selected Predecessor Assets in 1999. GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense decreased by $4.8 million to $2.2 in the first six months of 2000, compared to $7.0 million in the first six months of 1999. The $4.8 million decrease was due primarily to the combined savings in corporate salaries, outside services, occupancy costs, utilities and other administrative expenses, which resulted from the corporate restructuring plan adopted in late 1999. COST OF BORROWING, NET OF AMOUNTS CAPITALIZED. Cost of borrowing, net of amounts capitalized, increased by $560,000 to $3.3 million in the first six months of 2000, compared to $2.8 million in the first six months of 1999. The $560,000 increase was due primarily to an increase in corporate interest expensed rather than capitalized in 2000. Corporate debt decreased from $66.0 million as of December 31, 1998 to $49.8 million as of December 31, 1999 and to $39.3 million as of June 30, 2000. 17 OTHER EXPENSE. Other expense increased by $728,000 to $1.1 million in the first six months of 2000, compared to $407,000 in the first six months of 1999. The $728,000 increase was primarily due to a valuation allowance recorded for the Falcon Trace JV Project, based upon a review of fair values. Inventory reserve charges represent a reduction in the carrying value of the Company's inventory based upon a review of the fair values. OTHER INCOME. Other income of $710,000 in the first six months of 2000, was comparable to $685,000 in the first six months of 1999. PREFERRED STOCK CHARGES. During the first six months of 2000, the Company recorded a $7.3 million accrual for dividends associated with its Preferred Stock. The dividends were accumulated, but unpaid, as of June 30, 2000. The dividend rate is 20% of the liquidation preference value of the Preferred Stock. The liquidation preference value of the Preferred Stock is $10 per share, plus accumulated and unpaid dividends. In addition, the Company accreted $715,000 of the value of its Preferred Stock to the redemption amount in the first six months of 2000. The total of $8.0 million of preferred stock charges was charged to contributed capital in the accompanying June 30, 2000 consolidated balance sheet. In connection with the closing of the Senior Loan Facilities in February 1999, the Company issued notes totaling $1.85 million and 500,000 shares of Common Stock at a price of $1.06 per share to AP-AGC, LLC ("Apollo") in exchange for Apollo's (a) consent to the Company entering into the new Senior Loan Facilities and agreement to subordinate its collateral interest in certain of the Company's assets, (b) agreement to certain amendments to the Secured Agreement and Investment Agreement and (c) agreement to enter into the new Intercreditor Agreement with the lenders party to the new Senior Loan Facilities. The total value of the consideration paid to Apollo was $2.4 million. 18 COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999 The Company's results of operations for the three months ended June 30, 2000 and 1999, respectively, are summarized below: COMBINING RESULTS OF REAL ESTATE OPERATIONS Three Months Ended June 30, 2000 (in thousands)
Non- Luxury/ Luxury/ Resort Resort Predecessor Operations Operations Assets Total --------------------------------------------------- Revenues: Real estate sales Homesite ............................ $ 5,113 $ 3,837 $ 1,269 $10,219 Commercial .......................... - - 283 283 --------------------------------------------------- Total real estate sales ................ 5,113 3,837 1,552 10,502 Costs and expenses: Cost of real estate sales Homesite ............................ 4,357 3,691 1,192 9,240 Commercial .......................... (1) - 239 238 --------------------------------------------------- Total cost of real estate sales ........... 4,356 3,691 1,431 9,478 Gross margin real estate sales ............ $ 757 $ 146 $ 121 $ 1,024 =================================================== Results of Joint Venture Operations(1)..... $ - $ - $ - $ - ===================================================
(1) Included in "other expense" in the Consolidated Statements of Operations. 19 COMBINING RESULTS OF REAL ESTATE OPERATIONS Three Months Ended June 30, 1999 (in thousands)
Non- Luxury/ Luxury/ Resort Resort Predecessor Operations Operations Assets Total --------------------------------------------------- Revenues: Real estate sales Homesite ............................. $ 3,113 $ 5,662 $ 1,218 $ 9,993 Commercial ........................... - - 911 911 --------------------------------------------------- Total real estate sales ................. 3,113 5,662 2,129 10,904 Costs and expenses: Cost of real estate sales Homesite ............................. 2,423 4,962 975 8,360 Commercial ........................... - 2 619 621 --------------------------------------------------- Total cost of real estate sales ............ 2,423 4,964 1,594 8,981 Gross margin real estate sales ............. $ 690 $ 698 $ 535 $ 1,923 =================================================== Results of Joint Venture Operations(1)...... $ (258) $ 41 $ - $ (217) ===================================================
(1) Included in "other operating revenue" in the Consolidated Statements of Operations. 20 OVERVIEW. The Company reported a net loss applicable to Common Stock of $9.2 million in the second quarter of 2000, compared to a net loss of $13.7 million applicable to Common Stock in the second quarter of 1999. The decrease in net loss of $4.5 million was due primarily to (1) a $2.5 million decrease in charges to inventory valuation reserve, (2) a $1.9 million decrease in general and administrative expenses, (3) a $1.4 million decrease in real estate costs and (4) a $1.0 million decrease in operating expenses, partially offset by (5) a $1.2 million increase in the cost of borrowing net of capitalized cost and (6) a $899,000 decrease in sales gross margin. LUXURY/RESORT OPERATIONS. HOMESITES. Revenues from Homesite sales increased by $2.0 million to $5.1 million in the second quarter of 2000, compared to $3.1 million in the second quarter of 1999. The $2.0 million increase was due primarily to the increase in marketing and public awareness for the West Bay Club Project. The Homesite sales gross margin percentage was 14.8% in the second quarter of 2000 compared to 22.2% in the second quarter of 1999. The 7.4% decrease in Homesite sales gross margin was due primarily to the increase in cost per unit at the West Bay Club Project. COMMERCIAL DEVELOPMENT. There were no revenues from Commercial Development in the second quarter of 2000, or in the second quarter of 1999. JOINT VENTURES. Results of Joint Ventures in the second quarter of 2000 were $0, compared to a net loss of $115,000 for the second quarter of 1999. The $115,000 decrease in Joint Venture net loss was due to the sale of the Jupiter Ocean Grande Project during 1999. NON-LUXURY/RESORT OPERATIONS. HOMESITES. Revenues from Homesite sales decreased by $1.9 million to $3.8 million in the second quarter of 2000, compared to $5.7 million in the second quarter of 1999. The $1.9 million decrease was due primarily to a declining inventory balance in 2000 as compared to 1999. Total inventory decreased significantly from the final sale of The Trails of West Frisco Project in December 1999 and the final sale of the Lakeside Estates Project in April 2000. The Homesite sales gross margin decreased by 8.5% to 3.8% in the second quarter of 2000, compared to 12.3% in the second quarter of 1999. The 8.5% decrease in Homesite sales gross margin was consistent with the planned reduction of inventory in both the Lakeside Estates Project and West Meadows Project. 21 COMMERCIAL DEVELOPMENT. There were no revenues from Commercial Development in the second quarter of 2000, or in the second quarter of 1999. JOINT VENTURES. There was no Joint Venture income or loss recorded in the second quarter of 2000. A $258,000 loss in the second quarter of 1999 was due primarily to start-up marketing expenses associated with the Jupiter Ocean Grande project. PREDECESSOR ASSETS. PREDECESSOR HOMESITES. Revenues from Predecessor Homesite sales of $1.3 million in the second quarter of 2000 increased marginally as compared to $1.2 million in the second quarter of 1999. The Predecessor Homesite sales gross margin percentage decreased by approximately 13.9% to 6.1% in the second quarter of 2000, compared to 20.0% in the second quarter of 1999. The 13.9% decrease in Predecessor Homesite sales gross margin is consistent with the Company's accelerated plan of disposal of its Predecessor Assets. PREDECESSOR TRACTS. Revenues from Predecessor Tract sales were $283,000 in the second quarter of 2000, compared to $911,000 in the second quarter of 1999. The Predecessor Tract sales gross margin percentage decreased by 16.6% to 15.5% in the second quarter of 2000, compared to 32.1% in the second quarter of 1999. The 16.6% decrease in Predecessor Tracts sales gross margin was consistent with the Company's accelerated plan of disposal of its Predecessor Assets. 22 As of June 30, 2000, there were pending Predecessor Tract sales contracts or letters of intent totaling approximately $278,000. As of December 31, 1999 and June 30, 1999, there were pending Predecessor Tract sales contracts or letters of intent totaling approximately $1.3 million and $15.5 million, respectively. OTHER RESULTS OF OPERATIONS. OTHER OPERATING REVENUE. Other operating revenue increased by $294,000 to $1.5 million in the second quarter of 2000, compared to $1.2 million in the second quarter of 1999. The $334,000 increase was primarily due to (1) a $642,000 increase in commission income received from the various property sales offices and (2) a $116,000 increase in resort revenue related to the West Bay Club Project, partially offset by (3) a $429,000 decrease in environmental service revenue as a result of the sale of EQ Lab in 1999 and (4) a 40,000 decrease in interest income related to a reduced receivables balance. INVENTORY VALUATION RESERVE. Inventory Valuation Reserve Expense decreased by $2.5 million to $900,000 in the second quarter of 2000, compared to $3.4 million in the second quarter of 1999. The $2.5 million decrease was primarily due to (1) an additional reserve of $900,000 recorded in 2000 for the West Meadows Project offset by (2) the Crestwood Project valuation of $3.4 million recorded in 1999. SELLING EXPENSE. Selling Expense of $1.6 million for the second quarter of 2000 was comparable to $1.7 million for the second quarter of 1999. OPERATING EXPENSE. Operating expense decreased by $976,000 to $487,000 in the second quarter of 2000, compared to $1,463,000 in the second quarter of 1999. The $976,000 decrease was primarily due to a $456,000 decrease in operation expenses as a result of the sale of EQ Lab in 1999. REAL ESTATE COSTS. Real estate costs decreased by $1.4 million to $1.0 million in the second quarter of 2000, compared to $2.4 million in the second quarter of 1999. The $1.4 million decrease was due primarily to the combined savings of salaries, property taxes and other administrative expenses, which resulted from the bulk sales of Predecessor Assets in 1999. GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense decreased by $1.9 million to $1.5 million in the second quarter of 2000, compared to $3.4 million in the second quarter of 1999. The $1.9 million decrease was due primarily to the combined savings in corporate salaries, outside services, occupancy costs, utilities and other administrative expenses, which resulted from the corporate restructuring plan adopted in late 1999. COST OF BORROWING, NET OF AMOUNTS CAPITALIZED. Cost of borrowing, net of amounts capitalized, increased by $1.2 million to $2.1 in the second quarter of 2000, compared to $964,000 in the second quarter of 1999. The $1.2 million increase was due primarily to a $1.8 million decrease in corporate interest capitalized to active development projects, partially offset by a $423,000 decrease in corporate cost of borrowing, and a $100,000 decrease in non-capitalized project debt. Corporate debt decreased from $66.0 million as of December 31, 1998 to $49.8 million as of December 31, 1999 and to $39.3 million as of June 30, 2000. 23 OTHER EXPENSE. Other expense decreased by $217,000 to zero in the second quarter of 2000, compared to $217,000 in the second quarter of 1999. The $217,000 decrease was primarily due to operating losses resulting from JV Projects that were sold in 1999. OTHER INCOME. Other income decreased by $146,000 to zero in the second quarter of 2000, compared to $146,000 in the second quarter of 1999. The $146,000 decrease was primarily due to a $266,000 utility trust payout in 1999 and partially offset by a $135,000 environmental reserve expense. PREFERRED STOCK CHARGES. During the second quarter of 2000, the Company recorded a $3.7 million accrual for dividends associated with its Preferred Stock. The dividends were accumulated, but unpaid, as of June 30, 2000. The dividend rate is 20% of the liquidation preference value of the Preferred Stock. The liquidation preference value of the Preferred Stock is $10 per share, plus accumulated and unpaid dividends. In addition, the Company accreted $358,000 of the value of its Preferred Stock to the redemption amount in the second quarter of 1999. THE TOTAL OF $4.1 MILLION OF PREFERRED STOCK CHARGES WAS CHARGED TO CONTRIBUTED CAPITAL DURING THE SECOND QUARTER OF 2000. LIQUIDITY AND CAPITAL RESOURCES THE COMPANY'S FINANCIAL STRATEGY IS TO GENERATE SUFFICIENT FUNDS FROM THE SALE OF NON-LUXURY/RESORT PROJECTS AND PREDECESSOR ASSETS TO RETIRE ANY REMAINING CORPORATE DEBT AND TO REDEEM ANY OUTSTANDING PREFERRED STOCK. IF THE COMPANY'S FINANCIAL STRATEGY DOES NOT GENERATE SUFFICIENT FUNDS TO RETIRE CORPORATE DEBT, REDEEM OUTSTANDING PREFERRED STOCK AND PROVIDE SUFFICIENT OPERATING CASH FLOW, THE COMPANY WILL NEED TO CONSIDER OTHER ALTERNATIVES, INCLUDING BUT NOT LIMITED TO, A CAPITAL OR DEBT RESTRUCTURING AND/OR A FEDERAL BANKRUPTCY FILING. GENERAL. As of June 30, 2000, the Company's (1) cash and cash equivalents totaled $3.3 million and (2) restricted cash and cash equivalents totaled $1.0 million, consisting primarily of (a) escrows for the sale or development of real estate properties, (b) funds held in trust to pay certain bankruptcy claims and (c) various other escrow accounts. Of the $4.8 decrease in cash and cash equivalents during the first six months of 2000, (i) $5.2 million was provided by operating activities, offset by (ii) $434,000 used in investing activities and (iii) $9.5 million used in financing activities. Cash provided by operating activities included (1) $3.4 million from mortgage and land contracts receivable payments, (2) $3.6 from final sales of the Falcon Trace Joint Venture Project, (3) $10.4 million from the sale of Predecessor Assets and other land (4) $4.4 million in other operating revenues and (5) $709,000 in other income from utility escrow reserves, partially offset by (6) $1.4 million in other operating expenses (7) $6.4 million for construction and development expenditures, (8) 24 $2.9 million for interest payments (9) $1.8 million for corporate overhead (10) $1.7 million in indirect selling expense (11) $1.0 million in other real-estate overhead expense (12) $1.0 million for property tax payments (13) $375,000 for the Panther Creek Joint Venture settlement and (14) $165,000 in severance payments. Cash used in investing activities consisted of $434,000 of property, plant and equipment additions primarily in the West Bay Project. Cash used in financing activities consisted primarily of principal reductions of $24.9 million partially offset by net borrowings of $15.4 million under various Project credit facilities. Principal reductions of $24.9 million included $10.5 million used to payoff the Revolving Loan Facility balance and $14.4 million used to payoff various project loans, as projects units were sold. OTHER MATERIAL OBLIGATIONS COMING DUE IN 2000. In addition to the $3.5 million due at the expiration of the Revolving Loan Facility on August 1, 2000 (see the discussion below), Atlantic Gulf's other material obligations coming due in 2000 include Project-specific debt which comes due as units in or a Project are/is sold. The Company's 2000 business plan contemplates $12 million of expenditures for development, construction and other capital improvements, a substantial portion of which will be funded through individual Project development loans or joint venture arrangements, many of which are already in place. If the Company is unable to obtain the capital resources to fund these obligations and expenditures, the implementation of the Company's business plan will be adversely affected, slowing the Company's anticipated revenue growth and increasing the time necessary to achieve profitability. However, management believes that the Company, through a combination of sources, will be able to obtain the funds necessary to continue to implement its business plan and, at the same time, satisfy its debt obligations as they become due. CHENOA PROJECT FINANCING. Chenoa, formerly known as Aspen Springs Ranch, is the Company's 5,906-acre Luxury Resort Project located in the Roaring Fork Valley of Colorado. The Company was unable to obtain approval of its pending amendment to the existing PUD for the project (the "PUD Approval") within the time limits set forth in its development loan agreement. The senior lender notified the Company that it was in default under the terms of its agreement and ceased funding. Neither the senior lender nor the mezzanine lender have pursued any default remedies to date. The Company continues to pursue the PUD Approval, and the Company is funding Project costs out of cash flow and other Company funds. LOAN DEFAULTS. Atlantic Gulf is currently in default under project indebtedness for its Chenoa Project. Senior management is in negotiations with its lenders to address these defaults. The Company's Revolving Loan Facility matured on August 1, 2000. The outstanding principal balance under the facility on that date was $3.5 million. The Company negotiated an extension of the facility until August 18, 2000. Since August 1, 2000, the Company has paid down an additional $1.5 million of principal under the facility, leaving an outstanding principal balance due of $2.0 million. The Company anticipates that it will close the sale of certain assets before August 18, 2000, and will use a portion of the proceeds from such sale to pay the remaining balance due under the Revolving Loan Facility. If the Company is unable to close such sale before that date, it intends to seek another extension of time from the lenders. There can be no assurance that the Company will be unable to obtain such 25 extension, If it cannot, the failure to repay the remaining balance due thereunder will constitute an event of default under the Revolving Loan Facility. The Company is currently discussing a debt restructuring arrangement with the lenders under the Term Loan. PROJECTS SOLD IN 1999 AND 2000 In the past 18 months the Company has sold the following Projects: o In March 1999, the Company sold its joint venture interest in the 1,040 remaining units in its Country Lakes Project, a Non-Luxury/Resort Project, for $500,000, recognizing a gain of approximately $219,000. The Company received a prepayment of its management fee in exchange for the continued management of the Project until the joint venture engaged another manager in July 1999. o In September 1999, the Company sold the remaining two acres of its Riverwalk Tower Project, a wholly-owned Luxury/Resort Project, for $8.0 million o In November 1999, the Company sold the remaining 1,146 lots and other assets in the Sunset Lakes Project, a jointly owned Non-Luxury/Resort Project, for $46.3 million. The Company's share of the sale proceeds was $30.1 million. o In November 1999, the Company decided not to acquire Rayland, a proposed Non-Luxury/Resort Project located near Jacksonville, Florida. The Company expensed $1.5 million in design and engineering costs previously incurred with respect to this Project. o In December, 1999, the Company sold its JV interest in the 1,093 acre Orlando Naval Training Center, a Non-Luxury/Resort Project, to its joint venture partner. The sales price of $1.0 million, together with unreturned capital of $473,000 were conveyed in the form of a non-interest bearing promissory note, which note is contingent on the release of the joint venture from a lawsuit seeking performance under a development agreement with the City of Orlando, Florida. o In December, 1999, the Company sold the remaining 1,298 lots in its Trails of West Frisco Project, a wholly owned Non-Luxury/Resort Project, for $14.6 million. o In December 1999, the Company relinquished its 40.0% joint venture interest in the Cary Glen Project, a Non-Luxury/Resort Project, as part of a legal settlement with Panther Creek-Raleigh Limited Partnership; Atlantic Gulf also paid $375,000 as part of the settlement. 26 o In December 1999, the Company assigned its contract to purchase the Harbor Bay Project, a controlled Non-Luxury/Resort Project, plus an adjacent parcel, for $4.8 million plus reimbursement of its earnest money deposits and certain costs. The contract assignment also included the assignment of the Company's rights to purchase an adjacent 350 acres, a contract to purchase land for a planned golf course and a two-year option to purchase golf course lots. o In December 1999, the Company sold EQ Lab for $310,000. o During 1999, the Company sold its joint venture interest in the 154 remaining units of its Jupiter Ocean Grande Project, a Non-Luxury/Resort Project, for approximately $1.0 million, resulting in a loss of approximately $3.8 million. o During 1999, the Company completed the entitlements for Grand Oaks, a proposed Non-Luxury/Resort Project, but was unable to close on its purchase in May 1999, due to funding problems. The seller was unwilling to extend the contract to allow for alternative financing and retained the company's $1.4 million in earnest money deposits and extension fees. o During 1999, the Company commenced and pursued modifications to certain land use approvals required to develop the Baxter/Martinez Project, a controlled Non-Luxury/Resort Project for 1,400 residential units. In 1998, the Company entered into agreements with two separate sellers to purchase approximately 232 acres (the Baxter property) for $2.3 million and to purchase an additional adjacent 181 acres (the Martinez property) for $1.6 million, with closings scheduled for the first half of 2000. The Company began negotiating to assign its rights to purchase both properties to a third party for $1.0 million plus reimbursement of its earnest money deposits and cost. o In March 2000, the Company sold all the property and assets (except for 28 lots) in the Falcon Trace JV Project, a jointly owned Non-Luxury/Resort Project, for $6.4 million. The Company's share of the sale proceeds was $2.8 million. No net book gain or loss was recognized from the sale of the Project. The remaining 28 lots were sold during the second quarter 2000 for $946,000, the Company's share of the sale proceeds. o In April 2000, the Company sold the remaining 287 lots in its Lakeside Estates Project, a wholly owned Non-Luxury/Resort Project, for $2.7 million. The Company acquired the Project, comprised of 1,379 lots and located near Orlando, Florida, in 1994. The Lakeside Estates Project sale resulted in a net book loss of $3.1 million, which was charged against "Inventory valuation reserve" in the statement of operations as of December 31, 1999. 27 o On July 31, 2000, the Company sold the remaining 545 lots in the West Meadows Project, a wholly owned Non-Luxury/Resort Project, for $5.9 million. The Company acquired the Project, comprised of 1,397 residential lots and approximately 23 acres of commercial property located near Tampa, Florida, in 1994. The West Meadows Project sale resulted in a net book loss of $4.3 million in the third quarter of 2000, of which $3.4 million was charged against "Inventory valuation reserve" in the statement of operations as of December 31, 1999. An additional amount of $900,000 was charged against the "Inventory valuation reserve" in the statement of operations during the second quarter of 2000. While the Company intends to diligently pursue all Project sale opportunities, there can be no assurance that any such sales (including Projects currently under contract) will be consummated or, if consummated, that the Company will realize the anticipated (1) amount of sales proceeds therefrom and/or (2) overhead cost savings therefrom. 28 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS There have been no new developments with respect to the legal proceedings referenced in the Company's Annual Report on Form 10-K for the year ended December 31, 1999, as filed with the Securities and Exchange Commission (the "SEC") on April 14, 2000 (the "1999 Form 10-K"). ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES See PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES - LOAN DEFAULTS above for a discussion of pending loan defaults. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits required by Item 601 of Regulation S-K (consecutive numbering, see the 1999 Form 10-K) None. (b) Current Reports on Form 8-K None. 29 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ATLANTIC GULF COMMUNITIES CORPORATION /s/ RICHARD S. ACKERMAN ------------------------------------------- Richard S. Ackerman President and Chief Executive Officer Dated: August 14, 2000 /s/ EUGENE M. GIBLIN ------------------------------------------- Eugene M. Giblin Vice President and Chief Accounting Officer Dated: August 14, 2000