SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1996 COMMISSION FILE NO. 0-24010
DELTA HOLDING, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
WASHINGTON 91-1420744
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
258 SW 43RD ST., SUITE A
RENTON WASHINGTON 98055
(Address of principal executive offices) (Zip code)
ISSUER'S TELEPHONE NUMBER: (206) 251-9192
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 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 for the past
90 days. YES NO X
----- -----
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by court.
YES X NO
----- -----
At September 11, 1996, 484,128 shares of common stock of the issuer were
outstanding.
Transitional Small Business Disclosure Format (Check One):
YES X NO
----- -----
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DELTA HOLDING, INC.
FORM 10-QSB
For the Quarter Ended June 30, 1996
INDEX
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheet at June 30, 1996. . . . . . . . . . . . . 3
Consolidated Statements of Operations for the
Six Months Ended June 30, 1996 and
June 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1996 and
June 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . 6 - 8
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations. . . . . . . .9 - 12
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
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DELTA HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
June 30, December 31,
1996 1995
------------ ------------
ASSETS
- ------
Property, equipment, and fixtures:
Equipment and vehicles 8 8
Furniture 2 2
------------ ------------
10 10
Less: accumulated depreciation (4) (2)
------------ ------------
6 8
Property held for sale 5,071 9,229
Cash and cash equivalents 1,507 656
Accounts receivable (less allowance for doubtful
accounts of $37,000 at June 30, 1996 and
December 31, 1995) 52 116
Inventory, prepaid expenses, and other assets 36 96
------------ ------------
TOTAL ASSETS 6,672 10,105
------------ ------------
------------ ------------
LIABILITIES
- -----------
Accounts payable 50 454
Accrued expenses 161 483
Long term debt 8,752 11,319
------------ ------------
TOTAL LIABILITIES 8,963 12,256
------------ ------------
STOCKHOLDERS' EQUITY
- ---------------------
Common stock ($1 par, 1,500,000 shares authorized,
484,128 shares issued and outstanding) 484 484
Paid-in capital 6,074 6,074
Accumulated deficit (8,849) (8,709)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (2,291) (2,151)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 6,672 10,105
------------ ------------
------------ ------------
See notes to consolidated financial statements.
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DELTA HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
For The For The
Three Months Ended Six Months Ended
------------------------ ------------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
--------- --------- --------- ---------
Revenue $863 $1,644 $2,125 $3,080
Operating expenses 658 1,300 1,725 2,590
--------- --------- --------- ---------
Gross margin from operations 205 344 400 490
Selling and administrative expenses 269 340 561 615
--------- --------- --------- ---------
Income (loss) before other income (expense) (64) 4 (161) (125)
Other income (expense):
Interest income 15 50 25 91
Interest expense (211) (258) (465) (509)
Gain (loss) on disposal of assets 365 (4) 461
--------- --------- --------- ---------
Total 169 (212) 21 (418)
--------- --------- --------- ---------
Income (loss) from continuing operations 105 (208) (140) (543)
Operating loss from discontinued operations (Note 4) (297) (418)
--------- --------- --------- ---------
Net income (loss) $105 ($505) ($140) ($961)
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income (loss) per share (Note 2)
Income (loss) from continuing operations $0.14 ($0.28) ($0.19) ($0.75)
Loss from discontinued operations (0.41) (0.57)
--------- --------- --------- ---------
Net income (loss) $0.14 ($0.69) ($0.19) ($1.32)
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average number of shares outstanding 731,524 731,524 731,524 731,524
--------- --------- --------- ---------
--------- --------- --------- ---------
See notes to consolidated financial statements.
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DELTA HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
For The
Six Months Ended
-------------------------
June 30, June 30,
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
- ----------------------------------------
Net income (loss) from continuing operations ($140) ($547)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation 199 340
Loss (gain) on sale of assets (461) 4
Increase in long term debt due to addition of accrued interest 465 509
Changes in assets and liabilities:
Accounts receivable 64 26
Inventory, prepaid expenses, and other assets 60 (37)
Accounts payable (404) (98)
Accrued expenses (322) 41
Discontinued operations, net (453)
--------- ---------
Net cash used by operating activities (539) (215)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
- ----------------------------------------
Proceeds from sales of property (net of transaction costs) 4,503 1
Additions to property, equipment, and fixtures (81) (69)
--------- ---------
Net cash provided (used) by investing activities 4,422 (68)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
- ----------------------------------------
Payments on long term debt (3,032) (125)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 851 (408)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 656 632
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,507 $224
--------- ---------
--------- ---------
See notes to consolidated financial statements.
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DELTA HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying financial statements reflect all adjustments which
are, in the opinion of management, necessary for a fair statement of
the results for the interim periods presented. All such adjustments
are of a normal recurring nature.
2. NET LOSS PER SHARE
Net loss per share computations are based on the net loss and the
weighted average number of shares outstanding. The computation, which
includes contingently issuable securities for certain deeds of trust
payable which exceed the amount of the net realizable value of the
related properties at June 30, 1996 (See Note 3), is as follows:
For the Three For The Six
Months Ended Months Ended
------------ ------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
-------- -------- -------- --------
NET INCOME (LOSS):
Net income (loss): $105,000 $(505,000) $(140,000) $(961,000)
Interest on contingent
obligations 25,000 25,000 50,000 50,000
-------- -------- -------- --------
$130,000 $(480,000) $(90,000) $(911,000)
-------- -------- -------- --------
NUMBER OF SHARES:
Weighted average number
of shares outstanding 484,128 484,128 484,128 484,128
Contingent shares issuable 247,396 247,396 247,396 247,396
-------- -------- -------- --------
731,524 731,524 731,524 731,524
-------- -------- -------- --------
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3. COMMON STOCK ISSUANCE CONTINGENCY
Under the terms of the Company's Second Amended Plan of
Reorganization (the Plan) which became effective on September 7, 1993
following the approval by a majority of the creditors, certain
obligations secured by deeds of trust mature on September 1, 1996 or
the date upon which the property securing the obligation is sold. If
the proceeds from the sale of the underlying property are not
sufficient to retire the obligation in full, or if the creditors
chooses to receive stock at the maturity date, the Company is required
to issue shares of common stock having a fair value equal to the
unpaid portion.
4. DISCONTINUED OPERATIONS
On August 1, 1995, the Company sold its warranty operations in a
transaction in which it transferred all the assets and liabilities of
the warranty operations to the buyer. The Company received no
compensation, other than the relief from warranty-related liabilities,
in the transaction. The book value of the assets transferred was
$5,453,000. The book value of liabilities transferred was $7,716,000,
giving rise to a gain of $2,263,000 on the transaction.
For income tax purposes, the transaction resulted in a loss, due to
the substantial difference between the book and the tax basis of
certain assets and liabilities involved in the transaction.
Therefore, no income tax benefit was recorded for the transaction as
this loss adds to the previously existing net operating losses, whose
realizability is uncertain.
The warranty operations are classified as discontinued and treated as
a separate item in the statement of operations and the cash flow
statement. For the three months ended June 30, 1995, the revenue for
the warranty operations was $1,489,000; during the same period the
operating loss was $297,000. For the six months ended June 30, 1995,
the revenue was $3,688,000 and the operating loss was $418,000.
5. SALE OF PROPERTY
On February 12, 1996, the Company sold the Leopold Retirement Inn, one
of the properties held for sale. The sale price was $1,654,000 and
the gain on the transaction was $96,000. On May 16, 1996, the
Company sold the Best Western Lakeway Inn, another of its properties
held for sale. The sale price was $3,300,000 and the gain on the
transaction was $351,000.
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6. SUBSEQUENT EVENTS
On August 30, 1996, the Company sold two of its properties in Colorado
Springs held for sale - the Rockledge Apartments and the Carmel
Apartments. The Rockledge was sold for $4,800,000 and the gain on the
transaction was $2,192,000. The Carmel was sold for $1,450,000 and
the gain on the transaction was $569,000.
With the completion of these transactions, all deeds of trust
maturing on September 1, 1996 have been paid off with the exception
of $1,960,000 secured by the Kit Carson Apartments in Security.
These deeds of Trust are in default as of September 1, 1996;
however, no immediate action is anticipated by the holders of these
deeds. The Kit Carson is currently under a contract of sale. Many of
the conditions necessary to complete the sale have been fulfilled.
However, several conditions remain to be satisfied before closing,
which is now anticipated to be on September 30, 1996. At closing,
all principal and accrued interest to the day of closing will be
paid from the proceeds.
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DELTA HOLDING, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
BACKGROUND
Continuing operations consist of the property-owning activities of the
Company. Included are the Leopold Retirement Inn, an independent living
facility for the elderly in Bellingham, Washington; the Best Western
Lakeway Inn, a full-service hotel also located in Bellingham; and several
apartment buildings located in Colorado Springs, Colorado.
Discontinued operations consist of the activities carried out under the
trade name of Delta Warranty, and includes the marketing and distribution
of extended service contracts and surge suppression equipment coupled with
extended service contracts. This business segment is treated as
discontinued operations as this business was sold August 1, 1995. The
results of its operations are reported separately.
FOR THE THREE MONTHS ENDED JUNE 30, 1996 vs. THE THREE
MONTHS ENDED JUNE 30, 1995
Revenues from property operations decreased 47%, from $1,644,000 in 1995 to
$863,000 in 1996, a decrease of $781,000. All of the decrease was caused
by the loss of revenue from properties disposed of; the Delta Financial
Center office building sold in August 1995, the Leopold Retirement Inn sold
in February 1996, and the Best Western Lakeway Inn sold in May 1996. The
revenues from properties owned and operated for the entire time span of
both quarters were up slightly due to a rent increase at the Colorado
Springs apartments.
Operating expenses for the property operations decreased 49% from
$1,300,000 in 1995 to $658,000 in 1996, a decrease of $642,000. In
addition to proportional decreases in expenses due to the disposition of
properties, additional cost savings were obtained from lower property taxes
and reduced personnel expenses at the Best Western Lakeway Inn.
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Selling and administrative expenses decreased 9% from $340,000 in 1995 to
$269,000 in 1996, a decrease of $71,000. This decrease was due to lower
payroll expenses and reduced advertising expenses, partially offset by
higher professional fees resulting from legal work relating to the sale of
various properties.
Combining the reduced revenues, more-than-proportionately reduced operating
expenses, and decreased selling and administrative expenses, the operating
results before interest and other income/expenses decreased from a profit
of $4,000 in 1995 to a $64,000 loss in 1996. Interest income decreased
from $50,000 in 1995 to $15,000 in 1996, due to the loss of interest-
bearing restricted investments held in the warranty business during 1995.
Interest expense decreased from $258,000 in 1995 to $211,000 in 1996,
reflecting decreased mortgages and deeds of trust balances resulting from
the sale of the Leopold Inn and Lakeway Inn.
The 1996 statement of operations contains a gain of $365,000 from the
disposal of assets resulting primarily from the sale of the Best Western
Lakeway Inn; the transaction closed May 16, 1996. The gross sales price
was $3,300,000; the net price after transaction costs (agent fees, sales
taxes, etc.) was $2,951,000.
FOR THE SIX MONTHS ENDED JUNE 30, 1996 vs. THE SIX MONTHS ENDED JUNE 30,
1995
Revenues from the property operations decreased 31%, from $3,080,000 in
1995 to $2,125,000 in 1996, a decrease of $955,000. All of the decrease
was caused by the loss of revenue from properties disposed of; the Delta
Financial Center office building sold in August 1995, the Leopold
Retirement Inn sold in February 1996, and the Best Western Lakeway Inn sold
in May 1996. The revenues from properties owned and operated for the
entire time span of both quarters were up slightly due to a rent increase
at the Colorado Springs apartments.
Operating expenses for the property operations decreased 33% from
$2,590,000 in 1995 to $1,725,000 in 1996, a decrease of $865,000. In
addition to proportional decreases in expenses due to the disposition of
properties, additional cost savings were obtained from lower property taxes
and reduced personnel expenses at the Best Western Lakeway Inn.
Selling and administrative expenses decreased 9% from $615,000 in 1995 to
$561,000 in 1996, a decrease of $54,000. This decrease was due to lower
payroll expenses and reduced advertising expenses, partially offset by
higher professional fees resulting from legal work relating to the sale of
various properties.
Page 10 of 13
Combining the reduced revenues, more-than-proportionately reduced operating
expenses, and decreased selling and administrative expenses, the operating
loss before interest and other income/expenses increased from $125,000 in
1995 to $161,000 in 1996. Interest income decreased from $91,000 in 1995
to $25,000 in 1996, due to the loss of interest-bearing restricted
investments held in the warranty business during 1995. Interest expense
decreased from $509,000 in 1995 to $465,000 in 1996, reflecting decreased
mortgages and deeds of trust balances resulting from the sale of the
Leopold Inn and Lakeway Inn.
The 1996 statement of operations contains a gain of $461,000 from the
disposal of assets. $351,000 of this amount is from the sale of the Best
Western Lakeway Inn in May 1996. Another $96,000 is from the sale of the
Leopold Inn in February 1996. The gross sales price was $1,654,000; the
net price after transaction costs was $1,552,000.
DISCONTINUED OPERATIONS
The warranty operations recorded an operating loss of $297,000 in the three
months ended June 30, 1995 and a loss of $418,000 for the six months ended
the same date. The warranty operations also incurred negative cash flow of
$453,000 during the six month period. Because of these losses and negative
cash flows, the Board of Directors decided to sell the warranty business,
resulting in the transaction completed on August 1, 1995. In that
transaction, the Company transferred all warranty business assets and
liabilities to the buyer. The Company received no compensation, other than
the relief from the warranty-related liabilities, in the transaction.
Because the liabilities transferred substantially exceeded the assets
transferred, the Company recorded a gain of $2,263,000 on the sale. (Note
4 provides more details on the warranty operations.)
FINANCIAL CONDITION, LIQUIDITY AND FUTURE PLANS
At June 30, 1996, the Company had total assets of $6,672,000, total
liabilities of $8,963,000 and stockholders' deficit of $2,291,000. The
major asset of the Company is property, which comprises $5,071,000 of the
total assets. All of the property is categorized as property held for sale
and therefore carried at the lower of cost or net realizable value. It is
the intention of the Board to sell all property, retire the related secured
debt and other liabilities, and return any remaining funds to the
shareholders.
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The Directors have initiated this process and intend to
complete it as soon as possible. To facilitate this process and to reduce
expenses until such time as the residual funds can be returned to
shareholders, the Directors are submitting a plan to the shareholders to
convert the Company to a liquidating trust. To be approved, shareholders
representing 66.67% of the total outstanding shares must approve the plan.
The major liability of the Company at June 30, 1996 is debt secured by the
properties, totaling $8,752,000. Of this amount, $525,000 is in the form
of first mortgages to banks, with the remaining $8,227,000 in the form of
deeds of trust. The deeds of trust mature on September 1, 1996 or when the
property securing the obligation is sold, if earlier.
As disclosed in Note 6, on August 30, 1996, the Company sold two of its
properties in Colorado Springs -- the Rockledge Apartments and the Carmel
Apartments. The Rockledge was sold for $4,800,000 and the gain on the
transaction was $2,192,000. The Carmel was sold for $1,450,000 resulting
in a gain of $569,000. With the completion of these transactions, all
deeds of trust maturing on September 1, 1996 have been paid off with the
exception of $1,960,000 secured by the Kit Carson Apartments in Security,
Colorado.
These deeds of trust are in default as of September 1, 1996; however, no
immediate action is anticipated by the holders of these deeds. The Kit
Carson is currently under a contract of sale. Many of the conditions
necessary to complete the sale have been fulfilled. However, several
conditions remain to be satisfied before closing, which is now anticipated
to be on September 30, 1996. At closing, all principal and accrued
interest to the day of closing will be paid from the proceeds.
At June 30, 1996, the Company had $1,507,000 cash on hand and $52,000 in
accounts receivable. Accounts payable and accrued expenses totaled
$211,000. Given this positive working capital, the Company is able to meet
its obligations as they come due.
Gordon Cheadle Terry L. Switzer
President and Vice Chairman of the Board Vice President, Finance
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DELTA HOLDING, INC.
FORM 10-QSB
For the Quarter Ended July 2, 1994
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
DELTA HOLDING, INC.
(Registrant)
Date: September 11, 1996
-----------------------------
Gordon Cheadle
Date: September 11, 1996
-----------------------------
Terry L. Switzer, Vice
President, Finance and Operations
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