<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
{ X } QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1997
or
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number: 0-22299
SAXTON INCORPORATED
(Exact name of Registrant as specified in its charter)
NEVADA 88-0223654
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
5440 WEST SAHARA AVE., THIRD FLOOR
LAS VEGAS, NEVADA 89102
(702) 221-1111
(Address and telephone number of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days.
YES X NO
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
The number of shares of common stock, par value $.001 per share, outstanding as
of November 14, 1997 was 7,619,142.
<PAGE> 2
SAXTON INCORPORATED
FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NUMBER
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Statements of Income - 3
Three and Nine Months ended September 30, 1997 and 1996
Condensed Consolidated Balance Sheets - 4
September 30, 1997 and December 31, 1996
Condensed Consolidated Statements of Cash Flows - 5-6
Nine Months ended September 30, 1997 and 1996
Notes to Condensed Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of 12-16
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
INDEX TO EXHIBITS and EXHIBITS 19-20
</TABLE>
2
<PAGE> 3
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
SAXTON INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
(PREDECESSOR) (PREDECESSOR)
<S> <C> <C> <C> <C>
Revenue, including Tax Credit Partnership
construction revenue of $3,770 and $11,692
for the three months ended September 30, 1997 and 1996
respectively, and $16,876 and $24,580 for the
nine months ended September 30, 1997 and 1996,
respectively $ 13,352 $ 21,119 $ 46,081 $ 42,325
Cost of revenue, including Tax Credit Partnership
cost of revenue of $3,321 and $9,740
for the three months ended September 30, 1997 and 1996
respectively, and $13,304 and $20,181 for the
nine months ended September 30, 1997 and 1996,
respectively 9,677 16,757 34,246 32,560
----------- ----------- ----------- -----------
Gross profit 3,675 4,362 11,835 9,765
----------- ----------- ----------- -----------
General and administrative expenses 783 953 1,876 2,356
Depreciation and amortization 360 282 983 756
----------- ----------- ----------- -----------
Operating income 2,532 3,127 8,976 6,653
----------- ----------- ----------- -----------
Other income (expense):
Interest expense, net of interest income of $15 and
$25 for the three months ended September 30, 1997 and
1996, respectively, and $109 and $61 for the
nine months ended September 30, 1997 and 1996,
respectively (727) (635) (2,187) (2,001)
Joint venture earnings (loss) 26 (33) 36 (17)
----------- ----------- ----------- -----------
Total other income (expense) (701) (668) (2,151) (2,018)
----------- ----------- ----------- -----------
Income before provision for income taxes 1,831 2,459 6,825 4,635
Provision for income taxes 615 684 2,056 1,281
----------- ----------- ----------- -----------
Net income $ 1,216 $ 1,775 $ 4,769 $ 3,354
=========== =========== =========== ===========
Net income per common share (note 7) $ 0.16 $ 0.36 $ 0.81 $ 0.68
----------- ----------- ----------- -----------
Weighted average common shares outstanding (note 7) 7,619,142 4,937,016 5,911,446 4,934,519
=========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 4
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
SAXTON INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1997 1996
------------ -------------
(UNAUDITED) (PREDECESSOR)
<S> <C> <C>
Real estate properties:
Operating properties, net of accumulated depreciation (note 3) $25,866 $26,051
Properties in development 12,157 10,504
Land held for future development or sale (note 5) 8,266 2,253
------- -------
Total real estate properties 46,289 38,808
Cash and cash equivalents 1,154 1,590
Due from Tax Credit Partnerships 18,121 16,215
Construction contracts receivable, net of allowance for
doubtful accounts of $421 at September 30, 1997
and $369 at December 31, 1996 1,034 973
Costs and estimated earnings in excess of billings on
uncompleted contracts (note 4) 6,444 2,518
Notes receivable 1,667 139
Investments in joint ventures (note 6) 1,559 1,332
Due from related parties (notes 1 & 6) 349 610
Prepaid expenses and other assets 7,375 5,772
------- -------
Total assets $83,992 $67,957
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $10,572 $10,545
Tenant deposits and other liabilities 2,838 993
Billings in excess of costs and estimated earnings
on uncompleted contracts (note 4) 198 418
Notes payable and capital lease obligations (notes 1 & 5) 39,617 39,187
Notes payable to related parties (note 6) 2,205 2,446
Subordinated dividend notes (note 1) -- 8,077
------- -------
Total liabilities 55,430 61,666
Stockholders' equity (notes 1, 7, 8 & 10)
Common stock, $.001 par value. Authorized 50,000,000 shares;
issued and outstanding 7,619,142 shares at September 30, 1997
and 4,950,548 shares at December 31, 1996 8 5
Preferred stock, $.001 par value. Authorized 5,000,000 shares;
no shares issued and outstanding -- --
Additional paid-in capital 19,570 1,014
Retained earnings 8,984 5,100
Partners' capital -- 172
------- -------
Total stockholders' equity 28,562 6,291
Commitments and contingencies (note 9) -- --
------- -------
Total liabilities and stockholders' equity $83,992 $67,957
======= =======
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 5
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
SAXTON INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1997 1996
-------- --------
(PREDECESSOR)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,769 $ 3,354
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 983 756
Gain on sales of commercial properties (3,126) (759)
Joint venture (earnings) loss (36) 17
Gain on sale of Joint Venture (note 6) (255) --
Changes in operating assets and liabilities:
Increase in due from Tax Credit Partnerships (1,906) (5,703)
Increase in construction contracts receivable (61) (662)
Increase in costs and estimated earnings
in excess of billings on uncompleted contracts (3,926) (1,771)
Decrease (increase) in residential properties under
development 1,720 (3,729)
Increase in prepaid expenses and other assets (3,966) (2,379)
Increase in accounts payable and accrued expenses 27 4,323
Increase (decrease) in billings in excess of costs and
estimated earnings on uncompleted contracts (220) 1,036
Increase (decrease) in tenant deposits and other liabilities 1,845 (141)
======== ========
Net cash used in operating activities (4,152) (5,658)
-------- --------
Cash flows from investing activities:
Expenditures for property acquisitions and improvements (11,670) (6,005)
Payment to purchase partnerships interests (note 1) (2,804) --
Proceeds from sales of commercial properties 5,906 2,795
Increase in due from related parties (notes 1 & 6) (213) (434)
Decrease (increase) in notes receivable (488) 1,965
Capital contributions to joint ventures (191) --
======== ========
Net cash used in investing activities (9,460) (1,679)
-------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE> 6
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
SAXTON INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1997 1996
-------- --------
(Predecessor)
<S> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of notes payable and capital leases $ 22,680 $ 11,568
Principal payments on notes payable and capital leases (22,386) (4,725)
Increase (decrease) in notes payable to related parties (note 1) (241) 566
Payments on subordinated dividend notes (note 1) (2,698) --
Net proceeds from issuance of common stock (note 1) 17,323 --
Partners' capital contributions 819 --
Distributions paid to partners (2,321) (285)
-------- --------
Net cash provided by financing activities 13,176 7,124
-------- --------
Net decrease in cash and cash equivalents (436) (213)
Cash and cash equivalents:
Beginning of period 1,590 492
-------- --------
End of period $ 1,154 $ 279
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest, net of amounts capitalized $ 2,197 $ 2,079
======== ========
Cash paid during the period for income taxes $ -- $ 55
======== ========
Non-cash financing and investing activities:
Deferred offering costs charged against gross proceeds of initial
public offering (note 1) $ 2,321 $ --
======== ========
Common stock issued to reduce subordinated dividend notes (note 1) $ 3,650 $ --
======== ========
Warrants for common stock issued to reduce subordinated
dividend note obligations (note 1) $ 1,000 $ --
======== ========
Amounts due from related parties offset against subordinated
dividend notes in satisfaction of the respective obligations (note 1) $ 729 $ --
======== ========
Properties sold in exchange for note receivable offset by advances
to related parties (note 6) $ 1,040 $ --
======== ========
Note Payable to related parties offset against proceeds from sale
of interest in a joint venture (note 6) $ 500 $ --
======== ========
Capital lease obligation recorded in connection with
equipment acquisitions $ 136 $ --
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE> 7
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
SAXTON INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. DESCRIPTION OF SAXTON INCORPORATED
Saxton Incorporated (the "Company") is engaged in the acquisition,
design, development, construction, ownership and operation of real property
located in the greater Las Vegas, Nevada area. The Company's business is
comprised of three components: (i) the design, development, construction and
sale of single-family homes and properties for its own portfolio; (ii) the
performance of design, development and construction services for third parties
("Design-Build Services"); and (iii) property operations and management. The
properties consist of industrial buildings, retail centers, apartments, single
family homes and land in various phases of development. The Company also has
noncontrolling interests in joint ventures that are engaged in the acquisition,
development, ownership and operation of real property. The accompanying
condensed consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, Summit Hills, Inc., Hillcrest, Inc., Big Tyme
Food Marts, Inc. and Georgetown Construction, Inc..
On June 30, 1997, the Company completed its initial public offering
(the "Offering") of 2,275,000 shares of common stock at $8.25 per share. The net
proceeds of approximately $17.3 million were used as follows: (i) $8.1 million
to repay indebtedness, of which $3.4 million represented indebtedness to the
Company's principal stockholders and $1.7 million represented indebtedness to
other related parties, (ii) $5.6 million to acquire land for future development,
(iii) $2.8 million to acquire the interests of various third party partners in
certain properties, and (iv) approximately $.8 million for development
activities and general corporate purposes.
Concurrently with the closing of the Offering, certain stockholders of
the Company (the "Contributing Stockholders") contributed their partnership
interests in certain properties to the Company. In addition, certain obligations
to the Contributing Stockholders represented by subordinated dividend notes
("the Notes") were satisfied as follows: (i) approximately $.7 million of
outstanding amounts due to the Company by the principal stockholders were offset
against the Notes, (ii) $3.65 million was repaid through the issuance by the
Company of 384,256 shares of common stock, and (iii) $1.0 million was repaid
through the issuance by the Company of warrants for 400,000 shares of common
stock. The warrants are exercisable at $9.90 per share if the Company achieves
specified levels of after tax net income in 1997 and 1998.
The accompanying condensed consolidated financial statements present
the financial position and results of operations and cash flows of the Company,
including the operations of seven general partnerships and three limited
partnerships ("Predecessor") that were under the common management and control
(or significant ownership) of the Company or its executive officers prior to the
Offering. Upon completion of certain transactions consummated by Predecessor and
others in connection with the Offering, the Company owns 100% of the economic
interests in the partnerships. Therefore, the partnerships were dissolved by
operation of law and all assets, subject to all liabilities, of such
partnerships were transferred to the Company.
7
<PAGE> 8
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
NOTE 2. BASIS OF PRESENTATION
The accompanying condensed consolidated unaudited interim financial
statements of the Company have been prepared in conformity with generally
accepted accounting principles and reflect all adjustments (consisting of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair statement of the results of operations for the three and nine months ended
September 30, 1997 and 1996. These condensed consolidated unaudited interim
financial statements should be read in conjunction with the Company's audited
combined financial statements and the notes thereto as of and for the year ended
December 31, 1996, which are included in its prospectus dated June 24, 1997.
The Company historically has experienced, and expects to continue to
experience, variability in quarterly sales and revenues. The combined results of
operations for the three and nine months ended September 30, 1997 are not
necessarily indicative of the results to be expected for the full year. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Variability of Results: Seasonality".
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ materially from those estimates.
NOTE 3. REAL ESTATE OPERATING PROPERTIES
Real estate operating properties are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
(unaudited) (Predecessor)
------------------ -----------------
<S> <C> <C>
Cost:
Buildings $ 21,136 $ 21,188
Tenant Improvements 866 900
Land 6,470 6,460
-------- --------
Real estate
operating properties at cost 28,472 28,548
Less accumulated depreciation
and amortization (2,606) (2,497)
-------- --------
Real estate operating
properties, net $ 25,866 $ 26,051
======== ========
</TABLE>
8
<PAGE> 9
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
NOTE 4. CONSTRUCTION CONTRACTS
Construction contracts receivable includes amounts retained pending
contract completion aggregating $309,000 at September 30, 1997 and $265,000 at
December 31, 1996. Based on anticipated completion dates these retentions are
expected to be collected within the next twelve months.
Accounts payable and accrued expenses includes amounts retained
pending subcontract completion aggregating approximately $1,858,000 at September
30, 1997 and $1,220,000 at December 31, 1996.
Costs and estimated earnings on uncompleted contracts and in excess of
billings, net, are shown on the accompanying condensed consolidated balance
sheets as follows (in thousands):
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
(unaudited) (Predecessor)
------------------ -----------------
<S> <C> <C>
Costs incurred to date $ 57,430 $ 53,002
Estimated earnings to date 16,401 14,279
-------- --------
73,831 67,281
Less billings to date (67,585) (65,181)
-------- --------
Costs and estimated earnings in excess of
billings, net $ 6,246 $ 2,100
======== ========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
(unaudited) (Predecessor)
------------------ -----------------
<S> <C> <C>
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 6,444 $ 2,518
Billings in excess of costs and estimated
earnings on uncompleted contracts (198) (418)
------- -------
$ 6,246 $ 2,100
======= =======
</TABLE>
9
<PAGE> 10
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
NOTE 5. NOTES PAYABLE
On July 30, 1997, the Company entered into a $5,000,000 revolving line
of credit agreement (the "Agreement") with a financial institution. Loans under
the Agreement bear monthly interest at 1.5% above the prime rate as defined
(8.5% at September 30, 1997), mature on August 1, 1998, and require the Company
to pay a loan fee of .25% for each disbursement. Loans under the Agreement are
available only for the acquisition of land and are secured by first trust deeds
on certain real property. As of September 30, 1997, the Company had outstanding
indebtedness of $2,898,000, and available borrowings of $2,102,000, under the
Agreement. Under the terms of the Agreement, the Company is required to meet
certain financial covenants.
On July 31, 1997, the Company entered into various notes payable
representing borrowings in the amount of $6,600,000 from various unaffiliated
individuals. The notes mature on July 31, 1998 and bear interest at 15%, payable
monthly. These notes are secured by first trust deeds on certain real property.
NOTE 6. TRANSACTIONS WITH RELATED PARTIES
On August 1, 1997, the Company entered into an unsecured note payable
with a director of the Company in the amount of $1,000,000 bearing interest at
12% payable monthly, and a maturity date of August 1, 1998. This note is
guaranteed by two of the principal stockholders of the Company. Interest
expensed and paid on this note for the three and nine months ended September 30,
1997 was $20,000.
On August 27, 1997, the Company entered into an unsecured note payable
with a principal stockholder in the amount of $721,000, bearing interest at 18%
payable monthly, and a maturity date of November 27, 1997. Interest incurred and
paid on this note for the three and nine months ended September 30, 1997 was
$11,000.
On September 30, 1997, the Company entered into a transaction with a
principal stockholder in which the Company sold its interest in a joint venture
for $755,000. The book value of the Company's interest was $500,000, and the net
gain of $255,000 is included in "Other Revenue" on the condensed consolidated
statements of income. The sales price consisted of a cash payment of $500,000,
and a note receivable of $255,000 from this principal stockholder. The note
receivable bears interest at 10.25% and matures on September 30, 1998.
NOTE 7. EARNINGS PER SHARE DATA
The Company will adopt the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share", in the fourth
quarter of 1997. Basic and diluted earnings per share are equal to the amount
presented on the accompanying condensed consolidated statements of income.
Earnings per share for the three and nine months ended September 30, 1997 and
1996, respectively, are based upon the weighted average number of shares of
common stock outstanding as there were no material common stock equivalents
outstanding during the period.
10
<PAGE> 11
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
NOTE 8. MANAGEMENT STOCK OPTION PLAN
On June 30, 1997, the Company adopted a Management Stock Option
Incentive Plan (the "Option Plan") which provides for the granting of options to
employees to purchase common stock, up to a maximum of 500,000 shares. As of
September 30, 1997, the Company has awarded an aggregate of 269,150 stock
options to certain executive officers and employees of the Company pursuant to
the Option Plan. These options will vest in equal annual installments over five
years, commencing one year from the award date, and will expire between June 30,
2007 and September 30, 2007. All stock options were granted at the initial
public offering price of $8.25 per share.
NOTE 9. COMMITMENTS AND CONTINGENCIES
The Company and two of its principal stockholders are guarantors on
construction loans relating to tax credit partnerships. Total construction loans
payable for these tax credit partnerships was approximately $42.0 million and
$26.6 million at September 30, 1997 and December 31, 1996, respectively.
NOTE 10. RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, SFAS No. 129, "Disclosure of Information about
Capital Structure", was issued. This statement establishes standards for
disclosing information about an entity's capital structure and is effective for
periods ending after December 15, 1997.
In June, 1997, SFAS No. 130, "Reporting Comprehensive Income", was
issued and is effective for fiscal years beginning after December 15, 1997. This
statement requires companies to classify items of other comprehensive income by
their nature in an income statement and display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position.
In June 1997, SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", was issued and is effective for fiscal
years beginning after December 15, 1997. This statement establishes standards
for segment reporting in the financial statements.
The Company intends to comply with the requirements of these three
statements. Management does not expect the adoption of these statements to
result in disclosures that are materially different from these disclosures
currently required.
11
<PAGE> 12
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Result of Operations
Results of Operations
- ---------------------
The following discussion should be read in conjunction with the
unaudited condensed consolidated financial statements and notes thereto
appearing elsewhere in this Form 10-Q.
Three Months Ended September 30, 1997 Compared to Three Months Ended September
- ------------------------------------------------------------------------------
30, 1996
- --------
Revenue. Total revenue was $13.4 million for the three months ended
September 30, 1997, representing a $7.7 million, or 36.5%, decrease from $21.1
million for the three months ended September 30, 1996. This was primarily due to
greater construction activity during the quarter ended September 30, 1996
involving two multi-family communities, compared to the quarter ended
September 30, 1997 during which such activity involved only one multi-family
community. In addition, a larger single family residential community was being
sold during the third quarter of 1996 as compared to the single family
residential community being sold in the third quarter of 1997.
Cost of Revenue. Total cost of revenue was $9.7 million for the three
months ended September 30, 1997, representing a $7.1 million, or 42.3%, decrease
from $16.8 million for the three months ended September 30, 1996. This was due
to the same factors explained above for revenue. Gross profit as a percent of
revenue increased to 27.6% for the three months ended September 30, 1997 as
compared to 20.4% for the comparable period in 1996 primarily due to a higher
gross profit margin on the sale of a commercial property.
General and Administrative Expenses. General and administrative
expenses was $783,000 for the three months ended September 30, 1997,
representing a $170,000, or 17.8%, decrease from $953,000 for the three months
ended September 30, 1996. This was primarily due to lower marketing costs in
connection with the smaller single family residential community developed and
sold during 1997. General and administrative expenses as a percentage of total
revenue was 5.8% for the three months ended September 30, 1997 as compared to
4.5% for the three months ended September 30, 1996. This was principally
attributed to a lower revenue base.
Depreciation and Amortization. Depreciation and amortization was
$360,000 for the three months ended September 30, 1997, representing a $78,000,
or 27.7%, increase from $282,000 for the three months ended September 30, 1996.
This was primarily due to increases in equipment purchases necessitated by the
further expansion into certain subcontracting trades.
Interest Expense, Net. Interest expense, net, was $727,000 for the
three months ended September 30, 1997, representing a $92,000 or 14.5%, increase
from $635,000 for the three months ended September 30, 1996. This was primarily
due to higher borrowings.
Income Before Provision for Income Taxes. As a result of the foregoing
factors, income before income taxes was $1.8 million for the three months ended
September 30, 1997, representing a $700,000, or 28.0%, decrease from $2.5
million for the three months ended September 30, 1996. Income before income
taxes as a percentage of total revenue was 13.4% for the three months ended
September 30, 1997 as compared to 11.8% for the three months ended September 30,
1996.
12
<PAGE> 13
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Result of Operations
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30,
- --------------------------------------------------------------------------------
1996
- ----
Revenue. Total revenue was $46.1 million for the nine months ended
September 30, 1997, representing a $3.8 million, or 9.0%, increase from $42.3
million for the nine months ended September 30, 1996. This was principally
attributed to increased sales of single family homes and commercial properties.
Cost of Revenue. Total cost of revenue was $34.2 million for the nine
months ended September 30, 1997, representing a $1.6 million, or 4.9%, increase
from $32.6 million for the nine months ended September 30, 1996. This was
primarily due to the same factors explained above for the increase in total
revenue. Gross Profit as a percent of revenue was 25.8% for the nine months
ended September 30, 1997, as compared to 22.9% for the comparable period in 1996
primarily due to higher gross profit margin on the sale of commercial
properties.
General and Administrative Expenses. General and administrative
expenses was $1.9 million for the nine months ended September 30, 1997,
representing a $500,000, or 20.8%, decrease from $2.4 million for the nine
months ended September 30, 1996. This was principally due to a larger proportion
of overhead and general costs that directly related to production and
development activity during the nine months ended September 30, 1997 as compared
to the same period in 1996. General and administrative expenses as a percentage
of total revenue was 4.1% for the nine months ended September 30, 1997 a
favorable decrease from the 5.7% for the nine months ended September 30, 1996.
This was primarily due to a higher revenue base.
Depreciation and Amortization. Depreciation and amortization was
$983,000 for the nine months ended September 30, 1997, representing a $227,000,
or 30.0%, increase from $756,000 for the nine months ended September 30, 1996.
This was principally attributed to increases in equipment purchases necessitated
by the further expansion into certain subcontracting trades.
Interest Expense, Net. Interest expense, net, was $2.2 million for the
nine months ended September 30, 1997, representing a $200,000, or 10.0%,
increase from $2.0 million for the nine months ended September 30, 1996. This
was principally due to higher borrowings.
Income Before Provision for Income Taxes. As a result of the foregoing
factors, income before income taxes was $6.8 million for the nine months ended
September 30, 1997, representing a $2.2 million, or 47.8% increase, from $4.6
million for the nine months ended September 30, 1996. Income before income taxes
as a percentage of total revenue was 14.8% for the nine months ended September
30, 1997 a favorable increase over the 10.9% for the nine months ended September
30, 1996.
13
<PAGE> 14
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Result of Operations
Liquidity and Capital Resources
- -------------------------------
On June 30, 1997, the Company completed its initial public offering of
2,275,000 shares of common stock at $8.25 per share. The net proceeds of
approximately $17.3 million were used as follows: (i) $8.1 million to repay
indebtedness, of which $3.4 million represented indebtedness to the Company's
principal stockholders and $1.7 million represented indebtedness to other
related parties, (ii) $5.6 million to acquire land for future development; (iii)
$2.8 million to acquire the interests of various third-party partners in certain
properties, and (iv) approximately $.8 million for development activities and
general corporate purposes.
The Company has historically relied upon land and project financing,
as applicable, partner and joint venture contributions in the form of land or
cash, developer's equity (value in excess of cost), other forms of debt and cash
flow from operations to provide capital for land acquisitions and portfolio
construction. The Company intends to continue to provide for its capital
requirements from these sources. Management believes that cash generated from
operations, funds available from external sources of debt and equity financing,
together with the cash on hand at September 30, 1997, will be sufficient to
provide for its capital requirements for at least the next 12 months.
The Company has entered into various transactions with related parties
during the period ended September 30, 1997. All such material transactions have
been approved by at least a majority of the Board of Directors of the Company,
including a majority of the disinterested members of the Board of Directors and
were made on terms no less favorable to the Company than could have been
obtained from unaffiliated third parties.
Operating Activities. Net cash used in operating activities was $4.1
million for the nine months ended September 30, 1997. Net cash used in operating
activities was $5.7 million for the nine months ended September 30, 1996. This
$1.6 million increase in operating cash flow was primarily due to higher net
income for the nine months ended September 30, 1997.
Investing Activities. Net cash used in investing activities was $9.5
million for the nine months ended September 30, 1997, representing a $7.8
million increase from $1.7 million for the nine months ended September 30, 1996.
This was primarily due to an increase in expenditures for property acquisitions
and improvements as well as payments to purchase partnership interests from
affiliates.
Financing Activities. Net cash provided by financing activities was
$13.2 million for the nine months ended September 30, 1997, representing a $6.1
million increase from $7.1 million for the nine months ended September 30, 1996.
This was primarily due to net proceeds from the Company's initial public
offering, offset in part by reductions in notes payable and subordinated
dividend notes.
As of September 30, 1997, approximately $4.7 million of notes payable
will mature in the fourth quarter of 1997 under the provisions of the various
agreements. Management expects to be able to negotiate acceptable refinancing
alternatives with the applicable lenders, however, there can be no assurance
that the Company will successfully do so.
14
<PAGE> 15
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Result of Operations
The Company anticipates that development of portfolio projects during
the next twelve months will cost approximately $9.1 million, which the Company
plans to finance through construction financing. The real estate development
business is capital intensive and requires significant up-front expenditures to
acquire and entitle land and commence development. The Company typically
finances, and expects to finance, its land acquisition and portfolio development
activities utilizing the proceeds of institutional loans secured by real
property. In some cases, the Company plans to utilize private financing,
typically on a short-term or interim basis. In cases where the Company holds a
property after completion of construction, the Company plans to obtain permanent
financing, secured by the property.
In each of its last three fiscal years, the Company has derived a
significant portion of its construction revenue from the development of
apartment complexes ("Tax Credit Projects") for limited partnerships ("Tax
Credit Partnerships") organized to take advantage of the low income housing tax
credit provided by Section 42 of the Internal Revenue Code. At September 30,
1997, the Tax Credit Partnerships were indebted to the Company in the aggregate
amount of approximately $18.1 million, representing developer fees and land and
construction costs. Of such amount, approximately $5.3 million is payable to the
Company by the Tax Credit Partnerships from loan proceeds and additional capital
contributions of the investor limited partners. The balance of approximately
$12.8 million is payable to the Company by the Tax Credit Partnerships from cash
flow received from the operations of their respective Tax Credit Projects. While
management believes that the Tax Credit Projects will generate sufficient cash
flow to pay the amounts due, there can be no assurance that the receivable will
be paid in full or at all.
The Company has made its capital contributions to the Tax Credit
Partnerships which own completed or substantially completed Tax Credit Projects.
The Company is obligated, however, to make operating expense loans, not to
exceed an aggregate of $2.7 million, to meet operating deficits, if any, of such
Tax Credit Partnerships.
Backlog
- -------
The Company's homes are generally offered for sale in advance of their
construction. The majority of the Company's homes are sold pursuant to standard
sales contracts entered into prior to commencement of construction. Such sales
contracts are usually subject to certain contingencies such as the buyer's
ability to qualify for financing. Homes covered by such sales contracts are
considered by the Company as backlog. The Company does not recognize revenue on
homes covered by such contracts until the sales are closed and the risk of
ownership has been legally transferred to the buyer. At September 30, 1997, the
Company had 20 homes in backlog, representing an aggregate sales value of
approximately $1.7 million.
The Company is also involved in the design-build development of
commercial projects. Backlog for such commercial projects is defined as the
uncompleted work remaining under a signed fixed price contract. The Company uses
the percentage of completion method to account for revenue from its design-build
contracts. At September 30, 1997, the Company had backlog under its design-build
contracts of approximately $33.0 million.
15
<PAGE> 16
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Result of Operations
Risks and Related Factors
- -------------------------
Statement of Purpose of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995. In December 1995, the Private
Securities Litigation Reform Act of 1995 (the "Act") was enacted. The Act
contains amendments to the Securities Act of 1933 and the Securities Exchange
Act of 1934 which provide protection from liability in private lawsuits for
"forward-looking" statements made by persons specified in the Act. The Company
desires to take advantage of the "safe-harbor" provisions of the Act.
The Company wishes to caution readers that, with the exception of
historical matters, the matters discussed in this Quarterly Report on Form 10-Q
are forward-looking statements that involve risks and uncertainties, including
but not limited to factors related to the highly competitive nature of the real
estate industry and its sensitivity to changes in general economic conditions,
the Company's dependence on the greater Las Vegas, Nevada area, the risks of
homebuilding and other real estate development, real estate investment risks,
the risks of indebtedness and the inability to obtain future financing,
regulatory and environmental risks, risks associated with growth and other
factors discussed in the Company's filings with the Securities and Exchange
Commission. Such factors could affect the Company's actual results during fiscal
1997 and beyond and cause such results to differ materially from those expressed
in any forward-looking statement made by the Company.
Variability of Results: Seasonality. The Company historically has
experienced, and in the future expects to continue to experience, variability in
revenue on a quarterly basis. Factors expected to contribute to this variability
include, among others (i) the timing of home and other property sale closings;
(ii) the Company's ability to continue to acquire land and options thereon on
acceptable terms; (iii) the timing of the receipt of regulatory approvals for
the construction of homes and other development projects; (iv) the condition of
the real estate market and the general economic conditions in the greater Las
Vegas, Nevada area; (v) the prevailing interest rates and the availability of
financing, both for the Company and for the purchasers of the Company's homes
and other properties; (vi) the timing of the completion of construction of the
Company's homes and other portfolio properties; and (vii) the cost and
availability of materials and labor. The Company's historical financial
performance is not necessarily a meaningful indicator of future results and, in
particular, the Company expects its financial results to vary from project to
project and from quarter to quarter. In addition, although the Company has not
previously experienced significant seasonality in its business, management
expects that the Company's increased focus on home-building activities may cause
it to experience seasonal variations in its home sales as a result of the
preference of home buyers to close their new home purchase either prior to the
start of a new school year or prior to the end of year holiday season.
16
<PAGE> 17
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submissions of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K.
Refer to Index on page 19 of this filing.
17
<PAGE> 18
Part II. OTHER INFORMATION
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.
SAXTON INCORPORATED
November 14, 1997 By:________________________________
James C. Saxton
Chairman, President and Chief
Executive Officer
(Principal Executive Officer)
By:________________________________
Douglas W. Hensley Executive
Vice-President and
Chief Financial Officer (Principal
Financial and Accounting Officer)
18
<PAGE> 19
Part II. OTHER INFORMATION
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<S> <C> <C>
27 Financial Data Schedule. 20
</TABLE>
19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,154
<SECURITIES> 0
<RECEIVABLES> 19,155<F1>
<ALLOWANCES> 421
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 46,289
<DEPRECIATION> 2,606
<TOTAL-ASSETS> 84,383
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> 28,554
<TOTAL-LIABILITY-AND-EQUITY> 84,383
<SALES> 46,081
<TOTAL-REVENUES> 46,117
<CGS> 34,247
<TOTAL-COSTS> 34,247
<OTHER-EXPENSES> 2,859<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,187
<INCOME-PRETAX> 6,825
<INCOME-TAX> 2,056
<INCOME-CONTINUING> 4,769
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,769
<EPS-PRIMARY> .81
<EPS-DILUTED> .81
<FN>
<F1>Receivables are comprised of Due from Tax Credit Partnerships and Construction
contracts receivable.
<F2>Other Expenses are comprised of general and administrative, and depreciation
and amortization expenses.
</FN>
</TABLE>
