<PAGE> 1
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, 1998
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 89146
(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 August 3, 1998 was 7,661,422.
<PAGE> 2
SAXTON INCORPORATED AND SUBSIDIARIES
FORM 10-Q
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1997 and June 30, 1998 3
Condensed Consolidated Statements of Income -
Three and Six Months Ended June 30, 1997 and 1998 4
Condensed Consolidated Statement of Stockholders'
Equity - Six Months Ended June 30, 1998 5
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1997 and 1998 6
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
INDEX TO EXHIBITS and EXHIBITS 20
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
SAXTON INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
-------- --------
ASSETS (unaudited)
<S> <C> <C>
Real estate properties:
Operating properties, net of accumulated depreciation (note 3) .......... $ 25,933 $ 27,650
Properties under development ............................................ 21,598 37,534
Land held for future development or sale ................................ 3,767 1,311
-------- --------
Total real estate properties ................................ 51,298 66,495
Cash and cash equivalents ................................................... 1,110 3,315
Due from Tax Credit Partnerships ............................................ 17,397 27,265
Construction contracts receivable, net of allowance for doubtful
accounts of $398 at December 31, 1997 and $401 at June 30, 1998 ......... 3,043 4,964
Costs and estimated earnings in excess of billings on
uncompleted contracts (note 4) .......................................... 4,115 2,312
Notes receivable ............................................................ 2,884 1,103
Investments in joint ventures ............................................... 3,602 3,595
Due from related parties (notes 1 and 6) .................................... 386 384
Prepaid expenses and other assets ........................................... 6,285 7,071
-------- --------
Total assets ................................................ $ 90,120 $116,504
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses ................................... $ 11,376 $ 13,186
Tenant deposits and other liabilities ................................... 2,860 2,102
Billings in excess of costs and estimated earnings on
uncompleted contracts (note 4) ...................................... 1,791 833
Notes payable (notes 1 and 5) ........................................... 40,610 63,615
Notes payable to related parties (note 6) ............................... 2,695 2,695
Capital lease obligations ............................................... 1,144 1,110
-------- --------
Total liabilities ........................................... 60,476 83,541
-------- --------
Stockholders' equity:
Common stock, $.001 par value. Authorized 50,000,000 shares;
issued and outstanding 7,619,142 shares at December 31, 1997 and
7,661,422 shares at June 30, 1998 ................................... 8 8
Preferred stock, $.001 par value. Authorized 5,000,000 shares;
no shares issued and outstanding .................................... -- --
Additional paid-in capital .............................................. 20,670 21,008
Retained earnings ....................................................... 8,966 11,947
-------- --------
Total stockholders' equity .................................. 29,644 32,963
Commitments and contingencies (note 9)
-------- --------
Total liabilities and stockholders' equity .................. $ 90,120 $116,504
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
SAXTON INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1997 1998 1997 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE:
Construction revenue, including Tax Credit
Partnership construction revenue of $6,605 and $9,905
for the three months ended June 30, 1997 and 1998,
respectively and $13,105 and $14,135 for the six months
ended June 30, 1997 and 1998, respectively ............ $ 11,339 $ 13,395 $ 18,902 $ 19,132
Sales of homes ............................................ 2,906 6,175 5,864 8,960
Sales of commercial properties ............................ 610 984 5,505 3,819
Rental revenue ............................................ 815 843 1,738 1,767
Other revenue ............................................. 519 471 720 899
----------- ----------- ----------- -----------
Total revenue ............................... 16,189 21,868 32,729 34,577
----------- ----------- ----------- -----------
COST OF REVENUE:
Cost of construction, including Tax Credit Partnership
cost of construction of $4,880 and $7,038 for the three
months ended June 30, 1997 and 1998, respectively and
$10,132 and $10,050 for the six months ended June 30,
1997 and 1998, respectively ........................... 9,260 10,264 15,747 14,767
Cost of homes sold ........................................ 2,443 5,192 4,878 7,536
Cost of commercial properties sold ........................ 136 920 3,528 3,500
Rental operating cost ..................................... 189 248 416 422
----------- ----------- ----------- -----------
Total cost of revenue ....................... 12,028 16,624 24,569 26,225
----------- ----------- ----------- -----------
Gross profit .............................................. 4,161 5,244 8,160 8,352
----------- ----------- ----------- -----------
General and administrative expenses ....................... 549 1,684 1,093 2,436
Depreciation and amortization ............................. 337 375 623 766
----------- ----------- ----------- -----------
Operating income ............................ 3,275 3,185 6,444 5,150
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense, net of interest income of $57 and $270
for the three months ended June 30, 1997 and 1998,
respectively and $94 and $563 for the six months ended
June 30, 1997 and 1998, respectively .................. (632) (456) (1,460) (823)
Joint venture earnings (loss) ............................. 10 (4) 10 (7)
----------- ----------- ----------- -----------
Total other expense ................................... (622) (460) (1,450) (830)
----------- ----------- ----------- -----------
Income before provision for income taxes .............. 2,653 2,725 4,994 4,320
Provision for income taxes ................................ 944 895 1,441 1,339
----------- ----------- ----------- -----------
Net income ............................................ $ 1,709 $ 1,830 $ 3,553 $ 2,981
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE (NOTE 7):
Basic:
Net income .................................................. $ 0.33 $ 0.24 $ 0.70 $ 0.39
=========== =========== =========== ===========
Weighted-average number of common shares outstanding ........ 5,137,170 7,661,422 5,043,911 7,642,968
=========== =========== =========== ===========
Diluted:
Net income .................................................. $ 0.33 $ 0.24 $ 0.70 $ 0.39
=========== =========== =========== ===========
Weighted-average number of common shares outstanding
assuming dilution ....................................... 5,137,170 7,671,509 5,043,911 7,677,388
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
SAXTON INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share and per share amounts)
(unaudited)
<TABLE>
<CAPTION>
ADDITIONAL
SHARES COMMON PAID-IN RETAINED
OUTSTANDING STOCK CAPITAL EARNINGS TOTAL
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 ............ 7,619,142 $ 8 $ 20,670 $ 8,966 $ 29,644
Stock issued in connection with
acquisition of Maxim Homes, Inc.
(unaudited) ........................... 42,280 -- 338 -- 338
Net income for the six months
ended June 30, 1998 (unaudited) ....... -- -- -- 2,981 2,981
--------- --------- --------- --------- ---------
Balance at June 30, 1998 (unaudited) .... 7,661,422 $ 8 $ 21,008 $ 11,947 $ 32,963
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
SAXTON INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------
1997 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income .............................................................. $ 3,553 $ 2,981
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization ......................................... 623 766
Gain on sales of commercial properties ................................ (1,977) (310)
Joint venture loss (earnings) ......................................... (10) 7
Changes in operating assets and liabilities:
Increase in Due from Tax Credit Partnerships ........................ (1,785) (9,868)
Increase in construction contracts receivable ....................... (2,202) (1,767)
Decrease (increase) in costs and estimated earnings in
excess of billings on uncompleted contracts ....................... (1,385) 1,803
Decrease (increase) in properties under development ................. 920 (8,965)
Increase in prepaid expenses and other assets ....................... (2,507) (154)
Increase in accounts payable and accrued expenses ................... 4,839 1,810
Decrease in billings in excess of costs and
estimated earnings on uncompleted contracts ....................... (187) (958)
Increase in tenant deposits and other liabilities ................... 1,734 1,922
-------- --------
Net cash provided by (used in) operating activities ....... 1,616 (12,733)
-------- --------
Cash flows from investing activities:
Expenditures for property acquisitions and improvements ............... (11,035) (9,937)
Payment to purchase partnership interests ............................. (2,804) --
Proceeds from sales of commercial properties .......................... 5,505 984
Decrease (increase) in Due from related parties ....................... (496) 2
Decrease (increase) in notes receivable ............................... (273) 1,752
Capital contributions to joint ventures ............................... (190) --
Cash paid to acquire net assets of Maxim Homes, Inc. .................. -- (793)
-------- --------
Net cash used in investing activities ..................... (9,293) (7,992)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of notes payable ............................... 9,896 37,193
Principal payments on notes payable and capital lease obligations .... (13,494) (14,263)
Decrease in notes payable to related parties .......................... (2,446) --
Payments on subordinated dividend notes ............................... (2,698) --
Net proceeds from issuance of common stock ............................ 17,323 --
Capital contributions from partners ................................... 819 --
Distributions paid to partners ........................................ (2,321) --
-------- --------
Net cash provided by financing activities ................. 7,079 22,930
-------- --------
Net increase (decrease) in cash and cash equivalents ...... (598) 2,205
Cash and cash equivalents:
Beginning of period ................................................... 1,590 1,110
-------- --------
End of period ......................................................... $ 992 $ 3,315
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE> 7
SAXTON INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
1997 1998
-------- --------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for interest,
net of amounts capitalized .......................................... $ 1,346 $ 1,811
-------- --------
Cash paid during the period for income taxes .......................... $ -- $ 2,494
-------- --------
Non-cash transactions:
Common stock issued to acquire net assets of Maxim Homes, Inc. ........ $ -- $ 338
-------- --------
Capital lease obligation recorded in connection with equipment
recorded ............................................................ $ 136 $ 41
-------- --------
Recognition of revenue for the prior sale of a commercial property
which was subject to certain conditions ............................. $ -- $ 2,834
-------- --------
Deferred offering costs charged against gross proceeds of initial
public offering ..................................................... $ 2,321 $ --
-------- --------
Common stock issued to reduce subordinated dividend notes ............. $ 3,650 $ --
-------- --------
Warrants for common stock issued to reduce subordinated dividend
note obligations .................................................... $ 1,000 $ --
-------- --------
Amounts due from related parties offset against subordinated
dividend notes in satisfaction of the respective obligations ........ $ 729 $ --
-------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE> 8
SAXTON INCORPORATED AND SUBSIDIARIES
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, operation and sale of real property
located in the greater Las Vegas, Reno, Phoenix and Salt Lake City metropolitan
areas. 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 non-controlling 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., RealNet Commercial Brokerage, Big Tyme Food Marts,
Inc. and Maxim Homes, Inc.
On June 24, 1997, the Company completed its initial public offering (the
"Offering") of 2,275,000 shares of the Company's common stock ("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
$800,000 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 $700,000 of outstanding
amounts due to the Company by the principal stockholders were offset against the
Notes; (ii) $3.7 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 were exercisable at $9.90 per share if the Company achieved specified
levels of after-tax net income in 1997 and 1998. The actual level of after-tax
net income in fiscal 1997 was below the specified level and therefore the
warrants lapsed.
On March 20, 1998, the Company acquired all of the capital stock of Maxim
Homes, Inc. ("Maxim"), a Utah homebuilder. The acquisition was accounted for
using the purchase method of accounting. Maxim operates principally as a
single-family residential homebuilder, specializing in building homes ranging in
price from $145,000 to $185,000. The consideration paid at closing for this
acquisition consisted of: (i) $224,000 in cash; (ii) approximately $338,000 in
Common Stock (42,280 shares at $8.00 per share); and (iii) $569,000 in cash to
retire a portion of Maxim's debt. In addition, the Company may make five annual
installments ("earn-out payments") on March 31 of each year beginning in 1999,
subject to certain levels of required income. These earn-out payments are based
on a specified percentage of estimated after-tax net income of the Salt Lake
City real estate operations of the Company and are to be made 50% in the
Company's Common Stock and 50% in cash.
The accompanying condensed consolidated financial statements for the three
and six months ended June 30, 1997 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.
8
<PAGE> 9
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 ("GAAP") 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
six months ended June 30, 1997 and 1998. These condensed consolidated unaudited
interim financial statements should be read in conjunction with the Company's
audited consolidated financial statements and the notes thereto as of and for
the year ended December 31, 1997, which are included in the Company's Form 10-K
filed with the Securities and Exchange Commission for the year ended December
31, 1997. Certain reclassifications have been made to conform prior periods with
the current period presentation.
The Company historically has experienced, and expects to continue to
experience, variability in quarterly sales and revenues. The consolidated
results of operations for the three and six months ended June 30, 1998 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 - Risks and Related Factors."
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that effect the reported amounts of
assets and liabilities and disclosure of contingent assets and contingent
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>
DECEMBER 31, 1997 JUNE 30, 1998
----------------- -------------
(unaudited)
<S> <C> <C>
Cost:
Buildings ..................................... $ 21,257 $ 23,258
Tenant improvements ........................... 886 758
Land .......................................... 6,574 6,716
-------- --------
Real estate operating properties at cost ........ 28,717 30,732
Less accumulated depreciation ................... (2,784) (3,082)
-------- --------
Real estate operating properties, net .... $ 25,933 $ 27,650
======== ========
</TABLE>
NOTE 4. CONSTRUCTION CONTRACTS
Construction contracts receivable includes amounts retained pending contract
completion aggregating approximately $173,000 at December 31, 1997 and $162,000
at June 30, 1998. Based on anticipated completion dates, these retentions are
expected to be collected within the next twelve months.
Accounts payable and accrued expenses include amounts retained pending
subcontract completion aggregating approximately $1.2 million at December 31,
1997 and $1.6 million at June 30, 1998.
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>
DECEMBER 31, 1997 JUNE 30, 1998
----------------- -------------
(unaudited)
<S> <C> <C>
Costs incurred to date ....................... $ 61,309 $ 73,859
Estimated earnings to date ................... 17,273 23,504
-------- --------
78,582 97,363
Less billings to date ........................ (76,258) (95,884)
-------- --------
Cost and estimated earnings in excess of
billings, net ............................. $ 2,324 $ 1,479
======== ========
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
DECEMBER 31, 1997 JUNE 30, 1998
----------------- -------------
(unaudited)
<S> <C> <C>
Cost and estimated earnings in excess of
billings on completed contracts ...... $ 4,115 $ 2,312
Billings in excess of costs and estimated
earnings on uncompleted contracts ... (1,791) (833)
-------- --------
Costs and estimated earnings in excess of
billings, net ........................ $ 2,324 $ 1,479
======== ========
</TABLE>
NOTE 5. NOTES PAYABLE
Notes payable consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------- -------
<S> <C> <C>
Notes payable to various financial institutions, maturing at dates ranging
between August 1998 and November 2027. The notes bear interest monthly
at various rates ranging between 7.9% and 15.0%. (1)(2) .................. $31,743 $51,112
Notes payable to various individuals, maturing at dates ranging between July
1998 and May 1999. The notes bear interest at various rates ranging
between 15.0% and 24.0%. (3) ............................................. 8,720 12,400
Other ...................................................................... 147 103
------- -------
$40,610 $63,615
======= =======
</TABLE>
(1) On February 9, 1998, the Company signed a definitive loan agreement for
a $10.0 million revolving line of credit with a financial institution. The line
of credit provides for borrowings of up to $1.0 million for general working
capital requirements, $4.0 million for acquisition and development, including
strategic acquisitions and $5.0 million for land acquisitions. Borrowings under
the line of credit are secured by the pledge of certain Company receivables and
any land acquired with borrowings under the line of credit and bear interest at
1.0% over the lender's prime rate in effect from time to time (9.5% at June 30,
1998). As of June 30, 1998, $10.0 million was outstanding and $0 was available
to borrow under this line of credit. The agreement is also subject to certain
financial covenants.
(2) On July 30, 1997, the Company entered into a $5.0 million 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 in
the Agreement (10.0% at June 30, 1998), 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 June 30, 1998, the Company had
outstanding indebtedness of $4.2 million and available borrowings of $826,000
under the Agreement. Under the terms of the Agreement, the Company is required
to meet certain financial covenants.
(3) Through July 31, 1998, $1.7 million of notes payable maturing in July
1998 has been paid in full. The remaining $8.8 million of notes payable maturing
in July 1998 have been extended with new maturity dates ranging from July 1999
to August 1999.
NOTE 6. NOTES PAYABLE TO AND RECEIVABLE FROM RELATED PARTIES
Notes payable to related parties are unsecured notes payable to certain
stockholders, officers and Directors of the Company for development purposes.
Interest only payments are due monthly at rates ranging from 12.0% to 18.0%,
with all amounts due at various dates in 1998.
The Company has a note receivable of $265,000 from the Company's President
and principal stockholder. The note receivable bears interest at 10.25% and
matures on September 30, 1998.
10
<PAGE> 11
NOTE 7. EARNINGS PER COMMON SHARE
As required by Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share," ("EPS"), the following tables reconcile net income
applicable to common stockholders, basic and diluted shares and EPS for the
following periods:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1997 THREE MONTHS ENDED JUNE 30, 1998
------------------------------------------- -------------------------------------------
PER-SHARE PER-SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income ................ $ 1,709 $ 1,830
Basic EPS
Income applicable to
common stockholders ..... 1,709 5,137,170 $ 0.33 1,830 7,661,422 $ 0.24
--------- --------- ========= --------- --------- =========
Effect of dilutive
securities:
Stock options ........... -- -- -- 10,087
--------- --------- --------- ---------
Diluted EPS
Income applicable to
common stockholders
and assumed conversions . $ 1,709 5,137,170 $ 0.33 $ 1,830 7,671,509 $ 0.24
========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997 SIX MONTHS ENDED JUNE 30, 1998
------------------------------------------- -------------------------------------------
PER-SHARE PER-SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income ................ $ 3,553 $ 2,981
Basic EPS
Income applicable to
common stockholders ..... 3,553 5,043,911 $ 0.70 2,981 7,642,968 $ 0.39
--------- --------- ========= --------- --------- =========
Effect of dilutive
securities:
Stock options ........... -- -- -- 34,420
--------- --------- --------- ---------
Diluted EPS
Income applicable to
common stockholders
and assumed conversions . $ 3,553 5,043,911 $ 0.70 $ 2,981 7,677,388 $ 0.39
========= ========= ========= ========= ========= =========
</TABLE>
The Company had outstanding options to purchase Common Stock that were
excluded from the computation of diluted EPS since their exercise price was
greater than the average market price. The antidilutive options outstanding for
the three and six months ended June 30, 1998 were 383,250 and 55,950,
respectively.
NOTE 8. MANAGEMENT STOCK OPTION PLAN
In December 1994, the Company granted options to purchase an aggregate of
127,907 shares of Common Stock to various officers and other key employees under
separate letter agreements. In 1995, options to purchase 23,497 shares lapsed
without vesting upon certain employees' termination of employment with the
Company. Options granted to one officer of the Company vested 20% on December
29, 1995, 30% on December 29, 1996 and 50% on December 29, 1997. The remaining
options vest 20% per year on December 29th for five years beginning December 29,
1995. All options are exercisable from the date of vesting through December 28,
2004 at an exercise price of $6.10 per share. No options have been granted after
December 1994.
On June 30, 1997, the Company adopted a Management Stock Option Incentive
Plan (the "Option Plan") which provides for the grant of options to employees to
purchase Common Stock up to a maximum of 500,000 shares. Stock options which
terminate without having been exercised, shares forfeited or shares surrendered
will again be available for distribution in connection with future awards under
the Option Plan. As of June 30, 1998, the Company had outstanding 322,100 stock
options to certain executive officers and employees of the Company
11
<PAGE> 12
pursuant to the Option Plan. These options generally vest in equal annual
installments over five years commencing eighteen months from the award date and
will expire between June 30, 2007 and June 29, 2008.
NOTE 9. COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
The Company and its two principal stockholders are guarantors on
construction loans relating to Tax Credit Partnerships ("TCPs"). Total
construction loans payable for these TCPs were approximately $30.6 million and
$26.2 million at December 31, 1997 and June 30, 1998, respectively.
NOTE 10. RECENTLY ISSUED ACCOUNTING STANDARDS
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 this statement.
Management has not yet determined the disclosure impact of this statement.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto of Saxton
Incorporated (the "Company") appearing elsewhere in this Form 10-Q.
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
Revenue. Total revenue was $21.9 million for the three months ended June 30,
1998, representing a $5.7 million, or 35.1% increase from $16.2 million for the
three months ended June 30, 1997. This was primarily due to increases in revenue
from sales of homes, construction revenue and sales of commercial properties.
The increase in revenue from sales of homes was due to a 69.4% increase in home
sales. During the three months ended June 30, 1998, the Company sold 61 homes
compared to 36 homes sold during the three months ended June 30, 1997.
Construction revenue increased due to three Tax Credit Partnerships ("TCP")
projects (as later described) under construction during the three months ended
June 30, 1998 compared to only two TCP projects under construction during the
three months ended June 30, 1997. Sales of commercial properties increased due
to higher sales proceeds received for a retail center sold during the three
months ended June 30, 1998 compared to a land parcel sold during the three
months ended June 30, 1997.
Cost of Revenue. Total cost of revenue was $16.6 million for the three
months ended June 30, 1998, representing a $4.6 million, or 38.2% increase from
$12.0 million for the three months ended June 30, 1997. This was due to the same
factors explained above for revenue. The gross profit on the commercial property
sold in 1997 was significantly higher than the commercial property sold in 1998.
The 1997 sale was a parcel of land adjacent to a retail center held by the
Company as an operating property, thus the basis of the land was significantly
lower than the appraised value. The commercial property sold in 1998 was a
retail center upon which its book value increased over time due to tenant
improvements added to the value of the property. Gross profit as a percent of
revenue decreased to 24.0% for the three months ended June 30, 1998 from 25.7%
for the comparable period in 1997.
General and Administrative Expenses. General and administrative expenses
were $1.7 million for the three months ended June 30, 1998, representing a $1.1
million, or 206.7% increase from $549,000 for the three months ended June 30,
1997. This was primarily due to increased payroll expenses related to an
increase in the number of employees, other administrative related expansion
costs and a write-off of a receivable. The receivable amount which was
written-off during the second quarter was $405,000 and represented delinquent
rent and advances made by the Company to Operations Management Group ("OMG")
which leased a property constructed by the Company. The property has been
vacated by OMG and to date, the Company has been unable to collect on this
receivable and is pending litigation. The Company is not hopeful on collecting
this receivable. For further discussion of this transaction see "Item 13.
Certain Relationships and Related Transactions" in the Company's Form 10-K filed
for fiscal year ended December 31, 1997. General and administrative expenses as
a percentage of total revenue was 7.7% for the three months ended June 30, 1998
compared to 3.4% for the three months ended June 30, 1997.
Depreciation and Amortization. Depreciation and amortization was $375,000
for the three months ended June 30, 1998, representing a $38,000, or 11.3%
increase from $337,000 for the three months ended June 30, 1997. This was
primarily due to increases in equipment purchases necessitated by further
expansion and an increase in completed buildings in portfolio properties at June
30, 1998 compared to June 30, 1997.
Interest Expense, Net. Interest expense, net, was $456,000 for the three
months ended June 30, 1998, representing a $176,000 or 27.8% decrease from
$632,000 for the three months ended June 30, 1997. This was primarily due to
$201,000 of interest income recognized from TCPs for the three months ended June
30, 1998 compared to $0 for the three months ended June 30, 1997 and an increase
in the amount of interest expense capitalized for the three months ended June
30, 1998 compared to the three months ended June 30, 1997.
Income Before Provision for Income Taxes. As a result of the foregoing
factors, income before provision for income taxes was $2.7 million for the three
months ended June 30, 1998, representing a $72,000 or 2.7% increase
13
<PAGE> 14
from $2.7 million for the three months ended June 30, 1997. Income before
provision for income taxes as a percentage of total revenue was 12.5% for the
three months ended June 30, 1998 as compared to 16.4% for the three months ended
June 30, 1997.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Revenue. Total revenue was $34.6 million for the six months ended June 30,
1998, representing a $1.9 million, or 5.6% increase from $32.7 million for the
six months ended June 30, 1997. This was primarily due to increased revenues
from sales of homes partially offset by a decrease in sales of commercial
properties. The increase in revenues from sales of homes was due to 94 home
sales during the six months ended June 30, 1998 compared to 73 home sales during
the six months ended June 30, 1997. The decrease in revenues from sales of
commercial properties was due to only two property sales during the six months
ended June 30, 1998 compared to three property sales during the six months ended
June 30, 1997.
Cost of Revenue. Total cost of revenue was $26.2 million for the six months
ended June 30, 1998, representing a $1.6 million, or 6.7% increase from $24.6
million for the six months ended June 30, 1997. This was due to the same factors
explained above for revenue. Gross profit as a percent of revenue decreased
slightly to 24.2% for the six months ended June 30, 1998 from 24.9% for the
comparable period in 1997.
General and Administrative Expenses. General and administrative expenses
were $2.4 million for the six months ended June 30, 1998, representing a $1.3
million, or 122.9% increase from $1.1 million for the six months ended June 30,
1997. This was primarily due to increased payroll expenses related to an
increase in the number of employees, other administrative related expansion
costs and a write-off of a receivable. The receivable amount which was
written-off during the second quarter was $405,000 and represented delinquent
rent and advances made by the Company to OMG which leased a property constructed
by the Company. The property has been vacated by OMG and to date, the Company
has been unable to collect on this receivable and is pending litigation. The
Company is not hopeful on collecting this receivable. For further discussion of
this transaction see "Item 13. Certain Relationships and Related Transactions"
in the Company's Form 10-K filed for fiscal year ended December 31, 1997.
General and administrative expenses as a percentage of total revenue was 7.0%
for the six months ended June 30, 1998 as compared to 3.3% for the six months
ended June 30, 1997.
Depreciation and Amortization. Depreciation and amortization was $766,000
for the six months ended June 30, 1998, representing a $143,000, or 23.0%
increase from $623,000 for the six months ended June 30, 1997. This was
primarily due to increases in equipment purchases necessitated by further
expansion and an increase in completed buildings in portfolio properties at June
30, 1998 compared to June 30, 1997.
Interest Expense, Net. Interest expense, net, was $823,000 for the six
months ended June 30, 1998, representing a $637,000 or 43.6% decrease from $1.5
million for the six months ended June 30, 1997. This was primarily due to
$397,000 of interest income recognized from TCPs for the six months ended June
30, 1998 compared to $0 for the six months ended June 30, 1997 and an increase
in the amount of interest expense capitalized for the six months ended June 30,
1998 compared to the six months ended June 30, 1997.
Income Before Provision for Income Taxes. As a result of the foregoing
factors, income before provision for income taxes was $4.3 million for the six
months ended June 30, 1998, representing a $674,000, or 13.5% decrease from $5.0
million for the six months ended June 30, 1997. Income before provision for
income taxes as a percentage of total revenue was 12.5% for the six months ended
June 30, 1998 as compared to 15.3% for the six months ended June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
On June 24, 1997, the Company completed its initial public offering of
2,275,000 shares of the Company's common stock ("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
14
<PAGE> 15
land for future development; (iii) $2.8 million to acquire the interests of
various third party partners in certain properties; and (iv) approximately
$800,000 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
future operations, funds available from external sources of debt and equity
financing, together with cash on hand at June 30, 1998 will be sufficient to
provide for its capital requirements for at least the next 12 months.
All 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, when applicable, 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 $12.7
million for the six months ended June 30, 1998 compared to net cash provided by
operating activities of $1.6 million for the six months ended June 30, 1997. The
change in operating cash flow was primarily due to an increase in properties
under development and an increase in Due from TCPs. Properties under development
increased to $37.5 million at June 30, 1998 from $21.6 million at December 31,
1997 primarily due to the acquisition of Maxim Homes, Inc., increases in the
Silver Springs and Taylor Ranch developments and the addition of five properties
which began development and construction during the six months ended June 30,
1998. Due from TCPs increased to $27.3 million at June 30, 1998 from $17.4
million at December 31, 1997 primarily due to the addition of two new TCP
projects (Spanish Hills and South Valley) and the continued development of
another (Rancho Mesa) during the six months ended June 30, 1998.
Investing Activities. Net cash used in investing activities was $8.0 million
for the six months ended June 30, 1998 compared to $9.3 million for the six
months ended June 30, 1997. This was primarily due to $5.5 million in proceeds
from sales of three commercial properties during the six months ended June 30,
1997 and $984,000 in proceeds from only one similar transaction occurring in the
six months ended June 30, 1998, partially offset by a $1.8 million decrease in
notes receivable from $2.9 million at December 31, 1997 to $1.1 million at June
30, 1998.
Financing Activities. Net cash provided by financing activities was $22.9
million for the six months ended June 30, 1998, representing a $15.8 million
increase from $7.1 million for the six months ended June 30, 1997. This was
primarily due to an increase in proceeds from notes payable. Notes payable
increased to $63.6 million at June 30, 1998 from $40.6 million at December 31,
1997 primarily due to increased construction activity funded by notes payable
and the acquisition of land under development.
The Company anticipates the remaining development of portfolio projects
during the next twelve months will cost approximately $2.2 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. The Company also expects to purchase
approximately $785,000 of construction and computer equipment during the
remainder of 1998.
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 June 30, 1998,
the Tax Credit Partnerships or TCPs as previously defined, were indebted to the
Company in the aggregate amount of approximately $27.3 million, representing
developer fees and land and construction costs. Of such amount, approximately
$6.4 million is payable to the Company by the TCPs from loan proceeds and
additional capital contributions of the investor limited partners. The balance
of approximately $20.9 million is payable to the Company by the TCPs 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.
15
<PAGE> 16
The Company has made its capital contributions to the TCPs 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 $2.6 million, to meet operating deficits, if any, of such TCPs.
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 typically subject to certain contingencies such as the buyer's
ability to qualify for financing. Homes covered by such sales contracts that are
not yet closed 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 June 30,
1998 and December 31, 1997, the Company had 50 and 37 homes, respectively, in
backlog, representing an aggregate sales value of approximately $6.0 million and
$3.0 million, respectively.
The Company is also involved in the design-build development of commercial
projects. Backlog for such commercial projects is defined as the unrecognized
revenue on 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 June 30, 1998 and December 31, 1997, the Company
had backlog under its design-build contracts of approximately $46.8 million and
$36.4 million, respectively.
SELF-FUNDED INSURANCE
As of June 1, 1998, the Company (including all Nevada wholly-owned
subsidiaries and divisions) has been approved and certified as a self-insured
employer for workers' compensation purposes. The Company's policy has certain
cap loss limitations.
YEAR 2000
The Company's process for becoming Year 2000 ("Y2K") compliant has been to
perform an ongoing comprehensive study and review of computer hardware, software
and systems, both internal and external, and non-computer related systems which
may be affected by certain computerized functions. The Company does not believe
the non-computer related systems, whether Y2K compliant or not, will have a
material impact on the Company's operations. The Company has formally contacted
or will contact significant third parties, including service providers, vendors,
suppliers, subcontractors, financial institutions, consultants and various
government agencies, to obtain assurance of Y2K compliance. However, there can
be no guarantee that the systems of other companies upon which the Company's
systems rely will be Y2K compliant in a successful, timely manner. Failure to
convert by an external source or provider or the failure to convert properly
would have a material adverse effect on the Company, as would the Company's
failure to convert, or convert properly, an internal system.
The Company has also included activities to increase awareness of the Y2K
issue across the Company, assess where the Company has issues, determine
proposed resolutions, validate those proposed resolutions and implement system
solutions. The Company has not completed its assessment of applications within
the Company that are not Y2K compliant and is in varying stages of determining
appropriate resolutions to the issues identified. The Company currently expects
to complete all business critical internal hardware and software modification
and testing by early calendar 1999.
Given the information known at this time about the Company's systems having
such issues, coupled with the Company's ongoing, normal course-of-business
efforts to upgrade or replace business critical systems and software
applications as necessary, it is currently expected that Y2K costs, the majority
of which are expected to be incurred in fiscal 1999, will not have an impact
exceeding a range of $100,000-$150,000 on the Company's liquidity or its results
of operations. Current expenditures related to this issue have been negligible
thus far and performed by existing internal staff. These expected costs will be
incorporated into the Company's operating plan for fiscal 1999. These costs
include incremental personnel costs, consulting costs, and costs for the
modification of or replacement of existing hardware and software. These costs
will be funded through cash flows from operations and are expensed as incurred.
Purchased hardware and software will be capitalized in accordance with the
Company's normal accounting policy. The costs of the project and the timing in
which the Company believes it will complete the necessary Y2K modifications are
based on management's best estimates, which were derived utilizing numerous
assumptions of future events, including the continued availability of certain
resources, third party modification plans, and other factors. However, there can
be no guarantee that these estimates will be achieved and actual results could
differ materially from those anticipated.
Specific factors that might cause such material differences include, but are
not limited to, the success of the Company in identifying systems and programs
having Y2K issues, the nature and amount of programming required to upgrade or
replace the affected programs, the availability and cost of personnel trained in
this area and the extent to which the Company might be adversely impacted by
third party (vendors, subcontractors, lenders, bond trustees, etc.) failure to
remediate their own Y2K issues. Failure by the Company and/or its vendors and
subcontractors and in particular, the local governments, on which the Company is
materially dependent to complete Y2K compliance work in a timely manner could
have a material adverse effect on the Company's operations.
The Company currently has not established a formal contingency plan in the
event the Company is not successful with its attempts to be fully Y2K compliant;
however, the Company believes that it will develop a more formal contingency
plan that may include the stockpiling of construction raw materials, automated
reports and the development of back-up systems as an alternative to computers in
the month prior to December 31, 1999.
RISKS AND RELATED FACTORS
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 and environmental conditions in
the greater Las Vegas, Reno, Phoenix and Salt Lake City metropolitan areas, (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 homebuilding 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
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
The foregoing Management's Discussion and Analysis of Financial Condition
and Results of Operations section contains certain forward-looking statements
and information relating to the Company that are based on the beliefs of
management as well as assumptions made by and information currently available to
management. Such forward-looking statements include, without limitation, the
Company's expectation and estimates as to the Company's business operations,
including the introduction of new products and future financial performance,
including growth in revenues and net income and cash flows. In addition,
included herein the words "anticipates," "believes," "estimates," "expects,"
"plans," "intends" and similar expressions, as they relate to the Company or its
management, are intended to identify forward-looking statements. Such statements
reflect the current views of the Company's management, with respect to future
events and are subject to certain risks, uncertainties and assumptions. In
addition, the Company specifically wishes to advise readers that the factors
listed under the captions "Liquidity and Capital Resources," "Risks and Related
Factors" and other risk factors including but not limited to: the primary
dependence on the greater Las Vegas area; homebuilding and other real estate
development and investments; indebtedness; potential inability to obtain future
financing; variability, erratic weather conditions and seasonality of results;
dependence on key personnel; control by current stockholders; regulatory and
environmental risks; and acquisitions and expansion into new markets could cause
actual results to differ materially from those expressed in any forward-looking
statement. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those discussed herein as anticipated, believed, established or
expected.
17
<PAGE> 18
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
No matters were submitted to a vote of the Company's security holders during
the second quarter of the fiscal year ending December 31, 1998. However, on July
2, 1998, the Company held its annual meeting of shareholders at which the eight
incumbent Directors were re-elected.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits - Refer to Index on page 20 of this filing.
b) Form 8-K, Item 5. filed April 6, 1998.
18
<PAGE> 19
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
August 13, 1998 By: /s/ Douglas W. Hensley
-----------------------------------
Douglas W. Hensley
Executive Vice-President and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
By: /s/ Melody J. Sullivan
-----------------------------------
Melody J. Sullivan
Vice-President and
Chief Accounting Officer
(Principal Accounting Officer)
19
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------ ----------- ------------
<S> <C> <C>
27 Financial Data Schedule. 21
</TABLE>
20
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,315
<SECURITIES> 0
<RECEIVABLES> 34,117<F1>
<ALLOWANCES> 401
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 71,979
<DEPRECIATION> 4,280
<TOTAL-ASSETS> 116,090
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> 32,955
<TOTAL-LIABILITY-AND-EQUITY> 116,090
<SALES> 31,911
<TOTAL-REVENUES> 35,140
<CGS> 25,803
<TOTAL-COSTS> 26,225
<OTHER-EXPENSES> 3,209<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,386
<INCOME-PRETAX> 4,320
<INCOME-TAX> 1,339
<INCOME-CONTINUING> 2,981
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,981
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.39
<FN>
<F1>Receivables are comprised of Due from Tax Credit Partnerships, Construction
Contracts Receivable, Notes Receivable and Due from Related Parties.
<F2>Other Expenses are comprised of general and administrative, depreciation and
amortization expenses and joint venture loss.
</FN>
</TABLE>
