<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
-----------------
DATE OF REPORT: November 20, 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)
<PAGE>
SAXTON INCORPORATED AND SUBSIDIARIES
CURRENT REPORT ON FORM 8-K/A
NOVEMBER 20, 1998
<TABLE>
<CAPTION>
Page
Number
<S> <C>
Item 2. Acquisition or Disposition of Assets........................ 3
Item 5. Other Events................................................ 3
Item 7. Financial Statements and Exhibits........................... 3
SIGNATURES................................................................... 20
</TABLE>
2
<PAGE>
SAXTON INCORPORATED
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
ITEM 5. AMENDMENT TO FILE ACQUISITION FINANCIAL STATEMENTS
On November 20, 1998, Saxton Incorporated (the "Company") filed a report on
Form 8-K with respect to its acquisition of Diamond Key Homes, Inc., and
Diamond Key Construction, LLC (collectively Diamond Key Homes) from an
unaffiliated party. At the time of the filing, it was impracticable
to provide the financial statements and pro forma financial information
required to be filed relative to the acquisition. This current report on
Form 8-K/A is being filed to amend such prior report and to include such
required financial statements and pro forma financial information in
accordance with Item 7. of Form 8-K.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
a) Financial Statements of Business Acquired
Independent Auditors' Report
Combined Balance Sheets as of September 30, 1998 (unaudited) and
December 31, 1997
Combined Statements of Earnings for the nine months ended
September 30, 1998 (unaudited) and the year ended December 31,1997
Combined Statements of Shareholder's Equity for the nine months ended
September 30, 1998 (unaudited) and the year ended December 31, 1997
Combined Statements of Cash Flows for the nine months ended September
30, 1998 (unaudited) and the year ended December 31, 1997
Notes to Combined Financial Statements
b) Pro Forma Financial Statements
Pro Forma Condensed Consolidated Balance Sheet as of September 30,
1998
Pro Forma Condensed Consolidated Statements of Income for the nine
months ended September 30, 1998
ProForma Condensed Consolidated Statements of Income for the year
ended December 31, 1997
Notes to Pro Forma Condensed Consolidated Financial Statements
c) Exhibits - not applicable.
3
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Diamond Key Homes, Inc. and
Diamond Key Construction, LLC:
We have audited the accompanying combined balance sheet of Diamond Key Homes,
Inc. and Diamond Key Construction, LLC (collectively Diamond Key Homes) as of
December 31, 1997, and the related combined statements of earnings,
shareholder's equity and cash flows for the year then ended. These combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Diamond Key Homes as
of December 31, 1997, and the results of their operations and their cash flows
for the year then ended in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Phoenix, Arizona
April 10, 1998, except as to the third
paragraph of note 9, which is as of
January 13, 1999
4
<PAGE>
DIAMOND KEY HOMES, INC.
Combined Balance Sheets
September 30, 1998 and December 31, 1997
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1998 1997
--------------- ---------------
<S> <C> <C>
(unaudited)
Cash and cash equivalents.................................. $ 368,335 $ 133,408
Trade accounts receivable (note 7)......................... 658,564 300,123
Real estate held for development (note 2).................. 21,463,337 21,198,548
Option deposits (note 4)................................... 1,661,674 2,703,559
Furniture, fixtures and equipment, net of accumulated
depreciation of $347,631 and $261,345 at September
30, 1998 and December 31, 1997, respectively............ 148,115 223,638
Other assets............................................... 454,683 319,587
Prepaid expenses........................................... 144,579 115,094
--------------- ---------------
$ 24,899,287 $ 24,993,957
--------------- ---------------
--------------- ---------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Notes payable (note 2)..................................... $ 13,269,937 $ 15,060,302
Accounts and subcontractors payable........................ 2,707,177 2,722,923
Accrued expenses........................................... 357,362 328,805
Deferred revenue........................................... - 39,214
Customer deposits.......................................... 381,142 481,498
--------------- ----------------
Total liabilities................................. 16,715,618 18,632,742
--------------- ----------------
Shareholder's equity:
Common stock of Diamond Key Homes, Inc.; $1 par
value; authorized 1,000,000 shares; 1,000 shares
issued and outstanding at September 30, 1998 and
December 31, 1997..................................... 1,000 1,000
Common stock of Diamond Key Construction, LLC,
$1 par value; authorized 1,000,000 shares; 1,000
shares issued and outstanding at September 30, 1998
and December 31, 1997................................. 1,000 1,000
Additional paid-in capital.............................. 593,098 593,098
Retained earnings....................................... 7,588,571 5,766,117
--------------- ---------------
Total shareholder's equity........................ 8,183,669 6,361,215
Commitments, contingencies and subsequent events (notes
3, 4, 5, 6, 7 and 9)....................................
--------------- ---------------
$ 24,899,287 $ 24,993,957
--------------- ---------------
--------------- ---------------
</TABLE>
See accompanying notes to combined financial statements.
5
<PAGE>
DIAMOND KEY HOMES, INC.
Combined Statements of Earnings
Nine months ended September 30, 1998 and year ended December 31, 1997
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED SEPTEMBER 30, DECEMBER 31,
1998 1997
------------------- -------------------
<S> <C> <C>
(unaudited)
Homebuilding revenues...................................... $ 35,139,360 $ 49,781,798
Land sales revenues........................................ 4,422,742 4,322,035
--------------- ---------------
39,562,102 54,103,833
--------------- ---------------
Homebuilding cost of sales................................. 31,277,312 45,709,307
Cost of land sales......................................... 3,494,849 4,736,677
--------------- ---------------
34,772,161 50,445,984
--------------- ---------------
Gross margin...................................... 4,789,941 3,657,849
General and administrative expenses........................ 1,960,913 2,409,057
--------------- ---------------
Operating earnings................................ 2,829,028 1,248,792
--------------- ---------------
Other income (expense):
Interest income......................................... 37,895 32,411
Interest expense........................................ (12,571) (17,262)
Other income (expense).................................. 116,402 (7,719)
--------------- ---------------
141,726 7,430
--------------- ---------------
Net earnings...................................... $ 2,970,754 $ 1,256,222
--------------- ---------------
--------------- ---------------
</TABLE>
See accompanying notes to combined financial statements.
6
<PAGE>
DIAMOND KEY HOMES, INC.
Combined Statements of Shareholder's Equity
Nine months ended September 30, 1998 and year ended December 31, 1997
<TABLE>
<CAPTION>
DIAMOND DIAMOND KEY
KEY HOMES, CONSTRUCTION,
INC. LLC ADDITIONAL TOTAL
COMMON COMMON PAID-IN RETAINED SHAREHOLDER'S
STOCK STOCK CAPITAL EARNINGS EQUITY
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balances at
December 31, 1996............. $ 1,000 $ 1,000 $ 593,098 $ 5,160,774 $ 5,755,872
Net earnings.................. - - - 1,256,222 1,256,222
Distributions................. - - - (650,879) (650,879)
-------------- -------------- -------------- -------------- --------------
Balances at
December 31, 1997............. 1,000 1,000 593,098 5,766,117 6,361,215
Net earnings for the nine
months ended September 30,
1998 (unaudited).............. - - - 2,970,754 2,970,754
Distributions (unaudited)..... - - - (1,148,300) (1,148,300)
-------------- -------------- -------------- -------------- --------------
Balances at
September 30, 1998 (unaudited) $ 1,000 $ 1,000 $ 593,098 $ 7,588,571 $ 8,183,669
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
See accompanying notes to combined financial statements.
7
<PAGE>
DIAMOND KEY HOMES, INC.
Combined Statements of Cash Flows
Nine months ended September 30, 1998 and year ended December 31, 1997
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED SEPTEMBER 30, DECEMBER 31,
1998 1997
------------------- -------------------
<S> <C> <C>
(unaudited)
Cash flows from operating activities:
Net earnings............................................ $ 2,970,754 $ 1,256,222
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization......................... 84,896 95,704
Increase (decrease) in cash due to changes in:
Accounts receivable................................. (358,441) (1,539)
Real estate held for development.................... (264,789) (4,017,155)
Option deposits..................................... 1,041,885 379,314
Other assets........................................ (135,096) (241,735)
Prepaid expenses.................................... (29,485) (93,578)
Accounts and subcontractors payable................. (15,746) 514,526
Accrued expenses.................................... 28,557 (17,725)
Deferred revenue.................................... (39,214) 39,214
Customer deposits................................... (100,356) (142,980)
--------------- ---------------
Net cash provided by (used in) operating activities 3,182,965 (2,229,732)
--------------- ---------------
Cash flows used in investing activities - purchases of
furniture, fixtures and equipment....................... (9,373) (22,331)
--------------- ---------------
Cash flows from financing activities:
Proceeds from notes payable............................. 22,692,200 54,903,496
Repayment of notes payable.............................. (24,482,565) (52,686,402)
Repayment of notes payable from an affiliate............ - (220,000)
Distributions to shareholder............................ (1,148,300) (650,879)
Decrease in due to shareholder.......................... - (42,000)
--------------- ---------------
Net cash provided by (used in) financing activities (2,938,665) 1,304,215
--------------- ---------------
Net increase (decrease) in cash and cash equivalents....... 234,927 (947,848)
Cash and cash equivalents at the beginning of the period... 133,408 1,081,256
--------------- ---------------
Cash and cash equivalents at the end of the period......... $ 368,335 $ 133,408
--------------- ---------------
--------------- ---------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest..................................... $ 993,666 $ 1,477,779
--------------- ---------------
--------------- ---------------
</TABLE>
See accompanying notes to combined financial statements.
8
<PAGE>
DIAMOND KEY HOMES, INC.
Notes to Combined Financial Statements
September 30, 1998 (unaudited) and December 31, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND BASIS OF PRESENTATION
The combined financial statements include the accounts of Diamond Key
Homes, Inc. and Diamond Key Construction, LLC (collectively Diamond Key
Homes or the Company). The financial statements have been prepared on a
combined basis because of common management and ownership.
Prior to July 1, 1994, Diamond Key Homes, Inc. conducted all phases of
home building activities, including the acquisition and development of
real estate, as well as the construction and sale of finished homes.
Effective with the organization of Diamond Key Construction, LLC on July
1, 1994, the responsibility for all home construction was assumed by
Diamond Key Construction, LLC under a contract between Diamond Key
Construction, LLC and Diamond Key Homes, Inc. Diamond Key Homes, Inc.
retained the acquisition, marketing and selling responsibilities. All
balances and transactions between the combining entities have been
eliminated.
Historically, the Company has concentrated its market focus on a wide
range of homebuyers and sales prices. Effective January 1997, management
changed the Company's market strategy to focus primarily on first time
and move-up homebuyers.
The Company currently conducts home building operations solely in the
Phoenix and Tucson, Arizona markets. Presently Arizona, and Phoenix in
particular, enjoys a strong real estate market. The growth of this market
has been enhanced by the relatively low interest rates on home mortgage
loans. However, a decline in the Arizona real estate market, or increase
in interest rates could have a significant impact on the Company's
operating results and estimates made by management.
REVENUE RECOGNITION
Revenues applicable to homes sold are recognized upon the close of escrow
and transfer of title. The Company requires an initial deposit with the
signing of a sales contract. All deposits, unless held by a title
company, are recorded as customer deposits and, upon close of escrow the
appropriate amount of revenue is recognized.
REAL ESTATE HELD FOR DEVELOPMENT
Real estate held for development includes land held for development,
partially improved land, homes on finished lots in various stages of
completion and model home inventory. These assets include direct
construction costs for homes and common costs. Common costs include land
development costs, unrecoverable model costs and development period
interest, all of which are capitalized. The capitalized costs are
allocated, on a subdivision basis, to residential lots based on a method
which approximates the relative sales value method. Cost of sales
includes the direct construction costs of the home and an allocation of
common costs, and other direct marketing expenses.
During the nine months ended September 30, 1998 and the year ended
December 31, 1997, the Company incurred interest costs, including points,
of $993,666 (unaudited) and $1,477,779, respectively, of which $981,095
(unaudited) and $1,460,517, respectively, was capitalized. At September
30, 1998 and December 31, 1997, $353,798 (unaudited) and $31 0,580,
respectively, of interest costs remained capitalized and is included in
real estate held for development in the accompanying combined balance
sheets.
9
<PAGE>
DIAMOND KEY HOMES, INC.
Notes to Combined Financial Statements, continued
Included in real estate under development were the following amounts:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
--------------- ---------------
<S> <C> <C>
(unaudited)
Construction in progress $ 10,371,724 $ 11,532,265
Model home inventory 1,876,360 1,178,958
Land held for development 9,215,253 8,122,009
Land held for sale - 365,316
--------------- ---------------
$ 21,463,337 $ 21,198,548
--------------- ---------------
--------------- ---------------
</TABLE>
FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment are recorded at cost. Depreciation is
provided on the straight-line method over the estimated useful lives of
the assets, which range from five to seven years.
INCOME TAXES
Diamond Key Homes, Inc. is an S corporation and Diamond Key Construction,
LLC is a limited liability company, both of which are treated as
pass-through entities for federal and state income tax reporting
purposes. As such, the liability for corporate income tax arising from
the transactions of the respective companies is the responsibility of the
shareholder. Therefore, no provision for income taxes has been made in
the accompanying combined financial statements.
CASH AND CASH EQUIVALENTS
The Company considers all short-term investments purchased with an
original maturity of three months or less to be cash equivalents.
USE OF ESTIMATES
Management of the Company has made certain estimates and assumptions
relating to the reporting of assets and liabilities and revenues and
expenses and the disclosure of contingent assets and liabilities to
prepare these financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company reviews long-lived assets, such as real estate held for
development, and certain identifiable intangibles for impairment whenever
events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to
future net cash flows (undiscounted and without interest) expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
UNAUDITED INTERIM COMBINED FINANCIAL STATEMENTS
The combined financial statements as of and for the nine months ended
September 30, 1998 are unaudited. In the opinion of management, such
financial statements reflect all adjustments recurring for a fair
presentation of the results of the respective interim periods. All such
adjustments are of a normal recurring nature.
(2) NOTES PAYABLE
Notes payable consist of the following:
10
<PAGE>
DIAMOND KEY HOMES, INC.
Notes to Combined Financial Statements, continued
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
--------------- ---------------
<S> <C> <C>
(unaudited)
Construction notes payable to various banks, annual
interest at prime (8.46% (unaudited) and 8.50% at
September 30, 1998 and December 31, 1997, respectively)
plus 0.75% to 1.00%, interest payable monthly, various
maturities in 1999, secured by homes under
construction...................................... $ 13,269,937 $ 13,744,745
Notes payable to bank, at fixed interest rates
ranging from 8.63% to 9.00% at December 31, 1997,
principal and interest payable monthly until
maturity in 2025, secured by model homes.......... - 200,715
Notes payable to individuals, at stated interest
rates ranging from 26.41% to 26.83% at December
31, 1997 and fixed dollar returns which approximate
these rates, interest payable monthly, various
maturities through 1998, partially secured by
certain real estate held for development.......... - 1,114,842
--------------- ---------------
$ 13,269,937 $ 15,060,302
--------------- ---------------
--------------- ---------------
</TABLE>
The anticipated aggregate principal payment requirements on the notes
payable are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S> <C>
1998 $ 14,865,572
1999 6,521
2000 7,105
2001 7,740
2002 8,433
Thereafter 164,931
----------------
$ 15,060,302
----------------
----------------
</TABLE>
The anticipated aggregate principal payment requirements on the notes
payable at September 30, 1998 are as follows (unaudited):
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S> <C>
1999 $ 13,269,937
2000 -
2001 -
2002 -
2003 -
Thereafter -
----------------
$ 13,269,937
----------------
----------------
</TABLE>
As of December 31, 1997, the Company was in violation of one lender
required covenant which constituted an event of default under the loan
agreement. The lender waived this event of default through a letter dated
April 6, 1998. In 1998, the Company became compliant with this covenant.
11
<PAGE>
DIAMOND KEY HOMES, INC.
Notes to Combined Financial Statements, continued
(3) LEASES
The Company leases office space and various office equipment under
non-cancelable operating leases through August 2000. The Company also
leases model homes under month-to-month and other operating leases. Total
revenues recorded as a result of the sale-leaseback transactions for the
nine months ended September 30, 1998 and during the year ended December
31, 1997 was approximately $0 (unaudited) and $3,700,000, respectively,
of which at September 30, 1998 and December 31, 1997, $0 (unaudited) and
$39,214, respectively, are included in deferred revenue in the
accompanying combined balance sheets. At September 30, 1998 and December
31, 1997, the Company had 10 (unaudited) and 22 model homes,
respectively, under such leases. At December 31, 1997, the scheduled
minimum rental payments due under operating leases were as follows:
<TABLE>
<S> <C>
1998 $ 195,137
1999 24,864
2000 6,655
----------------
Total minimum lease payments $ 226,656
----------------
----------------
</TABLE>
At September 30, 1998, the scheduled minimum rental payments due under
operating leases were as follows (unaudited):
<TABLE>
<S> <C>
1999 $ 35,606
2000 -
2001 -
2002 -
2003 -
----------------
Total minimum lease payments $ 35,606
----------------
----------------
</TABLE>
Total rent expense for all operating leases for the nine months ended
September 30, 1998 and the year ended December 31, 1997 was $459,076 and
$486,397, (unaudited) respectively.
(4) OPTION DEPOSITS
The Company has option deposits on five subdivisions in which it is
currently selling , as well as refundable and non-refundable option
deposits on five subdivisions which are under development or
consideration for purchase at December 31, 1997. Under the terms of the
related rolling option agreements, if the Company fails to exercise its
option to acquire all of the lots included in the option, the deposit may
be forfeited. In general, the option deposits are applied to the final
lots acquired under the option agreements. At September 30, 1998, the
Company has option deposits on four (unaudited) subdivisions in which it
is currently selling.
(5) RETIREMENT PLAN
The Company sponsors a 401(k) retirement plan (the "Plan") covering all
eligible employees as defined in the Plan document. Matching employer
contributions to the Plan are discretionary. In 1997, the Company elected
to match 25% of the first 10% of each employee's contribution. The
Company's contributions for 1997 totaled $12,270. During the nine months
ended September 30, 1998, the Company elected to match 25% of the first
10% of each employee's contribution. The Company's contributions for the
nine months ended September 30, 1998 totaled $3,856 (unaudited).
(6) CONTINGENCIES
The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially
12
<PAGE>
DIAMOND KEY HOMES, INC.
Notes to Combined Financial Statements, continued
affect the financial position, operations or liquidity of the Company.
The Company has developed a plan to deal with the Year 2000 problem, and
plans to begin converting its computer systems to be Year 2000 compliant
in 1999. The Plan provides for conversion efforts to be completed by the
end of 1999. The Year 2000 problem is the result of computer programs
being written using two digits rather than four to define the applicable
year. The Company does not believe expenditures to be Year 2000 compliant
will be material, and is expensing all costs associated with these
systems changes as the costs are incurred.
(7) RELATED PARTY TRANSACTIONS
During 1996, the Company borrowed $220,000 from an affiliate. The entire
principal amount, along with interest at 10%, was repaid during 1997.
In 1997 and during the nine months ended September 30, 1998, the Company
received monthly fees from an affiliate for management and accounting
services. Total fees received from this affiliate equaled $27,000
(unaudited) and $19,684 for the nine months ended September 30, 1998 and
the year ended December 31, 1997, respectively.
The Company is reimbursed from a related party for its share of office
space used. Total rent expense related to this space was $27,859
(unaudited) and $24,680 for the nine months ended September 30, 1998 and
the year ended December 31, 1997, respectively.
Additionally, the Company is reimbursed from a related party for the
payment of certain operating expenses. Total amounts received from this
affiliate were $3,064 (unaudited) and $27,268 for the nine months ended
September 30, 1998 and the year ended December 31, 1997, respectively.
Included in accounts receivable in the accompanying combined balance
sheets at September 30, 1998 and December 31, 1997, were $7,148
(unaudited) and $7,813, respectively, due from a related party.
The Company is currently constructing a residence for the shareholder of
the Company that will be sold to the shareholder at cost upon completion.
The balance in real estate under development in the accompanying combined
balance sheets related to this residence under construction was $385,000
(unaudited) and $321,592 as of September 31, 1998 and December 31, 1997,
respectively.
(8) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "DISCLOSURES ABOUT
FAIR VALUE OF FINANCIAL INSTRUMENTS" requires that the Company disclose
estimated fair values for its financial instruments. This statement
defines the fair value of a financial instrument as the amount at which
the instrument could be exchanged in a current transaction between
willing parties. The following comments apply to the Company's financial
instruments.
CASH AND CASH EQUIVALENTS
The carrying amount is assumed to be the fair value because of the
liquidity of these instruments.
TRADE ACCOUNTS RECEIVABLES, ACCOUNTS AND SUBCONTRACTORS PAYABLE, AND
ACCRUED EXPENSES
The carrying amount approximates fair value because of the short maturity
of these instruments.
NOTES PAYABLE
The fair value of the Company's notes payable approximate the terms at
which they could be replaced. Therefore, the fair value approximates the
carrying value of these financial instruments.
13
<PAGE>
DIAMOND KEY HOMES, INC.
Notes to Combined Financial Statements, continued
(9) SUBSEQUENT EVENTS
In January 1998, the Company sold the majority of its remaining interest
in the Neely Ranch subdivisions. The sale included 30 developed and 66
undeveloped lots and the assignment of the Company's option to purchase
an additional 88 undeveloped lots. Sales and cost of sales amounted to
approximately $2,719,000 and $2,021,000, respectively.
In January 1998, $826,000 was distributed to the shareholder of the
Company.
The Company entered into a purchase agreement with Saxton Incorporated
(Saxton) which closed on November 13, 1998. Under the terms of that
agreement the purchase price is 150% of the Company's net book equity at
November 6, 1998, plus $2.0 million, payable 50% in cash and 50% in
Saxton Common Stock, on November 7, 1999.
(10) SUBSEQUENT EVENTS AFTER SEPTEMBER 30, 1998 (UNAUDITED)
In October and November 1998, a total of $1,148,300 was distributed to
the shareholder of the Company.
The Company entered into a purchase agreement with Saxton Incorporated
which closed on November 13, 1998. Under the terms of that agreement the
purchase price is 150% of the Company's net book equity at November 6,
1998 plus $2.0 million, payable 50% in cash and 50% in Saxton common
stock, on November 7, 1999.
14
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) OF
SAXTON INCORPORATED AND SUBSIDIARIES AND ACQUIRED BUSINESS
The following pro forma condensed consolidated balance sheet as of
September 30, 1998 and the pro forma condensed consolidated statements of
operations for the nine months ended September 30, 1998 and the year ended
December 31, 1997 give effect to the acquisition of Diamond Key Homes, Inc.
and Diamond Key Construction LLC ("Diamond Key"). The transaction is
reflected as of September 30, 1998 for the pro forma condensed consolidated
balance sheet and as of January 1, 1997 for the pro forma condensed
consolidated statements of operations. The pro forma information is based on
the respective historical financial statements of Saxton Incorporated and
subsidiaries ("Saxton") and Diamond Key giving effect to the acquisition
under the purchase method of accounting and the assumptions and adjustments
described in the accompanying notes to the pro forma condensed consolidated
financial statements.
The pro forma condensed consolidated financial statements have been
prepared by the management of Saxton based upon the unaudited financial
statements of Saxton and Diamond Key as of September 30, 1998 and the nine
months then ended, and the audited financial statements of Saxton and Diamond
Key for the year ended December 31, 1997. Management of Saxton does not
believe that the pro forma condensed consolidated financial statements are
indicative of the results that actually would have occurred if the
combinations had been in effect on the dates indicated or which may be
obtained in the future. The pro forma condensed consolidated financial
statements should be read in conjunction with the financial statements and
notes of Saxton and Diamond Key.
15
<PAGE>
SAXTON INCORPORATED AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998
(unaudited)
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Saxton Diamond
Historical Key Pro Forma
Consolidated Homes Adjustments Notes Pro Forma (A)
------------ ------------ ------------ ------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Real estate properties:
Operating properties, net of accumulated depreciation. . . $ 27,513 $ - $ - $ 27,513
Properties under development . . . . . . . . . . . . . . . 47,955 12,398 - 60,353
Land held for future development or sale . . . . . . . . . 1,860 9,365 - 11,225
------------ ------------ ------------ ------------
Total real estate properties. . . . . . . . . . . . . 77,328 21,763 - 99,091
Cash and cash equivalents. . . . . . . . . . . . . . . . . . 1,399 368 - 1,767
Due from Tax Credit Partnerships . . . . . . . . . . . . . . 35,774 - - 35,774
Construction contracts receivable, net of allowance
for doubtful accounts. . . . . . . . . . . . . . . . . . . . 3,642 - - 3,642
Costs and estimated earnings in excess of billings on
uncompleted contracts. . . . . . . . . . . . . . . . . . . 2,095 - - 2,095
Notes receivable . . . . . . . . . . . . . . . . . . . . . . 1,162 - - 1,162
Investments in joint ventures. . . . . . . . . . . . . . . . 3,585 - - 3,585
Due from related parties . . . . . . . . . . . . . . . . . . 104 - - 104
Goodwill of acquired business. . . . . . . . . . . . . . . . - - 5,142 (A) (B) 5,142
Prepaid expenses and other assets. . . . . . . . . . . . . . 9,014 2,968 (300) (A) (C) 11,682
------------ ------------ ------------ ------------
Total assets. . . . . . . . . . . . . . . . . . . . . $ 134,103 $ 25,099 $ 4,842 $ 164,044
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses. . . . . . . . . . . $ 17,585 $ 3,164 $ - $ 20,749
Tenant deposits and other liabilities. . . . . . . . . . . 6,771 381 250 (D) 7,402
Billings in excess of costs and estimated earnings on
uncompleted contracts . . . . . . . . . . . . . . . . . 1,333 - - 1,333
Notes payable. . . . . . . . . . . . . . . . . . . . . . . 70,577 13,270 3,376 (G) 87,223
Notes payable to related parties . . . . . . . . . . . . . 2,430 - 9,500 (G) (H) 11,930
Capital lease obligations. . . . . . . . . . . . . . . . . 1,072 - - 1,072
------------ ------------ ------------ ------------
Total liabilities . . . . . . . . . . . . . . . . . . 99,768 16,815 13,126 129,709
------------ ------------ ------------ ------------
Stockholders' equity:
Common stock . . . . . . . . . . . . . . . . . . . . . . . 8 2 (2) (A) 8
Preferred stock. . . . . . . . . . . . . . . . . . . . . . - - - -
Additional paid-in capital . . . . . . . . . . . . . . . . 21,008 693 (693) (A) 21,008
Retained earnings. . . . . . . . . . . . . . . . . . . . . 13,319 7,589 (7,589) (A) 13,319
------------ ------------ ------------ ------------
Total stockholders' equity. . . . . . . . . . . . . . 34,335 8,284 (8,284) 34,335
Commitments and contingencies. . . . . . . . . . . . . . . .
------------ ------------ ------------ ------------
Total liabilities and stockholders' equity. . . . . . $ 134,103 $ 25,099 $ 4,842 $ 164,044
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See notes to pro forma condensed consolidated financial statements.
16
<PAGE>
SAXTON INCORPORATED AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1998
(unaudited)
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Saxton Diamond
Historical Key Pro Forma
Consolidated Homes Adjustments Notes Pro Forma (A)
------------ ------------ ------------ ------- ------------
<S> <C> <C> <C> <C> <C>
REVENUE:
Construction revenue, including Tax Credit Partnership
construction revenue of $25,389 . . . . . . . . . . . . $ 30,909 $ - $ - $ 30,909
Sales of homes . . . . . . . . . . . . . . . . . . . . . . 15,070 35,139 - 50,209
Sales of commercial properties and land. . . . . . . . . . 3,819 4,423 - 8,242
Rental revenue . . . . . . . . . . . . . . . . . . . . . . 2,569 - - 2,569
Other revenue. . . . . . . . . . . . . . . . . . . . . . . 1,209 - - 1,209
------------ ------------ ------------ ------------
Total revenue. . . . . . . . . . . . . . . . . . . . 53,576 39,562 - 93,138
------------ ------------ ------------ ------------
COST OF REVENUE:
Cost of construction, including Tax Credit Partnership
cost of construction of $18,785 . . . . . . . . . . . . 24,236 - - 24,236
Cost of homes sold . . . . . . . . . . . . . . . . . . . . 12,805 31,277 - 44,082
Cost of commercial properties sold and land. . . . . . . . 3,500 3,495 - 6,995
Rental operating cost. . . . . . . . . . . . . . . . . . . 622 - - 622
------------ ------------ ------------ ------------
Total cost of revenue . . . . . . . . . . . . . . . . 41,163 34,772 - 75,935
------------ ------------ ------------ ------------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . 12,413 4,790 - 17,203
------------ ------------ ------------ ------------
General and administrative expenses. . . . . . . . . . . . . 3,600 1,876 - 5,476
Depreciation and amortization. . . . . . . . . . . . . . . . 1,197 85 379 (E) 1,661
------------ ------------ ------------ ------------
Operating income. . . . . . . . . . . . . . . . . . . 7,616 2,829 (379) 10,066
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense, net of interest income . . . . . . . . . (1,347) 25 (956) (I) (2,278)
Joint venture loss . . . . . . . . . . . . . . . . . . . . (16) - - (16)
Other income . . . . . . . . . . . . . . . . . . . . . . . - 117 - 117
------------ ------------ ------------ ------------
Total other income (expense). . . . . . . . . . . . . . (1,363) 142 (956) (2,177)
------------ ------------ ------------ ------------
Income before provision for income taxes. . . . . . . . 6,253 2,971 (1,335) 7,889
Provision for income taxes . . . . . . . . . . . . . . . . 1,900 - 497 (F) 2,397
------------ ------------ ------------ ------------
Net income. . . . . . . . . . . . . . . . . . . . . . . $ 4,353 $ 2,971 $ (1,832) $ 5,492
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
EARNINGS PER COMMON SHARE:
BASIC:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.57 $ 0.72
------------ ------------
------------ ------------
Weighted-average number of common shares outstanding . . . . 7,649,187 7,649,187
------------ ------------
------------ ------------
DILUTED:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.57 $ 0.72
------------ ------------
------------ ------------
Weighted-average number of common shares outstanding
assuming dilution. . . . . . . . . . . . . . . . . . . . . 7,655,978 7,655,978
------------ ------------
------------ ------------
</TABLE>
See notes to pro forma condensed consolidated financial statements.
17
<PAGE>
SAXTON INCORPORATED AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1997
(unaudited)
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Saxton Diamond
Historical Key Pro Forma
Consolidated Homes Adjustments Notes Pro Forma (A)
------------ ------------ ------------ ------- ------------
<S> <C> <C> <C> <C> <C>
REVENUE:
Construction revenue, including Tax Credit Partnership
construction revenue of $21,526 . . . . . . . . . . . . $ 31,707 $ - $ - $ 31,707
Sales of homes . . . . . . . . . . . . . . . . . . . . . . 11,058 49,782 - 60,840
Sales of commercial properties and land. . . . . . . . . . 11,540 4,322 - 15,862
Rental revenue . . . . . . . . . . . . . . . . . . . . . . 3,583 - - 3,583
Other revenue. . . . . . . . . . . . . . . . . . . . . . . 1,508 - - 1,508
------------ ------------ ------------ ------------
Total revenue. . . . . . . . . . . . . . . . . . . . 59,396 54,104 - 113,500
------------ ------------ ------------ ------------
COST OF REVENUE:
Cost of construction, including Tax Credit Partnership
cost of construction of $17,315. . . . . . . . . . . . . . 26,981 - - 26,981
Cost of homes sold . . . . . . . . . . . . . . . . . . . . 10,139 45,709 - 55,848
Cost of commercial properties sold and land. . . . . . . . 7,127 4,737 - 11,864
Rental operating cost. . . . . . . . . . . . . . . . . . . 724 - - 724
------------ ------------ ------------ ------------
Total cost of revenue. . . . . . . . . . . . . . . . . . . 44,971 50,446 - 95,417
------------ ------------ ------------ ------------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . 14,425 3,658 - 18,083
------------ ------------ ------------ ------------
General and administrative expenses. . . . . . . . . . . . . 2,746 2,324 5,070
Depreciation and amortization. . . . . . . . . . . . . . . . 1,393 85 505 (E) 1,983
------------ ------------ ------------ ------------
Operating income . . . . . . . . . . . . . . . . . . . . . 10,286 1,249 (505) 11,030
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense, net of interest income . . . . . . . . . (2,101) 15 (1,275) (I) (3,361)
Joint venture earnings . . . . . . . . . . . . . . . . . . 16 - - 16
Other expenses . . . . . . . . . . . . . . . . . . . . . . - (8) - (8)
------------ ------------ ------------ ------------
Total other income (expense) . . . . . . . . . . . . . . . (2,085) 7 (1,275) (3,353)
------------ ------------ ------------ ------------
Income before provision for income taxes . . . . . . . . . 8,201 1,256 (1,780) 7,677
Provision for income taxes . . . . . . . . . . . . . . . . 2,350 - (150) (F) 2,200
------------ ------------ ------------ ------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 5,851 $ 1,256 $ (1,630) $ 5,477
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
EARNINGS PER COMMON SHARE:
BASIC:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.92 $ 0.86
------------ ------------
------------ ------------
Weighted-average number of common shares outstanding . . . . 6,341,879 6,341,879
------------ ------------
------------ ------------
DILUTED:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.92 $ 0.86
------------ ------------
------------ ------------
Weighted-average number of common shares outstanding
assuming dilution. . . . . . . . . . . . . . . . . . . . . 6,363,219 6,363,219
------------ ------------
------------ ------------
</TABLE>
See notes to pro forma condensed consolidated financial statements.
18
<PAGE>
SAXTON INCORPORATED AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(A) The pro forma information includes the results of Saxton Inc. ("Saxton")
and Diamond Key Homes Inc. and Diamond Key Construction LLC ("Diamond Key")
combined, with historical results, the effects of purchase accounting
allocations, eliminations and adjustments to goodwill reflecting these
changes under the purchase accounting method. The pro forma combined
balance sheet as of September 30, 1998 includes the estimated fair value of
assets acquired and liabilities assumed in connection with the acquisition
of Diamond Key. The excess of the purchase price over the fair value of all
net assets acquired was approximately $5.1 million and is being amortized
over 15 years.
(B) Goodwill related to the acquisition of Diamond Key.
(C) Deferred acquisition costs.
(D) Estimate of additional purchase price pursuant to terms of the
acquisition.
(E) Amortization of goodwill related to the acquisition.
(F) Change in estimated consolidated income taxes based on expected effective
income tax rate after the acquisition.
(G) Financing of the purchase price of Diamond Key.
(H) On November 7, 1999, one year from the closing of the acquisition, $2.0
million, payable 50% in cash and 50% in Saxton common stock, of the
purchase price is payable to the former stockholder of Diamond Key, in
conjunction with the acquisition.
(I) Interest expense related to the financing of the purchase price
of Diamond Key.
19
<PAGE>
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
January 27, 1998 By: /s/ Kirk Scherer
----------------------------------------
Kirk Scherer
Executive Vice-President and
Chief Financial Officer
(Principal Financial Officer)
By: /s/ Melody J. Sullivan
----------------------------------------
Melody J. Sullivan
Vice-President and Chief Accounting Officer
(Principal Accounting Officer)
20
