UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number: 0-22299
SAXTON INCORPORATED
(Exact name of registrant as specified in its charter)
NEVADA 88-0223654
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5440 West Sahara Ave., Third Floor
Las Vegas, Nevada 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 [ ] NO [X ]
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 4, 1999 was 7,732,922.
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SAXTON INCORPORATED AND SUBSIDIARIES
FORM 10-Q/A
PAGE
NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1998 and June 30, 1999.(as restated) . . . . 3
Condensed Consolidated Statements of Income -
Three and Six Months Ended June 30, 1998 and 1999.(as restated) 4
Condensed Consolidated Statement of Stockholders'
Equity - Six Months Ended June 30, 1999. (as restated) . . 5
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1998 and 1999. (as restated) . . 6-7
Notes to Condensed Consolidated Financial Statements . . . 8-16
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . 16-22
Item 3. Quantitative and Qualitative Disclosures About Market Risk 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . 24
Item 2. Changes in Securities and Use of Proceeds. . . . . . . . . 24
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . 24
Item 4. Submission of Matters to a Vote of Security Holders. . . . 24
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . 24
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 24
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
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2
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SAXTON INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)
DECEMBER 31, JUNE 30,
ASSETS 1998 1999
------------- ----------------
(as restated -
see note 2)
<S> <C> <C>
Real estate properties:
Operating properties, net of accumulated depreciation $ 23,117 $ 31,571
Properties under development . . . . . . . . . . . . . . . . . . 79,418 82,461
Land held for future development or sale . . . . . . . . . . . . 1,349 5,381
------------- ----------------
Total real estate properties . . . . . . . . . . . . . . . . . 103,884 119,413
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . 1,331 390
Due from Tax Credit Partnerships. . . . . . . . . . . . . . . . . 31,997 33,124
Construction contracts receivable, net of allowance for doubtful
accounts of $403 at December 31, 1998 and June 30, 1999. . . . . 8,773 8,739
Costs and estimated earnings in excess of billings on
uncompleted contracts. . . . . . . . . . . . . . . . . . . . . . 2,618 1,578
Notes receivable. . . . . . . . . . . . . . . . . . . . . . . . . 1,000 1,402
Investments in joint ventures . . . . . . . . . . . . . . . . . . 3,577 3,603
Due from related parties. . . . . . . . . . . . . . . . . . . . . 154 166
Prepaid expenses and other assets . . . . . . . . . . . . . . . . 17,661 17,179
------------- ----------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . $ 170,995 $ 185,594
============= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses . . . . . . . . . . . . . . $ 24,892 $ 20,507
Tenant deposits and other liabilities . . . . . . . . . . . . . . 6,295 6,476
Billings in excess of costs and estimated earnings
on uncompleted contracts . . . . . . . . . . . . . . . . . . . . 181 281
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . 88,306 104,292
Notes payable to related parties. . . . . . . . . . . . . . . . . 12,016 12,783
Long-term capital lease obligations . . . . . . . . . . . . . . . 1,118 1,120
------------- ----------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . 132,808 145,459
Commitments and contingencies (notes 5, 9 and 12)
Stockholders' equity:
Common stock, $.001 par value. Authorized 50,000,000
shares; issued and outstanding 7,732,922 at December 31, 1998
and June 30, 1999. . . . . . . . . . . . . . . . . . . . . . . . 8 8
Preferred stock, $.001 par value. Authorized 5,000,000
shares; no shares issued and outstanding . . . . . . . . . . . . - -
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . 21,482 21,482
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . 16,697 18,645
------------- ----------------
Total stockholders' equity . . . . . . . . . . . . . . . . . 38,187 40,135
------------- ----------------
Total liabilities and stockholders' equity . . . . . . . . . $ 170,995 $ 185,594
============= ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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<TABLE>
<CAPTION>
SAXTON INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share amounts)
(unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- -----------------------------
1998 1999 1998 1999
----------- ---------------- ----------- ----------------
(as restated - (as restated -
see note 2) see note 2)
<S> <C> <C> <C> <C>
REVENUE:
Construction revenue, including Tax Credit
Partnership construction revenue of $9,905 and $6,949 for
the three months ended June 30, 1998 and 1999, respectively, and
$14,135 and $10,862 for the six months ended June 30, 1998 and
1999, respectively. . . . . . . . . . . . . . . . . . . . . . . . $ 13,395 $ 7,417 $ 19,132 $ 12,167
Sales of homes. . . . . . . . . . . . . . . . . . . . . . . . . . . 6,175 25,430 8,960 47,101
Sales of commercial properties. . . . . . . . . . . . . . . . . . . 984 137 3,819 1,687
Rental revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . 843 844 1,767 1,854
Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . 471 588 899 1,159
----------- ---------------- ----------- ----------------
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . 21,868 34,416 34,577 63,968
----------- ---------------- ----------- ----------------
COST OF REVENUE:
Cost of construction, including Tax Credit Partnership cost of
construction of $7,038 and $4,971 for the three months ended
June 30, 1998 and 1999, respectively, and $10,050 and $7,657
for the six months ended June 30, 1998 and 1999, respectively . . 10,264 5,914 14,767 9,782
Cost of homes sold. . . . . . . . . . . . . . . . . . . . . . . . . 5,192 21,932 7,536 41,162
Cost of commercial properties sold. . . . . . . . . . . . . . . . . 920 18 3,500 1,024
Rental operating cost . . . . . . . . . . . . . . . . . . . . . . . 248 236 422 523
----------- ---------------- ----------- ----------------
Total cost of revenue . . . . . . . . . . . . . . . . . . . . . 16,624 28,100 26,225 52,491
----------- ---------------- ----------- ----------------
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,244 6,316 8,352 11,477
----------- ---------------- ----------- ----------------
General and administrative expense. . . . . . . . . . . . . . . . . 1,684 2,362 2,436 4,402
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 375 577 766 1,108
----------- ---------------- ----------- ----------------
Operating income. . . . . . . . . . . . . . . . . . . . . . . . 3,185 3,377 5,150 5,967
----------- ---------------- ----------- ----------------
OTHER EXPENSE:
Interest expense, net of interest income of $270 and $233 for the
three months ended June 30, 1998 and 1999, respectively, and $563
and $478 for the six months ended June 30, 1998 and 1999,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . (456) (1,854) (823) (3,206)
----------- ---------------- ----------- ----------------
Joint venture loss. . . . . . . . . . . . . . . . . . . . . . . . . (4) (18) (7) (24)
----------- ---------------- ----------- ----------------
Total other expense. . . . . . . . . . . . . . . . . . . . . . (460) ( 1,872) (830) (3,230)
----------- ---------------- ----------- ----------------
Income before provision for income taxes . . . . . . . . . . . . . . 2,725 1,505 4,320 2,737
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . 895 411 1,339 789
----------- ---------------- ----------- ----------------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,830 $ 1,094 $ 2,981 $ 1,948
=========== ================ =========== ================
EARNINGS PER COMMON SHARE:
Basic:
- ------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.24 $ 0.14 $ 0.39 $ 0.25
=========== ================ =========== ================
Weighted-average number of common shares outstanding . . . . . . . . 7,661,422 7,732,922 7,642,968 7,732,922
=========== ================ =========== ================
Diluted:
- --------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.24 $ 0.14 $ 0.39 $ 0.25
=========== ================ =========== ================
Weighted-average number of common shares outstanding assuming
dilution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,671,509 7,734,185 7,677,388 7,734,688
=========== ================ =========== ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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<TABLE>
<CAPTION>
SAXTON INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1999
(in thousands)
(unaudited)
ADDITIONAL
SHARES COMMON PAID-IN RETAINED
OUTSTANDING STOCK CAPITAL EARNINGS TOTAL
----------- ------- ----------- --------- -------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 . . . . . . 7,733 $ 8 $ 21,482 $ 16,697 $38,187
----------- ------- ----------- --------- -------
Net income for the six months
ended June 30, 1999 (as restated -
see note 2). . . . . . . . . . . . . . . - - - 1,948 1,948
----------- ------- ----------- --------- -------
Balance at June 30, 1999 (as restated -
see note 2) . . . . . . . . . . . . . . 7,733 $ 8 $ 21,482 $ 18,645 $40,135
=========== ======= =========== ========= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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<TABLE>
<CAPTION>
SAXTON INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
SIX MONTHS ENDED
JUNE 30,
-----------------------------
1998 1999
----------- ----------------
(as restated -
see note 2)
<S> <C> <C>
Cash flows from operating activities:
- -------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,981 $ 1,948
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . 766 1,108
Gain on sales of commercial properties . . . . . . . . . . . . . (310) (789)
Joint venture loss . . . . . . . . . . . . . . . . . . . . . . . 7 24
Increase in Investments in joint ventures. . . . . . . . . . . . - (50)
Changes in operating assets and liabilities:
Increase in Due from Tax Credit Partnerships . . . . . . . . . (9,868) (999)
Decrease (increase) in Construction contracts receivable . . . (1,767) 34
Decrease in Costs and estimated earnings in excess of billings
on uncompleted contracts . . . . . . . . . . . . . . . . . . 1,803 1,040
Increase in Properties under development . . . . . . . . . . . (8,965) (14,597)
Decrease (increase) in Prepaid expenses and other assets . . . (154) 89
Increase (decrease) in Accounts payable and accrued expenses . 1,810 (4,385)
Increase (decrease) in Billings in excess of costs and
estimated earnings on uncompleted contracts. . . . . . . . . (958) 100
Increase in Tenant deposits and other liabilities. . . . . . . 1,922 181
----------- ----------------
Net cash used in operating activities. . . . . . . . . . . . (12,733) (16,296)
----------- ----------------
Cash flows from investing activities:
- -------------------------------------
Expenditures for property acquisitions and improvements. . . . . . . (9,937) (2,175)
Proceeds from Sales of commercial properties . . . . . . . . . . . . 984 1,686
Increase in Notes receivable from related parties. . . . . . . . . . (14) (70)
Payments from Notes receivable from related parties. . . . . . . . . 16 58
Increase in Notes receivable . . . . . . . . . . . . . . . . . . . . (694) (1,029)
Payments from Notes receivable . . . . . . . . . . . . . . . . . . . 2,446 249
Cash paid to acquire net assets of Maxim Homes, Inc. . . . . . . . . (793) -
----------- ----------------
Net cash used in investing activities. . . . . . . . . . . . (7,992) (1,281)
----------- ----------------
Cash flows from financing activities:
- -------------------------------------
Proceeds from issuance of Notes payable. . . . . . . . . . . . . . . 37,193 54,621
Payments on Notes payable and capital lease obligations. . . . . . . (14,263) (38,752)
Proceeds from issuance of Notes payable to related parties . . . . . 903 2,472
Payments on Notes payable to related parties . . . . . . . . . . . . (903) (1,705)
----------- ----------------
Net cash provided by financing activities. . . . . . . . . . 22,930 16,636
----------- ----------------
Net increase (decrease) in cash and cash equivalents . . . . 2,205 (941)
Cash and cash equivalents:
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . 1,110 1,331
----------- ----------------
End of period. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,315 $ 390
=========== ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
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<TABLE>
<CAPTION>
SAXTON INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(in thousands)
(unaudited)
SIX MONTHS ENDED
JUNE 30,
------------------------
1998 1999
------ ----------------
(as restated -
see note 2)
<S> <C> <C>
Supplemental disclosure of cash flow information:
- -------------------------------------------------
Cash paid during the period for interest, net of amounts capitalized $1,811 $ 5,183
====== ================
Cash paid during the period for income taxes . . . . . . . . . . . . $2,494 $ 259
====== ================
Non-cash financing and investing activities:
- --------------------------------------------
Common stock issued to acquire net assets of
Maxim Homes, Inc . . . . . . . . . . . . . . . . . . . . . . . . . $ 338 $ -
====== ================
Capital lease obligation recorded in connection with equipment
acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 41 $ 119
====== ================
Recognition of revenue for the prior sale of a commercial
property which was subject to certain conditions . . . . . . . . . $2,834 $ -
====== ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
SAXTON INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. DESCRIPTION OF SAXTON INCORPORATED
Saxton Incorporated ("Saxton" or the "Company") is a leader in the
affordable housing industry and a diversified real estate development company
operating in the fast growing Las Vegas, Phoenix, Salt Lake City, Reno and
Tucson markets. The Company's business is comprised of four components: (i) the
design, development, construction and sale of single-family homes; (ii) the
performance of design-build services for third-party clients, including tax
credit partnerships ("design-build services"); (iii) the design, development and
construction of income producing portfolio properties; and (iv) property
operations and management. The properties consist of office and 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.
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.
The Company's development experience and expertise enable it to identify
and take advantage of market opportunities and to minimize the risk of real
estate cycles. In 1995, management recognized the need for affordable housing in
the Las Vegas market and began to develop value-priced single-family detached
homes. The Company opened its first single-family home development in April
1996 and its second home development in early 1997.
NOTE 2. RESTATEMENT OF QUARTERLY INFORMATION
Subsequent to the issuance of the Company's June 30, 1999 condensed
consolidated financial statements, the Company's management determined that
certain interest and indirect construction costs capitalized should have been
charged to expense as incurred, and certain capitalized interest costs were not
appropriately charged to cost of revenue when sales of home and commercial
properties were recognized. As a result, the accompanying financial statements
as and for the three months and six months ended June 30, 1999 have been
restated from amounts previously reported to appropriately account for these
transactions. The following is a summary of the effects of the restatement (in
thousands, except per share data):
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
-------------------------------------
AS PREVIOUSLY REPORTED AS RESTATED
----------------------- ------------
<S> <C> <C>
Balance Sheet Data:
Property under development . . . . . . . . $ 84,069 $ 82,461
Total real estate properties . . . . . . . 121,021 119,413
Prepaid expenses and other assets. . . . . 18,902 17,179
Total assets . . . . . . . . . . . . . . . 188,925 185,594
Accounts payable and accrued expenses. . . 21,463 20,507
Total liabilities. . . . . . . . . . . . . 146,415 145,459
Retained earnings. . . . . . . . . . . . . 21,020 18,645
Stockholders' equity . . . . . . . . . . . 42,510 40,135
Total liabilities and stockholders' equity 188,925 185,594
</TABLE>
8
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<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1999
------------------------------ ------------------------------
AS PREVIOUSLY AS PREVIOUSLY
REPORTED AS RESTATED REPORTED AS RESTATED
--------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Statements of Income Data:
Cost of construction . . . . . . . . . . $ 5,949 $ 5,914 $ 9,837 $ 9,782
Cost of homes sold . . . . . . . . . . . 21,809 21,932 40,883 41,162
Total cost of revenue. . . . . . . . . . 28,012 28,100 52,267 52,491
Gross profit . . . . . . . . . . . . . . 6,404 6,316 11,701 11,477
General and administrative expenses. . . 2,056 2,362 3,922 4,402
Operating income . . . . . . . . . . . . 3,771 3,377 6,671 5,967
Interest expense . . . . . . . . . . . . (284) (1,854) (579) (3,206)
Total other expense. . . . . . . . . . . (302) (1,872) (603) (3,230)
Income before provision for income taxes 3,469 1,505 6,068 2,737
Provision for income taxes . . . . . . . 947 411 1,745 789
Net income . . . . . . . . . . . . . . . 2,522 1,094 4,323 1,948
Earnings per common share:
Basic. . . . . . . . . . . . . . . . . . $ 0.33 $ 0.14 $ 0.56 $ 0.25
Diluted. . . . . . . . . . . . . . . . . $ 0.33 $ 0.14 $ 0.56 $ 0.25
</TABLE>
NOTE 3. ACQUISITIONS
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 generally
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 the Company's Common Stock (42,280 shares valued 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. No earn-out payments were required to be paid by the Company and no
earn-out payments were paid during the first half of 1999.
On November 13, 1998, the Company acquired the outstanding capital stock
and ownership interests of Diamond Key Homes, Inc. ("Diamond Key") and certain
related entities. The purchase was accounted for using the purchase method of
accounting and the price was approximately $10.9 million paid in cash at
closing, approximately $250,000 expected to be paid in 1999 of which $200,000
has been paid through June 30, 1999, with an additional $2.0 million to be paid
50% in cash and 50% in the Company's Common Stock one year from the date of
closing. Of the $1.0 million to be paid in cash, $300,000 has been paid through
June 30, 1999.
On December 22, 1998, the Company acquired the outstanding capital stock of
HomeBanc Mortgage Corporation ("HomeBanc"). The purchase was accounted for
using the purchase method of accounting and the price was $474,000 paid in the
form of 71,500 shares of the Company's Common Stock at closing.
Goodwill related to the acquisitions of Maxim, Diamond Key and HomeBanc is
amortized over 15 years. The operations of these three acquisitions were
included in the Company's Consolidated Statements of Income since their
acquisition dates.
9
<PAGE>
The percentage of total revenue by geographic area for the three and six
months ended June 30, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1999 1998 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Arizona. . - % 42.2% -% 42.2%
Nevada. . . 92.3 48.0 95.1 46.4
Utah. . . . 7.7 9.8 4.9 11.4
------- ------- ------- -------
Total 100.0% 100.0% 100.0% 100.0%
======= ======= ======= =======
</TABLE>
NOTE 4. 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, 1998 and 1999. 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, 1998, which are included in the Company's Form
10-K/A filed with the Securities and Exchange Commission for the year ended
December 31, 1998. 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 combined results of
operations for the three and six months ended June 30, 1999 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 5. REAL ESTATE OPERATING PROPERTIES
Real estate operating properties are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998 JUNE 30, 1999
------------------- ---------------
<S> <C> <C>
Cost:
Buildings . . . . . . . . . . . . . . . $ 19,530 $ 34,250
Tenant improvements . . . . . . . . . . 761 510
Land. . . . . . . . . . . . . . . . . . 6,122 131
------------------- ---------------
Real estate operating properties at cost 26,413 34,891
Less accumulated depreciation and
amortization. . . . . . . . . . . . . . (3,296) ( 3,320)
------------------- ---------------
Real estate operating properties, net. . $ 23,117 $ 31,571
=================== ===============
</TABLE>
Depreciation expense relating to real estate operating properties for the
three months ended June 30, 1998 and 1999 was $173,000 and $191,000,
respectively. Depreciation expense relating to real estate operating properties
for the six months ended June 30, 1998 and 1999 was $350,000 and $346,000,
respectively.
NOTE 6. CONSTRUCTION CONTRACTS
Construction contracts receivable includes amounts retained pending
contract completion, aggregating approximately $155,000 at December 31, 1998 and
June 30, 1999. Based on anticipated completion dates, these retentions are
expected to be collected within the next twelve months.
10
<PAGE>
Accounts payable and accrued expenses include amounts retained pending
subcontract completion, aggregating approximately $3.1 million at December 31,
1998 and $3.2 million at June 30, 1999.
Costs and estimated earnings in excess of billings, net, on uncompleted
contracts, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998 JUNE 30, 1999
------------------- ---------------
<S> <C> <C>
Costs incurred to date . . . . . . . . . $ 98,470 $ 105,212
Estimated earnings to date . . . . . . . 30,694 33,099
------------------- ---------------
129,164 138,311
Less billings to date. . . . . . . . . . (126,727) (137,014)
------------------- ---------------
Cost and estimated earnings in excess of
billings, net. . . . . . . . . . . . . . $ 2,437 $ 1,297
=================== ===============
</TABLE>
Costs and estimated earnings in excess of billings, net, are shown on the
accompanying Condensed Consolidated Balance Sheets as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998 JUNE 30, 1999
------------------- ---------------
<S> <C> <C>
Costs and estimated earnings in excess of
billings on uncompleted contracts . . . . $ 2,618 $ 1,578
Billings in excess of costs and estimated
earnings on uncompleted contracts . . . . (181) (281)
------------------- ---------------
Costs and estimated earnings in excess of
billings, net . . . . . . . . . . . . . . $ 2,437 $ 1,297
=================== ===============
</TABLE>
The asset "Costs and estimated earnings in excess of billings on
uncompleted contracts" represents construction revenue recognized in excess of
amounts billed in the respective construction contracts. The liability
"Billings in excess of costs estimated earnings on uncompleted contracts"
represents amounts billed in excess of revenue recognized on the respective
construction contracts.
NOTE 7. PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998 JUNE 30, 1999
------------------ --------------
<S> <C> <C>
Rental and other accounts receivable . . . . . . . . . $ 575 $ 1,337
Goodwill . . . . . . . . . . . . . . . . . . . . . . . 7,877 7,625
Development costs. . . . . . . . . . . . . . . . . . . 2,598 2,434
Deferred tax assets, net . . . . . . . . . . . . . . . 74 95
Furniture and equipment, net . . . . . . . . . . . . . 1,379 1,516
Option and escrow deposits and impounds. . . . . . . . 3,087 2,282
Inventories. . . . . . . . . . . . . . . . . . . . . . 101 101
Other assets, primarily prepaid expenses and loan fees 1,970 1,789
------------------ --------------
$ 17,661 $ 17,179
================== ==============
</TABLE>
NOTE 8. NOTES PAYABLE
<TABLE>
<CAPTION>
Notes payable consist of the following (in thousands): DECEMBER 31, JUNE 30,
1998 1999
------------- ---------
<S> <C> <C>
Notes payable to various financial institutions, maturing at dates ranging
between August 1999 and November 2027. The notes bear interest
monthly at various rates ranging from 7.9% to 13.0%. (1)(2)(3). . . . . . $ 72,328 $ 84,462
Notes payable to various individuals, maturing at dates ranging between
August 1999 and August 2000. The notes bear interest at various rates
ranging from 15.0% to 24.0%.. . . . . . . . . . . . . . . . . . . . . . . 15,875 19,830
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 -
------------- ---------
$ 88,306 $ 104,292
============= =========
<FN>
(1) On February 9, 1998, the Company entered into a $10.0 million revolving loan agreement 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
11
<PAGE>
strategic acquisitions, and $5.0 million for land acquisitions. Borrowing under the line of credit
is secured by the pledge of certain Company receivables and any land acquired with borrowings under
the line of credit and bears interest at one percent over the lender's prime rate in effect from time
to time. The agreement is also subject to certain financial covenants and matures November 30, 1999.
As of December 31, 1998 and June 30, 1999, the Company had outstanding indebtedness of $5.0 million
and $9.8 million, respectively, and available borrowings of $5.0 million and $190,000, respectively,
under this agreement.
(2) On July 30, 1997, the Company entered into a $5.0 million revolving line of credit with a
financial institution. Loans under the agreement bear monthly interest at 1.5% above the prime rate
as defined in the agreement (9.25% at December 31, 1998 and June 30, 1999), and require the Company
to pay a loan fee of 0.25% 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
December 31, 1998 and June 30, 1999, the Company had outstanding indebtedness of $1.9 million and
$2.2 million, respectively, and available borrowings of $3.1 million and $2.8 million, respectively,
under the agreement. Under the terms of the agreement, the Company is required to meet certain
financial covenants. The Company was in compliance with those covenants at June 30, 1999.
(3) Through July 31, 1999, $3.7 million of notes payable maturing in July 1999 have been
extended with new maturity dates in late August 1999. For the remaining notes payable with maturity
dates in 1999, management is negotiating refinancing alternatives with the applicable lenders.
</TABLE>
During 1998 and 1999, the Company entered into various notes payable
representing borrowings from an unaffiliated individual. These notes bear
interest and mature on the following dates: $1.0 million on August 16, 1999;
$1.0 million on September 3, 1999; $7.6 million on September 10, 1999; $1.0
million on November 20, 1999; $1.0 million on March 17, 2000; $1.5 million on
March 23, 2000; $985,000 on June 26, 2000; $430,000 on June 30, 2000; and $5.3
million on August 1, 2000.
NOTE 9. NOTES PAYABLE TO RELATED PARTIES AND OTHER RELATED PARTY TRANSACTIONS
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% to 18%, with
all amounts due at various dates in 1999. During the first quarter of 1999, the
Company borrowed $721,000 from the Company's President and principal
stockholder, James C. Saxton. The note matures on February 1, 2000 and bears
interest at 18% per annum. The Company used the proceeds for general operating
expenses.
During the fourth quarter of 1998, Mr. James C. Saxton, pledged 3,471,590
shares of Common Stock, or approximately 44.9% of its outstanding shares, as
collateral for two personal loans to Mr. Saxton and three loans to the Company.
Mr. Saxton reloaned the proceeds from the two personal loans to the Company for
use in connection with the acquisition of Diamond Key. The two notes payable to
Mr. Saxton aggregating $7.6 million bear interest at 12% per annum and mature on
February 1, 2000. The Company intends to refinance the loans from Mr. Saxton
prior to their maturities. The Company understands that Mr. Saxton intends to
repay, in full, the loans from the two lenders upon repayment of the loans he
has made to the Company.
12
<PAGE>
NOTE 10. EARNINGS PER COMMON SHARE
As required by 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 (in thousands, except share and per
share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1999
---------------------------- ---------------------------
PER-SHARE PER-SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------- ---------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Net income . . . . . . . . . . $ 1,830 $1,094
Basic EPS
- ---------
Income applicable to
common stockholders. . . . . 1,830 7,661,422 $ 0.24 1,094 7,732,922 $ 0.14
------- ---------- ======= ------- --------- =======
Effect of dilutive securities:
Stock options. . . . . . . . - 10,087 - 1,263
------- ---------- ------- ---------
Diluted EPS
- -----------
Income applicable to
common stockholders
and assumed conversions. . . $ 1,830 7,671,509 $ 0.24 $ 1,094 7,734,185 $ 0.14
======= ========== ======= ======= ========= =======
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1999
---------------------------- ---------------------------
PER-SHARE PER-SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------- ---------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Net income . . . . . . . . . . $ 2,981 $1,948
Basic EPS
- ---------
Income applicable to
common stockholders. . . . . 2,981 7,642,968 $ 0.39 1,948 7,732,922 $ 0.25
------- ---------- ======= ------- --------- =======
Effect of dilutive securities:
Stock options. . . . . . . . - 34,420 - 1,766
------- ---------- ------- ---------
Diluted EPS
- -----------
Income applicable to
common stockholders
and assumed conversions. . . $ 2,981 7,677,388 $ 0.39 $ 1,948 7,734,688 $ 0.25
======= ========== ======= ======= ========= =======
</TABLE>
The Company had options and warrants outstanding 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 and
warrants outstanding at June 30, 1998 and 1999 were 472,050 and 736,198,
respectively.
NOTE 11. MANAGEMENT STOCK OPTION PLAN
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. On December 7, 1998, the Company's Board of Directors approved
an increase from 500,000 to 750,000 in the number of shares subject to stock
options under the Option Plan. The increase was approved by the stockholders at
the annual meeting of stockholders in June 1999. As of June 30, 1999, the
Company had outstanding 457,600 stock options to certain officers and employees
of the Company pursuant to the Option Plan. These options will vest in equal
annual installments over five years commencing one year from the award date and
will expire between June 30, 2007 and June 30, 2009. Stock options granted on
June 30, 1997 were issued at an exercise price equal to the initial public
offering price of $8.25 per share. Stock options granted after June 30, 1997
were granted at the closing stock price on the grant date as reported on the
Nasdaq Stock Market. On January 2, 1998, the Company gave employees the
opportunity to reprice their stock options. The repricing involved changing
their stock price from $8.25 per share to $6.875 per share (the closing stock
price on January 2, 1998) and changing their grant date from June 30, 1997 to
January 2, 1998. Employees holding 148,300 stock options elected to reprice on
January 2, 1998. As of June 30, 1999, stock options had been granted under the
Option Plan with exercise prices ranging from $5.125 per share to $8.375 per
share.
13
<PAGE>
NOTE 12. 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. Total construction loans
payable for these Tax Credit Partnerships were approximately $37.1 million and
$33.7 million at December 31, 1998 and June 30, 1999, respectively.
NOTE 13. INFORMATION REGARDING BUSINESS SEGMENTS
In 1998, the Company adopted SFAS No. 131, Disclosures about Segments of an
Enterprise Related Information ("SFAS 131"). SFAS 131 supersedes SFAS No. 14,
Financial Reporting for Segments of a Business Enterprise replacing the
"industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of the
Company's reportable segments, SFAS 131 also requires disclosures about products
and services, geographic areas and major customers. The adoption of SFAS 131
did not affect the consolidated financial results of the Company.
The Company has determined that its reportable segments are those that
are based on the Company's method of internal reporting, which disaggregates its
business by certain lines of business components. The Company's four reportable
operating segments are: Homebuilding, Design-Build Services, Sales of
Commercial Property and Property Operations and Management. Retail operations
and corporate activities are included in the "Other" column. The financial
results of the Company's operating segments are presented on an accrual basis.
There are no significant differences among the accounting policies of the
segments as compared to the Company's consolidated financial statements. The
Company evaluates the performance of its segments and allocates resources to
them based on revenues and gross profit. There are no material intersegment
revenues. The tables below present information about the Company's operating
segments for the three and six months ended June 30, 1998 and 1999, respectively
(in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1998
--------------------------------------------------------------------------------
SALES OF PROPERTY
DESIGN-BUILD COMMERCIAL OPERATIONS AND
SERVICES HOMEBUILDING PROPERTY MANAGEMENT OTHER TOTAL
------------- ------------- --------------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue . . . . . . . $ 13,395 $ 6,175 $ 985 $ 843 $ 470 $ 21,868
Costs . . . . . . . . 10,264 5,192 920 248 - 16,624
------------- ------------- --------------- ------------ -------- ---------
Gross profit . . . . $ 3,131 $ 983 $ 65 $ 595 $ 470 $ 5,244
============= ============= =============== ============ ======== =========
Depreciation and
amortization expense $ - $ 3 $ - $ 180 $ 192 $ 375
Interest expense. . . $ - $ - $ - $ (541) $ (185) $ (726)
Interest income . . . $ - $ - $ - $ 205 $ 65 $ 270
Total assets. . . . . $ 34,541 $ 25,210 $ - $ 47,589 $ 9,164 $ 116,504
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999
--------------------------------------------------------------------------------
SALES OF PROPERTY
DESIGN-BUILD COMMERCIAL OPERATIONS AND
SERVICES HOMEBUILDING PROPERTY MANAGEMENT OTHER TOTAL
------------- ------------- --------------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue . . . . . . . $ 7,417 $ 25,430 $ 137 $ 844 $ 588 $ 34,416
Costs . . . . . . . . 5,914 21,932 18 236 - 28,100
------------- ------------- --------------- ------------ ------- ----------
Gross profit . . . . $ 1,503 $ 3,498 $ 119 $ 608 $ 588 $ 6,316
============= ============= =============== ============ ======= ==========
Depreciation and
amortization expense $ - $ 124 $ - $ 191 $ 262 $ 577
Interest expense. . . $ - $ - $ - $ (2,060) $ (27) $ (2,087)
Interest income . . . $ - $ - $ - $ 233 $ - $ 233
Total assets. . . . . $ 43,441 $ 83,847 $ - $ 49,398 $ 8,908 $ 185,594
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
--------------------------------------------------------------------------------
SALES OF PROPERTY
DESIGN-BUILD COMMERCIAL OPERATIONS AND
SERVICES HOMEBUILDING PROPERTY MANAGEMENT OTHER TOTAL
------------- ------------- --------------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue $19,132 $8,960 $3,819 $1,767 $899 $34,577
Costs 14,767 7,536 3,500 422 - 26,225
------------- ------------- --------------- ------------ -------- ----------
Gross profit $4,365 $1,424 $319 $1,345 $899 $8,352
============= ============= =============== ============ ======== ==========
Depreciation and
amortization expense $- $3 $- $348 $415 $766
Interest expense $- $- $- $(1,042) $ (344) $(1,386)
Interest income $- $- $- $403 $160 $563
Total assets $34,541 $25,210 $- $47,589 $9,164 $116,504
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
--------------------------------------------------------------------------------
SALES OF PROPERTY
DESIGN-BUILD COMMERCIAL OPERATIONS AND
SERVICES HOMEBUILDING PROPERTY MANAGEMENT OTHER TOTAL
------------- ------------- --------------- ------------ ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue . . . . . . . $ 12,167 $ 47,101 $ 1,687 $ 1,854 $ 1,159 $ 63,968
Costs . . . . . . . . 9,782 41,162 1,024 523 - 52,491
------------- ------------- --------------- ------------ ------- ----------
Gross profit . . . . $ 2,385 $ 5,939 $ 663 $ 1,331 $ 1,159 $ 11,477
============= ============= =============== ============ ======= ==========
Depreciation and
amortization expense $ - $ 250 $ - $ 349 $ 509 $ 1,108
Interest expense. . . $ - $ - $ - $ (3,657) $ (27) $ (3,684)
Interest income . . . $ - $ - $ - $ 478 $ - $ 478
Total assets. . . . . $ 43,441 $ 83,847 $ - $ 49,398 $ 8,908 $ 185,594
</TABLE>
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.
15
<PAGE>
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Restatement of Quarterly Information. Subsequent to the issuance of the
Company's June 30, 1999 condensed consolidated financial statements, the
Company's management determined that certain interest and indirect construction
costs capitalized Should have been charged to expense as incurred, and certain
capitalized interest costs were not appropriately charged to cost of revenue
when sales of homes and commercial properties were recognized. As a result, the
accompanying financial statements as of and for the three months and six months
ended June 30, 1999 have been restated from amounts previously reported to
appropriately account for these transactions.
Revenue. Total revenue was $34.4 million for the three months ended June
30, 1999, representing a $12.5 million, or 57.4%, increase from $21.9 million
for the three months ended June 30, 1998. The increase was primarily due to an
increase of $19.3 million, or 311.8%, in sales of homes to $25.4 million during
the three months ended June 30, 1999 compared to $6.2 million during the three
months ended June 30, 1998. The 234 single-family home closings for the three
months ended June 30, 1999 represented an increase of 283.6%, compared to the 61
closings for the three months ended June 30, 1998. Home closings for the three
months ended June 30, 1999 included 94 in Nevada, 5 in Utah and 135 in Arizona.
For the three months ended June 30, 1998, home closings included 52 in Nevada
and 9 in Utah. The increase in home sales was primarily due to the Company's
increased focus on homebuilding and its acquisition of Diamond Key Homes, Inc.
("Diamond Key") in November 1998. Construction revenue for the three months
ended June 30, 1999 was $7.4 million, a decrease of $6.0 million, or 44.6%, from
$13.4 million during the three month ended June 30, 1998. The decrease was
primarily due to more construction activity on five active projects during the
three months ended June 30, 1998 compared to only four active projects during
the three months ended June 30, 1999. The 1998 projects included one preschool,
one residential development and three tax credit partnership apartment
complexes. The 1999 projects included three tax credit partnership apartment
complexes and one warehouse addition. One of the three tax credit partnership
apartment complexes in 1999 began construction late in the second quarter. Sale
of commercial properties was $137,000 for the three months ended June 30, 1999
compared to $984,000 for the three months ended June 30, 1998. The 1999
commercial sale was a parcel of land adjacent to a retail store owned by the
Company compared to the 1998 commercial sale, which was the sale of a commercial
center. Rental and other revenue increased to $1.4 million for the three months
ended June 30, 1999, a 9.0% increase over the $1.3 million in the comparable
period of the prior year. The increase was primarily due to additional other
revenue recognized by HomeBanc Mortgage Corporation ("HomeBanc") during the
three months ended June 30, 1999, primarily for origination fees and premiums.
HomeBanc, an affiliate of Diamond Key, was acquired by the Company in December
1998.
Cost of Revenue. Total cost of revenue was $28.1 million for the three
months ended June 30, 1999, representing a $11.5 million, or 69.3%, increase
from $16.6 million for the three months ended June 30, 1998. Cost of revenue for
the three months ended June 30, 1999 as a percentage of revenue was 81.6%,
compared to 76.0% for the three months ended June 30, 1998. The increase was
primarily due to the Company's significant increase in the proportion of
revenues it generates from its homebuilding activities which has lower margins
and the increased overhead allocation to the Company's homebuilding activities
on a per unit basis during 1999.
Gross Profit. Gross profit as a percent of revenue decreased to 18.4% for
the three months ended June 30, 1999 from 24.0% for the comparable period in
1998. Gross margins on the sales of homes decreased to 13.8% during the three
months ended June 30, 1999 compared to 15.9% during the three months ended June
30, 1998, due to an increased overhead allocation as explained above. Gross
margin on construction revenue decreased to 20.3% in the three months ended June
30, 1999, compared to 23.4% in the same period of 1998, primarily due to the
timing of the completion of such projects and increased overhead allocation.
Gross profit margins on commercial properties sold in the three months ended
June 30, 1999 increased to 86.9% from 6.5% in the three months ended June 30,
1998 primarily due to the lower cost basis of the property sold during the 1999
period compared to the property sold during the 1998 period.
General and Administrative Expenses. General and administrative expenses
were $2.4 million for the three months ended June 30, 1999, representing a
$678,000, or 40.0%, increase from $1.7 million for the three months ended June
30, 1998. The increase was primarily due to increased activities related to the
growth in the Company's revenues, including an increase in homebuilding
activities and the acquisitions of Diamond Key and Maxim Homes, Inc. ("Maxim")
16
<PAGE>
in December 1998 and March 1998, respectively. Of this increase, $446,000 of
marketing and advertising costs reflect the increased number of housing
subdivisions in production during the three months ended June 30, 1999 compared
to the same period in 1998. The Company had 22 home developments open for sale
at June 30, 1999 compared to only 3 at June 30, 1998. In addition, accounting,
legal and other professional fees increased $127,000, vehicle and repairs and
maintenance expenses increased $60,000 and rent, utility, travel and other
general office expenses increased $156,000 as the number of employees increased
to 761 at June 30, 1999 from 524 at June 30, 1998. General and administrative
expenses as a percentage of total revenue was 6.9% for the three months ended
June 30, 1999 as compared to 7.7% for the three months ended June 30, 1998.
Depreciation and Amortization. Depreciation and amortization expense was
$577,000 for the three months ended June 30, 1999, representing a $202,000, or
53.9%, increase from $375,000 for the three months ended June 30, 1998. The
increase was primarily due to goodwill amortization expense of $152,000 for the
three months ended June 30, 1999 for Diamond Key, Maxim and HomeBanc which were
acquired in 1998 utilizing the purchase method of accounting. The remaining
increase was due to depreciation expense related to furniture, fixtures and
equipment due to the Company's growth.
Interest Expense, Net. Interest expense, net, was $1.9 million for the
three months ended June 30, 1999, representing a $1.4 million or 307.0%,
increase from $456,000 for the three months ended June 30, 1998. The increase
was primarily the result of higher levels of debt and higher interest rates on
the debt.
Income Before Provision for Income Taxes. As a result of the foregoing
factors, income before provision for income taxes was $1.5 million for the three
months ended June 30, 1999, representing a $1.2 million, or 44.8%, decrease from
$2.7 million for the three months ended June 30, 1998. Income before provision
for income taxes as a percentage of total revenue was 4.4% for the three months
ended June 30, 1999 as compared to 12.5% for the three months ended June 30,
1998.
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Revenue. Total revenue was $64.0 million for the six months ended June
30, 1999, representing a $29.4 million, or 85.0%, increase from $34.6 million
for the six months ended June 30, 1998. The increase was primarily due to an
increase of $38.1 million, or 425.7%, in sales of homes to $47.1 million during
the six months ended June 30, 1999 compared to $9.0 million during the six
months ended June 30, 1998. The 424 single-family home closings for the six
months ended June 30, 1999 represented a 351.1% increase over the 94 closings
for the six months ended June 30, 1998. Home closings during the six months
ended June 30, 1999, included 154 in Nevada, 23 in Utah and 247 in Arizona
compared to 85 in Nevada and 9 in Utah for the comparable period in 1998. The
increase in home sales was primarily due to the Company's increased focus on
homebuilding and its acquisition of Diamond Key in November 1998. Construction
revenue decreased $7.0 million, or 36.4% from $19.1 million during the six
months ended June 30, 1998 to $12.2 million during the six months ended June 30,
1999. The decrease is primarily the result of more active projects and
construction activity during the six months ended June 30, 1998 compared to the
six months ended June 30, 1999. Three large projects under construction during
the six months ended June 30, 1998 were completed in early 1999, therefore lower
revenues were recognized on these projects as they neared completion during the
first part of 1999. Sale of commercial properties was $1.7 million for the six
months ended June 30, 1999 compared to $3.8 million for the six months ended
June 30, 1998. The decrease was due to smaller properties sold during 1999
compared to 1998. The 1999 sales were a small retail center and a parcel of
land compared to the 1998 sales, which were a large warehouse and a commercial
center. Rental revenue was $1.9 million for the six months ended June 30, 1999
compared to $1.8 million for the comparable 1998 period. The increase was
primarily due to higher occupancy levels during 1999. Other revenue for the six
months ended June 30, 1999 was $1.2 million compared to $899,000 for the six
months ended June 30, 1998. The increase was due primarily to premiums and
origination fees collected by HomeBanc during the six months ended June 30,
1999.
Cost of Revenue. Total cost of revenue was $52.5 million for the six
months ended June 30, 1999, representing a $26.3 million, or 100.2%, increase
from $26.2 million for the six months ended June 30, 1998. Cost of revenue for
the six months ended June 30, 1999 as a percentage of revenue was 82.0%,
compared to 75.8% for the six months ended June 30, 1998. The increase was
primarily due to the Company's significant increase in the proportion of
revenues it generates from its homebuilding activities which has lower margins
and the increased overhead allocation to the Company's homebuilding activities
on a per unit basis during 1999.
Gross Profit. Gross profit as a percent of revenue decreased to 17.9% for
the six months ended June 30, 1999 from 24.2% for the comparable period in 1998.
Gross margins on the sales of homes decreased to 12.6% during the six months
ended June 30, 1999 compared to 15.9% during the six months ended June 30, 1998,
due to an increased overhead allocation to the Company's homebuilding activities
17
<PAGE>
on a per unit basis. Gross margin on construction revenue decreased to 19.6% in
the six months ended June 30, 1999, compared to 22.8% in the same period of
1998, primarily due to the timing of the completion of such projects and
increased overhead allocation. Gross profit margin on commercial properties
sold in the six months ended June 30, 1999 increased to 39.3% from 8.4% in the
six months ended June 30, 1998 primarily due to the lower cost basis of the
properties sold during the 1999 period compared to the properties sold during
the 1998 period.
General and Administrative Expenses. General and administrative expenses
were $4.4 million for the six months ended June 30, 1999, representing a $2.0
million, or 80.7%, increase from $2.4 million for the six months ended June 30,
1998. The increase was primarily due to increased activities related to the
growth in the Company's revenues, including an increase in homebuilding
activities and the acquisitions of Diamond Key and Maxim. Of this increase,
$685,000 of marketing and advertising costs reflect the increased number of
housing subdivisions in production during the six months ended June 30, 1999
compared to the same period in 1998. The Company had 22 home developments open
for sale at June 30, 1999 compared to only 3 at June 30, 1998. In addition,
accounting, legal and other professional fees increased $232,000, vehicle and
repairs and maintenance expense increased $179,000 and rent, utility, travel and
other general office expenses increased $499,000 as the number of employees
increased to 761 at June 30, 1999 from 524 at June 30, 1998. General and
administrative expenses as a percentage of total revenue was 6.9% for the six
months ended June 30, 1999 as compared to 7.0% for the six months ended June 30,
1998.
Depreciation and Amortization. Depreciation and amortization expense was
$1.1 million for the six months ended June 30, 1999, representing a $342,000, or
44.6%, increase from $766,000 for the six months ended June 30, 1998. The
increase was primarily due to goodwill amortization expense of $276,000 for the
six months ended June 30, 1999 for Diamond Key, Maxim and HomeBanc which were
acquired in 1998 utilizing the purchase method of accounting.
Interest Expense, Net. Interest expense, net, was $3.2 million for the
six months ended June 30, 1999, representing a $2.4 million or 289.0%, increase
from $823,000 for the six months ended June 30, 1998. The increase was primarily
the result of higher levels of debt and higher interest rates on the debt.
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 six
months ended June 30, 1999, representing a $1.6 million, or 36.6%, decrease from
$4.3 million for the six months ended June 30, 1998. Income before provision
for income taxes as a percentage of total revenue was 4.3% for the six months
ended June 30, 1999 as compared to 12.5% for the six months ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
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, including
loans from affiliates 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 some or all of these sources.
Management believes that cash generated from operations, funds available from
external sources of debt and equity financing, together with cash on hand at
June 30, 1999 will be sufficient to provide for its capital requirements for at
least the next 12 months. The Company is exploring the refinancing of these and
other indebtedness through the issuance of up to $50.0 million of longer term
notes during 1999. There can be no assurance that the Company will be able to
do so.
During the fourth quarter of 1998, the Company's President and principal
stockholder, James C. Saxton, pledged 3,471,590 shares of Common Stock, or
approximately 44.9% of the Company's outstanding shares at June 30, 1999, as
collateral for two personal loans to Mr. Saxton and three loans to the Company.
Mr. Saxton reloaned the proceeds from the two personal loans to the Company for
use in connection with the acquisition of Diamond Key. The two notes payable to
Mr. Saxton aggregating $7.6 million bear interest at 12% per annum and mature on
February 1, 2000. The Company intends to refinance the loans from Mr. Saxton
prior to their maturities. The Company understands that Mr. Saxton intends to
repay, in full, the loans from the two lenders upon repayment of the loans he
has made to the Company.
On February 9, 1998, the Company entered into a $10.0 million revolving loan
agreement 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. Borrowing under the line of credit is
secured by the pledge of certain Company receivables and any land acquired with
18
<PAGE>
borrowings under the line of credit and bears interest at one percent over the
lender's prime rate in effect from time to time. The agreement is also subject
to certain financial covenants and matures November 30, 1999. As of December
31, 1998 and June 30, 1999, the Company had outstanding indebtedness of $5.0
million and $9.8 million, respectively, and available borrowings of $5.0 million
and $190,000, respectively, under this agreement.
On July 30, 1997, the Company entered into a $5.0 million revolving line of
credit agreement with a financial institution. Loans under the agreement bear
monthly interest at 1.5% above the prime rate as defined in the agreement (9.25%
at December 31, 1998 and June 30, 1999), and require the Company to pay a loan
fee of 0.25% 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 December 31, 1998 and June 30, 1999, the Company had
outstanding indebtedness of $1.9 million and $2.2 million, respectively, and
available borrowings of $3.1 million and $2.8 million, respectively, under the
agreement. Under the terms of the agreement, the Company is required to meet
certain financial covenants. The Company was in compliance with the covenants
at June 30, 1999.
Operating Activities. Net cash used in operating activities was $16.3
million for the six months ended June 30, 1999 compared to $12.7 million for the
six months ended June 30, 1998. The increase in net cash used in operating
activities was primarily due to a $14.6 million increase in cash used for
properties under development related to single-family homes during the six
months ended June 30, 1999 compared to a $9.0 million increase during the six
months ended June 30, 1998. The number of home developments under construction
increased to 35 for $68.2 million at June 30, 1999 from 11 for $23.3 million at
June 30, 1998.
Investing Activities. Net cash used in investing activities was $1.3
million for the six months ended June 30, 1999 compared to $8.0 million for the
six months ended June 30, 1998. The decrease was primarily due to lower
expenditures for property acquisitions and improvements during the 1999 period
compared to the 1998 period as the Company focused more on homebuilding
activities during 1999. The Company spent $9.9 million on property acquisitions
and improvements during the 1998 period compared to $2.2 million during 1999.
The decrease in net cash used in investing activities was also attributable to
lower payments received on notes receivable during the six months ended June 30,
1999 compared to the six months ended June 30, 1998.
Financing Activities. Net cash provided by financing activities was $16.6
million for the six months ended June 30, 1999 compared to $22.9 million for the
six months ended June 30, 1998. The decrease in cash provided by financing
activities was primarily due to lower net borrowings of $15.9 million during the
six months ended June 30, 1999 compared to $22.9 million during the six months
ended June 30, 1998.
19
<PAGE>
Interest costs incurred, expensed and capitalized were as follows (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
-------------- --------------
1998 1999 1998 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Interest incurred:
Residential . . . . . . . . . . . . . $ 804 $2,281 $1,319 $4,450
Commercial. . . . . . . . . . . . . . 552 609 1,139 1,210
------ ------ ------ ------
Total incurred. . . . . . . . . . . $1,356 $2,890 $2,458 $5,660
====== ====== ====== ======
Interest expensed:
Residential . . . . . . . . . . . . . $ 198 $1,572 $ 331 $2,658
Commercial. . . . . . . . . . . . . . 528 515 1,055 1,026
------ ------ ------ ------
Total expensed. . . . . . . . . . . $ 726 $2,087 $1,386 $3,684
====== ====== ====== ======
Interest capitalized at end of period:
Residential . . . . . . . . . . . . . $ 606 $ 709 $ 988 $1,792
Commercial. . . . . . . . . . . . . . 24 94 84 184
------ ------ ------ ------
Total interest capitalized. . . . . $ 630 $ 803 $1,072 $1,976
====== ====== ====== ======
</TABLE>
Properties under development and land held for future development or sale
increased $7.1 million from $80.7 million at December 31, 1998 to $87.8 million
at June 30, 1999.
The Company anticipates that during the next twelve months portfolio
projects in development will cost approximately $313,000 in the aggregate,
substantially all of which the Company plans to finance through construction
loans. The Company also anticipates that it will spend approximately $1.2
million for planned portfolio projects during the next twelve months. 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 will continue 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 is exposed to changes in interest rates primarily as a result
of its borrowing activities, which includes borrowings under lines of credit.
These lines, along with cash flow from operations, are used to maintain
liquidity and fund business operations. The Company typically replaces
borrowings under its lines of credit, as necessary, with long-term fixed rate
and shorter termed variable rate financing generally secured by real estate.
The nature and amount of the Company's debt may vary as a result of business
requirements, market conditions and other factors. The extent of the Company's
interest rate risk is not quantifiable or predictable because of the variability
of interest rates and business financing requirements, but the Company does not
believe such risk is material. The Company does not currently use derivative
instruments to adjust the Company's interest rate risk profile.
The Company has made its capital contributions to the six Tax Credit
Partnerships. The Company is obligated, however, to make operating expense
loans, not to exceed an aggregate of $3.0 million, to meet operating deficits,
if any, of such Tax Credit Partnerships.
The Company does not utilize financial instruments for trading or other
speculative purposes, nor does it utilize leveraged financial instruments. On
the basis of the fair value of the Company's market sensitive instruments at
June 30, 1999, the Company does not consider the potential near-term losses in
future earnings, fair values and cash flows from reasonably possible near-term
changes in interest rates to be material.
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 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
20
<PAGE>
ownership has been legally transferred to the buyer. At June 30, 1999, the
Company had 353 homes in backlog, representing an aggregate sales value of
approximately $39.3 million. At June 30, 1998, the Company's backlog was 50
homes representing an aggregate sales value of $6.0 million.
The Company is also involved in the design-build development of commercial
projects. Backlog for such commercial projects is defined as the uncompleted
work remaining under a signed fixed-price contract. The Company uses the
percentage-of-completion method to account for revenue from its design-build
contracts. At June 30, 1999, the Company had backlog under its design-build
contracts of approximately $22.3 million. At June 30, 1998, the Company's
design-build backlog was approximately $46.8 million.
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 contacted or will
contact its significant service providers, vendors, suppliers, subcontractors,
financial institutions, consultants and various government agencies, to obtain
information regarding the assurance of Y2K compliance. However, there can be no
guarantee that the systems of others upon which the Company's systems rely will
be Y2K compliant in a 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 increased the awareness of the Y2K issue across the
Company, assessed the Company's Y2K issues, determined proposed resolutions,
validated those proposed resolutions and implemented most system solutions. The
Company has substantially 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 has substantially
completed all business critical internal hardware and software modifications and
testing.
Given the information known at this time about the Company's systems and
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, could approximate up to
$100,000-$150,000. Current Y2K expenditures have been negligible thus far due
to much of the work performed by existing internal staff. Any further 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 has been and 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 believes that its business operations are not heavily dependent on Y2K
compliance of its systems and that, should a reasonably likely worst case Y2K
situation occur, the Company, because of the basic nature of its systems, many
of which can be executed manually, would not likely suffer material loss or
disruption in remedying the situation.
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 months prior to December 31, 1999.
21
<PAGE>
RISKS AND RELATED FACTORS
Variability of Results and 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, Phoenix, Salt Lake City, Reno and Tucson, 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 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.
Effects of Changing Prices, Inflation and Interest Rates. Management
believes that inflation has not had a material impact on the Company's
operations. Substantial increases in labor costs, workers' compensation rates
and employee benefits, equipment costs, material or subcontractor costs could
adversely affect the operations of the Company for future periods to the extent
that the Company is unable to pass such increases on to its construction clients
or the purchasers of its properties. The Company had outstanding approximately
$71.6 million of floating rate debt (exclusive of the indebtedness of
unconsolidated partnerships of which the Company is a general partner),
currently bearing a weighted-average interest rate of 8.77% per annum at June
30, 1999. If the interest rates on the floating rate debt increase in accordance
with changes to the indices upon which the rates are based, debt service
obligations of the Company will increase.
Management believes that the Company's future homebuilding activities may
be affected by fluctuations in interest rates and changing prices. Higher
interest rates may decrease the demand for new homes by making it more difficult
for homebuyers to qualify for mortgages or to obtain mortgages at interest rates
that are acceptable to the potential buyers. In addition, the Company, as well
as the homebuilding industry in general, may be adversely affected during
periods of high inflation, primarily as a result of higher land acquisition and
land development costs, as well as higher costs of labor and materials. The
Company attempts to pass on to its customers any increase in costs through
higher sales prices. There can be no assurance that inflation will not have a
material impact on the Company's future results of operations.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
The foregoing Management's Discussion and Analysis of Financial Condition
and Results of Operations and Business sections contain 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," "proposes," "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,"
"Effects of Changing Prices, Inflation and Interest Rates" and other risk
factors including but not limited to: the primary dependence on the greater Las
Vegas and Phoenix areas; insufficient history in geographic areas other than Las
Vegas; risks of 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 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.
22
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to Part II, Item 7A, "Quantitative and Qualitative
Disclosures About Market Risk," in the Company's Annual Report on Form 10-K/A
for the year ended December 31, 1998. There have been no significant changes
since the filing of the aforementioned report, except for new debt of $38.1
million, due between 1999 and 2001 with annualized interest rates ranging from
8.25% to 24.0%.
23
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on June 7, 1999. The
following individuals were elected as Directors at such annual meeting:
<TABLE>
<CAPTION>
Votes
---------------------------------------------
Name For Against Abstain Broker Non-Votes
- ---------------------- --------- ------- ------- ----------------
<S> <C> <C> <C> <C>
James C. Saxton. . . . 7,494,913 - 89,529 -
Michele Saxton Pori. . 7,490,713 - 93,729 -
Douglas W. Hensley . . 7,498,213 - 86,229 -
Marc S. Hechter. . . . 7,497,213 - 87,229 -
Timothy J. Adams . . . 7,497,213 - 87,229 -
Paul Eisenberg . . . . 7,494,913 - 89,529 -
Bernard J. Mikell, Jr. 7,497,213 - 87,229 -
Robert L. Seale. . . . 7,495,013 - 89,429 -
</TABLE>
Each Director was elected for a one-year term and until their respective
successors are elected and qualified. In addition, the stockholders approved
the following proposals:
1. An amendment to the Company's Management Stock Option Incentive Plan to
increase from 500,000 to 750,000 the number of shares of common stock
issuable upon exercise of options (7,181,511 votes for; 387,831 votes
against; 15,100 abstentions; and 0 broker non-votes).
2. Ratification of the change of auditors from KPMG LLP to Deloitte & Touche
LLP as the Company's independent accountants (7,515,106 votes for;
49,800 votes against; 19,536 abstentions; and 0 broker non-votes).
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibit 27 - Financial Data Schedule for the quarter ended June 30, 1999.
24
<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
May 15, 2000 By: By: /s/ James C. Saxton
--------------------------------------------
James C. Saxton
Chairman of the Board of Directors,
President, Chief Executive Officer,
Interim Chief Financial Officer and Director
(Principal Executive Officer)
By: /s/ Melody J. Sullivan
--------------------------------------------
Melody J. Sullivan
Vice President and Chief Accounting
Officer
(Principal Accounting Officer)
25
<PAGE>
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
27 Financial Data Schedule for the quarter ended June 30, 1999 26
-- --
26
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 390
<SECURITIES> 0
<RECEIVABLES> 43834 <F1>
<ALLOWANCES> 403
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 127737
<DEPRECIATION> 5201
<TOTAL-ASSETS> 185594
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> 40127
<TOTAL-LIABILITY-AND-EQUITY> 185594
<SALES> 60955
<TOTAL-REVENUES> 64446
<CGS> 51968
<TOTAL-COSTS> 52491
<OTHER-EXPENSES> 5534 <F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3684
<INCOME-PRETAX> 2737
<INCOME-TAX> 789
<INCOME-CONTINUING> 1948
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1948
<EPS-BASIC> .25
<EPS-DILUTED> .25
<FN>
<F1> Receivables are comprised of "Due form Tax Credit Partnerships,"
"Construction Contracts Receivable," "Notes Receivable," and "Due from
Related Parties."
<F2> Other Expenses are comprised of "General and Administrative," "Depreciation
and Amoritization," and "Joint Venture Losses."
</TABLE>
