SAXTON INC, 10-Q, 2000-06-20

SAXTON INC
10-Q, 2000-06-20
LAND SUBDIVIDERS & DEVELOPERS (NO CEMETERIES)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2000

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXHANGE ACT OF 1934

For the transition period from _______ to _______

Commission File Number: 0-22299

SAXTON INCORPORATED
(Exact name of registrant as specified in its charter)

NEVADA 88-0223654
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

5440 West Sahara Ave., Third Floor
Las Vegas, Nevada 89146
(702) 221-1111
(Address and telephone number of principal executive offices)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days.

YES [ X ] NO [ ]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

The number of shares of common stock, par value $.001 per share, outstanding as
of March 31, 2000 was 8,336,455.

1
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SAXTON INCORPORATED AND SUBSIDIARIES
FORM 10-Q

PAGE
NUMBER
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements

Condensed Consolidated Balance Sheets -
December 31, 1999 and March 31, 2000 3
Condensed Consolidated Statements of Income -
Three Months Ended March 31, 1998 and 1999 4

Condensed Consolidated Statement of Stockholders'
Equity - Three Months Ended March 31, 2000 5

Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1999 and 2000 6-7

Notes to Condensed Consolidated Financial Statements 8

Item 2 . Management's Discussion and Analysis of
Financial Condition and Results of Operations 18-19

Item 3. Quantative and Qualitative Disclosures About Market Risk 23

PART II. OTHER INFORMATION

Item 1. Legal Proceedings 24

Item 2. Changes in Securities 24

Item 3. Defaults Upon Senior Securities and Use of Proceeds 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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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
SAXTON INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)

DECEMBER 31, MARCH 31,
ASSETS 1999 2000
-------------- ------------
Real estate properties (all held for sale at December 31, 1999 and
March 31, 2000):
<S> <C> <C>
Operating properties, net of accumulated depreciation. . . . . . . . $ 28,215 $ 25,093
Properties under development . . . . . . . . . . . . . . . . . . . . 89,974 90,069
Land held for future development or sale . . . . . . . . . . . . . . 13,436 13,436
-------------- ------------
Total real estate properties . . . . . . . . . . . . . . . . . . . 131,625 128,598
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . 6,268 2,291
Due from Tax Credit Partnerships (held for sale at December 31, 1999
and March 31, 2000) 12,587 11,654
Construction contracts receivable, net of allowance for doubtful
accounts of $100 at December 31, 1999 and $100 at March 31, 2000 . . . 2,451 2,735
Costs and estimated earnings in excess of billings on uncompleted
contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 760 252
Notes receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 936 101
Investments in joint ventures . . . . . . . . . . . . . . . . . . . . . 3,249 3,250
Due from related parties. . . . . . . . . . . . . . . . . . . . . . . . 26 23
Goodwill, net of accumulated amortization of $734 at December 31, 1999
and $879 at March 31, 1999 . . . . . . . . . . . . . . . . . . . . . . 7,251 7,106
Deferred tax asset, net . . . . . . . . . . . . . . . . . . . . . . . . 1,604 2,544
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . 6,271 6,243
-------------- ------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 173,028 $ 164,797
============== ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . $ 27,576 $ 27,295
Tenant deposits and other liabilities . . . . . . . . . . . . . . . . . 7,357 6,314
Billings in excess of costs and estimated earnings on uncompleted
contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220 1,903
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117,763 110,877
Notes payable to related parties. . . . . . . . . . . . . . . . . . . . 10,103 9,883
Long-term capital lease obligations . . . . . . . . . . . . . . . . . . 1,041 940
-------------- ------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 164,060 157,212
-------------- ------------

Commitments and contingencies

Stockholders' equity:
Common stock, $.001 par value. Authorized 50,000,000
shares; issued and outstanding 7,879,313 at December 31, 1999
and 8,336,455 March 31, 2000 . . . . . . . . . . . . . . . . . . . . . 8 8
Preferred stock, $.001 par value. Authorized 5,000,000
shares; no shares issued and outstanding . . . . . . . . . . . . . . . - -
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . 22,482 23,510
Retained earnings (deficit) (13,522) (15,933)
-------------- ------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . 8,968 7,585
-------------- ------------

Total liabilities and stockholders' equity . . . . . . . . . . . . $ 173,028 $ 164,797
============== ============
</TABLE>

See accompanying notes to condensed consolidated financial statements.

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SAXTON INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share amounts)
(unaudited)

THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 2000
----------- ------------
REVENUE:
<S> <C> <C>
Construction revenue, including Tax Credit Partnership
construction revenue of $3,913 and $319 for the
three months ended March 31, 1999 and 2000, respectively $4,750 $370
Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . 21,671 19,284
Sales of commercial properties . . . . . . . . . . . . . . . . . 1,550 4,297
Rental revenue . . . . . . . . . . . . . . . . . . . . . . . . . 1,010 959
Other revenue. . . . . . . . . . . . . . . . . . . . . . . . . . 571 374
----------- ------------
Total revenue. . . . . . . . . . . . . . . . . . . . . . . . 29,552 25,284
----------- ------------

COST OF REVENUE:
Cost of construction, including Tax Credit Partnership cost of
construction of $2,686 and $705 for the three months ended
March 31, 1999 and 2000, respectively. . . . . . . . . . . . . 3,868 785
Cost of homes sold . . . . . . . . . . . . . . . . . . . . . . . 19,230 17,736
Cost of commercial properties sold . . . . . . . . . . . . . . . 1,006 3,778
Rental operating cost. . . . . . . . . . . . . . . . . . . . . . 287 509
----------- ------------
Total cost of revenue. . . . . . . . . . . . . . . . . . . . 24,391 22,808
----------- ------------

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . 5,161 2,476
----------- ------------
General and administrative expenses. . . . . . . . . . . . . . . 2,040 3,644
Depreciation and amortization. . . . . . . . . . . . . . . . . . 531 557
----------- ------------
Operating income (loss) . . . . . . . . . . . . . . . . . . 2,590 (1,725)
----------- ------------

OTHER EXPENSE:
Interest expense, net of interest income of $245 and $3 for the
three months ended March 31, 1999 and 2000, respectively . . . (1,352) (1,604)
Joint venture loss . . . . . . . . . . . . . . . . . . . . . . (6) -
----------- ------------
Total other expense . . . . . . . . . . . . . . . . . . . . (1,358) (1,604)
----------- ------------
Income loss before provision for income taxes . . . . . . . . . . 1,232 (3,329)
Provision for income taxes. . . . . . . . . . . . . . . . . . . . 378 (918)
----------- ------------
Net income (loss). . . . . . . . . . . . . . . . . . . . . . $ 854 $ (2,411)
=========== ============

EARNINGS LOSS PER COMMON SHARE:
Basic:

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . $ 0.11 $ (0.29)
=========== ============

Weighted-average number of common shares outstanding. . . . . . . 7,732,922 8,336,455
=========== ============

Diluted:

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . $ 0.11 $ (0.29)
=========== ============
Weighted-average number of common shares outstanding assuming
dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,734,817 8,336,496
=========== ============

See accompanying notes to condensed consolidated financial statements.
</TABLE>

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SAXTON INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2000
(in thousands)
(unaudited)

ADDITIONAL
SHARES COMMON PAID-IN RETAINED
OUTSTANDING STOCK CAPITAL EARNINGS TOTAL
----------- ------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>

Balance at December 31, 1999 . . . . . . . 7,879 $ 8 $ 22,482 $ (13,522) $ 8,968
Stock issued in connection with Volunteers
of America (VOA) purchase agreement. . . . 457 - 1,028 - 1,028
Net income for the three months
ended March 31, 2000 . . . . . . . . . . . - - - (2,411) (2,411)
----------- ------- ----------- ----------- ----------
Balance at March 31, 2000 . . . . . . . . . 8,336 $ 8 $ 23,510 $ (15,933) $ 7,585
=========== ======= =========== =========== ==========

See accompanying notes to condensed consolidated financial statements.
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SAXTON INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 2000
----------- ------------
<S> <C> <C>
Cash flows from operating activities:

Net income (loss) $854 $ (2,411)
Adjustments to reconcile net income loss to net cash used in
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . 531 557
Gain on sales of commercial properties. . . . . . . . . . . . . . (671) (518)
Joint venture loss. . . . . . . . . . . . . . . . . . . . . . . . 5 -
Increase in investments in joint ventures . . . . . . . . . . . . (50) -
Changes in operating assets and liabilities:
Decrease in due from Tax Credit Partnerships. . . . . . . . . . 363 934
Decrease (increase) in construction contracts receivable. . . . 116 (284)
Decrease in costs and estimated earnings in excess of billings
on uncompleted contracts. . . . . . . . . . . . . . . . . . . 628 507
Increase in properties under development. . . . . . . . . . . . (10,468) (95)
Decrease in prepaid expenses and other assets . . . . . . . . . 1,201 (767)
Increase (decrease) in accounts payable and accrued expenses. . 193 (281)
Increase in billings in excess of costs and
estimated earnings on uncompleted contracts . . . . . . . . . 707 1,683
Increase (decrease) in tenant deposits and other liabilities. . (210) (1,043)
----------- ------------

Net cash used in operating activities . . . . . . . . . . . . (6,801) (1,718)
----------- ------------

Cash flows from investing activities:

Expenditures for property acquisitions and improvements . . . . . . . (1,313) -
Proceeds from sales of commercial properties. . . . . . . . . . . . . 1,550 3,084
Decrease in notes receivable from related parties . . . . . . . . . . (28) 850
Payments from notes receivable from related parties . . . . . . . . . 37 (14)
Increase in notes receivable. . . . . . . . . . . . . . . . . . . . . (949) -
Payments from notes receivable. . . . . . . . . . . . . . . . . . . . 248 -
----------- ------------

Net cash used in provided by investing activities. . . . . . (455) 3,920
----------- ------------

Cash flows from financing activities:

Proceeds from issuance of notes payable . . . . . . . . . . . . . . . 26,176 18,868
Payments on notes payable and capital lease obligations . . . . . . . (18,483) (24,826)
Proceeds from issuance of notes payable to related parties. . . . . . 300 5
Payments on notes payable to related parties. . . . . . . . . . . . . (1,205) (225)
----------- ------------

Net cash used in provided by financing activities . . . . . . 6,788 (6,178)
----------- ------------

Net decrease in cash and cash equivalents . . . . . . . . . . (468) (3,977)
Cash and cash equivalents:
Beginning of period . . . . . . . . . . . . . . . . . . . . . . . . 1,331 6,268
----------- ------------

End of period . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 863 $ 2,291
=========== ============

See accompanying notes to condensed consolidated financial statements.
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SAXTON INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(in thousands)
(unaudited)

THREE MONTHS ENDED
MARCH 31,
----------------------
1999 2000
---------- ----------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for interest, net of amounts capitalized $ 2,251 $ 376
========== ==========
Cash paid during the period for income taxes. . . . . . . . . . . $ 9 $ -
========== ==========

Non-cash financing and investing activities:
--------------------------------------------
Common stock issued to Volunteers of America (VOA) in
connection with a purchase agreement. . . . . . . . . . . . . . $ - $ 1,029
========== ==========

Capital lease obligation recorded in connection with equipment
acquisitions. . . . . . . . . . . . . . . . . . . . . . . . . . $ 119 $ -
========== ==========

See accompanying notes to condensed consolidated financial statements.
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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 diversified real
estate company, specializing principally in the affordable homebuilding
industry, operating in the fast-growing Las Vegas, Phoenix, Salt Lake City,
Tucson and Reno 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
("design-build services"), including tax credit partnerships; (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.

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. During 1999, the Company sold 924
homes, at an average price of $111,161, an increase from 251 homes sold at an
average price of $110,100 in 1998. Reflecting the Company's commitment to expand
its homebuilding activities, in March 1998, the Company acquired Maxim Homes,
Inc. ("Maxim") and in November 1998, acquired Diamond Key Homes, Inc. ("Diamond
Key"). Maxim, a Salt Lake City, Utah homebuilder, specialized in building homes
generally ranging in price from $145,000 to $185,000. Diamond Key, an Arizona
homebuilder and construction company, specialized in entry-level and move-up
homes generally ranging in price from $90,000 to $120,000. The Company,
including Maxim and Diamond Key, had 26 residential community developments in
process, in three states, as of March 31, 1999. The Company also provides its
construction and design-build development services to clients which have
included large, nationally recognized public companies as well as smaller
regional businesses.

The Company's portfolio of 12 income producing properties at March 31, 2000
included approximately 307,316 square feet of office, retail and industrial
facilities. Management monitors the market for the Company's properties on an
ongoing basis to take advantage of opportunities for strategic sales of its
holdings when conditions are favorable.

WORKOUT PLAN

The Company has experienced a slow down of construction in the fourth
quarter of 1999 and a halt of construction in Nevada and Utah in the first
quarter of 2000, primarily due to cash flow problems and over expansion, and was
in default on substantially all notes payable at March 31, 2000. The inadequate
cash flow problem was due to several factors, including: the purchase of Diamond
Key Homes in November 1998 for approximately $12.9 million, including $10.9
million in cash, a portion of which was borrowed funds; over expansion;
purchases of land in Utah in the first and third quarters of 1999 for $4.5
million, which the Company purchased using a combination of high interest rate,
short term debt and funds intended for working capital and other purposes, and
for which the Company was unable to obtain permanent replacement financing on
satisfactory terms; and the Company's failure to adequately monitor and manage
its cash flow. The aforementioned facts and circumstances have raised
substantial doubt that the Company will be able to continue as a going concern
and, therefore, may be unable to realize its assets and discharge its
liabilities in the normal course of business.

In the first quarter of 2000, the Company brought in outside consultants
and legal expertise to assist in formulating a workout business plan (the
"Workout Plan"). The key elements of the Workout Plan are: to establish
adequate cash management controls regarding cash flows and to accelerate the
retirement of debt, especially higher interest rate debt, by raising additional
capital from sources other than the sale of homes, such as the sale of land held
for development and for sale and operating properties, and to negotiate
forbearance agreements with the lenders. The Company believes that the proposed
Workout Plan will help the Company focus on operations, including improved cash
management and monitoring of cash flows and completion of construction and sales
of existing projects.

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Although the Company hopes that the Workout Plan will allow the Company to
avoid filing, or being forced into, bankruptcy, there can be no assurances that
the Workout Plan will be approved by the Company's creditors and subcontractors
or, that if approved, the Company will be able to successfully take the steps
necessary under the Workout Plan to avoid filing, or being forced into,
bankruptcy.

Cash Flow Funds Controls. The Company is still in the process of
finalizing the details of various loan terms with its creditors and
subcontractors. The Company has been meeting with its lenders and
subcontractors in order to discuss with them the Company's operations, including
the cash flow shortage, and the proposed Workout Plan. However, there can be no
assurance that the Company will be able to obtain agreement from its creditors
and subcontractors to the Workout Plan.

As part of the Workout Plan the Company has agreed to certain controls on
its use of cash, including setting up a voucher control system with Nevada
Construction Services to coordinate payments to lenders and subcontractors. The
Company has also proposed, as an additional component of the Workout Plan, that
its subcontractors accept a pro rata share of proceeds from the sales of future
units through escrow disbursements, after the primary lenders have been paid,
until the subcontractors' obligations are satisfied. These payments will be made
through escrow to insure payment is made timely and accurately to the lenders
and subcontractors. The Company has also agreed to weekly monitoring of the
Company's progress to insure adherence to the Workout Plan.

Retirement of Debt and Sale of Properties. An agreement (effective May 12,
2000) has been reached with a group of the Company's various individual debt
holders ("Debt Holder"), which agreement is the cornerstone of the Workout Plan
and would allow the Company to conduct an orderly disposition of certain of its
assets so as to improve its balance sheet and its cash flow. The agreement
provides for the Debt Holder to acquire assets from the Company with a carrying
value of approximately $11.3 million, comprised of the Company's rights to a 914
acre parcel of undeveloped land in Tucson, Arizona, an 80 acre parcel of
undeveloped land in North Las Vegas, Nevada, and two properties under
development in Phoenix, Arizona. In exchange for such assets, the Debt Holder
will forgive any and all indebtedness of the Company in favor of the Debt
Holder, currently aggregating approximately $34.1 million ($28.0 million at
March 31, 2000) and bearing interest rates ranging from 0.0% to 30.0%, and the
Company will receive the Debt Holder's interest in a condominium project that
has a fair value of approximately $8.5 million and related debt of $5.5 million
(assumed by the Company) and the Debt Holder's assumed Company debt of
approximately $2.7 million on the two Phoenix, Arizona properties. This
agreement eliminates the high interest rate debt the Company has recorded with
respect to these assets and it improves the balance sheet position in that the
primary asset being given in exchange for the extinguishment of debt is a
contract to acquire the 914 acre parcel, which is recorded as a $1.8 million
asset on the Company's Consolidated Balance Sheet. Through May 12, 2000 the
Company has sold three operating properties and two parcels of land, with a
carrying value of approximately $5.3 million and debt of approximately $4.2
million at December 31, 1999, for a total of approximately $6.1 million. These
sale transactions retired debt of approximately $4.2 million. The sale of
properties and extinguishment of debt will result in debt retirement of
approximately $39.9 million and a gain of approximately $26.1 million in 2000.
Although some of the Debt Holders' obligations are unsecured, much of the debt
is secured. Hence, this transaction will free up equity for the purposes of
generating cash either through loans or sales to meet the existing cash flow
shortages.

The Company has other properties in escrow and anticipates cash flows from
these closings in the coming months. There can be no assurance however that any
of the proposed asset sales will be completed or, that if completed, they would
be completed in a timely enough manner for the Company to avoid filing, or be
forced into, bankruptcy. Similarly, there can be no assurance the Company's
other creditors will forego taking any actions against the Company pending the
completion of these transactions and there can be no assurance that, even if the
transactions are completed, that the Company will be able to avoid filing, or be
forced into, bankruptcy.

The cash short fall in the initial months, until business operations
stabilize, is dependent on the sales of properties. However, with the Debt
Holder agreement in place, considerable cash would be freed up, and the
Company's cash flow demands from short term borrowings should diminish
significantly. Additionally, it will take time to fully implement the Workout
Plan and the Company may need to obtain interim financing and there can be no
assurance that the Company will be able to obtain such interim financing on
satisfactory terms or at all.

The Company also decreased its workforce in the first quarter of 2000 by 68
employees or 27.9% of the Company's workforce, which resulted in a decrease in
payroll of approximately $1.0 million in the first quarter of 2000.

9
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NOTE 2. ACQUISITIONS

On March 20, 1998, the Company acquired all of the capital stock of 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, totaling $1,131,000, 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 at valued $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 and no earn-out payments
were made during 1999 or the first quarter of 2000.

On November 13, 1998, the Company acquired the outstanding capital stock
and ownership interests of Diamond Key and certain related entities for
approximately $12.9 million. The purchase was accounted for using the purchase
method of accounting and the price was approximately $10,876,000 paid in cash at
closing, approximately $250,000 which was paid in 1999, with an additional
amount of $2,000,000 to be paid 50% in cash and 50% in the Company's Common
Stock one year from the date of closing. On November 15, 1999, one year from
the date of closing and pursuant to the purchase agreement, the Company issued
146,391 shares of the Company's Common Stock to fulfill the stock payment
obligation. Of the $1.0 million to be paid in cash, $300,000 has been paid
through December 31, 1999 and the remainder has been recorded as a note payable
for $700,000, which was due on May 3, 2000 at an interest rate of 18.0% per
annum, which has not yet been paid.

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 Saxton Common Stock at closing.

Goodwill related to the acquisitions of Maxim, Diamond Key and HomeBanc,
totaling approximately $8.0 million, is amortized over 15 years. The operations
of these three acquisitions were included in the Company's Consolidated
Statements of Operations since their acquisition dates.

Revenues as a percentage of total revenues generated by geographic location are
as follows:

THREE MONTHS ENDED
MARCH 31,
------------------
1999 2000
-------- --------
Arizona 42.2 % 71.5 %
Nevada 44.5 26.5
Utah 13.3 2.0
-------- --------
Total 100.0 % 100.0 %

NOTE 3. BASIS OF PRESENTATION

The accompanying consolidated condensed financial statements have been
prepared on a going concern basis. The Company has experienced a slowdown of
construction in the fourth quarter of 1999 and a halt of construction in Nevada
and Utah in the first quarter of 2000 primarily, due to a shortage of available
cash flow. The Company presently is unable to pay interest or principal amounts
outstanding on notes payable and all notes payable were in default at March 31,
2000. The Company is currently negotiating with lenders to forbear receiving
principal and interest or otherwise restructure the terms thereof. In the event
the Company is unable to successfully renegotiate an appropriate period of
forbearance or other satisfactory restructuring of the outstanding notes
payable, the lenders thereunder have the right to accelerate the loan and
exercise their remedies under the note agreements, including foreclosure of
their security interest in the Company's assets.

The inadequate cash flow problem was due to several factors, including: the
purchase of Diamond Key Homes in November 1998 for approximately $12.9 million,
$10.9 million in cash, a portion of which was borrowed funds; purchases of land
in Utah in the first and third quarters of 1999 for $4.5 million, which the
Company purchased using a combination of high interest rate, short term debt and

10
<PAGE>
funds intended for working capital and other purposes, and for which the Company
was unable to obtain permanent replacement financing on satisfactory terms;
over-expansion; and the Company's failure to adequately monitor and manage its
cash flow. The aforementioned facts and circumstances have raised substantial
doubt that the Company will be able to continue as a going concern and,
therefore, may be unable to realize its assets and discharge its liabilities in
the normal course of business.

In the first quarter of 2000, the Company hired outside consultants and
legal expertise to assist in formulating and negotiating a workout business plan
(the "Workout Plan"). The key elements of the Workout Plan are: to establish
adequate cash management controls and to accelerate the retirement of debt,
especially higher interest rate debt, by raising additional capital from sources
other than the sale of homes, such as the sale of land held for development and
for sale and operating properties, and to negotiate forbearance agreements with
the lenders. The Company believes that the proposed Workout Plan will help the
Company focus on operations, including improved cash management and monitoring
of cash flows and completion of construction and sales of existing projects.

Although the Company believes that the Workout Plan will allow the Company
to avoid filing, or being forced into, bankruptcy, there can be no assurances
that the Workout Plan will be approved by the Company's creditors and
subcontractors or, that if approved, the Company will be able to successfully
take the steps necessary under the Workout Plan to avoid filing, or being forced
into, bankruptcy. The accompanying financial statements do not include any
adjustments related to the recoverability and classification of recorded assets
or its classifications of recorded liabilities that might be necessary should
the Company be unable to continue as a going concern.

The accompanying condensed consolidated unaudited interim financial
statements of the Company have been prepared in conformity with accounting
principles generally accepted in the United States of America ("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 months ended March 1999 and 2000. 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, 1999, which are included
in the Company's Form 10-K filed with the Securities and Exchange Commission for
the year ended December 31, 1999. Certain reclassifications have been made to
conform prior periods with the current period presentation.

NOTE 4. REAL ESTATE OPERATING PROPERTIES

Real estate operating properties are summarized as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1999 MARCH 31, 2000
------------------- ------------------
<S> <C> <C>
Cost:
Buildings $ 24,384 $ 22,189
Tenant improvements . . . . . . . . . . 730 698
Land. . . . . . . . . . . . . . . . . . 6,687 5,767
------------------- -----------------
Real estate operating properties at cost 31,801 28,990

Less accumulated depreciation and
amortization . . . . . . . . . . . . . (3,586) (3,561)
------------------- -----------------

Real estate operating properties, net. . $ 28,215 $ 25,093
=================== =================
</TABLE>

Depreciation expense relating to real estate operating properties for the
three months ended March 31, 1999 and 2000 was $167,000 and $211,162,
respectively.

11
<PAGE>
NOTE 5. CONSTRUCTION CONTRACTS

Construction contracts receivable includes amounts retained pending
contract completion, aggregating approximately $146,000 at December 31, 1999 and
March 31, 2000. Based on anticipated completion dates, these retentions are
expected to be collected within the next twelve months.

Accounts payable and accrued expenses include amounts retained pending
subcontract completion, aggregating approximately $3.5 million at December 31,
1999 and $3.7 million at March 31, 2000.

Costs and estimated earnings in excess of billings, net, on uncompleted
contracts, are summarized as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1999 MARCH 31, 2000
------------------- ----------------
<S> <C> <C>
Costs incurred to date $ 110,418 $ 110,686
Estimated earnings to date . . . . . . . 34,902 32,443
------------------- ----------------
145,320 143,129
Less billings to date. . . . . . . . . . (144,780) (144,780)
------------------- ----------------
Cost and estimated earnings in excess of
billings, net . . . . . . . . . . . . . $ (540) $ (1,651)
=================== ================
</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, 1999 MARCH 31, 1999
------------------ ------------------
<S> <C> <C>
Costs and estimated earnings in excess of
billings on uncompleted contracts . . . . $ 760 $ 252
Billings in excess of costs and estimated
earnings on uncompleted contracts . . . . (220) (1,903)
------------------- -----------------
Costs and estimated earnings in excess of
billings, net . . . . . . . . . . . . . . $ 540 $ (1,651)
=================== =================
</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 6. PREPAID EXPENSES AND OTHER ASSETS

Prepaid expenses and other assets consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1999 MARCH 31, 2000
------------------ ----------------
<S> <C> <C>
Rental and other accounts receivable . . . . . . . . . $ 2,036 $ 1,618
Development costs. . . . . . . . . . . . . . . . . . . 151 115
Furniture and equipment, net . . . . . . . . . . . . . 1,368 1,176
Option and escrow deposits and impounds. . . . . . . . 1,319 2,015
Other assets, primarily prepaid expenses and loan fees 1,397 1,319
------------------ ----------------
$ 6,271 $ 6,243
================== ================
</TABLE>

12
<PAGE>
NOTE 7. NOTES PAYABLE

Notes payable consist of the following (in thousands):

<TABLE>
<CAPTION>
OUTSTANDING BALANCE AT
------------------------- APPROXIMATE
DECEMBER 31, MARCH 31, INTEREST MATURITY MONTHLY
1999 2000 RATES DATES PAYMENTS
------------- ---------- ------------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
Notes payable to various financial institutions,
collateralized by first trust deeds on real
property with a carrying value of $128.0 February 2007 -
million at March 31, 2000 . . . . . . . . . . . $ 84,722 $ 79,119 7.9% - 15.3% November 2027 $ 622

Notes payable to various financial institutions, February 2000 -
unsecured . . . . . . . . . . . . . . . . . . . 2,108 1,744 9.5% - 10.5% December 2000 14

Notes payable to various financial institutions,
collateralized by other assets. Includes
$521,000 collateralized by Common Stock
personally owned by the Company's President
and principal stockholder, James C. Saxton.
Includes $1.3 million collateralized by
receivables and includes $181,000 payable
at March 31, 2000 to VOA to acquire January 2000 -
interests in VOA's tax credit partnerships. . . 3,146 2,001 9.0% - 11.0% January 2002 16
------------- ----------

Subtotal of various financial
institutions 89,976 82,864
------------- ----------

Notes payable to various individuals, secured by December 1999 -
first trust deeds on real property 14,132 17,950 0.0% - 20.0% September 2000 183

Notes payable to various individuals, December 1999 -
unsecured 6,355 2,955 12.0% - 30.0% September 2000 59

Notes payable to various individuals,
collateralized by other assets, including
$1.9 million collateralized by Common Stock
personally owned by the Company's President
and principal stockholder, James C. Saxton
Also includes $5.2 million collateralized
by second deeds of trust on commercial September 2000 -
properties owned by the Company 7,300 7,109 20.0% December 2000 118
------------- ----------

Subtotal of notes payable to
various individuals 27,787 28,013
------------- ----------

Total $ 117,763 $ 110,877
============= ==========
</TABLE>

All of the above notes payable were in default but not in foreclosure at
March 31, 2000.

The Company had 12 properties in foreclosure as of June 16, 2000, with the
first potential foreclosure sale date on June 22, 2000. The Company is
attempting to prevent foreclosure sales by completing pending property sales and
other sales, which could provide sufficient cash flows to payoff the related
debt. There can be no assurance that the Company will be successful in
preventing the foreclosure sales of these properties.

13
<PAGE>
The properties in foreclosure as of June 16, 2000 and their related debt
outstanding at March 31, 2000 are as follows:

<TABLE>
<CAPTION>
COLLATERAL AMOUNT
CARRYING VALUE OUTSTANDING FORECLOSURE TRUSTEE
PROPERTY AT MARCH 31, 2000 AT MARCH 31, 2000 SALE DATE
------------------ ------------------ -------------------
<S> <C> <C> <C>

Smoke Ranch (1) . . . . . . $ 2,531,000 $ 1,498,844 N/A
Madre Mesa North and South. 3,699,000 1,328,902 June 22, 2000
Oquirrh Park II . . . . . . 4,575,000 2,500,000 N/A
Sahara Vista B. . . . . . . 6,612,000 3,731,691 June 26, 2000
Regency Plaza . . . . . . . 2,732,000 1,459,094 June 29, 2000
Suncliff V (4). . . . . . . 899,000 1,707,655 N/A
El Mirage (4) . . . . . . . 2,515,000 1,950,000 N/A
Sahara West . . . . . . . . 1,854,000 1,451,153 N/A
Sahara Vista A (2). . . . . 4,809,000 3,948,613 N/A
Pueblo Seco . . . . . . . . 2,794,000 3,373,800 August 11, 2000
Silver Springs C (3). . . . 7,083,000 3,909,827 N/A
------------------ ------------------
Total . . . . . . . . . . $ 40,103,000 $ 27,128,613
================== ==================
<FN>

(1) Property was refinanced on June 9, 2000 with Community Bank of Nevada.
(2) The Company has negotiated a forbearance until August 1, 2000.
(3) The Company has agreed to terms with the lender that will allow the loan to
become current and the remaining balance in use by the Company as a homebuilding
production loan.
(4) Property was sold effective May 12, 2000 with the debt assumed by buyer.
</TABLE>

For the notes payable with maturity dates in 2000, management is
negotiating refinancing alternatives with the applicable lenders.

On July 30, 1997, the Company entered into a $5,000,000 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 8.50% at December 31, 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 March 31, 2000, the Company had outstanding
indebtedness of $1,479,000 maturing on August 1, 2000 and $450,000 maturing on
March 12, 2000 for a total indebtedness of $1,929,000 (included in notes payable
to financial institutions). Under the terms of the agreement, the Company is
required to meet certain financial covenants. At March 31, 2000, the Company
was in default on this loan.

On February 9, 1998, the Company entered into a $10,000,000 revolving loan
agreement with a financial institution. The line of credit provides for
borrowings of up to $1,000,000 for general working capital requirements,
$4,000,000 for acquisition and development, including strategic acquisitions and
$5,000,000 for land acquisitions. Borrowings under the line of credit are
secured by the pledge of certain Company receivables and any land acquired with
borrowings under the line of credit and 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 restrictions. The revolving working capital
line for $1,000,000 was payable on November 30, 1999, the maturity date, and the
remainder is payable one year and one day following each advance. The due dates
range from December 1, 2000 to September 14, 2001. As of December 31, 1999
and March 31, 2000, the Company had outstanding indebtedness of $5,000,000 and
$7,416,000, respectively (included in notes payable to financial institutions).
At March 31, 2000, the Company was in default on this line of credit.

14
<PAGE>
The approximate principal maturities of notes payable outstanding as of
March 31, 2000 are as follows (in thousands):

Year ending December 31,
2000 $87,218
2001. . . . . . . . . . 5,036
2002. . . . . . . . . . 1,733
2003. . . . . . . . . . -
2004. . . . . . . . . . 2,269
Thereafter. . . . . . . 14,621
--------

$110,877
========

NOTE 8. 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 12.0% to 19.0%,
with all amounts due at various dates in 2000. During the first quarter of
1999, the Company borrowed $724,000 and $300,000 from the Company's President
and principal stockholder, James C. Saxton. The notes matured on February 1,
2000 and bear interest at 19.0% and 18.0% per annum, respectively. At March 31,
2000, the outstanding balances were $724,000 and $300,000, respectively and
these loans were in default.

On November 15, 1999, (the first anniversary of the closing of the Diamond
Key acquisition), in connection with the purchase of Diamond Key, the Company
issued 146,391 shares of the Company's Common Stock to Larison P. Clark. The
Company was also obligated to pay Mr. Clark $1.0 million in cash on November
15, 1999. The Company paid Mr. Clark $300,000 through December 31, 1999. The
remainder was recorded as a note payable for $700,000 with an interest rate of
18.0% per annum, due on May 3, 2000 of which $225,000 was paid in the first
quarter of 2000. The outstanding balance at March 31, 2000 was $475,000. As of
March 31, 2000 this loan was in default.

During the second quarter of 1999, the Company's Executive Vice President,
Michele Saxton Pori, pledged 530,000 shares of Common Stock, or 6.9% of the
Company's outstanding shares as of December 31, 1999, as collateral for a $1.2
million personal loan. Ms. Pori reloaned the proceeds to the Company. The
note payable bears interest at 12.0% per annum and matured on February 3, 2000.
The outstanding balance at March 31, 2000 was $590,900. At March 31, 2000,
these loans were in default. The Company understands that Ms. Pori intends to
repay, in full, the loan from the lender upon repayment of the loan she has made
to the Company.

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 44.1% of the Company's outstanding shares at December 31, 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 12.0% per annum and
matured on February 1, 2000. The outstanding balance at March 31, 2000 was $6.3
million. As of March 31, 2000, these loans were in default. 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.

15
<PAGE>
NOTE 9. EARNINGS PER COMMON SHARE

As required by SFAS No. 128, "Earnings per Share," ("EPS"), the following
unaudited 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 MARCH 31, 1999 THREE MONTHS ENDED MARCH 31, 2000
---------------------------------------------------------------------
PER-SHARE PER-SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------- --------- ---------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $ 854 $ (2,411)

Basic EPS
-------------------------------
Income (loss) applicable to
Common stockholders . . . . . 854 7,732,922 $ 8.11 (2,411) 8,336,455 $ (0.29)
------- --------- ========== ------------- --------- ===========

Effect of dilutive securities:
Stock options . . . . . . . . . - 1,895 - 41
------- --------- ------------- ---------

Diluted EPS
-------------------------------
Income (loss) applicable to
Common stockholders
And assumed conversions $ 854 7,734,817 $ 0.11 $ (2,411) 8,336,496 $ (0.29)
======= ========= ========== ============= ========= ===========
</TABLE>

The Company had options 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 outstanding for
March 31, 1999 and 2000 were 419,450 and 693,265, respectively.

NOTE 10. 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. On December 7, 1998,
the Company's Board of Directors approved an increase from 500,000 to 750,000 in
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. All officers, employees (including employees who are Directors),
consultants, advisers, independent contractors and agents are eligible to
receive options under the Option Plan, except that only employees will be
eligible to receive incentive stock options. No person eligible to receive
options under the Option Plan may receive options for the purchase of more than
an aggregate of 25,000 shares in any year. As of March 31, 2000, there were
369,750 options outstanding under the Option Plan. 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.

As of January 2, 1998, the Compensation Committee determined that it would
be in the best interests of the Company to offer all option holders the
opportunity to elect to reduce the exercise price of existing options from $8.25
per share to $6.875 per share (the closing price of the Company's stock as
reported on the Nasdaq Stock Market on January 2, 1998), subject to extension of
the five year vesting schedule to commence January 2, 1998. Holders of options
for 148,300 shares elected to have their stock options repriced. These options
are exercisable for a period of ten years and six months from the date of grant,
and vest ratably over a five year period commencing on the date of grant. In
the event that the employment of any optionee terminates during the exercise
period, the options lapse 30 days following such termination of employment.

The Option Plan may be administered by the Board of Directors or, in its
discretion, by a committee of the Board of Directors appointed for that purpose
(the "Committee"), which, subject to the terms of the Option Plan, will have the
authority in its sole discretion to determine: (i) the individuals to whom
options shall be granted; (ii) the time or times at which options may be
exercised; (iii) the number of shares subject to each option, the option price
and the duration of each option granted; and (iv) all of the other terms and
conditions of options granted under the Option Plan, including the period during
which options may be exercised following the optionee's termination of
employment or other relationship with the Company. The exercise price of
incentive stock options granted under the Option Plan must be at least equal to
the fair market value of the shares on the date of grant (110% of fair market
value in the case of optionees who own more than 10% of the combined voting
power of the Company and its subsidiaries) and may not have a term in excess of
10 years from the date of grant (five years in the case of optionees who own
more than 10% of the combined voting power of the Company and its subsidiaries).
These limits do not apply to non-qualified options. Options granted under the
Option Plan will not be transferable other than by will or the laws of descent
and distribution.

16
<PAGE>
Upon the occurrence of certain extraordinary events, appropriate
adjustments will be made by the Board of Directors to preserve, but not to
increase, the benefits to option holders, including adjustments to the aggregate
number and kind of shares subject to outstanding options and the per share
exercise price.

The Option Plan is of indefinite duration, however, no grant of incentive
stock options will be permitted to be made under the Option Plan more than 10
years after its date of adoption. The Board of Directors will have authority to
terminate or to amend the Option Plan without the approval of the Company's
stockholders unless stockholder approval is required by law or by stock exchange
requirements applicable to the Company. The Board of Directors or the Committee
may amend the terms of any option granted under the Option Plan. No amendment of
any option or amendment or termination of the Option Plan that impairs the
rights of any holder of outstanding options may be made without the consent of
such holder.

NOTE 11. 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 $29.9 million and
$31.1 million at December 31, 1999 and March 31, 2000, respectively.

NOTE 12. 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 months ended March 31, 1999 and 2000, respectively (in
thousands):

<TABLE>
<CAPTION>
MARCH 31, 1999
--------------------------------------------------------------------------------
SALES OF PROPERTY
DESIGN-BUILD COMMERCIAL OPERATIONS AND
SERVICES HOMEBUILDING PROPERTY MANAGEMENT OTHER TOTAL
------------- -------------- ----------- ---------------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue . . . . . . . $ 4,750 $ 21,671 $ 1,550 $ 1,010 $ 571 $ 29,552
Costs . . . . . . . . 3,868 19,230 1,006 287 - 24,391
------------- -------------- ----------- ---------------- ------ ----------
Gross profit . . . . $ 882 $ 2,441 $ 544 $ 723 $ 571 $ 5,161
============= ============== =========== ================ ====== ==========

Depreciation and
amortization expense $ - $ 126 $ - $ 158 $ 247 $ 531

Interest expense. . . $ - $ (29) $ - $ (1,568) $ - $ (1,597)
Interest income . . . $ - $ - $ - $ 223 $ 22 $ 245

Total assets. . . . . $ 43,039 $ 80,179 $ - $ 48,045 $8,183 $ 179,446
</TABLE>

17
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 2000
--------------------------------------------------------------------------------
SALES OF PROPERTY
DESIGN-BUILD COMMERCIAL OPERATIONS AND
SERVICES HOMEBUILDING PROPERTY MANAGEMENT OTHER TOTAL
-------------- ------------- ----------- ---------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue. . . . . . . . $ 370 $ 19,284 $ 4,297 $ 959 $ 374 $ 25,284
Costs. . . . . . . . . 785 17,736 3,778 509 - 22,808
-------------- ------------- ----------- ---------------- -------- ----------
Gross profit (loss) . $ (415) $ 1,548 $ 519 $ 450 $ 374 $ 2,476
============== ============= =========== ================ ======== ==========

Depreciation and
amortization expense. $ - $ 116 $ - $ 7 $ 434 $ 557

Interest expense . . . $ - $ - $ - $ (619) $ (988) $ (1,607)
Interest income. . . . $ - $ 3 $ - $ - $ - $ 3

Total assets . . . . . $ 15,099 $ 105,391 $ - $ 35,717 $ 8,590 $ 164,797
</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.

Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999

Revenue. Total revenue was $25.3 million for the three months ended
March 31, 2000, representing a $4.3 million, or 14.4%, decrease from $29.6
million for the three months ended March 31, 1999. The decrease in construction
revenue was primarily due to the decline in construction activity in Nevada and
Utah in the fourth quarter of 1999 and a halt in construction in the first
quarter of 2000 due to the Company's weakend cash flow position. The 162
single-family home closings for the first three months of 2000 represented a
decrease of 14.7%, compared to the 190 closings for the first three months of
1999. Home closings for the three months ended March 31, 2000 included 10 in
Nevada, 1 in Utah and 151 in Arizona. Home closings for the three months ended
March 31, 1999 included 60 in Nevada, 18 in Utah and 112 in Arizona.
Construction revenue for the first three months of 2000 was $370,000, a decrease
of $4.4 million, or 92.2%, from $4.8 million during the first three months of
1999. Sale of commercial properties was $4.3 million for the three months ended
March 31, 2000 compared to $1.6 million for the three months ended March 31,
1999. Four commercial properties were sold during the first quarter of 2000.
Rental and other revenue decreased to $1.3 million for the three months ended
March 31, 2000, an 18.8% decrease from $1.6 million in the comparable period of
the prior year. The decrease was primarily due to a write-off of $128,000 in
uncollectible rents, $114,000 in commissions on new leases in the first quarter
of 2000 compared to $0 in the same period in the prior year, and the Company
retaining the services of outside property management companies to manage the
TCP properties and three Homeowners Associations in the fourth quarter of 1999,
resulting in a reduction in management fees billed.

Cost of Revenue. Total cost of revenue was $22.8 million for the three
months ended March 31, 2000, representing a $1.6 million, or 6.5%, decrease from
$24.3 million for the three months ended March 31, 1999. Cost of revenue for the
three months ended March 31, 2000 as a percentage of revenue was 90.2%, compared
to 82.5% for the three months ended March 31, 1999. The increase was primarily
due to lower gross profit margins on three commercial properties sold in the
first quarter of 2000.

Gross Profit. Gross profit as a percent of revenue decreased to 9.8% for
the three months ended March 31, 2000 from 17.5% for the comparable period in
1999. Gross margins on the sales of homes decreased to 8.0% in the first three
months of 2000 compared to 11.3% in the first three months of 1999, due to
increased capitalized interest as a result of a halt in construction in Nevada
and Utah in the first quarter of 2000. Gross margin on construction revenue
decreased to (112.2)% in the three months ended March 31, 2000, compared to
18.6% in the same period of 1999, primarily due to the write-down of tax credit
receivables in the fourth quarter of 1999. Gross profit margin on commercial
properties sold in the three months ended March 31, 2000 decreased to 12.1% from
35.1% in the three months ended March 31, 1999. In the first three months of
2000, three rental properties were sold, which yielded a lower gross profit
margin than the one rental property that was sold in the same period of 1999.

18
<PAGE>
General and Administrative Expenses. General and administrative expenses
were $3.6 million for the three months ended March 31, 2000, representing a $1.6
million, or 78.6%, increase from $2.0 million for the three months ended March
31, 1999. Certain labor and other costs incurred by the company during the
first quarter of 2000 were not charged to jobs as they were during the first
quarter of 1999. This is due to the decline in construction activity in Nevada
and Utah in the fourth quarter of 1999 and the halt of construction in the first
quarter of 2000. The labor and other costs were used in the company's
restructuring, as there was little production during this period. This increase
was partially offset by an approximately $1.0 million decrease in payroll
resulting from the Company's decrease in its workforce in the first quarter of
2000 by 68 employees or 27.9% of the Company's workforce. As a result, general
and administrative expenses as a percentage of total revenue was 14.4% for the
three months ended March 31, 2000 as compared to 6.3% for the three months ended
March 31, 1999.

Depreciation and Amortization. Depreciation and amortization expense was
$557,000 for the three months ended March 31, 2000, representing a $25,000, or
4.9%, increase from $531,000 for the three months ended March 31, 1999. The
increase was primarily due to loan fees amortized in connection with
restructuring of debt in the first quarter of 2000.

Interest Expense, Net. Interest expense, net, was $1.6 million for the three
months ended March 31, 2000, representing a $250,000 or 18.6%, increase from
$1.4 million for the three months ended March 31, 1999. The increase was
primarily the result of interest income falling to $3,000 from $245,000 for the
same period in the prior year. This was a result of note receivables written
off to bad debt in 1999.

Income (loss) Before Provision for Income Taxes. As a result of the
foregoing factors, income (loss) before provision for income taxes was $(3.3)
million for the three months ended March 31, 2000, representing a $4.6 million,
or 375%, decrease from $1.2 million for the three months ended March 31, 1999.
Income (loss) before provision for income taxes as a percentage of total revenue
was (13.2)% for the three months ended March 31, 2000 as compared to 4.2% for
the three months ended March 31, 1999.

LIQUIDITY AND CAPITAL RESOURCES

Workout Plan

19
<PAGE>
In the first quarter of 2000, the Company brought in outside consultants and
legal expertise to assist in formulating a workout business plan (the "Workout
Plan"). The key elements of the Workout Plan are: to establish adequate cash
management controls regarding cash flows and to accelerate the retirement of
debt, especially higher interest rate debt, by raising additional capital from
sources other than the sale of homes, such as the sale of land held for
development and for sale and operating properties and to negotiate forbearance
agreements with lenders. The Company believes that the proposed Workout Plan
will help the Company focus on operations, including improved cash management
and monitoring of cash flows and completion of construction and sales of
existing projects.

Although the Company hopes that the Workout Plan will allow the Company to
avoid filing, or being forced into, bankruptcy, there can be no assurances that
the Workout Plan will be approved by the Company's creditors and subcontractors
or, that if approved, the Company will be able to successfully take the steps
necessary under the Workout Plan to avoid filing, or being forced into,
bankruptcy. The Workout Plan generally assumes the same levels of priority
given to debt instruments consistent with the payment priorities of a Chapter 11
filing.

Cash Flow Funds Controls. The Company is still in the process of finalizing
the details of various loan terms with its creditors and subcontractors. The
Company has been meeting with its lenders and subcontractors in order to discuss
with them the Company's operations, including the cash flow shortage, and the
proposed Workout Plan. However, there can be no assurance that the Company will
be able to obtain agreement from its creditors and subcontractors to the Workout
Plan.

Retirement of Debt and Sale of Properties. An agreement (effective May 12,
2000) has been reached with a group of the Company's various individual debt
holders ("Debt Holder"), which agreement is the cornerstone of the Workout Plan
and would allow the Company to conduct an orderly disposition of certain of its
assets so as to improve its balance sheet and its cash flow. The agreement
provides for the Debt Holder to acquire assets from the Company with a carrying
value of approximately $11.3 million, comprised of the Company's rights to a 914
acre parcel of undeveloped land in Tucson, Arizona, an 80 acre parcel of
undeveloped land in North Las Vegas, Nevada, and two properties under
development in Phoenix, Arizona. In exchange for such assets, the Debt Holder
will forgive any and all indebtedness of the Company in favor of the Debt
Holder, currently aggregating approximately $34.1 million ($28.0 million at
March 31, 2000) and bearing interest rates ranging from 0.0% to 30.0%, and the
Company will receive the Debt Holder's interest in a condominium project that
has a fair value of approximately $8.5 million and related debt of $5.5 million
(assumed by the Company) and the Debt Holder's assumed Company debt of
approximately $2.7 million on the two Phoenix, Arizona properties. This
agreement eliminates high interest rate debt the Company has recorded with
respect to these assets and it improves the balance sheet position in that the
primary asset being given in exchange for the extinguishment of debt is a
contract to acquire the 914 acre parcel, which is recorded as a $1.8 million
asset on the Company's Consolidated Balance Sheet. In the first quarter of 2000
the Company sold three operating properties and two parcels of land, with a
carrying value of approximately $5.3 million and debt of approximately $4.2
million, for a total of approximately $6.1 million. These sale transactions
retired debt of approximately $4.2 million. The sale of properties and
extinguishment of debt will result in debt retirement of approximately $39.9
million and a gain of approximately $26.1 million in 2000. Although some of the
Debt Holders' obligations are unsecured, much of the debt is secured. Hence,
this transaction will free up equity for the purposes of generating cash either
through loans or sales to meet the existing cash flow shortages.

The cash short fall in the initial months, until business operations
stabilize, has not yet been addressed in the plan. However, with the Debt
Holder agreement in place, considerable equity will be freed up, and the
Company's cash flow demands from short term borrowings diminish significantly.
Additionally, it will take time to fully implement the Workout Plan and the
Company may need to obtain interim financing and there can be no assurance that
the Company will be able to obtain such interim financing on satisfactory terms
or not at all.

20
<PAGE>
The Company also decreased its workforce in the first quarter of 2000 by 68
employees or 27.9% of the Company's workforce, which resulted in a decrease in
payroll of approximately $1.0 million in the first quarter of 2000.

In March 2000, in connection with a purchase/settlement agreement and
related order with Volunteers of America (VOA) National Housing Corp. which was
approved by the Company's Board of Directors in the fourth quarter of 1999, the
Company issued 457,142 shares of Saxton Common Stock to acquire certain of VOA's
interest in Tax Credit Partnerships. The Company was required to deliver to
VOA, $1,000,000 worth of stock (457,142 shares at $2.25 per share, the market
price on March 12, 2000). These shares represent approximately 5.8% of the
Company's Common Stock issued and outstanding on March 12, 2000. The Company
also agreed to pay $325,000 in cash to VOA, of which $125,000 was paid in the
first quarter of 2000, with the remainder to be paid in annual installments,
over the next two years. The $1,325,000 has been recorded as Investment in
Joint Ventures held for sale at December 31, 1999 and was included in the market
valuation of the TCP properties.

The Company's claim for a federal income tax refund due to the net
operating loss for the taxable years ended December 31, 1997 and 1998, was
processed by the Internal Revenue Service and resulted in a refund of taxes paid
in the amount of $2,363 and $3,614 for such years, respectively.

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.

Interest costs incurred, expensed and capitalized were as follows (in
thousands):

THREE MONTHS ENDED
MARCH 31,
--------------------
1999 2000
--------- ---------
Interest incurred:
Residential. . . . . . . . . . . . . $ 515 $ 2,167

Commercial. . . . . . . . . . . . . 622 617
--------- ---------
Total incurred. . . . . . . . . . $ 1,137 $ 2,784
========= =========

Interest expensed: . . . . . . . . .
Residential $ 133 $ 987
Commercial 527 617
--------- ---------
Total expensed . . . . . . . . . $ 660 $ 1,604
========= =========

Interest capitalized at end of year:
Residential $ 382 $ 1,180
Commercial . . . . . . . . . . . . 95 -
--------- ---------
Total interest capitalized. . . . $ 477 $ 1,180
========= =========

The Company has utilized, and may continue to utilize, options and
contingent sales contracts as a method of controlling and subsequently acquiring
land. By controlling land through these methods on the future discretionary
purchase of land, the Company attempts to minimize its cash outlays and reduce
its risk from changing market conditions. While the Company attempts to
prudently manage its acquisition and development of property, the development of
such property can have a negative impact on liquidity due to the timing of
acquisition and development activities.

If strategic acquisitions or joint venture opportunities arise, the capital
resources of the Company may be utilized, if available, to undertake such
opportunities. The timing and nature of these opportunities cannot be predicted
and the financing of any future strategic acquisition or joint venture may take
a variety of forms.

21
<PAGE>
The Company anticipates that development of portfolio projects during 2000
will cost approximately $8.5 million in the aggregate, substantially all of
which is expected to be financed with construction loans, which there is no
assurance the Company will be able to continue. 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 generally seeks to obtain
permanent financing secured by the property. There can be no assurance,
however, that the Company will be able to obtain satisfactory financing for the
development of any of its projects and the failure to obtain satisfactory
financing would have a material adverse effect on the Company, its operations
and its financial condition. The Company also expects purchases of construction
and computer equipment during 2000 to be nominal, based on the Company's debt
restructuring.

At March 31, 2000, the Tax Credit Partnerships were indebted to the Company
in the aggregate amount of approximately $11.7 million, representing developer
fees and land and construction costs.

During the fourth quarter of 1999, the Company began to explore the
possibility of selling the Tax Credit Project general partnership interests and
receivables to strengthen the Company's cash flow position and has determined
that the Due from TCP's and the Investments in the TCP Joint Ventures are held
for sale at March 31, 2000 and are actively being marketed for sale. Therefore,
at March 31, 2000, the amounts are recorded at the lower of cost or fair value,
less selling expenses. The Company has obtained a fair market valuation from an
independent third party for the general partnership interests and the
receivables from the eight TCP properties. This analysis indicated a fair value
of $14.8 million, resulting in a write down of the Tax Credit partnership
receivables by $23.9 million and a write down of the investments in these
projects by $1.7 million.

Until the fourth quarter of 1999, the Company had not attempted to market
these general partnership interests and receivables and based on all available
information, the Company believed that it would be able to collect the
receivable balances plus interest as provided for in the agreements. In
addition, management's estimated future cash flows exceeded the gross receivable
balance at March 31, 2000.

The Company has made its capital contributions to the eight Tax Credit
Partnerships. The Company is obligated, however, to make operating expense
loans, not to exceed an aggregate of $3.4 million, to meet operating deficits,
if any, of such Tax Credit Partnerships. The Company does not plan to pursue
any new Tax Credit Projects in the foreseeable future.

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
ownership has been legally transferred to the buyer. At December 31, 1999 and
March 31, 2000, the Company had 356 homes and 287 homes in backlog,
respectively, representing aggregate sales values of approximately $40.1 million
and $34.2 million, respectively. The decrease in backlog at March 31, 2000 is
primarily attributable to cancellations as a result of the construction work
slowdown in Nevada and Utah in the fourth quarter of 1999 and halt of
construction in 2000. There can be no assurance that the buyers will remain in
place long enough for the Company to close the sales.

As part of its sales and marketing efforts, the Company builds and
maintains model homes in each of its active communities. The Company also builds
homes which are under construction or completed for which the Company does not
yet have sales contracts ("speculative homes") on a project-by-project basis.
It is possible that, in the event of adverse economic or other business
conditions affecting home buying activity in the Company's markets, the Company
may be required to reduce prices or provide sales incentives to liquidate its
inventory of model or speculative homes. It is also possible that the Company
could be required to reduce prices or provide sales incentives to sell its model
homes at the conclusion of a particular community. Either of these actions, if
taken, could have the effect of depressing the Company's gross margin for the
relevant periods.

22
<PAGE>
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 December 31, 1999 and March 31, 2000, the Company had backlog
under its design-build contracts of approximately $10.9 million. There was no
change in design-build backlog due to the decline in construction activity in
Nevada in the fourth quarter of 1999 and a halt in construction in the first
quarter of 2000 due to the Company's weakend cash flow position.

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
$67.3 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 8.74% per annum at March
31, 2000. 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.

23
<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 for
the year ended December 31, 1999. There have been no significant changes since
the filing of the aforementioned report.

24
<PAGE>
PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 2. CHANGES IN SECURITIES

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES AND USE OF PROCEEDS

None.

ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

Exhibit 27 - Financial Data Schedule for the quarter ended March 31, 2000.

(b) Reports on Form 8-K. The following reports on Form 8-K were filed during
or dated for the first quarter of fiscal year ended December 31, 2000 and for
the period between January 1, 2000 and the date hereof:

Form 8-K dated and filed on March 24, 2000 relating to press release with
respect to pending fourth quarter loss issued on March 23, 2000.

Form 8-K dated April 12, 2000 and filed on April 24,2000 related to resignation
of two directors, non-timely filing of Form 10-K and potential delisting from
Nasdaq.

Form 8-K dated April 27, 2000 and filed May 8, 2000 related to the resignation
of a director and Chief Accounting Officer.

Form 8-K dated May 5, 2000 and filed May 9, 2000 related to additional Nasdaq
delisting notification.

Form 8-K dated June 14, 2000 and filed June 16, 2000 related to the delisting
from the Nasdaq Stock Market and resignation of an Executive Vice President -
Corporate Development and Director of the Company.

25
<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

June 20, 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/ Chiemi Floyd
----------------------------------------------
Chiemi Floyd
Chief Accounting Officer
(Principal Accounting Officer)

26
<PAGE>
INDEX TO EXHIBITS

SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------

27 Financial Data Schedule for the quarter ended March 31, 2000 23

27
<PAGE>