UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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 [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 September 30, 2000 was 8,336,455.
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SAXTON INCORPORATED AND SUBSIDIARIES
FORM 10-Q
PAGE
NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 2000 and December 31, 1999. . . . . . . . . . . . . 3
Condensed Consolidated Statements of Income -
Three and Nine Months Ended September 30, 2000 and 1999. . . . . . 4-5
Condensed Consolidated Statement of Stockholders'
Equity - Nine Months Ended September 30, 2000. . . . . . . . . . . 6
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2000 and 1999. . . . . . . . . . . 7-8
Notes to Condensed Consolidated Financial Statements . . . . . . . 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . . . . 20
Item 3. Quantitative and Qualitative Disclosures About Market Risk. . . . 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 26
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . . . . 26
Item 3. Defaults Upon Senior Securities and Use of Proceeds. . . . . . . . 26
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . 26
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . 26
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . 26
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
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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)
SEPTEMBER 30, DECEMBER 31,
ASSETS 2000 1999
--------------- --------------
<S> <C> <C>
Real estate properties (all held for sale at September 30, 2000
and December 31, 1999):
Operating properties, net of accumulated depreciation . . . . . . . . $ 30,269 $ 28,215
Properties under development. . . . . . . . . . . . . . . . . . . . . 62,890 89,974
Land held for future development or sale. . . . . . . . . . . . . . . 11,211 13,436
--------------- --------------
Total real estate properties. . . . . . . . . . . . . . . . . . . . 104,370 131,625
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . 202 6,268
Due from Tax Credit Partnerships (held for sale at September 30, 2000
and December 31, 1999). . . . . . . . . . . . . . . . . . . . . . . . . 7,818 12,587
Construction contracts receivable, net of allowance for doubtful
accounts of $100 at September 30, 2000 and December 31, 1999. . . . . . 430 2,451
Costs and estimated earnings in excess of billings on uncompleted
contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,315 760
Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290 936
Investments in joint ventures. . . . . . . . . . . . . . . . . . . . . . 3,251 3,249
Due from related parties . . . . . . . . . . . . . . . . . . . . . . . . 26 26
Goodwill, net of accumulated amortization of $896 at September 30, 2000
and $734 at December 31, 1999. . . . . . . . . . . . . . . . . . . . . 1,688 7,251
Deferred tax asset, net . . . . . . . . . . . . . . . . . . . . . . . . . 328 1,604
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . 3,466 6,271
--------------- --------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 123,184 $ 173,028
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses. . . . . . . . . . . . . . . . . . $ 24,382 $ 27,576
Tenant deposits and other liabilities. . . . . . . . . . . . . . . . . . 399 7,357
Billings in excess of costs and estimated earnings on uncompleted
contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,135 220
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,340 117,763
Notes payable to related parties . . . . . . . . . . . . . . . . . . . . 9,783 10,103
Long-term capital lease obligations. . . . . . . . . . . . . . . . . . . 760 1,041
--------------- --------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 110,799 164,060
--------------- --------------
Commitments and contingencies (Note 12)
Stockholders' equity:
Common stock, $.001 par value. Authorized 50,000,000
shares; issued and outstanding 8,336,455 at September 30, 2000
and 7,879,313 at December 31, 1999. . . . . . . . . . . . . . . . . . . 8 8
Preferred stock, $.001 par value. Authorized 5,000,000
shares; no shares issued and outstanding. . . . . . . . . . . . . . . . - -
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . 23,510 22,482
Retained deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,133) (13,522)
--------------- --------------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . 12,385 8,968
--------------- --------------
Total liabilities and stockholders' equity. . . . . . . . . . . . . $ 123,184 $ 173,028
=============== ==============
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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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ --------------------
2000 1999 2000 1999
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
REVENUE:
Construction revenue, including Tax Credit
Partnership construction revenue of $377 and $4,024
for the three months ended September 30, 2000 and 1999,
respectively, and $2,719 and $14,887 for the nine months ended
September 30, 2000 and 1999, respectively. . . . . . . . . . . . . . . . . . . . . . $ 424 $ 4,989 $ 2,766 $ 17,156
Sales of homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,600 29,013 38,662 76,115
Sales of commercial properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 3,214 3,530 4,901
Sales of land in development and land held for development . . . . . . . . . . . . . . 2,625 - 28,420 -
Rental revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 984 815 2,798 2,669
Other revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 619 1,120 1,778
-------- -------- --------- ---------
Total revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,789 38,650 77,296 102,619
-------- -------- --------- ---------
COST OF REVENUE:
Cost of construction, including Tax Credit Partnership cost of
construction of $352 and $3,068 for the three months ended
September 30, 2000 and 1999, respectively, and $3,137 and
$10,725 for the nine months ended September 30, 2000 and 1999,
respectively. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351 4,423 3,136 14,205
Cost of homes sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,481 25,551 36,776 66,713
Impairment of homes under development. . . . . . . . . . . . . . . . . . . . . . . . . 966 - 966 -
Cost of commercial properties sold . . . . . . . . . . . . . . . . . . . . . . . . . . - 3,156 3,128 4,180
Cost of land in development and land held for development. . . . . . . . . . . . . . . 4,160 - 31,215 -
Rental operating cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 159 813 682
-------- -------- --------- ---------
Total cost of revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,018 33,289 76,034 85,780
-------- -------- --------- ---------
Gross profit (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,229) 5,361 1,262 16,839
-------- -------- --------- ---------
General and administrative expense . . . . . . . . . . . . . . . . . . . . . . . . . . 3,121 2,813 9,063 7,215
Write down of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - 4,847 -
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 519 627 1,297 1,735
-------- -------- --------- ---------
Operating income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,869) 1,921 (13,945) 7,889
-------- -------- --------- ---------
OTHER EXPENSE:
Interest expense, net of interest income of $5 and $354 for the
three months ended September 30, 2000 and 1999, respectively,
and $16 and $832 for the nine months ended September 30, 2000
and 1999, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,096) (1,193) (5,301) (4,399)
Joint venture income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (5) 1 (29)
-------- -------- --------- ---------
Total other expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,096) (1,198) (5,300) (4,428)
-------- -------- --------- ---------
Income (loss) before provision for income taxes . . . . . . . . . . . . . . . . . . . . (6,965) 723 (19,245) 3,461
Provision (benefit) for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . (550) 176 3,590 966
-------- -------- --------- ---------
Income (loss) before extraordinary gain . . . . . . . . . . . . . . . . . . . . . . . . (6,415) 547 (15,655) 2,495
Extraordinary gain on troubled debt restructuring, net of income taxes
of $0 for the three months and $4,911 for the nine months ended
September 30, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - 18,044 -
-------- -------- --------- ---------
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(6,415) $ 547 $ 2,389 $ 2,495
======== ======== ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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SAXTON INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Continued
(unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2000 1999 2000 1999
----------- ---------- ----------- ----------
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EARNINGS PER COMMON SHARE:
Basic:
------
Income (loss) before extraordinary gain . . . . . . . . . . . . . . . $ (0.77) $ 0.07 $ (1.91) $ 0.32
Extraordinary gain on troubled debt restructuring, net of income taxes - - 2.20 -
----------- ---------- ----------- ----------
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.77) $ 0.07 $ 0.29 $ 0.32
=========== ========== =========== ==========
Weighted-average number of common shares outstanding . . . . . . . . . 8,336,455 7,732,922 8,214,662 7,732,922
=========== ========== =========== ==========
Diluted:
--------
Income (loss) before extraordinary gain . . . . . . . . . . . . . . . $ (0.77) $ 0.07 $ (1.91) $ 0.32
Extraordinary gain on troubled debt restructuring, net of income taxes - - 2.20 -
----------- ---------- ----------- ----------
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.77) $ 0.07 $ 0.29 $ 0.32
=========== ========== =========== ==========
Weighted-average number of common shares outstanding assuming
dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,336,455 7,733,089 8,214,662 7,734,047
=========== ========== =========== ==========
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See accompanying notes to condensed consolidated financial statements.
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SAXTON INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2000
(in thousands)
(Unaudited)
ADDITIONAL
SHARES COMMON PAID-IN ACCUMULATED
OUTSTANDING STOCK CAPITAL DEFICIT TOTAL
----------- ------- ----------- ------------- -------
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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 nine months
ended September 30, 2000. . . . . . . . . - - - 2,389 2,389
----------- ------- ----------- ------------- -------
Balance at September 30, 2000. . . . . . . 8,336 $ 8 $ 23,510 $ (11,133) $12,385
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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)
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
2000 1999
--------- ---------
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Cash flows from operating activities:
-------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 2,389 $ 2,495
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization . . . . . . . . . . . . . 1,297 1,735
Gain on sales of properties . . . . . . . . . . . . . . (16,977) (906)
Joint venture (income) loss. . . . . . . . . . . . . . (1) 29
Write down of goodwill. . . . . . . . . . . . . . . . . 4,847 -
Increase in investments in joint ventures . . . . . . . - (50)
Changes in operating assets and liabilities:
Tax Credit Partnerships . . . . . . . . . . . . . . . 4,769 (5,161)
Construction contracts receivable . . . . . . . . . . 2,021 3,401
Costs and estimated earnings in excess of billings
on uncompleted contracts. . . . . . . . . . . . . . (555) 518
Properties under development. . . . . . . . . . . . . 3,260 (29,572)
Prepaid expenses and other assets . . . . . . . . . . (763) (412)
Deferred tax asset. . . . . . . . . . . . . . . . . . 1,276 -
Accounts payable and accrued expenses . . . . . . . . (3,195) 3,222
Billings in excess of costs and
estimated earnings on uncompleted contracts . . . . 1,274 759
Tenant deposits and other liabilities . . . . . . . . (1,498) 80
--------- ---------
Net cash used in operating activities . . . . . . . (1,856) (23,862)
--------- ---------
Cash flows from investing activities:
-------------------------------------
Expenditures for property acquisitions and improvements . . . (440) (2,686)
Proceeds from sales of properties. . . . . . . . . . . . . . 7,881 4,901
Increase in notes receivable from related parties . . . . . . - (83)
Payments from notes receivable from related parties . . . . . (15) 89
Decrease (increase) in notes receivable . . . . . . . . . . . 661 (795)
--------- ---------
Net cash provided by investing activities. . . . . . 8,087 1,426
--------- ---------
Cash flows from financing activities:
-------------------------------------
Proceeds from issuance of notes payable. . . . . . . . . . . 32,064 95,997
Payments on notes payable and capital lease obligations. . . (44,042) (68,989)
Decrease (increase) in notes payable to related parties. . . (319) (354)
--------- ---------
Net cash provided by financing activities. . . . . . (12,297) 26,654
--------- ---------
Net increase (decrease) in cash and cash equivalents (6,066) 4,218
Cash and cash equivalents:
Beginning of period. . . . . . . . . . . . . . . . . . . . 6,268 1,331
--------- ---------
End of period. . . . . . . . . . . . . . . . . . . . . . . $ 202 $ 5,549
========= =========
</TABLE>
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)
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
2000 1999
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Supplemental disclosure of cash flow information:
-------------------------------------------------
Cash paid during the period for interest, net of amounts capitalized $ 3,319 $5,211
======= ======
Cash paid during the period for income taxes . . . . . . . . . . . . $ - $ 509
======= ======
Non-cash financing and investing activities:
--------------------------------------------
Common stock issued to Volunteers of America (VOA) in
connection with a purchase agreement . . . . . . . . . . . . . . . $ 1,028 $ -
======= ======
Capital lease obligation recorded in connection with equipment
acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ 144
======= ======
Extinguishment of troubled debt. . . . . . . . . . . . . . . . . . . $36,159 $ -
======= ======
</TABLE>
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 Las Vegas, Phoenix, Salt Lake City 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. The
Company had 11 residential community developments in process, in three states,
as of September 30, 2000.
The Company's portfolio of 7 income producing properties at September 30,
2000 included approximately 258,449 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 experienced a slow down of construction in the fourth quarter
of 1999 and a halt of construction in Nevada and Utah in the first half of 2000,
primarily due to cash flow problems and over expansion. At September 30, 2000,
construction had resumed on all development projects in Nevada and one
single-family subdivision in Utah. The Company is currently attempting to reach
agreements with its Utah creditors and subcontractors on the two remaining Utah
single-family subdivisions.
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.
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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.
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 has finalized details of various
loan terms with its creditors and subcontractors in Nevada allowing certain
controls on its use of cash, including a voucher control system with Nevada
Construction Services to coordinate payments to lenders and subcontractors. The
Company has also reached agreements with its Nevada subcontractors to 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 are being 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 was reached on May
12, 2000 with a group of the Company's various individual debt holders ("Debt
Holder"), which allowed the Company to dispose of certain of its assets so as to
improve its balance sheet and its cash flow. As a result of this transaction,
the Company recognized an extraordinary gain on extinguishment of troubled debt
of $22.9 million in the second quarter of 2000. Although some of the Debt
Holder's obligations were unsecured, much of the debt was secured. Hence, this
transaction has freed up equity for the purposes of generating cash either
through loans or sales to meet the existing cash flow shortages. In addition to
the aforementioned transaction, through September 30, 2000 the Company has sold
three operating properties and two parcels of land held for development in order
to generate operating cashflow and relieve debt.
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 has been freed up, and the
Company's cash flow demands from short-term borrowings have diminished
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.
NOTE 2. DISPOSITION OF ASSETS
On August 3, 2000, the Company sold all of the assets of its wholly owned
subsidiary, HomeBanc Mortgage Corporation ("HomeBanc") to Affordable Housing
Acceptance LLC, dba The Platinum Investment Group for $12,000 in cash. With the
sale of the assets of HomeBanc, the Company will be discontinuing its line of
business as a real estate mortgage broker in the fourth quarter of 2000.
NOTE 3. BASIS OF PRESENTATION
The accompanying condensed consolidated unaudited interim financial
statements have been prepared on a going concern basis. The Company experienced
a slowdown of construction in the fourth quarter of 1999 and a halt of
construction in Nevada and Utah in the first half of 2000, primarily due to a
shortage of available cash flow.
10
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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 nine months ended September 30, 2000 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, 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.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued, SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133").
Management has evaluated this guidance and does not expect SFAS 133 to have a
material impact on the consolidated financial statements of the Company.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 clarifies existing accounting principles related to revenue
recognition in financial statements. The Company is required to comply with the
provisions of SAB 101 by the fourth quarter of 2000. Management has not yet
completed an analysis of the impact that SAB 101 will have on the Company's
current revenue recognition practices.
NOTE 4. REAL ESTATE OPERATING PROPERTIES
Real estate operating properties are summarized as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
-------------------- -------------------
<S> <C> <C>
Cost:
Buildings . . . . . . . . . . . . . . . $ 22,678 $ 24,384
Tenant improvements . . . . . . . . . . 4,390 730
Land. . . . . . . . . . . . . . . . . . 6,763 6,687
-------------------- -------------------
Real estate operating properties at cost 33,831 31,801
Less accumulated depreciation and
amortization. . . . . . . . . . . . . . (3,562) (3,586)
-------------------- -------------------
Real estate operating properties, net . . $ 30,269 $ 28,215
==================== ===================
</TABLE>
Depreciation expense relating to real estate operating properties for the
three months ended September 30, 2000 and 1999 was $0 and $193,000,
respectively. Depreciation expense relating to real estate operating properties
for the nine months ended September 30, 2000 and 1999 was $0 and $539,000,
respectively. Depreciation on operating properties was discontinued during the
first quarter of 2000 as all operating properties were held for sale.
NOTE 5. CONSTRUCTION CONTRACTS
Construction contracts receivable of $430,000 and $2.5 million at September
30, 2000 and December 31, 1999, respectively, include amounts retained pending
contract completion aggregating approximately $146,000 at September 30, 2000 and
December 31, 1999. Based on anticipated completion dates, these retentions are
expected to be collected within the next twelve months.
Accounts payable and accrued expenses of $24.4 million and $27.6 million at
September 30, 2000 and December 31, 1999, respectively, include amounts retained
pending subcontract completion, aggregating approximately $2.1 million at
September 30, 2000 and $3.5 million at December 31, 1999.
11
<PAGE>
Costs and estimated earnings in excess of billings, net, on uncompleted
contracts, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
-------------------- -------------------
<S> <C> <C>
Costs incurred to date . . . . . . . . . $ 112,600 $ 110,418
Estimated earnings to date . . . . . . . 31,855 34,902
-------------------- -------------------
144,455 145,320
Less billings to date. . . . . . . . . . (144,275) (144,780)
-------------------- -------------------
Cost and estimated earnings in excess of
billings, net. . . . . . . . . . . . . $ 180 $ 540
==================== ===================
</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>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
-------------------- -------------------
<S> <C> <C>
Costs and estimated earnings in excess of
billings on uncompleted contracts . . . $ 1,315 $ 760
Billings in excess of costs and estimated
earnings on uncompleted contracts . . . (1,135) (220)
-------------------- -------------------
Costs and estimated earnings in excess of
billings, net . . . . . . . . . . . . . $ 180 $ 540
==================== ===================
</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 and estimated earnings on uncompleted contracts"
represents amounts billed in excess of revenue recognized on the respective
construction contracts.
NOTE 6. IMPAIRMENT OF HOMES UNDER DEVELOPMENT
Due to the Company's credit problems and non-payment issues, the Company
has been unable to utilize some of the subcontracting workforce it previously
used. Therefore, the Company's costs have been significantly higher than
expected. This resulted in an estimated accrual for future losses on a
single-family subdivision of $966,000 in the third quarter of 2000.
NOTE 7. PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------- ------------------
<S> <C> <C>
Rental and other accounts receivable . . . . . . . . . $ 792 $ 2,036
Development costs. . . . . . . . . . . . . . . . . . . 238 151
Furniture and equipment, net . . . . . . . . . . . . . 774 1,368
Option and escrow deposits and impounds. . . . . . . . 765 1,319
Other assets, primarily prepaid expenses and loan fees 897 1,397
------------------- ------------------
$ 3,466 $ 6,271
=================== ==================
</TABLE>
12
<PAGE>
NOTE 8. NOTES PAYABLE
Notes payable consist of the following (in thousands):
<TABLE>
<CAPTION>
OUTSTANDING BALANCE AT INTEREST MATURITY
----------------------------- RATES AT DATES AT
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, APPROX.
-------------- ------------- -------------- ---------------- MONTHLY
2000 1999 2000 2000 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 $105 February 2007 -
million at September 30, 2000 . . . . . . . . . $ 70,426 $ 84,722 7.9% - 15.3% November 2027 $ 546
Notes payable to various financial institutions,
collateralized by second deeds of trust on September 2000 -
real property . . . . . . . . . . . . . . . . . 3,212 - 15.25% December 2000 21
Notes payable to various financial institutions,
unsecured . . . . . . . . . . . . . . . . . . . - 2,108 -
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, and includes $181,000 payable
at September 30, 2000 to VOA to acquire March 2000 -
interest in VOA's tax credit partnerships . . . 702 3,146 9.0% - 12.0% January 2002 4
-------------- -------------
Subtotal of various financial
institutions 74,340 89,976
-------------- -------------
Notes payable to various individuals, secured
by first trust deeds on real property - 14,132 -
Notes payable to various individuals,
unsecured - 6,355 -
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 properties owned by the
Company - 7,300 -
-------------- -------------
Subtotal of notes payable to
various individuals - 27,787
-------------- -------------
Total . . . . . . . . . . . . . . . . . . . . $ 74,340 $ 117,763
============== =============
</TABLE>
The Company had 3 properties in foreclosure as of November 14, 2000.
Forbearance agreements have been reached on each of these properties and there
are no scheduled trustee sales at this time. The Company is attempting to
prevent foreclosure sales by completing pending property sales and other sales,
which could provide sufficient cash flow 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 November 14, 2000 and their related debt
outstanding at September 30, 2000 are as follows:
<TABLE>
<CAPTION>
COLLATERAL AMOUNT FORECLOSURE
CARRYING VALUE OUTSTANDING AND/OR EXPIRATION OF
PROPERTY AT SEPTEMBER 30, 2000 AT SEPTEMBER 30, 2000 FORBEARANCE DATE
-------------- ---------------------- ---------------------- --------------------
<S> <C> <C> <C>
Sahara Vista B $ 6,612,000 $ 3,732,000 N/A
Regency Plaza. 2,732,000 1,459,000 N/A
Sahara Vista A 4,809,000 3,901,000 N/A
---------------------- ----------------------
Total. . . . $ 14,153,000 $ 9,092,000
====================== ======================
</TABLE>
For the remaining 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 (8.50%
at December 31, 1999 and 9.50% at September 30, 2000), 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 September 30, 2000, the Company had outstanding
indebtedness of $5.0 million maturing on May 5, 2001 (included in notes payable
to financial institutions). Under the terms of the agreement, the Company is
required to meet certain financial covenants.
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. 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 September
30, 2000, the Company had outstanding indebtedness of $5,000,000 (included in
notes payable to financial institutions). At September 30, 2000, the Company
was in default on this line of credit.
The approximate principal maturities of notes payable outstanding as of
September 30, 2000 are as follows (in thousands):
Year ending December 31,
2000. . . . . . . . . . $31,707
2001. . . . . . . . . . 26,404
2002. . . . . . . . . . 1,692
2003. . . . . . . . . . -
2004. . . . . . . . . . -
Thereafter. . . . . . . 14,537
-------
$74,340
=======
14
<PAGE>
Interest costs incurred, expensed and capitalized were as follows (in
thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------- --------------
2000 1999 2000 1999
------ ------ ------ ------
Interest incurred:
Residential . . . . . . . . . . . . . $1,627 $2,071 $6,788 $6,521
Commercial. . . . . . . . . . . . . . 469 554 1,587 1,764
------ ------ ------ ------
Total incurred. . . . . . . . . . . $2,096 $2,625 $8,375 $8,285
====== ====== ====== ======
Interest expensed:
Residential . . . . . . . . . . . . . $1,627 $1,070 $3,714 $3,728
Commercial. . . . . . . . . . . . . . 469 477 1,587 1,503
------ ------ ------ ------
Total expensed. . . . . . . . . . . $2,096 $1,547 $5,301 $5,231
====== ====== ====== ======
Interest capitalized during period:
Residential . . . . . . . . . . . . . $ - $1,001 $3,074 $2,793
Commercial. . . . . . . . . . . . . . - 77 - 261
------ ------ ------ ------
Total interest capitalized. . . . . $ - $1,078 $3,074 $3,054
====== ====== ====== ======
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 12.0% 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 September
30, 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. In the third quarter of 2000, in connection with a court
order, the note payable to Larison P. Clark increased by $139,000 for accrued
interest, legal fees, late fees and penalties. The outstanding balance at
September 30, 2000 was $614,000. A forbearance agreement was reached on
November 2, 2000, in regards to the repayment of this note payable. This
agreement is based on the sale of certain properties currently held for sale.
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 September 30, 2000 was $591,000. At September 30,
2000, this loan was 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 September 30, 2000 was
$5.4 million. As of September 30, 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 10. 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 THREE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
-------------------------------- ------------------------------
PER-SHARE PER-SHARE
LOSS SHARES AMOUNT INCOME SHARES AMOUNT
-------- --------- ----------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before
extraordinary gain. . . . . . $(6,415) $ 547
Basic EPS
---------
Income (loss) before
extraordinary gain. . . . . . (6,415) 8,336,455 $ (0.77) 547 7,732,922 $ 0.07
-------- --------- ----------- ------- --------- ==========
Effect of dilutive securities:
Stock options. . . . . . . . . - - - 167
-------- --------- ------- ---------
Diluted EPS
-----------
Income (loss) before
extraordinary gain
$(6,415) 8,336,455 $ (0.77) $ 547 7,733,089 $ 0.07
======== ========= =========== ======= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
--------------------------------- ------------------------------
PER-SHARE PER-SHARE
LOSS SHARES AMOUNT INCOME SHARES AMOUNT
--------- --------- ----------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before
extraordinary gain. . . . . . $(15,655) $ 2,495
Basic EPS
---------
Income (loss) before
extraordinary gain . . . . . . (15,655) 8,214,622 $ (1.91) 2,495 7,732,922 $ 0.32
--------- --------- ----------- ------- --------- ==========
Effect of dilutive securities:
Stock options. . . . . . . . . . - - - 1,125
--------- --------- ------- ---------
Diluted EPS
-----------
Income (loss) before
extraordinary gain. . . . . . $(15,655) 8,214,662 $ (1.91) $ 2,495 7,734,047 $ 0.32
========= ========= =========== ======= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------------------ ------------------------------
PER-SHARE PER-SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------- --------- ---------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Extraordinary gain on
troubled debt restructuring . $ - $ -
Basic EPS
---------
Extraordinary gain on
troubled debt restructuring. . - 8,336,455 - - 7,732,922 $ -
------- --------- ---------- ------- --------- ==========
Effect of dilutive securities:
Stock options. . . . . . . . . - - - 167
------- ---------- ------- ---------
Diluted EPS
-----------
Extraordinary gain on
troubled debt restructuring . $ - 8,336,455 $ - $ - 7,733,089 $ -
======= ========= ========== ======= ========= ==========
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------------------ ------------------------------
PER-SHARE PER-SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------- --------- ---------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Extraordinary gain on
troubled debt restructuring . $18,044 $ -
Basic EPS
---------
Extraordinary gain on
troubled debt restructuring . 18,044 8,214,662 $ 2.20 - 7,732,922 $ -
------- --------- ---------- ------- --------- ==========
Effect of dilutive securities:
Stock options. . . . . . . . . - - - 1,125
------- --------- ------- ---------
Diluted EPS
-----------
Extraordinary gain on
troubled debt restructuring . $18,044 8,214,662 $ 2.20 $ - 7,734,047 $ -
======= ========= ========== ======= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
-------------------------------- ------------------------------
PER-SHARE PER-SHARE
LOSS SHARES AMOUNT INCOME SHARES AMOUNT
-------- --------- ----------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss). . . . . . . $(6,415) $ 547
Basic EPS
---------
Income (loss) applicable to
Common stockholders. . . . . (6,415) 8,336,455 $ (0.77) 547 7,732,922 $ 0.07
-------- --------- =========== ------- --------- ==========
Effect of dilutive securities:
Stock options. . . . . . . . . - - - 167
-------- --------- ------- ---------
Diluted EPS
-----------
Income (loss) applicable to
Common stockholders
and assumed conversions. . . $(6,415) 8,336,455 $ (0.77) $ 547 7,733,089 $ 0.07
======== ========= =========== ======= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------------------ ------------------------------
PER-SHARE PER-SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------- --------- ---------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net income . . . . . . . . . . $ 2,389 $ 2,495
Basic EPS
---------
Income applicable to
Common stockholders. . . . . 2,389 8,214,662 $ 0.29 2,495 7,732,922 $ 0.32
------- --------- ========== ------- --------- ==========
Effect of dilutive securities:
Stock options. . . . . . . . . - - - 1,125
------- --------- ------- ---------
Diluted EPS
-----------
Income applicable to
Common stockholders
and assumed conversions. . . $ 2,389 8,214,662 $ 0.29 $ 2,495 7,734,047 $ 0.32
======= ========= ========== ======= ========= ==========
</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
September 30, 2000 and 1999 were 137,650 and 415,800, respectively.
17
<PAGE>
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 September 30, 2000, the
Company had 137,650 stock options outstanding 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 September 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 September 30, 2000, stock options had been granted under
the Option Plan with exercise prices ranging from $1.125 per share to $8.25 per
share.
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 $35.0 million
and $29.9 million at September 30, 2000 and December 31, 1999, respectively.
NOTE 13. INFORMATION REGARDING BUSINESS SEGMENTS
The Company has determined that its reportable segments are those that are
based on the Company's method of internal reporting, which segregates its
business by certain lines of business components. The Company's four reportable
operating segments are: Homebuilding, Design-Build Services, Sales of 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 nine months ended September 30, 2000 and 1999, respectively (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 2000
-------------------------------------------------------------------------------
PROPERTY
DESIGN-BUILD SALES OF OPERATIONS AND
SERVICES HOMEBUILDING PROPERTY MANAGEMENT OTHER TOTAL
------------- -------------- ---------- ---------------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue. . . . . . . . $ 424 $ 4,600 $ 2,625 $ 984 $ 156 $ 8,789
Costs. . . . . . . . . 351 4,481 4,160 60 - 9,052
Other Costs. . . . . . - 966 - - - 966
------------- -------------- ---------- ---------------- ------- ---------
Gross profit (loss) . $ 73 $ (847) $ (1,535) $ 924 $ 156 $ (1,229)
============= ============== ========== ================ ======= =========
Depreciation and
amortization expense. $ - $ - $ - $ - $ 519 $ 519
Interest expense . . . $ - $ (1,343) $ - $ (539) $ (219) $ (2,101)
Interest income. . . . $ - $ - $ - $ - $ 5 $ 5
Total assets . . . . . $ 9,383 $ 64,128 $ - $ 44,869 $4,804 $123,184
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1999
-----------------------------------------------------------------------------
PROPERTY
DESIGN-BUILD SALES OF OPERATIONS AND
SERVICES HOMEBUILDING PROPERTY MANAGEMENT OTHER TOTAL
-------------- ------------- --------- ---------------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue . . . . . . . $ 4,989 $ 29,013 $ 3,214 $ 815 $ 619 $ 38,650
Costs . . . . . . . . 4,423 25,551 3,156 159 - 33,289
Other Costs . . . . . - - - - - -
-------------- ------------- --------- ---------------- ------- ---------
Gross profit . . . . $ 566 $ 3,462 $ 58 $ 656 $ 619 $ 5,361
============== ============= ========= ================ ======= =========
Depreciation and
amortization expense $ - $ 116 $ - $ 181 $ 330 $ 627
Interest expense. . . $ - $ - $ - $ (1,536) $ (11) $ (1,547)
Interest income . . . $ (8) $ 20 $ - $ 342 $ - $ 354
Total assets. . . . . $ 48,342 $ 100,262 $ - $ 48,100 $7,645 $204,349
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000
---------------------------------------------------------------------------------
PROPERTY
DESIGN-BUILD SALES OF OPERATIONS AND
SERVICES HOMEBUILDING PROPERTY MANAGEMENT OTHER TOTAL
-------------- -------------- ---------- ---------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue. . . . . . . . $ 2,766 $ 38,662 $ 31,950 $ 2,798 $ 1,120 $ 77,296
Costs. . . . . . . . . 3,136 36,776 34,343 813 - 75,068
Other Costs. . . . . . - 966 - - - 966
-------------- -------------- ---------- ---------------- -------- ---------
Gross profit (loss) . $ (370) $ 920 $ (2,393) $ 1,985 $ 1,120 $ 1,262
============== ============== ========== ================ ======== =========
Depreciation and
amortization expense. $ - $ 240 $ - $ 227 $ 830 $ 1,297
Interest expense . . . $ - $ (1,343) $ - $ (1,609) $(2,365) $ (5,317)
Interest income. . . . $ - $ 4 $ - $ - $ 12 $ 16
Total assets . . . . . $ 9,383 $ 64,128 $ - $ 44,869 $ 4,804 $123,184
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
-----------------------------------------------------------------------------
PROPERTY
DESIGN-BUILD SALES OF OPERATIONS AND
SERVICES HOMEBUILDING PROPERTY MANAGEMENT OTHER TOTAL
-------------- ------------- --------- ---------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue . . . . . . . $ 17,156 $ 76,115 $ 4,901 $ 2,669 $1,778 $102,619
Costs . . . . . . . . 14,205 66,713 4,180 682 - 85,780
Other Costs . . . . . - - - - - -
-------------- ------------- --------- ---------------- ------- ---------
Gross profit . . . . $ 2,951 $ 9,402 $ 721 $ 1,987 $1,778 $ 16,839
============== ============= ========= ================ ======= =========
Depreciation and
amortization expense $ - $ 366 $ - $ 530 $ 839 $ 1,735
Interest expense. . . $ - $ - $ - $ (5,193) $ (38) $ (5,231)
Interest income . . . $ (8) $ 20 $ - $ 820 $ - $ 832
Total assets. . . . . $ 48,342 $ 100,262 $ - $ 48,100 $7,645 $204,349
</TABLE>
19
<PAGE>
Revenues as a percentage of total revenues generated by geographic location
are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------- ------- ------- -------
2000 1999 2000 1999
-------- ------- ------- -------
Arizona 30.7% 47.5% 41.3% 44.2%
Nevada. 69.3 49.4 51.2 47.5
Utah. . 0.0 3.1 7.5 8.3
-------- ------- ------- -------
Total 100.0% 100.0% 100.0% 100.0%
======== ======= ======= =======
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 September 30, 2000 Compared to Three months Ended September
30, 1999
Revenue. Total revenue was $8.8 million for the three months ended
September 30, 2000, representing a $29.9 million, or 77.2%, decrease from $38.7
million for the three months ended September 30, 1999. Construction revenue,
derived entirely from two multi-family developments, decreased $4.6 million, or
92.0%, due to the projects nearing completion. Sale of homes was $4.6 million
at September 30, 2000, compared to $29.0 million at September 30, 1999, a
decrease of $24.4 million, or 84.1%, as a result of buyer cancellations caused
by a halt in construction in the first half of 2000 due to the Company's
weakened cash flow position, and the sale of the Tucson division of Diamond Key
Homes which resulted in fewer home closings in Arizona. The Company had 40
single-family home closings for the three months ended September 30, 2000
representing a decrease from 265 closings for the three months ended September
30, 1999. Home closings for the three months ended September 30, 2000 included
26 in Nevada, 0 in Utah and 14 in Arizona. For the three months ended September
30, 1999, home closings included 91 in Nevada, 7 in Utah and 167 in Arizona.
Sale of commercial properties was $0 for the three months ended September 30,
2000, compared to $3.2 million for the three months ended September 30, 1999,
primarily due to the sale of a large warehouse and the operations of a retail
center in the third quarter of 1999 and no sales in the third quarter of 2000.
Rental and other revenue decreased to $1.1 million for the three months ended
September 30, 2000, or 21.4%, from $1.4 million in the comparable period of
1999, primarily due to the sale of three commercial properties in the first
quarter of 2000 and decreased revenues generated by HomeBanc Mortgage, a segment
of business that the Company has chosen to discontinue. Additionally, the
Company retained 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. These amounts were
offset in the first nine months of 2000 by increased revenue as a result of
higher levels of tenant occupancy.
Cost of Revenue. Total cost of revenue was $10.0 million for the three
months ended September 30, 2000, representing a $23.3 million, or 69.9%,
decrease from $33.3 million for the three months ended September 30, 1999. Cost
of revenue for the three months ended September 30, 2000, as a percentage of
revenue was 114.9%, compared to 86.1% for the three months ended September 30,
1999. In addition, due to the Company's credit problems and non-payment issues,
the Company has been unable to utilize some of the subcontracting workforce it
previously used. Therefore, the Company's costs have been significantly higher
than expected. This resulted in an estimated accrual for future losses on a
single-family subdivision of $966,000 in the third quarter of 2000.
Gross Profit. As a result of the factors noted above, the Company
experienced a gross loss on margins compared to positive results in 1999. Gross
profit (loss) as a percent of revenue decreased to (14.0)% for the three months
ended September 30, 2000 from 13.9% for the comparable period in 1999,
primarily due to higher construction costs associated with the Company's credit
problems and non-payment issues, along with an impairment on homes under
development as a result of these issues. Gross margins on the sales of homes
decreased to 2.6% in the three months ended September 30, 2000 compared to 11.9%
in the three months ended September 30, 1999, also due to the Company's credit
problems and non-payment issues. The Company was unable to utilize some of the
subcontracting workforce it previously used. Therefore, new contracts had to be
written to complete the work, which resulted in higher costs. Gross margin on
construction revenue increased to 17.2% in the three months ended September 30,
2000, compared to 11.3% in the same period of 1999 due to one multi-family
development under construction in the same period of 1999 recognizing a lower
profit margin.
20
<PAGE>
General and Administrative Expenses. General and administrative expenses
were $3.1 million for the three months ended September 30, 2000, representing a
$300,000, or 10.7%, increase from $2.8 million for the three months ended
September 30, 1999, primarily due to a decrease in payroll offset by higher
professional fees.
Depreciation and Amortization. Depreciation and amortization expense was
$519,000 for the three months ended September 30, 2000, representing a $108,000,
or 17.2%, decrease from $627,000 for the three months ended September 30, 1999,
primarily due to the discontinuation of depreciation on operating properties
during the first quarter of 2000 as all properties were held for sale.
Interest Expense, Net. Interest expense, net, was $2.1 million for the
three months ended September 30, 2000, representing an $900,000, or 75.0%,
increase from $1.2 million for the three months ended September 30, 1999. This
was primarily due to less interest capitalized as a result of work slowdowns and
reduction in qualifying assets.
Income (Loss) Before Provision for Income Taxes. As a result of the
foregoing factors, loss before provision for income taxes was $(6.9) million for
the three months ended September 30, 2000, representing a $7.6 million decrease
from income of $723,000 for the three months ended September 30, 1999.
Nine months Ended September 30, 2000 Compared to Nine months Ended September 30,
1999
Revenue. Total revenue was $77.3 million for the nine months ended
September 30, 2000, representing a $25.3 million, or 24.6%, decrease from $102.6
million for the nine months ended September 30, 1999. Construction revenue for
the nine months ended September 30, 2000 was $2.8 million, a decrease of $14.4
million, or 83.7%, from $17.2 million during the nine months ended September 30,
1999. This was primarily a result of two multi-family developments in full
construction in the first nine months of 1999, and reduced revenue as they
neared completion in the comparable period of 2000. The Company has not entered
into contracts for construction on any new design-build projects at this time.
Sale of homes decreased 49.2%, or $37.4 million, from $76.1 million at September
30, 1999 to $38.7 million at September 30, 2000. The Company had 333
single-family home closings for the nine months ended September 30, 2000
representing a decrease of 51.7%, from the 689 closings for the nine months
ended September 30, 1999. Home closings for the nine months ended September 30,
2000 included 54 in Nevada, 4 in Utah and 275 in Arizona. For the nine months
ended September 30, 1999, home closings included 245 in Nevada, 30 in Utah and
414 in Arizona. This decrease was primarily a result of buyer cancellations
caused by a halt in construction in the first half of 2000 due to the Company's
weakened cash flow position, and the sale of the Tucson division of Diamond Key
Homes which resulted in fewer home closings in Arizona. Sale of commercial
properties was $3.5 million for the nine months ended September 30, 2000
compared to $4.9 million for the nine months ended September 30, 1999. Three
commercial operating properties were sold in the first nine months of 2000,
while four were sold in the comparable period of 1999. Rental and other revenue
decreased to $3.9 million for the nine months ended September 30, 2000, an 11.3%
decrease from $4.4 million in the comparable period of the prior year. The
decrease was primarily due to the sale of three commercial properties in the
first quarter of 2000 and decreased revenues generated by HomeBanc Mortgage, a
segment of business that the Company has chosen to discontinue. Additionally,
the Company retained 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. These
amounts were offset in the first nine months of 2000 by increased revenue as a
result of higher levels of tenant occupancy.
Cost of Revenue. Total cost of revenue was $76.0 million for the nine
months ended September 30, 2000, representing a $9.8 million, or 11.4%, decrease
from $85.8 million for the nine months ended September 30, 1999. Cost of
revenue for the nine months ended September 30, 2000, as a percentage of revenue
was 98.3% compared to 83.6% for the nine months ended September 30, 1999. In
addition, due to the Company's credit problems and non-payment issues, the
Company has been unable to utilize some of the subcontracting workforce it
previously used. Therefore, the Company's costs have been significantly higher
than expected. This resulted in an estimated accrual for future losses on a
single-family subdivision of $966,000 in the third quarter of 2000.
21
<PAGE>
Gross Profit. Gross profit as a percent of revenue decreased to 1.6% for
the nine months ended September 30, 2000 from 16.4% for the comparable period in
1999. Gross margins on the sales of homes decreased to 4.9% in the nine months
ended September 30, 2000 compared to 12.4% in the nine months ended September
30, 1999, primarily due to higher construction costs associated with the
Company's credit problems and non-payment issues. Gross margin on construction
revenue decreased to (13.4)% in the nine months ended September 30, 2000,
compared to 17.2% in the same period of 1999, also due to the Company's credit
problems and non-payment issues. The Company was unable to utilize some of the
subcontracting workforce it previously used as a result of credit problems.
Therefore, new contracts had to be written to complete the work, which resulted
in higher costs. In addition, the interest capitalized to each home increased
due to the Company's production of fewer homes to carry the burden. Gross
profit margin on commercial properties sold in the nine months ended September
30, 2000 decreased to 11.4% from 14.7% in the nine months ended September 30,
1999, primarily due to the Company's decision to sell its commercial properties
at a discount in order to restructure its credit position.
General and Administrative Expenses. General and administrative expenses
were $9.1 million for the nine months ended September 30, 2000, representing a
$1.9 million, or 26.3%, increase from $7.2 million for the nine months ended
September 30, 1999. This was primarily a result of increased legal, accounting
and consulting fees as a result of a cash flow shortage, in addition to fewer
job-costed wages resulting from of a halt in construction in Nevada and Utah.
General and administrative expense as a percentage of total revenue was 11.7%
for the nine months ended September 30, 2000 as compared to 7.0% for the nine
months ended September 30, 1999.
Depreciation and Amortization. Depreciation and amortization expense was
$1.3 million for the nine months ended September 30, 2000, representing a
$400,000, or 23.5%, decrease from $1.7 million for the nine months ended
September 30, 1999, primarily due to the discontinuation of depreciation on
operating properties during the first quarter of 2000 as all properties were
held for sale.
Interest Expense, Net. Interest expense, net, was $5.3 million for the
nine months ended September 30, 2000, representing a $900,000, or 20.4%,
increase from $4.4 million for the nine months ended September 30, 1999. This
was primarily due to less interest capitalized as a result of work slowdowns and
a reduction in qualifying assets.
Income (Loss) Before Provision for Income Taxes. As a result of the
foregoing factors, before consideration of extraordinary gain, loss before
provision for income taxes was $19.2 million for the nine months ended September
30, 2000, representing a $22.7 million, or 648.5%, decrease from income of $3.5
million for the nine months ended September 30, 1999. Income (loss) before
provision for income taxes as a percentage of total revenue was (24.9)% for the
nine months ended September 30, 2000 as compared to 3.4% for the nine months
ended September 30, 1999.
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.
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.
22
<PAGE>
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.
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.
The Company's claim for a federal income tax refund due to the net
operating loss for the taxable years ended December 31, 1998 was processed by
the Internal Revenue Service and resulted in a refund of taxes paid in the
amount of $3.6 million in the first quarter of 2000. The Company did not incur
a tax liability for the year ended December 31, 1999.
At September 30, 2000, the Tax Credit Partnerships were indebted to the
Company in the aggregate amount of approximately $11.1 million, representing
developer fees, land, construction costs and the Company's investment in the
joint ventures. This amount had been written down from $41.1 million to their
fair value of $15.8 million at the end of 1999.
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. As such, the Due
from TCP's and the Investments in the TCP Joint Ventures are held for sale at
September 30, 2000 and are actively being marketed for sale. Therefore, at
September 30, 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.
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 September 30, 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.
As of November 14, 2000, the Company had completed the sale of two
commercial properties resulting in cash flow to the Company of approximately
$220,000 and debt relief of approximately $2.9 million. Additionally, the
Company currently has eight properties in escrow and expects revenue of
approximately $30.0 million and debt relief of $28.2 million. Management
expects cash flow from these sales of approximately $1.0 million. 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 being 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 being forced into, bankruptcy.
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 September 30, 2000 and
December 31, 1999, the Company had 120 homes and 356 homes in backlog,
respectively, representing aggregate sales values of approximately $14.0 million
and $40.1 million, respectively. The decrease in backlog at September 30, 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 the first half of 2000. There can be no assurance that the
buyers will remain in place long enough for the Company to close the sales.
23
<PAGE>
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.
The Company is also involved in the design-build development of commercial
projects. Backlog for such commercial projects are 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 September 30, 2000, the Company had backlog
under its design-build contracts of approximately $8.1 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
half of 2000 due to the Company's weakened 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,
and Reno 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; (vii) the cost and
availability of materials and labor; and (viii) homebuyers preference to close
new home purchases either prior to the start of a new school year, or prior to
the end of year holiday season. 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.
Effects of Changing Prices, Inflation and Interest Rates. Although,
Management believes that inflation has not had a material impact on the
Company's operations, it has recognized substantial increases in development
labor and materials due to a cash flow shortage. The Company has been unable to
pass these increases on to its construction clients or the purchasers of its
properties, therefore recognizing losses. The Company had outstanding
approximately $58.1 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 10.1% per annum at
September 30, 2000. If the interest rates on the floating rate debt increase in
accordance with changes to the indexes 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.
24
<PAGE>
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.
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.
25
<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 September 30,
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 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 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.
Form 8-K dated and filed August 11, 2000 related to the sale of the Tucson,
Arizona division of Diamond Key Homes, the sale of the fixed assets of HomeBanc
Mortgage and the resignation of two directors of the Company.
26
<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
November 21, 2000 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 & Accounting Officer)
27
<PAGE>
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
-------- ----------- ------------
27 Financial Data Schedule for the quarter 28
ended September 30, 2000
28
<PAGE>
