<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1998
--------------------------------------------
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: 000-23677
NEWMARK HOMES CORP.
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Nevada 76-0460831
- -------------------------------------------------------------------------------
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
1200 Soldiers Field Drive, Sugar Land, Texas 76459
- -------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (281) 243-0100
---------------------------
- -------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Indicate by check [X] whether the registrant: (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No X
------ ------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
------- -------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: Common Stock, par value
$0.01 per share, 11,500,000 shares outstanding as of April 30, 1998.
<PAGE> 2
NEWMARK HOMES CORP.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet 2
Condensed Consolidated Statement of Operations 3
Condensed Consolidated Statement of Stockholders' Equity 4
Condensed Consolidated Statement of Cash Flows 5
Condensed Notes to Consolidated Financial Statements 6
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - None.
ITEM 2. CHANGE IN SECURITIES - None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None.
ITEM 5. OTHER INFORMATION - None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
The Registrant filed no reports on Form 8-K during the
quarter ended March 31, 1998.
SIGNATURES 13
</TABLE>
1
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS MARCH 31, DECEMBER 31,
1998 1997
------------ ---------
(unaudited)
<S> <C> <C>
Cash ............................................................. $ 4,212 $ 746
Receivables ...................................................... 7,194 1,729
Inventory ........................................................ 164,610 103,010
Investment in unconsolidated subsidiaries ........................ 208 327
Other assets, net ................................................ 7,685 5,854
Goodwill, net of accumulated amortization of $4,123 and $3,773 in
1998 and 1997, respectively ................................. 37,730 27,547
-------- --------
Total assets $221,639 $139,213
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Construction loans payable ....................................... $ 98,526 $ 66,100
Acquisition notes payable ........................................ 16,672 --
Other payables to affiliates ..................................... 909 1,775
Accounts payable and accrued liabilities ......................... 19,645 10,963
Other liabilities ................................................ 10,172 4,684
-------- --------
Total liabilities 145,924 83,522
-------- --------
Stockholders' equity:
Common stock -- $.01 par value; 30,000,000 shares authorized,
9,200,000 at December 31, 1997, and 11,200,000 at
March 31, 1998, issued and outstanding ................. 112 92
Additional paid-in capital .................................. 70,893 52,165
Retained earnings ........................................... 4,710 3,434
-------- --------
Total stockholders' equity 75,715 55,691
-------- --------
Total liabilities and stockholders' equity $221,639 $139,213
======== ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
2
<PAGE> 4
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
--------------
1998 1997
------ ------
<S> <C> <C>
Revenues .......................................... $ 69,195 $ 46,241
Cost of sales ..................................... 57,740 37,555
----------- -----------
Gross profit ...................................... 11,455 8,686
Equity in earnings from unconsolidated subsidiaries 108 33
Selling, general and administrative expenses ...... (8,137) (5,644)
Depreciation and amortization ..................... (725) (399)
----------- -----------
Operating income ............................. 2,701 2,676
Other income (expense):
Interest expense ............................. (825) (420)
Other income, net ............................ 165 168
----------- -----------
Income before income taxes .............. 2,041 2,424
Income taxes ...................................... 765 948
----------- -----------
Net income............................... $ 1,276 $ 1,476
=========== ===========
Earnings per common share:
Basic ........................................ $ .13 $ .16
=========== ===========
Weighted average number of shares of common
stock equivalents outstanding: ............... 9,622,222 9,200,000
Basic ........................................ =========== ===========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
3
<PAGE> 5
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 ................. $ 92 $ 42,415 $ 1,422 $ 43,929
Capital contribution ....................... 24 24
Dividends paid ............................. . (480) (480)
Net income ................................. 1,476 1,476
-------- -------- -------- --------
Balance, March 31, 1997 .................... $ 92 $ 42,439 $ 2,418 $ 44,949
======== ======== ======== ========
Balance, December 31, 1997 ................. $ 92 $ 52,165 $ 3,434 $ 55,691
Initial public offering of common stock, net
of issuance of costs of $2,554,000,
March 13, 1998 ....................... 20 18,426 18,446
Capital contribution ....................... 302 302
Net income ................................. 1,276 1,276
-------- -------- -------- --------
Balance, March 31, 1998 .................... $ 112 $ 70,893 $ 4,710 $ 75,715
======== ======== ======== ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
4
<PAGE> 6
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
1998 1997
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income ........................................................ $ 1,276 $ 1,476
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization ................................... 725 399
Net (gain) loss on sale of property, premises and equipment ..... 13 37
Equity in earnings from unconsolidated subsidiaries ............. (108) (27)
Changes in operating assets and liabilities, net of effects from
purchase of Westbrooke Communities Inc.:
Inventory and land held for development, net ................ (19,711) (6,718)
Receivables ................................................. (3,925) (163)
Other assets ................................................ 1,168 (763)
Payable to affiliates ....................................... (866) 52
Accounts payable and accrued liabilities .................... (360) (310)
Other liabilities ........................................... 5,488 271
-------- --------
Net cash used in operating activities ....................... (16,300) (5,746)
-------- --------
Cash flows from investing activities:
Purchases of property, premises and equipment ..................... (321) (707)
Increase in Goodwill .............................................. (374) --
Cash acquired in purchase of Westbrooke Communities Inc............ 3,618 --
Distributions from unconsolidated subsidiaries .................... 227 --
-------- --------
Net cash provided by (used in) investing activities ......... 3,150 (707)
-------- --------
Cash flows from financing activities:
Net proceeds from initial public offering of common stock ......... 18,446 --
Capital contributions received .................................... 302 24
Dividends paid .................................................... -- (480)
Proceeds from advances on construction loans payable .............. 57,136 43,553
Principal payments on construction loans payable .................. (47,018) (37,964)
Principal payments on acquisition notes payable ................... (12,250) --
Proceeds from advances on notes payable to affiliate .............. -- 1,489
Principal payments on notes payable to affiliate .................. -- (103)
-------- --------
Net cash provided by financing activities ................... 16,616 6,519
-------- --------
Increase (decrease) in cash .......................................... 3,466 66
Cash, beginning of period ............................................ 746 642
-------- --------
Cash, end of period .................................................. $ 4,212 $ 708
======== ========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest ........................................................ $ 2,299 $ 1,367
======== ========
Income taxes .................................................... $ 1,733 $ 726
======== ========
</TABLE>
See accompanying Note 2 for supplemental disclosure of non-cash investing and
financing activities.
See accompanying notes to the condensed consolidated financial statements.
5
<PAGE> 7
NEWMARK HOMES CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Newmark Homes Corp. and subsidiaries (the Company) is a majority-owned
subsidiary of Pacific Realty Group (PRG) and ultimately a subsidiary of Pacific
USA Holdings Corp. (PUSA). The Company was formed in December 1994 to serve as
a real estate holding company.
The Company's primary subsidiaries are as follows:
<TABLE>
<CAPTION>
SUBSIDIARY NATURE OF BUSINESS
---------- ------------------
<S> <C>
Newmark Home Corporation (Newmark) .......... Single-family residential homebuilding in Texas and
Tennessee - formed in 1983.
The Westbrooke Communities (Westbrooke)...... Single-family residential homebuilding in Florida
formed in 1976.
The Adler Companies, Inc. (Adler) ........... Single-family residential homebuilding in Florida -
formed in 1990.
Pacific United Development Corporation
(PUDC)................................. Residential lot development in Texas and Tennessee -
formed in 1993.
</TABLE>
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. The accounting and reporting policies of the Company conform
to generally accepted accounting principles and general practices within the
homebuilding industry. All significant intercompany balances and transactions
have been eliminated in the consolidated financial statements.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
INTERIM PRESENTATION
The accompanying condensed consolidated financial statements have been prepared
by the Company and are unaudited. Certain information and footnote disclosures
normally included in financial statements presented in accordance with
generally accepted accounting principles have been omitted from the
accompanying statements. The Company's management believes the disclosures made
are adequate to make the information presented not misleading. However, the
financial statements should be read in conjunction with the financial
statements and notes thereto of the Company for the year ended December 31,
1997 which were a part of the Company's Registration Statement on Form S-1
(Commission File No. 333-42213) that was declared effective March 12, 1998.
6
<PAGE> 8
EARNINGS PER SHARE
In March 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS No. 128).
This Statement establishes new standards for computing and presenting earnings
per share (EPS). SFAS No. 128 replaces the presentation of primary EPS
previously prescribed by Accounting Principles Board Opinion No. 15 (APB No.
15) with a presentation of basic EPS which is computed by dividing income
available to common stockholders by the weighted-average number of common
shares outstanding for the period.
SFAS No. 128 also requires dual presentation of basic and diluted EPS. Diluted
EPS is computed similarly to fully diluted EPS pursuant to APB No. 15.
The following tables reconcile the computation of basic EPS for the quarters
ended March 31, 1998 and March 31, 1997. There were no common stock equivalents
outstanding at March 31, 1998 and March 31, 1997. Therefore, diluted EPS is the
same as basic EPS.
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
--------- ----------- ---------
<S> <C> <C> <C>
BASIC EPS
Income available to common
Shareholders $1,245,000 9,622,000 $.13
========== ========= ====
</TABLE>
FOR THE THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
--------- ----------- ---------
<S> <C> <C> <C>
BASIC EPS
Income available to common
Shareholders $1,476,000 9,600,000 $.16
========== ========= ====
</TABLE>
NOTE 2. ACQUISITIONS
Effective January 1, 1998, the Company acquired all of the outstanding stock of
Westbrooke and its affiliated entities, a single-family home builder in South
Florida. The initial purchase price for Westbrooke was $18.9 million in the
form of promissory notes. ($12.3 million of notes payable bearing interest at
6.45% payable annually over five years and a $6.6 million note payable bearing
interest at 9.0% due on or before one year from closing.) In addition to the
promissory notes, the purchase agreement requires the Company to pay additional
consideration of up to $7.5 million contingent upon Westbrooke achieving
specified income targets over the next five years.
7
<PAGE> 9
The following unaudited pro forma financial information for the three months
ended March 31, 1997 is presented as if the Westbrooke acquisition had occurred
on January 1, 1997 (dollars in thousands). This pro forma financial information
does not necessarily reflect the results of operations as if they had occurred
or the results that may occur in the future.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, 1997
--------------
<S> <C>
Revenues .................................. $ 60,791
Cost of sales ............................. 50,228
----------
Gross profit .............................. 10,563
----------
Net income........................ $ 1,486
==========
Earnings per common share:
Basic ................................ $ .16
==========
Weighted average number of shares of common
stock equivalents outstanding:
Basic ................................ 9,200,000
==========
</TABLE>
NOTE 3. INVENTORY
The inventory as of March 31, 1998 and December 31, 1997 consists of the
following:
<TABLE>
<CAPTION>
CARRYING VALUE
NUMBER OF HOMES (IN THOUSANDS)
----------------------- ----------------------
MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Completed .................. 163 90 $ 31,535 $ 18,564
Under construction ......... 881 444 87,637 48,352
Models ..................... 76 40 15,318 8,490
Residential lots ........... -- -- 29,657 27,136
Land held for development... -- -- 463 463
-------- -------- -------- --------
Total ....... 1,120 574 $164,610 $103,010
======== ======== ======== ========
</TABLE>
NOTE 4. CAPITALIZED INTEREST
A summary of interest capitalized in inventory is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------
1998 1997
------- -------
<S> <C> <C>
Interest capitalized, beginning of period .. $2,572 $1,494
Capitalized interest acquired in purchase
of Westbrooke Communities Inc. ....... 2,597 --
Interest incurred .......................... 2,591 1,445
Less interest included in:
Cost of sales ........................ 1,552 772
Other income (expense) ............... 825 420
------ ------
Interest capitalized end of period ......... $5,383 $1,747
====== ======
</TABLE>
8
<PAGE> 10
NOTE 5. COMMITMENTS AND CONTINGENCIES
The Company is subject to certain pending or threatened litigation and other
claims. Management, after review and consultation with legal counsel, believes
the Company has meritorious defenses to these matters and that any potential
liability from these matters would not materially affect the Company's
consolidated financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
This Quarterly Report on Form 10-Q may contain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. Actual
results could differ materially from those projected in the forward-looking
statements as a result of the risk factors set forth below.
RESULTS OF OPERATIONS
The following tables set forth certain operating and financial data for the
Company:
<TABLE>
<CAPTION>
NEW SALES CONTRACTS, HOMES IN
NET OF CANCELLATIONS HOME CLOSINGS SALES BACKLOG
--------------------- ----------------------- ----------------------
THREE MONTHS THREE MONTHS AS OF
ENDED MARCH 31, ENDED MARCH 31, MARCH 31,
--------------------- ----------------------- ----------------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
HOUSTON 164 98 73 71 186 97
AUSTIN 139 92 86 73 142 91
DALLAS 40 33 34 26 46 35
NASHVILLE 6 0 0 0 6 0
MIAMI 205 31 138 45 434 83
--- -- --- -- --- --
TOTAL 554 254 331 215 814 306
=== === === === === ===
</TABLE>
<TABLE>
<CAPTION>
As a Percentage of Revenue
--------------------------
Three Months
Ended March 31,
----------------------------------
1998 1997
---- ----
<S> <C> <C>
Cost of sales 83.4% 81.2%
Gross profit 16.6% 18.8%
Selling, general and administrative expenses 11.8% 12.2%
Income before income taxes 2.9% 5.2%
Income taxes (1) 37.5% 39.1%
Net income 1.8% 3.2%
</TABLE>
(1) As a percent of income before income taxes.
9
<PAGE> 11
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997.
Revenues for the three months ended March 31, 1998, increased by 49.6%, to
$69.2 million, from $46.2 million for the comparable period of 1997. The number
of homes closed by the Company increased by 54% to 331 homes in the three
months ended March 31, 1998 from 215 homes in the same period of 1997. The
increases in both revenues and homes closed were due in part to the acquisition
of Westbrooke Communities Inc. (Westbrooke) in January 1998. In the three
months ended March 31, 1998, Westbrooke closed 121 homes, with revenues
totaling $20.3 million. Westbrooke comprised 36.6% of the homes closed in the
period, and 29.3% of the revenues generated. Excluding Westbrooke, revenues
increased by 5.8%, to $48.9 million in the three months ended March 31, 1998.
The average selling price of homes closed in the three months ended March 31,
1998 was $206,286, a decrease of 2.7% from $212,029 selling price in the
comparable period of 1997. Westbrooke's average selling price was $167,604.
Excluding Westbrooke the average selling price for homes closed in the three
months ending March 31, 1998 was $228,574, an increase of 7.8%.
New net sales contracts increased 118%, to 554 homes for the three months ended
March 31, 1998, from 254 homes for the three months ended March 31, 1997. The
dollar amount of new net sales contracts increased 124.4%, to $116.3 million.
Percentage increases in new net sales contracts ranging from 21% to 67% were
achieved in the Company's market regions. Westbrooke had 172 home sales
contracts during the current period. Excluding Westbrooke, sales contracts were
382 homes in the current three-month period, a 50% increase over 1997.
The Company was operating in 54 subdivisions at March 31, 1998, compared to 43
subdivisions at March 31, 1997. At March 31, 1998, the Company's backlog of
sales contracts was 814 homes, a 166% increase over comparable figures at March
31, 1997. At March 31, 1998, Westbrooke had 363 homes in sales backlog.
Excluding Westbrooke, the sales backlog at March 31, 1998, was 451 homes, a 47%
increase over 1997.
Cost of sales increased by 53.7%, to $57.7 million in the three months ended
March 31, 1998, from $37.6 million in the comparable period of 1997. The
increase was attributable to the increase in revenues. As a percentage of
revenues, cost of sales for the quarter increased to 83.4% in 1998 from 81.2 %
in 1997. The increase in cost of sales as a percentage of revenues is due
primarily to the acquisition of Westbrooke. Generally, the margins on the homes
sold in South Florida will carry lower margins due to the impact of higher land
cost relative to sales price. Excluding Westbrooke as a percentage of revenues,
cost of sales increased slightly to 81.7% in 1998 from 81.2% in 1997.
Selling, general and administrative (SG&A) expense increased by 44.2%, to $8.1
million in the three months ended March 31, 1998, from $5.6 million in the
comparable period of 1997. As a percentage of revenues, SG&A expense decreased
slightly to 11.8% in 1998, from 12.2% in 1997. Excluding Westbrooke SG&A
expense increased by 16.5% to $6.6 million. This increase was caused by the
expansion into Nashville, Tennessee as well as the expansion in the Company's
Texas markets as indicated by a 47.4% increase in the backlog at the end of
March 1998 versus March 1997.
10
<PAGE> 12
Interest expense amounted to $825,000 in the three months ended March 31, 1998,
compared to $420,000 in the comparable period of 1997. The Company follows a
policy of capitalizing interest only on inventory under construction or
development. During the three months ended March 31, 1998 and 1997, the Company
expensed a portion of incurred interest and other financing costs due to
increased levels of finished homes. Capitalized interest and other financing
costs are included in cost of sales at the time of home closings.
The Company's provision for income taxes decreased as a percentage of earnings
before taxes to 37.5% for the three months ended March 31, 1998, compared to
39.1% for the three months ended March 31, 1997. Under a tax allocation
agreement with PUSA, the Company is required to calculate its federal corporate
income tax liability as if it filed a separate federal income tax return for
each period and to pay PUSA the sum which would result from such calculation if
the Company were subject to federal corporate income tax and filed a separate
tax return. The Company recognized federal income tax expense under the tax
allocation agreement amounting to $714,000 for the three months ended March 31,
1998 compared to $938,000 for the three months ended March 31, 1997.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had available cash and cash equivalents of $4.2
million. Inventories (including finished homes and construction in progress,
developed residential lots and other land) at March 31, 1998, increased by
$61.6 million from December 31, 1997, due to a general increase in business
activity; the acquisition of Westbrooke and the expansion of operations in the
newer market areas. Because a portion of the net proceeds from the initial
public offering was used to repay a portion of the outstanding balances under
the Company's construction credit facilities, the Company's ratio of
construction loans payable to total capital decreased to 58.6% at March 31,
1998, from 62.5% at December 31, 1997. The equity to total assets ratio
decreased during the three months, to 34.2% at March 31, 1998, from 40% at
December 31, 1997 due to the acquisition of Westbrooke (see Note 2).
The Company's financing needs depend upon the results of its operations, sales
volume, inventory levels, inventory turnover, and acquisitions. The Company has
financed its operations through borrowings from financial institutions, through
funds from earnings, and, in 1998, from the sale of common stock.
At March 31, 1998, the Company had unused lines of credit for construction
loans totaling approximately $121.7 million of which $17.3 million is available
to draw down.
The Company's growth requires significant amounts of cash. It is anticipated
that future home construction, lot and land purchases and acquisitions will be
funded through internally generated funds and new and existing borrowing
relationships. The Company continuously evaluates its capital structure and, in
the future, may seek to further increase secured debt and obtain additional
equity to fund ongoing operations as well as to pursue additional growth
opportunities.
Except for ordinary expenditures for the construction of homes and, to a
limited extent, the acquisition of land and lots for development and sale of
homes, at March 31, 1998, the Company had no material commitments for capital
expenditures.
11
<PAGE> 13
SEASONALITY AND QUARTERLY RESULTS
The homebuilding industry is seasonal, as generally there are more sales in the
spring and summer months, resulting in more home closings in the fall. The
Company operates in the Southwestern and Southeastern markets of the United
States, where weather conditions are more suitable to a year-round construction
process than other areas. The Company also believes its geographic dispersion
to be somewhat counter-cyclical, with adverse economic conditions associated
with certain of its markets often being offset by more favorable economic
conditions in other areas. The seasonality of school terms has an impact on the
Company operations, but it is somewhat mitigated by the fact that many of the
Company's buyers at the higher end of the Company's price range, including
Fedrick, Harris custom homes, no longer have children in school. As a result of
these factors, among others, the Company generally experiences more sales in
the spring and summer months, and more closings in the summer and fall months.
Likewise, Westbrooke has experienced seasonality in its revenues, generally
completing more sales in the spring and summer months and more closings in the
fourth quarter.
The Company historically has experienced, and in the future expects to continue
to experience, variability in revenues on a quarterly basis. Factors expected
to contribute to the variability include, among others: (i) the timing of home
closings; (ii) the Company's ability to continue to acquire land and options on
acceptable terms; (iii) the timing of receipt of regulatory approvals for the
construction of homes; (iv) the condition of the real estate market and general
economic conditions; (v) the cyclical nature of the homebuilding industry; (vi)
prevailing interest rates and the availability of mortgage financing; (vii)
pricing policies of the Company's competitors; (viii) the timing of the opening
of new residential projects; (ix) weather; and (x) the cost and availability of
materials and labor. The Company's historical financial performance is not
necessarily a meaningful indicator of future results and the Company expects
its financial results to vary from project to project from quarter to quarter.
MANAGEMENT INFORMATION SYSTEMS
The Company has conducted a review of its computer systems to identify how its
computer systems could be affected by the "Year 2000" issue. Based upon this
review, the Company believes that it has adequately addressed the Year 2000
issue, and that any further modifications to the Company's systems with respect
to the Year 2000 issue will not result in significant future capital
expenditures.
12
<PAGE> 14
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.
Date: May 4, 1998 Newmark Homes Corp.
----------------------- -----------------------------
(Registrant)
By: /s/ TERRY C. WHITE
-----------------------------
Terry C. White, Chief
Financial Officer
13
<PAGE> 15
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
------ -------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF THE REGISTRANT FOR THE QUARTER
ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN THE REGISTRANT'S
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
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