<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
----------------------------------------------------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-21378
INCO HOMES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 33-0534734
-------- ----------
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1282 West Arrow Highway
Upland, California 91786
------------------ -----
(Address of principal executive offices) (zip code)
(909) 981-8989
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year
if changed since last report)
Indicate by a check mark whether the registrant (1) has filed all reports
required 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 X NO
----- -----
Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock September 30, 1998
--------------------- ------------------
$.01 par value 2,095,800
- --------------------------------------------------------------------------------
<PAGE>
INCO HOMES CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1998 (Unaudited) and
December 31, 1997.............................................................. 3
Consolidated Statements of Operations (Unaudited) for the Three
Months and Nine Months Ended September 30, 1998 and 1997....................... 4
Consolidated Statements of Cash Flows (Unaudited) for the Nine
Months Ended September 30, 1998 and 1997....................................... 5
Notes to Consolidated Financial Statements (Unaudited)......................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................................. 10
PART II. OTHER INFORMATION............................................................. 19
Item 1. Legal Proceedings............................................................. 19
Item 6. Exhibits and Reports on Form 8-K.............................................. 20
SIGNATURES .............................................................................. 21
</TABLE>
2
<PAGE>
INCO HOMES CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in thousands, except share data) September 30, December 31,
-------------------------------
1998 1997
---- ----
(unaudited)
ASSETS
<S> <C> <C>
Cash $ 910 $ 736
Real estate inventories 28,484 27,329
Deferred tax asset 2,204 2,200
Other assets 822 669
----------- -----------
Total assets $ 32,420 $ 30,934
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 6,385 $ 5,580
Notes payable 20,309 19,202
Line of credit 921 330
Notes to stockholders 2,289 1,187
----------- -----------
Total liabilities $ 29,904 $ 26,299
=========== ===========
Minority partners' investment in consolidated partnerships 391 545
Stockholders' Equity
Preferred stock - $.01 par value; 1,000,000 shares
authorized; 2,340 shares issued and outstanding
for 1998 and 1997 2,340 2,340
Common stock - $.01 par value; 20,000,000 shares
authorized; 2,095,764 and 1,637,096 shares issued
and outstanding for 1998 and 1997 21 16
Additional paid in capital 43,029 42,876
Deficit (43,265) (41,142)
----------- ------------
Total stockholders' equity 2,125 4,090
----------- ------------
Total liabilities and stockholders' equity $ 32,420 $ 30,934
=========== ============
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
INCOME HOMES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
(Dollars in thousands, except per share data) --------------------------- -------------------------
1998 1997 1998 1997
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue from home sales $ 6,937 $ 3,330 $ 20,341 $ 12,202
Revenue from land and lot sales - 333 - 933
---------- --------- ---------- ----------
6,937 3,663 20,341 13,135
---------- --------- ---------- ----------
Cost of homes sold 6,255 3,218 18,957 11,665
Cost of land and lots - 427 - 1,094
---------- --------- ---------- ----------
6,255 3,645 18,957 12,759
---------- --------- ---------- ----------
Gross profit 682 18 1,384 376
---------- --------- ---------- ----------
Provision for write-down of real estate - - - 9,213
Selling and marketing expenses 753 662 2,435 2,382
General and administrative expenses 389 380 1,236 1,155
---------- --------- ---------- ----------
1,142 1,042 3,671 12,750
---------- --------- ---------- ----------
Operating loss (460) (1,024) (2,287) (12,374)
Other income 15 3 160 65
---------- --------- ---------- ----------
Loss before minority partners' share
and provision (benefit) for income taxes (445) (1,021) (2,127) (12,309)
Minority partners' share 9 (96) (4) (209)
---------- --------- ---------- ----------
Loss before provision (benefit) for income
taxes (454) (925) (2,123) (12,100)
Provision (benefit) for income taxes - - - -
---------- --------- ---------- ----------
Loss before extraordinary item (454) (925) (2,123) (12,100)
Extraordinary item - - - 1,332
---------- --------- ---------- ----------
Net loss $ (454) $ (925) $ (2,123) $ (10,768)
========== ========= ========== ==========
Basic and diluted net loss per common share $ (0.24) $ (0.57) $ (1.18) $ (6.62)
========== ========= ========== ==========
Weighted average number of common shares
outstanding 2,095,764 1,637,096 1,944,667 1,637,096
========== ========= ========== ==========
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
INCO HOMES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
---------------------------------------
(Dollars in thousands) 1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,123) $ (10,768)
Adjustment to reconcile net loss to net cash provided by
(used in) operating activities:
Extraordinary item (1,332)
Provision for write-down of real estate 9,213
Minority partners' share (4) (209)
Increase in real estate inventories (1,139) (2,559)
Increase in deferred income tax asset -
Increase in other assets (169) (133)
Increase (decrease) in accounts payable and accrued liabilities 1,012 (764)
---------- ----------
Net cash used in operating activities (2,423) (6,552)
---------- ----------
Cash flow from financing activities:
Proceeds from notes payable secured by real estate 21,261 20,238
Repayments on notes payable secured by real estate (20,154) (15,967)
Proceeds from line of credit 909 1,237
Repayments on line of credit (318) (2,188)
Proceeds from notes to stockholder 1,000 2,622
Repayments on notes to stockholder (283)
Repayments to minority partners (150) -
Proceeds from sale of common stock 49 500
Costs of stock issuance and reverse stock split (35)
---------- ----------
Net cash provided by financing activities 2,597 6,124
---------- ----------
Net increase in cash and cash equivalents 174 (234)
Cash and cash equivalents at beginning of year 736 586
---------- ----------
Cash and cash equivalents at end of period $ 910 $ 352
========== ==========
</TABLE>
5
<PAGE>
INCO HOMES CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
NOTE 1 - GENERAL
The accompanying unaudited consolidated financial statements of Inco Homes
Corporation, subsidiaries and affiliates ("Inco" or "Company") have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (including normal recurring accruals) considered necessary
for a fair presentation have been included.
The accompanying unaudited consolidated financial statements should be read
in conjunction with the financial statements and related notes thereto
contained in the Company's Annual Report on Form 10-KSB, as amended, for
the year ended December 31, 1997. The accompanying consolidated financial
statements include the accounts of the Company and all wholly-owned
subsidiaries, and the Company's general partnership interests in Freedom-
Eagle Ranch Housing Partners ("FERHP") and Triumph-Lancaster Housing
Partners ("Triumph"). All significant intercompany transactions have been
eliminated.
On January 16, 1997, the Company effected a one-for-six reverse stock split
("the reverse stock split").
The Company has experienced, and expects to continue to experience,
significant variability in quarterly results of operations. The results of
any interim period are not necessarily indicative of results that can be
expected for the entire year.
NOTE 2 - RELATED PARTY TRANSACTIONS
For the three months ended September 30, 1998 and 1997, the Company
incurred $80,000 and $50,000, respectively, in model home design fees and
reimbursements for the cost of the model home furnishings with Nancy Orman
Interiors. For the nine months ended September 30, 1998 and 1997, the
Company incurred $192,000 and $155,000, respectively, in fees and costs
with Nancy Orman Interiors. Nancy Orman Interiors is owned by Nancy Norris,
the wife of Ira C. Norris, the Company's Chairman of the Board, President
and Chief Executive Officer.
Thomas E. Gibbs, Jr., a former director of the Company, holds a 56.3%
general partner's interest in Hunter's Ridge Investment Partners ("HRIP").
Included in notes payable at September 30, 1998 is a loan with a balance of
$474,000 from HRIP, secured by one of the Company's projects in Fontana,
California. Additionally, the Gibbs Family Trust, of which Mr. Gibbs is a
beneficiary and trustee, is a 50% limited partner in Triumph.
Thomas A. Hantges, a director and stockholder of the Company, owns
approximately 67% of both USA Commercial Mortgage Company, Inc. ("USA") and
USA Commercial Real Estate Group ("USA Real Estate"). USA has provided
loans and arranged for individual lenders to provide loans to the Company
secured by Company projects in amounts totaling $11,020,000 through
September 30, 1998. USA has earned fees for these loans totaling
$1,118,000, of which $909,000 has been paid. The balance is secured by
notes and is to be paid from proceeds from sales of completed homes in
certain of the Company's projects. The interest rates on loans provided by
USA range from 12.25% to 15.25%, with the average being 13.67%. The
outstanding balance of these loans at September 30, 1998 was $6,498,270.
Additionally, in September 1997, USA Real Estate arranged for an additional
group of investors to purchase the Company's Eagle Ranch project in the
high desert for $2,400,000. Funds from this sale helped the Company repay
portions of matured loans secured by this project with a commercial bank.
The investors granted the Company a six-year option to periodically
repurchase portions of the property,
6
<PAGE>
subject to annual minimum repurchase thresholds, for the development of
single-family homes. If the Company fails to repurchase the minimum number
of lots in any year, the option terminates. The investors are to receive
one half of the cash generated upon the sale of these single-family homes
constructed by the Company on the repurchased lots, and USA Real Estate is
to receive a fee of $1,000 for each home sold. If the Company approves a
bulk sale of these lots by the investors, the Company is to receive one
half of any profits earned. In March 1998, the Company was notified that
the option was terminated for failure to pay real estate taxes and Mello
Roos assessments of approximately $170,000. The Company anticipates that it
will be able to purchase lots in the future at fair market value.
NOTE 3 - NOTES TO STOCKHOLDERS
From September 1996 through November 30, 1997, the Company received
advances of $2,747,000 from Ira C. Norris, of which the Company had repaid
$460,000. The advances were unsecured, bore interest at 10% and were due on
March 31, 1998. The balance of these advances at December 23, 1997 was
$2,462,000, which included accrued interest of $171,000. On that date, Mr.
Norris agreed to convert $2,340,000 of this debt to 2,340 shares of Series
A Cumulative Preferred Stock of the Company. The Company issued these
shares on December 30, 1997 to the Norris Living Trust, of which Mr. Norris
is a beneficiary and trustee. An unsecured note to the Norris Living Trust,
bearing interest at 10% and maturing on December 23, 1998, evidences the
balance of indebtedness not converted in the amount of approximately
$122,000. The balance owing under this note at September 30, 1998 was
$130,970, which includes accrued interest of approximately $9,096.
The Series A Preferred Stock has a par value of $0.01, has no voting
rights, is non-participating, and has no conversion features. The stock is
redeemable at the option of the Company for cash at the redemption price of
$1,000 per share plus accumulated but unpaid dividends. The established
dividend rate on the Preferred Stock is $100 per share per annum payable
quarterly from available working capital.
In addition to the loans described above, in June 1997, the Norris Living
Trust loaned the Company $500,000 secured by undeveloped land owned by the
Company in Victorville and Palmdale, California. This note bears interest
at 10%, was due in June 1998 and has been extended until June 1999. The
balance owing under this note at September 30, 1998 was $563,315, which
includes accrued interest of approximately $63,315.
In June 1997, the Company signed a note and deed of trust in connection
with a loan of $500,000 from the Neeley Revocable Family Trust. Ronald L.
Neeley, a director of the Company until May 1, 1998, is a beneficiary and
trustee of this trust. The note bears interest at 15%, was due in June
1998 and has been extended until June 1999, and is secured by the same
undeveloped land owned by the Company in Victorville and Palmdale,
California which secures the Norris Living Trust loan of $500,000 mentioned
above. The balance owing under this note at September 30, 1998 was
$594,958, which includes accrued interest of approximately $94,958.
NOTE 4 - EXTRAORDINARY ITEMS
In February 1997, the Company obtained new financing from both USA and
another third party lender, providing a total of $2,336,000. Pursuant to
an Agreement with a commercial bank, this amount was accepted as payment in
full on matured loans with balances totaling $2,822,000, secured by one of
the Company's projects in Riverside County. This resulted in an
extraordinary gain of approximately $486,000.
7
<PAGE>
NOTE 5 - NET LOSS PER COMMON SHARE
Loss per share for the three-month and nine-month periods ended September
30, 1998 and 1997 is calculated as follows:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months Ended
(In thousands, except per share data) Ended September 30, September 30,
--------------------------------- --------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Net loss $ 454 $ 925 $ 2,123 $ 10,768
Cumulative preferred dividends 59 181
-------------- -------------- -------------- -------------
Net loss to common shareholders $ 513 $ 925 $ 2,304 $ 10,768
============== ============== ============== =============
Weighted average number of common
shares outstanding 2,095,764 1,637,096 1,944,667 1,637,096
Basic and diluted loss per share $0.24 $0.57 $1.18 $6.58
Dilutive potential common shares 57,279 57,279
</TABLE>
Since losses have occurred in all periods presented, the inclusion of
dilutive potential common shares (principally stock options and warrants)
to calculate diluted loss per share would be anti-dilutive.
NOTE 6 - STOCKHOLDERS' EQUITY
The decrease in stockholders' equity from December 31, 1997 to September
30, 1998, is reconciled as follows:
<TABLE>
<CAPTION>
Common Stock
Preferred Stock and Additional Paid
(Dollars in thousands) in Capital
-----------------------------------------------------------------------
Shares Amount Shares Amount Deficit Total
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1997 2,340 $2,340 1,637,096 $42,892 $(41,142) $ 4,090
Common stock issued -- -- 458,704 158 -- 158
Net loss -- -- -- -- (2,123) (2,123)
-----------------------------------------------------------------------
Balance - September 30, 1998 2,340 $2,340 2,095,800 $43,050 $(43,265) $ 2,125
=======================================================================
</TABLE>
Common Stock was issued in the nine months ended September 30, 1998 in
various private transactions with sales prices totaling $806,581. Pursuant
to these transactions, (i) in December 1997, the Company received $100,000
in cash and was relieved of debt in the amount of $200,000, (ii) in January
1998, the Company received $6,000 in consulting services, (iii) in March
1998, the Company was relieved of accounts payable in the amount of
$72,500, (iv) in May 1998, the Company was relieved of accounts payable in
the amount of $28,081, (v) the Company received $350,000 in November 1997
and $50,000 through February 1998 pursuant to the exercise of warrants, and
(vi) the stock for those items listed in (i) and (v) were issued during the
first nine months of 1998. See Part I, Item 2.--Liquidity and Capital
Resources.
8
<PAGE>
In November 1992, the Board of Directors and stockholders of the Company
adopted the Company's initial stock option plan (the "Initial Plan"), which
provides for the grant of options to purchase up to 100,000 shares of
Common Stock. In June 1998, the Board of Directors and stockholders of the
Company adopted the 1998 Incentive and Nonstatutory Stock Option Plan (the
"1998 Plan") and reserved 200,000 shares of Common Stock to be optioned and
sold under the 1998 Plan. The discretionary option grant program provides
for the grant of options to purchase shares of the Company's Common Stock
to key employees (including officers and directors) and consultants of the
Company. The options issued to employees are subject to certain vesting
requirements. The options issued to directors may be exercised in full six
months after the grant date.
As of September 30, 1998, 58,529 options were outstanding under the Initial
Plan at prices ranging from $1.563 to $6.00 per share, and 82,668 options
were outstanding under the 1998 Plan at $3.25 per share. No options to
purchase shares of Common Stock had been exercised.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company, in its normal course of business, makes commitments to
purchase land for residential development and has various outstanding
performance bonds.
As of September 30, 1998, the Company had open escrows to purchase two
parcels of land for future residential developments with the purchase price
totaling $1,050,000.
As a result of the limited amount of available working capital, the Company
has not paid all of its subcontractors and suppliers on a current basis.
Numerous subcontractors and suppliers have filed liens, and some are
pursuing legal action, including the filing of complaints. Additionally,
the Company is presently involved in litigation regarding alleged
construction defects at one of its projects. See Part II, Item 1.--Legal
Proceedings.
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for historical information contained herein, the matters discussed
in this report contain forward-looking statements that involve risks and
uncertainties that could cause results to differ materially, including the land
valuation write-downs, changing market conditions, and other risks detailed in
this report, the Company's Annual Report on Form 10-KSB, as amended, and other
documents filed by the Company with the Securities and Exchange Commission from
time to time. Such forward-looking statements can be identified by the use of
the words "expects", "anticipates", "will", "believes", "may" and "could" or the
negatives thereof as well as other similar expressions.
OVERVIEW
The Company's results of operations for the periods presented reflect the
cyclical nature of the homebuilding industry and the Company's historical focus
on the Southern California housing market. The most recent peak in the industry
cycle occurred in 1988 and 1989, which was followed by a downturn in 1990,
coinciding with the general national recession and the depressed economic and
real estate conditions in California. These conditions continued into 1998 in
certain geographic areas of Southern California in which the Company conducted
operations and have had an adverse impact on the Company's results of
operations. Although the Company is experiencing improved sales at many of its
projects, the Company continues to provide homebuyers with price incentives at
some of its projects in order to remain competitive or sell out the final
remaining units of a project or phase of a project. This has resulted in
reduced profitability or losses on some of the homes that the Company has sold.
RESULTS OF OPERATIONS
Revenue from Home Sales
Revenue from home sales increased to $6,937,000 during the three months ended
September 30, 1998, from $3,330,000 during the three months ended September 30,
1997, representing an increase of $3,607,000 or 108.3%. The Company closed sales
of 42 homes at an average sales price of $165,000 during the three months ended
September 30, 1998 compared to 26 home closings at an average sales price of
$128,000 during the three months ended September 30, 1997, a 61.5% increase in
closings and a 28.9% increase in average sales price.
Revenue from home sales also increased to $20,341,000 during the nine months
ended September 30, 1998, from $12,202,000 during the nine months ended
September 30, 1997, representing an increase of $8,139,000 or 66.7%. The
Company closed sales of 137 homes at an average sales price of $148,000 during
the nine months ended September 30, 1998 compared to 99 home closings at an
average sales price of $123,000 during the nine months ended September 30, 1997,
a 38.4% increase in closings and a 20.3% increase in average sales price.
The Company attributes the increase in revenue, number of homes sold and average
sales price of homes sold during both the three months and nine months ended
September 30, 1998 to improvement in the overall Southern California housing
climate as a result of lower interest rates and a general improvement in the
Southern California economic condition as well as an increased demand for
affordable housing.
10
<PAGE>
The following table sets forth, for the periods indicated, the number of home
sales by the Company:
<TABLE>
<CAPTION>
Home Sales for the Home Sales for the
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------ --------------------------
1998 1997 1998 1997
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
High Desert of San Bernardino and
Los Angeles Counties 21 17 58 71
Inland Riverside and San Bernardino
Counties 21 9 79 28
---------- ----------- ----------- -----------
Total Number of Homes 42 26 137 99
========== =========== =========== ===========
</TABLE>
Cost of Homes Sold
Cost of homes sold includes land acquisition, development, construction, direct
and indirect costs, job-site supervision, customer service, warranty costs,
capitalized interest, property taxes and other capitalized indirect costs.
Cost of homes sold for the three months ended September 30, 1998 was $6,255,000,
an increase of $3,037,000, or 94.4%, from $3,218,000 during the three months
ended September 30, 1997. Cost of homes sold as a percentage of revenue
decreased to 90.2% for the three months ended September 30, 1998 from 96.6% for
the same period in 1997. Cost of homes sold for the nine months ended September
30, 1998 was $18,957,000, an increase of $7,292,000, or 62.5% from $11,665,000
during the nine months ended September 30, 1997. Cost of homes sold as a
percentage of revenue decreased to 93.2% for the nine months ended September 30,
1998 from 95.6% for the same period in 1997.
The decrease in cost of homes sold as a percentage of revenue for both the three
months and nine months ended September 30, 1998 is the result of the increased
sales prices of homes which were partially offset by higher carrying costs.
Selling and Marketing Expenses
Selling expenses include loan discount points, internal and third party sales
commissions, escrow fees, title insurance fees and other closing costs.
Selling expenses were $357,000 and $200,000 for the three months ended September
30, 1998 and 1997, respectively, an increase of 78.5%. Selling expenses as a
percentage of revenue were 5.1% and 7.0% for the three months ended September
30, 1998 and 1997, respectively. Selling expenses were $1,091,000 and
$1,000,000 for the nine months ended September 30, 1998 and 1997, respectively,
an increase of 9.1%. Selling expenses as a percentage of revenue were 5.4% and
7.6% for the nine months ended September 30, 1998 and 1997, respectively.
The decrease in selling expenses as a percentage of revenue for the three months
ended September 30, 1998 is primarily due to the increased sales volume of
homes.
Marketing expenses include advertising and promotion costs associated with
maintaining model homes and sales offices. Marketing expenses in any given
period may be significantly influenced by the number of grand openings and the
number of projects that are being actively marketed during the period.
Marketing costs associated with items such as establishing sales offices and
upgrading standard homes to model homes are capitalized when incurred and are
expensed as revenue is earned, while other marketing costs are expensed as
incurred.
Marketing expenses were $396,000 and $400,000 for the three months ended
September 30, 1998 and 1997, respectively, representing a decrease of 1.0%. As
a percentage of revenue, marketing expenses were 5.7% and 10.9% for the three
months ended September 30, 1998 and 1997, respectively. Marketing expenses were
11
<PAGE>
$1,344,000 and $1,382,000 for the nine months ended September 30, 1998 and 1997,
respectively, representing a decrease of 4.2%. As a percentage of revenue,
marketing expenses were 6.6% and 10.6% for the nine months ended September 30,
1998 and 1997, respectively.
The Company attributes the decrease in marketing costs as a percentage of sales
to the increased sales volume of homes and more efficient use of newspaper and
magazine advertising. The decrease was offset partially by increased expenses
from the use of billboards and other signs and greater aggregate payments made
pursuant to the Company's customer referral program.
During the third quarter of 1998 and 1997, the Company was selling homes from
eight and six projects, respectively. In the first nine months of 1998, the
Company had one grand opening, which occurred in the second quarter and incurred
marketing costs related to a second grand opening that occurred early in the
fourth quarter. In the first nine months of 1997, the Company had one grand
opening, which occurred in the second quarter.
General and Administrative Expenses
General and administrative expenses include payroll and related benefits,
insurance, financial reporting costs, and general office expenses.
General and administrative expenses were $389,000 and $380,000 for the three
months ended September 30, 1998 and 1997, respectively, an increase of 2.4%. As
a percentage of revenue, general and administrative expenses were 5.6% and 10.4%
for the three months ended September 30, 1998 and 1997, respectively. General
and administrative expenses were $1,236,000 and $1,155,000 for the nine months
ended September 30, 1998 and 1997, respectively, an increase of 7.0%. As a
percentage of revenue, general and administrative expenses were 6.1% and 8.8%
for the nine months ended September 30, 1998 and 1997, respectively.
The decrease in general and administrative expenses primarily reflects the
Company's continuing cost reduction measures.
Other Income
Other income includes development fees, interest earned on cash balances related
to certain projects and miscellaneous income. Other income was $15,000 and
$3,000 for the three months ended September 30, 1998 and 1997, respectively and
$160,000 and $65,000 for the nine months ended September 30, 1998 and 1997,
respectively.
Minority Partners' Share
Minority partners' share represents the interest of affiliated limited partners
in partnerships consolidated in the Company's financial statements. These
partnerships are FERHP and Triumph.
The minority partners' share of gains and losses was $9,000 gain and $96,000
loss for the three months ended September 30, 1998 and 1997, respectively, and
$4,000 loss and $209,000 loss for the nine months ended September 30, 1998 and
1997, respectively.
Provision (Benefit) for Income Taxes
Provision (benefit) for income taxes represents federal income taxes based on
net income (loss) computed at the effective federal tax rate plus state income
taxes computed at the effective tax rate, net of federal tax benefit, as
adjusted for regulations affecting net operating losses.
For the three months ended September 30, 1998 and 1997, the Company increased
its valuation allowance by $182,000 and $370,000 respectively, and for the nine
months ended September 30, 1998 and 1997, the Company increased its valuation
allowance by $849,000 and $4,300,000 respectively. Both of these increases in
the valuation
12
<PAGE>
allowance were in an amount equal to the deferred tax benefit of operating
expense that would have otherwise been recorded. As of December 31, 1997, the
Company had net operating loss carryforwards for federal income tax purposes of
$33,931,000 that are available to offset future federal taxable income. Of these
federal net operating losses, $3,695,000, $5,046,000, $7,830,000 and $17,360,000
expire in the years 2009, 2010, 2011 and 2012, respectively.
Backlog
The Company's homes are offered for sale in advance of their construction.
Historically, the Company has entered into standard sales contracts for a
majority of the homes to be built in a phase of a project before construction
commences. Such sales contracts are usually subject to certain contingencies
such as the buyer's ability to qualify for financing and/or the sale of an
existing home and thus may not be completed. Homes covered by such sales
contracts, as well as completed homes covered by such sales contracts, are
considered by the Company as its backlog. The Company does not recognize
revenue except accrued fees on homes covered by such contracts until the escrows
are closed and title is transferred to the buyer. The following table sets
forth the Company's backlog at the dates indicated:
<TABLE>
<CAPTION>
September 30,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
High Desert of San Bernardino and Los Angeles
Counties 26 36
Inland San Bernardino and Riverside Counties 40 38
Projects Built for a Fee (See Liquidity and
Capital Resources) 25 --
----------- -----------
Total Number of Homes 91 74
=========== ===========
Aggregate Sales Value $11,425,000 $10,435,000
=========== ===========
Average Sales Price $126,000 $141,000
=========== ===========
</TABLE>
The Company's backlog at any particular date is subject to substantial variation
and is dependent upon several factors including the number of homes then
available for sale, prevailing market conditions and the length of time
necessary to complete the closing of home sales subject to pending contracts.
In the first nine months of 1998 the Company had one grand opening, and the
Company also had one grand opening in the first nine months of 1997.
The Company's backlog increased 23.0% to 91 homes at September 30, 1998 from 74
homes at September 30, 1997. The aggregate sales value of homes in backlog
increased by $990,000 or 9.5% primarily due to the increase in number of homes
under sales contracts. The average sales price of homes in backlog decreased by
$15,000 or 10.6% due to a change in the mix of homes offered for sale. The
increase in backlog is attributable to the strengthening market for single
family homes in Southern California's inland regions and the growing number of
new home communities from which we are selling. Included in the "Aggregate
Sales Value" of the backlog is the value of the homes which are being built for
a fee and only the fee will represent revenue that will eventually be recognized
in the Company operating statement. No assurances can be given that homes in
backlog will result in actual closings because cancellations vary from period to
period.
13
<PAGE>
Net Orders
Net orders represents the number of homes for which the Company has received
signed sales contracts and purchase deposits during the period, net of
cancellations. The following table sets forth the Company's net orders for the
dates indicated:
<TABLE>
<CAPTION>
For the For the
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------ -----------------------
1998 1997 1998 1997
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
High Desert of San Bernardino and Los Angeles
Counties 15 20 63 55
Inland San Bernardino and Riverside Counties 47 15 105 36
Projects Built for a Fee (See Liquidity and
Capital Resources) 20 -- 40 --
--------- ---------- --------- ---------
Total 82 35 208 91
========= ========== ========= =========
</TABLE>
Net new orders increased to 82 homes from 35 homes for the three months ended
September 30, 1998 and 1997, respectively, an increase of 134%. Net new orders
increased to 208 homes from 91 homes for the nine months ended September 30,
1998 and 1997, respectively, an increase of 129%. The Company believes that the
increase in net orders is attributable to improving market conditions in certain
of the geographic areas of Southern California in which the Company conducts
operations.
Variability in Quarterly Results
The Company has experienced, and expects to continue to experience, significant
variability in its operating results. This variability may cause the Company's
overall results of operations to fluctuate significantly on a period-to-period
basis, and revenues anticipated to occur in a fiscal period may not be received
until subsequent fiscal periods. Many factors contribute to this variability,
including: (i) the timing and mix of home deliveries; (ii) the Company's ability
to continue to acquire additional land on favorable terms for future
developments; (iii) the condition of the real estate markets and the economy in
general; (iv) the cyclical nature of the home building industry and changes in
prevailing interest rates; (v) cost and availability of materials and labor; and
(vi) delays in construction schedules caused by timing of inspections and
approvals by regulatory agencies, strikes at subcontractors and adverse weather
conditions. The Company's historical financial results are not necessarily a
meaningful indicator of future results and, in general, the Company expects its
financial results to vary from project to project. The Company's revenue and
net income may also vary substantially as a result of variations in the number
of projects at which the Company is closing the sale of homes at any one time.
Inflation
The Company, as well as the homebuilding industry in general, may be adversely
affected during periods of high inflation, primarily because of higher land
acquisition, land development, construction and interest costs. In addition,
higher interest rates may significantly affect the affordability of permanent
mortgage financing to prospective purchasers and the cost of financing the
Company's land acquisition, development of real estate and construction of
homes. The Company attempts to pass any increases in its costs due to inflation
to its buyers through increased selling prices of its homes. However, there is
no assurance that inflation will not have a material adverse impact on the
Company's future results of operations.
Adoption of Accounting Standards
Management believes there are no new accounting pronouncements that could have a
significant effect on the Company's financial statements for any period
presented.
14
<PAGE>
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes requirements for disclosure of comprehensive income and
becomes effective for the Company's fiscal year ending December 31, 1998.
Reclassification of prior year financial statements for comparative purposes is
required. At September 30, 1998, the Company has no elements which give rise to
reporting comprehensive income.
FASB has also issued Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information." Statement No. 131 modifies the disclosure
requirements for reportable segments and is effective for the Company's year
ending December 31, 1998. The Company does not believe that this pronouncement
will have a significant impact on the reporting practices of the Company.
Year 2000 Compliance
The Year 2000 ("Y2K") problem is the result of computer programs being written
using two digits rather than four to define the applicable year. Thus the year
1998 is represented by the number "98" in many software applications.
Consequently, on January 1, 2000 the year will jump back to "00" in accordance
with many non-Y2K compliant applications.
During the latter part of 1997 and into 1998, the Company has been replacing all
of its older computers and systems with current models. With the exception of
its file server and netware the Company believes that this has been accomplished
at this time. The estimated cost of replacing the file server and netware is
less than $10,000 and will be accomplished in early 1999. The Company's
financial accounting software system was an old system and as of October 1998 is
in the process of being converted to a new Y2K compatible software package.
The Company has initiated communication with third party vendors to determine
the extent to which the Company may be vulnerable to failure of third parties to
address their own Y2K issues. The Company, however, is unable to control Y2K
system issues relating to third parties, including its customers and suppliers.
The Company's management does not believe that third party Y2K changes will have
a material impact on the operating results or financial condition of the
Company, however there can be no assurance that the Y2K issues of other entities
will not have a material adverse impact on the Company's systems or results of
operations.
Liquidity and Capital Resources
The homebuilding industry is capital intensive and often involves high leverage
and significant up-front expenditures to acquire land and begin development.
Accordingly, the Company incurs substantial indebtedness to finance its
homebuilding activities and its business and earnings are substantially
dependent on its ability to obtain bank or other debt financing on acceptable
terms. The Company plans for substantial future expenditures relating to the
acquisition and construction of new projects, as well as the continued
construction of existing, ongoing projects. Additionally, the Company continues
to experience shortfalls in working capital and has payables from prior periods
and closed-out projects in excess of $2,000,000, most of which have been
outstanding for more than 90 days. This amount has been reduced by the Company
from an outstanding balance of more than $11,000,000 in December 1994. As a
result of the limited amount of available working capital, the Company has not
paid all of its subcontractors or suppliers on a current basis. Numerous
subcontractors and suppliers have filed liens, and some are pursuing further
legal action, including the initiation of lawsuits. The Company has negotiated
payment arrangements, as appropriate, in an effort to settle these claims and
release the liens, but various claims and lawsuits are pending and unresolved.
In its efforts to seek funding for working capital shortfalls and to reduce old
payables, as well as to finance the acquisition of additional land for the
delivery of future homes, the Company is discussing with various providers of
capital an investment of additional funds in the Company. No material
agreements between the Company and these potential sources of capital have been
signed, and no assurances can be given whether or when the Company may enter
into an agreement with any source or, if entered into, what the precise terms of
the agreement will be.
15
<PAGE>
If the Company is not successful in obtaining sufficient capital to fund its
planned expenditures, the Company's ability to continue its current level of
business operations could be impaired, and the Company may not be able to
conduct operations as presently anticipated. This could have a material adverse
affect on the Company's business, financial condition and results of operations.
Historically, the Company has financed its operations from a combination of
limited partner capital contributions, cash generated from operations, purchase
money financing of land purchases, borrowings from various banking institutions,
borrowings from related parties, deferring accounts payable and sales of its
capital stock. The Company is also exploring alternative methods of financing.
Management believes that existing cash and capital resources, cash flow from
operations as well as the financial sources upon which it has historically
relied, similar to those discussed in more detail below, will be sufficient to
fund the Company's cash requirements for at least the next 12 months at the
Company's presently anticipated level of operations.
The Company is in the process of making a private offering (the "Offering") of
up to $5,000,000 of Subordinated Investment Notes ("Investment Notes") bearing
interest at the rate of 15% per annum. The Investment Notes will have an 18
month maturity date and no prepayment penalty. The face value of each
Investment Note will be $10,000. The Offering will terminate on February 9,
1999, but may be extended by the Company to a date not later than July 31, 1999.
The Company is conducting the Offering through its employees and is employing
the services of a placement agent to assist it in the Offering. Net proceeds,
if any, from the Offering will be used for working capital. As of September 30,
1998, the Company had received subscriptions for the Investment Notes totaling
$170,000.
The Investment Notes have not been, and will not be, registered under the
Securities Act of 1933 and may not be offered or sold in the United States
absent registration or an applicable exemption from registration requirements of
the Securities Act of 1933.
In 1997, the Company established a relationship with USA, which has provided
loans and arranged for individual lenders to provide loans to the Company
secured by Company projects in amounts totaling $11,020,000 through September
30, 1998. Funds have been utilized to refinance projects, to purchase
additional land for future homes, and to develop some of this land.
Additionally, in June 1997, USA Real Estate arranged for an additional group of
investors to purchase the Company's Eagle Ranch project in the high desert for
$2,400,000. Funds from this sale helped the Company repay portions of matured
loans with a commercial bank secured by this project. The investors granted the
Company a six-year option to periodically repurchase portions of the property,
subject to annual minimum repurchase thresholds, for the development of single-
family homes. If the Company fails to repurchase the minimum number of lots in
any year, the option terminates. The investors are to receive one half of the
cash generated upon the sale of these single-family homes constructed by the
Company on the repurchased lots, and USA Real Estate is to receive a fee of
$1,000 for each home sold. If the Company approves a bulk sale of these lots by
the investors, the Company is to receive one half of any profits earned. In
March, 1998 the Company was notified that the option was terminated for failure
to pay real estate taxes and Mello Roos assessments of approximately $170,000.
Thomas A. Hantges owns 67% of both USA and USA Real Estate. Mr. Hantges became
a director of the Company in January 1998. The Company anticipates that it will
be able to purchase lots at fair market value.
USA has earned fees totaling $1,118,000 for providing these loans to the
Company, of which $909,000 has been paid. The balance is secured by notes and
is to be paid from proceeds from sales of completed homes in certain of the
Company's projects. The interest rates on loans provided by USA range from
12.25% for certain loans secured by a first deed of trust to 15.25% for certain
subordinated land loans, with the average being 13.67% . The outstanding
balance of these loans at September 30, 1998 was $6,498,000.
From September 1996 through November 30, 1997, the Company received advances of
$2,747,000 from Ira C. Norris, of which the Company had repaid $460,000. The
advances were unsecured, bore interest at 10% and were due on March 31, 1998.
The balance of these advances at December 23, 1997 was $2,462,000, which
included accrued interest of $171,000. On that date, Mr. Norris agreed to
convert $2,340,000 of this debt into 2,340 shares of Series A Cumulative
Preferred Stock of the Company. The Company issued these shares on December 30,
1997 to the Norris Living Trust, of which Mr. Norris is a beneficiary and
trustee. An unsecured note to the Norris Living
16
<PAGE>
Trust, bearing interest at 10% and maturing on December 23, 1998, evidences the
balance of indebtedness not converted in the amount of approximately $122,000.
The balance owing under this note at September 30, 1998 was $130,970, which
includes accrued interest of approximately $9,096.
The Series A Preferred Stock has a par value of $0.01, has no voting rights, is
non-participating, and has no conversion features. The stock is redeemable at
the option of the Company for cash at the redemption price of $1,000 per share
plus accumulated but unpaid dividends. The established dividend rate on the
Preferred Stock is $100 per share per annum payable quarterly from available
working capital.
In addition to the loans described above, in June 1997, the Norris Living Trust
loaned the Company $500,000 secured by undeveloped land owned by the Company in
Victorville and Palmdale, California. This note bears interest at 10% and was
due in June 1998 and has been extended until June 1999. The balance owing under
this note at September 30, 1998 was $563,315, which includes accrued interest of
approximately $63,315.
In July 1998, Business Bank provided a Line of Credit of up to $1,000,000
directly to the Norris Living Trust with the understanding that funds drawn on
the Line of Credit would, in turn, be made available by the borrower to the
Company's wholly owned subsidiary Huntington Homes LLC ("Huntington Homes") to
provide needed working capital to help finance its operations.
Since a borrower who would accommodate the Company in this manner (the
"Accommodating Borrower") would be at substantial personal risk under the Line
of Credit, the Board of Directors felt it reasonable to compensate the
Accommodating Borrower for incurring this risk for the Company. The Board
determined that fair compensation would be to issue a three-year warrant to
purchase up to an aggregate of 200,000 shares of Common Stock (the "Warrant") to
the Accommodating Borrower.
Ira C. Norris advised the Board of Directors of his willingness to obtain the
Line of Credit on behalf of Huntington Homes in this manner. Accordingly, on
July 15, 1998, Mr. Norris, using the Norris Living Trust he created for the
benefit of himself and his family, obtained the Line of Credit and has agreed to
furnish the proceeds drawn under the Line of Credit to Huntington Homes. The
Company is seeking stockholder approval for the issuance of the warrant at a
special meeting of stockholders to be held on December 11, 1998. Accordingly,
if stockholders approve the issuance of the Warrant, the Norris Living Trust
would receive a Warrant to purchase 200,000 shares of Common Stock.
In June 1997, the Company signed a note and deed of trust in connection with a
loan of $500,000 from the Neeley Revocable Family Trust. Ronald L. Neeley, a
former director of the Company, is a beneficiary and trustee of this trust. The
note bears interest at 15%, was due in June 1998 and has been extended until
June 1999, and is secured by the same undeveloped land owned by the Company in
Victorville and Palmdale, California which secures the Norris Living Trust loan
of $500,000 mentioned above. The balance owing under this note at September 30,
1998 was $594,958, which includes accrued interest of approximately $94,958.
All of the above transactions with Mr. Norris and the Company's other current
and former directors were unanimously approved by the disinterested members of
the Company's board of directors.
In December 1996, the Company issued a warrant to purchase 200,000 shares of
Common Stock in a private transaction to Overland Company, Inc. ("OCI"), a
corporation affiliated with Overland Opportunity Fund, LLC ("Overland").
Overland owned 9.5% of the Company's Common Stock at September 30, 1998. The
warrant was issued as compensation for services to be performed pursuant to a
consulting agreement entered into with OCI in December 1996. The consulting
agreement is for a term of two years during which OCI, on a non-exclusive basis,
is to seek out, investigate and pursue residential development projects and
present them to the Company for its consideration and approval. The warrant was
exercisable within eighteen months of the date of the agreement at a price of
$5.25 per share. Beginning in November 1997, the Company offered OCI the
opportunity to exercise the warrant for an exercise price of $2.00 per share.
From November 1997 through February 1998, OCI assigned portions of its total
interest in the warrant to third parties. The Company received $350,000 in 1997
and $50,000 in
17
<PAGE>
1998 from these third parties as deposits pursuant to the exercise of the
warrants for all 200,000 shares. The stock certificates were issued in June
1998.
In October 1997, the Company entered into a Development and Marketing Agreement
with a third party to develop, construct, and market 139 lots owned by the third
party in Moreno Valley, California. All financing and bonding is the
responsibility of the third party. The Company receives compensation in the
form of overhead draws, development fees and sales and marketing fees totaling
approximately 8.0% of the gross sales price of the homes. The Company assumes
the home warranty costs for which it is paid $750 per house. During the three
months ended September 30, 1998, the Company received an aggregate of $43,500
for overhead draws.
The Company typically obtains its infrastructure, development and construction
funding and various other land loans from commercial banks and other financing
sources. Lenders generally provide interim construction loans for each phase of
homes within the project for a term of up to 12 months, with extension
provisions. The development loans typically are repaid with proceeds from these
interim construction loans The loan agreements include customary representations
and covenants. All outstanding indebtedness under these facilities is secured
by a lien on the project real property. At September 30, 1998, aggregate
borrowings of $17,800,000 were outstanding under these facilities and $7,300,000
was available for further qualified project finance borrowing. Interest rates
on these loans range from 7.625% to 15.25%, with the average being 10.57%.
The Company has two unsecured revolving lines of credit totaling $1,250,000 with
commercial banks that bear interest at the prime rate plus 1.0%. The net
outstanding balance under these lines of credit at September 30, 1998 was
$921,000. At the time a homebuyer enters into a sales contract with the
Company, meets certain loan pre-qualification requirements with a third party
mortgage lender, and opens an escrow, the bank advances funds to the Company
under this line at an amount equal to 70% of the net cash proceeds estimated by
the Company that it would receive at the close of the homebuyer's escrow. The
escrow company repays the lender directly from net proceeds when the escrow
closes. The Company had available approximately $200,000 on one of these credit
facilities at September 30, 1998.
The availability of borrowed funds for homebuilders, especially for land
acquisition and construction financing is variable. Currently such financings
are generally available, but some lenders have been requiring borrowers to
invest increased amounts of equity in a project in connection with both new
loans and the extension of existing loans.
18
<PAGE>
INCO HOMES CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Except as disclosed below, the Company is involved only in routine
litigation arising in the ordinary course of business. Such matters, if
decided adversely to the Company, would not, in the opinion of management,
have a material adverse effect on the financial condition of the Company.
In addition, from time to time, the Company could become involved in
litigation in connection with claims of development or construction
defects, which matters, if decided adversely to the Company, could have a
material adverse effect on the financial condition of the Company.
In May 1994, the owners of 11 homes sold by the Company at its 201-home
Northfork project located in Murrieta, California filed a complaint against
Inco Development Corporation, a wholly-owned subsidiary of the Company
("Inco Development"), in the Superior Court of California in Riverside
County. Through October 1996, various owners of additional homes in this
project filed separate complaints. All complaints were subsequently
consolidated into one complaint involving 40 homeowners. The alleged
damages related primarily to the performance of the concrete slabs of the
homes. The matter was resolved in mediation, which concluded on March 2,
1998, in the agreed upon amount of $2,100,000. Payments of the settlement
amount will be shared by three of the Company's primary insurance carriers,
and by various subcontractors against whom the Company had filed cross-
complaints. Settlement documents were signed in April and May 1998, which
included all necessary releases and dismissals of all complaints.
Management believes that any obligations the Company may have relating to
the self-insured retentions included in its insurance policies will not be
material. Subsequent to September 1998, the owners of 8 homes in this
project filed a complaint in the Superior Court of California in Riverside
County. The complaint alleges, among other things, defective material and
workmanship, negligence, nuisance, strict liability, breach of express and
implied warranty. The plaintiffs are seeking general, special and punitive
damages in an unspecified amount, and attorney fees.
In September 1998, the owners of 30 homes sold by the Company at its 261-
home Spirit project located in Murrieta, California filed a complaint
against Inco Homes Corporation in the Superior Court of California in
Riverside County. The complaint alleges, among other things, defects in
design and material, negligence, strict liability and breach of implied
warranty. The plaintiffs are seeking compensatory and special damages in
an unspecified amount, attorney fees and interest at the legal rate.
Subsequent to September 1998, the owners of 10 homes sold by the Company at
its 185-home Southlake at Sunnymead Ranch project located in Moreno Valley,
California filed a complaint against SMR Housing Development, a wholly-
owned subsidiary of the Company, in the Superior Court of California in
Riverside County. The complaint alleges, among other things, construction
failures and deficiencies, negligence, strict liability and breach of
express and implied warranty. The plaintiffs are seeking compensatory and
special damages in an unspecified amount, attorney fees and interest at the
legal rate.
The Company believes that the claims made against it are without merit and
intends to vigorously defend itself in each action. The Company believes
that these claims will not have a material adverse effect on the Company's
business.
As a result of the limited amount of available working capital,
relationships with certain subcontractors have weakened due to the
Company's inability to pay all of its subcontractors and their suppliers on
a current basis. Numerous subcontractors and suppliers have filed liens,
and some are pursuing further legal action, including the initiation of
lawsuits. The Company has negotiated payment arrangements, as appropriate,
in an effort to settle these claims and release the liens, but various
claims and lawsuits are pending and unresolved.
19
<PAGE>
Management does not believe that any of these claims, in the aggregate,
will have a material adverse financial effect on the Company's business.
However, if the Company continues to have disputes with its subcontractors
and suppliers, in the future it may be difficult for the Company to attract
and retain qualified subcontractors and suppliers who are willing to work
with the Company and the Company's business could be adversely affected.
Items 2 through 5. Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K. There were no reports on Form 8-K for the
three months ended September 30, 1998.
20
<PAGE>
INCO HOMES CORPORATION
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.
INCO HOMES CORPORATION
Date: November 16, 1998 By: /s/ Ira C. Norris
--------------------------------
IRA C. NORRIS
Chairman of the Board, President
and Chief Executive Officer
Date: November 16, 1998 By: /s/ David A. Fogg
--------------------------------
DAVID A. FOGG
Chief Operating Officer and
Chief Financial Officer
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000897432
<NAME> INCO HOMES CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
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0
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