<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
------------------------------------------------------------
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
[_] TRANSITION REPORT UNDER 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
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year if changed since last
report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [_]
The number of shares outstanding of each of the issuer's classes of common
equity on May 13, 1998 was as follows:
Class of Common Stock Shares Outstanding
--------------------- ------------------
$.01 par value 1,883,764
Transitional Small Business Disclosure Format:
YES [_] NO [X]
----- ------
<PAGE>
INCO HOMES CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheets as of March 31, 1998 (Unaudited) and
December 31, 1997.......................................................................................... 3
Consolidated Statements of Operations (Unaudited) for the Three
Months Ended March 31, 1998 and 1997....................................................................... 4
Consolidated Statements of Cash Flows (Unaudited) for the Three
Months Ended March 31, 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.......................................................................................... 17
SIGNATURES.......................................................................................................... 19
</TABLE>
2
<PAGE>
INCO HOMES CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in thousands, except share data) March 31, December 31,
-----------------------------------------
1998 1997
---- ----
(unaudited)
<S> <C> <C>
ASSETS
Cash $ 300 $ 736
Real estate inventories 28,962 27,329
Deferred tax asset 2,200 2,200
Other assets 430 669
---------- ----------
Total assets $ 31,892 $ 30,934
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 5,731 $ 5,580
Notes payable 21,126 19,202
Line of credit 247 330
Notes to stockholders 1,220 1,187
---------- ----------
Total liabilities 28,324 26,299
---------- ----------
Minority partners' investment in consolidated partnerships 491 545
Commitments and contingencies
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, 1,883,764 and 1,637,096 shares issued and
outstanding for 1998 and 1997 19 16
Additional paid in capital 43,002 42,876
Deficit (42,284) (41,142)
---------- ----------
Total stockholders' equity 3,077 4,090
---------- ----------
Total liabilities and stockholders' equity $ 31,892 $ 30,934
========== ==========
</TABLE>
See accompanying notes to financial statements
<PAGE>
INCO HOMES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) For the Three Months Ended March 31,
-----------------------------------------------
1998 1997
---- ----
<S> <C> <C>
Revenue from home sales $ 4,284 $ 3,420
Cost of homes sold 4,210 3,084
----------- -----------
Gross profit 74 336
----------- -----------
Selling and marketing expenses 748 656
General and administrative expenses 475 418
----------- -----------
1,223 1,074
----------- -----------
Operating loss (1,149) (738)
Other income 3 6
----------- -----------
Loss before minority partners' share
and provision (benefit) for income taxes (1,146) (732)
Minority partners' share (4) (46)
----------- -----------
Loss before provision (benefit) for income taxes (1,142) (686)
Provision (benefit) for income taxes - -
----------- -----------
Loss before extraordinary item (1,142) (686)
Extraordinary item - 486
----------- -----------
Net loss $ (1,142) $ (200)
=========== ===========
Basic and diluted net loss per common share $ (0.68) $ (0.12)
=========== ===========
Weighted average number of common shares
outstanding 1,776,992 1,603,021
=========== ===========
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
<TABLE>
<CAPTION>
INCO HOMES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended March 31,
------------------------------------
1998 1997
(Dollars in thousands) ------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,142) $ (200)
Adjustment to reconcile net loss to net cash provided by
(used in) operating activities:
Extraordinary item - (486)
Minority partners' share (4) (46)
Increase in real estate inventories (1,584) (1,593)
Decrease in other assets 221 20
Increase (decrease) in accounts payable and accrued liabilities 230 (834)
------------ ------------
Net cash used in operating activities (2,279) (3,139)
------------ ------------
Cash flow from financing activities:
Proceeds from notes payable secured by real estate 6,350 6,852
Repayments on notes payable secured by real estate (4,424) (5,315)
Proceeds from line of credit - 604
Repayments on line of credit (83) (116)
Proceeds from notes to stockholder - 565
Repayments on notes to stockholder - (220)
Repayments to minority partners (50) -
Proceeds from common stock subscriptions 50 -
Proceeds from sale of common stock - 500
Costs of stock issuance and reverse stock split - (35)
------------ ------------
Net cash provided by financing activities 1,843 2,835
------------ ------------
Net decrease in cash and cash equivalents (436) (304)
Cash and cash equivalents at beginning of year 736 586
------------ ------------
Cash and cash equivalents at end of period $ 300 $ 282
============ ============
Supplemental schedule of non-cash activities
[1] In the first quarter of 1998, the Company issued 42,546 shares of Common
Stock to creditors in exchange for relieving the Company of $72,500 of
accounts payable.
[2] In the first quarter of 1997, the Company deeded back properties with a book
cost basis of $1,000,000 to land sellers in satisfaction of indebtedness in that
amount.
</TABLE>
See accompanying notes to financial statements
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
Item 310(b) of Regulation S-B. 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, for the year ended
December 31, 1997. The accompanying unaudited 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, a stockholder approved amendment to the Company's
Restated Certificate of Incorporation effecting a one-for-six reverse stock
split ("the reverse stock split") became effective.
The Company has experienced, and expects to continue to experience,
significant variability in quarterly revenues and net income. 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 March 31, 1997, the Company incurred $80,000 in
model home design fees and $22,500 as reimbursement for the cost of the
model home furnishings with Nancy Orman Interiors ("NOI"). NOI is owned by
Nancy Norris, the wife of Ira C. Norris. The Company owed NOI $189,000 at
March 31, 1998.
For the three months ended March 31, 1997 the Company paid $27,300 for the
use of office space to Inco Plaza, Ltd. Inco Plaza, Ltd. is a limited
partnership owned 80% by G&N Investments, Ltd., its sole general partner.
G&N Investments, Ltd. is a limited partnership owned 70% by Nancy and Ira
C. Norris, its sole general partners. Inco Plaza, Ltd. sold the office
building it owns in which the Company leases office space to a third party
buyer in December 1997. The Company's lease was assumed by this third party
buyer. The Company owed Inco Plaza, Ltd. $91,000 at March 31, 1998.
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 March 31, 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 $12,240,000 through March
31, 1998. USA has earned
6
<PAGE>
fees for these loans totaling $1,088,000, of which $879,000 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 20.25%. The
outstanding balance of these loans at March 31, 1998 was $8,080,000.
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 secured by this project with a commercial bank.
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.
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 March 31, 1998 was
$125,000, which includes accrued interest of approximately $3,000.
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 is due in June 1998. The balance owing under this note at March
31, 1998 was $538,000, which includes accrued interest of approximately
$38,000.
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%, is due in June
1998, 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
March 31, 1998 was $557,000, which includes accrued interest of
approximately $57,000.
NOTE 4 - EXTRAORDINARY ITEM
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 months ended March 31, 1998 and 1997 is
calculated as follows:
<TABLE>
<CAPTION>
For the Three Months
(Dollars in thousands, except share data) Ended March 31,
------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Net loss $ 1,142 $ 200
Cumulative preferred dividends 64 --
------------- -------------
Net loss to common shareholders $ 1,206 $ 200
============= =============
Weighted average number of common shares
outstanding 1,776,992 1,603,021
Basic and diluted loss per share $ 0.68 $ 0.12
Dilutive potential common shares 80,509 0
</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 March 31,
1998, is reconciled as follows:
Dollars in thousands
<TABLE>
<CAPTION>
Common Stock
Preferred Stock and Additional Paid
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 -- -- 246,668 79 -- 79
Cash received pursuant to
pending exercise of warrants -- -- -- 50 -- 50
Net loss -- -- -- -- (1,142) (1,142)
---------------------------------------------------------------
Balance - March 31, 1998 2,340 $2,340 1,883,764 $43,021 $(42,284) $3,077
===============================================================
</TABLE>
Common Stock was issued in the quarter ended March 31, 1998 in various
private transactions with sales prices totaling $378,500. 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 and (iii) in March 1998,
the Company was relieved of accounts payable in the amount of $72,500. See
Part I, Item 2. - Liquidity and Capital Resources.
8
<PAGE>
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 March 31, 1998, the Company had open escrows to purchase two separate
parcels of land for future residential developments with purchase prices
totaling $2,320,000.
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 further legal action, including the initiation of lawsuits.
Additionally, the Company recently settled various complaints regarding
alleged construction defects at one of its projects. See Part II, Item 1.-
Legal Proceedings.
9
<PAGE>
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, and other documents
filed by the Company with the Securities and Exchange Commission from time to
time.
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 Southern California. These conditions continued into
1998 in some of the geographic areas of Southern California in which the Company
conducted operations and 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 $4,284,000 during the three months ended
March 31, 1998, from $3,420,000 during the three months ended March 31, 1997,
representing an increase of $864,000 or 25.3%. The Company closed 32 homes at an
average sales price of $133,900 during the three months ended March 31, 1998
compared to 31 homes closed at an average sales price of $110,300 during the
three months ended March 31, 1997, a 3.2% increase in closings and a 21.4%
increase in average sales price. The increase in revenue and average sales
price during the three months ended March 31, 1998 is attributable to the
majority of closings occurring in the Company's higher priced subdivisions.
The following table sets forth, for the periods indicated, the number of homes
closed by the Company:
<TABLE>
<CAPTION>
Homes Closed for the
Quarter Ended March 31,
----------------------------------------
1998 1997
--------------- ----------------
<S> <C> <C>
High Desert of San Bernardino and
Los Angeles Counties 15 26
Inland San Bernardino and Riverside
Counties 17 5
--------------- ----------------
Total Number of Homes 32 31
=============== ================
</TABLE>
10
<PAGE>
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 March 31, 1998 was $4,210,000, an
increase of $1,126,000, or 36.5%, from $3,084,000 during the three months ended
March 31, 1997. Cost of homes sold as a percentage of revenue increased to
98.3% for the three months ended March 31, 1998 from 90.2% for the same period
in 1997. The increase in cost of homes sold for the first quarter of 1998 is
primarily the result of the close out of several of the Company's lower cost
projects and a phase of an ongoing lower cost project at the end of 1997.
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 $306,000 and $339,000 for the three months ended March 31,
1998 and 1997, respectively, a decrease of 9.7%. Selling expenses as a
percentage of revenue were 7.1% and 9.9% for the three months ended March 31,
1998 and 1997, respectively. The decrease in selling expenses is primarily due
to reduced payroll expense for the Company's internal sales force and lower
total commissions paid to independent real estate brokers. This decrease was
partially offset by higher incentives given to homebuyers in order to sell the
final remaining units of several of the Company's projects.
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 $442,000 and $317,000 for the quarters ended March 31,
1998 and 1997, respectively, representing an increase of 39.4%. As a percentage
of revenue, marketing expenses were 10.3% and 9.3% for the three months ended
March 31, 1998 and 1997, respectively. The increase in marketing costs is a
result of additional newspaper and magazine advertising by the Company,
increased use of billboards and other signs, and greater aggregate payments made
pursuant to the Company's customer referral program.
During the first quarter of 1998 and 1997, the Company was delivering homes from
six and seven projects, respectively. In the first quarter of 1998 and 1997 the
Company had no grand openings.
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 $475,000 and $418,000 for the three
months ended March 31, 1998 and 1997, respectively, an increase of 13.6%. As a
percentage of revenue, general and administrative expenses were 11.1% and 12.2%
for the three months ended March 31, 1998 and 1997, respectively. The increase
in the dollar amount of general and administrative expenses primarily reflects
an increase in payments made to outside consultants, increased legal expense and
additional miscellaneous employee expenses.
Other Income
Other income includes interest earned on cash balances related to certain
projects and miscellaneous income. Other income was $3,000 and $6,000 for the
three months ended March 31, 1998 and 1997, respectively.
11
<PAGE>
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 losses was $4,000 and $46,000 for the three
months ended March 31, 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 March 31, 1998 and 1997, the Company increased its
valuation allowance by $457,000 and $80,000, respectively, amounts equal to the
deferred tax benefit 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
portion 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
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>
March 31,
-------------------------------
1998 1997
-------------- -------------
<S> <C> <C>
High Desert of San Bernardino and Los 32 41
Angeles Counties 43 30
Inland San Bernardino and Riverside
Counties
Projects Built for a Fee (See Liquidity and 5 --
Capital Resources) -------------- -------------
Total Number of Homes 80 71
============== =============
Aggregate Sales Value $11,382,000 $9,077,000
============== =============
Average Sales Price $ 142,300 $ 127,800
============== =============
</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.
The Company has generally experienced a rapid increase in backlog during periods
in which it holds a grand opening for one of its projects. In the first quarter
of 1998 and 1997 the Company had no grand openings.
The Company's backlog increased 12.7% to 80 homes at March 31, 1998 from 71
homes at March 31, 1997. The aggregate sales value of the units in backlog
increased by $2,305,000 or 25.4%, due to the increase in number of
12
<PAGE>
homes under sales contracts. The average sales price of homes in backlog
increased by $14,500 or 11.3% due to a change in the mix of homes offered for
sale.
No assurances can be given that homes in backlog will result in actual closings
because cancellations vary from period to period. The Company believes that
cancellations were relatively high in recent periods, reflecting the weak
economic conditions that had existed in the Southern California markets,
increased competition, and the inability of certain potential homebuyers to
qualify for mortgage financing.
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 Quarter Ended March 31,
-------------------------------------
1998 1997
----------------- ----------------
<S> <C> <C>
High Desert of San Bernardino and Los
Angeles Counties 25 15
Inland San Bernardino and Riverside
Counties 39 5
Projects Built for a Fee (See Liquidity and
Capital Resources) 5 --
Total ----------------- -----------------
69 20
================= =================
</TABLE>
Net new orders increased to 69 homes from 20 homes for the quarters ended March
31, 1998 and 1997, respectively, an increase of 245.0%. 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 earned
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.
13
<PAGE>
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.
YEAR 2000 ISSUE
Management does not anticipate material costs, problems and uncertainties
associated with the Year 2000 issue.
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 sources of
capital their investing 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.
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.
14
<PAGE>
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 $12,240,000 though March 31,
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. Thomas A. Hantges
owns 67% of both USA and USA Real Estate. Mr. Hantges became a director of the
Company in January 1998.
USA has earned fees totaling $1,088,000 for providing these loans to the
Company, of which $879,000 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 20.25% for certain
subordinated land loans. The outstanding balance of these loans at March 31,
1998 was $8,080,000.
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 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 March 31, 1998 was $125,000, which includes accrued interest of
approximately $3,000.
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 is
due in June 1998. The balance owing under this note at March 31, 1998 was
$538,000, which includes accrued interest of approximately $38,000. The Company
expects that the due date of this note will be extended.
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%, is due in June 1998, 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 March 31, 1998 was $557,000, which includes
accrued interest of approximately $57,000. The Company expects that the due
date of this note will be extended.
All of the above transactions with Mr. Norris and the Company's other directors
were unanimously approved by the disinterested members of the Company's board of
directors.
15
<PAGE>
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 10.6% of the Company's Common Stock at May 13, 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
1998 from these third parties as deposits pursuant to the exercise of the
warrants for all 200,000 shares. The Company is awaiting receipt of final
documentation before it effectuates the sale of the shares.
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 March 31, 1998, the Company received an aggregate of $72,500 for
overhead draws.
The Company often acquires land with an initial down payment, with the balance
financed by seller non-recourse notes. The notes typically include partial
reconveyance provisions, which allow the Company to obtain the necessary
development financing on a phased basis. The Company also occasionally uses
options to acquire property. At March 31, 1998, the Company had land seller
indebtedness outstanding of $716,000, $320,000 of which is secured by property
the Company owns in the high desert of San Bernardino County and $396,000 of
which is secured by property the Company owns in Riverside County. The Company
expects to deed back these properties to the sellers in satisfaction of the
amounts owed. These transactions are expected to result in a reduction of real
estate inventories in the amount of $716,000, the book value of the properties.
The Company typically obtains its infrastructure, development and construction
funding and various other land loans from commercial lenders and other financing
sources. Lenders generally provide interim construction loans for each phase of
homes within a 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 March 31, 1998, aggregate borrowings of
$16,869,000 were outstanding under these facilities and $6,530,000 was
available for further qualified project finance borrowing. Interest rates on
these loans range from 7.625% to 20.25%.
The Company also has an unsecured $1,000,000 revolving line of credit with a
commercial bank that bears interest at the prime rate plus 1.0%. The net
outstanding balance under this line of credit at March 31, 1998 was $247,000.
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 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.
16
<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 be
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.
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. 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.
ITEM 2. RECENT SALES OF UNREGISTERED SECURITIES
In the first quarter of 1998, the Company sold an aggregate of 42,546
shares of Company Common Stock to two of its consultants in
satisfaction of indebtedness to them in the total amount of $72,500.
The above-described sales of securities were not effected through any
broker-dealer, and no underwriting discounts or commissions were paid
in connection with such sales. Exemption from registration requirements
is claimed under the Securities Act of 1933 (the "Securities Act") in
reliance on Section 4(2) of the Securities Act or Regulation D
promulgated thereunder of the Securities Act. No brokers' commissions
or fees were paid in connection with any of the foregoing transactions.
The recipients of securities in each such transaction represented that
they were accredited investors under Regulation D of the Act and their
intention to acquire the securities for investment only and not with a
view to, or for sale in connection with, any distribution thereof and
appropriate legends were affixed to the certificates evidencing the
securities in such transactions. All recipients had adequate access to
information about the Company.
17
<PAGE>
ITEMS 3 AND 4. NOT APPLICABLE
ITEM 5. OTHER INFORMATION
Ronald L. Neeley resigned as a member of the Company's Board of
Directors, effective May 1, 1998. Mr. Neeley stated that competing
personal and professional commitments made it impractical for him to
continue with his duties on the Board.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.1 Promissory Note by and between USA Commercial Mortgage
Company, a Nevada Corporation, and Inco Homes Corporation,
dated March 27, 1998.
10.2 Short Form Deed of Trust and Assignment of Rents by and
between USA Commercial Mortgage Company and Inco Homes
Corporation, dated March 27, 1998.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K. There were no reports on Form 8-K for the
three months ended March 31, 1998.
18
<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: May 15, 1998 By: /s/ Ira C. Norris
--------------------------------
IRA C. NORRIS
Chairman of the Board, President
and Chief Executive Officer
Date: May 15, 1998 By: /s/David A. Fogg
--------------------------------
DAVID A. FOGG
Chief Operating Officer and
Chief Financial Officer
19
<PAGE>
EXHIBIT 10.1
PROMISSORY NOTE
---------------
$120,000.00 DATED: March 27, 1998
FOR VALUE RECEIVED, INCO HOMES CORPORATION, A Delaware Corporation hereby
promises to pay to USA COMMERCIAL MORTGAGE COMPANY, A Nevada Corporation or its
order, ONE HUNDRED TWENTY THOUSAND DOLLARS ($120,000.00).
Interest will begin accruing at Twenty percent (20%) per annum.
Payments shall be made in lawful money of the United States of America
as follows:
The note shall mature One-Hundred Twenty (120) days from the date of
this note.
Interest will accrue on a daily basis and be compounded monthly. All due
and payable upon maturity.
Prepayment may be made without penalty.
Presentment for payment, notice of dishonor, protest and notice of protest
are hereby waived.
This note is secured by (a) the Deed of Trust executed by Borrower, as
Trustor, in favor of Lender, as Beneficiary, covering certain real property
located in the County of Riverside, the State of California, and (b) all other
existing and future security documents.
Borrower agrees that if the Mortgaged Property or any part thereof or any
interest therein, shall be sold, assigned, transferred, conveyed, pledged,
mortgaged or encumbered with financing other than that secured hereby or
otherwise alienated by Borrower whether voluntarily or involuntarily or by
operation of law, except as shall be specifically hereinafter permitted or
without the prior written consent of Lender, then Lender, at its option, may
declare this Note, and all other obligations hereunder to be forthwith due and
payable.
In any action or proceeding brought by the holder hereof to recover any
part or all of the principal sum and/or interest thereunder, there shall be
included as an item of damages which the holder hereof shall be entitled to
recover, a reasonable attorney's fee incurred by reason of such action or
proceeding.
This Note is made in the City of Las Vegas in the State of Nevada and shall
be governed by the Laws of Nevada.
/s/ David A. Fogg
----------------------
David A. Fogg, CFO
INCO Homes Corporation,
A Delaware Corporation
<PAGE>
EXHIBIT 10.2
RECORDING REQUESTED BY:
AND WHEN RECORDED MAIL TO:
NAME
USA COMMERCIAL MORTGAGE,
STREET A NEVADA CORPORATION
ADDRESS 3900 PARADISE ROAD, STE. 263
LAS VEGAS, NV 89109
CITY
STATE
ZIP
ASSESSOR'S PARCEL NO:
TITLE ORDER NO: R-164540-6
----------
ESCROW NO: 30092- MCA
----------
THIS SPACE FOR RECORDER'S USE ONLY
SHORT FORM DEED OF TRUST AND ASSIGNMENT OF RENTS
This Deed of Trust, made this 27th day of March 1998, between
TRUSTOR: INCO HOMES CORPORATION, A DELAWARE CORPORATION
whose address is 1282 WEST ARROW HWY UPLAND, CA 91786
(number and street) (city) (state) (zip)
TRUSTEE: ORANGE COAST TITLE COMPANY, a California corporation, and
BENEFICIARY: USA COMMERCIAL MORTGAGE, A NEVADA CORPORATION
, herein called BENEFICIARY
Witnesseth: That Trustor IRREVOCABLY GRANTS, TRANSFERS AND ASSIGNS TO TRUSTEE
IN TRUST, WITH POWER OF SALE, that property in the County of State of
California, described as:
LOT 10 OF BLOCK 2, IN THE CITY OF LAKE ELSINORE, COUNTY OF RIVERSIDE, STATE OF
CALIFORNIA AS PER MAP RECORDED IN BOOK 250, PAGES 70 THROUGH 75 INCLUSIVE OF
MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPTING THEREFROM
ALL SUBSURFACE WATER RIGHTS AS DEDICATED TO THE CITY OF LAKE ELSINORE ON THE
OWNERS STATEMENT OF SAID AMENDING MAP OF TOWN OF LUCERNE.
TOGETHER WITH the rents, issues and profits thereof, SUBJECT, HOWEVER, to the
right, power and authority hereinafter given to and conferred upon Beneficiary
by Paragraph (10) of the provisions incorporated herein by reference to collect
and apply such rents, issues and profits.
FOR THE PURPOSE OF SECURING: 1. Performance of each agreement of Trustor
incorporated by reference or contained herein. 2. Payment of the indebtedness
evidenced by one promissory note of even date herewith, and any extension or
renewal thereof,
in the principal sum of $ 120,000.00 executed by Trustor in favor
----------------------
of Beneficiary or order. 3. Payment of such further sums as the then record
owner of said property hereafter may borrow from Beneficiary, when evidenced by
another note (or notes) reciting it is so secured.
<PAGE>
To protect the security of this Deed of Trust, Trustor Agrees: By the execution
and delivery of this Deed of Trust and the note secured hereby, that provisions
(1) to (14) inclusive, of the fictitious deed of trust recorded in Santa Barbara
County and Sonoma County October 18, 1961, and in all counties October 23, 1961,
in the book and the page of Official Records in the office of the county
recorder of the county where said property is located, noted below opposite the
name of such county, vis.:
<TABLE>
<CAPTION>
COUNTY BOOK PAGE COUNTY BOOK PAGE COUNTY BOOK PAGE COUNTY BOOK PAGE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alameda 435 684 Kings 792 833 Placer 895 01 Sierra 29 335
Alpine 1 250 Lake 362 39 Plumas 151 5 Siskiyou 468 181
Amador 104 348 Lassen 171 471 Riverside 3005 523 Solano 1105 182
Butte 1145 1 Los Angeles T2055 899 Sacramento 4331 62 Sonoma 1851 689
Calaveras 145 152 Madera 810 170 San Benito 271 383 Stanislaus 1715 456
Colusa 296 617 Marin 1508 339 San Bernardino 5567 61 Sutter 572 297
Contra Costa 3978 47 Mariposa 77 292 San Francisco A332 905 Tehama 401 289
Del Norte 78 414 Mendocino 579 530 San Joaquin 2470 311 Trinity 93 366
El Dorado 568 456 Merced 1547 538 San Luis Obisbo 1151 12 Tulare 2294 275
Fresno 4626 572 Modoc 184 851 San Mateo 4078 420 Tuoloumne 135 47
Glenn 422 184 Mono 52 429 Santa Barbara 1878 860 Ventura 2062 386
Humbolt 657 527 Monterey 2194 538 Santa Clara 5336 341 Yolo 653 245
Imperial 1091 501 Napa 639 86 Santa Cruz 1431 494 Yuba 334 486
Inyo 147 598 Nevada 305 320 Shasta 684 528
Kern 3427 60 Orange 5889 611 San Diego Series 2, Book 1961, Page 183887
</TABLE>
(which provisions, identical in all counties, are printed on the reverse of the
first page of this form) hereby are adopted and incorporated herein and made
part hereof as fully as though set forth herein at length; that he will observe
and perform said provisions; and that references to property, obligations, and
parties in said provisions shall be construed to refer to the property,
obligations, and parties set forth in this Deed of Trust.
In accordance with Section 2924b, Civil Code, request is hereby made that a copy
of any Notice of Default and a copy of any Notice of Sale hereunder be mailed to
Trustor at Trustor's address hereinbefore set forth, or if none shown, to
Trustor at the property address.
NOTICE: A COPY OF ANY NOTICE OF DEFAULT AND OF ANY NOTICE OF SALE WILL BE SENT
ONLY TO THE ADDRESS CONTAINED IN THIS RECORDED REQUEST. IF YOUR ADDRESS CHANGES,
A NEW REQUEST MUST BE RECORDED.
Should Trustor sell, convey, transfer, or dispose of, or further encumber said
property, or any part thereof or any interest therein, voluntarily or
involuntarily, without the written consent of Beneficiary being first had and
obtained, then Beneficiary shall have the right, at its option, to declare all
sums secured hereby forthwith due and payable.
Signature of Trustor(s)
Dated March 26, 1998 INCO HOMES CORPORATION,
-------------------------------- ---------------------------------
A DELAWARE CORPORATION
STATE OF CALIFORNIA ) BY: /s/ David A. Fogg
COUNTY OF SAN BERNARDINO )/ss/ ---------------------------------
On March 27, 1998 before me Amy J. Beatrice IT'S: CFO
-------------- --------------- ---------------------------------
personally appeared David A. Fogg
--------------- ---------------------------------
- -------------------------------------
personally known to me (or proved to me on the basis
of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument, and acknowledged
to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s)
on the instrument the person(s) or the entity upon behalf of
which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature /s/ Amy J. Beatrice (This area for official notary seal)
-----------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 300
<SECURITIES> 0
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<INVENTORY> 28,962
<CURRENT-ASSETS> 0
<PP&E> 0
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<TOTAL-ASSETS> 31,892
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
2,340
<COMMON> 19
<OTHER-SE> 718
<TOTAL-LIABILITY-AND-EQUITY> 31,892
<SALES> 4,284
<TOTAL-REVENUES> 4,284
<CGS> 4,210
<TOTAL-COSTS> 4,210
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,142)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,142)
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<NET-INCOME> (1,142)
<EPS-PRIMARY> (0.68)
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