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 January 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
EXCHANGE ACT
For the transition period from to
Commission file number 1-6762
KILLEARN PROPERTIES, INC.
(Exact name of small business issuer as specified in its charter )
Florida 59-1095497
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 Eagle's Landing Way
Stockbridge, GA 30281
(Address of principal executive offices)
Issuer's telephone number
(770)389-2020
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]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the last practicable date: 887,412.
Transitional Small Business Disclosure Format: No [X].
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Consolidated Condensed Financial Statements (Unaudited):
Consolidated Condensed Balance Sheet as of January 31, 1997 3
Consolidated Condensed Statements of Operations for the Three 4
Months Ended and Nine Months Ended January 31, 1997 and 1996
Consolidated Statements of Cash Flows for the Nine Months 5
Ended January 31, 1997 and 1996
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition 7
and Results of Operations
Part II Other Information
Item 1. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 10
Exhibit Index 11
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
<CAPTION>
ASSETS 1/31/97
(Unaudited)
<S> <C>
Cash $ 123,156
Cash in improvement trust funds 167,756
Accounts and notes receivable 6,716,480
Land contracts receivable, net 363,864
Real estate held for development and sale 25,912,398
Property under contract for sale 212,653
Other property, plant and equipment, net 1,009,326
Other assets 31,247
__________
TOTAL ASSETS $ 34,536,880
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable & other liabilities $ 1,521,321
Income taxes payable 1,290,658
Mortgages & notes payable 22,176,402
Deferred improvement revenue 719,932
Deferred income taxes 5,207,686
Deferred profit 1,563,552
__________
TOTAL LIABILITIES $ 32,479,551
STOCKHOLDERS' EQUITY
Common stock - par value $.10 per share;
authorized 6,000,000 shares; issued
887,412 shares $ 88,741
Additional paid-in capital 6,846,014
Retained earnings 13,026,797
Net assets to be transferred for stock (17,904,223)
__________
TOTAL STOCKHOLDERS' EQUITY $ 2,057,329
__________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 34,536,880
==========
See Notes to Consolidated Condensed Financial Statements
</TABLE>
<TABLE>
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended Nine Months Ended
1/31/97 1/31/96 1/31/97 1/31/96
Unaudited Unaudited Unaudited Unaudited
<S> <C> <C> <C> <C>
INCOME:
Net sales of land $3,202,738 $3,389,837 $8,798,425 $12,566,137
Sales of residential construction 0 155,000 45,500
Interest income 137,071 92,448 448,787 542,785
Commission income 62,004 93,506 127,569 215,928
Income from joint ventures 55,232 483,533
Other revenues 18,161 85,370 51,138 83,885
_________ _________ _________ _________
Total 3,419,974 3,661,161 9,636,151 13,937,768
EXPENSES:
Cost of land sold 1,864,202 2,477,611 5,355,698 9,469,631
Cost of residential construction 0 179,879 42,063
Commissions and selling expenses 332,496 511,687 1,143,752 1,134,017
Interest expense 143,848 64,397 413,530 216,093
Depreciation 25,862 26,294 82,807 81,549
Property taxes 67,343 64,507 146,544 149,533
General & administrative costs 340,744 402,678 1,033,752 1,181,338
_________ _________ _________ __________
TOTAL EXPENSES 2,774,495 3,547,174 8,355,962 12,274,224
Net income before income taxes
and discontinued operations 645,479 113,987 1,280,189 1,663,544
Income tax provision 242,894 42,893 486,088 625,992
_________ _________ ________ _________
NET INCOME BEFORE
DISCONTINUED OPERATIONS $ 402,585 $ 71,094 $ 794,101 $1,037,552
DISCONTINUED OPERATIONS:
Net loss from transferred operations
(net of income tax benefit of $19,667
and $29,976 for the three and nine months
ended January 31, 1996, respectively)$ 0 $ (32,598) $ 0 $ (49,684)
Net income $ 402,585 $ 38,496 $ 794,101 $ 987,868
======= ========= ======= =======
Earnings per share before
discontinued operations $ 0.45 $ 0.05 $ 0.89 $ 0.72
Discontinued operations $ 0.00 $ (0.02) $ 0.00 $ (0.03)
_________ _________ ________ _________
NET INCOME PER SHARE $ 0.45 $ 0.03 $ 0.89 $ 0.69
========= ========= ======== =========
Weighted average shares outstanding 887,412 1,438,733 887,412 1,438,733
DIVIDENDS PER SHARE NONE NONE NONE NONE
<FN>
See Notes to Consolidated Condensed Financial Statements
</TABLE>
<TABLE>
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION> Nine Months Ended
1/31/97 1/31/96
-------- --------
<S> <C>(Unaudited)<C>(Unaudited)
NET CASH FROM OPERATING ACTIVITIES: (2,626,336) (1,938,855)
___________ __________
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (52,171) (67,423)
Distributions from joint ventures 129,927 602,484
Net change in assets from discontinued operations 0 (21,249)
___________ ___________
Net cash from investing activities 77,756 513,812
___________ ___________
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans 9,569,345 5,033,452
Principal payments on debt (7,057,756) (4,086,673)
____________ ___________
Net cash from financing activities 2,511,589 946,779
___________ ___________
NET INCREASE/(DECREASE) IN CASH (36,991) (478,264)
CASH - Beginning of period 160,147 507,277
___________ ___________
CASH - End of period $ 123,156 $ 29,013
=========== ===========
Supplemental Information
Cash Paid: Interest paid was $1,659,119 and $1,574,914 for fiscal 1997 and
1996, respectively.
Income taxes paid were $983,207 and $10,000 in fiscal 1997 and
1996, respectively.
See Notes to Consolidated Condensed Financial Statements
</TABLE>
PART I. KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JANUARY 31, 1997
NOTE 1. Basis of Presentation
The accompanying unaudited consolidated condensed financial statements
have been prepared in accordance with the instructions for Form 10-QSB
and, therefore, do not include all information and footnotes necessary
for a fair presentation of financial position, results of operations
and changes in financial position in conformity with generally accepted
accounting principles.
The information furnished reflects all adjustments which are, in the
opinion of management, necessary for a fair statement of the results for the
interim period covered. For further information, refer to the complete
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10KSB for the year ended April 30, 1996.
NOTE 2. Transfer of Assets
On August 1, 1996, the Company entered into an agreement, subject to
shareholder approval, pursuant to which it agreed to transfer certain
of its assets and liabilities to J.T. Williams, Jr., the Company's former
Chairman of the Board and Chief Executive Officer, in exchange for the
551,321 shares of common stock he held in the Company and the cancellation
of his option to purchase an additional 100,000 shares of common stock.
The net assets identified in the agreement consisted principally of the
Eagle's Landing Golf Course and Country Club, the Inn at Eagle's Landing,
a note for approximately $2 million and approximately 250 acres of commercial
and industrial real estate, and certain mortgages and other liabilities, as
more fully described in the Company's proxy statement filed on August 26,
1996. Such transfer, once approved, was agreed to be effective as of May 1,
1996. Accordingly, the net cash flows related to the transferred assets
from the effective date (May 1, 1996) until the closing date would be
transferred to or funded by J.T. Williams, Jr.
On September 30, 1996, the shareholders of the Company (excluding J.T.
Williams, Jr.) voted on and approved the transfer agreement, and the
transfer closed on November 16, 1996. The net assets transferred had a
historical cost basis of approximately $17,904,000 which has been reflected
as a reduction to shareholders' equity in the accompanying balance sheet.
The net operating results of the transferred assets have been removed from
the statement of operations retroactively to the effective date and have not
been considered in the determination of net income of the Company. Furthermore,
adjustments to prior year results of operations have been made to accunt for
the transferred assets. The prior year results of the transferred assets have
been reflected as discontinued operations in the accompanying statements of
operations and cash flows.
NOTE 3 Earnings per share
Earnings per share reflect the weighted average shares outstanding during each
of the periods presented as reflected on the face of the income statement. As
discussed in Note 2, the Company entered into an agreement to transfer certain
net assets in exchange for 551,321 shares and the cancellation of an option to
purchase 100,000 shares of the the Company's common stock. Based on the
effective date of that agreement, earnings per share are computed based on the
number of shares outstanding during the period as if such shares were
transferred on the effective date. Had such transaction been completed on May
1, 1995, earnings per share for the nine months ended January 31, 1996 would
have been $1.22.
NOTE 4 Financing
The Company obtained various additional credit facilities during the nine month
period ending January 31, 1997. One such facility of approximately $1.8
million is being used for the acquisition and development of 75 additional
acres of land located contiguous to the Company's property in Stockbridge,
Georgia. Additional borrowings were for the financing of development cost
under various development loans. These loans generally mature as the related
lots are sold and bear interest rates at one point over prime rate.
Additionally, on January 29, 1997, the Company modified its loan agreement
with a bank involving its Georgia operations. The agreement provides for
interest to be paid at the bank's prime rate plus 2% per annum, and extends
the due date to April 10, 1997. The loan is collateralized by first mortgages
on substantially all the undeveloped land in the Company's Georgia property
and certain contracts receivable. Upon the sale of collateralized property,
release prices, which vary with the development, are applied against the loan
balance owed to the bank. The Company historically secures development loans
from other lenders in an amount sufficient to pay the release price and all
development costs, which are ultimately satisfied with proceeds from the sale
of the properties. Upon maturity of this loan, the failure of the bank to
extend the Company's loan, or the failure of the Company to obtain replacement
financing, could have a material adverse effect on the Company's financial
condition. Management believes this debt will be extended, or refinanced with
another lending institution, as it has been in the past.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales of land decreased approximately $187,000 (5.5%) during the
current three month period and $3.8 million (30%) during the current nine month
period compared to the same period a year ago. The primary reason for the
decrease was a result of the recognition in the prior year of income in the
Florida operations related to the sale of substantially all of the Florida
assets in November 1993. However, net land sales in Georgia increased 59.6%
for the current three month period, and 147% for the current nine month period,
compared to the same period a year ago, as a result of the Company initiating
a modified sales program intended to expand its marketing efforts.
Cost of land sold, as a percentage of net sales of land, was 58.2% for the
current three month period compared to 73.1% for the same period a year ago.
The cost of land sold for the current nine month period decreased to 60.9%
compared to 75.4% for the same period a year ago. These improvements in gross
margins are reflective of the discounted sales price granted in the prior year
on the bulk sale of land from the Florida operations.
Interest income increased approximately $45,000 during the current three
month period and decreased approximately $94,000 during the current nine month
period when compared to the same period a year ago. The overall decrease is
primarily due to a decrease in the interest on notes receivable from the sale
of substantially all of the Florida assets. As principal is repaid, the
related interest income is reduced.
Commission income decreased approximately $32,000 in the current three month
period, and decreased approximately $88,000 in the current nine month period
as compared to the same period a year ago. Likewise, the commission and
selling expenses decreased approximately $179,000 in the current three month
period, and increased approximately $9,700 in the current nine month period
These overall decreases resulted from the Company's change in its method of
marketing homes in some of the Georgia developments in the second quarter of
fiscal 1996. At that time, the Company began using independent brokers rather
than Company-employed salespersons.
Interest expense, when compared to the same periods a year ago, increased
approximately $79,000 for the current three month period and $197,000 for the
current nine month period. These increases are due to some interest expense
incurred by the Company being ineligible for capitalization in accordance with
Financial Accounting Standard 34.
General and administrative expenses decreased $62,000 in the current three
month period and $148,000 for the current nine month period when compared to
the same period a year ago. These decreases are due to reduction of life
insurance benefits and salaries to the Company's former Chief Executive Officer
and other employees in relation to the asset transfer agreement discussed in
Note 2. Additionally, the Company elected not to contribute to the Company's
profit sharing plan in the current year; however, the nine months ending
January 31, 1996 included a $45,000 contribution to the plan.
Discontinued operations represents the results attributible to the net assets
transferred to J.T. Williams, Jr. pursuant to the August 1, 1996 Agreement
between the Company and Mr. Williams. Loss from discontinued operations was
$32,598 and $49,684 respectively for the three and nine month ended
January 31, 1996 (See Item 4).
The operating statements for the current nine months are not necessarily
indicative of the results expected for the year.
Liquidity and Capital Resources
The Company finances its operations with operating cash flow and bank
borrowings. On January 31, 1997 the Company had available lines of credit
of approximately $1.5 million which may be drawn as needed for the development
of the Company's property and other working capital needs. The Company
continues to look for additional sources of lines of credit and other
financing alternatives and believes that such sources are available on
acceptable terms when the need for additional financing arise.
On January 29, 1997, the Company modified its loan agreement with a bank
involving its Georgia operations. The agreement provides for interest
to be paid at the bank's prime rate plus 2% per annum, and extends the due
date to April 10, 1997. The loan is collateralized by first mortgages on
substantially all the undeveloped land in the Company's Georgia property and
certain contracts receivable. Upon the sale of collateralized property,
release prices, which vary with the development, are applied against the loan
balance owed to the bank. The Company historically secures development loans
from other lenders in an amount sufficient to pay the release price and all
development costs, which are ultimately satisfied with proceeds from the sale
of the properties. Upon maturity of this loan, the failure of the bank to
extend the Company's loan, or the failure of the Company to obtain replacement
financing, could have a material adverse effect on the Company's financial
condition. Management believes this debt will be extended, or refinanced with
another lending institution, as it has been in the past.
In addition, the Company has other debt maturing in the amount of approxi-
mately $2.3 million in fiscal 1997 and $8.3 million in the following fiscal
year. The Company anticipates that these obligations will be paid with the
proceeds of land sales from normal operations, extension of debt or new
borrowings.
PART II - OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
NONE
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 30, 1996, the shareholders approved the transfer by the Company
(the "Split-off") of certain of its assets, comprised principally of the
Eagle's Landing Golf Course and Country Club, the Inn at Eagle's Landing, a
note for approximately $2 million and approximately 250 acres of commercial
and industrial real estate, subject to certain liabilities, to a newly-formed
wholly owned subsidiary of the Company ("NewSub"), and the subsequent transfer
of all of the outstanding capital stock of NewSub to J.T. Williams, Jr., the
Company's former Chairman of the Board and Chief Executive Officer, in exchange
for 551,321 shares of Common Stock owned by Mr. Williams and the cancellation
of his option to purchase an additional 100,000 shares of Common Stock. The
closing of the Split-off occurred on November 16, 1996; however, the effective
date of the transfer of assets and liabilities was May 1, 1996. With
1,438,733 shares outstanding, 1,179,454 shares voted in favor of the proposed
split-off, with 52,695 voting against, and 30,784 abstaining from voting.
On September 30, 1996, the shareholders elected Mark A. Conner, Robert E.
Maloney, Jr. and Langdon S. Flowers, Jr. to the Board of Directors.
Additionally, Mark A. Conner was elected by the Board to be President
and Chairman. With 1,438,733 shares outstanding, 1,259,234 shares voted in
favor of, and 4,875 voted against the election of the new directors.
ITEM 5.
OTHER INFORMATION
NONE
ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibit is being filed with this report:
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
NONE
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
KILLEARN PROPERTIES, INC.
(Registrant)
Date: March 13, 1997 /s/ David K. Williams
_________________________
DAVID K. WILLIAMS
Chief Financial Officer
Vice President
EXHIBIT INDEX
Exhibit No. Description Page No.
----------- ----------- --------
27 Financial Data Schedule 12
10
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> JAN-31-1997
<CASH> 290,912
<SECURITIES> 0
<RECEIVABLES> 7,080,344
<ALLOWANCES> 0
<INVENTORY> 26,125,051
<CURRENT-ASSETS> 33,527,554
<PP&E> 1,009,326
<DEPRECIATION> 0
<TOTAL-ASSETS> 34,536,880
<CURRENT-LIABILITIES> 2,811,979
<BONDS> 29,667,572
<COMMON> 88,741
0
0
<OTHER-SE> 2,057,329
<TOTAL-LIABILITY-AND-EQUITY> 34,536,880
<SALES> 9,080,994
<TOTAL-REVENUES> 9,636,151
<CGS> 6,679,329
<TOTAL-COSTS> 8,355,962
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 413,530
<INCOME-PRETAX> 1,280,189
<INCOME-TAX> 486,088
<INCOME-CONTINUING> 794,101
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 794,101
<EPS-PRIMARY> .89
<EPS-DILUTED> .89
</TABLE>
