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 October 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.
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KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Consolidated Condensed Financial Statements (Unaudited):
Consolidated Condensed Balance Sheet as of October 31, 1997 3
Consolidated Condensed Statements of Operations for the Six 4
Months Ended and October 31, 1997 and 1996
Consolidated Statements of Cash Flows for the Six Months 5
Ended October 31, 1997 and 1996
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations 7
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 9
Signatures 10
Exhibit Index 11
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<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
<CAPTION>
ASSETS 10/31/97
(Unaudited)
<S> <C>
Cash $ 52,804
Accounts and notes receivable 5,824,684
Land contracts receivable, net 554,334
Real estate held for development and sale 25,140,164
Property under contract for sale 141,196
Other property, plant and equipment, net 504,837
Other assets 1,162,251
__________
TOTAL ASSETS $ 33,380,269
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable & other liabilities $ 2,677,356
Income taxes payable 2,121,308
Mortgages & notes payable 20,047,362
Deferred improvement revenue 13,125
Deferred income taxes 3,313,236
Deferred profit 1,704,278
__________
TOTAL LIABILITIES $ 29,876,664
STOCKHOLDERS' EQUITY
Common stock - par value $.10 per share;
authorized 6,000,000 shares; issued
887,412 shares $ 88,741
Additional paid-in capital 1,942,998
Retained earnings 1,471,866
__________
TOTAL STOCKHOLDERS' EQUITY $ 3,503,605
__________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 33,380,269
==========
See Notes to Consolidated Condensed Financial Statements
</TABLE>
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<TABLE>
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended Six Months Ended
10/31/97 10/31/96 10/31/97 10/31/96
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INCOME:
Net sales of land $4,399,707 $2,801,702 $8,523,210 $5,595,686
Sales of residential
construction - - - 155,000
Interest income 101,462 165,335 249,585 311,716
Commission income 39,737 11,395 83,135 65,566
Income from joint ventures - 55,232 - 55,232
Other revenues 69,467 11,961 70,967 32,977
__________ _________ __________ __________
Total 4,610,374 3,045,625 $8,926,898 $6,216,177
EXPENSES:
Cost of land sold 3,659,568 1,617,936 $6,396,872 $3,491,496
Cost of residential
construction - 925 - 179,879
Commissions and
selling expenses 535,407 416,089 982,979 811,256
Interest expense 73,272 146,238 234,369 269,682
Depreciation 19,444 25,862 38,884 56,945
Property taxes 115,588 47,430 164,645 79,201
General & administrative
costs 267,272 392,553 501,494 693,008
_________ _________ __________ __________
TOTAL EXPENSES 4,670,551 2,647,033 $8,319,243 $5,581,467
Net income before
income taxes (60,177) 398,592 607,655 634,710
Income tax provision (22,645) 154,343 228,660 243,195
_________ _________ __________ __________
NET INCOME $ (37,533) $ 244,249 $ 378,995 $ 391,515
========== ========== ========== ==========
NET INCOME PER SHARE $ (.04) $ .28 $ .43 $ .44
========== ========== ========== ==========
Weighted average shares
outstanding 887,412 887,412 887,412 887,412
<FN>
See Notes to Consolidated Condensed Financial Statements
</FN>
</TABLE>
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<TABLE>
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Six Months Ended
10/31/97 10/31/96
-------- --------
(Unaudited) (Unaudited)
<S> <C> <C>
NET CASH FROM OPERATING ACTIVITIES: (361,734) (679,203)
___________ __________
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (3,654) (50,040)
Distributions from joint ventures 50,000 129,927
___________ __________
Net cash from investing activities 46,346 79,887
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans 14,439,750 5,803,968
Principal payments on debt (14,340,752) (5,043,734)
___________ __________
Net cash from financing activities 98,998 760,234
___________ __________
NET DECREASE IN CASH 216,390 160,918
CASH - Beginning of period 269,194 160,147
___________ __________
CASH - End of period $ 52,804 $ 321,065
=========== ==========
Supplemental Information
Cash Paid: Interest paid was $1,039,627 and $629,181.45 for fiscal 1997 and
1998, respectively.
Income taxes paid were $683,207 and $750,000 in fiscal 1997 and
1998, respectively.
See Notes to Consolidated Condensed Financial Statements
</TABLE>
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PART I. KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
OCTOBER 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 10-KSB for the year
ended April 30, 1997.
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 $17,136,000 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.
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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
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.
NOTE 4 Financing
The Company obtained various additional credit facilities during the six
month period ending October 31, 1997. Two such facilities of
approximately $2.5 million and $1.8 million are being used for the
acquisition and development of 93 acres and 124 acres, respectively, of
land in the Henry County area. Additional borrowings were for the
financing of development costs under various development loans. These
loans generally mature as the related lots are sold and bear interest
rates at prime rate plus 1 to 1 1/4 percent.
Additionally, on July 10, 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 1.25% per annum,
and matures on July 9, 1998. The loan is collateralized by first
mortgages on substantially all the undeveloped land in the Company's
Georgia property. 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.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales of land increased approximately $1.6 million (57%) during the
current three month period and $2.9 million (52%) during the current six
month period compared to the same period a year ago. The primary reason
for the increase was a result of the Company's increase in commercial
and bulk sales and the recognition of income related to the sale of
substantially all of the Company's Florida assets in November 1993.
Cost of land sold, as a percentage of net sales of land, was 83% for
the current three month period compared to 58% for the same period a
year ago. Cost of land sold for the current six month period
increased to 75% compared to 62% for the same period a year ago.
These decreases in gross margins are due to the sales at discounted
prices made in the current year on the commercial and bulk sales of
land.
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Interest income decreased approximately $63,873 during the current three
month period and $62,131 during the current six month period compared to
the same periods a year ago primarily due to a decrease in the interest
on notes receivable from the November, 1993 sale of substantially all
the Company's Florida assets. As the principal is repaid, the related
interest income is reduced.
Commission income increased approximately $28,342 in the current three
month period and $17,569 in the current six month period compared to the
same periods a year ago. Additionally, commission and selling
expenses increased approximately $119,318 in the current three month
period and $171,723 in the current six month period. These overall
changes resulted from the Company's increase in net sales of Land.
Interest expense, when compared to the same period a year ago, decreased
approximately $72,966 for the current three month period and $35,313 for
the current six month period. This decrease is due to certain interest
expense incurred by the Company being eligible for capitalization in
accordance with Financial Accounting Standard 34.
General and administrative expenses decreased approximately $125,281 in
the current three month period and $191,514 in the current six month
period when compared to the same periods a year ago. This decrease is
due to reduction of life insurance premiums and salary to the
Company's former Chief Executive Officer and other employees as a result
of the transaction described in Note 2 to the Company's financial
statements.
The operating statements for the current three month period 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 October 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 July 10, 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 1.25% per annum, and matures on
July 9, 1998. The loan is collateralized by first mortgages on
substantially all the undeveloped land in the Company's Georgia
property. 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.
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In addition, the Company has other debt maturing in the amount of
approximately $11.5 million in fiscal 1998 and $3.6 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.
The Company currently has Notes Receivable due from Proactive
Technologies, Inc., delinquent in the amount of $313,000.59 in interest and
$550,000.00 in principal at October 31, 1997. An additional principal
payment from Proactive of $1.8 million is due December 31, 1997, as well
as additional interest payments. If these funds are not received,
the Company may be required to seek alternative means of financing to meet
its working capital and liquidity requirements, including seeking additional
bank lines of credit, or the sale of equity or debt securities.
PART II - OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
NONE
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5.
OTHER INFORMATION
The Company announced on or about December 3, 1997 that it had received
a merger offer from its largest shareholder, Proactive Technologies,
Inc., to purchase all remaining shares of common stock outstanding not
currently held by Proactive for $9.00 per share in cash, subject to its
obtaining financing, negotiation of a definitive agreement and certain
other conditions. Proactive currently owns or controls 45% (404,396) of
the outstanding common stock of the Company.
To review the merger proposal, a special committee of Killearn directors
has been named, which includes all four non-Proactive affiliated
directors. The Company has a total of seven directors of which three
are affiliated with Proactive. The special committee has asked
Proactive to demonstrate its ability to obtain the necessary financing
on or before December 31, 1997. If the Board approves the offer and a
definitive agreement is executed, the proposed merger will be
submitted to the Company's shareholders for their approval. There
is no assurance the proposed merger will be approved by the Board nor
the shareholders.
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
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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: December 15, 1997 /s/ David K. Williams
_________________________
DAVID K. WILLIAMS
Chief Financial Officer
President
Page 10
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EXHIBIT INDEX
Exhibit No. Description Page No.
----------- ----------- --------
27 Financial Data Schedule 12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> OCT-31-1997
<CASH> 52,804
<SECURITIES> 0
<RECEIVABLES> 5,824,684
<ALLOWANCES> 322,654
<INVENTORY> 25,281,360
<CURRENT-ASSETS> 32,875,432
<PP&E> 1,067,377
<DEPRECIATION> 562,541
<TOTAL-ASSETS> 33,380,269
<CURRENT-LIABILITIES> 4,798,664
<BONDS> 25,078,001
<COMMON> 88,741
0
0
<OTHER-SE> 3,414,864
<TOTAL-LIABILITY-AND-EQUITY> 33,380,269
<SALES> 8,523,210
<TOTAL-REVENUES> 8,926,898
<CGS> 6,396,872
<TOTAL-COSTS> 8,319,244
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 234,369
<INCOME-PRETAX> 607,653
<INCOME-TAX> 228,660
<INCOME-CONTINUING> 381,993
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 381,993
<EPS-PRIMARY> .43
<EPS-DILUTED> .43
</TABLE>
