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, 1998
[ ] 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 January 31, 1998 3
Consolidated Condensed Statements of Operations for the Nine 4
Months Ended January 31, 1998 and 1997
Consolidated Statements of Cash Flows for the Nine Months 5
Ended January 31, 1998 and 1997
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 1/31/98
(Unaudited)
<S> <C>
Cash $ 261,897
Accounts and notes receivable 6,666,200
Land contracts receivable, net 557,428
Real estate held for development and sale 25,395,125
Property under contract for sale 141,196
Other property, plant and equipment, net 485,393
Other assets 3,410
__________
TOTAL ASSETS $ 33,510,649
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable & other liabilities $ 1,885,629
Income taxes payable 2,197,718
Mortgages & notes payable 21,372,079
Deferred liabilities 116,000
Deferred income taxes 3,313,236
Deferred profit 1,089,050
__________
TOTAL LIABILITIES $ 29,973,712
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 1,505,198
__________
TOTAL STOCKHOLDERS' EQUITY $ 3,536,937
__________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 33,510,649
==========
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 Nine Months Ended
1/31/98 1/31/97 1/31/98 1/31/97
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INCOME:
Net sales of land $2,743,524 $3,202,738 $11,266,734 $8,798,425
Sales of residential construction - - - 155,000
Interest income 180,120 137,071 429,705 448,787
Commission income - 62,004 58,383 127,569
Income from joint ventures - - - 55,232
Other revenues 40,651 18,161 111,618 51,138
__________ _________ ___________ __________
Total $2,964,295 $3,419,974 $11,866,440 $9,636,151
EXPENSES:
Cost of land sold 1,980,380 1,864,202 $ 8,377,252 $5,355,698
Cost of residential construction - - - 179,879
Commissions and selling expenses 373,118 332,496 1,331,345 1,143,752
Interest expense 162,109 143,848 396,478 413,530
Depreciation 19,444 25,862 58,328 82,807
Property taxes 122,430 67,343 287,075 146,544
General & administrative costs 257,302 340,744 758,796 1,033,752
__________ __________ ___________ __________
TOTAL EXPENSES $2,914,783 $2,774,495 $11,209,274 $8,355,962
Net income before income taxes 49,512 645,479 657,166 1,280,189
Income tax provision (18,631) (242,894) (247,291) (486,088)
__________ __________ ___________ __________
NET INCOME $ 30,881 $ 402,585 $ 409,875 $ 794,101
========== ========== =========== ==========
NET INCOME PER SHARE $ .03 $ .45 $ .46 $ .89
========== ========== =========== ==========
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>
Nine Months Ended
1/31/98 1/31/97
-------- --------
(Unaudited) (Unaudited)
<S> <C> <C>
NET CASH FROM OPERATING ACTIVITIES: 2,326,764 (2,626,336)
___________ __________
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (3,654) (52,171)
Distributions from joint ventures 50,000 129,927
___________ __________
Net cash from investing activities 46,346 77,756
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans 16,962,631 9,569,345
Principal payments on debt (19,343,038) (7,057,756)
___________ __________
Net cash from financing activities ( 2,380,407) 2,511,589
___________ __________
NET DECREASE IN CASH ( 7,297) (36,991)
CASH - Beginning of period 269,194 160,147
___________ __________
CASH - End of period $ 261,897 $ 123,156
=========== ==========
Supplemental Information
Cash Paid: Interest paid was $1,659,119 and 1,479,702 for fiscal 1997 and
1998, respectively.
Income taxes paid were $983,207 and 1,181,492 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
JANUARY 31, 1998
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
nine month period ending January 31, 1998. One such facility of
approximately $2.4 million is being used for the acquisition
of a First Mortgage on approximately 1,000 acres of land in Henry
County, Georgia. The principal amount of this loan has been reduced to
$441,000.00 by January 31, 1998. 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.
The Company modified its loan agreement with Killearn, Inc. The
modification provided additional borrowing of approximately $1.2 million
dollars, for a total outstanding principal balance at January 31, 1998
of $3,320,085.02. The maturity date was extended to December 31, 1999.
J.T. Williams, a director of the company, is also the President of
Killearn, Inc. Likewise, David K. Williams, the Company's President and
Director is also a Director and shareholder of Killearn, Inc.
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 decreased approximately $459,214 (14%) during the
current three month period and increased $2.4 million (24%) during the
current nine month period compared to the same period a year ago. The
primary reason for the decrease in the current quarter was a reduction in
bulk sales from the prior year. The primary reason for the increase in the
current nine month period 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,
as reported in the first quarter of the current year.
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Cost of land sold, as a percentage of net sales of land, was 72% for
the current three month period compared to 55% for the same period a
year ago. Cost of land sold for the current nine month period
increased to 71% compared to 56% 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. The Company's current sales policy provides for increased retail
sales and less bulk sales at discounted prices in the future.
Interest income increased approximately $43,049 during the current three
month period and decreased marginally during the current nine month
period compared to the same periods a year ago. The
current quarter increase was due to the purchase of a $3.4 million
dollar first mortgage on property located in Henry County, Georgia.
Commission income decreased approximately $62,004 in the current three
month period and $69,186 in the current nine month period compared to
the same periods a year ago. Additionally, commission and selling
expenses decreased approximately $12,378 in the current three month
period and increased $134,593 in the current nine month period due to
increased net land sales. These overall changes resulted from the
Company's sales program that encouraged homebuilders in the Company's
Communities to sell their homes through brokers other than the Company.
This sales program has been discontinued.
Interest expense, when compared to the same period a year ago, increased
approximately $18,261 for the current three month period and $17,052 for
the current nine month period. This increase is due to certain interest
expense incurred by the Company not being eligible for capitalization in
accordance with Financial Accounting Standard 34.
General and administrative expenses decreased approximately $83,442 in
the current three month period and $224,956 in the current nine 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 January 31, 1998 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.
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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.
In addition, the Company has other debt maturing in the amount of
approximately $1.5 million in fiscal 1998 and $19.3 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.
Recent Developments
The Company entered into an agreement on February 2, 1998 whereby the
Company deeded three parcels of land and three joint venture properties
to Proactive Technologies, Inc. ("Proactive"). Proactive was a major
shareholder of the Company, and Proactive's Chairman and President was
the Chairman and President of the Company until recently. The Company
had made demand on Proactive Technologies, Inc. to pay three notes
which were in default totaling $4.9 million, including past due
interest through December 31, 1997. Under the agreement, Proactive
Technologies paid approximately $1.5 million to reduce the Company's
debt. The Company agreed to extend until December 31, 1999 the due
date on approximately $3 million balance of Proactive Technologies debt,
which will bear interest at 10% per annum, payable quarterly.
The Company also sold to Proactive three parcels of land and its interest
in three joint ventures for $4.4 million, which is slightly higher than the
book value of these assets. Proactive Technologies will assume the
outstanding bank debt secured by these assets, together with all contracts
and other obligations related to these projects incurred after December
31, 1997, the result of which significantly improved the Company's
liquidity by reducing its debt by approximately $5.9 million.
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
NONE
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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
The Company filed Form 8-K for Change in Control of Registrant and
Disposition of Assets on February 2, 1998.
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 17, 1998 /s/ David K. Williams
_________________________
DAVID K. WILLIAMS
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> 9-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> JAN-31-1998
<CASH> 261,897
<SECURITIES> 0
<RECEIVABLES> 6,666,200
<ALLOWANCES> 313,882
<INVENTORY> 25,536,321
<CURRENT-ASSETS> 33,025,256
<PP&E> 1,067,377
<DEPRECIATION> 581,984
<TOTAL-ASSETS> 33,510,649
<CURRENT-LIABILITIES> 4,083,347
<BONDS> 24,801,313
<COMMON> 88,741
0
0
<OTHER-SE> 3,448,196
<TOTAL-LIABILITY-AND-EQUITY> 33,510,649
<SALES> 11,266,734
<TOTAL-REVENUES> 11,866,440
<CGS> 8,377,252
<TOTAL-COSTS> 11,209,274
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 396,478
<INCOME-PRETAX> 657,166
<INCOME-TAX> 247,291
<INCOME-CONTINUING> 409,875
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 409,875
<EPS-PRIMARY> .46
<EPS-DILUTED> .46
</TABLE>
