SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 (FEE REQUIRED)
For the fiscal year ended April 30, 1998
Commission File Number 1-6762
KILLEARN PROPERTIES, INC.
(Exact name of small business issuer in its charter)
Florida 59-1095497
(State or other jurisdiction (I.R.S. Employer Identification No.)
incorporation or organization)
385 Country Club Drive Stockbridge, Georgia 30281
(Address of principal executive offices)
Issuer's telephone number, including area code: (770) 389-2020
Securities registered pursuant to Section 12 (b) of the Act:
Title of Each Class:
Common Stock Name of Each Exchange on which Registered:
($.10 Par Value) American Stock Exchange, Inc.
Securities registered pursuant to Section 12 (g) of the Act: NONE
Check whether the Issuer (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Exchange Act of 1934 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 _______.
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB ( )
Revenues for the fiscal year ended April 30, 1998 were $14,667,652.
As of July 1, 1998, the aggregate market value of the voting stock
held by non-affiliates of the Issuer was approximately $7,986,708. This
is based upon a closing market price of $9.00 per share of common stock,
as reported on the American Stock Exchange - composite transaction tape.
The number of shares outstanding of the registrant's common stock as
of July 1, 1998 was 887,412.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Issuer's Proxy Statement in connection with its 1998
Annual Meeting of Shareholders (Part III)
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
INDEX
PART I
ITEM 1. BUSINESS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
ITEM 7. FINANCIAL STATEMENTS
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING AND
FINANCIAL DISCLOSURE
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE ISSUER
ITEM 10. EXECUTIVE COMPENSATION
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
PART I
ITEM 1. BUSINESS
Killearn Properties, Inc. (the "Company") was organized as a Florida
corporation in 1964. The Company is engaged primarily in the development of
planned communities (see "ITEM 1. BUSINESS - Land Development," below) in the
vicinity of Henry County, Georgia (see "ITEM 2. PROPERTIES," below). The
Company's principal executive offices are located at 385 Country Club Drive,
Stockbridge, Georgia 30281, (770) 389-2020.
Henry County, Georgia
In April 1986, the Company purchased approximately 2,600 acres of property,
known as the Eagle's Landing (see ITEM 2. "PROPERTIES," below), which is
located in Henry County, Georgia. During fiscal 1987, the Company purchased
217 additional acres and obtained options to purchase 45 additional acres.
Additionally, the Company purchased approximately 88 acres in fiscal 1997 and
366 acres in fiscal 1998. Henry County is an attractive location for
industrial, commercial and residential development due to its close proximity
to the Atlanta International airport and downtown Atlanta. The property is
on an I-75 interchange.
Henry County is a part of the metropolitan Atlanta area. Its principal
cities are McDonough and Stockbridge. A portion of the Company's property is
within the City of Stockbridge. It is estimated that Henry County, at present,
has a population of approximately 98,103 persons and is projected to reach a
population of approximately 140,836 persons by the year 2003.
The greatest influence on the economy of Henry County is the service
industry, followed by manufacturing, retail and trade administration.
Sale of Tallahassee, Florida Assets
During fiscal 1994 and the first quarter of fiscal 1995, the Company sold
substantially all of its Tallahassee properties, See Item 2. "Properties",
Item 6. "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS and
Note 11 to the Company's Consolidated Financial Statements included in Item 7.
Prior to the sale, the Company had developed communities in Tallahassee for
thirty years, and had been the largest land developer in Leon County, Florida.
At April 30, 1998, the Company had 22 fully developed lots remaining to be
sold in Tallahassee, Florida. It is anticipated these lots will be sold in
fiscal 1999.
Land Development
Historically, the Company has acquired large areas of unimproved real
estate, and has subdivided, developed and then resold the developed real estate
in smaller parcels to individuals and builders. Following the acquisition of a
large area of unimproved real estate, the Company retains a landscape architect
who, together with personnel of the Company, prepares a master land use plan
for the entire subdivision. The subdivision is platted and divided into units
and the units are further divided into lots.
After securing the necessary zoning and other applicable regulatory
approvals from local, state and federal authorities, the Company commences the
development of the subdivision by developing one or more units located within
each such subdivision.
In units where lots are sold, the Company generally makes provision for
water lines, storm drainage, underground or overhead electrical service,
telephone lines and paved streets. (See "Item 1. BUSINESS - Liability for
Improvements," below.) In all units where lots are sold by the Company,
arrangements are made with appropriate governmental agencies and utility
companies for police and fire protection and for electricity, telephone and
water service.
The Company believes it is the largest land developer in Henry County,
Georgia. At April 30, 1998, the Company had approximately 234 platted lots
available for immediate sale and approximately 526 acres of undeveloped land
available for immediate or future development. The property remaining is
presently zoned approximately 20% for industrial uses, 75% residential uses and
5% for commercial and other uses. The Company intends to continue to develop
and divide its Henry County property into lots and to sell certain parcels to
other developers.
The management of the Company believes that, if the Company does not
acquire any additional real estate and if the Company makes no bulk
dispositions of real estate, the Company's present inventory of land is
sufficient, at present levels of land sales, for at least four years of
operation.
Liability for Improvements
The Company is obligated to complete the improvements to each partially
developed lot sold by it on a specified date no later than one year from the
date of sale of each such lot.
The Company is obligated to provide sewer in specified areas of the Florida
property which it previously owned and sold to other developers for investment
and resale. The estimated cost to the Company is $32,298, all of which is
expected to be paid in fiscal 1999.
Sales and Marketing
The Company's sales force consisted of 5 full-time salespersons at April 30,
1998. These salespersons are compensated by the Company on a salary plus
commission or commission-only basis. Lots are sold by the Company primarily to
builders and to persons who presently reside or who plan to reside in the
Company's developments.
Sales of lots to builders and prospective individual home buyers and sales
of commercial tracts are made by the Company primarily for cash. (See notes 1,
2 and 4 of Notes to Consolidated Financial Statements of the Company.)
Employees
At April 30, 1998, the Company had approximately 15 employees, including
salespersons. Management of the Company believes that its relationship with
its employees is good.
Competition
The land development industry in the State of Georgia is highly
competitive. Land development firms located in all geographic areas of
Georgia, many of which possess greater sales and financial resources than the
Company, compete to attract local residents, retired persons, and other persons
who are relocating. The Company competes with such firms on the basis of a
number of interrelated factors, including reputation, location, design, quality
and price. Individual resales of residential units and lots provide additional
competition.
The Company believes that it is the largest land developer in Henry County,
but it competes with larger developers in the metropolitan Atlanta area, as
well as with smaller developers.
Regulations
As a land developer, the Company is subject to environmental, building,
zoning and real estate sales regulation by, among others, local zoning and
planning authorities, the Division of Georgia Land Sales and various state and
federal environmental protection agencies.
All of the necessary local, state and federal regulatory approvals for the
development of its presently active subdivision projects in Henry County,
Georgia have been secured by the Company. Additional permits and approvals may
be required as new subdivisions are constructed; however, the Company does not
anticipate any difficulty in securing such permits and approvals. (See "Item
2. Properties", below.)
The Company's management is not presently aware of any anticipated
revocation or amendment of any of its regulatory approvals. However, in the
event that any regulatory approvals presently secured by the Company are
revoked or materially altered, the business of the Company could be adversely
affected.
Economic Conditions
The Company's business, as well as the real estate industry in general, is
affected by a number of economic factors, including interest rates and
inflation. Interest rates affect both the costs to individuals and builders of
purchasing homes and lots from the Company and the carrying costs of
undeveloped land. During the past fiscal year, interest rates on residential
mortgage loans remained stable. In the past, the Company has increased the
price of lots offered for sale to offset increased inflation. Such increases
reduce the number of persons who are able to afford the lots and homes offered
by the Company. If interest rates and inflation increase substantially, the
real estate and construction industries would be adversely affected and the
Company's ability to sell its real estate could be significantly adversely
affected.
ITEM 2. PROPERTIES
The Company's principal subdivisions are as follows:
Eagle's Landing (formerly known as Atlanta Tech Center)
Eagle's Landing comprises approximately 3,000 acres in Henry County,
Georgia, and is approximately 23 miles south of downtown Atlanta and 15 miles
south of the Atlanta International Airport.
This "mixed use" development is presently zoned to allow development in the
categories of office, industrial, retail, multi-family residential,
single-family residential, lodging, schools, municipal services, religious
institutions, parks and recreation, golf course, open space and lakes. The
community is planned around Eagle's Landing golf course and country club, both
of which were originally developed by the Company.
At April 30, 1998, approximately 1,143 residential lots and 645 acres of
other property had been sold by the Company. Approximately 234 platted
residential lots remained to be sold and approximately 526 acres of other
property remained to be platted and/or sold. In addition, the Company had
approximately 160 acres which will be used for road right-of-way, utility
easements and green areas.
During fiscal 1997, in a transaction approved by the Company's
shareholders, the Company transferred to J.T. Williams, Jr., the Company's
former chairman and Chief Executive Officer, the Eagle's Landing Golf Course
and Country Club, the Inn at Eagle's Landing, approximately 250 acres of
commercial and industrial real estate, land sufficient to construct an
additional nine hole golf course and certain other assets. See "Item 6,
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS" and Note 3 to the
Company's Consolidated Financial Statements included in Item 7.
Tallahassee Properties
The Company developed two major subdivisions in northeast Tallahassee,
Florida. During fiscal 1994 and the first quarter of fiscal 1995, the Company
sold substantially all of its remaining Tallahassee properties, See Item 6.
"MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS" and Note 11 to
the Company's Consolidated Financial Statements included in Item 7.
At April 30, 1998, the Company owned 22 platted lots in Tallahassee,
Florida. All of these properties are expected to be sold during fiscal 1999.
Encumbrances
Substantially all of the land owned by the Company in the above described
subdivisions serves as collateral for the indebtedness of the Company. See
Notes 6 and 11 of Notes to the Company's Consolidated Financial Statements
included in Item 7.
ITEM 3. LEGAL PROCEEDINGS
In November 1997, the company purchased a note receivable collateralized
by a first mortgage on land owned by International Realty Development
Partners, LTD., L.L.C. ("International Realty"), the borrower. In
February 1998 the Company declared the loan in default and commenced
foreclosure proceedings. In March 1998, International Realty filed a
petition for relief in United States Bankruptcy Court. At April 30, 1998,
International Realty owed the Company $3,344,702 in principal and $249,772
in accrued interest. On July 24, 1998 International Realty filed a lawsuit
against the Company in the United States Bankruptcy Court for the District of
Georgia, alleging among other things, breach of contract and fraud claims and
seeking compensatory and punitive damages for amounts greater than the
Company's note receivable. The Company believes that International Realty's
lawsuit is without merit The Trustee in International Realty's bankruptcy
proceedings has received nonbinding written bids for the land that
collateralizes the Company's mortgage that are sufficient to pay the Company
in full. The Company intends to vigorously defend the lawsuit and continue to
seek payment of it's receivable from International Realty.
The Company is a party to certain other legal proceedings in the ordinary
course of business. In the opinion of the management of, and general counsel
to the Company, none of these proceedings, alone or in the aggregate, should
have a material adverse effect upon the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted by the Company to a vote of its security holders
during the fourth quarter of fiscal 1998.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock has been traded on the American Stock Exchange since 1980.
Quarterly sales prices for the fiscal years ended April 30, 1998 and 1997 were
as follows:
Quarter of 1998 1997
Fiscal Year High Low High Low
First 5 5/8 4 1/2 10 1/4 8 1/4
Second 10 7/8 5 1/2 9 3/4 7 1/8
Third 9 7/8 7 8 1/4 5 3/4
Fourth 9 7 7/8 7 1/4 5
The Company has never declared nor paid dividends.
As of July 1, 1998 there were approximately 473 shareholders of record of
the Company's Common Stock, excluding security position listings.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Liquidity and Capital Resources
During the two year period ended April 30, 1998, the Company generated
positive cash flows from operations due to the opening of several phases of the
Company's subdivisions, increased bulk sales, and the receipt of principal and
interest payments on notes received from the sale of the Company's
Tallahassee properties.
During fiscal 1998, the Company restructured its principal loan for
its Georgia operations (which had a balance of approximately $5 million at
April 30,1998). The loan is collateralized by first mortgages on substantially
all of the undeveloped land in the Company's Georgia property. Interest on
this loan is payable at prime rate plus 1.25% per annum, and the loan matures
in July 1998. Upon the sale of the property serving as collateral, release
prices, which vary with the development, are applied against the loan balance
owed to the bank. As these properties are developed, the Company has been able
to secure development loans from 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.
During fiscal 1999 and fiscal 2000, the Company has other debt maturing in
the amounts of approximately $15.3 million and $1.0 million, respectively. The
Company normally borrows its development loans for its Georgia properties from
banks. Although the notes are short-term, the debt historically has been
renewed or extended each year. The Company anticipates that such debt will be
paid through funds generated by its normal operations, an extension of debt or
new borrowings on the same collateral. During the past fiscal year, the
Company reduced its debt by approximately $20.6 million and had new borrowings
totaling approximately $17.0 million. The Company continues to seek lines of
credit to satisfy its capital requirements.
During fiscal 1999, the Company anticipates completing improvements of
partially developed lots and tracts at an estimated cost of approximately
$500,000 and improving undeveloped land at an estimated cost of approximately
$1.4 million. The Company anticipates financing these improvements through: (1)
funds Generated in the normal course of the Company's business; (2) utilization
of Existing lines of credit; and (3) securing additional lines of credit. The
Company anticipates that funds available from these sources will be sufficient
to meet the needs of the Company during fiscal 1999. At April 30, 1998, the
Company had available lines of credit totaling $516,000. These lines of credit
will be drawn as needed for the development of the Company's property and
operational expenses.
The Company has a receivable at the end of the year for $3,344,702 principal
and $249,772 in interest from International Realty Development Partners, LTD.,
L.L.C., who has filed for Chapter 11 Bankruptcy. See Item 3 "LEGAL
PROCEEDINGS."
On November 14, 1993, the Company entered into agreements to sell
substantially all of its Florida assets for $25.7 million. As of April 30,
1998, the entire sale had closed with the purchaser assuming $9.2 million of
the Company's debt; issuing notes to the Company totaling $8.1 million and
paying $8.4 million in cash. At April 30, 1998, the remaining balance of the
purchase price due to the Company was $ 2,463,248 which is payable over the
next 2 years. (See Note 12 of the Notes to the Company's consolidated
Financial Statements).
In May 1996, Proactive Technologies, Inc., which at the time was the
Company's second largest shareholder, proposed to the Company a transaction
pursuant to which the Company would 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 551,321 shares of Common Stock
owned by Mr. Williams (approximately 42% of the then outstanding Common Stock,
the "Redemption Shares") and the cancellation of his option to purchase an
additional 100,000 shares of Common Stock. On August 1, 1996 the Company
entered into an agreement, subject to shareholder approval, pursuant to which
it agreed to transfer assets comprised principally of the Eagle's Landing Golf
Course and Country Club, the Inn at Eagle's Landing, approximately 250 acres of
commercial and industrial real estate, land sufficient to construct an
additional nine hole golf course, the Company's interest in certain joint
ventures and approximately $2 million cash. The agreement provided that the
transaction would be effective as of May 1, 1996.
On September 30, 1996, the shareholders of the Company approved the
transfer agreement, and the transaction closed on November 16, 1996. The net
assets transferred had a historical cost basis of approximately $17,191,000
which has been reflected as a reduction to shareholders' equity in the
Company's Consolidated Balance Sheet.
Results of Operations
During fiscal 1998, sales remained fairly consistent with lot sales
decreasing slightly by $194,026 (3.2%) while other land sales increased by
$851,341 (12.1%). The Company reported a $113,882 gain as a result of a
reduction in its allowance for estimated uncollectible sales related to a
large reduction of it's Florida receivables.
The Company discontinued its residential construction activities in fiscal
1994 and sold its remaining home in fiscal 1997.
Interest income was approximately the same in fiscal 1998 and fiscal 1997.
Interest income is expected to decline over the next few years as the notes
receivables related to the Florida sale and various Georgia notes are paid.
Gross profit on lot sales decreased to 34.5% in fiscal 1998 from 40.7% in
fiscal 1997. Gross profit on other land sales also decreased in fiscal 1998
to 21.6% compared to 34.8% in fiscal 1997. These decreases in gross
profit margins in fiscal 1998 were due to land sales of commercial properties
and bulk sales of land at discounted prices. The Company's current sales
policy provides for increased retail sales and less bulk sales at discounted
prices in the future
Commissions and selling expenses (net of commission income) as a percentage
of net sales of lots, land and residential construction remained fairly
consistent at 11.4% during fiscal 1998 compared to 11.2% in fiscal 1997.
Interest expense decreased $162,517 in fiscal 1998 compared to 1997.
This decrease is primarily due to a reduction in debt and certain interest
expense incurred by the Company being eligible for capitalization in
accordance with Financial Accounting Standard 34.
Depreciation decreased by $16,251 in the current fiscal year when compared
to the prior year.
Property tax expense increased $60,712 in fiscal 1998 compared to 1997,
due to an increase in the appraised values of the Company's properties.
General and administrative expenses decreased $197,616 in fiscal 1998
when compared to fiscal 1997, as a result of the transfer of certain of the
Company's assets discussed below.
Inflation
The effect of inflation was negligible in fiscal 1998 and fiscal 1997. If
inflation and interest rates return to their previously higher levels, they
could have a material adverse effect upon the real estate and construction
industries and could significantly and adversely affect the Company's ability
to sell its real estate.
Other
The Company is presently reviewing the potential impact of Year
compliance issues on its information systems and business operations, and has
preliminarily determined that any costs, problems or uncertainties associated
with the potential consequences of Year 2000 issues are not expected to have a
material impact on its future operations or financial condition.
ITEM 7. FINANCIAL STATEMENTS
To the Board of Directors and Stockholders
Killearn Properties, Inc.
We have audited the consolidated balance sheet of Killearn Properties, Inc.
and Subsidiaries as of April 30, 1998, and the related consolidated statements
of earnings, changes in stockholders' equity, and cash flows for the years
ended April 30, 1998 and 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Killearn Properties, Inc. and Subsidiaries as of April 30, 1998 and 1997 and
the consolidated results of its operations and its cash flows for the years
then ended, in conformity with generally accepted accounting principles.
Atlanta, Georgia
July 10, 1998, except as to the
information presented in Note 2,
for which the date is July 27, 1998
/s/ PricewaterhouseCoopers L L P
PricewaterhouseCoopers L L P
<TABLE>
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<CAPTION>
Year Ended April 30
--------------------
1998 1997
<S> <C> ---- <C> ----
Revenues
Sales of lots $ 5,936,591 $ 6,130,617
Other land sales 7,915,082 7,063,741
---------- ----------
Net sales of lots and land 13,851,673 13,194,358
Sales of residential construction 0 155,000
Commission income 58,383 189,555
Interest income 625,122 626,071
Other income 132,474 82,190
---------- ----------
Total revenues 14,667,652 14,247,174
Costs and expenses:
Cost of lots sold 3,888,391 3,635,661
Cost of other land sold 6,203,896 4,603,253
Cost of residential construction sold 0 179,879
Commissions and selling expenses 1,639,802 1,663,933
Interest expense 547,896 710,413
Depreciation 77,572 93,823
Property taxes 213,949 153,237
General and administrative expenses 1,175,040 1,372,656
---------- ----------
Total costs and expenses 13,746,546 12,412,855
---------- ----------
Earnings before income taxes 921,106 1,834,319
Income taxes 620,050 738,996
---------- ---------
Net income $ 301,056 $ 1,095,323
========== ==========
Earnings per share (basic & diluted) $ .34 $ 1.23
========== ==========
Weighted average number of common shares 887,412 887,412
</TABLE>
The accompanying notes are integral part of these consolidated
financial statements.
<TABLE>
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
April 30, 1998
<CAPTION>
<S> <C>
ASSETS
Cash $ 366,054
Accounts receivable 163,977
Notes receivable from related parties 2,484,986
Notes receivable 3,776,409
Land contracts receivable
Retail 105,949
Other 370,640
---------
Total receivables 6,901,961
Less: Allowance for uncollectibles (200,000)
---------
Net receivables 6,701,961
---------
Residential house inventory 222,156
Real estate held for development and sale, at cost
Land developed and under development 18,639,102
Real estate under contract for sale 2,921,809
----------
21,560,911
----------
Property and equipment, at cost
Buildings 487,111
Machinery, equipment and vehicles 339,701
Furniture and fixtures 213,123
---------
Total property and equipment 1,039,935
Less: Allowance for depreciation (581,505)
----------
Property and equipment - net 458,430
----------
Other assets 13,382
----------
Total assets $ 29,322,894
==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<TABLE>
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
April 30, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
Liabilities:
<S> <C>
Accounts payable and other accrued expenses $ 1,193,465
Income taxes payable 3,627,642
Accrued interest 242,105
Customers' deposits 106,000
Debt (including current maturities 16,294,254
of $15,256,828 - see Note 6)
Deferred liabilities 548,653
Deferred income 1,413,669
Deferred income taxes 2,468,988
----------
Total liabilities 25,894,776
----------
Commitments and Contingencies (see Note 10)
Stockholders' equity:
Common stock - $ .10 par value - authorized 6,000,000
shares, 887,412 shares issued and outstanding 88,741
Additional paid-in capital 1,942,998
Retained earnings 1,396,379
----------
Total stockholders' equity 3,428,118
----------
Total liabilities and stockholders' equity $ 29,322,894
==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<TABLE>
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
Year Ended April 30
-------------------
1998 1997
---- ----
<S> <C> <C>
Common Stock:
Balance at beginning of year $ 88,741 $ 143,873
Stock redemption 0 (55,132)
--------- ---------
Balance at end of year 88,741 88,741
Additional paid-in capital:
Balance at beginning of year 1,942,998 6,846,014
Stock redemption 0 (4,903,016)
--------- ---------
Balance at end of year 1,942,998 1,942,998
Retained earnings:
Balance at beginning of year 1,095,323 12,232,696
Net earnings 301,056 1,095,323
Stock redemption 0 (12,232,696)
---------- ----------
Balance at end of year 1,396,379 1,095,323
---------- ----------
Total stockholders' equity $ 3,428,118 $ 3,127,062
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<TABLE>
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended April 30
-------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 301,056 $ 1,095,323
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation 77,572 93,823
(Gain) Loss on disposition of assets 0 (1,681)
Equity in income from joint ventures 0 (55,232)
Changes in operating assets and
liabilities:
Accounts receivable 74,394 76,400
Notes receivable 365,848 755,823
Deferred income 138,499 (880,583)
Residential house inventory (49,613) (14,236)
Real estate held for development
and sale 3,122,981 2,091,807
Other assets (25,887) 207,088
Accounts payable (259,282) (665,187)
Current and deferred income
taxes payable 244,047 (1,193,949)
Customers' deposits (24,900) (144,397)
Other liabilities (233,934) 28,075
---------- ---------
Net cash provided by operating
activities 3,730,781 1,393,074
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment, net of
non-cash transactions 23,789 (52,170)
Investment in joint ventures (3,600) 0
Distributions from joint ventures 0 55,232
Proceeds from sale of fixed assets 0 6,800
--------- ---------
Net cash provided by investing activities 20,189 9,862
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans 16,970,373 8,904,246
Principal payments on debts (20,624,483) (10,224,982)
---------- ----------
Net cash used in financing activities (3,654,110) (1,320,736)
---------- ----------
NET CHANGE IN CASH 96,860 82,200
Cash - beginning of year 269,194 186,994
---------- ----------
Cash - end of year $ 366,054 $ 269,194
========== ==========
</TABLE>
Supplemental Information
Cash paid:
Interest, net of amounts capitalized, was $351,796 and $619,483 in
fiscal 1998 and 1997, respectively.
Income taxes were $981,492 and $1,234,276 in fiscal 1998 and 1997,
respectively.
Supplemental Schedules of Non-Cash Investing and Financing Activities,
which are not reflected above:
See Note 3 for description of non-cash stock redemption.
See Note 12 for description of non-cash land sale.
The accompanying notes are an integral part of these consolidated financial
statements.
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Two Year Period Ended April 30, 1998
Description of Business
The Company was organized as a Florida corporation in 1964 and is engaged
primarily in the development of planned communities in the vicinity of Henry
County, Georgia. Henry County is a part of the metropolitan Atlanta area. Its
principal cities are McDonough and Stockbridge. Historically, the Company has
acquired large areas of unimproved real estate, and has subdivided, developed
and then resold the developed real estate in smaller parcels to individuals
and builders.
NOTE 1 - Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of
Killearn Properties, Inc. and its wholly-owned subsidiaries (the "Company").
Additionally, all significant intercompany accounts and transactions have
been eliminated.
(b) Revenue Recognition
Lot Sales
The Company sells fully developed and partially developed homesites
primarily in Henry County, Georgia to builders and individuals under contracts,
which generally provide for small down payments and monthly installments.
Profit from lot sales is recorded on the full accrual, percentage of
completion, or cost recovery method depending upon the terms of the sale. On
sales to builders, a small down payment is made at the time of sale and a total
of 20% to 100% is required at the time the builder receives a deed and gives
the Company a mortgage securing the balance due. Sales prices are discounted
to produce a minimum yield on the contract balance over its life. The amount
of revenue recognized at the time a sale is recognized is measured by the
relationship of costs already incurred to total estimated costs to be incurred.
If certain improvements are incomplete, the portion of revenue related to costs
not yet incurred is recognized as the costs are incurred.
Until the required down payment percentage (generally 10% for
individuals and 20% to 100% for builders) and other accounting criteria are
met, all collections, including interest, are recorded as deposits.
Commissions paid to salesmen, if any, are deferred, and the related land cost
is segregated in inventory. Once the required down payment has been received,
a sale is recognized, previously deferred commissions are charged to expense,
the related land costs and any improvements are charged to cost of sales, the
interest portion of the deposit is recorded as income and the balance reduces
the principal amount due from the purchaser.
Upon cancellation of a contract, the difference between the unpaid
contract receivable balance and the cost of the related land is charged to the
allowance for uncollectible contracts. When a contract cancels before
qualifying as a sale, deferred selling costs are charged to expense and
deposits forfeited are credited to income.
The amount of the provision for uncollectible sales is based on the
Company's contract receivable cancellation history. Additionally, the
allowance includes a provision relating to all other receivables where
management believes collection is doubtful.
Other Land Sales
Sales of bulk land tracts are accounted for in accordance with
Statement of Financial Accounting Standards (SFAS) No. 66. Under the
Statement, the buyer's commitment must meet certain minimum requirements as to
initial and continuing investment (generally 10% to 25%) before revenue and
profit are recognized. As appropriate, some sales are accounted for on the
installment basis.
(c) Cash
The Company classifies as cash equivalents any investment which can
be readily converted to cash and has an original maturity of less than three
months. At times, cash balances at a limited number of banks and financial
institutions may exceed insurable amounts. Management does not anticipate
nonperformance by the financial institutions. Management reviews the
financial viability of these institutions on a periodic basis.
At April 30, 1998 the Company had $250,000 of cash restricted
as collateral with a local bank.
(d) Real Estate Held for Development and Sale
Real estate held for development and sale is recorded at the lower of
cost or estimated fair value. Expenditures for land development are
capitalized and allocated to development projects by the specific
identification method. Costs are allocated to specific lots based on the ratio
of the lot sales price to the estimated total project sales price times the
total project costs. Interest and property taxes are capitalized while
development is in progress. Total interest and property taxes capitalized
during 1998 and 1997 were as follows:
1998 1997
--------- ---------
Interest 1,750,243 1,590,450
Property Taxes 93,692 97,978
(e) Property and Equipment, and related depreciation
The Company periodically reviews the carrying value of its long-lived
assets (primarily property and equipment) to assess the recoverability of these
assets; any impairments would be recognized in operating results if a permanent
diminution in value were to occur. As part of this assessment, the Company
reviews the expected future net operating cash flows from its facilities, as
well as the values included in any of its facilities, which have periodically
been obtained in connection with various refinancings.
Provision for depreciation is made primarily on the straight-line
method over the estimated useful lives of the related assets, as follows:
Years
-----
Buildings 10-40
Machinery, equipment and vehicles 5-10
Furniture and fixtures 5-10
Expenditures for repairs and maintenance are charged to expense as
incurred. Additions, improvements, and major renewals are capitalized. Upon
the sale or retirement of properties, the cost of the assets and accumulated
depreciation and amortization are removed from the accounts, and any resulting
gains or losses are included in income.
(f) Income Taxes
The Company utilizes the asset and liability method of accounting for
deferred taxes. Deferred income taxes are recognized for the future tax
consequences of temporary differences between the financial reporting basis and
the tax basis of the Company's assets and liabilities. Valuation allowances
are established when necessary to reduce a deferred tax asset to the amount
expected to be realized. Income tax expense is the tax payable for the period
and the change during the period in deferred tax assets and liabilities.
(g) Disclosures about Fair Value of Financial Instruments:
The amounts recorded in the financial statements for the Company's
receivables, payables, and investment in unconsolidated joint ventures are
carried at amounts that approximate fair value. Long-term debt is carried at
amounts which approximate fair value based on current borrowing rates for loans
with similar terms.
(h) Earnings Per Share
Effective April 30, 1998, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("FAS 128") which replaces
the presentation of primary earnings per share with basic earnings per share
and which requires dual presentation of basic and diluted earnings per share
on the Consolidated Statements of Operations. FAS 128 requires restatement of
all prior-period earnings per share data presented. Basic net earnings per
share is computed by dividing net income by the weighted average number of
shares of common stock outstanding during the period, and diluted net earnings
per share includes the effect of unexercised stock options using the treasury
stock method. The treasury stock method assumes that common stock was
purchased at the average market price during the period. Because there were
no stock options outstanding for the years April 30, 1998 and 1997, both basic
and diluted earnings per share were the same.
(i) Reclassifications
Certain amounts in the 1997 financial statements and notes to
consolidated financial statements have been reclassified to conform with the
1998 presentation.
(j) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
(k) New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. SFAS 130, "Reporting
Comprehensive Income" ("FAS 130"), which is effective for fiscal years
beginning after December 15, 1997. FAS 130 establishes standards for
reporting and display of comprehensive income and its components in full a
set of general-purposes financial statements. The Statement requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that
is displayed with the same prominence as other financial statements. The
Company does not expect this standard to have a significant impact on its
reporting practices.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. SFAS 131, "Disclosures about
Segments of an Enterprise and Related Information" ("FAS 131"), which is
effective for fiscal years beginning after December 15, 1997. FAS 131
establishes standards for reporting information about operating segments in
annual financial statements and interim financial reports issued to
shareholders. Generally, certain financial information is required to be
reported on the basis that is used internally for evaluating performance of
and allocation of resources to operating segments. The Company does not
expect this standard to have a significant impact on its reporting practices.
NOTE 2 - Land Contracts Receivable and Notes Receivable
Land contracts receivable, arising from sales of lots to individuals and
builders, are generally due over periods which range from one to three years
and provide for stated interest ranging from 8.25% to 11% per annum. The
weighted average stated interest rate of retail land contracts receivable was
8.89% at April 30, 1998. Retail contracts receivable at April 30, 1998 are
all due in fiscal 1999.
In November 1997, the Company purchased a note receivable collateralized
by a first mortgage on land owned by International Realty Development
Partners, LTD., L.L.C. ("International Realty"), the borrower. In
February 1998 the Company declared the loan in default and commenced
foreclosure proceedings. In March 1998, International Realty filed a
petition for relief in United States Bankruptcy Court. At April 30, 1998,
International Realty owed the Company $3,344,702 in principal and $249,772
in accrued interest. On July 24, 1998 International Realty filed a lawsuit
against the Company in the United States Bankruptcy Court for the District of
Georgia, alleging among other things, breach of contract and fraud claims and
seeking compensatory and punitive damages for amounts greater than the
Company's Note receivable. The Company believes that International Realty's
lawsuit is without merit. The Trustee in International Realty's bankruptcy
proceedings has received nonbinding written bids for the land that
collateralizes the Company's mortgage that are sufficient to pay the Company
in full. Management expects that all principal and interest will be paid upon
the resolution of the bankruptcy. The Company intends to vigorously defend the
lawsuit and continue to seek payment of it's receivable from International
Realty.
NOTE 3 - Stock Redemption
On August 1, 1996, the Company entered into an agreement, subject to
shareholder approval, pursuant to which it agreed to acquire the 551,321 shares
of common stock in the Company held by J.T. Williams, Jr., the Company's former
Chairman of the Board and Chief Executive Officer, and the cancellation of his
option to purchase an additional 100,000 shares of common stock through the
transfer of certain of its assets and liabilities. 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, subject
to certain mortgages and other liabilities. The agreement provided that
subject to shareholder approval, the redemption would 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 approved the
redemption, and the transaction closed on November 16, 1996. The historical
cost basis of approximately $17,191,000 of the net assets transferred has been
reflected as retired treasury stock in the accompanying balance sheet and
statement of changes in stockholders' equity. 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 for the year ended April 30, 1997.
The following table reflects the assets and liabilities transferred in
exchange for the shares held by J. T. Williams prior to the retirement of these
shares:
Description Amount
Assets:
Cash $ (26,847)
Accounts receivable 433,402
Investment in joint ventures 74,695
Real estate 7,402,242
Fixed assets, net 12,017,479
Other assets 182,894
----------
Total assets 20,083,865
Less: Liabilities
Accounts payable 2,474,388
Customers' deposits 1,243,440
Debt (1,604,287)
Deferred income taxes payable 779,480
----------
Total liabilities 2,893,021
----------
Net assets transferred 17,190,844
==========
NOTE 4 - Real Estate Held for Development and Sale
Information with respect to real estate held for development and sale at
April 30, 1998 is as follows:
Land developed and under development:
Land fully developed $ 7,930,079
Land under development 10,709,023
----------
$ 18,639,102
==========
Real estate under contract for sale:
Lot sales $ 1,414,729
Other land sales 1,507,080
----------
$ 2,921,809
==========
Included in land under development are portions of the properties
undergoing development activity which have not reached the stage at which they
can be offered for sale.
NOTE 5 - Customers' Deposits
At April 30, 1998, customers' deposits includes receipts relating to real
estate under contract for sale which have not yet been recorded as sales of
approximately $71,000 and deposits on contracts being negotiated of $35,000.
NOTE 6 - Debt
At April 30, 1998, the Company had various note agreements with financial
institutions and individuals. These note agreements are summarized as follows:
April 30, 1998
Balance
--------------
Term notes payable to Bank (A) $ 8,774,658
Term notes payable (B) 7,519,596
----------
$ 16,294,254
==========
(A) The Company normally borrows its development loans for its Georgia
properties from a bank. The approximate balance of such loans at April 30,1998
and 1997 was $8.8 million and $3.2 million respectively. The terms of such
loans require interest at the bank's prime rate plus 1.0% or 1.25%. The bank's
prime rate on April 30, 1998 was 8.5%. The principal reduction of these loans
is from lot release prices which vary with the development. Normally, the
loan is due one year from the date of the loan and is extended for one year,
if necessary.
(B) The Company has other notes payable, including amounts payable to
related parties (see Note 12), which are due in various installments through
1999 and bear interest at 10% or the banks prime rate plus 1% at April 30,
1998.
Maturities of debt outstanding at April 30, 1998 follow:
Fiscal Years of Maturity Amount
------------------------ ------
1999 $ 15,256,828
2000 1,037,426
----------
$ 16,294,254
==========
At April 30, 1998, the Company had available lines of credit totaling
$516,000. These lines of credit will be drawn as needed for the development
of the Company's property and operational expenses.
Subsequent to year end, in May 1998 the Company borrowed $1,588,900 from a
new lender of which the Company used $1,000,000 to reduce debt described in (A)
above and used $588,900 to pay development costs. In addition, the Company
as available $1,273,440 to draw from the new lender for additional development
cost.
Substantially all of the Company's assets are mortgaged or pledged as
collateral for its indebtedness. Most of the agreements with the lenders
provide that the Company will not declare or pay dividends to its stockholders.
NOTE 7 - Income Taxes
The Company had net operating loss carryforwards for state income tax
purposes of $730,293 and $2,870,658 at April 30, 1998 and April 30, 1997,
respectively. The state net operating loss carryforwards expire in years 2002
through 2010. The Company has recorded a deferred tax liability for the
expected reversal of the taxable temporary differences. For financial
reporting purposes, a valuation allowance has not been recognized to offset the
deferred tax asset related to the net operating loss carryforwards.
The provision for income taxes consists of the following:
Income taxes 1998 1997
Current $ 1,464,297 $ 1,918,477
Deferred (844,247) (1,179,481)
--------- ---------
Total provision $ 620,050 $ 738,996
========= ========
Significant components of the Company's deferred tax liability as of April
30, 1998 and April 30, 1997 are as follows:
Tax effect of 1998 1997
Net Operating Loss
Carryforwards $ (43,055) $ (268,552)
Taxable Temporary Differences:
Differences in the timing
of Profit Recognition of
Sale of Real Estate 291,481 805,558
Differences in Land Basis 2,285,538 2,813,508
Depreciation 22,734 18,870
Deferred Compensation (87,710) 0
Other (56,148)
--------- ---------
Net Deferred Tax Liability $ 2,468,988 $ 3,313,236
========= =========
Deferred tax expenses results from temporary differences in the recognition
of certain items for tax and financial reporting purposes.
The difference between income taxes computed using the statutory federal
income tax rate and that shown in the consolidated statements of income are
as follows:
1998 1997
Income tax provision at
U.S. statutory rate $ 322,387 $ 643,012
Rate differences (9,211) (18,343)
State taxes 92,968 0
Penalties 294,015 91,427
Adjustments for gain on
installment sales (72,264) 0
Other (7,845) 23,900
------- ------
$ 620,050 $ 738,996
======= =======
The Company has and continues to incur penalties for late payment of tax
which has been included in the tax provision as a component of the current
tax expense. As of April 30, 1998, the Company has not paid income taxes
totaling $ 3,020,747 which were due for the years ended April 30, 1998 and
1997. These income taxes, which are not paid on a timely basis, are subject
to interest and penalties at prescribed Internal Revenue Service rates. The
Company anticipates paying current income taxes payable during the next fiscal
year.
NOTE 8 - Employee Benefit Plans
Pursuant to the agreement discussed in Note 3, the Company entered into an
employment agreement with J.T. Williams, Jr., whereby he will continue to
serve the Company for periods of ten years. The employment agreement will
provide for an annual salary for the first five years of $200,000 beginning in
1997 and $150,000 thereafter, plus cost of living increases of 5% per year.
Additionally, the Company also funds a retirement plan for the president
of the Company. The required payments to the employee are being funded by
the purchase of insurance.
NOTE 9 - Stock Options
The Company has a Stock Option Plan, which provided for issuance of shares
to employees at prices not less than the fair market value on dates of grant
(not less than 110% of fair market value for options granted to persons owning
10% or more of the Company's common stock.)
There were no stock options exercised or granted under the plan for years
ended April 30, 1998 and 1997.
On April 24, 1992, the Board of Directors issued a five-year non-qualified
option to the former President of the Company to purchase 100,000 shares of
the Company's stock for $3.60, which was 10% above the market value on such
date. These options were canceled during the 1997 fiscal year in connection
with the transaction discussed in Note 3.
NOTE 10 - Commitments and Contingencies
The Company is required to provide improvements to certain properties that
had been sold and developed by other developers. As of April 30, 1998 the
estimated cost is $32,298, which is included in the accompanying balance sheet,
and is expected to be incurred over the next fiscal year.
The Company is a party to certain legal proceedings in the ordinary
course of business. In the opinion of management, none of these proceedings
should have a material adverse effect upon the Company.
NOTE 11 - Sale of Florida Properties
On November 14, 1993, the Company entered into two agreements to sell
substantially all of its Florida assets for approximately $25.7 million. As
of April 30, 1998, the entire sale had closed, with the purchaser assuming
approximately $9.2 million of the Company's debt, on which the Company remained
liable; issuing notes to the Company, collateralized by a second mortgage on
most of the assets purchased, totaling approximately $8.1 million; and paying
approximately $8.1 million in cash. The notes are payable to the Company over
the next 2 years and bear interest at 10% per annum. The amount of the notes
due the Company at April 30, 1998 was $2.5 million, which is included in notes
receivable from related parties in the accompanying consolidated balance sheet.
The Company's cost of the assets sold, and to be sold, is approximately
$18.9 million. The resulting gross profit is being reported by the Company on
the installment method over 5 fiscal years, beginning with fiscal 1994. At
April 30, 1998, there remains approximately $630,000 of gross profit to be
recognized over the next 2 years as cash is collected.
Note 12 - Related Party Transactions
On February 2, 1998, pursuant to a Final Agreement dated January 27, 1998,
the Company deeded three parcels of land and its interest in three joint
ventures to Proactive Technologies, Inc. ("Proactive") for $4.4 million, which
is slightly higher than the book value of these assets. Proactive has assumed
the outstanding bank debt secured by these assets, together with all contracts
and other obligations related to these projects incurred after December 31,
1997. 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 to pay three notes
which were in default totaling $4.9 million, including past due interest
through December 31, 1997. Under the agreement, Proactive paid approximately
$1.5 million to reduce the Company's debt. The Company agreed to extend until
December 31, 1999 the due date on the approximately $3 million balance of
Proactive's debt, which bears interest at 10% per annum, payable quarterly.
In accordance with the agreement, the Company paid $115,000 to 3 officers of
Proactive, upon their termination from the Company, in exchange for a Release
and a Covenant Not to Sue. The non-cash effect of the land sale was a
reduction of investment in joint ventures and land of $3,995,365 and a
reduction of notes payable of $ 4,382,703 and a deferred profit of $387,338.
The deferred profit will be recognized when the company is no longer a
guarantor on the loans.
During fiscal 1997, the Company sold a building for $550,000 to a company
that later was purchased by Proactive. The purchaser signed a promissory note
in the amount of $550,000 with interest at 9% per annum. As part of
an overall settlement with Proactive (see above), on January 27, 1998, the
Company agreed to reduce the balance of this note to the approximate fair
market value of the building of $480,000, which was paid in full during
fiscal 1998.
In June 1997, the Company sold nine lots for $12,000 each to Eleuthra
Holdings, Inc., a company owned by Mark A. Conner. At the same time, the
Company sold eight lots for the same price to an unrelated third party builder,
with which Eleuthra Holdings, Inc. had an agreement for the construction of
homes on such lots and the sharing of profits for the venture. The purchase
price was paid in cash. During July 1997, Mr. Conner agreed to assign his
interest in the profits, if any, from the venture to the Company.
During fiscal 1998 and fiscal 1997, the Company paid $50,000 and $125,000,
respectively in consulting fees to Proactive.
In 1997, an individual (no longer employed by the Company) who was a Vice
President of the Company at the time, and a Vice President of Proactive,
purchased a home in the Company's golf course community. The Company sold
the home site to the Vice President's builder for $50,000, which was
substantially less than market value.
In October 1997 the Company sold 2.28 acres of commercial land for
$148,200 to an entity related to Mark A. Conner, the Chairman and Chief
Executive Officer of Proactive and former Chairman and Chief Executive
Officer of the Company. The Company incurred a loss of $92,222 in connection
with the sale.
In December 1997, the Company's primary lender notified the Company that
it was in default on a $2.4 million note. J.T. Williams, Jr. purchased the
note from the lender in January 1998. The loan bears interest at 10% per
annum, matures in November 1998 and is collateralized by a $3.5 million dollar
note receivable. The balance at April 30, 1998 was $440,958.
During January 1998, J.T. Williams, Jr. made a loan to the Company in
the amount of $406,000 to permit the Company to pay certain past due
obligations. This amount was added to the existing loan (described in
"Note 3. Stock Redemption" above), with a balance at April 30, 1998 of
$3,214,776. This loan currently bears interest at 10.5%, matures in December
1999 (at which time the Company believes it will be renewed) and is
collateralized by a $2.5 million note receivable and certain
undeveloped land in Georgia.
NOTE 13 Significant Risks and Uncertainties
As a land developer, the Company is subject to environmental, building,
zoning and real estate sales regulation by, among others, local zoning and
planning authorities, the Division of Georgia Land Sales and various state and
federal environmental protection agencies.
All of the necessary local, state and federal regulatory approvals for the
development of its presently active subdivision projects in Henry County,
Georgia have been secured by the Company. Additional permits and approvals may
be required as new subdivisions are constructed; however, the Company does not
anticipate any difficulty in securing such permits and approvals.
The Company's management is not presently aware of any anticipated
revocation or amendment of any of its regulatory approvals. However, in the
event that any regulatory approvals presently secured by the Company are
revoked or materially altered, the business of the Company could be adversely
affected.
The Company's business, as well as the real estate industry in general, is
affected by a number of economic factors, including interest rates and
inflation. Interest rates affect both the cost to individuals and builders of
purchasing homes and lots from the Company and the carrying costs of
undeveloped land. During the past fiscal year, interest rates on residential
mortgage loans remained stable. In the past, the Company has increased the
price of lots offered for sale to offset increased inflation. Such increases
reduce the number of persons who are able to afford the lots and homes offered
by the Company. If interest rates and inflation increase substantially, the
real estate and construction industries would be adversely affected and the
Company's ability to sell its real estate could be significantly adversely
affected.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE ISSUER
Executive Officers of the Company
Information with respect to the Company's executive officers as of
April 30, 1998 is as follows:
Name Age Position Held Since
- ------------------------ ----- ----------------- ----------
David K. Williams 38 President 1997
William E. Daniels, Jr. 37 Chief Financial Officer 1998
All executive officers of the Company serve at the pleasure of the
Company's Board of Directors.
David K. Williams has been President of the Company since July 1997.
Mr. Williams has been employed by the Company since June 1983. He served
as Vice President of Construction and Development from January 1987 until
June 1989, President of Florida Operations from June 1989 until 1994,
Chief Financial Officer and Executive Vice President from June 1994 until
July 1997.
William E. Daniels, Jr. has been Chief Financial Officer of the Company
since February 1998. Mr. Daniels was Chief Financial Officer of Proactive
Technologies, Inc., a real estate development company, from July 1997 until
February 1998. Prior to joining Proactive Technologies, Inc., Mr. Daniels was
controller of EAR Enterprises, Inc. from 1995 to 1997, controller for KWC
Management Corporation from 1993 to 1995.
The information required by this Item 9 concerning the Directors of the
Company will be contained in the Company's 1998 definitive proxy material to
be filed with the Securities and Exchange Commission and is incorporated
herein by this reference.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this Item 10 will be contained in the Company's
1998 definitive proxy material to be filed with the Securities and Exchange
Commission and is incorporated herein by this reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 11 will be contained in the Company's
1998 definitive proxy material to be filed with the Securities and Exchange
Commission and is incorporated herein by this reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 12 will be contained in the Company's
1998 definitive proxy material to be filed with the Securities and Exchange
Commission and is incorporated herein by this reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report
on Form 10-KSB:
1. Financial Statements. The following financial statements are
included in Item 7 hereof:
1. Reports of Independent Certified Public Accountants
2. Consolidated Balance Sheet of the Company as of April 30, 1998
3. Consolidated Statements of Earnings for the fiscal years ended
April 30, 1998 and 1997
4. Consolidated Statements of Changes in Stockholders' Equity for
the fiscal years ended April 30, 1998 and 1997
5. Consolidated Statements of Cash Flows for the fiscal years ended
April 30, 1998 and 1997
6. Notes to Consolidated Financial Statements
2. Exhibits.
See Exhibit Index, below.
(b) Reports on form 8 - K
On February 2, 1998, the Company filed a Form 8-K to report a Change in Control
of Registrant, (Item 1) and a Disposition of Assets, (Item 2). On April 3, 1998
the Company filed an amendment to the foregoing Form 8-K to file pro forma
financial statements related to the Disposition of Assets.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities and
Exchange Act of 1934, the Issuer has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
KILLLEARN PROPERTIES, INC.
Date: July 27, 1998 By: /s/ David K. Williams
DAVID K. WILLIAMS,
President
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Issuer and in the capacities and on the date indicated.
DATE: July 27, 1998 /s/ Mallory E. Horne
MALLORY E. HORNE, Chairman of the Board
DATE: July 27, 1998 /s/ David K. Williams
DAVID K. WILLIAMS, President and Director
DATE: July 27, 1998 /s/ J.T. Williams, Jr.
J.T. WILLIAMS, JR., Director
DATE: July 27, 1998 /s/ Melvin L. Pope, Jr.
MELVIN L. POPE, JR., Director
EXHIBIT INDEX
Page No. or Incorporated by Reference
Exhibit No. Description to the Document Listed Below
(3) Articles of Incorporation as 1981 Form 10-K
amended and Bylaws of the
Company
(10.1) Executive Compensation Plan and Arrangements
(10.1) 1992 Incentive Stock Option Plan for 1994 Form 10-K
Employees
(13) Annual Report to Shareholders for 1998 Form 10-K
the fiscal year ended April 30, 1998
(22) Subsidiaries of the Company 1994 Form 10-K
<TABLE> <S> <C>
<ARTICLE> 5
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