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, 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)
385 Country Club Road
Stockbridge, GA 30281
(Address of principal executive offices)
Issuer's telephone number
(770)389-2020
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [X]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the last practicable date: 887,412.
Transitional Small Business Disclosure Format: No [X].
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Consolidated Condensed Financial Statements (Unaudited):
Consolidated Condensed Balance Sheet as of October 31, 1998 3
Consolidated Condensed Statements of Operations for the Three 4
Months Ended and October 31, 1998 and 1997 and the Six
Months Ended and October 31, 1998 and 1997
Consolidated Statements of Cash Flows for the Six Months 5
Ended October 31, 1998 and 1997
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan 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
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
<CAPTION>
ASSETS 10/31/98
(Unaudited)
<S> <C>
Cash $ 192,510
Accounts and notes receivable 3,815,864
Land contracts receivable, net 319,757
Real estate held for development and sale 23,346,789
Other property, plant and equipment, net 438,351
Other assets 25,208
__________
TOTAL ASSETS $ 28,138,479
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable & other liabilities $ 1,940,989
Income taxes payable 2,807,643
Debt 16,388,412
Deferred liabilities 624,335
Deferred income taxes 2,178,147
Deferred income 405,617
__________
TOTAL LIABILITIES $ 24,345,143
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 1,761,597
__________
TOTAL STOCKHOLDERS' EQUITY $ 3,793,336
__________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 28,138,479
==========
The accompanying notes are an integral part of these consolidated
financial
statements.
</TABLE>
<TABLE>
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended Six Months Ended
10/31/98 10/31/97 10/31/98 10/31/97
(Unaudited)(Unaudited) (Unaudited)(Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Net sales of land $3,759,798 $4,399,707 $10,422,435 $8,523,210
Interest income 43,701 101,462 103,005 249,585
Commission income 102,660 39,737 185,336 83,135
Other revenues 2,000 69,467 3,500 70,967
__________ _________ __________ __________
Total Revenues $3,908,159 $4,610,374 $10,714,276 $8,926,898
EXPENSES:
Cost of land sold $2,963,961 $3,659,568 $8,543,892 $6,396,872
Commissions and selling expenses 443,400 535,407 836,766 982,979
Interest expense 88,950 73,272 139,024 234,369
Depreciation 18,139 19,444 36,512 38,884
Property taxes 67,951 115,588 127,260 164,645
General & administrative costs 183,991 267,272 422,125 501,494
_________ _________ __________ __________
TOTAL COST AND EXPENSES $3,766,392 $4,670,551 $10,105,579 $8,319,243
Earnings before income taxes 141,767 (60,177) 608,697 607,655
Income tax 56,707 (22,645) 243,479 228,660
_________ ________ __________ __________
NET INCOME $ 85,060 $(37,533) $ 365,218 $ 378,995
========== ========== ========== ==========
EARNINGS PER SHARE $ .10 $ (.04) $ .41 $ .44
(basic and diluted) ========== ========== ========== ==========
Weighted average shares outstanding887,412 887,412 887,412 887,412
DIVIDENDS PER SHARE NONE NONE NONE NONE
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<TABLE>
KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<CAPTION>
Six Months Ended
10/31/98 10/31/97
-------- --------
(Unaudited) (Unaudited)
<S> <C> <C>
NET CASH FROM OPERATING ACTIVITIES: $ (270,252) $ (361,734)
___________ __________
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment 2,139 (3,654)
Distributions from joint ventures 0 50,000
___________ __________
Net cash from investing activities 2,139 46,346
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans 4,991,008 14,439,750
Principal payments on debt (4,896,439)(14,340,752)
___________ __________
Net cash from financing activities 94,569 98,998
___________ __________
NET DECREASE IN CASH 173,544 216,390
CASH - Beginning of period 366,054 269,194
___________ __________
CASH - End of period $ 192,510 $ 52,804
=========== ==========
Supplemental Information
Cash Paid: Interest paid was $211,478 and $138,654 for fiscal 1998 and
1999, respectively.
Income taxes paid were $750,000 and $1,202,491 in fiscal 1998 and
1999, respectively.
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
PART I. KILLEARN PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
OCTOBER 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, 1998.
The operating statements for the current three and six month periods are not
necessarily indicative of the results expected for the year.
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 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 six months ended October 31, 1998.
NOTE 3 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 three and six months ending October 31,1998 and
1997, both basic and diluted earnings per share were the same.
NOTE 4 Financing
The Company obtained additional credit facilities during the six month
period ending October 31, 1998.
In May 1998, the company borrowed $1,588,900 from a lender of which the
Company used $1 million to reduce debt and used $588,900 to pay development
cost. In addition, the Company had available $1,273,440 to draw from the
lender for additional development cost. The agreement provides for interest
to be paid at the bank's prime rate plus 1.0% per annum, and matures on
May 18, 2000. The loan is collateralized by a first mortgage on 62.9 acres.
Additionally, on October 8, 1998, the Company borrowed $1,328,935 from the
lender of which the Company used $1.2 million to reduce debt and used $128,935
to pay initial development cost and closing cost. In addition the
Company had available $4.3 million to draw from the lender for additional
development cost and new land acquisitions. The agreement provides for
interest to be paid at the bank's prime rates plus 1.0% per annum, and matures
on October 8, 2001.
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 3/4 points.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales of land decreased approximately $639,729(17%) during the current
three month period due to a decrease in bulk sales for the period. However,
net sales of land increased $1.9 million (18%) during the current
six month period compared to the same period a year ago. The primary reason
for the increase was the sale of approximately $4.4 million to Proactive
Technologies, Inc. This sale was consummated pursuant to a settlement
agreement entered into in January 1998 after the Company had made demand on
Proactive Technologies, Inc. to pay notes which were in default.
Cost of land sold, as a percentage of net sales of land, was 78.83% for the
current three month period compared to 87.17% for the same period a year ago.
The cost of land sold for the current six month period increased to 81.97%
compared to 75.05% for the same period a year ago. The increase in gross
margins for the three months ended October 31, 1998 was due to the sales at
discounted prices made in the same three month period a year ago, on bulk
sales of land. On a six months basis, the decrease in gross margin is
primarily due to the $4.4 million sale in 1998 to Proactive Technologies, Inc.
at a price slightly above book value.
Interest income decreased approximately $57,761 during the current three month
period and $146,580 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 sale of substantially all the Company's Florida assets.
In addition the company is not recognizing interest on the $3.4 million
receivable from International Realty Development Partners, LTD., L.L.C. which
filed for Chapter 11 Bankruptcy in March 1998.
Commission income increased approximately $62,923 in the current three month
period and $102,201 in the current six month period compared to the same
periods a year ago. Additionally, commission and selling expenses
decreased approximately $92,007 in the current three month period and $146,213
in the current six month period. These overall changes resulted from the
Company's change in its method of marketing homes in its Georgia developments
in the first quarter of fiscal 1999. At this time, the Company is using
Company-employed salespersons rather than independent brokers used last year.
Interest expense, when compared to the same period a year ago, increased
slightly by approximately $15,678 for the current three month period and
decreased $95,345 for the current six month period. This decrease is due an
overall reduction in debt of $3.7 million and some interest expense incurred
by the Company being eligible for capitalization in accordance with Financial
Accounting Standard 34.
General and administrative expenses decreased approximately $83,281 in the
current three month period and $79,369 in the current six month period when
compared to the same periods a year ago. This decrease is primarily due to
the reduction of salary and travel expenses.
The operating statements for the current three and six month periods 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, 1998 the Company had available lines of credit of
approximately $5.0 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 will be available on acceptable
terms when the need for additional financing arise.
In addition, the Company has other debt maturing in the amount of
approximately $4.8 million in fiscal 1999 and $10.0 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.
Other
The company has reviewed the potential impact of Year 2000 compliance issues
on its information systems and business operations, and has preliminarily
determined that any cost, problems or uncertainties associated with the
potential consequences of the Year 2000 issues will not have a material impact
on its future operations or financial condition.
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
ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibit is being filed with this report:
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
NONE
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
KILLEARN PROPERTIES, INC.
(Registrant)
Date: December 14, 1998 /s/ David K. Williams
_________________________
DAVID K. WILLIAMS
President & CEO
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-30-1999
<PERIOD-END> OCT-31-1998
<CASH> 192,510
<SECURITIES> 0
<RECEIVABLES> 3,815,864
<ALLOWANCES> 0
<INVENTORY> 23,346,788
<CURRENT-ASSETS> 27,700,127
<PP&E> 1,056,367
<DEPRECIATION> 618,016
<TOTAL-ASSETS> 28,138,479
<CURRENT-LIABILITIES> 4,748,632
<BONDS> 19,596,511
<COMMON> 88,741
0
0
<OTHER-SE> 3,704,595
<TOTAL-LIABILITY-AND-EQUITY> 28,138,479
<SALES> 10,422,435
<TOTAL-REVENUES> 10,701,151
<CGS> 8,543,892
<TOTAL-COSTS> 10,092,454
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 139,024
<INCOME-PRETAX> 608,697
<INCOME-TAX> 243,479
<INCOME-CONTINUING> 365,218
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 365,218
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
