UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended September 30, 1997 Commission File Number 33-87024C
- --------------------------------------- --------------------------------
TAYLOR INVESTMENT CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota 41-1373372
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation organization)
43 Main Street SE, Suite 506
Minneapolis, MN 55414
(Address of principal executive offices)
Issuer's telephone number, including area code: (612)331-6929
Not applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) or the Securities Exchange Act of 1934 during
the preceding 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___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $.01 Par Value - 484,129 shares as of September 30, 1997
----------------------------------------------------------------------
<PAGE>
TAYLOR INVESTMENT CORPORATION
INDEX
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
September 30, 1997 and December 31, 1996 (unaudited).............3
Condensed Consolidated Statements of Operations
Three and Nine month periods ended September 30,
1997 and 1996 (unaudited)........................................4
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 1997 and 1996 (unaudited)........5
Notes to Condensed Consolidated Financial Statements (unaudited).6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation.....................7
Part II..........................................................11
Signatures.......................................................12
<PAGE>
TAYLOR INVESTMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
ASSETS
<S> <C> <C>
INVENTORY - Principally land held for sale $12,685,777 $14,137,556
CONTRACTS AND MORTGAGES RECEIVABLE 8,166,155 9,389,611
INVESTMENT IN JOINT VENTURE 35,948 50,729
OTHER ASSETS:
Cash 986,221 615,054
Notes receivable from officer 260,000 250,000
Tax increment financing receivable 655,777 702,627
Other receivables 149,133 257,912
Income taxes receivable 65,540
Prepaid expenses 316,682 200,993
Land, buildings, and equipment, less accumulated depreciation of
$697,562 and $501,940, respectively 844,570 903,741
Loan acquisition costs and debt issuance costs, less accumulated
amortization of $197,184 and $136,491, respectively 439,107 499,801
----------- -----------
Total other assets 3,651,490 3,495,668
----------- -----------
$24,539,370 $27,073,564
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LINES OF CREDIT $ 5,974,037 $ 5,995,646
NOTES PAYABLE 6,531,038 8,571,571
CONTRACTS AND MORTGAGES PAYABLE 390,428 253,781
SENIOR SUBORDINATED DEBT 3,990,000 3,990,000
OTHER LIABILITIES:
Accounts payable 252,047 365,746
Accrued liabilities 519,567 470,333
Deposits on land sales and purchase agreements 122,991 67,353
----------- -----------
Total other liabilities 894,605 903,432
DEFERRED INCOME TAXES 1,452,618 1,593,713
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 10,000,000 shares authorized;
484,129 and 488,884 shares issued and outstanding, respectively 4,841 4,889
Additional paid-in capital 724,885 766,650
Retained earnings 4,576,918 4,993,882
----------- -----------
Total stockholders' equity 5,306,644 5,765,421
----------- -----------
$24,539,370 $27,073,564
=========== ===========
</TABLE>
See notes to consolidated financial statements (unaudited).
<PAGE>
TAYLOR INVESTMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
REVENUES: 1997 1996 1997 1996
Sales $ 5,566,267 $ 6,259,105 $ 12,373,688 $ 14,541,879
Interest income on contracts receivable 249,463 240,039 743,674 718,985
Equity in earnings (loss) of 50% owned joint venture (1,961) 9,286 15,218 13,320
Other revenue 117,264 118,090 315,356 472,189
------------ ------------ ------------ ------------
Total revenue 5,931,033 6,626,520 13,447,936 15,746,373
EXPENSES:
Cost of sales 3,325,604 3,925,164 7,900,539 8,763,024
Selling, general, and administrative 1,785,032 1,868,944 4,370,039 5,039,497
Interest expense 434,502 410,606 1,324,368 1,202,816
------------ ------------ ------------ ------------
Total costs and expenses 5,545,138 6,204,714 13,594,946 15,005,337
INCOME (LOSS) BEFORE INCOME TAXES 385,895 421,806 (147,010) 741,036
INCOME TAX EXPENSE (BENEFIT) 154,358 179,690 (58,581) 321,521
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 231,537 $ 242,116 $ (88,429) $ 419,515
============ ============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE
OUTSTANDING $ 0.48 $ 0.50 $ (0.18) $ 0.87
============ ============ ============ ============
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 484,129 487,736 484,129 483,490
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements (unaudited).
<PAGE>
TAYLOR INVESTMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ($88,429) $ 419,515
Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
Depreciation and amortization 261,278 205,852
Loss on sale of assets 0 7,237
Deferred income taxes (141,095) 90,670
Income in loss of 50% owned subsidiary and joint venture (15,219) (13,320)
Contracts and mortgages receivables funded (2,719,878) (2,749,107)
Payments on contracts receivable 3,943,334 2,523,735
Contracts and mortages receivable sold 0 783,812
Decrease in inventory - land held for sale 4,769,840 2,426,952
Decrease (Increase) in other receivables 145,629 (192,215)
Decrease in income tax receivable 65,540 --
Increase in prepaid expenses (115,689) (95,660)
Increase in all other assets 0 (48,915)
(Decrease) increase in accounts payable (113,699) 252,189
Increase in accrued liabilities 49,234 2,547
Increase in deposits on land sales and purchase agreements 55,638 62,825
----------- -----------
Net cash provided by operating activities 6,096,484 3,676,117
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (141,411) (268,500)
Proceeds from sale of property and equipment 0 14,400
Dividend from joint venture 30,000 --
----------- -----------
Net cash used in investing activities (111,411) (254,100)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on lines of credit (21,609) (3,637,954)
Proceeds from notes payable 0 5,613,167
Repayment of notes, contracts, and mortgage payables (5,221,949) (5,824,906)
Issuance of common stock 100,000
Retirement of common stock (70,188) (25,420)
Dividends paid (300,160) --
----------- -----------
Net cash used in financing activities (5,613,906) (3,775,113)
----------- -----------
INCREASE (DECREASE) IN CASH 371,167 (353,096)
CASH AT BEGINNING OF PERIOD 615,054 435,966
----------- -----------
CASH AT END OF PERIOD $ 986,221 $ 82,870
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest 1,327,102 1,233,159
=========== ===========
Income taxes 14,671 232,800
=========== ===========
Noncash financing activity - inventory and equipment
purchased with notes and contracts payable 3,317,562 5,899,485
=========== ===========
</TABLE>
<PAGE>
TAYLOR INVESTMENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. The consolidated balance sheets as of September 30, 1997 and December 31,
1996, and the condensed consolidated statements of operations for the three
and nine month periods ended September 30, 1997 and 1996 and the condensed
consolidated statements of cash flows for the nine months ended September
30, 1997 and 1996 have been prepared by the management of Taylor Investment
Corporation without audit. In the opinion of management, these condensed
consolidated financial statements reflect all adjustments (consisting of
normal, recurring adjustments) necessary to present fairly the financial
position of Taylor Investment Corporation at September 30, 1997 and the
results of operations and cash flows for all periods presented.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. Therefore, these statements
should be read in conjunction with the Company's consolidated financial
statements and notes thereto included in the Company's 1996 Form 10-KSB.
The results of operations for the interim periods are not necessarily
indicative of results which will be realized for the full year.
2. In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS 128) "Earnings Per Share,"
which is effective for periods ending after December 15, 1997. SFAS 128
revises the standards for computing and presenting earnings per share
(EPS). The Company will continue to apply APB Opinion No. 15 to compute the
EPS through the effective date. EPS for the nine months ended September 30,
1997 computed under SFAS 128 would not be materially different than EPS
computed under APB Opinion No. 15.
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
COMPARISON OF THE THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996.
Sales, including sales of shell and turn-key homes, condominiums and townhomes,
("structures") of $383,889, were $5,566,267 for the quarter ended September 30,
1997, compared to sales of $6,259,105 for the same period in 1996. Land sales of
$5,182,378 increased by $285,884 from the same period in 1996 and structure
sales decreased by $978,722. The increase in land sales is due to increased
sales in the Jasper, Georgia office. Sales in Jasper for 1997 and 1996 were
$894,855 and $479,900, respectively. The decrease in structure sales is
attributable to management's decision to cut back on construction of structures.
Therefore, there were fewer structures available for sale.
Gross profit was $2,240,663 or 40.3% for the quarter ended September 30, 1997
compared to $2,333,942, or 37.3% for the same period in 1996. The gross profit
margin on land sales was 42.1% in 1997 compared to 46.2% in 1996. Gross profit
margins remain at low levels due to continued efforts to price inventory to
stimulate sales activity, as well as programs established to liquidate aged
inventory. The gross profit margin of structures for the quarter ended September
30, 1997 and 1996 was 15.2% and 5.3%, respectively. The increase is attributable
to the sale of shell cabins, while in the same period in 1996 management decided
to reduce whole ownership inventory at the Laurentian Resort and sold seven
units at discounted prices.
For the quarter ended September 30, 1997, interest income was $9,424 higher than
for the same period in 1996, due to an increase in the average balance of
contracts and mortgages receivable. Other revenues of $115,303 for the third
quarter of 1997 decreased from $127,376 for the same period in 1996 due to a
loss in the third quarter of 1997, from the joint venture.
Selling, general and administrative expenses of $1,785,032 were 32.1% of sales
for the third quarter compared to $1,868,944, or 29.9% for the same period in
1996. The decrease is the result of continued efforts by management to control
expenses. The increase as a percent of sales is primarily due to increased
spending on advertising.
Interest expense was $434,502 and $410,606 for the quarters ended September 30,
1997 and 1996, respectively. The increase is due to the increase in debt
incurred to provide financing to customers for property purchases. Contracts and
mortgages receivable increased 9.4% to $8,166,155 from September 30, 1996.
<PAGE>
Income tax expense for the quarters ended September 30, 1997 and 1996 was 39.8%
and 42.6%, respectively, of the income before income taxes.
COMPARISON OF THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996.
Sales for the nine months ended September 30, 1997 were $12,373,688, a decrease
of $2,168,191 or 14.9%, compared to the same period in 1996. Land sales of
$11,012,233 decreased by $536,627 from the same period in 1996, due primarily to
weather conditions throughout the first quarter and into the first half of the
second quarter. Sales of structures declined $1,631,564, due to lower levels of
condominium and townhome inventory in 1997.
Gross profit for the first nine months of 1997 was $4,473,149, or 36.2%,
compared to $5,778,855, or 39.7% for the same period in 1996. Gross profit from
land sales was 38.9% and 45.9% for the nine months ended September 30, 1997 and
1996, respectively. The decline in gross profit is principally due to continued
programs to liquidate lower-margin aged inventory. Gross profit from the sale of
structures declined to 13.8% in 1997 from 16.1% for the same period in 1996 due
to a reduction in sales of higher margin timeshare condominiums.
Interest income of $743,674 for the first nine months of 1997 was 3.4% higher
than for the same period in 1996, due to an increase in the average balance of
contracts and mortgages receivable.
For the first nine months of 1997, selling, general and administrative expenses
were $4,370,039, or 35.3% of sales, compared to $5,039,497, or 34.7% of sales in
1996. The decline in expenses is primarily due to the decline in sales.
Interest expense for the first nine months of 1997 of $1,324,368 was 10.1%
higher than for the same period in 1996. This increase was due to the increase
in borrowings incurred to provide funding of mortgages receivable. The average
balance of contracts and mortgages receivable for September 30, 1997 and 1996
were $8,206,819 and $7,129,811, respectively.
Income tax benefit for the first nine months of 1997 was 39.8% of the loss
before income taxes. Income tax expense was 43.4% of income before income taxes
for the same period in 1996.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash flow is generated from operations as land inventory is sold and collections
are made on contracts and mortgages receivable. The Company's primary use of
cash flow is for financing ongoing acquisition of land and subsequent customer
mortgage financing. Secondarily, the Company uses cash to reduce the aggregate
amounts outstanding under its Credit Agreement and notes and mortgages payable.
The following table sets forth the Company's net cash flows for the operating,
investing and financing activities for the nine months ended September 30, 1997
and 1996.
Nine months Nine months
ended ended
September 30, September 30,
------------- -------------
1997 1996
---- ----
Net cash provided by (used in):
Operating activities $6,051,484 $ 3,676,117
Investing activities (111,411) (254,100)
Financing activities (5,613,906) (3,775,113)
----------- ------------
Net increase (decrease) in cash $ 371,167 $ (353,096)
The principal sources of cash flow for the first nine months of 1997 and 1996
were cash received from sales of land and structures, as well as payments
collected on contracts and mortgages receivable exceeding those funded during
the period.
Sources of financing as of September 30, 1997 and December 31, 1996 are detailed
in the following table:
SOURCES OF FINANCING
<TABLE>
<CAPTION>
September 30, 1997 Percentage December 31, 1996 Percentage
------------------ ---------- ----------------- ----------
<S> <C> <C> <C> <C>
Lines of Credit $ 5,974,037 35.4% $ 5,995,646 31.9%
Notes Payable (1) 6,531,038 38.7% 8,571,571 45.6%
Mortgages Payable 390,428 2.3% 253,781 1.3%
Subordinated Debt 3,990,000 23.6% 3,990,000 21.2%
------------- ----- ------------ -----
Total Debt $ 16,885,503 100.0% $ 18,810,998 100.0%
</TABLE>
Total debt declined $1,925,495 from December 31, 1996, due to 1) repayment of
debt from collections of contracts and mortgages receivable and 2) a decline in
inventory of $1,907,318. As of September 30, 1997, contracts and mortgages
receivable were $8,166,155 compared to $9,389,611 as of December 31, 1996. The
decrease in the portfolio is due to continued early payoffs by customers.
- --------
1 Notes payable include the Diversified Business Credit, Inc. real estate line
of credit in the amounts of $1,187,668 and $1,286,347 as of September 30, 1997
and December 31, 1996, respectively.
<PAGE>
Based on expected cash generated from operations, inventory management and the
above financing sources, management believes it has adequate sources of
financing to fund its cash requirements for the remainder of 1997.
Safe Harbor Disclosure - Various forms filed by the Company with the Securities
and Exchange Commission, including the Company's Form 10-KSB and Form 10-QSB,
and other written documents and oral statements released by the Company, may
contain forward-looking statements. Forward-looking statements generally use
words such as "expect," "anticipate," "believe," "project," "should,"
"estimate," and similar expressions, and reflect the Company's expectations
concerning the future. Such statements are based upon currently available
information, but various risks and uncertainties may cause the Company's actual
results to differ materially from those expressed in these statements. Among the
factors which management believes could affect the Company's operating results
are the following:
* Changing economic conditions, including economic downturns or recessions;
* The ability of the company to maintain and enhance its market position
relative to its competitors, realize productivity, and continue to control
expenses;
* The availability of suitable tracts of undeveloped land in proximity to the
marketplace;
* Changes in zoning and subdivision regulations;
* The availability and cost of financing;
* Continuity of management.
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults in Senior Securities
Not applicable.
Item 4. Submission of Matters to a vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Not applicable
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter covered
by this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Taylor Investment Corporation
-----------------------------
(Registrant)
Dated: November 11, 1997 /s/ Philip C. Taylor
----------------------------
Philip C. Taylor
President, Chief Executive Officer and Director
(principal executive officer)
Dated: November 11, 1997 /s/ Joel D. Kaul
----------------------------
Joel D. Kaul
Vice President and Chief Operating Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 986,221
<SECURITIES> 0
<RECEIVABLES> 9,231,065
<ALLOWANCES> 0
<INVENTORY> 12,685,777
<CURRENT-ASSETS> 0
<PP&E> 1,542,132
<DEPRECIATION> 697,562
<TOTAL-ASSETS> 24,539,370
<CURRENT-LIABILITIES> 0
<BONDS> 3,990,000
0
0
<COMMON> 4,841
<OTHER-SE> 5,301,803
<TOTAL-LIABILITY-AND-EQUITY> 24,539,370
<SALES> 5,566,267
<TOTAL-REVENUES> 5,931,033
<CGS> 3,325,604
<TOTAL-COSTS> 3,325,604
<OTHER-EXPENSES> 1,350,530
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 434,502
<INCOME-PRETAX> 385,895
<INCOME-TAX> 154,358
<INCOME-CONTINUING> 231,537
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 231,537
<EPS-PRIMARY> .48
<EPS-DILUTED> .48
</TABLE>
