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 June 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 June 30, 1997
<PAGE>
TAYLOR INVESTMENT CORPORATION
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements:
Consolidated Balance Sheets
June 30, 1997 and December 31, 1996 (unaudited).................3
Consolidated Statements of Operations
Three and Six month periods ended June 30,
1997 and 1996 (unaudited).......................................4
Consolidated Statements of Cash Flows
Six months ended June 30, 1997 and 1996 (unaudited).............5
Notes to 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
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,1997 DECEMBER 31, 1996
------------ -----------------
ASSETS
<S> <C> <C>
INVENTORY - Principally land held for sale $13,308,353 $14,137,556
CONTRACTS AND MORTGAGES RECEIVABLE 7,649,050 9,389,611
INVESTMENT IN JOINT VENTURE 67,908 50,729
OTHER ASSETS:
Cash 399,831 615,054
Notes receivable from officer 255,354 250,000
Tax increment financing receivable 670,191 702,627
Other receivables 332,507 257,912
Income taxes receivable 65,540
Prepaid expenses 330,404 200,993
Land, buildings, and equipment, less accumulated depreciation of
$626,501 and $501,940, respectively 876,583 903,741
Loan acquisition costs and debt issuance costs, less accumulated
amortization of $176,953 and $136,491, respectively 459,338 499,801
----------- -----------
Total other assets 3,324,208 3,495,668
----------- -----------
$24,349,519 $27,073,564
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LINES OF CREDIT $ 5,069,081 $ 5,995,646
NOTES PAYABLE 7,514,234 8,571,571
CONTRACTS AND MORTGAGES PAYABLE 299,636 253,781
SENIOR SUBORDINATED DEBT 3,990,000 3,990,000
OTHER LIABILITIES:
Accounts payable 252,348 365,746
Accrued liabilities 440,445 470,333
Deposits on land sales and purchase agreements 93,077 67,353
----------- -----------
Total other liabilities 785,870 903,432
DEFERRED INCOME TAXES 1,315,431 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 4,645,541 4,993,882
----------- -----------
Total stockholders' equity 5,375,267 5,765,421
----------- -----------
$24,349,519 $27,073,564
=========== ===========
</TABLE>
See notes to consolidated financial statements (unaudited).
<PAGE>
TAYLOR INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
REVENUES: 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Sales $ 4,185,916 $ 4,519,486 $ 6,807,421 $ 8,282,774
Interest income on contracts receivable 268,579 239,286 494,211 478,946
Equity in earnings (loss) of 50% owned joint venture 15,635 (604) 17,179 4,034
Other revenue 91,988 234,955 198,091 354,099
----------- ----------- ----------- -----------
Total revenue 4,562,118 4,993,123 7,516,902 9,119,853
EXPENSES:
Cost of sales 2,806,812 2,507,789 4,574,935 4,837,860
Selling, general, and administrative 1,340,761 1,616,188 2,585,007 3,170,552
Interest expense 416,768 398,987 889,866 792,211
----------- ----------- ----------- -----------
Total costs and expenses 4,564,341 4,522,964 8,049,808 8,800,623
(LOSS) BEFORE INCOME TAXES (2,223) 470,159 (532,906) 319,230
INCOME TAX EXPENSE (BENEFIT) (666) 204,323 (212,939) 141,831
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (1,557) $ 265,836 $ (319,967) $ 177,399
=========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARES
OUTSTANDING $ (0.00) $ 0.55 $ (0.66) $ 0.37
=========== =========== =========== ===========
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 484,129 481,343 484,129 482,328
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements (unaudited).
<PAGE>
TAYLOR INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (319,967) $ 177,399
Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
Depreciation and amortization 169,986 128,772
Loss on sale of assets 7,237
Deferred income taxes (278,282) (36,968)
Equity in earnings of 50% owned joint venture (17,179) (4,034)
Contracts and mortgages receivables funded (1,588,799) (1,269,595)
Payments on contracts receivable 3,329,360 1,982,817
Contracts and mortgages receivable sold 0 783,812
Decrease in inventory - land held for sale 3,841,655 1,687,129
Increase in other receivables (47,513) (245,119)
Decrease in income tax receivable 65,540 0
Increase in prepaid expenses (129,411) (196,572)
Increase in all other assets 0 (48,914)
Decrease in accounts payable (113,398) (32,524)
Decrease in accrued liabilities (29,888) (178,907)
Increase in deposits on land sales and purchase agreements 25,724 58,705
----------- -----------
5,227,795 2,635,839
----------- -----------
Net cash provided by operating activities 4,907,828 2,813,238
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (102,365) (205,116)
Proceeds from sale of property and equipment 0 14,400
----------- -----------
Net cash used in investing activities (102,365) (190,716)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on lines of credit (926,568) (4,884,988)
Proceeds from notes payable 0 5,613,167
Repayment of notes, contracts, and mortgage payables (4,023,930) (3,757,254)
Retirement of common stock (70,188) (25,420)
----------- -----------
Net cash used in financing activities (5,020,686) (3,054,495)
----------- -----------
DECREASE IN CASH (215,223) (431,973)
CASH AT BEGINNING OF PERIOD 615,054 435,966
----------- -----------
CASH AT END OF PERIOD $ 399,831 $ 3,993
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
INFORMATION:
Interest paid $ 852,646 $ 792,211
=========== ===========
Income taxes received $ 68,040 $ 178,800
=========== ===========
Noncash financing activity - inventory and equipment
purchased with notes and contracts payable $ 1,284,540 $ 3,754,369
=========== ===========
See notes to consolidated financial statements (unaudited).
</TABLE>
<PAGE>
TAYLOR INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The consolidated balance sheets as of June 30, 1997 and December 31,
1996, and the condensed consolidated statements of operations for the
three and six month periods ended June 30, 1997 and 1996 and the
condensed consolidated statements of cash flows for the six months
ended June 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 June 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 six months ended June 30, 1997 computed under SFAS 128 is not
to 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 JUNE 30, 1997 AND 1996.
Sales, including sales of shell and turn-key homes, condominiums and townhomes,
("structures") of $580,796, were $4,185,916 for the quarter ended June 30, 1997,
compared to sales of $4,519,486 for the same period in 1996. Land sales of
$3,605,120 decreased by $336,092 from the same period in 1996 and structure
sales increased by $2,522. Land sales levels were below sales of a year ago due
to continued inclement weather during the first part of the quarter.
Unseasonably cool temperatures and rain slowed customer interest.
Gross profit was $1,379,104 or 32.9% for the quarter ended June 30, 1997
compared to $2,011,697, or 44.5% for the same period in 1996. The gross profit
margin on land sales was 36.5% in 1997 compared to 47.7% 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 1997 was 11.1% compared to
22.6% in 1996. The decline is attributable to fewer sales of the higher margin
timeshare product.
For the quarter, interest income was $29,293 higher than for the same period in
1996, due to an increase in the average balance of contracts and mortgages
receivable. Other revenues of $107,623 for the second quarter of 1997 decreased
from $234,351 for the same period in 1996 due to the recognition of $131,523 in
income from tax increment incentives, in 1996.
Selling, general and administrative expenses of $1,340,761 were 32.0% of sales
for the second quarter compared to $1,616,188, or 35.8% for the same period in
1996. The decrease is the result of continued efforts by management to control
expenses. Advertising and compensation expenses declined 23.0% from the second
quarter of 1996.
Interest expense was $416,768 and $398,987 for the quarter ended June 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 17.1% to $7,649,050 from June 30, 1996.
<PAGE>
COMPARISON OF THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND 1996.
Sales for the six months ended June 30, 1997 were $6,807,421, a decrease of
$1,475,353 or 17.8%, compared to the same period in 1996. Land sales of
$5,829,856 decreased by $822,510 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 $652,843, due to lower levels of
condominium and townhome inventory in 1997.
Gross profit for the first six months of 1997 was $2,232,486, or 32.8%, compared
to $3,444,914, or 41.6% for the same period in 1996. Gross profit from land
sales was 36.1% and 45.6% for the six months ended June 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 13.2% in 1997 from 25.1% for the same period in 1996 due
to a 71.0% reduction in sales of higher margin timeshare condominiums.
Interest income of $494,211 for the first six months of 1997 was 3.2% higher
than for the same period in 1996, due to an increase in the average balance of
contracts and mortgages receivable.
For the first six months of 1997, selling, general and administrative expenses
were $2,585,007, or 38.0% of sales, compared to $3,170,552, or 38.3% of sales in
1996. The decline in these expenses is primarily due to the result of the
Company restructuring its compensation and advertising programs.
Interest expense for the first six months of 1997 of $889,866 was 12.3% higher
than for the same period in 1996. This increase was due to the increase in
borrowings incurred to support increased levels of inventory as well as
increased funding of mortgages receivable. Inventory was $13,308,353 and
$13,174,220 as of June 30, 1997 and 1996, respectively. Contracts and mortgages
receivable increased to $7,649,050 as of June 30, 1997 from $6,534,111 at June
30, 1996.
Income tax benefit for the first six months of 1997 was 40.0% of the loss before
income taxes. Income tax expense was 44.4% 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' net cash flows for the operations,
investing and financing activities for the six months ended June 30, 1997 and
1996.
Six months ended Six months ended
June 30, 1997 June 30, 1996
----------------- -----------------
Net cash provided by (used in):
Operating activities $ 4,907,828 $ 2,813,238
Investing activities (102,365) (190,716)
Financing activities (5,020,686) (3,054,495)
----------- -----------
Net decrease in cash $ (215,223) $ (431,973)
The principal sources of cash flow for the first six months of 1997 and 1996 was
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 June 30, 1997 and December 31, 1996 are detailed in
the following table:
SOURCES OF FINANCING
<TABLE>
<CAPTION>
June 30, 1997 Percentage December 31, 1996 Percentage
------------- ---------- ----------------- ----------
<S> <C> <C> <C> <C>
Lines of Credit $ 5,069,081 30.0% $ 5,995,646 31.9%
Notes Payable(1) 7,514,234 44.5% 8,571,571 45.6%
Mortgages Payable 299,636 1.8% 253,781 1.3%
Subordinated Debt 3,990,000 23.7% 3,990,000 21.2%
----------- ----- ----------- -----
Total Debt $16,872,951 100.0% $18,810,998 100.0%
</TABLE>
Total debt declined $1,938,047 from December 31, 1996, due to repayment of debt
from 1) collections of contracts and mortgages receivable and 2) a decline in
inventory of $829,203. As of June 30, 1997, contracts and mortgages receivable
were $7,649,050 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 $1,125,524 and $1,286,347 as of June 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: August 11, 1997 /S/ Philip C. Taylor
Philip C. Taylor
President, Chief Executive Officer and Director
(principal executive officer)
Dated: August 11, 1997 /S/ Joel D. Kaul
Joel D. Kaul
Vice President and Chief Operating Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 399,831
<SECURITIES> 0
<RECEIVABLES> 8,907,102
<ALLOWANCES> 0
<INVENTORY> 13,308,353
<CURRENT-ASSETS> 0
<PP&E> 1,503,084
<DEPRECIATION> 626,501
<TOTAL-ASSETS> 24,349,519
<CURRENT-LIABILITIES> 0
<BONDS> 3,990,000
0
0
<COMMON> 4,841
<OTHER-SE> 5,370,426
<TOTAL-LIABILITY-AND-EQUITY> 24,349,519
<SALES> 4,185,916
<TOTAL-REVENUES> 4,562,118
<CGS> 2,806,812
<TOTAL-COSTS> 2,806,812
<OTHER-EXPENSES> 1,757,529
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 416,768
<INCOME-PRETAX> (2,223)
<INCOME-TAX> (666)
<INCOME-CONTINUING> (1,557)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,557)
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
