ANNUAL REPORT FOR SMALL BUSINESS ISSUERS SUBJECT
TO THE 1934 ACT REPORTING REQUIREMENTS
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB40
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1996
TRANSMISSION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
Commission File No. 33-87024C
TAYLOR INVESTMENT CORPORATION
(Name of small business issuer in its charter)
Minnesota 41-1373372
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
43 Main Street S.E., Suite 506, Minneapolis, MN 55414
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (612)331-6929
Securities registered pursuant to Section 12(b) of the Act: None
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 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___
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. [X]
State issuer's revenues for its most recent fiscal year. $22,257,104
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days.
$988,113 as of December 31, 1996
State 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 - 488,884 shares as of December 31, 1996
DOCUMENTS INCORPORATED BY REFERENCE
Portions of certain exhibits hereto are incorporated by reference to the
Company's Registration Statement on Form SB-2 (No. 33-87024C), effective January
12, 1995.
Transitional Small Business Disclosure Format (check one): Yes___ No_X_
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS............................................................1
General.............................................................1
Principal Business..................................................1
Competition.........................................................3
Regulation..........................................................3
Employees...........................................................4
ITEM 2. PROPERTIES..........................................................4
ITEM 3. LEGAL PROCEEDINGS...................................................4
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................4
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS............4
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS...............................................4
ITEM 7. FINANCIAL STATEMENTS...............................................13
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE...........................................26
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT..................26
ITEM 10. EXECUTIVE COMPENSATION.............................................28
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.........................................................29
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................30
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K...................................30
SIGNATURES ...................................................................31
PART I
ITEM 1. BUSINESS
GENERAL
Taylor Investment Corporation was incorporated in 1979 by its
president, Philip C. Taylor, who then had 11 years of experience in
the development and sale of rural recreational properties. The
Company's principal business is the purchase, development and sale
of previously undeveloped tracts of land, principally lakeshore
property and river frontage within a reasonable driving distance of
major metropolitan areas, primarily in Minnesota, Wisconsin, and
Georgia. Taylor subdivides these tracts into lots and markets them
through its Four Seasons Realty sales offices for use as vacation
retreats, retirement residences, and investment. The size of lots
sold by the Company typically range from 1.5 to 2 acres each, but
on occasion may be as large as 40 acres. Historically, the Company
has not participated on a regular basis in the construction of
homes on the lots which it sells, but has contracted for the
construction of homes on an isolated basis. In 1995, the Company
formed a construction subsidiary, Four Seasons Builders, Inc., to
expand their share of the construction marketplace. The Company
believes it is the largest developer of waterfront properties for
the construction of primary and second homes in Minnesota and
Wisconsin and is not aware of any other major developer in its
market.
To simplify and facilitate the purchasing process for its
customers, the Company offers qualified customers loans
collateralized by mortgages on the lots. Customers desiring
financing must submit credit applications to the Sales and
Marketing Department which then has a credit analysis completed on
such customers to determine their creditworthiness. Depending on
the results of this analysis, the Sales and Marketing Department
approves or disapproves the loan or submits the information to the
Finance and Accounting Department for further analysis. The number
of lot purchases financed with Company-originated mortgage loans
depends on the availability and terms of alternative sources of
credit to the customer.
The Company believes it must position itself to take advantage of
the current and expected future demand for waterfront properties
for building primary and secondary homes for use as vacation
retreats, retirement residences or investment. The Company's
strategy to expand its marketplace includes plans to increase its
levels of inventory, expand its Sales and Marketing staff, as well
as increase the number of Acquisitions and Development personnel.
The Company has been implementing this strategy over the past
several years, as reflected in its increased level of inventory and
employees. The Company increased its inventory to $14.1 million at
December 31, 1996 from $11.3 million at December 31, 1995. The
Company also increased its staff of acquisition and development
personnel to 37 as of December 31, 1996 from 31 in 1995. The
acquisition and development staff was increased to decrease the
development time of projects and increase the amount of product
available for sale.
The Company opened a new Four Seasons Realty office in Jasper,
Georgia, in February, 1996. This new office focuses on inventory in
the mountains of Northern Georgia.
PRINCIPAL BUSINESS
Taylor's operations are organized into four primary departments:
Acquisitions, Development, Sales and Marketing, and Finance and
Accounting.
ACQUISITIONS - To locate potential quality lakefront, river front,
and wooded properties for purchase, development, and sale, Taylor's
Acquisition Department reviews plat maps for the areas served by
its sales offices and identifies undeveloped tracts of land,
principally lakeshore property and river frontage. The Acquisitions
Department then obtains additional information regarding the
property and any adjacent lakes or rivers from such sources as
topographical maps and reports from the Department of Natural
Resources. Other due diligence activities conducted to determine
the suitability of the property for purchase by the Company may
include studies of local maps and development ordinances, reviews
of zoning regulations, soil testing, water testing, trees and
foliage typing, a study of local road access, and a consideration
of potential lot layout. The Acquisitions Department also estimates
the costs of development. If the results of these studies and
estimates are favorable, an offer is made for the property in
accordance with established pricing guidelines developed by the
Company based on its past experience. Negotiations then typically
commence and, if possible, a purchase agreement is entered into.
The Company's obligations under a purchase agreement are generally
conditioned upon Taylor obtaining the necessary plat approval from
the local governmental authority. Negotiations may take as long as
a year before a purchase agreement can be concluded.
DEVELOPMENT - After purchase negotiations are completed, the
Company's Development Department is responsible for obtaining
regulatory approval for the planned development. This process
typically involves determining the layout of lots, or platting the
property, attending public hearings, and conducting on-site
inspections with governmental and regulatory personnel. To date,
the Development Department has typically been successful in
obtaining the necessary regulatory and governmental approvals;
however, there can be no assurance that any particular transaction
will be approved and ultimately consummated. The Development
Department also works with a title insurance company in obtaining
title abstracts, ordering title insurance, and preparing other
facets of the acquisition for closing. After closing, the property
is physically developed using road contractors, surveyors, and
Company work crews. Lots are platted to maximize their
attractiveness, privacy, and road and water access, taking into
account view corridors and the layout of trees on the lot. Roads
are installed, the property is prepared to receive telephone and
electrical service, trails are cut, underbrush is removed,
shorelines are cleared, and the property is otherwise prepared for
marketing and sales to the buying public. The Company then assigns
prices to each lot based on market prices for similar properties in
the area. These sales prices generally range from $20,000 - $45,000
per lot.
SALES AND MARKETING - Taylor's strategy is to purchase and develop
high quality lakeshore, river frontage and wooded acreage and then
market the lots to residents of metropolitan areas. Most properties
developed by the Company are within reasonable driving distances of
major metropolitan areas, such as Minneapolis and St. Paul,
Minnesota, Chicago, Illinois, and Atlanta, Georgia. The Company's
lots are targeted toward buyers who desire property with many
attractive features on which to build primary and second homes for
use as vacation retreats, retirement residences, or investments.
The primary purchasers of the Company's vacation properties are
individuals ranging from 30 to 60 years old. The Company's strategy
for remaining competitive in this market involves building on its
reputation of offering quality properties; using its own regional
sales offices and personnel, which offer more control over the
sales and marketing process and better access to the buyers than
using independent sales offices and agents; offering "on-the-spot"
financing for qualified purchasers; and offering properties with
many appealing features, such as trails, water access, and
attractive shorelines.
The Company's sales and marketing activities are conducted
principally through its Four Seasons Realty subsidiaries in
Minnesota, Wisconsin and Georgia. A principal element of the
Company's strategy and success to date has been the establishment
and use of regional sales offices in general location to the
developed properties. The Company's five existing Four Seasons
Realty regional sales offices are located near Brainerd, Minnesota,
and Spooner, Minocqua, Stevens Point, Wisconsin, and Jasper,
Georgia. The Company typically acquires land near these offices,
and the agents in these offices sell only properties owned by
Taylor. The Company advertises in major metropolitan newspapers and
other publications and participates in home and garden, outdoors,
and sports shows, to attract potential customers. Sales personnel
are compensated based on sales performance but are not permitted to
use "hard" sales techniques or enticements to prospective
purchasers (such as free products) to visit property sites. To
consummate sales, the Company relies heavily upon the quality of
its properties combined with the availability of "on-the-spot"
financing for qualified buyers.
In September 1995, the Company formed Four Seasons Builders, Inc.,
a subsidiary engaged in the cabin construction business, in which
it subcontracts for the construction of structures on property
owned by the Company. The Company discontinued its previous
agreement with an outside builder due to cost savings realized by
using subcontractors. The primary focus of Four Seasons Builders,
Inc. is to construct quality cabins and homes, which ultimately
leads to the sale of additional lots.
FINANCE AND ACCOUNTING - The Finance and Accounting Department is
responsible for maintaining records of account for each project
developed by the Company and managing the Company's trade
receivables and payables and mortgages receivable. This department
prepares management information reports, prepares and services
mortgage loans extended to lot purchasers, projects cash flow and
capital needs for acquisition and lending activities, and performs
collection activities.
The Company regularly offers financing for the purchase of its
properties. Upon execution of a purchase agreement, a customer may
submit an application for credit, which, combined with a credit
report from a credit rating agency, is given to the Sales Manager
for approval. Applications from customers who have experienced
credit problems in the past are submitted to the Chief Financial
Officer for ultimate approval or rejection. Approved customers
execute notes secured by first mortgages on the lots purchased.
COMPETITION
The Company operates in a highly competitive environment. It
competes with other real estate development companies and real
estate brokers in developing and selling its properties. In
addition, and to a lesser extent, it competes with banks and other
financial institutions and with several private companies and
individual lenders in making mortgage loans. Competitive factors in
the market for developed lots for vacation retreats, retirement
residences, and investment include the ability to acquire quality
inventory and the size and quality of the sales force. The
principal competitive factor in the mortgage loan market is the
ability to offer favorable terms, including interest rates. The
Company believes that it competes successfully in its market
because of the quality of its product, the size of its acquisition
capability (which enables it to purchase large tracts at more
favorable prices than smaller industry participants), its dedicated
sales staff, its reputation, and its financial strength. Management
believes that the Company's ability to facilitate and simplify
purchases by offering competitive financing to qualified lot
purchasers offers another competitive advantage.
REGULATION
The Company's sales personnel, consisting primarily of those based
in its Four Seasons Realty sales offices, must be registered as
real estate brokers and maintain such registration with the
Minnesota Department of Commerce and the Wisconsin Department of
Registration and Licensing. Minnesota requires registration of
subdivisions containing more than ten lots. The Minnesota
Department of Commerce granted a waiver of the Registration and in
its stead requires notification of the sale of any subdivision
containing more than ten lots which will be offered to Minnesota
residents. No registration is required in Wisconsin or Georgia. In
addition, the development of properties requires compliance with
state and local zoning laws and regulations and local laws and
ordinances regarding such matters as the size of lots, the
construction of roads, and the amount of setback required from
roads and bodies of water.
The Company is subject to the Interstate Land Sales Full Disclosure
Act, which requires registration with the Department of Housing and
Urban Development of any project which consists of 100 or more
lots. The Company has received a Multiple Site Subdivision
Exemption from the Department of Housing and Urban Development
allowing it to sell projects consisting of no more than 99 lots in
any given non-contiguous site without registration.
The Company is also subject to consumer protection laws, such as
the Truth in Lending Act, in connection with its mortgage lending
activities.
EMPLOYEES
As of December 31, 1996, the Company has 103 full-time and 13
part-time employees. None of the Company's employees is represented
by a labor union or is covered by a collective bargaining
agreement. The Company has not experienced any work stoppages and
believes employee relations are good.
ITEM 2. PROPERTIES
The Company leases its administrative office located at 43 Main
Street SE, Suite 506, in Minneapolis, Minnesota, consisting of
3,276 square feet in an office/residential complex. The lease
expires March 31, 1999.
The Company leases regional sales, acquisition and development
offices at various locations in Minnesota, Wisconsin and Georgia.
These offices typically range from 1,000 to 2,500 square feet and
are leased on terms ranging from month-to-month to three years.
Management believes that these facilities provide sufficient space
to support its current activities, and that additional space will
be available in the future as needed.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders
during the quarter ended December 31, 1996.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's authorized capital stock consists of 10,000,000
shares of common stock, $.01 par value, of which 488,884 shares
were outstanding and held of record by 19 stockholders as of
December 31, 1996. There is currently no public trading market for
the Company's capital stock, and the Company does not expect such a
market to develop in the foreseeable future. Holders of common
stock have no preemptive or other rights to acquire stock or other
securities of Taylor. Cumulative voting for directors is not
permitted. Holders of common stock are entitled to one vote per
share on matters submitted to a vote of stockholders. All shares of
common stock presently outstanding are fully paid and
nonassessable. The Credit Agreement with DBCI contains a covenant
requiring the Company to obtain written approval for the
declaration and payment of cash dividends. Dividends declared and
paid in the future, if any, are subject to the discretion of the
Board of Directors and will depend on the Company's earnings,
financial condition, capital requirements, and other relevant
factors. In addition, the Board of Directors is authorized to issue
additional shares of common stock and to issue options and warrants
for the purchase of such shares, the aggregate of which may not
exceed the number of shares authorized by the Company's Articles of
Incorporation.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following analysis of the consolidated results of operations
and financial condition of the Company should be read in
conjunction with the Company's consolidated financial statements
and notes thereto included elsewhere in this document.
OVERVIEW
LAND AND STRUCTURE SALES - The Company's principal business is the
purchase, development and sale of previously undeveloped tracts of
land, principally lakeshore property and river frontage. Taylor
identifies, acquires and develops raw land inventory through its
Acquisition and Development departments. Financing for the
acquisition and development of real estate is provided primarily by
a network of financial institutions located in proximity to the
Company's properties as well as by Diversified Business Credit,
Inc. ("DBCI") through an asset-based credit facility (the "Credit
Agreement"). On average, between 60% and 75% of the purchase price
of the acquired property is financed with loans from financial
institutions which are secured by mortgages on the acquired
property. In addition, property sellers may also agree to provide
financing for up to 70% of the purchase price.
The Company records its inventory which consists primarily of land
held for sale, at the purchase price plus amounts expended for the
acquisition, development and improvement of the land. Taylor
currently attempts to maintain its inventory at a level which, at
any time, will meet its sales goals for at least the next twelve
months. Inventory balances were $14.1 million and $11.3 million as
of December 31, 1996, and 1995, respectively.
Through Four Seasons Builders, Inc., the Company contracts for the
construction of shell homes, on its Four Season's lots, which
structures are eventually sold. The Company plans to have 3-4
cabins in inventory, at all times, for each Four Seasons office.
Structure sales also include the proceeds from the sale of
condominiums at the Laurentian Resort, and proceeds from the sale
of townhomes in the Company's Alexandria, Minnesota project. The
construction of condominiums and townhomes are subcontracted
through independent builders.
Revenues from the sale of developed lots, shell homes, townhomes
and condominiums are recognized upon closing of the sale of the
property and receipt of at least 10% of the purchase price.
An environment of increased interest rates may adversely affect the
Company's ability to successfully market and sell its properties.
OTHER REVENUES - Other revenues consist primarily of interest
income from the Company's financing operation. The Company records
the finance receivables as contracts and mortgages receivable.
Mortgage loans on lots are originated for terms of up to ten years
while loans on structures are offered for a maximum term of five
years. The Company's underwriting parameters require a minimum down
payment of 10%. Interest rates currently range from 10.9% to 14.5%
depending principally on the amount of the down payment.
Company-financed sales were 25.9% and 44.0% of sales for the years
ended December 31, 1996, and 1995, respectively. The decrease in
purchases financed by the Company is due to an increase in lower
rate financing available to customers from sources outside of the
Company. The weighted average interest rate on outstanding
contracts and mortgages receivable was approximately 12.5%, and
12.7% as of December 31, 1996, and 1995, respectively.
Other revenues also include the following:
RESORT MANAGEMENT INCOME - The Company manages the Laurentian
Resort in Biwabik, Minnesota through its wholly-owned subsidiary,
Resort Hospitality, Inc. In this capacity, Resort Hospitality, Inc.
retains a percentage of the income generated through the rental of
condominiums, which have previously been sold by the Company.
CLOSING FEE INCOME - The Company collects a documentation
preparation fee and a closing fee for each sale to partially
reimburse itself for title insurance costs and real estate taxes.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1996 AND 1995.
The Company reported a 39.0% increase in sales for the year ended
December 31, 1996 to $20.7 million, including sales of shell homes,
condominiums, townhomes and timeshare sales of $3.9 million, or
19.0% of sales. For the same period in 1995, sales were $14.9
million, including $2.1 million in sales of shell homes,
condominiums and townhomes, or 14.0% of sales. This increase in
sales is attributable to an increase in the amount and quality of
inventory brought to market. Structure sales increased due to
additional construction of shell homes.
The following table sets forth the sales, cost of sales, and gross
profit information for the years ended December 31, 1996, and 1995.
<TABLE>
<CAPTION>
1996 Land Structures Total
<S> <C> <C> <C> <C> <C> <C>
Sales $ 16,867,334 100.0% $ 3,858,054 100.0% $ 20,725,388 100.0%
Cost of sales 9,631,032 57.1% 3,410,321 88.4% 13,041,353 62.9%
------------ ------- ------------ ------- ------------- -------
Gross profit $ 7,236,302 42.9% $ 447,733 11.6% $ 7,684,035 37.1%
1995 Land Structures Total
Sales $ 12,842,959 100.0% $ 2,059,171 100.0% $ 14,902,130 100.0%
Cost of sales 6,449,798 50.2% 1,250,886 60.7% 7,700,684 51.7%
------------ ------- ------------ -------- ------------- -------
Gross profit $ 6,393,161 49.8% $ 808,285 39.3% $ 7,201,446 48.3%
</TABLE>
For 1996, gross profit was $7.7 million or 37.1% of sales, compared
to $7.2 million or 48.3% of sales, for the same period in 1995.
Gross profit margin from the sale of lots was 42.9% for 1996, and
49.8% in 1995. In 1996, gross profit margin from the sale of
structures (shell homes, condominiums, and townhomes) was 11.6%
while for the same period in 1995, gross profit margin from the
sale of structures was 39.3%. The decrease in gross profit margin
is partially due to the aggressive sales program to sell a majority
of lower margin Laurentian inventory. This resulted in discounting
timeshare sales prices. Land sales also contributed to the decrease
in profit margin due to price discounts on slower-moving inventory.
Other revenues of $1.5 million in 1996 increased 15.4% from $1.3
million for the same period in 1995. This increase was due to
additional interest income, rental revenue, reimbursement for
closing costs and tax increment financing. Interest income
increased to $946,274 in 1996 from $908,740 in 1995 as a result of
higher average balances of Contracts and Mortgages receivable.
Rental income for the Resort Hospitality increased from $193,995 in
1995, to $211,763 in 1996, principally due to an increase in the
number of units available for rental and a moderate increase in
rental rates. Closing fees increased 42.6% from the prior year due
to an increase in average closing costs as well as closing 661
transactions in 1996, compared to 526 in 1995. Tax increment
financing income was recognized on lots previously sold of
$131,523.
Selling, general and administrative expenses for 1996 were $6.8
million or 32.9% of sales, compared to $5.8 million or 39.0% of
sales, for the same period in 1995. The decrease in selling,
general and administrative expense, as a percent of sales, is
primarily due to fixed costs being spread over higher sales. The
increase in these expenses of $1.0 million was attributable to
selling related variable expenses of advertising and commissions.
Interest expense of $1.6 million in 1996 increased by 15.3% from
$1.4 million in 1995. The increase in interest expense was due to
financing a higher level of inventory during 1996 as compared to
1995.
Income tax expense for the years ended December 31, 1996 and 1995
was 43.3% and 43.5%, respectively, of income before income taxes.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW - Taylor requires consistent access to capital to finance
growth of its operations. Although the Company has generally
operated profitably, its cash flow from operating activities alone
has been, and is expected to continue to be, insufficient to fund
the Company's capital needs for continued growth.
The Company generates cash flow from operations as land inventory
is sold unless the sale is financed by the Company and collections
are made on its contracts and mortgages receivable. Taylor's
primary use of cash flow is for funding its ongoing acquisition of
land and the subsequent customer mortgage financing. Secondarily,
the Company uses cash to reduce the aggregate amount outstanding
under its Credit Agreement, notes and mortgages payable. The
following table sets forth the Company's net cash flows for
operating, investing and financing activities for the years ended
December 31, 1996 and 1995:
1996 1995
Net cash provided by (used in):
Operating activities $ 4,610,672 $ 729,898
Investing activities (296,139) (451,235)
Financing activities (4,135,445) (130,805)
------------ -----------
Net increase in cash $ 179,088 $ 147,858
============ ===========
Cash provided by operating activities totaled $4,610,672 in 1996
and $729,898 in 1995. Cash uses for investing and financing
activities in 1996 consisted primarily of principal payments on
notes, contracts, and mortgages payable of $7.8 million, the
purchase of property and equipment for new a computer system and a
new office of $311,099, and payments made on the line of credit of
$1.2 million, that were offset by proceeds from the sale of
receivables of $5.6 million. Cash uses for investing and financing
activities in 1995 consisted primarily of principal payments on
notes, contracts, and mortgages payable of $3.6 million, the
purchase of property and equipment of $190,101, and the loan to an
officer of $232,000, that were offset by net borrowings under the
Credit Agreement of $767,080 and the issuance of $2,760,000 in
senior subordinated notes, net of underwriters' commissions.
FINANCING SOURCES - The Company's financing sources consist of
short-term financing under its Credit Agreement with DBCI, seller
financing, financing from a network of commercial banks, and sales
of contracts and mortgages receivable. Permanent financing has been
obtained through the issuance of $4.0 million of Senior
Subordinated Debt. The source of repayment for the Company's
working capital financing is the sale of lots and the receipt of
payment on contracts and mortgages receivables. As a lot is sold, a
portion of the proceeds is used to pay down the respective
financing. On average, Taylor finances between 60% and 75% of the
cost of land acquisitions. As a result, the loan is usually paid in
full when approximately 70% of the lots in a development are sold.
Payments received by the Company on customer contracts or mortgages
receivable are applied to the outstanding balance under its Credit
Agreement with DBCI. The following table sets forth the Company's
sources of financing and the amount of such financing at December
31, 1996 and 1995.
SOURCES OF FINANCING
<TABLE>
<CAPTION>
1996 Percentage 1995 Percentage
<S> <C> <C> <C> <C>
Lines of Credit $ 5,995,646 31.9% $ 7,213,084 49.3%
Notes payable (1) 8,571,571 45.6 2,417,590 16.5
Mortgages payable 253,781 1.3 1,004,290 6.9
Subordinated debt 3,990,000 21.2 3,990,000 27.3
------------- -------- -------------- ------
Total debt $ 18,810,998 100.0% $ 14,624,964 100.0%
============= ======== ============== ======
</TABLE>
-------------------------
(1)Notes payable include the DBCI real estate line of credit in the
amounts of $1,286,347 and $314,030 as of December 31, 1996, and
1995, respectively.
DIVERSIFIED BUSINESS CREDIT, INC. - The Company began its borrowing
relationship with DBCI in 1986 and may currently borrow a total
aggregate of up to $9.0 million under the Credit Agreement which
includes the following five lines of credit:
DESCRIPTION OF LINES OF CREDIT
Balance
Amount of Outstanding as of
Line(1) December 31, 1996
Mortgages and Contracts Receivable $9,000,000 $ 4,549,096
Real Estate Mortgage 3,500,000 1,286,347
Project Line Credit 1,000,000 296,550
Interim Financing 2,000,000 1,150,000
-------------
$ 7,281,993
=============
-------------------------
(1)These totals are the maximum principal amounts that may be
outstanding under each of the lines of credit; however, the maximum
aggregate principal amount outstanding under all of the lines of
credit cannot exceed $9.0 million.
The amounts borrowed by the Company under the Mortgages and
Contracts Receivable line of credit is at the discretion of DBCI
and are based on 90% of eligible contracts receivable. Amounts
borrowed under the Mortgages and Contracts Receivable line are to
be used to finance the development of properties. Borrowings under
this credit line bears interest at a rate equal to the greater of
1.0% over the DBCI base rate (9.25% as of December 31, 1996) or
8.0%. The DBCI base rate is equal to the interest rate publicly
announced by National City Bank of Minneapolis from time to time as
its "Base" rate.
The Company also may borrow up to $3,500,000 under the Real Estate
line of credit based on 90% of the purchase price of the real
estate plus 80% of eligible development costs. Funds obtained by
the Company under the Real Estate credit line are to be used to
purchase real estate pending development or sale. The Project line
of credit of $1,000,000 is to be used to finance project
development costs and the purchase of real estate in connection
with the Laurentian Resort project at Giant's Ridge Ski Resort in
northern Minnesota. The assets of the project secure this line of
credit. Borrowings of up to $2,000,000 under the Interim Financing
line are available to the Company at the discretion of DBCI to
cover demand overages on the other lines of credit. Borrowings
under the Real Estate, Project and Interim financing lines of
credit bear interest at a rate equal to 1.5% over the DBCI base
rate.
All amounts borrowed by the Company under the Credit Agreement are
due December 31, 1997 under an amendment to the Credit Agreement
which changed the structure of the Agreement to a Committed Line.
All funds advanced by the lender under the Credit Agreement are
collateralized by an assignment by the Company of first mortgages,
contracts for deed, security interests, or other rights or property
interests acquired by the Company in connection with specific
property development projects and a security interest in virtually
all of the Company's assets. In addition, the Credit Agreement is
personally guaranteed by the Company's President, Philip C. Taylor.
The Credit Agreement also contains a number of restrictive
covenants.
NETWORK BANKS - Another recurring source of capital is a network of
community banks, the majority of which Taylor has been utilizing as
financing sources since the mid 1980s. These financial
institutions, which are typically in proximity to the land being
purchased, provide loans which are secured by a first mortgage on
the land. Interest payments are made monthly and generally payments
are made as the individual lots are sold. The Company's borrowings
through the network of banks are shown as "Notes payable" in the
table entitled "Sources of Financing."
SELLER FINANCING - Seller financing or mortgages payable are
equivalent to accounts payable that are due on sale and result from
the Company's ordinary course of business. When Taylor decides to
acquire a piece of land, the first source of financing it attempts
to secure is financing from the seller. Seller financing typically
consists of a purchase agreement evidencing the sale and outlining
the terms of payment. Interest and principal payments are made on a
scheduled amortization which varies by transaction, but which in no
event extends beyond the sale of the property by the Company. The
Company's use of seller financing is shown as "Mortgages payable"
in the table entitled "Sources of Financing."
SENIOR SUBORDINATED DEBT - In April 1994, the Company issued $1.0
million of Senior Subordinated Notes, Series 1994 pursuant to Rule
504 of Regulation D under the Securities Act of 1933, as amended.
The proceeds were initially used to pay down existing debt.
Ultimately the funds were used to acquire additional inventory. The
Company issued an additional $3.0 million of Senior Subordinated
Debt pursuant to a Registration Statement on Form SB-2, which
became effective January 12, 1995. The proceeds of this offering
were used to reduce existing debt, finance inventory, fund customer
mortgage financing and open new offices during 1995.
SALES OF CONTRACTS AND MORTGAGES RECEIVABLE - The general level of
stability in its contracts and mortgages receivable portfolio has
provided Taylor with the opportunity to sell portfolios of
receivables to raise cash when needed and to take advantage of
positive interest rate spreads. Depending on the current interest
rates, the sale can be at a discount or premium to par. The typical
structure involves the Company selling the rights to payment on the
contracts and mortgages with recourse, and also requires a small
percentage of the sales price, approximately 5%, to be "held-back,"
and subsequently paid to the Company as the portfolio is paid down.
In order to obtain more favorable pricing, the Company may retain
servicing rights or grant put options to the purchasers in
connection with the receivables sold. The put options typically
require the Company to repurchase, at the option of the purchaser,
the balance of the receivables within 60 days of the five year
anniversary of the sale. The sale of receivables with put options
is accounted for as a financing transaction in the Company's
consolidated financial statements. Future sales of contracts and
mortgages receivable will depend on the Company's cash needs and
prevailing interest rates. During 1996, the Company closed on sales
of contracts and mortgages receivable with recourse in the amount
of $783,812.
Put options were granted to three purchasers in 1991 on an initial
aggregate amount of $1.4 million in contracts and mortgages
receivable and in the amount of $5,613,167 in 1996. As of December
31, 1996, there were $3,916,061 in contracts and mortgages
receivable outstanding with recourse, all of which had put options.
Based on the scheduled amortization of these balances, the
Company's potential liability, if the put features are exercised,
is approximately $176,947 in 1997, $16,122 in 1998, $ 8,938 in
1999, $15,510 in 2000 and $1,403,343 in 2001. Should all of the put
options be exercised, the Company would use amounts available under
its Credit Agreement to repurchase the contracts and mortgages
receivable.
The following table lists as of December 31, 1996, and 1995 the
balance of the Company's contracts and mortgages receivable
outstanding, the amount of the portfolio 90 days past due, average
portfolio term and weighted average interest rate. The table also
sets forth the amounts foreclosed and the contracts and mortgages
sold during the years ended December 31, 1996, and 1995.
1996 1995
Contracts and mortgages receivable:
Balance outstanding $9,389,611 $8,026,145
Amount 90 days past due 217,861 323,155
Percentage of Balance 2.32% 4.03%
Amount foreclosed during period 199,786 110,688
Percentage of balance 2.13% 1.38%
Contracts and mortgages sold 783,812 -0-
Average portfolio term 6 years 6 years
Weighted average interest rate 12.50% 12.70%
At December 31, 1996, contracts and mortgages receivable
outstanding were approximately $9.4 million, had an average
remaining term of approximately six years, and carried a weighted
average interest rate of 12.5%. Approximately 2% of the balance was
over 90 days past due. Taylor works aggressively and closely with
its customers as soon as an account becomes overdue to attempt to
avoid default and foreclosure. After the Company begins collection
proceedings, most accounts are eventually made current and Taylor
receives full payment. On occasion, Taylor must cancel the contract
and begin foreclosure proceedings. As of December 31, 1996, there
was approximately $100,000 in contract and mortgage receivable
balances where the foreclosure process was complete, and an
additional $54,000 were in the process of foreclosure. Subsequent
to a completed foreclosure, Taylor returns the underlying property
to inventory and begins re-marketing the lot. Properties that are
foreclosed upon and returned to inventory are generally resold at a
profit.
Based on expected cash generated from operations in 1997 and the
above available financing resources, management believes it has
adequate sources of funds to finance its 1997 cash requirements.
EFFECT OF INTEREST RATE ENVIRONMENT - The Company believes it can
protect itself from sustained high interest rates by selling its
contracts and mortgages receivable portfolio and increasing the
rates it charges to customers who utilize Company financing, or by
incurring fixed rate debt. Such increases in rates would, however,
have an adverse impact on the Company's cost of carrying inventory.
The Company believes the best defense against rising interest rates
is to buy only the best property which should remain in high
demand. However, sustained increases in interest rates could impact
future sales levels. If demand for product was to decline for an
extended period of time, the Company believes it could minimize the
impact by reducing the sales price of the product to stimulate
sales and would discontinue purchasing properties until the level
of inventory more closely matched customer demand.
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.
ITEM 7. FINANCIAL STATEMENTS
Independent Auditors' Report..................................14
Consolidated Balance Sheets...................................15
Consolidated Statements of Operations.........................16
Consolidated Statements of Stockholders' Equity...............17
Consolidated Statements of Cash Flows.........................18
Notes to Consolidated Financial Statements....................19
INDEPENDENT AUDITORS' REPORT
Board of Directors
Taylor Investment Corporation
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheets of Taylor
Investment Corporation and Subsidiaries (the Company) as of December 31, 1996
and 1995 and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Taylor Investment Corporation and
Subsidiaries at December 31, 1996 and 1995 and the results of their operations
and their cash flows for the years then ended, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
March 17, 1997
Minneapolis, Minnesota
TAYLOR INVESTMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
ASSETS
<S> <C> <C>
INVENTORY - Principally land held for sale (Notes 1, 4, 5, and 6) $ 14,137,556 $ 11,255,151
CONTRACTS AND MORTGAGES RECEIVABLE (Notes 1, 2, 4, 5, 6, 8, and 12) 9,389,611 8,026,145
INVESTMENT IN JOINT VENTURE (Note 1) 50,729 53,633
OTHER ASSETS:
Cash 615,054 435,966
Note receivable from officer (Note 12) 250,000 250,000
Tax increment financing receivable (Note 3) 702,627 735,131
Other receivables (Note 8) 257,912 196,492
Income taxes receivable (Note 10) 65,540
Prepaid expenses 200,993 158,703
Land, buildings, and equipment, less accumulated
depreciation of $501,940 and $316,423, respectively (Notes 1, 4, and 5) 903,741 611,742
Loan acquisition and debt issuance costs,
less accumulated amortization of $136,491 and
$67,128, respectively (Note 1) 499,801 511,249
------------ ------------
Total other assets 3,495,668 2,899,283
------------ ------------
$ 27,073,564 $ 22,234,212
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LINES OF CREDIT (Note 4) $ 5,995,646 $ 7,213,084
NOTES PAYABLE (Note 5) 8,571,571 2,417,590
CONTRACTS AND MORTGAGES PAYABLE (Note 6) 253,781 1,004,290
SENIOR SUBORDINATED DEBT (Note 7) 3,990,000 3,990,000
OTHER LIABILITIES:
Accounts payable 365,746 255,705
Accrued liabilities 470,333 551,817
Income taxes payable (Note 10) 63,670
Deposits on land sales and purchase agreements (Note 1) 67,353 39,915
------------ ------------
Total other liabilities 903,432 911,107
DEFERRED INCOME TAXES (Note 10) 1,593,713 1,467,851
COMMITMENTS AND CONTINGENCIES (Notes 8 and 9)
STOCKHOLDERS' EQUITY (Notes 4 and 7):
Common stock, $.01 par value; 10,000,000 shares authorized;
488,884 and 483,312 shares issued and outstanding, respectively 4,889 4,833
Additional paid-in capital 766,650 668,841
Retained earnings 4,993,882 4,556,616
------------ ------------
Total stockholders' equity 5,765,421 5,230,290
------------ ------------
$ 27,073,564 $ 22,234,212
============ ============
</TABLE>
See notes to consolidated financial statements.
TAYLOR INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
REVENUES:
<S> <C> <C>
Sales (Note 1) $ 20,725,388 $ 14,902,130
Interest income on contracts receivable 946,274 908,740
Equity in loss of 50% owned subsidiary and
joint venture (Note 1) (2,904) (26,181)
Other revenue 588,346 384,637
-------------- ---------------
Total revenue 22,257,104 16,169,326
COST AND EXPENSES:
Cost of sales 13,041,353 7,700,684
Selling, general, and administrative 6,821,949 5,806,405
Interest expense 1,581,277 1,371,591
-------------- ---------------
Total costs and expenses 21,444,579 14,878,680
-------------- ---------------
INCOME BEFORE INCOME TAXES 812,525 1,290,646
PROVISION FOR INCOME TAXES (Note 10) 351,975 561,145
-------------- ---------------
NET INCOME $ 460,550 $ 729,501
============== ===============
NET INCOME PER COMMON SHARE $ 0.94 $ 1.51
============== ===============
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 486,100 483,312
============== ===============
</TABLE>
See notes to consolidated financial statements.
TAYLOR INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
------------ Paid-in Retained
Shares Amount Capital Earnings Total
<S> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1994 483,312 $ 4,833 $ 668,841 $ 3,827,115 $ 4,500,789
Net income 729,501 729,501
----------- ----------- ----------- ------------ ------------
BALANCES AT DECEMBER 31, 1995 483,312 4,833 668,841 4,556,616 5,230,290
Repurchase of common stock (1,969) (19) (2,116) (23,284) (25,419)
Common stock issued 7,541 75 99,925 100,000
Net income 460,550 460,550
----------- ----------- ----------- ------------ ------------
BALANCES AT DECEMBER 31, 1996 488,884 $ 4,889 $ 766,650 $ 4,993,882 $ 5,765,421
=========== =========== =========== ============ ============
</TABLE>
See notes to consolidated financial statements.
TAYLOR INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 460,550 $ 729,501
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 281,565 173,211
Loss on sale of assets 9,766 1,804
Deferred income taxes 125,862 283,432
Equity in loss of 50% owned subsidiary and joint venture 2,904 26,181
Contracts and mortgages receivables funded (5,371,211) (4,211,942)
Payments on contracts and mortgages receivable 4,007,745 3,014,866
Contracts and mortgages receivable sold 783,812
Decrease in inventory - land held for sale 4,512,016 780,232
Increase in other receivables (28,916) (339,825)
(Increase) decrease in income tax receivable (65,540) 105,654
(Increase) decrease in prepaid expenses (42,290) 47,112
Increase in all other assets (57,916) (202,206)
(Decrease) increase in accounts payable, accrued liabilities,
and income taxes payable (35,113) 309,004
Increase in deposits on land sales and purchase agreements 27,438 12,874
------------ ------------
4,150,122 397
------------ ------------
Net cash provided by operating activities 4,610,672 729,898
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (311,099) (190,101)
Proceeds from sale of property and equipment 14,960 2,500
Investment in joint venture (31,634)
Advance to officer (232,000)
------------ ------------
Net cash used in investing activities (296,139) (451,235)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings on lines of credit (1,217,438) 767,080
Proceeds from notes payable (Note 2) 4,829,355
Proceeds from issuance of senior subordinated debt 2,760,000
Repayment of notes, contracts, and mortgage payables (7,821,943) (3,647,885)
Issuance of common stock 100,000
Retirement of common stock (25,419)
Payment of senior subordinated debt (10,000)
------------ ------------
Net cash used in financing activities (4,135,445) (130,805)
------------- ------------
INCREASE IN CASH 179,088 147,858
CASH AT BEGINNING OF YEAR 435,966 288,108
------------ ------------
CASH AT END OF YEAR $ 615,054 $ 435,966
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 1,589,577 $ 1,361,630
============ ============
Income taxes $ 389,300 $ 250,000
============ ============
Noncash financing activity - inventory and equipment
purchased with notes and contracts payable $ 7,612,248 $ 3,550,984
============ ============
Noncash financing activity - debt issuance costs paid from
senior subordinated debt proceeds $ - $ 240,000
============ ============
</TABLE>
See notes to consolidated financial statements.
TAYLOR INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND PRINCIPLES OF CONSOLIDATION - Taylor Investment
Corporation (the Company) is a Minnesota corporation organized in 1979
which is engaged in land development activities. The Company owns 100%
of Four Seasons Realty of Minnesota, Inc. (FSM), Four Seasons Realty of
Wisconsin, Inc. (FSW), Laurentian Development Corporation, Kinkaid
Development Corporation, and Four Seasons Builders, Inc. (FSB). FSM and
FSW are engaged in the sale of recreational property while Laurentian
Development Corporation and Kinkaid Development Corporation are engaged
in both the development and sale of recreational property. FSB was
formed in 1995 and subcontracts for the construction of residential and
recreational homes on property owned by the Company. The Company also
owns 100% of T.I. Financial, Inc. and Four Seasons Realty of Michigan,
Inc., which were inactive in 1996 and 1995.
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
INVENTORY - PRINCIPALLY LAND HELD FOR SALE - Land held for sale is
recorded at the purchase price plus amounts expended for development and
improvement of the land but not at a price more than its net realizable
value. Recreational property, which was sold and subsequently
repossessed under the terms of a defaulted sales contract, is recorded
at the lower of the remaining unpaid contract balance or the net
realizable value of the property. The Company has a valuation allowance
of $19,000 and $0 recorded at December 31, 1996 and 1995, respectively,
to reduce certain inventory to net realizable value.
Total costs of a development are allocated to individual lots on the
basis of the estimated selling price of each lot as a percentage of the
total estimated gross selling price of the entire development. In
addition, development costs are allocated to individual lots for the
purpose of recording cost of sales.
Four units of a six-unit building that are currently being sold as
timeshare properties are included in inventory at December 31, 1996. The
Company allocates costs of the timeshare properties on the basis of the
selling price of each unit as a percentage of the total estimated gross
selling price of all units. The Company has sold approximately 65% of
all timeshare properties included in the development. The total
remaining cost basis included in inventory at December 31, 1996 was
approximately $276,000.
LAND, BUILDINGS AND EQUIPMENT - Depreciation of building and equipment
is computed principally using the straight-line method on the cost of
the assets, less allowance for salvage value where appropriate, based on
their estimated useful lives, which range from three to thirty years.
Land, buildings and equipment consist of the following at December 31:
1996 1995
Land $ 19,304 $ 27,885
Buildings and improvements 79,749 189,185
Equipment 1,306,628 711,095
-------------- --------------
1,405,681 928,165
Less accumulated depreciation 501,940 316,423
-------------- --------------
$ 903,741 $ 611,742
============== ==============
LOAN ACQUISITION AND DEBT ISSUANCE COSTS - Such costs are amortized over
the term of the related loan using the straight-line method.
REVENUE RECOGNITION - The Company recognizes revenue when a sale has
closed and the buyer's cumulative down payment, principal, and interest
paid total at least 10% of the sale price. Until 10% of the sale price
is received, no revenue is recognized and all payments received are
recorded as a current liability in the consolidated balance sheets under
the caption "deposits on land sales and purchase agreements." During
1996 and 1995, down payments on sales financed by the Company averaged
approximately 15% and 17% of the sale price, respectively.
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE - Earnings per common
and common equivalent share are computed by dividing net income by the
weighted average number of common and common equivalent shares
outstanding during the year.
INVESTMENT IN JOINT VENTURE - The Company owns 50% of a limited
liability corporation which was formed to acquire and develop specific
plots of land. The Company accounts for its investment in the limited
liability corporation using the equity method of accounting.
ESTIMATES - The preparation of consolidated 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 date of the financial statements and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
EFFECT OF INTEREST RATE ENVIRONMENT - The Company protects itself from
sustained high interest rates by selling its contracts and mortgages
receivable portfolio and increasing the rates it charges to customers who
utilize Company financing, or by incurring fixed rate debt. Such
increases in rates would, however, have an adverse impact on the
Company's cost of carrying inventory. The Company believes the best
defense against rising interest rates is to buy only the best property
which should remain in high demand. Sustained increases in interest rates
could impact future sales levels, however, if demand for product was to
decline for an extended period of time, the Company could minimize the
impact by reducing the sales price of the product to stimulate sales and
would discontinue purchasing properties until the level of inventory more
closely matched customer demand.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying values of contracts
and mortgage receivables, note receivable from officer, lines of credit,
notes payable, and contracts and mortgages payable are reasonable
estimates of the fair value of these financial instruments based on the
short-term nature of these instruments and, if applicable, the interest
rates of these financial instruments. The fair value of the Senior
Subordinated Debt is estimated to be $4,029,000 and $4,017,000 at
December 31, 1996 and 1995, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS - In March 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards (SFAS) No. 121, ACCOUNTING FOR LONG-LIVED ASSETS AND
LONG-LIVED ASSETS TO BE DISPOSED OF, which became effective for the
Company's financial statements in 1996. The Company has determined that
the carrying amounts of all its long-lived assets and identifiable
intangibles at December 31, 1996 are recoverable through expected future
cash flows from the use of those assets.
STOCK OPTIONS - In October 1995, the Financial Accounting Standards
Board issued SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION,
which became effective for the Company's financial statements in 1996.
The statement establishes financial accounting and reporting standards
for stock-based employee compensation. At December 31, 1996, the Company
had no stock-based employee compensation programs that are subject to
SFAS No. 123 reporting requirements.
2. CONTRACTS AND MORTGAGES RECEIVABLE
Contracts and mortgages receivable result from sales of land or land and
cabins. Generally, the receivables are collected in monthly
installments, including interest, over ten years for land sales and over
five years for land and property structure sales. The Company also has
certain mortgage receivables which are amortized over eight years for
land sales and ten years for property structure sales, with a balloon
payment for the remaining unpaid principal at the end of four years. At
December 31, 1996, the weighted average maturity of contracts and
mortgages receivable was approximately six years, and the weighted
average interest rate on outstanding contracts and mortgages receivable
was approximately 12.5% and 12.7%, as of December 31, 1996 and 1995,
respectively.
Maturities of contracts and mortgages receivable at December 31, 1996
are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31:
1997 $ 976,185
1998 1,015,531
1999 1,007,373
2000 1,136,808
2001 1,379,438
Thereafter 3,979,076
---------------
9,494,411
Allowance for uncollectible contracts and mortgages receivable (104,800)
---------------
$ 9,389,611
===============
</TABLE>
3. TAX INCREMENT FINANCING RECEIVABLES
Several taxing authorities have established tax increment financing
districts whereby the Company will be reimbursed for costs incurred in
the development of community infrastructure to the extent the community
improvements and related development increase property taxes collected
by the taxing authority. The Company recognizes these receivables upon
the sale of the developed property or upon the completion of the
structure by the owner. Amounts receivable under these agreements are
$702,627 and $735,131 at December 31, 1996 and 1995 respectively.
Maturities of these receivables at December 31, 1996 are as follows:
Year ending December 31:
1997 $ 72,614
1998 88,540
1999 96,125
2000 103,282
2001 111,166
Thereafter 935,313
---------------
1,407,040
Less imputed interest (704,413)
---------------
Net receivable $ 702,627
===============
4. LINES OF CREDIT
The Company has a credit agreement with Diversified Business Credit Inc.
(DBCI) which provides for total borrowings of up to $9,000,000 at the
discretion of DBCI and is due December 31, 1997. The credit agreement
provides for various lines of credit. Total borrowings outstanding under
the credit agreement are secured by virtually all of the Company's
assets, and are guaranteed by the President of the Company. The credit
agreement contains certain restrictive covenants, including such items
as maintenance of minimum net worth (as defined), limitation of capital
expenditures, and limitation of payment of dividends. The Company was in
compliance with the financial covenants of the credit agreement at
December 31, 1996 and 1995.
At December 31, 1996 and 1995, the Company had borrowings outstanding of
$4,549,096 and $4,833,538, respectively, under a line of credit based on
90% of eligible contracts receivable. In addition, the Company may
borrow up to $3,500,000 for real estate purchases. The real estate
borrowings are at the discretion of the lender based on 90% of the
purchase price of the real estate plus 80% of eligible development
costs. At December 31, 1996 and 1995, the Company had borrowings of
$1,286,347 and $314,030, respectively, which are included in real estate
notes payable (see note 5). Borrowings under the line of credit bear
interest at the greater of 8% or the DBCI "base" rate plus 1.0% (9.25%
and 10.0% at December 31, 1996 and 1995, respectively) and the greater
of 8% or the DBCI "base" rate plus 1.5% on the real estate loan
facility. The "base" rate is equal to the interest rate publicly
announced by National City Bank of Minneapolis from time to time as its
"base" rate. At December 31, 1996 the Company has unused availability of
$526,737 under the credit agreements and real estate loan facility.
Also, under the credit agreement, the Company has a $1,000,000 line with
DBCI to support financing of a major project. Borrowings under the
project line bear interest at the DBCI "base" rate plus 1.5% (9.75% and
10.5% at December 31, 1996 and 1995, respectively). Borrowings under the
project line outstanding at December 31, 1996 and 1995 were $296,550 and
$679,546, respectively and are secured by a mortgage on the major
project.
The credit agreement also provides the Company an overline up to
$2,000,000 at the discretion of the lendor. Borrowings under the
overline facility at December 31, 1996 and 1995 were $1,150,000 and
$1,700,000, respectively. Borrowings bear interest at the DBCI "base"
rate plus 1.5% (9.75% and 10.5% at December 31, 1996 and 1995,
respectively).
5. NOTES PAYABLE
Notes payable consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Fixed rate notes payable, due through 2002 at
various rates of interest ranging from 6.25% to 12% $ 5,426,136 $ 1,171,292
Real estate notes payable, due through 1998
at various rates of interest ranging from prime to
prime plus 3.5% 3,145,435 1,246,298
------------- --------------
$ 8,571,571 $ 2,417,590
============= ==============
</TABLE>
At December 31, 1996, notes payable were secured by certain land held
for sale, contracts and mortgages receivable, and equipment. The notes
payable are personally guaranteed by the president of the Company.
Maturity requirements on notes payable at December 31, 1996 are follows:
Years ending December 31:
1997 $ 3,638,822
1998 2,097,783
1999 592,196
2000 663,924
2001 429,206
Thereafter 1,149,640
---------------
$ 8,571,571
===============
6. CONTRACTS AND MORTGAGES PAYABLE
The Company has entered into contracts for deed and mortgages for the
purchase of land. At December 31, 1996, the agreements provide for
interest rates from 6% to 15.7% and maturity dates through 1999. The
contracts and mortgages payable are secured by land held for sale and
land which has been sold and the related contracts receivable.
Maturity requirements on the contracts and mortgages payable at December
31, 1996 are as follows:
Years ending December 31:
1997 $ 115,496
1998 69,248
1999 69,037
--------------
$ 253,781
==============
7. SENIOR SUBORDINATED DEBT
The Company has $990,000 in senior subordinated notes outstanding which
bear interest at 8% to 10% and are unsecured. In addition, the Company
has $3,000,000 of senior subordinated debt which bears interest at 11%
to 12% and is unsecured. At December 31, 1996, principal maturities of
senior subordinated debt is as follows:
Years ending December 31:
1998 $ 158,000
1999 152,000
2000 166,000
2001 780,000
Thereafter 2,734,000
--------------
$ 3,990,000
==============
8. COMMITMENTS AND CONTINGENCIES
The Company has sold certain contracts receivable to financial
institutions under recourse sales agreements. In the event of default
under the contracts receivable, the Company is required to pay the
outstanding balance of the contract, whereupon the Company will
reacquire title to the underlying land. At December 31, 1996 and 1995,
the balance on contracts and mortgages receivable under such recourse
sales agreements was approximately $3,916,000 and $460,000,
respectively. At December 31, 1996 and 1995, the Company had a holdback
receivable of approximately $9,000 and $13,000, respectively, recorded
as other receivables, resulting from the sale of contracts prior to
1996. During 1996, the Company closed on sales of contracts and
mortgages receivable in the amount of $783,812.
9. OPERATING LEASES
The Company has entered into noncancelable leases for office space.
Estimated payments under these lease agreements at December 31, 1996 are
approximately as follows:
Years ending December 31:
1997 $ 115,000
1998 70,000
1999 11,000
--------------
$ 196,000
==============
Total rental expense for all operating leases was approximately $193,000
and $166,000 for the years ended December 31, 1996 and 1995,
respectively.
10. INCOME TAXES
The following summarizes the provisions for income taxes for the years
ended December 31:
1996 1995
Current:
Federal $ 171,841 $ 205,712
State 54,272 72,001
------------ ------------
Total current 226,113 277,713
Deferred:
Federal 95,960 258,490
State 29,902 24,942
------------ ------------
Total deferred 125,862 283,432
------------ ------------
$ 351,975 $ 561,145
============ ============
Sales of real estate are reported on the installment basis for income
tax purposes. For financial statement purposes, sales are reported, in
total, when proceeds exceed 10% of the sale price. Deferred income taxes
are provided for this difference along with inventory capitalization and
various other temporary differences. The tax effect of significant items
comprising the Company's net deferred tax liability as of December 31,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996
--------------------------------------------------
Deferred Tax
------------------------
Asset Liability Total
<S> <C> <C>
Inventory capitalization $ 87,639 $ 87,639
Allowance reserves 65,356 65,356
Installment sales $ (1,713,395) (1,713,395)
Other (33,313) (33,313)
--------------- --------------- ----------------
$ 152,995 $ (1,746,708) $ (1,593,713)
=============== =============== ================
1995
--------------------------------------------------
Deferred Tax
------------------------
Asset Liability Total
Inventory capitalization $ 116,968 $ 116,968
Allowance reserves 52,115 52,115
Installment sales $ (1,609,344) (1,609,344)
Other 3,392 (30,982) (27,590)
--------------- -------------- ---------------
$ 172,475 $ (1,640,326) $ (1,467,851)
=============== ============== ===============
</TABLE>
The provisions for income taxes differ from the amounts computed by
applying the federal statutory rate to income before income taxes for
the years ended December 31, as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Computed income tax expense at federal
statutory rate $ 284,382 $ 451,726
State income taxes, net of federal income tax
benefit 53,099 63,982
Graduated income tax rates (8,125) (12,906)
Change in tax rate applicable to cumulative temporary differences 44,909
Other 22,619 13,434
------------- --------------
$ 351,975 $ 561,145
============= ==============
</TABLE>
11. EMPLOYEE 401(k) PLAN
The Company's 401(k) plan covers substantially all employees meeting
minimum eligibility requirements. The plan provides for employee
contributions of up to a maximum of 15% of each employee's compensation,
with the Company matching 50% of the first 6% of each employee's
contribution. The Company's contributions to the plan totaled
approximately $80,000 and $61,000 for the years ended December 31, 1996
and 1995, respectively.
12. TRANSACTIONS WITH OFFICER AND EMPLOYEES
At December 31, 1996 and 1995, the Company had a note receivable of
$250,000 from an officer of the Company. The note accrues interest at
9.75% and is due on demand or by August 31, 1998. Included in contracts
and mortgages receivable at December 31, 1996 and 1995 are contracts
receivable from employees of the Company in the amount of $15,014 and
$49,690, respectively. During the years ended December 31, 1996 and
1995, the Company had sales to officers and employees of approximately
$16,600 and $62,000 respectively.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
No changes in or disagreements with accountants have occurred
within the two-year period ended December 31, 1996.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
EXECUTIVE OFFICERS AND DIRECTORS
The Company's executive officers and directors and their ages and
positions with the Company as follows:
Name Age Positions with Company
Philip C. Taylor 45 President, Chairman of the Board,
Secretary and Treasurer
Joel D. Kaul 37 Vice President and Chief Operating
Officer
Mark E. Ties 31 Chief Financial Officer
Linda J. Rieman 47 Vice President and Controller
W. John Driscoll 68 Director
John H. Hooley 45 Director
Charles J. McElroy 42 Director
William R. Sieben 44 Director
PHILIP C. TAYLOR is the founder, President, Chairman of the Board
and majority shareholder of the Company. Mr. Taylor has been
actively involved in real estate investment and development for
over 20 years. Since 1979, management of the Company has been his
full-time occupation. Mr. Taylor graduated in 1973 from the College
of St. Thomas, St. Paul, Minnesota, with a Bachelor of Arts degree
in Economics. In 1978, Mr. Taylor received his Juris Doctorate
degree from William Mitchell College of Law, St. Paul, Minnesota.
Mr. Taylor has been Chairman, President, Secretary, and Treasurer
since the Company's formation.
JOEL D. KAUL is Vice President and Chief Financial officer. Mr.
Kaul joined the Company in June 1995 and has over 10 years of
experience in the real estate finance industry. From 1989-1995, Mr.
Kaul served as senior asset manager for Dain Corporation. In this
capacity, Mr. Kaul directed a staff of fifteen people in the
management of a $300 million national real estate portfolio. Prior
to joining Dain Corporation, Mr. Kaul spent four years employed as
a CPA with Ernst and Young and Coopers and Lybrand. Mr. Kaul also
served as the Chief Financial Officer for a Minnesota based
developer for four years. Mr. Kaul graduated Cum Laude in 1981 from
the University of Wisconsin-LaCrosse, with a double major in
finance and accounting.
MARK E. TIES is Chief Financial Officer. Mr. Ties joined the
Company in March 1997 and has over 9 years of financial management
experience. From 1993 until February 1997, Mr. Ties served as Chief
Financial Officer / Director of Operations, for Progressive Beauty
Enterprises, Inc.. In the capacity, Mr. Ties was responsible for
the management of the financial and operational activities of this
$25 million regional distribution company. Prior to joining
Progressive Beauty Enterprises, Inc., Mr. Ties spent three years as
the Corporate Controller of MEI Salons, a $350 million service and
products company. Mr. Ties also spent three years employed as a CPA
with Coopers and Lybrand. He is a graduate of Mankato State
University.
LINDA J. RIEMAN is the Company's Vice President and Controller. Ms.
Rieman joined the Company in June 1985 and has over 20 years of
accounting experience in banking and financial services. From 1982
until May 1985, Ms. Rieman was Controller and Manager of Planning
and Operations Analysis with Dart and Kraft Financial Corporation,
a $200 million national vehicle leasing company. From 1977 to 1982,
she was a Controller of FBS Financial, Inc. a $100 million
financial services subsidiary of First Bank System, Inc. She is a
graduate of the University of Wisconsin-Eau Claire.
W. JOHN DRISCOLL has been a director of the Company since 1986. Mr.
Driscoll is a director of Rock Island Company, a private investment
firm which he served as Chairman of the Board from May 1993 to June
1994 and as President prior to May 1993. Mr. Driscoll also serves
as a member of the board of directors of Comshare, Inc., John
Nuveen & Co., Northern States Power Company, the St. Paul
Companies, Inc. and Weyerhaeuser Company.
JOHN H. HOOLEY has been a director of the Company since 1986. Mr.
Hooley is President of Cub Foods, a division of Super Valu, Inc. He
received a Bachelor's of Arts Degree in Economics in 1974 from St.
John's University, Collegeville, Minnesota. In 1980, he received
his Juris Doctorate Degree from William Mitchell College of Law,
St. Paul, Minnesota.
CHARLES J. MCELROY has been a director of the Company since 1986.
Mr. McElroy is a partner with the firm of Larson, Allen, Weishair &
Company, a regional certified public accounting firm. He received
his Bachelor's of Arts Degree in Accounting from the College of St.
Thomas, St. Paul, Minnesota, in 1976. Mr. McElroy is Mr. Philip C.
Taylor's brother-in-law.
WILLIAM R. SIEBEN has been a director of the Company since 1986.
Mr. Sieben is a partner in the law firm of Schwebel, Goetz &
Sieben, P.A., of Minneapolis, Minnesota. He received his Bachelor's
of Arts in 1972 from St. Cloud State University and a Juris
Doctorate Degree from William Mitchell College of Law in 1977. He
is past President of the Minnesota Trial Lawyers Association and
has written several legal publications.
All members of the Board of Directors hold office until the next
annual meeting of stockholders or until their successors are
elected and qualified. The Company pays each of directors an annual
fee of $4,500, plus reimbursement of out-of-pocket expenses.
The Company does not have a class of equity securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934 (the
"Exchange Act") and therefore is not subject to Section 16 of the
Exchange Act.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by
the Company for services rendered during the fiscal years ended
December 31, 1996 and 1995 with respect to the President (Chief
Executive Officer) and all officers of the Company whose total
annual salary and bonus for 1996 exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
---------------------------------------------------------
Name and Other Annual
Principal Position Year Salary Bonus(1) Compensation
<S> <C> <C> <C> <C>
Philip C. Taylor, President 1996 $150,000 $55,738 $4,500(2)
1995 150,000 68,450 4,500
Joel D. Kaul, Vice President 1996 100,000 35,706 -
</TABLE>
-------------------------
(1) The amount of Mr. Taylor's bonus is approved by the Board of
Directors and is based on a formula related to the Company's
Profitability. Regarding Mr. Taylor's 1995 bonus of $68,450,
the Company deferred payment of $2,549 until 1996.
(2) Annual fee paid to Mr. Taylor for serving as a member of the
Company's Board of Directors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of December 31, 1996, the number
of shares of the Company's common stock beneficially owned by (i)
each director of the Company, (ii) each executive officer of the
Company named in the Summary Compensation Table, (iii) each person
known by the Company to beneficially own more than five percent of
the outstanding shares of the Company's common stock, and (iv) all
executive officers and directors as a group. Unless otherwise
indicated, each person has sole voting and dispositive power over
such shares.
<TABLE>
<CAPTION>
Percent of
Name and Address of Number of Shares Outstanding
Beneficial Owner Beneficially Owned(1) Shares(2)
<S> <C> <C> <C>
Philip C. Taylor
43 Main Street, SE, Suite 506
Minneapolis, Minnesota 55414 387,804(3) 80.2%
Charles J. McElroy
Pillsbury Center
220 South Sixth Street
Suite 1000
Minneapolis, Minnesota 55402 120,000(4) 24.8
Joel D. Kaul
2821 Overlook Lane North
Stillwater, Minnesota 55082 7,541 1.5
John H. Hooley
9770 Old Deer Trail
Stillwater, Minnesota 55082 5,740 1.2
William R. Sieben
1201 Southview Drive
Hastings, Minnesota 55033 5,740 1.2
W. John Driscoll
2090 First National Bank Building
St. Paul, Minnesota 55101 0(5) *
All executive officers and directors
as a group (7 persons) 401,159(6) 82.7
</TABLE>
-----------------------------
(1) Unless otherwise indicated, each person has sole voting and
dispositive power with respect to all outstanding shares
reported in the foregoing table.
(2) Based on 488,884 shares of common stock outstanding at December
31, 1996.
(3) Includes 132,146 shares owned by Mr. Taylor's wife, 120,000
shares held in trust for his children and 1,708 shares held by
other members of his family as to which he disclaims beneficial
ownership. The 120,000 shares held in trust for Mr. Taylor's
children have also been included in the number of shares shown
for Mr. Charles J. McElroy, the trustee.
(4) Includes 120,000 shares held by Mr. McElroy as trustee under
trusts for the benefit of Philip C. Taylor's children which
have also been included in the number of shares shown for Mr.
Taylor.
(5) Does not include 35,700 shares held in a trust for which Mr.
Driscoll was the trustee or 7,140 shares held by Mr. Driscoll
as trustee as to which Mr. Driscoll disclaims beneficial
ownership.
(6) Includes fully vested options to purchase 1,875 shares of
common stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Employees of the Company have from time to time purchased from the
Company vacation property for their personal use. In connection
with such purchases, the Company has provided to such employees
mortgage financing on the same or similar terms it makes available
to unaffiliated customers in the ordinary course of its business.
In the opinion of management, the terms of such sales and financing
are no more favorable to the employee(s) than those generally made
available to its customers.
Mr. Taylor has a loan from the Company in the amount of $250,000,
at December 31, 1996 and 1995. The demand promissory note bears an
annual interest rate of 9.75%.
Under the terms of the Subordinated Debt, Taylor may not, and may
not permit any subsidiary to, conduct any business or enter into
any transaction or series of transactions with or for the benefit
of any affiliate or any subsidiary of the Company, or any holder of
5% or more of any class of capital stock of the Company, except in
good faith and on terms that are, in the aggregate, no less
favorable to the Company or any subsidiary, as the case may be,
than those that could have been obtained in a comparable
transaction on an arm's length basis from a person not an affiliate
of the Company or such subsidiary.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
No. Description
3.1 Articles of Incorporation of the Company, as amended *
3.2 Bylaws of the Company, as amended *
4.1 Form of Debenture (included as Article Two of Indenture
filed as Exhibit 4.2)
4.2 Forms of Indenture by and between the Company and American
Bank National Association, as Trustee *
10.1 Taylor Investment Corporation 1987 Nonqualified Stock
Option Plan *
10.2 Office Lease Agreement between the Company and Riverplace,
Inc. dated February 4, 1994 *
10.3 Redevelopment Agreement between the City of Hillsboro,
Illinois and the Company dated April 26, 1994 *
10.4 Agreement for the Development of City Owned Lands between
the City of Hillsboro, Illinois and the Company dated march
3, 1992 *
10.5 Contract For Private Development between The Joint East
Range Economic Development Authority and Laurentian
Development Authority *
10.6 Second Contract For Private Development between The Joint
East Range Economic Development Authority and Laurentian
Corporation Authority *
10.7 Term Agreement for the Development of Public Lands between
Kinkaid-Reed's Conservancy District and Kinkaid Development
Corporation *
10.8 Credit Agreement between Diversified Business Credit, Inc.
and the Company dated November 18, 1986, as amended by
Amendment to Credit Agreement dated June 2, 1993 *
10.9 Security Agreement between Diversified Business Credit,
Inc. and the Company dated November 18, 1986 *
10.10 Agreement between the City of Coleraine, Minnesota and the
Company dated September 26, 1994 *
22.1 Subsidiaries of the Company
27 Financial Data Schedule
--------------------
Incorporated by reference to the Company's registration statement
on Form SB-2 (No. 33-87024C), effective January 12, 1995.
(a) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during
the last quarter of the period covered by this report.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
TAYLOR INVESTMENT CORPORATION
(Registrant)
Dated: March 24, 1997 By /S/ Philip C. Taylor
---------------------
Philip C. Taylor
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/S/ Philip C. Taylor Chairman of the Board, President March 24, 1997
- -------------------------------------------- Secretary and Treasurer (Principal
Philip C. Taylor Executive Officer)
/S/ W. John Driscoll Director March 24, 1997
- --------------------------------------------
W. John Driscoll
/S/ John H. Hooley Director March 24, 1997
- --------------------------------------------
John H. Hooley
/S/ Charles J. McElroy Director March 24, 1997
- --------------------------------------------
Charles J. McElroy
/S/ William R. Sieben Director March 24, 1997
- --------------------------------------------
William R. Sieben
/S/ Linda J. Rieman Vice President and Controller March 24, 1997
- -------------------------------------------- (Principal Financial and Accounting Officer)
Linda J. Rieman
/S/ Joel D. Kaul Vice President and Chief March 24, 1997
- -------------------------------------------- Operating Officer
Joel D. Kaul
</TABLE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION PAGE
<S> <C>
3.1 Articles of Incorporation of the Company, as amended ...................................*
3.2 Bylaws of the Company, as amended ......................................................*
4.1 Form of Debenture (included as Article Two of Indenture filed
as Exhibit 4.2)
4.2 Form of Indenture by and between the Company and American
Bank National Association, as Trustee...................................................*
10.1 Taylor Investment Corporation 1987 Nonqualified Stock Option Plan.......................*
10.2 Office Lease Agreement between the Company and
Riverplace, Inc. dated February 4, 1994.................................................*
10.3 Redevelopment Agreement between the City of Hillsboro, Illinois
and the Company dated April 26, 1994....................................................*
10.4 Agreement for the Development of City Owned Lands between
The City of Hillsboro, Illinois and the Company dated March 3, 1992.....................*
10.5 Contract For Private Development between The Joint East Range
Economic Development Authority and Laurentian
Development Authority...................................................................*
10.6 Second Contract For Private Development between The Joint
East Range Economic Development Authority and Laurentian
Corporation Authority...................................................................*
10.7 Term Agreement for the Development of Public Lands between
Kinkaid-Reed's Conservancy District and Kinkaid
Development Corporation.................................................................*
10.8 Credit Agreement between Diversified Business Credit, Inc. and
the Company dated November 18, 1986, as amended by Amendment
to Credit Agreement dated June 2, 1993..................................................*
10.9 Security Agreement between Diversified Business Credit, Inc. and the
Company dated November 18, 1986.........................................................*
10.10 Agreement between the City of Coleraine, Minnesota and the
Company dated September 26, 1994........................................................*
22.1 Subsidiaries of the Company.............................................................
27 Financial Data Schedule.................................................................
</TABLE>
- --------------------------
* Incorporated by reference to the Company's registration statement on Form
SB-2 (No. 33-87024C), effective January 12, 1995.
EXHIBIT 22.1
SUBSIDIARIES OF TAYLOR INVESTMENT CORPORATION
JURISDICTION OF PERCENT
NAME INCORPORATION OWNED
Four Seasons Realty of Minnesota, Inc. Minnesota 100%
Four Seasons Realty of Wisconsin, Inc. Wisconsin 100%
Laurentian Development Corporation Minnesota 100%
Resort Hospitality, Inc. Minnesota 100%
Four Seasons Realty of Michigan, Inc. Michigan 100%
T.I. Financial, Inc. Minnesota 100%
Kinkaid Development Corporation Illinois 100%
Four Seasons Builders, Inc. Minnesota 100%
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 615,054
<SECURITIES> 0
<RECEIVABLES> 10,600,150
<ALLOWANCES> 0
<INVENTORY> 14,137,556
<CURRENT-ASSETS> 0
<PP&E> 1,405,681
<DEPRECIATION> 501,940
<TOTAL-ASSETS> 27,073,564
<CURRENT-LIABILITIES> 0
<BONDS> 3,990,000
0
0
<COMMON> 4,889
<OTHER-SE> 5,760,532
<TOTAL-LIABILITY-AND-EQUITY> 27,073,564
<SALES> 6,183,509
<TOTAL-REVENUES> 6,510,731
<CGS> 4,278,329
<TOTAL-COSTS> 4,278,329
<OTHER-EXPENSES> 2,160,913
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 378,461
<INCOME-PRETAX> 71,489
<INCOME-TAX> 30,454
<INCOME-CONTINUING> 41,035
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,035
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
