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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1998 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, 1998
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<PAGE>
TAYLOR INVESTMENT CORPORATION
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
June 30, 1998 (unaudited) and December 31, 1997 ....................3
Condensed Consolidated Statements of Operations
Three and six month periods ended June 30,
1998 and 1997 (unaudited)...........................................4
Condensed Consolidated Statements of Cash Flows Six months ended
June 30, 1998 and 1997 (unaudited)..................................5
Notes to Condensed Consolidated Financial Statements (unaudited)....6
Item 2. Management's Discussion and Analysis of
Results of Operation and Financial Condition .......................7
Part II............................................................11
Signatures.........................................................12
2 of 12
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TAYLOR INVESTMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
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<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
<S> <C> <C>
ASSETS
INVENTORY - Principally land held for sale $ 9,980,823 $ 12,231,884
CONTRACTS AND MORTGAGES RECEIVABLE 9,133,541 9,094,999
INVESTMENT IN JOINT VENTURE 6,782 60,645
OTHER ASSETS:
Cash 72,944 648,760
Notes receivable from officer 231,010 250,000
Tax increment financing receivable 676,678 692,562
Other receivables 169,391 92,240
Income taxes receivable -- 314,296
Prepaid expenses 578,268 136,483
Land, buildings, and equipment, less accumulated depreciation of
$653,895 and $579,114, respectively 566,273 747,325
Loan acq. costs and debt issuance costs, less accum. amort. of
$256,795 and $215,917 respectively 381,996 420,375
------------ ------------
Total other assets 2,676,560 3,302,041
------------ ------------
$ 21,797,706 $ 24,689,569
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LINES OF CREDIT $ 4,468,472 $ 5,932,225
NOTES PAYABLE 5,559,728 7,028,377
CONTRACTS AND MORTGAGES PAYABLE 118,317 406,948
SENIOR SUBORDINATED DEBT 3,990,000 3,990,000
OTHER LIABILITIES:
Accounts payable 224,845 351,907
Accrued liabilities 378,802 349,635
Deposits on land sales and purchase agreements 24,918 25,572
------------ ------------
Total other liabilities 628,565 727,114
DEFERRED INCOME TAXES 1,633,668 1,544,708
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 10,000,000 shares authorized;
484,129 and 484,129 shares issued and outstanding, respectively 4,841 4,841
Additional paid-in capital 740,136 740,136
Retained earnings 4,653,979 4,315,220
------------ ------------
Total stockholders' equity 5,398,956 5,060,197
------------ ------------
$ 21,797,706 $ 24,689,569
============ ============
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
3 of 12
<PAGE>
TAYLOR INVESTMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
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<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
REVENUES: 1998 1997 1998 1997
<S> <C> <C> <C> <C>
Sales $ 5,693,075 $ 4,185,916 $ 9,625,433 $ 6,807,421
Interest income on contracts receivable 276,546 268,579 560,310 494,211
Equity in earnings of 50% owned joint venture 12,631 15,635 30,137 17,179
Other revenue 85,612 91,988 133,992 198,091
------------ ------------ ------------ ------------
Total revenue 6,067,864 4,562,118 10,349,872 7,516,902
EXPENSES:
Cost of sales 3,206,288 2,806,812 5,520,810 4,574,935
Selling, general, and administrative 1,621,000 1,340,761 2,908,493 2,585,007
Interest expense 429,755 416,768 899,487 889,866
------------ ------------ ------------ ------------
Total costs and expenses 5,257,043 4,564,341 9,328,790 8,049,808
INCOME (LOSS) BEFORE INCOME TAXES 810,821 (2,223) 1,021,082 (532,906)
INCOME TAX EXPENSE (BENEFIT) 324,310 (666) 407,856 (212,939)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 486,511 $ (1,557) $ 613,226 $ (319,967)
============ ============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE
OUTSTANDING $ 1.00 $ (0.00) $ 1.27 $ (0.66)
============ ============ ============ ============
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 484,129 484,129 484,129 484,129
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements (unaudited).
4 of 12
<PAGE>
TAYLOR INVESTMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
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<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 613,226 $ (319,967)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 177,574 169,986
Loss on disposal of fixed assets 94,616
Deferred income taxes 88,960 (278,282)
Equity in earnings of 50% owned joint venture (30,137) (17,179)
Contracts and mortgages receivables funded (2,959,015) (1,588,799)
Payments on contracts and mortgages receivable 2,920,473 3,329,360
Decrease in inventory - land held for sale 3,825,013 3,841,655
Increase in other receivables (42,277) (47,513)
Decrease in income tax receivable 314,296 65,540
Increase in prepaid expenses (441,785) (129,411)
Increase (decrease) in accrued liabilities 29,167 (29,888)
Decrease in accounts payable (127,062) (113,398)
(Decrease) increase in deposits on land sales and purchase agreements (654) 25,724
------------ ------------
3,849,169 5,227,795
------------ ------------
Net cash provided by operating activities 4,462,395 4,907,828
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (52,759) (102,365)
Proceeds from distribution of joint venture 84,000 --
------------ ------------
Net cash used in investing activities 31,241 (102,365)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on lines of credit (1,463,753) (926,568)
Repayment of notes, contracts, and mortgage payables (3,331,232) (4,023,930)
Dividends Paid (274,467) --
Retirement of Common Stock -- (70,188)
------------ ------------
Net cash used in financing activities (5,069,452) (5,020,686)
------------ ------------
DECREASE IN CASH (575,816) (215,223)
CASH AT BEGINNING OF PERIOD 648,760 615,054
------------ ------------
CASH AT END OF PERIOD $ 72,944 $ 399,831
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 913,202 $ 852,646
============ ============
Income taxes $ 164,400 $ 68,040
============ ============
Noncash financing activity - inventory and equipment
purchased with notes and contracts payable $ 1,573,952 $ 1,284,540
============ ============
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
5 of 12
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TAYLOR INVESTMENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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1. The condensed consolidated balance sheets as of June 30, 1998 and December
31, 1997, and the condensed consolidated statements of operation for the
three and six month periods ended June 30, 1998 and 1997 and the statements
of cash flow for the six months ended June 30, 1998 and 1997 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, 1998 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 1997 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 June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income", which was adopted by the Company beginning January 1, 1998. SFAS
No.130 requires the disclosure of comprehensive income and its components
in the general-purpose financial statements. The adoption of the Company of
SFAS No. 130 did not have a material effect on the Company's financial
statements for the six months ended June 30, 1998 or 1997.
6 of 12
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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, 1998 AND 1997.
Sales of $5,693,075, including sales of shell and turn-key homes, condominiums
and townhomes, ("structures") of $182,746, for the quarter ended June 30, 1998
increased by $1,507,158 from the same period in 1997. Land sales of $5,510,329
increased by $1,905,209 from the same period in 1997, and structure sales
decreased by $398,051. The increase in land sales is attributable to an early
spring season and mild weather conditions in the second quarter. The decrease in
structure sales is attributable to the reduction of construction.
Gross profit was $2,486,787, or 43.7%, for the quarter ended June 30, 1998
compared to $1,379,107, or 33.0%, for the same period in 1997. The gross profit
margin on land sales was 44.9% in 1998 compared to 36.5%. The increase in gross
profit margin on land is due primarily to the sale of higher margin inventory in
1998, where as, in 1997 sales programs were aimed toward the liquidation of
lower-margin, aged inventory. The gross profit margin on sales of structures
showed a decline, in 1998 to 6.5% from 11.1% in 1997. The decline is
attributable to liquidation of structure inventory.
Selling, general and administrative expenses of $1,621,000 were 28.5% of sales
for the second quarter of 1998, compared to $1,340,761 or 32.0%, for the same
period in 1997. The 3.5% decrease in these expenses, as a percent of sales, is
attributable to managements efforts to control expenses and increase sales.
For the quarter ended June 30, 1998, interest income was $7,967 higher than for
the same period in 1997 due to an increase in the average balance of contracts
and mortgages receivable. Other revenues of $85,612 for the first quarter of
1998 decreased from $91,987 for the same period in 1997. The decrease in other
revenue is attributable to management fees received in 1997, for the Resort
Hospitality. The company discontinued management of the resort on November 1,
1997.
Interest expense was $429,755 and $416,768 for the quarters ended June 30, 1998
and 1997, respectively. The increase is due to the increase in debt incurred to
provide financing to customers for property purchases. Contracts and mortgages
receivable increased 19.4% to $9,133,541 from June 30, 1997.
The loss on the disposal of fixed assets, in the amount of $94,616, is due to
the replacement and premature disposal of accounting and custom software.
7 of 12
<PAGE>
COMPARISON OF THE SIX-MONTH PERIODS ENDED JUNE 30, 1998 AND 1997.
Sales for the six months ended June 30, 1998 were $9,625,433, an increase of
$2,818,011 or 41.4%, compared to the same period in 1997. Land sales of
$8,744,027 increased by $2,914,171 from the same period in 1997, due primarily
to unseasonally warm weather throughout the first quarter and into the first
half of the second quarter. Sales of structures declined $96,160 due to lower
levels of structure inventory in 1998.
Gross profit for the first six months of 1998 was $4,104,623, or 42.6%, compared
to $2,232,487, or 32.8% for the same period in 1997. The gross profit from land
sales was 45.6% and 36.1% for the six months ended June 30, 1998 and 1997,
respectively. The increase in gross profit is principally due to the sale of
high margin property in 1998, where as, in 1997 sales programs were aimed toward
the liquidation of lower-margin, aged inventory. The gross profit from the sale
of structures was 13.5% in 1998 and 13.2% for the same period in 1997.
Interest income of $560,310 for the first six months of 1998 was 13.4% higher
than for the same period in 1997, due to an increase in the average balance of
contracts and mortgages receivable.
For the first six months of 1998, selling, general and administrative expenses
were $2,908,493, or 30.2% of sales, compared to $2,585,007, or 38.0% of sales in
1997. The decrease in expenses, as a percent of sales, is due to management's
focus on controlling expenses and increasing sales in 1998.
Income tax expense, as a percentage of income, for the first six months of 1998
was 39.9% and the income tax benefit for the same period in 1997 was 40.0%.
Income taxes are based on the Company's estimated annual income tax rate, which
includes state income taxes.
8 of 12
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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 primary use of cash flow is
for financing the Company's ongoing acquisition of land and subsequent customer
mortgage financing. Secondarily, the Company uses cash to reduce the aggregate
amounts outstanding under its Credit Agreement, notes and mortgages payable. The
following table sets forth the Company's net cash flows for operations,
investing and financing activities for the six months ended June 30, 1998 and
1997.
Six months ended Six months ended
June 30, 1998 June 30, 1997
------------- -------------
Net cash provided by (used in):
Operating activities $ 4,462,395 $ 4,907,828
Investing activities 31,241 (102,365)
Financing activities (5,069,452) (5,020,686)
---------------------------------
Net decrease in cash $ (575,816) $ (215,223)
The principal sources of cash flow for the first six months of 1998 and 1997
were cash received from sales of land and structures.
Sources of financing as of June 30, 1998 and December 31, 1997 are detailed in
the following table:
SOURCES OF FINANCING
June 30, 1998 Percentage December 31, 1997 Percentage
------------- ---------- ----------------- ----------
Lines of Credit $ 4,468,472 31.7% $ 5,932,225 34.2%
Notes Payable(1) 5,559,728 39.3 7,028,377 40.5
Mortgages Payable 118,317 .8 406,948 2.3
Subordinated Debt 3,990,000 28.2 3,990,000 23.0
-----------------------------------------------------------
$ 14,136,517 100.00% $ 17,357,550 100.00%
===========================================================
Total debt declined $3,221,033 from December 31, 1997, due to a decline in
inventory. As of June 30, 1998, contracts and mortgages receivable were
$9,133,541 compared to $9,094,999 as of December 31, 1997. The increase in the
portfolio is due to increased sales activity.
Based on expected cash generated from operations, inventory management and the
above financing sources available, management believes it has adequate sources
of financing to fund its cash requirements for the remainder of 1998.
- -------------------
Notes payable includes the real estate line of credit in the amounts of
$1,047,556 and $1,592,221 as of June 30, 1998 and December 31, 1997,
respectively.(1)
9 of 12
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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
and rising interest rates;
* The ability of the company to maintain and enhance its market position
relative to its competitors, to realize productivity, and to 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.
10 of 12
<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.
11 of 12
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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 12, 1998 /S/ Philip C. Taylor
-----------------------------------------
Philip C. Taylor
President, Chief Executive Officer and Director
(principal executive officer)
Dated: August 12, 1998 /S/ Joel D. Kaul
-----------------------------------------
Joel D. Kaul
Vice President and Chief Operating Officer
12 of 12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 72,944
<SECURITIES> 0
<RECEIVABLES> 10,210,620
<ALLOWANCES> 0
<INVENTORY> 9,980,823
<CURRENT-ASSETS> 0
<PP&E> 1,220,168
<DEPRECIATION> 177,574
<TOTAL-ASSETS> 21,797,706
<CURRENT-LIABILITIES> 0
<BONDS> 3,990,000
0
0
<COMMON> 4,841
<OTHER-SE> 5,398,956
<TOTAL-LIABILITY-AND-EQUITY> 21,797,706
<SALES> 5,693,075
<TOTAL-REVENUES> 6,067,864
<CGS> 3,206,288
<TOTAL-COSTS> 5,257,043
<OTHER-EXPENSES> 2,050,755
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 429,755
<INCOME-PRETAX> 810,821
<INCOME-TAX> 324,310
<INCOME-CONTINUING> 486,511
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 486,511
<EPS-PRIMARY> 1.00
<EPS-DILUTED> 1.00
</TABLE>
